Unassociated Document
As
filed
with the Securities and Exchange Commission on August 9, 2006
Registration
No. 333-135023
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
Amendment
No. 1
NOVASTAR
RESOURCES LTD.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or other jurisdiction of incorporation or
organization)
|
1000
(Primary
Standard Industrial
Classification
Code Number)
|
91-1975651
(I.R.S.
Employer Identification
No.)
|
Seth
Grae
8300
Greensboro Drive, Suite 800
McLean,
VA 22102
(703)
287-8743
(Address,
including zip code, and telephone number, including area code of registrant’s
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
|
Jerry
P. Peppers, Esq.
Pillsbury
Winthrop Shaw Pittman LLP
1540
Broadway
New
York, NY 10036-4039
(212)
858-1205
|
(Name,
Address, Including Zip Code and Telephone Number, Including Area Code, of Agent
for Service)
Approximate
date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this registration statement and the
satisfaction or waiver of all other conditions under the merger agreement,
dated
as of February 14, 2006, described herein.
If
the
securities being registered on this Form are being offered in connection with
the formation of a holding company and there is compliance with General
Instruction G, check the following box. o
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act of 1933, as amended, check the following box
and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, as amended, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
Calculation
of Registration Fee
Title
of each class of securities to be registered
|
|
Amount
to be registered
(1)
|
|
Proposed
maximum offering price per share
|
|
Proposed
maximum aggregate offering price
|
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Amount
of registration fee (2)
|
|
Common
Stock, par value $0.001 per share
|
|
|
135,638,023
|
|
$
|
0.56
|
|
$
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75,957,292.88
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$
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8,127.43
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|
Shares
underlying options to be assumed in the transaction
|
|
|
21,122,442
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$
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0.56
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$
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11,828,567.52
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|
$
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1,265.66
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|
Shares
underlying Common Stock Purchase Warrants to be assumed in the
transaction
|
|
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2,743,662
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$
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0.56
|
|
$
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1,536,450.72
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|
$
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164.40
|
|
Total
|
|
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159,504,127
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|
$
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0.56
|
|
$
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89,322,311.12
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$
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9,557.49
(3
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)
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(1)
This
registration statement relates to the common stock, par value $0.001 per share,
of the registrant, issuable to holders of common stock, par value $0.05 per
share, of Thorium Power, Inc., and to holders of options and warrants
exercisable for the purchase of Thorium Power, Inc. common stock that are being
assumed by Novastar Resources Ltd., pursuant to the proposed merger. Pursuant
to
Rule 416(b), there shall be deemed covered hereby all additional securities
resulting from antidilution adjustments, if any, required under the merger
agreement.
(2)
Estimated
pursuant to Rule 457(c) under the Securities Act of 1933 solely for the purpose
of computing the amount of the registration fee. The fee for the common stock
was based on the average of the closing bid and asked price of the common stock
reported on the OTC Bulletin Board on June 9,
2006.
(3) The
Registrant now decreases the number of shares being registered from 162,640,438
to 159,504,127. $9,745.42
was previously paid for the registration fee in connection with the filing
of
the initial registration statement on June 14, 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 that specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Securities and- Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may
not
issue the common stock to be issued in connection with the merger described
in
this prospectus until the registration statement filed with the Securities
and
Exchange commission, of which this document is a part, is declared effective.
This prospectus is not an offer to sell these securities and it is not
soliciting offers to buy these securities in any jurisdiction where the offer,
solicitation or sale is not permitted or would be unlawful prior to registration
or qualification under the securities laws of any such jurisdiction. Any
representation to the contrary is a criminal offense.
PROSPECTUS
Subject
to completion, dated August 9, 2006
NOVASTAR
RESOURCES LTD.
159,504,127
Shares of common stock
$0.001
par value per share
Novastar
is registering up to 159,504,127 shares of its common stock (including
23,866,104
shares
of
common stock which are issuable upon the exercise of options and warrants
for
the purchase of Thorium Power, Inc. common stock that are being assumed by
Novastar) for issuance to the stockholders and option and warrant holders
of
Thorium Power pursuant to the agreement and plan of merger between Novastar,
TP
Acquisition Corp., Novastar’s wholly owned subsidiary, and Thorium
Power.
Novastar’s
common stock is traded on the OTC Bulletin Board under the symbol “NVAS.OB”. The
last reported bid price of the common stock on August 2, 2006 was $0.54 per
share.
Investing
in Novastar’s common stock involves a high degree of risk. See “Risk Factors”
beginning on page 10 to read about certain risks you should consider before
buying shares of Novastar’s common stock.
Neither
the Securities and Exchange Commission, any state securities commission nor
any
other regulatory authority, has approved or disapproved any of these securities
nor have any of the foregoing authorities passed upon or endorsed the merits
of
this plan of merger or the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
NOVASTAR
IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A
PROXY.
Novastar’s
principal executive offices are located at 8300 Greensboro Drive, Suite 800,
McLean, VA 22102. Novastar’s telephone number is (703)
287-8743.
The
date
of this Prospectus is ________, 2006.
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Page
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CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
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v
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SUMMARY
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1
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RISK
FACTORS RELATING TO THE MERGER
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10
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AVAILABILITY
OF ADDITIONAL SHARES OF NOVASTAR COMMON STOCK UPON THE CONSUMMATION
OF THE
MERGER COULD DEPRESS THE PRICE OF NOVASTAR COMMON STOCK
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10
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THE
RIGHTS OF THORIUM POWER STOCKHOLDERS WILL DIFFER FROM THEIR
RIGHTS AS
NOVASTAR SECURITY HOLDERS, WHICH COULD PROVIDE LESS PROTECTION
TO THE
THORIUM POWER STOCKHOLDERS FOLLOWING THE MERGER
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10
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FAILURE
TO COMPLETE THE MERGER COULD ADVERSELY AFFECT THE BUSINESS,
RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF NOVASTAR AND THORIUM
POWER
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11
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NOVASTAR
AND THORIUM POWER AGREED TO ENTER INTO THE AGREEMENT AND PLAN
OF MERGER
PURSUANT TO CERTAIN ASSESSMENTS, WHICH ARE INEXACT AND
UNCERTAIN
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11
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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
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12
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AS
CERTAIN INDIVIDUALS ARE OFFICERS AND/OR DIRECTORS OF EACH OF
THORIUM POWER
AND NOVASTAR, CONFLICTS OF INTEREST ARE INHERENT
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12
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THE
TIME OF INDIVIDUALS PARTICIPATING IN THE MANAGEMENT OF BOTH
COMPANIES WILL
BE STRETCHED THIN PENDING COMPLETION OF THE MERGER, AND THE
SUBSTANTIAL
EXPENSES ASSOCIATED WITH THE MERGER COULD ADVERSELY AFFECT
THE FINANCIAL
RESULTS OF NOVASTAR AND THORIUM POWER
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12
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RISK
FACTORS RELATING TO NOVASTAR
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13
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NOVASTAR
CONTINUES TO EXPERIENCE SIGNIFICANT OPERATING LOSSES
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13
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NOVASTAR’S
LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE
ITS
PROSPECTS
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13
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NOVASTAR’S
LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN
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13
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MINERAL
EXPLORATION AND DEVELOPMENT ACTIVITIES ARE SPECULATIVE IN
NATURE.
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14
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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
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14
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NOVASTAR’S
BUSINESS AND FINANCIAL CONDITION ARE SUBJECT TO THE RISKS APPLICABLE
TO
MINING COMPANIES GENERALLY
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15
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NOVASTAR
WILL BE SUBJECT TO OPERATING HAZARDS, COMPETITION AND DOWNWARD
PRICE
FLUCTUATION WHICH MAY ADVERSELY AFFECT NOVASTAR’S FINANCIAL
CONDITION
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15
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NOVASTAR’S
ACTIVITIES WILL BE SUBJECT TO ENVIRONMENTAL AND OTHER INDUSTRY
REGULATIONS
WHICH COULD HAVE AN ADVERSE EFFECT ON THE FINANCIAL CONDITION
OF
NOVASTAR
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16
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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
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16
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RISK
FACTORS RELATING TO THORIUM POWER
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17
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THORIUM
POWER’S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE
ITS
PROSPECTS
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17
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THORIUM
POWER’S LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN
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17
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THORIUM
POWER’S FUEL DESIGNS DIFFER FROM FUELS CURRENTLY LICENSED AND USED
BY
COMMERCIAL NUCLEAR POWER PLANTS. AS A RESULT, THE LICENSING
AND APPROVAL
PROCESS FOR THORIUM POWER’S FUELS MAY BE DELAYED AND MADE MORE COSTLY, AND
INDUSTRY ACCEPTANCE OF THORIUM POWER’S FUELS MAY BE
HAMPERED
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19
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THORIUM
POWER’S PLANS TO DEVELOP ITS THORIUM/WEAPONS-GRADE PLUTONIUM DISPOSING
FUEL ARE DEPENDENT UPON U.S. GOVERNMENT FUNDING AND SUPPORT.
WITHOUT SUCH
SUPPORT, THORIUM POWER IS UNLIKELY TO BE ABLE TO SERVE THIS
MARKET
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19
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THORIUM
POWER DOES NOT HAVE RIGHTS TO ALL OF THE PROCESSES AND METHODOLOGIES
THAT
ARE USED OR MAY BE USED OR USEFUL IN ITS BUSINESS IN THE FUTURE.
IF
THORIUM POWER IS UNABLE TO OBTAIN SUCH RIGHTS ON REASONABLE
TERMS IN THE
FUTURE, THORIUM POWER’S ABILITY TO EXPLOIT ITS INTELLECTUAL PROPERTY MAY
BE LIMITED
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20
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THORIUM
POWER RELIES UPON SETH GRAE AND THE LOSS OF MR. GRAE WOULD
HAVE AN ADVERSE
EFFECT ON THORIUM POWER
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20
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THE
PRICE OF FOSSIL FUELS OR URANIUM MAY FALL, WHICH WOULD REDUCE
THE INTEREST
IN THORIUM FUEL BY REDUCING ECONOMIC ADVANTAGES OF UTILIZING
THORIUM BASED
FUELS AND ADVERSELY AFFECT THE MARKET PROSPECTS FOR THORIUM
POWER’S FUEL
DESIGNS
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20
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THORIUM
POWER’S RESEARCH OPERATIONS ARE CONDUCTED PRIMARILY IN RUSSIA, MAKING
THEM
SUBJECT TO POLITICAL UNCERTAINTIES RELATING TO RUSSIA AND U.S.-RUSSIA
RELATIONS
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21
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THORIUM
POWER SERVES THE NUCLEAR POWER INDUSTRY, WHICH IS HIGHLY
REGULATED
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21
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PUBLIC
OPPOSITION TO NUCLEAR POWER COULD INCREASE
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21
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MODIFICATIONS
TO EXISTING NUCLEAR FUEL CYCLE INFRASTRUCTURE AS WELL AS REACTORS
MAY
PROVE TOO EXTENSIVE OR COSTLY
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22
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THORIUM
POWER’S NUCLEAR FUEL PROCESS IS DEPENDENT ON OUTSIDE SUPPLIERS OF
NUCLEAR
AND OTHER MATERIALS
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22
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RISKS
RELATED TO THE OWNERSHIP OF NOVASTAR STOCK
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23
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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 RECEIVE IN THE MERGER
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23
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BECAUSE
THE NOVASTAR SECURITIES TRADE ON THE OTC BULLETIN BOARD, THE
ABILITY TO
SELL SHARES IN THE SECONDARY MARKET MAY BE LIMITED
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24
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A
LARGE NUMBER OF SHARES WILL BE ELIGIBLE FOR FUTURE SALE AND
MAY DEPRESS
NOVASTAR’S STOCK PRICE
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24
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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
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25
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WE
DO NOT EXPECT TO DECLARE DIVIDENDS IN THE FORESEEABLE
FUTURE
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25
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COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
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26
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MARKET
PRICE AND DIVIDEND INFORMATION
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27
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APPROVAL
OF THE MERGER
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29
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BACKGROUND
OF THE MERGER
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29
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THORIUM
POWER’S REASONS FOR THE MERGER
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30
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NOVASTAR’S
REASONS FOR THE MERGER
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31
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INTERESTS
OF SOME THORIUM POWER OFFICERS AND DIRECTORS IN THE MERGER
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32
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APPOINTMENT
OF THORIUM POWER EXECUTIVE OFFICERS BY NOVASTAR
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32
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COMPENSATION
AND EQUITY INTERESTS
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33
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INTERESTS
OF SOME NOVASTAR OFFICERS AND DIRECTORS IN THE MERGER
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34
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INDEMNIFICATION
AND D&O INSURANCE
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35
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VOTES
REQUIRED FOR APPROVAL OF THE MERGER
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35
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THE
MERGER AGREEMENT
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37
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GENERAL
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37
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MERGER
CONSIDERATION
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37
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TREATMENT
OF THORIUM POWER WARRANTS AND STOCK OPTIONS
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38
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PROCEDURES
FOR EXCHANGE OF STOCK CERTIFICATES
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38
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DIRECTORS
OF NOVASTAR AFTER THE MERGER
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39
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OFFICERS
OF NOVASTAR AFTER THE MERGER
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41
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THE
MERGER AGREEMENT
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42
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REGULATORY
APPROVALS
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49
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MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
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49
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RIGHTS
OF DISSENTING STOCKHOLDERS
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53
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NOVASTAR
RESOURCES LTD. SELECTED HISTORICAL FINANCIAL INFORMATION
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54
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -
NOVASTAR
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56
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THORIUM
POWER, INC. SELECTED HISTORICAL FINANCIAL INFORMATION
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66
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MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -
THORIUM POWER
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68
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NOVASTAR’S
BUSINESS
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74
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NOVASTAR
EXECUTIVE COMPENSATION
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79
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SUMMARY
OF CASH AND CERTAIN OTHER COMPENSATION
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79
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AGGREGATED
NOVASTAR OPTION EXERCISES IN LAST FISCAL YEAR-END AND FISCAL
YEAR-END
OPTION VALUES TABLE
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81
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OPTION/SAR
GRANTS
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81
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DIRECTOR
COMPENSATION
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82
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NOVASTAR
PRINCIPAL STOCKHOLDERS
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82
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THORIUM
POWER'S BUSINESS
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83
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THORIUM
POWER'S MANAGEMENT
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92
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THORIUM
POWER EXECUTIVE COMPENSATION
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95
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EXECUTIVE
OFFICER OPTION GRANTS IN LAST FISCAL YEAR
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96
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AGGREGATED
OPTION EXERCISES IN LAST FISCAL YEAR-END AND FISCAL YEAR-END
OPTION VALUES
TABLE
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96
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THORIUM
POWER PRINCIPAL STOCKHOLDERS
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97
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DESCRIPTION
OF SECURITIES
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100
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MATERIAL
CONTRACTS BETWEEN NOVASTAR AND THORIUM POWER
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101
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COMPARATIVE
RIGHTS OF HOLDERS OF THORIUM POWER COMMON STOCK AND NOVASTAR
COMMON
STOCK
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101
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TRANSFER
AGENT AND REGISTRAR
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108
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LEGAL
MATTERS
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108
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EXPERTS
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108
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WHERE
YOU CAN FIND MORE INFORMATION
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|
109
|
FORWARD-LOOKING
STATEMENTS
This
prospectus and other documents incorporated by reference into this prospectus
contain or may contain “forward looking statements.” These forward-looking
statements include, without limitation, those statements as to:
·
|
the
amount, timing and form of consideration to be received by Thorium
Power
security holders in the merger;
|
· |
the
anticipated closing date of the
merger;
|
· |
the
anticipated tax treatment of the
merger;
|
· |
the
benefits expected to result from the merger;
|
· |
the
future business activity, performance and financial condition of
Novastar
and its subsidiaries following the
merger;
|
· |
the
ability to realize the synergies and other perceived advantages resulting
from the merger; and
|
· |
the
ability to retain key personnel before and after the merger.
|
Any
statements contained herein, including, without limitation, statements to the
effect that Novastar or Thorium Power or their respective 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 10, 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. Neither Novastar nor Thorium
Power
undertakes 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.
The
following is a summary that highlights information contained in this prospectus.
This summary may not contain all of the information that may be important
to you
and it is qualified in its entirety by the more detailed information appearing
elsewhere in this document or that is incorporated by reference or attached
as
Annexes to this document. Page references are included in parentheses to
direct
you to a more complete description of the items presented in this summary.
You
may obtain the information incorporated by reference into this prospectus
without charge by following the instructions in the section entitled “Where You
Can Find More Information” beginning on page 109 of
this
prospectus. Novastar has supplied all information contained in this prospectus
relating to Novastar and TP Acquisition Corp. (“TP Acquisition”) and Thorium
Power has supplied all information contained in this prospectus relating
to
Thorium Power.
THE
COMPANIES
Novastar
Resources Ltd. and TP Acquisition Corp.
Novastar
Resources Ltd.
TP
Acquisition Corp.
8300
Greensboro Drive
Suite
800
McLean,
VA 22102
(703)
287-8743
Novastar
is currently a mineral exploration company. Novastar has mineral leases and
claims located in Alabama and North Queensland, Australia. These are exploration
stage mineral properties prospective for thorium, platinum and other rare earth
minerals.
Novastar’s
objective is to become a global supplier of thorium to the nuclear energy
industry. 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.
Novastar
was incorporated under the laws of the State of Nevada on February 2, 1999.
On
February 2, 2001, Novastar acquired 100% of the issued and outstanding capital
stock of Custom Branded Networks, Inc. (“CBN”), a Delaware corporation, in
exchange for 25,000,000 shares of Novastar. Novastar then changed its 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 it 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, Novastar changed its 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. In the same time frame, Novastar began discussions with
Thorium Power that led to the merger agreement.
TP
Acquisition Corp. is a newly formed Delaware corporation formed solely to effect
the merger with Thorium Power and has no business or assets.
Thorium
Power, Inc.
Thorium
Power, Inc.
8300
Greensboro Drive
Suite
800
McLean,
VA 22102
(703)
918-4918
Thorium
Power is a Delaware corporation that was incorporated on January 8, 1992.
Thorium Power has 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.
Thorium
Power has built a project structure that includes access to several hundred
nuclear scientists and engineers at several nuclear research institutes and
fuel
fabrication plants in Russia that are developing and testing the fuel
designs.
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.
Thorium
Power intends to offer fuel designs that will provide for effective and safe
disposition of weapons-and reactor-grade plutonium in existing nuclear power
plants at a lower cost than competing technologies. Thorium Power is working
with the United States government and Russian nuclear institutes to effectuate
the utilization of these fuel designs. From 1995 to 1999, Thorium Power's
collaborative research and development project with the Kurchatov Institute
in
Russia received three U.S. government matching grants totaling $1.45
million from the U.S. Department of Energy's Initiatives for Proliferation
Prevention program. Furthermore, U.S. Congress provided a $4 million
appropriation for fiscal year 2004 for the Kurchatov Institute to evaluate
and
test the thorium/weapons-grade plutonium disposition fuel technology for
application in the Russian plutonium disposition program. Thorium
Power intends to seek further funding support for the project from the U.S.
government.
Thorium
Power’s thorium/uranium nuclear fuel is designed to replace traditional uranium
fuels currently used in commercial nuclear power plants worldwide and Thorium
Power plans to adapt its fuel designs for next generation reactors, such as
a
high-temperature helium-cooled reactors and small light waters
reactors.
THE
MERGER
(See
page
38)
On
February 14, 2006, Novastar, its wholly owned subsidiary, TP Acquisition,
and
Thorium Power entered into a merger agreement, which was amended on June
12,
2006,
and
again on August 8, 2006 pursuant to which TP Acquisition will merge with
and
into Thorium Power, with Thorium Power, the surviving corporation, becoming
a
wholly owned subsidiary of Novastar. The merger is subject to various conditions
and rights of termination described in this document and the merger agreement.
We have attached a copy of the merger agreement, as amended, as Annex A to
this
prospectus. We encourage you to read carefully the merger agreement in its
entirety because it is the legal document that governs the
merger.
(See
page
30)
The
Thorium Power board of directors determined that the merger is fair to, and
in
the best interests of, Thorium Power and its stockholders and has approved
the
merger agreement and the merger based on a number of factors, including, without
limitation, the following:
· |
improved
access to capital markets;
|
· |
complementary
business development plans relating to the promotion of thorium as
a fuel
for nuclear reactors;
|
· |
Novastar’s
rights to certain exploration stage properties in Queensland, Australia
that may contain thorium deposits and Novastar’s rights to certain
properties in Alabama that may contain thorium deposits, other rare
earth
minerals and platinum group metals;
|
· |
the
ability to use registered securities to make future acquisitions
of assets
or businesses;
|
· |
increased
visibility in the financial
community;
|
· |
improved
transparency of operations; and
|
· |
perceived
credibility and enhanced corporate image of being a publicly traded
company.
|
The
Novastar board of directors determined that the merger is fair to, and in the
best interests of, Novastar and its stockholders and has approved the merger
agreement and the merger based on a number of factors, including, without
limitation, the following:
· |
Thorium
Power’s promising technology, business model and prospects for growth and
expansion;
|
· |
the
anticipated increase in Novastar stock value as a result of the merger;
and
|
· |
the
integration resulting from the combination of Novastar’s properties that
are prospective for thorium and the need of Thorium Power’s prospective
customers to utilize thorium as a raw material for Thorium Power’s nuclear
fuel designs.
|
Merger
Consideration and Treatment of Thorium Power Stock Options and
Warrants
(See
page
38)
Upon
consummation of the merger, each share of outstanding Thorium Power common
stock
(except shares as to which appraisal rights have been properly perfected
and
shares held by Novastar) shall be converted into the right to receive
25.628 shares
of
Novastar common stock.
Upon
consummation of the merger, each holder of non-compensatory options or warrants
of Thorium Power that have an exercise price of $5.00 or $1.00 will receive
from
Novastar the number of shares of Novastar common stock for each Thorium Power
share underlying such option or warrant as set forth below:
Exercise
Price
|
|
Number
of shares
|
|
$1.00
|
|
|
22.965
|
|
$5.00
|
|
|
12.315
|
|
Upon
consummation of the merger, all investment warrants of Thorium Power that have
an exercise price of more than $5.00, and all compensatory options (regardless
of exercise price) will become securities exercisable for such number of shares
of Novastar common stock as the holder of such securities would have received
had such holder converted such securities into Thorium Power common stock
immediately prior to the closing of the merger.
For
a
full description of the merger consideration, see “The Merger Agreement - Merger
Consideration” beginning on page 36.
Conditions
to the Merger
(See
page
45)
The
merger will not be completed unless a number of contractual or legal conditions
are either satisfied or waived by Thorium Power or Novastar. Examples of those
conditions include the accuracy of the representations and warranties and the
performance of the covenants and agreements of the parties under the merger
agreement and applicable regulatory and third party approvals and the absence
of
governmental or legal action to block the merger.
In
addition to these standard conditions, Novastar and Thorium Power will complete
the merger only if the following additional conditions are satisfied or waived:
· |
the
registration statement of which this prospectus is a part becomes
effective;
|
· |
the
board of directors of Novastar shall have (i) approved the merger
agreement and the merger; (ii) amended and restated Novastar’s bylaws; and
(iii) amended Novastar’s certificate of incorporation to (A) increase the
number of authorized shares of Novastar common stock to 500,000,000
and
(B) change the name of Novastar to “Thorium Power Ltd.” and (iii) make
other changes as may be mutually agreed upon by the
parties;
|
·
|
Novastar
shall have obtained the written consent of the holders of a majority
in
interest of the Novastar common stock to the amendments to the certificate
of incorporation of Novastar described
above;
|
· |
Seth
Grae and Andrey Mushakov shall have entered into employment agreements
with Novastar;
|
·
|
the
total number of shares of Thorium Power’s common stock held by dissenting
stockholders shall not exceed 10% of the outstanding shares of Thorium
Power’s common stock;
|
· |
requisite
approval of the merger by the Thorium Power stockholders and board
of
directors;
|
· |
receipt
of releases from certain persons as the parties may reasonably request;
and
|
· |
the
parties shall have completed their respective due diligence review
to
their respective satisfaction.
|
A
number
of these conditions have already been satisfied.
Covenants
Included In the Merger Agreement
(See
page
44)
The
parties to the merger agreement agreed to take certain actions prior the
closing, including, without limitation, the following:
· |
the
parties will give prompt written notice to each other of any material
adverse development causing a breach of any of their representations
and
warranties;
|
· |
Novastar
will prepare and file with the SEC a registration statement and any
amendment or supplement thereto relating to the merger and a separate
registration statement relating to securities to be issued in the
merger
to affiliates of Novastar or Thorium prior to the merger and shares
issued
in connection with private placements prior to the
merger;
|
· |
Novastar
will furnish to Thorium Power all of its filings to be made with
the SEC
and all materials to be mailed to Novastar’s stockholders and will solicit
comments from Thorium Power;
|
· |
the
parties will operate only in the ordinary and usual course of business
consistent with past practice and will use reasonable commercial
efforts
to preserve their respective business. In addition, Novastar has
agreed
not issue any securities to its employees, consultants, advisors
or others
in consideration for services rendered or to be rendered without
the prior
written consent of Thorium Power;
|
· |
prior
to issuing any public announcement or statement with respect to the
merger, the parties will, subject to their respective legal obligations,
consult with each other and will allow each other to review the contents
of any such public announcement or statement and any such
filing;
|
· |
Thorium
Power will use commercially reasonable efforts to cause the holders
of its
options and warrants that have an exercise price at $5.00 or less
to
exchange such securities for Novastar common stock pursuant to the
merger
agreement;
|
· |
Novastar
will appoint Seth Grae as its Chief Executive Officer and
President;
|
· |
the
parties have agreed not to solicit the submission of merger proposals
from
any third parties;
|
· |
on
or before March 31, 2006, Novastar will use commercially reasonable
efforts to raise at least $2,750,000 in an equity financing transaction
and will invest at least $1,200,000 of such funds in Thorium Power
for
Thorium Power Common Stock at a price per share of $4.00;
and
|
· |
Novastar
will use commercially reasonable efforts to amend certain mining
contracts
to which Novastar is a party, such that the only remedy for a breach
of
obligations by Novastar thereunder is termination of such
contracts.
|
A
number
of the foregoing covenants have already been satisfied.
Alternative
Proposals and Superior Proposals
(See
page
47)
Novastar,
TP Acquisition Corp. and Thorium Power are prohibited under the merger agreement
from soliciting acquisition proposals, including proposals from third parties
to
acquire all or a majority of their capital stock or ten percent or more of
their
business or assets regardless of how the transaction might be structured. These
proposals are referred to in the merger agreement as “Alternative Proposals”. If
one of the parties to the merger agreement receives an unsolicited Alternative
Proposal, however, that party may enter into discussions or negotiations with
respect to that Alternative Proposal and provide information to the party making
the unsolicited Alternative Proposal if:
· |
the
board of directors of the receiving party determines in good faith,
after
receiving the advice of its outside legal counsel, that action is
required
in order for the board of directors of the party to act in a manner
consistent with its fiduciary duties under applicable
law,
|
· |
the
board of directors of the party concludes in good faith, in consultation
with its financial advisors, that the Alternative Proposal constitutes
a
Superior Proposal, and
|
·
|
the
party receives from the person making the proposal a suitable
confidentiality agreement.
|
The
merger agreement defines “Superior Proposal” as an Alternative Proposal which
the board of directors of a party to the merger agreement determines in good
faith and after consultation with its financial advisor and after receiving
the
advice of its outside legal counsel to be more favorable to that party’s
stockholders from a financial point of view than the merger and which is
reasonably likely to be financed and otherwise completed without any undue
delay.
A
party
that receives an unsolicited Alternative Proposal must communicate to the other
parties in writing the identity of the person making an Alternative Proposal
and
the terms and conditions of the Alternative Proposal. The party receiving the
Alternative Proposal must also keep the other parties informed about the status
of any actions, including any discussions, taken with respect to an Alternative
Proposal or any amendments or modifications to it.
In
response to the receipt of an unsolicited written Alternative Proposal, if
a
party has complied with the requirements of the merger agreement and the board
of directors of the party
· |
determines
in good faith that the Alternative Proposal is a Superior Proposal
(and
continues to constitute a Superior Proposal after taking into account
any
modifications proposed by the other parties), and
|
· |
after
receiving the advice of its outside counsel has concluded in good
faith
that action is required in order for the board of directors of the
party
receiving the Alternative Proposal to act in a manner consistent
with its
fiduciary duties under applicable
law,
|
then,
the
board of directors of the party that received the Alternative Proposal may
approve and recommend the Superior Proposal and, in connection with the Superior
Proposal, withdraw or modify its approval or recommendation of the merger
agreement.
Termination
of the Merger Agreement
(See
page
48)
The
agreement and plan of merger may be terminated at any time prior to the
closing:
· |
by
the mutual written consent of the
Parties;
|
· |
by
Novastar or TP Acquisition Corp.,
|
· |
upon
written notice to Thorium Power that any of the conditions have not
been
fulfilled or waived on or prior to October 31,
2006,
|
· |
if
there has been a breach by Thorium Power of any representation, warranty
or covenant made by it in the merger agreement which has prevented
the
satisfaction of any condition to the obligations of Novastar and/or
TP
Acquisition Corp. to effect the closing and such breach has not been
cured
by Thorium Power or waived by Novastar and TP Acquisition Corp. within
20
business days after all other conditions to closing have been satisfied
or
are capable of being satisfied,
|
· |
if
an Alternative Proposal relating to Thorium Power has not been rejected
within thirty (30) days after receipt of such a proposal by Thorium
Power,
or
|
· |
if
Novastar and/or TP Acquisition Corp. have complied with the provisions
of
the merger agreement relating to Superior Proposals.
|
· |
upon
written notice to Novastar and TP Acquisition Corp. that any of the
conditions have not been fulfilled or waived on or prior to October
31,
2006,
|
· |
if
there has been a breach by Novastar or TP Acquisition Corp. of any
representation, warranty or covenant made by it in the merger agreement
which has prevented the satisfaction of any condition to the obligations
of Thorium Power to effect the closing and such breach has not been
cured
by Novastar and/or Acquisition Sub or waived by Thorium Power within
20
business days after all other conditions to closing have been satisfied
or
are capable of being satisfied,
|
· |
if
an Alternative Proposal relating to Novastar and/or Acquisition Sub
has
not been rejected within thirty (30) days after receipt thereof by
Novastar and/or Acquisition Sub, or
|
· |
if
Thorium Power has complied with the provisions of the merger agreement
relating to a Superior Proposal.
|
· |
By
any party to the merger agreement if a governmental authority issues
an
order, decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the merger and such order, decree,
ruling or other action shall have become final and
nonappealable.
|
If
the
merger agreement is terminated by a party as a result of that party's acceptance
of a Superior Proposal in accordance with the merger agreement, or as a
result of a party not rejecting an alternative proposal within 30 days
of receipt of such alternative proposal, then such party shall be obligated
to pay a termination fee of $500,000.
Risk
Factors
(See
page
10)
In
evaluating the merger agreement and the merger, you should carefully read this
prospectus and especially consider the factors discussed in the section entitled
“Risk Factors” beginning on page 10.
REGULATORY
REQUIREMENTS
Material
United States Federal Income Tax Consequences
(See
page
49)
For
federal income tax purposes, the merger will be treated as a “reorganization”
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
“Code”). As a result, you generally will not recognize any gain or loss on the
conversion of your Thorium Power stock or non-compensatory options or warrants
into shares of Novastar stock in the merger for federal income tax purposes.
However, you generally will recognize gain to the extent you receive any cash
in
exchange for your Thorium Power stock.
This
summary applies only to United States holders of Thorium Power stock, options
and warrants, and is subject to the assumptions and limitations set out in
“The
Merger Agreement--Material United States Federal Income Tax Consequences,” which
should be read for a more detailed discussion. Tax matters are complicated,
and
the tax consequences of the merger may vary among shareholders. We urge you
to
contact your own tax advisor for assistance in understanding fully how the
merger will affect you.
Dissenters’
Rights
(See
page
53)
Thorium
Power stockholders who did not consent to the merger will have dissenters’
rights. See page 53.
Comparison
of Rights of Security Holders
(See
page
101)
When
the
merger is completed, Thorium Power stockholders will become holders of shares
of
Novastar common stock. After that time, their rights will be governed by
Nevada
corporation laws, Novastar’s articles of incorporation and Novastar’s bylaws.
The material differences between the rights of Thorium Power stockholders
and
their rights as Novastar stockholders are described, beginning on page
101.
The
following factors should be considered together with the other information
included in this prospectus, including the Annexes. Any of the following risks
could materially adversely affect the business, operating results and financial
condition of Thorium Power and Novastar. You should consider these factors
in
conjunction with the other information contained in this prospectus and the
Annexes.
RISK
FACTORS RELATING TO THE MERGER
AVAILABILITY
OF ADDITIONAL SHARES OF NOVASTAR COMMON STOCK UPON THE CONSUMMATION OF 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 will issue
approximately 135.6 million shares of its common stock. Therefore, immediately
following the merger there will be approximately 292,000,000 shares outstanding.
Novastar is registering the shares to be issued in the merger under this
registration statement and it will be registering the shares issued in the
above
mentioned private placements under a separate registration statement along
with
the shares to be issued in the merger to affiliates of Novastar or Thorium
prior
to the merger. 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 following consummation of the
merger,
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.
THE
RIGHTS OF THORIUM POWER STOCKHOLDERS WILL DIFFER FROM THEIR RIGHTS AS NOVASTAR
SECURITY HOLDERS, WHICH COULD PROVIDE LESS PROTECTION TO THE THORIUM POWER
STOCKHOLDERS FOLLOWING THE MERGER.
Upon
the
consummation of the merger, Thorium Power stockholders will become holders
of
Novastar common stock. Material differences exist between the rights of Thorium
Power stockholders under Thorium Power’s charter documents, bylaws, and Delaware
law and the rights of Novastar common stockholders under Novastar’s charter
documents, bylaws and Nevada law, which could provide less protection to Thorium
Power stockholders and give more discretion to the officers and directors of
Novastar.
FAILURE
TO COMPLETE THE MERGER COULD ADVERSELY AFFECT THE BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION OF NOVASTAR AND THORIUM POWER.
The
completion of the merger is subject to numerous conditions. Novastar cannot
guarantee that the merger will be completed. If the merger is not completed
for
any reason, Novastar and Thorium Power may be subject to a number of material
risks.
One
significant risk of the failure to complete the merger would be the affect
of
such failure on Thorium Power’s ability to raise capital. In May 2006, Novastar
raised in excess of $15 million primarily from institutional investors that
are
interested in investing in companies that engage in the nuclear power industry,
like Thorium Power. Novastar and Thorium Power believe that many of these
investors invested in Novastar because it is a public company, they believed
that the merger would proceed and that the combined company would primarily
engage in the business of nuclear fuel development. If the merger does not
close, Thorium Power believes that it will be very difficult to access capital
from this same group of investors, since it is not a public company with
publicly traded stock, and that the failure of the merger to close might also
deter other investors from investing in Thorium Power.
Other
risks that might materialize if the parties fail to consummate the merger,
include the following:
· |
potential
partners may refrain from entering into agreements with Novastar
or
Thorium Power;
|
· |
employee
turnover may increase; and
|
· |
Thorium
Power, and to a lesser extent, Novastar, may require additional capital,
which may not be available on terms attractive to Thorium Power and
Novastar, as applicable, or at all.
|
The
occurrence of any of these factors could result in serious harm to the business,
results of operation and financial condition of Novastar or Thorium Power or
both.
NOVASTAR
AND THORIUM POWER AGREED TO ENTER INTO THE AGREEMENT AND PLAN OF MERGER PURSUANT
TO CERTAIN ASSESSMENTS, WHICH ARE INEXACT AND UNCERTAIN.
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. If consummated, 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.
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.
AS
CERTAIN INDIVIDUALS ARE OFFICERS AND/OR DIRECTORS OF EACH OF THORIUM POWER
AND
NOVASTAR, CONFLICTS OF INTEREST ARE INHERENT.
Seth
Grae
is currently the CEO of both Thorium Power and Novastar and he is also a
director of both companies; Thomas Graham, Jr. is a director of both companies,
the Chairman of Novastar and the interim Secretary of Novastar; and Andrey
Mushakov is the Executive Vice President - International Nuclear Operations
of
Novastar and the Treasurer & Secretary of Thorium Power. In accordance with
his employment agreement with Novastar, Mr. Grae receives a portion of his
total
cash compensation (equal to $275,000 per year plus bonus, in the aggregate)
from
both Novastar and Thorium Power and equity compensation and other benefits
from
both companies, for services provided to these companies. In accordance with
his
employment agreement with Novastar, Mr. Mushakov receives a portion of his
total
cash compensation (equal to $160,000 per year plus bonus, in the aggregate)
from
both Novastar and Thorium Power and equity compensation and other benefits
from
both companies, for services provided to these companies. Mr. Grae, Ambassador
Graham, and Mr. Mushakov each have fiduciary duties to both Thorium Power
and
Novastar and their respective stockholders. The fact that they are officers
and/or directors of both parties to the merger agreement creates a conflict
of
interest. The transactions contemplated by the merger agreement have not
been
consummated yet and situations will likely arise where Mr. Grae, Ambassador
Graham, and Mr. Mushakov will have to make decisions that benefit one party
and
are a detriment to the other, such as in the interpretation of the merger
agreement. For example, Mr. Grae, Ambassador Graham, and Mr. Mushakov could
be
called upon to interpret provisions in the merger agreement relating to the
determination of the merger consideration to be paid to the Thorium Power
security holders.
THE
TIME
OF INDIVIDUALS PARTICIPATING IN THE MANAGEMENT OF BOTH COMPANIES WILL BE
STRETCHED THIN PENDING COMPLETION OF THE MERGER, AND THE SUBSTANTIAL EXPENSES
ASSOCIATED WITH THE MERGER COULD ADVERSELY AFFECT THE FINANCIAL RESULTS OF
NOVASTAR AND THORIUM POWER.
Management
of both Novastar and Thorium Power will spend a significant amount of their
business time on matters relating to the merger, including, the preparation
of
this registration statement, integration issues, and other matters that are
customary in mergers of this type. In addition, Seth Grae, Thomas Graham,
Jr.
and Andrey Mushakov, who are officers and/or directors of both parties to
the
merger, will be required to participate in the management of the businesses
of
both companies pending the merger in addition to devoting their own time
and
other management resources to action required to complete the merger. At
the
same time, they must ensure that Novastar is properly administered as a public
company, including the compliance with SEC reporting obligations and other
requirements. There can be no assurances that the resources of Novastar are
adequate to ensure that the business of Novastar and Thorium Power is not
neglected as a result of these competing demands.
Novastar
and Thorium Power have and will incur substantial costs in connection with
the
merger. These costs primarily relate to the costs associated with the fees
of
attorneys, accountants and other advisors. If the merger is not completed,
Novastar and Thorium Power will have incurred significant costs for which they
will have received little or no benefit.
RISK
FACTORS RELATING TO NOVASTAR
NOVASTAR
CONTINUES TO EXPERIENCE SIGNIFICANT OPERATING LOSSES.
Novastar
adopted a new business model in mid-2005 to pursue the exploration of thorium
and other rare earth minerals and development opportunities, and has a limited
operating history in its current form. Since it reorganized its business, its
operating costs have exceeded its revenue in each quarter. Novastar incurred
cumulative net losses of approximately $10,899,554 from June 30, 2005 through,
March 31, 2006, and anticipates a net loss of at least $13,000,000 through
2006. Novastar may not be able to obtain or maintain any level of revenues.
If
Novastar is unsuccessful in these efforts, it may never achieve
profitability.
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
LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.
For
the
twelve month period ending June 30, 2005, Novastar had an operating loss of
$2,691,516. At June 30, 2005, Novastar had a working capital deficit of
$224,178. During the period from July 1, 2005 through June 12, 2006, Novastar
raised approximately $17,500,000 in private placement transactions. While
management expects these proceeds will meet Novastar’s foreseeable needs for at
least the next 12 months, Novastar may need to raise additional capital by
way
of an offering of equity securities, an offering of debt securities, or by
obtaining financing through a bank or other entity. If Novastar needs to obtain
additional financing, that financing may not be available or Novastar may not
be
able to obtain that financing on terms acceptable to it. If additional funds
are
raised through the issuance of equity securities, there may be a significant
dilution in the value of Novastar’s outstanding common stock.
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.
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:
· |
costs
of bringing each property into production, including exploration
work,
preparation of production feasibility studies and construction of
production facilities;
|
· |
availability
and costs of financing;
|
· |
ongoing
costs of production;
|
· |
market
prices for the minerals to be
produced;
|
· |
environmental
compliance regulations and restraints;
and
|
· |
political
climate and/or governmental regulation and
control.
|
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.
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
the
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.
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.
RISK
FACTORS RELATING TO THORIUM POWER
THORIUM
POWER CONTINUES TO EXPERIENCE SIGNIFICANT OPERATING LOSSES
Thorium
Power has never realized significant revenues or realized an operating profit.
Since its formation, its operating costs have exceeded its revenue in each
quarter. Thorium Power incurred a net loss of approximately $332,000 for the
quarter ended March 31, 2006, and anticipates a net loss of at least
$1,500,000 through
the end of 2006; Novastar and Thorium Power anticipate a combined net loss
of
approximately $14,500,000 through December 31, 2006. The combined company may
not be able to obtain or maintain any level of revenues. If the combined company
is unsuccessful in these efforts, it may never achieve
profitability.
THORIUM
POWER’S LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO JUDGE ITS
PROSPECTS.
Thorium
Power is a developmental stage company. Its fuel design patents and technology
have never been reduced to practice and it has not received any royalty or
sales
revenue. 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.
THORIUM
POWER’S LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN.
For
the
twelve month period ending December 31, 2005, Thorium Power had an operating
loss of $760,504. At December 31, 2005, Thorium Power had a working capital
deficit of $982,278. During the period from July 1, 2005 through May 31, 2006,
Novastar raised approximately $17,500,000 in private placement transactions.
While management expects that these proceeds will be sufficient to meet the
needs of the combined companies for at least the next 12 months, the combined
company may need to raise additional capital by way of an offering of equity
securities, an offering of debt securities, or by obtaining financing through
a
bank or other entity. If the combined company needs to obtain additional
financing, such financing may not be available or the combined company may
not
be able to obtain that financing on terms acceptable to it. If additional funds
are raised through the issuance of equity securities, there may be a significant
dilution in the value of the combined company’s outstanding common
stock.
THORIUM
POWER’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. Thorium Power’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. Thorium Power
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
Thorium Power fuel designs do not perform as anticipated in commercial use,
Thorium Power 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 Thorium Power’s
technology identified by the experts at the Kurchatov Institute, Westinghouse,
and International Atomic Energy Agency, include:
· |
Fuel
fabrication: The relatively high melting point of thorium oxide will
require fuel pellet manufacturing techniques that are different from
those
currently used for uranium pellets.
|
· |
Fuel
fabrication: Thorium Power’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.
|
· |
Fuel
design: Thorium Power’s “seed-and-blanket” fuel assembly design has a
detachable central part which is not in conventional fuel
designs.
|
· |
Fuel
design: Thorium Power’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.
|
· |
Fuel
use: Thorium Power’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.
|
· |
Fuel
use: Thorium Power’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.
|
· |
Fuel
reprocessing: The IAEA has identified a number of ways that reprocessing
spent thorium fuel will require technologies different from existing
uranium fuel reprocessing. Management’s current marketing plans do not
assume or depend on the ability to reprocess and recycle spent fuel.
Management expects spent thorium fuel will go into long term storage.
This
is current U.S. Government policy.
|
THORIUM
POWER’S FUEL DESIGNS DIFFER FROM FUELS CURRENTLY LICENSED AND USED BY COMMERCIAL
NUCLEAR POWER PLANTS. AS A RESULT, THE LICENSING AND APPROVAL PROCESS FOR
THORIUM POWER’S FUELS MAY BE DELAYED AND MADE MORE COSTLY, AND INDUSTRY
ACCEPTANCE OF THORIUM POWER’S FUELS MAY BE HAMPERED.
Thorium
Power'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
Thorium Power’s fuels and those currently used include:
· |
use
of thorium instead of only uranium,
|
· |
higher
uranium enrichment level,
|
· |
seed-and
blanket fuel assembly design integrating thorium and
uranium,
|
· |
high
burn-up levels of uranium,
|
· |
use
of metallic seed rods,
|
· |
longer
residence time of the blanket in the reactor, and
|
· |
the
ability of Thorium Power’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.
THORIUM
POWER’S PLANS TO DEVELOP ITS THORIUM/WEAPONS-GRADE PLUTONIUM DISPOSING FUEL ARE
DEPENDENT UPON U.S. GOVERNMENT FUNDING AND SUPPORT. WITHOUT SUCH SUPPORT,
THORIUM POWER IS UNLIKELY TO BE ABLE TO SERVE THIS MARKET.
Thorium
Power’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, Thorium Power 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.
Thorium Power has spent a significant amount of funds to gain commercial and
market acceptance for its fuel designs. Over the last two years Thorium Power
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. Thorium Power 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 Thorium Power or government acceptance of Thorium Power’s
technologies for plutonium disposition or other government-funded
projects.
THORIUM
POWER 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 THORIUM
POWER IS UNABLE TO OBTAIN SUCH RIGHTS ON REASONABLE TERMS IN THE FUTURE, THORIUM
POWER’S ABILITY TO EXPLOIT ITS INTELLECTUAL PROPERTY MAY BE
LIMITED.
Dr.
Alvin
Radkowsky invented the thorium fuel technology that Thorium Power is developing.
Upon founding Thorium Power in 1992, Dr. Radkowsky assigned all of his rights
in
the intellectual property relating to such fuel designs to Thorium Power.
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.
Thorium Power 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.
Thorium Power does not have any licensing or other rights to acquire or utilize
certain designs, methodologies or processes required for fuel assemblies. If
Thorium Power 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 Thorium Power is unable to obtain such a license or other right
on
terms that it deems to be reasonable, then Thorium Power may not be able to
fully exploit its intellectual property and may be hindered in the sale of
its
products and services.
THORIUM
POWER RELIES UPON SETH GRAE AND THE LOSS OF MR. GRAE WOULD HAVE AN ADVERSE
EFFECT ON THORIUM POWER.
Thorium
Power’s success depends upon Seth Grae. 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 markets for the
company’s technologies, is critical to the implementation of Thorium Power’s
business model. Mr. Grae is likely to be a significant factor in Thorium Power’s
future growth and success. The loss of the service of Mr. Grae would have a
material adverse effect on Thorium Power. Thorium Power does not have key man
insurance policies relating to Seth Grae or any other key individuals and does
not anticipate obtaining any such insurance.
THE
PRICE
OF FOSSIL FUELS OR URANIUM MAY FALL, WHICH WOULD REDUCE THE INTEREST IN THORIUM
FUEL BY REDUCING ECONOMIC ADVANTAGES OF UTILIZING THORIUM BASED FUELS AND
ADVERSELY AFFECT THE MARKET PROSPECTS FOR THORIUM POWER’S FUEL
DESIGNS.
Coal,
uranium 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 Thorium Power’s future operating results.
THORIUM
POWER’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 Thorium Power’s present research activities are in Russia. Thorium
Power’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, Thorium Power's research
and
development program in Russia could be scaled back or shut down, which could
have a significant adverse impact on Thorium Power's ability to execute its
business model. Furthermore, the Russian institutes engaged in the Thorium
Power
project are highly regulated and, in many instances, are controlled by the
Russian government. The Russian government could decide that the nuclear
scientists engaged in Thorium Power'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 Thorium Power's project.
THORIUM
POWER SERVES THE NUCLEAR POWER INDUSTRY, WHICH IS HIGHLY REGULATED.
The
nuclear power industry is a highly regulated industry. Thorium Power intends
to
license its fuel designs to nuclear fuel fabricators, who would, in turn, sell
the thorium-based nuclear fuel that is produced using Thorium Power’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 Thorium Power'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.
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, Thorium Power's nuclear fuel designs rely on fabrication technologies
that may be different from the fabrication techniques presently utilized by
existing fuel fabricators. In particular, Thorium Power'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 Thorium Power'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 Thorium Power'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 Thorium
Power'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, Thorium Power 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.
THORIUM
POWER’S NUCLEAR FUEL PROCESS IS DEPENDENT ON OUTSIDE SUPPLIERS OF NUCLEAR AND
OTHER MATERIALS.
Production
of fuel assemblies using Thorium Power’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 Thorium Power’s
technology.
THORIUM
POWER 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. Thorium Power 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 Thorium Power’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.
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 RECEIVE IN THE MERGER.
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:
· |
quarterly
variations in operating results;
|
· |
changes
in financial estimates by securities
analysts;
|
· |
changes
in market valuations of other similar
companies;
|
· |
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;
|
· |
additions
or departures of key personnel;
|
· |
any
deviations in net sales or in losses from levels expected by securities
analysts or any reduction in political support from levels expected
by
securities analysts;
|
· |
future
sales of common stock; and
|
· |
results
of analyses of mining and resources
assets.
|
In
addition, the stock market has recently experienced extreme volatility that
has
often been unrelated to the performance of particular companies. These market
fluctuations may cause 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.
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 August 2, 2006, there were 156,411,474 shares
of
Novastar common stock outstanding. As of August, 2006, about 70 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 August 2, 2006, an additional
19,225,000 shares
were subject to outstanding stock options and approximately 22.5 million
shares
were subject to outstanding investor 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.
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.
Neither
Novastar nor Thorium Power has historically 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.
COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
The
following table sets forth the historical per share data of Novastar and Thorium
Power.
You
should read the information below along with Novastar’s and Thorium Power’s
consolidated financial statements included elsewhere in this
prospectus.
|
|
NINE
MONTHS ENDED MARCH
31,
2006
|
|
YEAR
ENDED
JUNE
30, 2005
|
|
YEAR
ENDED
JUNE
30, 2004
|
|
Historical
- Novastar:
|
|
|
|
|
|
|
|
Basic
income (loss) per share
|
|
$
|
(0.11
|
)
|
$
|
($0.05
|
)
|
$
|
0.00
|
|
Diluted
net income (loss) per share
|
|
$
|
(0.11
|
)
|
$
|
($0.05
|
)
|
$
|
0.00
|
|
Book
value per share
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
(0.02
|
)
|
|
|
THREE
MONTHS ENDED MARCH 31,
2006
|
|
YEAR
ENDED
DECEMBER
31, 2005
|
|
YEAR
ENDED
DECEMBER
31, 2004
|
|
Historical
- Thorium Power:
|
|
|
|
|
|
|
|
Basic
loss per share
|
|
$
|
(0.09
|
)
|
$
|
(0.23
|
)
|
$
|
(0.30
|
)
|
Diluted
loss per share
|
|
$
|
(0.09
|
)
|
$
|
(0.23
|
)
|
$
|
(0.30
|
)
|
Book
value per share
|
|
$
|
0.12
|
|
$
|
(0.23
|
)
|
$
|
(0.18
|
)
|
|
|
PRO
FORMA
AS
OF
MARCH
31,
2006
|
|
PRO
FORMA
AS
OF
JUNE
30,
2005
|
|
PRO
FORMA AS
OF
JUNE
30,
2004
|
|
Pro
Forma
|
|
|
|
|
|
|
|
Basic
and Diluted loss per share:
|
|
|
|
|
|
|
|
Including
effect of subsequent stock issuance (a)
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
Excluding
effect of subsequent stock issuance (b)
|
|
$
|
(0.02
|
)
|
$
|
(0.01
|
)
|
$
|
0.00
|
|
Pro
Forma Book value per share (c)
|
|
$
|
0.06
|
|
|
—
|
|
|
—
|
|
Historical
book value per share
|
|
$
|
0.00
|
|
$
|
0.00
|
|
$
|
0.00
|
|
(a)
For
pro
forma loss per share, including effect of subsequent stock issuance, Novastar’s
historical shares of common stock outstanding were increased for the additional
36,659,837 shares issued in the private placement in May 2006 and
for
the 135,638,023 shares issued to Thorium Power pursuant to the merger
agreement.
(b)
For
pro
forma loss per share, excluding effect of subsequent stock issuance, Novastar’s
historical shares of common stock outstanding were increased only by the
135,638,023 shares issued to Thorium Power pursuant to the merger agreement
specifically excluding the additional 36,659,837 shares
issued by both companies in the May 2006 private placement.
(c)
Book
Value per share is computed using the adjusted equity of Novastar after the
adjustments for subsequent events and elimination adjustments outlined in the
unaudited consolidated pro forma balance sheet as of March 31, 2006, submitted
with this registration statement.
The
historical book value per share is computed by dividing stockholders’ equity by
the number of shares of common stock outstanding at the end of each period
presented.
The
merger will be accounted for as a reverse merger, recapitalization of Thorium
Power, with Thorium Power treated as the accounting acquirer.
MARKET
PRICE AND DIVIDEND INFORMATION
NOVASTAR.
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 August 2, 2006,
the most recent practicable date, the closing per share sales price for the
Novastar common stock was $0.54 on the OTC Bulletin Board. As of August 2,
2006,
there were approximately 154 holders of record of Novastar common
stock.
DIVIDEND
INFORMATION
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.
Thorium
Power has never declared or paid any cash dividends on its common stock and
has
no intention of paying cash dividends in the foreseeable future.
APPROVAL
OF THE MERGER
The
following is a description of the material aspects of the merger, including
the
merger agreement. While Novastar and Thorium Power believe that the following
description covers the material terms of the merger, the description may not
contain all of the information that is important to you. More detailed
information is contained elsewhere in this prospectus, including the annexes.
A
copy of the merger agreement is set forth in Annex A to this prospectus.
Novastar and Thorium Power encourage you to read the merger agreement carefully
for a complete description of the terms of the merger.
BACKGROUND
OF THE MERGER
Thorium
Power was first contacted by Novastar on May 18, 2005, when Sean Mulhearn,
the
former Secretary of Novastar, telephoned Seth Grae, President and CEO of Thorium
Power. Sean Mulhearn had conducted a Google search on “thorium” and had found
the Thorium Power web site. Sean Mullhearn asked Seth Grae about the prospective
use of thorium in nuclear reactors. Novastar Resources was interested in
acquiring mineral rights to properties containing thorium, in the belief that
thorium would be used as a nuclear reactor fuel in the future, causing the
commodity price of thorium to rise, as had happened with uranium in the past
when it began to be used in reactor fuels. Sean Mulhearn was also interested
in
thorium as a result of having read articles claiming that thorium fuels could
result in growth in nuclear power, as thorium fuels could help make reactors
safer and more proliferation-resistant while also being used to eliminate
existing plutonium stockpiles.
At
the
time of this first contact by Novastar, Thorium Power was experiencing a
liquidity shortfall and was trying to raise the additional capital the company
needed to fund its operations. On June 14, 2005, Seth Grae together with Andrey
Mushakov, Treasurer & Secretary of Thorium Power, met with Novastar
representatives Sean Mulhearn, Strato Malamas, and Seth Shaw at the Thorium
Power office in McLean, VA. At the meeting, each party described to the other
details about the business and future plans for each company. The discussion
included ways in which the two companies’ businesses were complementary, since
deployment of Thorium Power's nuclear fuels could help drive demand for thorium,
a raw material to which Novastar intended to acquire mineral rights. At the
end
of the meeting, Thorium Power and Novastar agreed in principle to cooperate
with
each other in the area of promoting use of thorium as a nuclear fuel. Soon
thereafter, Seth Grae was offered a position on the advisory board of Novastar,
to help advise Novastar on how thorium could be used in nuclear reactors so
as
to help increase demand for the commodity thorium. Seth Grae accepted the
position on Novastar’s advisory board on July 14, 2005 and received 1,000,000
restricted shares of Novastar common stock as compensation for acting as a
Novastar advisory board member.
The
first
Thorium Power board of directors meeting in which Novastar was discussed
occurred on June 22, 2005. At that meeting, Thorium Power decided to begin
conducting due diligence on Novastar. Thereafter, on November 7, 2005, Thorium
Power held a board of directors meeting at which Novastar was again discussed.
At this meeting, the Thorium Power board of directors fosused on a possible
business combination with Novastar.
The
Thorium Power board of directors then held meetings by conference call on
December 15, 2005, December 18, 2005, January 4, 2006, January 24, 2006, and
February 11, 2006. At each such meeting the propriety of a business combination
with Novastar was discussed. In addition, on June 22, 2005 and April 26, 2006,
the board of directors of Thorium Power met in person to discuss the potential
business combination with Novastar.
In
December 2005, Novastar leased office space in the same office suite in McLean,
Virginia, where Thorium Power leases its office space.
On
January 10, 2006, Seth Grae, who was then the chief executive officer and a
director of Thorium Power and an advisory board member of Novastar, met with
Seth Shaw, the Director of Strategic Planning of Novastar, and Alan Gelband,
who
was acting as Novastar’s investment banker. At that meeting Messrs. Grae, Shaw
and Gelband negotiated the principal terms of a business combination of Thorium
Power and Novastar. Later that day, Mr. Grae and Charles Merchant executed
and
delivered on behalf of Thorium Power and Novastar, respectively, a non-binding
letter of intent relating to the merger.
Thereafter,
on February 14, 2006, Novastar, TP Acquisition Corp. and Thorium Power entered
into the merger agreement. On June 12, 2006, the parties amended the merger
agreement in order to reflect the exact distribution of the merger consideration
among the Thorium Power stockholders, option holders and warrant holders.
On
August 8, 2006, the parties further amended the merger agreement in order
to
adjust the ratio of shares to be issued by Novastar to the security holders
of
Thorium Power as a result of the cashless exercise of some stock options
by
certain Thorium Power security holders.
THORIUM
POWER’S REASONS FOR THE MERGER
The
Thorium Power board of directors ultimately concluded that the Novastar proposal
should be accepted and recommended that the stockholders approve the proposal,
and that an exchange ratio that will result in the Thorium Power stockholders
(along with option and warrant holders who will receive Novastar common stock
at
the closing in exchange for such options and warrants) owning approximately
54.5% of the combined company (before the dilution resulting from certain
Novastar fundraising activities), in the aggregate, is fair to and in the best
interests of Thorium Power and its stockholders. This conclusion was based
on a
number of factors including, without limitation, the following:
|
l
|
Following
the merger, the combined company will be a public reporting company.
The
combined company will be able to use registered securities to effect
acquisitions of assets and possibly businesses in the future. Thorium
Power being a public company will result in increased visibility
in the
financial community. Status as a public reporting company will also
result
in improved transparency of operations and a perceived credibility
and
enhanced corporate image of being a publicly traded
company.
|
|
|
Thorium
Power’s existing stockholders will benefit from holding the publicly
traded Novastar shares with an increase in the liquidity of their
investments in Thorium Power.
|
|
|
Novastar
had an existing base of institutional stockholders that were already
involved in Novastar and, accordingly, had a reason to support Novastar
and the proposed business
combination.
|
|
|
The
Thorium Power board of directors believes that the merger will be
viewed
favorably by private equity investors and will enhance the combined
company’s ability to obtain private equity investment, both due to the
prospect of a public trading market resulting from the merger and
from the
credibility and contacts of Novastar and its advisors in the investment
community. In fact, following the execution of the merger agreement,
Thorium Power received private equity financing in the aggregate
amount of
approximately $1,000,000 from investors other than Novastar, some
of whom
were introduced to Thorium Power by Novastar and its advisors. In
addition, since signing the merger agreement, Novastar has raised
in
excess of $15 million in financing through private placements of
its
equity securities. This equity investment allowed Novastar to pay
off its
outstanding liabilities and still retain capital resources that will
be
available to the combined company after the merger is closed, and
the
Thorium Power board of directors believes that such financing would
have
been very difficult or impossible to obtain had the merger not been
contemplated.
|
|
|
As
part of the transaction, Seth Grae was to become Chief Executive
Officer
of Novastar, and existing Novastar management would not have a continuing
leadership role.
|
|
|
The Thorium Power board of directors believes that
Novastar’s investment in Thorium Power during the period preceding
execution of the merger agreement, in an aggregate amount of approximately
$600,000 was a concrete signal of Novastar’s commitment to Thorium Power’s
goals, which would continue to the stockholders following the
merger. |
|
|
The
board of directors believes that Thorium Power’s access to capital markets
will be better once Thorium Power is merged with Novastar, a public
company.
|
|
|
Merging
with a public company may be a more efficient way of becoming publicly
traded.
|
|
|
Novastar’s
rights to certain exploration stage properties in Queensland, Australia
that may contain thorium deposits and Novastar’s rights to certain
properties in Alabama that may contain thorium deposits, other rare
earth
minerals and platinum group metals.
|
The
Thorium Power board of directors approved the merger and the merger agreement
based on the foregoing.
NOVASTAR’S
REASONS FOR THE MERGER
The
Novastar board of directors, which at the time consisted of Charles Merchant
and
Paul C. Carter, determined, on February 9, 2006, that the merger is fair to
and
in the best interests of Novastar and its stockholders and recommended that
the
stockholders approve the proposal, and has approved the merger agreement and
the
merger based on a number of factors, including, without limitation, the
following:
|
|
Thorium
Power has technology that Novastar believes is promising and Novastar
believes that Thorium Power’s business model is sound and that Thorium
Power has good growth and expansion
prospects.
|
|
|
Novastar
believes that the merger of the two companies will create synergies
that
will benefit the stockholders of the combined
company.
|
|
|
The
Novastar board of directors believes that the merger will be viewed
favorably by private equity investors and will enhance the combined
company’s ability to obtain private equity investment, both due to the
prospect of a public trading market resulting from the merger and
from the
credibility and contacts of Novastar and its advisors in the investment
community. Since signing the merger agreement, Novastar has raised
in
excess of $15 million in financing through private placements of
its
equity securities. This equity investment allowed Novastar to pay
off its
outstanding liabilities and still retain capital resources that will
be
available to the combined company after the merger is closed, and
the
Novastar board of directors believes that such financing would have
been
very difficult or impossible to obtain had the merger not been
contemplated.
|
Effective
April 2, 2006, Charles Merchant and Paul C. Carter each resigned from Novastar
board of directors, and Seth Grae, Thomas Graham, Jr., and Cornelius J. Milmoe
each became directors of Novastar.
Thorium
Power stockholders should be aware that certain executive officers and directors
of Thorium Power have interests in the merger that may be different from, or
in
addition to, the interests of Thorium Power stockholders generally. The Thorium
Power board of directors was aware of the interests described below and
considered them, among other matters, when adopting the merger agreement and
recommended that Thorium Power stockholders vote to approve the merger agreement
and to approve the merger. These interests are summarized below.
APPOINTMENT
OF THORIUM POWER EXECUTIVE OFFICERS BY NOVASTAR
Following
the execution of the merger agreement, Seth Grae, the Chief Executive Officer
of
Thorium Power, entered into an employment agreement with Novastar. Mr. Grae
became the Chief Executive Officer and President of Novastar on April 2,
2006,
and he became a director of Novastar on April 2, 2006. He has also retained
all
of his positions with Thorium Power. In addition, on April 2, 2006, Thomas
Graham, Jr. became a director of Novastar, and on April 3, 2006 he became
the
Chairman of the board of directors of Novastar, while remaining a director
of
Thorium Power. Also, on July 27, 2006, Andrey Mushakov, the Treasurer and
Secretary of Thorium Power became the Executive Vice President - International
Nuclear Operations of Novastar and continues as an officer of Thorium Power
(which will become a wholly owned subsidiary of Novastar at the
closing).
COMPENSATION
AND EQUITY INTERESTS
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. Therefore, Mr. Grae owns a total of
6,000,000 shares of Novastar common stock and he has options to purchase
an
additional 7,200,000 shares of Novastar’s common stock. In addition, Mr. Grae
currently owns 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 will be converted into Novastar securities. Upon consummation
of the merger, Mr. Grae will own a total of 14,039,452 shares of Novastar
common
stock and he will also own the options to purchase an additional 12,530,624
shares of Novastar common stock that are described above.
Thomas
Graham, Jr. has been a director of Thorium Power since July 1, 1997 and he
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 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. Ambassador Graham owns
190,000 shares of Novastar common stock. Upon consummation of the merger,
Ambassador Graham will own a total of 1,215,761 shares of Novastar common
stock
and he will own options to purchase 4,062,800 shares of Novastar common
stock.
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 $0.49 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. Mr. Mushakov owns options to purchase a total of 37,500
shares
of Thorium Power common stock. Upon consummation of the merger, Mr. Mushakov
will own 1,500,000 shares of Novastar common stock and 3,211,050 options
to
purchase shares of Novastar common stock.
INTERESTS
OF SOME NOVASTAR OFFICERS AND DIRECTORS IN THE MERGER
As
of
April 2, 2006, Messrs. Grae and Graham, who are members of the board of
directors of Thorium Power, became members of the board of directors of Novastar
while retaining their position as members of the board of directors of Thorium
Power. 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.
Further, on July 27, 2006, Andrey Mushakov became the Executive Vice President
-
International Nuclear Operations while retaining his position as Treasurer
&
Secretary of Thorium Power. 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 and will remain in such position following the
merger.
For
information regarding the interests in the merger of Seth Grae, Thomas Graham,
Jr. and Andrey Mushakov, who are directors and/or officers of both Novastar
and
Thorium Power, see the disclosure above under “INTERESTS OF SOME THORIUM POWER
OFFICERS AND DIRECTORS IN THE MERGER.”
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.
Upon consummation of the merger, Mr. Milmoe will own a total of 75,000 shares
of
Novastar common stock and he will own 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. Upon consummation
of the merger, Mr. Goldman will own a total of 75,000 shares of Novastar common
stock and options to purchase a total of 350,000 shares of Novastar common
stock.
INDEMNIFICATION
AND D&O INSURANCE
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.
VOTES
REQUIRED FOR APPROVAL OF THE MERGER
In
order
for the merger to close, the merger must be approved by holders of a majority
of
Thorium Power’s outstanding shares of voting stock. By written consent dated
April 12, 2006 holders of the requisite number of Thorium Power’s voting stock
approved the merger. No further Thorium Power stockholder action is required
to
consummate the merger.
The
Novastar stockholders are not required to vote on the merger. However, one
of
the conditions to the merger is that Novastar must amend its certificate of
incorporation to increase the number of authorized shares of Novastar common
stock to 500,000,000 and change the name of Novastar to “Thorium Power Ltd.”
Novastar expects to obtain the written consent of the holders of a majority
in
interest of its common stock, which is required in order to effectuate such
charter amendments. Novastar does not anticipate soliciting any proxies for
this
purpose nor does Novastar expect to have a stockholders meeting relating to
the
charter amendments. Upon obtaining the requisite written consents, Novastar
will
distribute an information statement to its stockholders that describes these
charter amendments and the related written consent.
The
following summary describes the material provisions of the merger agreement,
as
amended. The provisions of the merger agreement are complicated and not easily
summarized. This summary may not contain all of the information about the merger
agreement that is important to you. The merger agreement is attached to this
prospectus as Annex A and is incorporated by reference into this prospectus,
and
we encourage you to read it carefully in its entirety for a complete
understanding of the merger agreement.
GENERAL
On
February 14, 2006, Novastar, TP Acquisition Corp. and Thorium Power entered
into
the merger agreement, which, as amended, provides for the merger of Thorium
Power with TP Acquisition Corp., pursuant to which Thorium Power will be the
surviving corporation in the merger. After the merger the charter of the
surviving corporation will be the certificate of incorporation of TP Acquisition
Corp. and the by-laws of the surviving corporation will be those of TP
Acquisition Corp.
If
the
merger is completed, stockholders of Thorium Power will no longer hold any
interest in Thorium Power. They will become security holders of Novastar and
their rights will be governed by Novastar’s articles of incorporation and
by-laws and by the laws of Nevada. See “Comparative Rights of Holders of Thorium
Power Common Stock and Novastar common stock” for information about the relative
rights of Thorium Power and Novastar security holders.
MERGER
CONSIDERATION
Upon
consummation of the merger, each share of outstanding Thorium Power common
stock
(except shares as to which appraisal rights have been properly perfected
and
shares owned by Novastar) shall be converted into the right to receive 25.628
shares of Novastar common stock.
As
a
result of the merger, the shares of Thorium Power capital stock will no longer
be outstanding, will automatically be cancelled and retired and will cease
to
exist, and each holder of a certificate representing such share immediately
prior to the merger will cease to have any rights with respect to such
certificate, except the right to receive the shares of the Novastar common
stock
described above.
Fractional
Shares
No
fraction of any share of Novastar common stock will be issued to any former
holder of Thorium Power capital stock. Each holder of Thorium common stock
who
would otherwise have been entitled to a fraction equal to one-half or more
of a
share of Novastar common stock will receive a full share of Novastar common
stock, and fractional interests of less than one-half of a share of Novastar
common stock will be canceled.
TREATMENT
OF THORIUM POWER WARRANTS AND STOCK OPTIONS
Upon
consummation of the merger, each holder of non-compensatory options or warrants
of Thorium Power that have an exercise price of $5.00 or $1.00 will receive
from
Novastar the number of shares of Novastar common stock for each Thorium Power
share underlying such option or warrant as set forth below:
Exercise
Price
|
|
|
Number
of shares
|
|
$1.00
|
|
|
22.965
|
|
$5.00
|
|
|
12.315
|
|
Upon
consummation of the merger, all investment warrants of Thorium Power that have
an exercise price of more than $5.00, and all compensatory options (regardless
of exercise price) will become securities exercisable for such number of shares
of Novastar common stock as the holder of such securities would have received
had such holder converted such securities into Thorium Power common stock
immediately prior to the closing of the merger.
PROCEDURES
FOR EXCHANGE OF STOCK CERTIFICATES
Novastar
will enter into an agreement with a bank or trust company who will act as
exchange agent for the exchange of the certificates formerly representing shares
of Thorium Power common stock for certificates representing shares of the
Novastar common stock issued in the merger. At the closing, Novastar will
deposit with the exchange agent certificates representing the number of shares
of Novastar common stock issuable in the merger. Novastar will cause the
Exchange Agent to mail to each Thorium Power stockholder at the time of the
merger a letter of transmittal and instructions for exchange of Thorium Power
stock certificates for certificates representing shares of Novastar common
stock. Upon surrender of a certificate to the exchange agent together with
a
duly executed letter of transmittal, the holder will be entitled to receive
a
certificate representing the number of shares of Novastar common stock that
the
holder has the right to receive in the merger. Until surrendered, each
certificate formerly representing Thorium Power common stock will be deemed
after the merger to represent ownership of the number of shares of Novastar
common stock (and any rights derivative thereof) into which the number of shares
of Thorium Power common stock represented thereby have been converted in the
merger.
No
certificate or scrip representing fractional shares of Novastar common stock
will be issued in the merger. Each holder of Certificates who would otherwise
have been entitled to a fraction equal to one-half or more of a share of
Novastar common stock will receive a full share of Novastar common stock, and
fractional interests of less than one-half of a share of Novastar common stock
will be canceled.
Until
the
certificates are surrendered, Thorium Power stockholders will not be entitled
to
vote on matters submitted to Novastar stockholders, transfer or dispose of
the
Novastar common stock or receive dividends, if any, declared by
Novastar.
DIRECTORS
OF NOVASTAR AFTER THE MERGER
Effective
April 2, 2006, Charles Merchant and Paul Carter resigned from the board of
directors of Novastar and Seth Grae, Cornelius J. Milmoe and Thomas Graham,
Jr.
were appointed as directors of Novastar. Messers. Grae, Milmoe and Graham are
expected to remain as directors following the closing of the merger. The board
of directors of Thorium Power will have the same members as the board of
directors of Novastar following the closing of the merger
Following
is biographical information regarding each of Novastar’s directors:
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
is the President, the Chief Executive Officer and a director of Thorium Power.
Mr. Grae has
played an active role in all business activities of Thorium Power since its
inception in 1992. Mr. Grae led the efforts that resulted in Thorium Power’s
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.
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
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.
Neither
the board of directors of Thorium Power nor the board of directors of Novastar
has established an audit committee, compensation committee or nominating
committee, or any committees performing similar functions, and neither has
designated an audit committee financial expert. After the merger, all such
applicable functions will continue to be handled by the board of directors
as a
whole.
OFFICERS
OF NOVASTAR AFTER THE MERGER
From
and
after the closing of the merger, the officers of Novastar and Thorium Power
(which will then be a wholly owned subsidiary of Novastar) will be identical
and
will be as follows:
Title
|
|
Name
|
|
Pre-Merger
Affiliation
|
Chief
Executive Officer, President and Director
|
|
Seth
Grae
|
|
Thorium
Power
|
Chief
Operating Officer and Director
|
|
Cornelius
J. Milmoe
|
|
Novastar
|
Interim
Secretary and Director
|
|
Thomas
Graham, Jr.
|
|
Thorium
Power
|
Executive
Vice President - International Nuclear Operations
|
|
Andrey
Mushakov
|
|
Thorium
Power
|
Treasurer
and Acting Chief Financial Officer
|
|
Larry
Goldman
|
|
Neither
Company
|
Messrs.
Grae and Graham were appointed to their respective offices on March 17, 2006,
effective on April 2, 2006. Mr. Milmoe was appointed to his office on April
4,
2006. Mr. Goldman was appointed to his office on June 9, 2006 and Mr. Mushakov
was appointed to his office on July 27, 2006.
LARRY
GOLDMAN. Mr.
Goldman 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.
ANDREY
MUSHAKOV.
Mr.
Mushakov became the Executive Vice President - International Nuclear Operations
of Novastar on July 27, 2006. For information regarding Mr. Mushakov see
“THORIUM POWER’S MANAGEMENT.”
THE
MERGER AGREEMENT
Representations,
Warranties and Covenants
The
merger agreement contains customary representations and warranties of the
parties. Novastar’s and TP Acquisition’s representations and warranties to
Thorium Power relate to, among other things:
· |
organization,
standing, corporate power and similar corporate
matters;
|
· |
authorization,
execution, deliver and enforceability of the merger
agreement;
|
· |
valid
issuance of Novastar common stock;
|
· |
accuracy
of financial statements and other
information;
|
· |
absence
of certain adverse changes;
|
· |
absence
of litigation not previously
disclosed;
|
· |
absence
of liabilities or claims not previously
disclosed;
|
· |
timely
filing of all required tax returns;
|
· |
delivery
of all requested information;
|
· |
whether
any brokers were retained in connection with the merger
transaction;
|
· |
status
of employees and compliance with labor
laws;
|
· |
compliance
with the federal securities laws and the accuracy of all information
filed
with the SEC;
|
· |
compliance
with environmental laws; and
|
· |
absence
of any untrue statement of a material
fact.
|
Thorium
Power’s representations and warranties to Novastar and TP Acquisition relate to,
among other things:
· |
organization,
standing, corporate power and similar corporate
matters;
|
· |
authorization,
execution, deliver and enforceability of the merger
agreement;
|
· |
accuracy
of financial statements and other
information;
|
· |
absence
of certain adverse changes;
|
· |
absence
of litigation not previously
disclosed;
|
· |
absence
of liabilities or claims not previously
disclosed;
|
· |
timely
filing of all required tax returns;
|
· |
delivery
of all requested information;
|
· |
status
of employees and compliance with labor
laws;
|
· |
compliance
with environmental laws; and
|
· |
absence
of any untrue statement of a material
fact.
|
None
of
the representations or warranties in the merger agreement will survive the
closing.
Covenants
Made By the Parties
The
parties to the merger agreement have agreed to take certain actions prior the
closing, including, among other things, the following:
· |
the
parties will use their commercially reasonable efforts to take all
action
and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by the
merger
agreement;
|
· |
the
parties are entitled to have full access to all premises, properties,
personnel, books, records (including tax records), contracts, and
documents of or pertaining to the other
parties;
|
· |
the
parties will give prompt written notice to the other parties of any
material adverse development causing a breach of any of their
representations and warranties;
|
· |
Novastar
will prepare and file with the SEC this registration statement on
Form S-4
and any amendment or supplement thereto, in addition to a separate
registration statement relating to securities to be issued in the
merger
to affiliates of Novastar or Thorium prior to the merger and shares
issued
in connection with private placements prior to the merger. The parties
have agreed to use their commercially reasonable efforts to have
such
registration statements declared effective by the SEC as promptly
as
practicable after the filing. Thorium Power has agreed to cooperate
with
Novastar in the preparation of these registration statements, which
includes, among other things, the delivery to Novastar of such audited
financial statements as are required by the rules and regulations
of the
SEC for inclusion in the registration statement;
|
· |
subject
to the terms and conditions of the merger agreement, Thorium Power
has
agreed to proceed diligently and in good faith to, as promptly as
practicable, obtain all required consents, make any other filings
with and
give any other notices to governmental entities or any other public
or
private third parties required to consummate the
merger;
|
· |
Novastar
must furnish to Thorium Power all of their filings to be made with
the SEC
and all materials to be mailed to Novastar’s stockholders and will solicit
comments from Thorium Power;
|
· |
the
parties will operate only in the ordinary and usual course of business
consistent with past practice and will use reasonable commercial
efforts
to preserve their respective business. In addition, Novastar has
agreed
not issue any securities to its employees, consultants, advisors
or others
in consideration for services rendered or to be rendered without
the prior
written consent of Thorium Power;
|
· |
prior
to issuing any public announcement or statement with respect to the
merger, the parties will, subject to their respective legal obligations,
consult with each other and will allow each other to review the contents
of any such public announcement or statement and any such
filing;
|
· |
Thorium
Power will use commercially reasonable efforts to cause the holders
of its
options and warrants that have an exercised price at $5.00 or less
to
exchange such securities for Novastar common stock pursuant to the
merger
agreement;
|
· |
Novastar
will appoint Seth Grae as its Chief Executive Officer and
President;
|
· |
the
parties have agreed not to solicit the submission of merger proposal
from
any third parties;
|
· |
on
or before March 31, 2006, Novastar will use commercially reasonable
efforts to raise at least $2,750,000 in an equity financing transaction
and will invest at least $1,200,000 of such funds in Thorium Power
for
Thorium Power Common Stock at a price per share of $4.00;
and
|
· |
Novastar
will use commercially reasonable efforts to amend certain contracts
to
which Novastar is a party, such that the only remedy for a breach
of
obligations by Novastar thereunder is termination of such
contracts.
|
A
number
of the foregoing covenants have already been satisfied.
Conditions to the Completion of the Merger
The
respective obligations of Thorium Power, Novastar and TP Acquisition to complete
the merger are subject to the satisfaction or waiver of various conditions,
including normal and customary closing conditions such as:
· |
the
accuracy of all representations and
warranties;
|
· |
the
performance and compliance with all covenants, agreements and
conditions;
|
· |
the
delivery of certificates, documents and legal opinions;
and
|
· |
the
ability to complete the merger under applicable state
laws.
|
In
addition to the foregoing, Thorium Power’s and Novastar’s obligations to
complete the merger are also subject to the satisfaction or waiver of, among
other things, the following conditions:
· |
this
registration statement must become effective and no stop order suspending
the effectiveness of this registration statement can be issued or
remain
in effect;
|
· |
the
board of directors of Novastar must approve (i) the merger agreement
and
the merger; (ii) amended and restated bylaws; and (iii) an amendment
to
Novastar’s Certificate of Incorporation to (a) increase the number of
authorized shares of Novastar Common Stock to 500,000,000, (b) change
the
name of Novastar to “Thorium Power Ltd.” and (iii) make other changes as
may be mutually agreed upon by the
parties;
|
· |
Novastar
shall have obtained the written consent of the holders of a majority
in
interest of the Novastar Common Stock to the amendments to the Certificate
of Incorporation of Novastar;
|
· |
all
directors of Novastar shall have resigned from their positions as
directors and the persons designated by Thorium Power shall comprise
the
entire board of Novastar. In addition, Novastar shall have filed
an
information statement that complies with Rule 14f-1 of the Securities
Exchange Act of 1934;
|
· |
Seth
Grae and Andrey Mushakov shall have entered into an employment agreement
with Novastar;
|
· |
the
total number of shares of Thorium Power common stock held by dissenting
stockholders shall not exceed 10% of the outstanding shares of its
common
stock;
|
· |
holders
of Thorium Power options and warrants that have an exercise price
at $5.00
or less shall have agreed to exchange their securities for Novastar
Common
Stock in accordance with the merger
agreement;
|
· |
requisite
approval of the merger by Thorium Power’s stockholders and board of
directors;
|
· |
receipt
of releases from certain persons as the parties may reasonably request;
|
· |
absence
of any occurrence, event, incident, action, failure to act, or transaction
since the date hereof which has had or is reasonably likely to cause
a
material adverse effect (financial or otherwise) on the business,
assets,
liabilities, condition, property, prospects or results of operations
of
the other party; and
|
· |
the
parties shall have completed their respective due diligence review
of each
other.
|
A
number
of these conditions have already been satisfied.
Novastar,
TP Acquisition Corp. and Thorium Power are prohibited under the merger agreement
from soliciting acquisition proposals, including proposals from third parties
to
acquire all or a majority of their capital stock or ten percent or more of
their
business or assets regardless of how the transaction might be structured. These
proposals are referred to in the merger agreement as “Alternative Proposals”. If
one of the parties to the merger agreement receives an unsolicited Alternative
Proposal, however, that party may enter into discussions or negotiations with
respect to that Alternative Proposal and provide information to the party making
the unsolicited Alternative Proposal if
· |
the
board of directors of the receiving party determines in good faith,
after
receiving the advice of its outside legal counsel, that action is
required
in order for the board of directors of the party to act in a manner
consistent with its fiduciary duties under applicable
law,
|
· |
the
board of directors of the party concludes in good faith, in consultation
with its financial advisors, that the Alternative Proposal constitutes
a
Superior Proposal, and
|
· |
the
party receives from the person making the proposal a suitable
confidentiality agreement.
|
The
merger agreement defines “Superior Proposal” as an Alternative Proposal which
the board of directors of a party to the merger agreement determines in good
faith and after consultation with its financial advisor and after receiving
the
advice of its outside legal counsel to be more favorable to that party’s
stockholders from a financial point of view than the merger and which is
reasonably likely to be financed and otherwise completed without any undue
delay
A
party
that receives an unsolicited Alternative Proposal must communicate to the other
parties in writing the identity of the person making an Alternative Proposal
and
the terms and conditions of the Alternative Proposal. The party receiving the
Alternative Proposal must also keep the other parties informed about the status
of any actions, including any discussions, taken with respect to an Alternative
Proposal or any amendments or modifications to it.
In
response to the receipt of an unsolicited written Alternative Proposal, if
a
party has complied with the requirements of the merger agreement and the board
of directors of the party
· |
determines
in good faith that the Alternative Proposal is a Superior Proposal
(and
continues to constitute a Superior Proposal after taking into account
any
modifications proposed by the other parties), and
|
· |
after
receiving the advice of its outside counsel has concluded in good
faith
that action is required in order for the board of directors of the
party
receiving the Alternative Proposal to act in a manner consistent
with its
fiduciary duties under applicable
law,
|
then,
the
board of directors of the party that received the Alternative Proposal may
approve and recommend the Superior Proposal and, in connection with the Superior
Proposal, withdraw or modify its approval or recommendation of the merger
agreement.
Termination
of the Merger Agreement
The
agreement and plan of merger may be terminated at any time prior to the
closing:
· |
By
the mutual written consent of the
Parties.
|
· |
By
Novastar or TP Acquisition Corp.,
|
· |
upon
written notice to Thorium Power that any of the conditions have not
been
fulfilled or waived on or prior to October 31,
2006,
|
· |
if
there has been a breach by Thorium Power of any representation, warranty
or covenant made by it in the merger agreement which has prevented
the
satisfaction of any condition to the obligations of Novastar and/or
TP
Acquisition Corp. to effect the closing and such breach has not been
cured
by Thorium Power or waived by Novastar and TP Acquisition Corp. within
20
business days after all other conditions to closing have been satisfied
or
are capable of being satisfied,
|
· |
if
an Alternative Proposal relating to Thorium Power has not been rejected
within thirty (30) days after receipt of such a proposal by Thorium
Power,
or
|
· |
if
Novastar and/or TP Acquisition Corp. have complied with the provisions
of
the merger agreement relating to Superior Proposals.
|
· |
upon
written notice to Novastar and TP Acquisition Corp. that any of the
conditions have not been fulfilled or waived on or prior to October
31,
2006,
|
· |
if
there has been a breach by Novastar or TP Acquisition Corp. of any
representation, warranty or covenant made by it in the merger agreement
which has prevented the satisfaction of any condition to the obligations
of Thorium Power to effect the closing and such breach has not been
cured
by Novastar and/or Acquisition Sub or waived by Thorium Power within
20
business days after all other conditions to closing have been satisfied
or
are capable of being satisfied,
|
· |
if
an Alternative Proposal relating to Novastar and/or Acquisition Sub
has
not been rejected within thirty (30) days after receipt thereof by
Novastar and/or Acquisition Sub, or
|
· |
if
Thorium Power has complied with the provisions of the merger agreement
relating to a Superior Proposal.
|
· |
By
any party to the merger agreement if a governmental authority issues
an
order, decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the merger and such order, decree,
ruling or other action shall have become final and
nonappealable.
|
If
the
merger agreement is terminated by a party as a result of that party's acceptance
of a Superior Proposal in accordance with the merger agreement, or as a
result of a party not rejecting an alternative proposal within 30 days
of receipt of such alternative proposal, then such party shall be obligated
to pay a termination fee of $500,000.
REGULATORY
APPROVALS
No
filings are required to be made and no approvals are required to be obtained
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. However, any time before or after the consummation of the merger,
the
Department of Justice, the Federal Trade Commission, state attorneys general,
the antitrust regulatory agencies of various foreign countries or a private
person or entity could challenge the merger under antitrust laws and seek,
among
other things, to enjoin the merger or to cause Novastar to divest itself, in
whole or in part, of Thorium Power or other businesses conducted by Novastar.
Based on the information available to them, Novastar and Thorium Power believe
that the merger will not violate the United States federal or state antitrust
laws.
Thorium
Power and Novastar conduct operations in a number of jurisdictions where other
regulatory filings or approvals may be required or advisable in connection
with
the completion of the merger. Thorium Power and Novastar are currently in the
process of reviewing whether other filings or approvals may be required or
desirable in these other jurisdictions. Some of these filings may not be
completed prior to closing and some of these approvals, which are not as a
matter of practice required to be obtained prior to effectiveness of a merger
transaction, may not be obtained prior to closing.
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In
General
The
following discussion is a general summary of the U.S. federal income tax
considerations in connection with the merger anticipated to be material to
a
holder of Thorium Power stock, options or warrants, as the case may be, who
is a
U.S. person (collectively, a “Thorium Power Holder”). Generally, a U.S. person
is:
· |
an
individual citizen or resident of the United
States;
|
· |
a
corporation (including an entity other than a corporation which is
treated
as a corporation for U.S. federal income tax purposes), a partnership
or a
limited liability company, that is created or organized in or under
the
laws of the United States or any political subdivision
thereof;
|
· |
an
estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
|
· |
a
trust if, in general, a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
have the
authority to control all substantial decisions of the trust, or a
trust in
existence on August 20, 1996 if such trust has elected to continue
to be
treated as a U.S. person and met certain other
requirements.
|
THE
TAX CONSEQUENCES TO THORIUM POWER HOLDERS WHO ARE NOT U.S. PERSONS (INCLUDING
INDIVIDUALS WHO WERE U.S. PERSONS IN THE PAST) INVOLVE TAX CONSIDERATIONS THAT
ARE BEYOND THE SCOPE OF THIS DISCUSSION. IT IS THEREFORE ADVISED THAT EACH
SUCH
HOLDER CONSULT ITS TAX ADVISOR TO DETERMINE THE U.S. FEDERAL, STATE, LOCAL
AND
FOREIGN TAX CONSEQUENCES OF THE MERGER AND OWNERSHIP OF NOVASTAR STOCK OR
SECURITIES APPLICABLE TO SUCH HOLDER.
The
discussion herein does not intend to be exhaustive of all possible tax
considerations; for example, the discussion does not contain a description
of
any state, local or foreign tax considerations. In addition, this summary
discussion is intended to address only those U.S. federal income tax
considerations that are generally applicable to a Thorium Power Holder who
holds
Thorium Power stock, options or warrants, as the case may be, as a capital
asset
(within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the “Code”)), and this summary does not discuss all aspects of U.S.
federal income taxation that might be relevant to a specific Thorium Power
Holder in light of such person’s particular investment or tax
circumstances.
In
particular, the discussion does not purport to deal with all aspects of taxation
that may be relevant to Thorium Power Holders that are subject to special
treatment under the U.S. federal income tax laws, including, without limitation,
individual retirement and other tax-deferred accounts; banks and other financial
institutions; insurance companies; tax-exempt organizations; dealers, brokers
or
traders in securities or currencies; persons subject to the alternative minimum
tax; persons who hold their Thorium Power stock or securities as part of a
straddle, hedging, synthetic security, conversion transaction or other
integrated investment consisting of Thorium Power or Novastar stock or
securities, and one or more other investments; persons whose functional currency
is other than the U.S. dollar; persons who received their Thorium Power stock,
options or warrants as compensation in connection with the performance of
services or on exercise of options received as compensation in connection with
the performance of services; persons eligible for tax treaty benefits; and
foreign corporations, foreign partnerships, other foreign entities and
individuals who are not citizens or residents of the United
States.
The
information in this discussion is based on the federal income tax laws as of
the
date of this document, which include:
· |
current,
temporary and proposed Treasury regulations promulgated under the
Code;
|
· |
the
legislative history of the Code;
|
· |
current
administrative interpretations and practices of the Internal Revenue
Service (the “IRS”), including its practices and policies as expressed in
private letter rulings, which are not binding on the IRS except with
respect to a taxpayer that receives such a ruling;
and
|
There
is
a risk that future legislation, Treasury regulations, administrative
interpretations and/or court decisions may change the current law or adversely
affect existing interpretations of the U.S. federal income tax laws. Any change
could apply retroactively to transactions preceding the date of the change
and
neither Novastar nor Thorium Power undertake to inform Thorium Power Holders
of
any change. In addition, there is a risk that the statements set forth in this
summary discussion (which do not bind the IRS or the courts) may be challenged
by the IRS and may not be sustained by a court if so challenged.
THE
DISCUSSION HEREIN IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED BY ANY
THORIUM POWER HOLDER AS BEING, TAX ADVICE. THEREFORE, EACH THORIUM POWER HOLDER
IS URGED TO CONSULT WITH ITS TAX ADVISOR TO DETERMINE THE U.S. FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP OF NOVASTAR
STOCK OR SECURITIES, INCLUDING THE PARTICULAR FACTS AND CIRCUMSTANCES THAT
MAY
BE UNIQUE TO SUCH HOLDER.
United
States Federal Income Tax Consequences to Thorium Power
Holders
At
closing, TP Acquisition Corp. will be merged with and into Thorium Power and
Thorium Power Holders (other than holders of Thorium Power options and warrants
which will be assumed by Novastar in the merger) will receive shares of Novastar
common stock in exchange for their Thorium Power stock, options and warrants
as
set forth in the merger agreement.
Provided
the transactions described herein are completed in accordance with the terms
of
the merger agreement, the merger will be treated as a reorganization within
the
meaning of Section 368(a) of the Code. Subject to the limitations and
qualifications referred to herein, the merger described in the preceding
paragraph should result in the following U.S. federal income tax
consequences:
(1)
None
of Novastar, TP Acquisition Corp. or Thorium Power will recognize any gain
or
loss as a result of the merger.
(2)
A
Thorium Power Holder will not recognize gain or loss on receipt of shares of
Novastar stock at closing in exchange for Thorium Power stock and
non-compensatory options or warrants surrendered in the merger.
(3)
The
basis of the Novastar stock received by each Thorium Power Holder in the merger
will be the same as the basis of the Thorium Power stock and non-compensatory
options and warrants surrendered in exchange therefore.
(4)
The
holding period for Novastar stock received by each Thorium Power Holder in
the
merger in exchange for such holder’s Thorium Power stock and non-compensatory
options or warrants will include such holder’s holding period for the Thorium
Power stock and non-compensatory options or warrants surrendered in exchange
therefore.
(5)
A
Thorium Power Holder who (i) perfects their dissenters’ rights under applicable
law and receives a cash payment for their Thorium Power stock and (ii) does
not
own any Novastar stock or securities (either actually or constructively within
the meaning of Section 318 of the Code) following the receipt of the cash,
will
generally recognize capital gain or loss measured by the difference between
the
amount of cash received and the holder’s adjusted tax basis in the surrendered
Thorium Power stock.
Each
Thorium Power Holder will be required to attach a statement to its federal
individual income tax return for the taxable year in which the merger takes
place. Such statement must contain the information listed in Treasury Regulation
section 1.368-3(b). The statement must include, among other things, the holder’s
adjusted tax basis in the stockholder’s Thorium Power stock, options or warrants
and the number of shares and the value of the Novastar stock
received.
The
treatment of the merger for U.S. federal income tax purposes summarized
immediately above cannot be guaranteed by either Novastar or Thorium Power
and
it is possible that the IRS may take a different position. If the IRS were
to
successfully assert that the merger is not a reorganization within the meaning
of Section 368(a) of the Code, each Thorium Power Holder would be required
to
recognize gain or loss in the year of the closing based on the difference
between the fair market value of the Novastar stock or options received by
such
holder, and the holder’s adjusted tax basis in the surrendered Thorium Power
stock, options or warrants. In such an event, each Thorium Power Holder’s
aggregate basis in any Novastar stock or options received (including any
Novastar stock held in the Exchange Fund which is constructively received by
such holder) would equal the fair market value of the stock or options at the
time of receipt and the holding period for the stock or options would begin
on
the date of receipt.
Under
the
Code, a Thorium Power Holder in some circumstances may be subject to backup
withholding with respect to the amount of cash, if any, received in the merger,
unless the holder provides proof of an applicable exemption or a correct
taxpayer identification number to Novastar and otherwise complies with
applicable requirements of the backup withholding rules. Any amounts withheld
under the backup withholding rules are not an additional tax and may be credited
against the Thorium Power Holder’s U.S. federal income tax liability for the
appropriate taxable year, provided the required information is furnished to
the
IRS.
Thelen
Reid & Priest LLP has delivered an opinion to Thorium Power incorporating
the preceding discussion. The opinion has been filed as an exhibit to the
registration statement of which this prospectus is a part. The opinion is based,
in part, on assumptions and on representations made by Thorium Power’s
management.
An
opinion of counsel only represents counsel’s best legal judgment, and has no
binding effect or official status of any kind. No assurance can be given that
contrary positions will not be taken by the Internal Revenue Service or a court
considering the issues. Neither Thorium Power nor Novastar has requested or
will
request a ruling for the IRS with regard to the U.S. federal income tax
consequences of the merger.
RIGHTS
OF
DISSENTING STOCKHOLDERS
On
April
12,
2006,
Thorium Power distributed an information statement to its stockholders that
informed the Thorium Power stockholders of the annual meeting that occurred
on
April 26, 2006. The information statement also notified the stockholders of
Thorium Power that stockholders of Thorium Power holding the requisite number
of
shares to approve the merger signed a written consent that approved the merger
agreement and the transactions contemplated thereby. The meeting was held solely
for informational purposes and no vote was taken at the meeting. The information
statement included
detailed instructions about how to exercise appraisal rights. Stockholders
who
intended to exercise appraisal rights were required to submit written notice
of
this intent to Thorium Power prior to May 2,
2006,
the twentieth day following the mailing of the information statement to the
Thorium Power stockholders.
SELECTED
HISTORICAL FINANCIAL INFORMATION
The
data
for the years ended June 30, 2004 and 2005 have been derived from Novastar’s
consolidated financial statements that have been audited by Telford Sadovnick,
P.L.L.C., independent auditors, which are contained elsewhere in this
prospectus. The data for the nine months ended March 31, 2006 and 2005 and
the
balance sheet data as of March 31, 2006 have been derived from Novastar’s
accounting records and have not been audited. This interim data contains all
adjustments that are of a normal recurring nature necessary to present fairly
the financial position and results of operations for the interim reporting
period. Operating results for the nine-month period ended March 31, 2006 and
the
years ended June 30, 2005 and 2004 are not necessarily indicative of results
that may be expected for any future periods. Please read the selected financial
data set forth below in conjunction with “Management’s Discussion and Analysis
of Financial Condition and Results of Operations - Novastar”, Novastar’s
financial statements and related notes contained elsewhere in this prospectus,
Novastar’s Form 10-KSB for the fiscal year ended June 30, 2005 and Novastar’s
Form 10-QSB for the nine months ended March 31, 2006.
|
|
NINE
MONTHS ENDED
MARCH
31,
|
|
YEARS
ENDED
JUNE
30,
|
|
|
|
2006
(unaudited)
|
|
2005
(unaudited)
|
|
2005
(audited)
|
|
2004
(audited)
|
|
STATEMENT
OF OPERATIONS DATA
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
|
|
$
|
3,362,399
|
|
$
|
833,048
|
|
$
|
2,303,533
|
|
$
|
23,635
|
|
Interest
attributable to beneficial
conversion feature for notes payable
|
|
|
—
|
|
$
|
442,813
|
|
$
|
442,813
|
|
$
|
55,178
|
|
Interest
- other
|
|
|
—
|
|
|
—
|
|
$
|
0
|
|
$
|
678
|
|
Public
relations
|
|
$
|
132,785
|
|
|
—
|
|
$
|
68,899
|
|
$
|
0
|
|
Legal
|
|
$
|
273,776
|
|
|
—
|
|
$
|
27,654
|
|
$
|
8,912
|
|
Administrative
|
|
$
|
69,994
|
|
$
|
80,526
|
|
$
|
15,929
|
|
$
|
3,996
|
|
Accounting
|
|
$
|
50,113
|
|
|
—
|
|
$
|
2,506
|
|
$
|
3,031
|
|
Forgiveness
of debt
|
|
|
—
|
|
|
—
|
|
$
|
(169,818
|
)
|
$
|
0
|
|
Mineral
property acquisition
costs
|
|
$
|
1,720,544
|
|
|
—
|
|
$
|
0
|
|
$
|
0
|
|
Mineral
property exploration
expenses
|
|
$
|
269,608
|
|
|
—
|
|
$
|
0
|
|
$
|
0
|
|
Write
down of equipment
|
|
|
—
|
|
|
—
|
|
$
|
0
|
|
$
|
0
|
|
Stock-based
compensation
|
|
$
|
5,020,335
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net
Loss
|
|
$
|
(10,899,554
|
)
|
$
|
(1,356,387
|
)
|
$
|
(2,691,516
|
)
|
$
|
(95,430
|
)
|
Loss
Per Share
|
|
$
|
(0.11
|
)
|
$
|
(0.03
|
)
|
|
($0.05
|
)
|
$
|
0.00
|
|
Weighted
Average Number of Shares Outstanding
|
|
|
103,148,271
|
|
|
50,110,123
|
|
|
57,188,970
|
|
|
38,372,532
|
|
|
|
AS
OF March 31,
|
|
AS
OF June 30,
|
|
|
|
2006
(unaudited)
|
|
2005
(audited)
|
|
2004
(audited)
|
|
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
$
|
324,960
|
|
$
|
802
|
|
$
|
0
|
|
Long
Term Investment
|
|
$
|
700,000
|
|
$
|
0
|
|
$
|
0
|
|
Exploration
Equipment
|
|
$
|
55,290
|
|
$
|
0
|
|
$
|
774
|
|
Total
Assets
|
|
$
|
1,080,250
|
|
$
|
802
|
|
$
|
774
|
|
Total
Current Liabilities
|
|
$
|
691,505
|
|
$
|
224,980
|
|
$
|
323,663
|
|
Total
Liabilities
|
|
$
|
691,505
|
|
$
|
224,980
|
|
$
|
772,969
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders’ Equity (Deficiency)
|
|
$
|
388,745
|
|
|
($224,178
|
)
|
|
($772,195
|
)
|
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - NOVASTAR
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 as a
sand 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 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.
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:
· |
industrial
super alloys used in the aerospace and nuclear
industries
|
· |
crystals
manufactured for the production of
lasers
|
· |
the
refining of petroleum products
|
· |
in
magnetic refrigeration technology
|
· |
as
catalysts used in the manufacture of
fuel-cells
|
· |
in
cellular phones and other wireless
equipment
|
· |
magnetic
plastic technology used in computer data memory
devices
|
· |
fiber-optic
lines and to color, polarize and polish
glass
|
· |
the
creation of high temperature
superconductors
|
· |
catalytic
converters for the automotive
industry
|
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.
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.
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 “NOVASTAR’S BUSINESS - 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 “NOVASTAR’S BUSINESS - Properties.”
On
September 30, 2005, Novastar acquired certain North Queensland, Australia
mineral interests. The acquisition agreement is more completely described in
the
section captioned “NOVASTAR’S BUSINESS - 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.
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 $631,000 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.
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.
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.
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.
THORIUM
POWER, INC.
SELECTED
HISTORICAL FINANCIAL INFORMATION
You
should read the following summary financial data together with the discussion
in
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Thorium Power” and Thorium Power’s financial statements and related
notes contained elsewhere in this prospectus.
The
data
for the years ended December 31, 2005 and 2004 have been derived from Thorium
Power’s financial statements that have been audited by Child Van Wagoner and
Bradshaw, PLLC, independent auditors, which are contained elsewhere in this
prospectus. The data for the three months ended March 31, 2006 and the balance
sheet data as of March 31, 2006 has been derived from Thorium Power’s accounting
records and have not been audited. However, in the opinion of management, all
adjustments (which are of a normal recurring nature) necessary to present fairly
the financial position, results of operations and cash flows at March 31, 2006
and for all periods presented, have been made. Operating results for the three
month period ended March 31, 2006 and the years ended December 31, 2005 and
2004
are not necessarily indicative of results that may be expected for any future
periods.
|
|
FOR
THE THREE MONTHS
ENDED
MARCH 31
|
|
YEARS
ENDED
DECEMBER
31
|
|
Cumulative
from January 8, 1992 (inception) through
March
31, 2006
|
|
|
|
2006
(unaudited)
|
|
2005
(unaudited)
|
|
2005
(unaudited)
|
|
2004
(unaudited)
|
|
|
|
STATEMENT
OF OPERATIONS DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
0
|
|
|
0
|
|
$
|
0
|
|
|
0
|
|
$
|
624,985
|
|
Operating
Expenses
|
|
|
330,973
|
|
|
113,272
|
|
|
457,503
|
|
|
623,526
|
|
|
16,457,320
|
|
Operating
Loss
|
|
|
330,973
|
|
|
113,272
|
|
|
457,503
|
|
|
623,526
|
|
|
15,832,335
|
|
Other
Income (Loss)
|
|
|
(866
|
)
|
|
0
|
|
|
(303,001
|
)
|
|
(351,1480
|
)
|
|
30,834
|
|
Net
Loss
|
|
|
331,839
|
|
|
113,272
|
|
|
760,504
|
|
|
974,674
|
|
|
15,801,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
|
(0.09
|
)
|
|
(0.03
|
)
|
|
(0.23
|
)
|
|
(0.30
|
)
|
|
|
|
Weighted
average shares outstanding
|
|
|
3,558,395
|
|
|
3,289,463
|
|
|
3,314,862
|
|
|
3,249,421
|
|
|
|
|
|
|
AS
OF
MARCH
31
|
|
AS
OF DECEMBER 31
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
673,653
|
|
$
|
283
|
|
|
462
|
|
Working
capital
|
|
|
233,791
|
|
|
(982,278
|
)
|
|
(844,196
|
)
|
Total
Assets
|
|
|
911,732
|
|
|
246,556
|
|
|
247,718
|
|
Long-term
debt
|
|
|
13,746
|
|
|
14,818
|
|
|
0
|
|
Stockholders’
equity
|
|
|
454,832
|
|
|
(757,103
|
)
|
|
(603,746
|
)
|
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS - THORIUM POWER
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 rectors 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.
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.
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)
|
|
Percentage
Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Operating
Expenses
|
|
$
|
760,558
|
|
$
|
947,779
|
|
$
|
(214,221
|
)
|
|
(34.4
|
)%
|
Other
Expenses (Income)
|
|
$
|
(54
|
)
|
$
|
(105
|
)
|
$
|
(51
|
)
|
|
(49
|
)%
|
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.
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)
|
|
Percentage
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.
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 not be subject to any
material seasonal variations in operations.
Inflation
Management
does not expect that Thorium Power’s business, revenues and operating results
will not 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.
|
l
|
Accounting
for expenses in connection with stock options and warrants by using
the
Black-Scholes option pricing
method;
|
|
|
Valuation
of intangible assets;
|
|
|
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.
NOVASTAR’S
BUSINESS
General Overview
Novastar
is currently a mineral exploration company. 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.
Corporate History
Novastar
Resources Ltd. was incorporated under the laws of the state of Nevada on
February 2, 1999, under the name of Aquistar Ventures (USA) Inc. Novastar was
organized for the purpose of exploring for and, if possible, developing mineral
properties primarily in the province of Ontario, Canada, through its wholly
owned subsidiary, Aquistar Ventures Inc. ("Aquistar Canada"). Aquistar Canada
was incorporated under the laws of the province of British Columbia, Canada,
on
April 13, 1995 and is now inactive.
On
February 2, 2001, 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. Novastar then changed its
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 it 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, Novastar changed its 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. In the same time frame, Novastar began discussions with
Thorium Power that led to the merger agreement.
Employees
As
of
August 7, 2006 Novastar, operating in conjunction with Thorium Power, had
six
employees, five of whom are full-time employees..
Novastar
believes that its relationship with its employees is satisfactory.
Novastar
uses consultants with specific skills to assist with various business functions
including evaluation, due diligence, acquisition initiatives, corporate
governance and business development.
Government
Regulation
Mining
operations and exploration activities are subject to various national, state,
provincial and local laws and regulations in the United States, Canada and
Australia, as well as other jurisdictions, which govern prospecting,
development, mining, production, exports, taxes, labor standards, occupational
health, waste disposal, protection of the environment, mine safety, hazardous
substances and other matters. 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 its
leases and claims located in Alabama, USA and North Queensland, Australia,
respectively.
Such
approval may involve many levels of government (i.e. Federal, State, Provincial,
County and/or City approval), and 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.
Novastar
believes that it is and will continue to be in compliance in all material
respects with applicable statutes and regulations.
Changes
to laws and regulations in the jurisdictions where 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 its 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.
Properties
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.
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.
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
Property Descriptions
Novastar
is obligated to pay approximately $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.
Legal
Proceedings
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.
NOVASTAR'S
MANAGEMENT
The
following table sets forth the name, age and position of each of Novastar's
officers and directors:
NAME
|
|
AGE
|
|
POSITION
|
Seth
Grae
|
|
43
|
|
Chief
Executive Officer, President, and Director
|
Thomas
Graham, Jr.
|
|
72
|
|
Interim
Secretary, Director and Chairman of the Board
|
Cornelius
J. Milmoe
|
|
59
|
|
Chief
Operating Officer and Director
|
Larry
Goldman
|
|
49
|
|
Treasurer
and Acting Chief Financial Officer
|
Andrey
Mushakov
|
|
29
|
|
Executive
Vice President - International Nuclear
Operations
|
Under
Novastar's Certificate of Incorporation, the authorized number of directors
of
Novastar is set at no fewer than 1 and no more than 5 directors.
Novastar currently has a board of directors with three members. Each director
serves for a term of one year that expires at the following annual stockholders
meeting. Each officer serves at the pleasure of the board of directors and
until
a successor has been qualified and appointed. There are no family relationships,
or other arrangements or understandings between or among any of the directors,
executive officers or other person pursuant to which such person was selected
to
serve as a director or officer. Set forth below is certain biographical
information regarding each of Novastar's directors and executive officers:
SETH
GRAE.
Mr.
Grae, age 43, became the Chief Executive Officer and President of Novastar
on
March 17, 2006, and he became a director of Novastar on April 2, 2006. Mr.
Grae’s biographical information is provided above under the heading THE MERGER
AGREEMENT—DIRECTORS OF NOVASTAR AFTER THE MERGER.
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’s biographical information is provided above under the heading THE MERGER
AGREEMENT—DIRECTORS OF NOVASTAR AFTER THE MERGER.
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’s
biographical information is provided above under the heading THE MERGER
AGREEMENT—DIRECTORS OF NOVASTAR AFTER THE MERGER.
LARRY
GOLDMAN.
Mr.
Goldman, age 49, became the Treasurer and Acting Chief Financial Officer of
Novastar on June 13, 2006. Mr. Goldman’s biographical information is provided
above under the heading THE MERGER AGREEMENT—OFFICERS OF NOVASTAR AFTER THE
MERGER.
ANDREY
MUSHAKOV.
Mr.
Mushakov, age 29, became the Executive Vice President - International Nuclear
Operations of Novastar on July 27, 2006. Mr. Mushakov’s biographical information
is provided below under the heading THORIUM POWER’S
MANAGEMENT.
INDEMNIFICATION
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.
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.
NOVASTAR
EXECUTIVE COMPENSATION
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
($)
|
|
Other
Annual
Compensation
($)
(3)
|
|
Restricted
Stock
Award(s)
($)
|
|
Securities
Under-Lying
Options/SARs (#)
|
|
LTIP
Payouts ($)
|
|
All
Other Compensation
($)
|
|
Paul
Carter (1)
|
|
|
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
|
|
|
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.
Carter served as Novastar’s Chief Executive Officer from 2002 until
December 1, 2005.
|
(2)
|
Mr.
Merchant served as Novastar’s interim Chief Executive Officer from
December 1, 2005 until March 17,
2006.
|
(3)
|
The
value of perquisites and other personal benefits, securities and
property
for the named executive officers that do not exceed the lesser of
$1,000
or 10% of the total of the annual salary and bonus is not reported
herein.
|
OPTION
GRANTS IN LAST FISCAL YEAR
Name
|
|
Number
of
Securities
Underlying Options Granted
(1)
|
|
%
of Total Options Granted To Employees in the
Fiscal Year
|
|
Exercise
Price
|
|
Expiration
Date
|
|
Paul
Carter
|
|
|
0
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
H. Merchant
|
|
|
0
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
AGGREGATED
NOVASTAR OPTION EXERCISES IN LAST FISCAL YEAR-END
AND
FISCAL YEAR-END OPTION VALUES TABLE
The
following table contains information concerning the number of shares acquired
and value realized from the exercise of options by the named executive officers
during fiscal 2005 and the number of unexercised options held by the named
executive officers at March 31, 2006.
|
|
|
|
|
|
Number
of Shares of Common Stock Underlying Unexercised Options at Year
End
June 30, 2005
|
|
Value
of Unexpected In-The-Money Options at Year
End June 30, 2005 (1)
|
|
Name
|
|
Shares
Acquired on Exercise
|
|
Value
Realized
($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Paul
Carter
|
|
|
0
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
H. Merchant
|
|
|
0
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
(1)
|
Options
are "in-the-money" if the market price of a share of common stock
exceeds
the exercise price of the option.
|
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.
OPTION/SAR
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.
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.
NOVASTAR
PRINCIPAL STOCKHOLDERS
The
following table sets forth certain information with respect to the beneficial
ownership of Novastar’s common stock as of August 1, 2006 by:
|
l
|
each
securityholder known by Novastar to be the beneficial owner of more
than
5% of Novastar’s outstanding common
stock;
|
|
|
each
of the named executive officers of Novastar listed in the table under
the
caption “Executive Compensation”
and
|
|
|
all
current directors and executive officers as a
group.
|
Unless
otherwise specified, the address of each of the persons set forth below is
in
care of Novastar Resources Ltd., 8300 Greensboro Drive, Suite 800, McLean,
VA
22102.
Name
and Address of Beneficial Owner(1)
|
|
Amount
and Nature of
Beneficial
Ownership(1)
|
|
Percent
of
Common
Stock(2)
|
|
Seth
Grae
|
|
|
7,050,000
|
|
|
4.5
|
%
|
Andrey
Mushakov
|
|
|
1,828,125
|
|
|
1.2
|
%
|
Thomas
Graham, Jr.
|
|
|
273,333
|
|
|
*
|
|
Cornelius
J. Milmoe
|
|
|
75,000
|
|
|
*
|
|
Larry
Goldman
|
|
|
75,000
|
|
|
*
|
|
OTC
Investments Ltd.
1710-1177
West Hastings Street
Vancouver,
BC V6E 2L3
Canada
|
|
|
15,000,000
|
|
|
9.6
|
%
|
Directors
and Officers as a Group (four people)
|
|
|
9,301,458
|
|
|
5.9
|
%
|
* Less
than
1%
(1) Beneficial
ownership is determined in accordance with the rules of the SEC 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 Novastar common
stock.
(2) A
total
of 156,411,474 shares of Novastar common stock are considered to be outstanding
pursuant to Rule 13d-3(d)(1) under the Securities Exchange Act of 1934. For
each
beneficial owner above, any options exercisable within 60 days have been
included in the denominator.
THORIUM
POWER'S BUSINESS
General
Overview
Thorium
Power is a Delaware corporation that was incorporated on January 8, 1992.
Thorium Power has 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
Thorium Power began working with the Russian Research Centre Kurchatov on the
development and testing of thorium fuel designs. At this time, Thorium Power
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 Thorium
Power each provided funding. As a result of these grants, contracts between
the
U.S. government and the Kurchatov Institute and arrangements directly between
Thorium Power and such institute, Thorium Power 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, Thorium Power intends to license
its 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. Thorium Power plans to
remain a technology company. It has no plans to own or operate nuclear
facilities or otherwise handle nuclear materials.
Thorium
Power’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.
Thorium
Power’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, Thorium Power 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.
Thorium
Power’s Mission
Thorium
Power has two missions. The first 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. The second is 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.
The
Thorium Power Story
Before
World War II, a then young professor Dr. Edward Teller taught a student named
Alvin Radkowsky. Dr. Teller later became one of the 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.
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, the current Chief Executive Officer of
Thorium Power, 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 Thorium Power. 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 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, Thorium Power has been a privately held
company developing the nuclear fuel designs originally invented by Dr. Alvin
Radkowsky.
The
Nuclear Power Industry
Presently,
nuclear power provides 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 (Thorium Power’s market of interest) and fuel fabrication); back-end
nuclear fuel services (spent fuel management and reprocessing), transportation,
and various other services.
Today
the
vast majority of commercial nuclear power plants around the world use uranium
oxide fuel. This uranium oxide fuel is comprised of uranium enriched up to
5% by
uranium-235, with the remaining 95% or more being uranium-238. During
irradiation inside a reactor core, some of the uranium-238 isotopes capture
a
neutron and become plutonium-239, a long-lived fissionable element that can
be
used to make nuclear weapons. Each year, an average 1,000-megawatt PWR produces
over 200 kilograms of reactor-grade plutonium in its spent fuel. The
plutonium-bearing spent fuel may be buried in a repository such as the 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
Thorium
Power’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. Thorium Power, on the other hand, only intends to
provide fuel design services. Thorium Power does not intend to fabricate fuels.
Accordingly, these companies will be Thorium Power’s competitors in that they
may design alternatives to its fuel designs, however, they will also be
potential licensees of Thorium Power’s fuel designs and may fabricate nuclear
fuels using Thorium Power’s fuel design technology.
Thorium
Power 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.
Management
believes that Thorium Power'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). Thorium 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 Thorium Power’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. Thorium Power’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.
Thorium
Power'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.
Thorium/uranium
fuel
Management
believes that Thorium Power'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.
Thorium Power 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 Thorium Power fuel designs is that
the
entire industry infrastructure is based on uranium fuel with enrichments of
3-5%. Thorium Power’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 Thorium Power 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 Thorium Power would license its
intellectual property rights to Thorium Power's thorium/uranium nuclear fuel.
An
alternative marketing strategy Thorium Power 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, Thorium
Power 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, Thorium Power 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, Thorium Power 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, Thorium Power will provide its expertise to General Atomics.
Thorium Power will contribute $1.25 million toward the PCD phase of the project.
Sources
and Availability of Raw Materials
Thorium
Power is a fuel designer that intends to license its technology to fuel
fabricators. Accordingly, Thorium Power does not plan to utilize any raw
materials in the conduct of its operations. However, the fuel fabricators who
potentially will license Thorium Power’s fuel designs in the future will need
thorium and uranium to fabricate thorium-based fuels.
All
of
Thorium Power'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.
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. Thorium Power 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 Thorium Power'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 Thorium Power'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 Thorium Power’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 Thorium Power 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 Thorium Power nuclear fuel designs, this operating experience could
be
invaluable to other reactor operators considering switching to one of Thorium
Power'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 Thorium Power's three nuclear fuel designs.
Intellectual
Property
Thorium
Power'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,
Thorium Power 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 Thorium Power’s fuel
designs. Thorium Power has paid approximately $30,000 of its own funds to these
Russian contractors within the same time period.
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 Thorium
Power’s future partners and licensees is heavily regulated. The Kurchatov
Institute and other locations where Thorium Power’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 Thorium Power’s fuel
designs that are taking place at Russian facilities. Nuclear fuel fabricators,
who will potentially fabricate fuel using Thorium Power’s technology under
licenses from Thorium Power, are similarly regulated. Nuclear power plants
that
may utilize the fuel produced by these fuel fabricators require specific
licenses relating to possession and use of nuclear materials as well as numerous
other governmental approvals for the ownership and operation of nuclear power
plants.
Employees
As
of
August 7, 2006, Thorium Power had 2 full-time employees.
Thorium
Power uses consultants with specific skills to assist with various aspects
of
its project evaluation, due diligence and business development.
Properties
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).
THORIUM
POWER'S MANAGEMENT
The
following table sets out certain information regarding the directors and
executive officers of Thorium Power:
NAME
|
|
AGE
|
|
POSITION
|
|
|
|
|
|
Seth
Grae
|
|
43
|
|
President,
Chief Executive Officer and Director
|
|
|
|
|
|
Andrey
Mushakov
|
|
29
|
|
Treasurer
and Secretary
|
|
|
|
|
|
Harold
Welch
|
|
77
|
|
Chairman
and Director
|
|
|
|
|
|
Thomas
Graham, Jr.
|
|
72
|
|
Director
|
|
|
|
|
|
Daniel
Barstow Magraw
|
|
59
|
|
Director
|
|
|
|
|
|
Alfred
Rubin
|
|
75
|
|
Director
|
There
are
no family relationships between any of the foregoing individuals. None of
Thorium Power's officers or directors have been involved in legal proceedings
of
the type that are required to be disclosed.
The
Thorium Power Bylaws set the number of directors in the range from five to
fifteen. There are currently five directors. Thorium Power has an Audit
Committee comprised of two directors: Alfred Rubin (Chairman of the Audit
Committee) and G. Harold Welch, Jr.
The
Thorium Power Board does not have a designated audit committee financial expert.
Biographical
information about Thorium Power's officers, directors and key consultants
follows.
SETH
GRAE.
Mr. Grae
has been involved with Thorium Power since it was founded in 1992. Mr. Grae
is
the President, the Chief Executive Officer and a director of Thorium Power.
Mr.
Grae also became the Chief Executive Officer and President of Novastar on March
17, 2006, and he became a director of Novastar on April 2, 2006.
Mr.
Grae’s biographical information is provided above under the heading THE MERGER
AGREEMENT—DIRECTORS OF NOVASTAR AFTER THE MERGER.
ANDREY
MUSHAKOV. Mr.
Mushakov is Treasurer and Secretary of Thorium Power and has held these
positions since April 2002 and July 2003 respectively. He is the primary liaison
between Thorium Power 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 Thorium
Power'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), 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 .
G.
HAROLD WELCH, JR.
Mr.
Welch served as Chairman of the board of directors of Thorium Power from 1992
to
1995, and resumed the role of Chairman of the Board in 2005. From 1979 to 1990,
he was the Chairman and President of Yale New Haven Medical Center, Inc. From
1990 to 1999, he was Chairman of the Board of the South Central Connecticut
Regional Water Authority, of which he was a member since 1978. Mr. Welch also
was a member of the Board of Biocraft Laboratories, Inc., a New York Stock
Exchange listed generic drug company. Mr. Welch is a graduate of Yale University
and the Stonier Graduate School of Banking at Yale University.
THOMAS
GRAHAM, JR. Ambassador
Graham has been a member of the board of directors of Thorium Power since
July
1, 1997. He also became the Interim Secretary and a director of Novastar
on
April 2, 2006, and chairman of the board of directors of Novastar on April
4,
2006.
Ambassador
Graham’s biographical information is provided above under the heading THE MERGER
AGREEMENT—DIRECTORS AND OFFICERS OF NOVASTAR AFTER THE MERGER.
DANIEL
BARSTOW MAGRAW, JR.
Mr.
Magraw has been a member of the board of directors of Thorium Power since April
7, 1996. He is one of the world’s leading expert on international environmental
law and policy. Mr. Magraw is President and CEO of the Center for International
Environmental Law (CIEL). From 1992-2001, he was Director of the International
Environmental Law Office of the US Environmental Protection Agency. He is a
member of the US Department of State Study Group on International Business
Transactions and was Chair of the 15,000-member Section of International Law
and
Practice of the American Bar Association. He practiced international law,
constitutional law, and bankruptcy law at Covington & Burling in Washington,
DC from 1978-1983. Mr. Magraw is a widely-published author in the field of
international environmental law. He is a graduate of Harvard University and
the
University of California, Berkley Law School.
ALFRED
RUBIN.
Mr.
Rubin has been a director of Thorium Power since April 10, 2003. Mr. Rubin
brings to the Board expertise in government contracting and the management
of
technology projects. As Chairman and CEO of System Automation Corporation,
a
company he founded in 1968, he provided systems analysis and software
development services to Federal agencies and state and local governments. System
Automation clients include Federal agencies such as DOD, State, NRC, and
NIH, and over twenty States. Mr. Rubin received his B.S. degree
(Mathematics and Physics) and an M.S. (Mathematics) followed by a graduate
fellowship in Mathematics from Wayne State University in Detroit.
Mr.
Rubin
lectured in Mathematics at the City College of New York from 1961 to 1965 when
he joined industry in the field of computer science.
Indemnification
Pursuant
to the certificate of incorporation of Thorium Power, no director shall be
liable to the corporation or its stockholders for monetary damages for breach
of
fiduciary duty as a director, except for liability
· |
for
a breach of such director’s duty of loyalty to the corporation or its
stockholders,
|
· |
for
acts or omissions not in good faith or which involve the intentional
misconduct or a knowing violation of law,
|
· |
under
Section 174 of the General Corporation Law of the State of Delaware,
or
|
· |
for
any transaction from which the director derived an improper personal
benefit.
|
Thorium
Power’s bylaws provide that Thorium Power, to the fullest extent permitted or
required by applicable law, shall indemnify, and advance expenses to, each
and
every person who is or was a director, officer, employee, agent or fiduciary
of
the corporation or of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in which such person is or was serving
at the request of the corporation and who, because of any such position or
status, is directly or indirectly involved in any action, suit, arbitration
on,
alternate dispute resolution mechanism, investigation, administrative hearing
or
any other proceeding whether civil, criminal, administrative or investigative,
provided that such indemnification is to conduct within such person’s scope of
duties as had been requested by the corporation, and provided that any person
requesting advancement of expenses shall provide a statement that the conduct
was within the scope of his or her duties to the corporation.
Thorium
Power also has the power to purchase and maintain insurance on behalf of any
person who 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 any liability asserted against him or her and incurred
by him or her in any such capacity or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under applicable law.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted under these provisions, Thorium Power has been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
THORIUM
POWER EXECUTIVE COMPENSATION
Executive
Compensation
The
following table sets forth the annual and long-term compensation for services
in
all capacities to Thorium Power for the fiscal years ended December 31, 2005,
2004 and 2003 paid to the Thorium Power's Chief Executive Officer ("CEO") and
its Treasurer and Secretary.
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
LONG
TERM COMPENSATION
|
|
|
ANNUAL
COMPENSATION
|
AWARDS
|
PAYOUTS
|
Name
and
Principal
Position
|
Year
|
Salary
($)
(1)
|
Bonus
($)
|
Other
Annual Compensation
($)
|
Restricted
Stock
Award(s)
($)
|
Securities
Underlying Options/ SARs
(#)
|
LTIP
Payouts
($)
|
All
Other Compensation
($)
|
Seth
Grae,
President
and CEO
|
2005
|
158,333
|
-
|
|
|
150,000
|
|
|
2004
|
150,000
|
-
|
|
|
-
|
|
|
2003
|
158,333
|
-
|
|
|
-
|
|
|
None
of
Thorium Power's other executive officers received annual salary and bonuses
in
excess of $100,000 during the past three fiscal years.
(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 2006.
EXECUTIVE
OFFICER OPTION GRANTS IN LAST FISCAL YEAR
The
following table sets forth the options granted to Thorium Power's executive
officers during the year 2005.
Name
|
|
Name
of Securities
Underlying
Options
Granted
|
|
%
of Total Options
Granted
to Employees in the
Fiscal
Year
|
|
Exercise
Price
|
|
Expiration
Date
|
Seth
Grae
|
|
150,000
|
|
66
|
|
$4.00
|
|
July
2010
|
On
August
17, 2005, Seth Grae was awarded a bonus of 150,000 stock options for shares
of
Thorium Power. The option was fully vested upon grant and exercisable for up
to
5 years, with an exercise price of $4.00 (four US dollars) per share.
AGGREGATED
OPTION EXERCISES IN LAST FISCAL YEAR-END
AND
FISCAL YEAR-END OPTION VALUES TABLE
The
following table contains information concerning the number of shares acquired
and value realized from the exercise of options by the named executive officers
during fiscal 2005 and the number of unexercised options held by the named
executive officers at December 31, 2005.
|
|
|
|
|
|
Number
of Shares of Common Stock Underlying Unexercised Options at Year
End
(December
31, 2005)
|
|
Value
of Unexercised In-The-Money Options at Year End (December 31, 2005)
(1)
($)
|
Name
|
|
Shares
Acquired on Exercise
|
|
Value
Realized ($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
Seth
Grae
|
|
N/A
|
|
N/A
|
|
208,000
|
|
—
|
|
0
|
|
|
(1)
Options are "in-the-money" if the market price of a share of common stock
exceeds the exercise price of the option. Thorium Power's common stock does
not
have an active trading market. For purposes of this calculation a market price
of $4.00 was used because Thorium Power issued common stock at $4.00 per share
pursuant to a stock purchase made in February, 2006. Because of the lack of
liquidity, the true market value may be lower.
Thorium
Power has no retirement, pension or profit sharing program for the benefit
of
its directors, officers or other employees to which it contributes, but the
board of directors may recommend one or more such programs for adoption in
the
future. Thorium Power does not maintain a 401(k) plan or similar
plan.
Employee
Stock Option Plan
Thorium
Power does not maintain any equity incentive or stock option plans, however,
Thorium Power has made individual option grants to employees, officers,
directors and consultants.
Contracts
with Officers
None.
THORIUM
POWER PRINCIPAL STOCKHOLDERS
The
following table sets forth certain information with respect to the beneficial
ownership of Thorium Power’s equity securities as of August 8, 2006
by:
· |
each
security holder known by Thorium Power to be the beneficial owner
of more
than 5% of Thorium Power’s outstanding
securities;
|
· |
each
current executive officer of Thorium
Power;
|
· |
each
current director of Thorium Power;
and
|
· |
all
current directors and executive officers of Thorium Power as a
group.
|
Unless
otherwise specified, the address of each of the persons set forth below is
in
care of Thorium Power, Inc., 8300 Greensboro Drive, Suite 800, McLean, VA 22102.
Name
and Address of Beneficial Owner (1)
|
|
Amount
and Nature of Beneficial Ownership
of
Thorium
Power (2)
|
|
Percent
of Thorium Power’s
Common
Stock
|
Thunder
Investors, LLC
200
West Madison Street
Chicago,
IL 60606
|
|
1,012,500
(6)
|
|
20.8%
|
Seth
Grae
1249
Beverly Road
McLean,
VA 22102
|
|
521,698
(3)
|
|
11.8%
|
Gilliette
Lee Chukat and/or Annette M. Radkowsky
10
Hameah Ve echad Street
Ramat
Chen 52234
Israel
|
|
458,810
(7)
|
|
10.9%
|
G.
Harold Welch, Jr.
307
St. Ronan Street
New
Haven, CT 06511
|
|
234,166
(8)
|
|
5.6%
|
Thomas
Graham, Jr.
7609
Glenbrook Road
Bethesda,
MD 20814
|
|
140,025
(4)
|
|
3.3%
|
Andrey
Mushakov
1701
East West Hwy., Apt. 401
Silver
Spring, MD 20910
|
|
37,500
(5)
|
|
0.9%
|
Daniel
Barstow Magraw, Jr.
8564
Horseshoe Lane
Potomac,
MD 20854
|
|
35,573
(9)
|
|
0.8%
|
Alfred
Rubin
3411
Fallstaff Road
Baltimore,
MD 21215
|
|
30,750
|
|
0.7%
|
Mark
Mamolen
1759
W. 28th Street
Sunset
Island #1
Miami
Beach, FL 33140
|
|
487,500
(10)
|
|
10.8%
|
Craig
Robins
1632
Pennsylvania Avenue
Miami,
FL 33139
|
|
291,000
(11)
|
|
6.6%
|
Officers
and Directors as a group (6 people)
|
|
999,712
|
|
21.8%
|
(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 Thorium Power common stock and Novastar’s common stock,
respectively.
(2) A
total
of 4,198,066
shares
of
Thorium Power common stock are considered outstanding pursuant to SEC Rule
13d-3(d)(1). For each Beneficial Owner above, any options held by such
Owner that are exercisable within 60 days have been included in both the
numerator and added to the denominator.
(3)
Includes 208,000
shares
underlying Thorium Power stock options.
(4)
Includes 100,000 shares underlying Thorium Power stock options.
(5)
Includes 37,500
shares
underlying Thorium Power stock options.
(6)
Includes 675,000
shares
underlying Thorium Power warrants.
(7)
Includes 30,000
shares
underlying Thorium Power stock options.
(8)
Includes
20,000 shares underlying Thorium Power stock options.
(9)
Includes
25,000 shares underlying Thorium Power stock options.
(10)
Includes
325,000 shares underlying Thorium Power stock options.
(11)
Includes
194,000 shares underlying Thorium Power stock options.
DESCRIPTION
OF SECURITIES
Novastar's
authorized capital stock consists of 250,000,000 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 August 2, 2006, Novastar had 156,411,474 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.
No
other
classes of preferred stock are outstanding.
ELECTION
AND REMOVAL OF DIRECTORS
Each
of
Novastar's directors serves for a term of one year or until his successor is
elected and qualified if there is no annual meeting. At each annual meeting
of
stockholders, the successors to the then current directors whose terms are
expiring are elected to serve for one-year terms. Incumbent directors may be
removed at any special meeting of Novastar's stockholders upon a vote of 2/3
of
the outstanding shares of stock entitled to vote for directors.
NOVASTAR
RESOURCES LTD.
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
following unaudited pro forma condensed consolidated financial statements have
been prepared to reflect the effect of the proposed merger between Novastar
and
Thorium Power. The March 31, 2006 condensed consolidated pro forma financial
statements include Novastar's balance sheet as of March 31, 2006 and the results
of its operations for the nine months ended March 31, 2006 and Thorium Power's
balance sheet as of March 31, 2006 and the results of its operations for the
nine months ended March 31, 2006. The historical financial data of Novastar
and
Thorium Power used in the December 31, 2005 pro forma condensed consolidated
statements of operations have been derived from Thorium Power's audited
financial statements presented for the twelve months ended December 31, 2005
and
from Novastar's annual report on Form 10-K for the twelve months ended June
30,
2005.
The
historical financial information has been adjusted to give effect to pro forma
events that are directly attributable to the merger, factually supportable,
and
expected to have a continuing impact on combined results. The pro forma
financial statements of operations assume that the combination occurred at
the
beginning of the periods presented in the statements. All intercompany accounts
and transactions have been eliminated.
This
information is provided to aid in the analysis of the financial aspects of
the
merger. These unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements and
notes
thereto of Novastar and Thorium Power, included elsewhere in this prospectus.
The
unaudited pro forma condensed consolidated financial statements are for
illustrative purposes only. The financial results may have been different had
the companies always been combined. Because the plans for these activities
have
not yet been finalized, Novastar is not able to reasonably quantify the costs
for such activities. You should not rely on the pro forma condensed consolidated
financial statements as being indicative of the historical results that would
have been achieved had the companies always been combined or the future results
that the combined company will experience.
MATERIAL
CONTRACTS BETWEEN NOVASTAR AND THORIUM POWER
There
are
no currently effective material contracts between Novastar and Thorium Power,
other than the merger agreement.
COMPARATIVE
RIGHTS OF HOLDERS OF THORIUM POWER COMMON STOCK AND
NOVASTAR
COMMON STOCK
After
consummation of the merger, holders of Thorium Power common stock will become
holders of Novastar common stock. As stockholders of Thorium Power, their rights
are presently governed by Delaware law and the Certificate of Incorporation
and
Bylaws of Thorium Power (the "Thorium Power Charter Documents"). As stockholders
of Novastar, their rights will be governed by Nevada law and by Novastar's
Articles of Incorporation and Bylaws (the "Novastar Charter Documents"). The
following discussion summarizes the material differences between the rights
of
holders of the capital stock of a Delaware corporation such as Thorium Power
and
the rights of the holders of the capital stock of a Nevada corporation, such
as
Novastar.
Authorized
Capital Stock
The
authorized capital stock of Novastar, upon closing of the merger with Thorium
Power, will consist of 500,000,000 shares of common stock, $0.001 par value
per
share. Each share of the common stock of Novastar will have one vote per share,
and the right to notice of stockholders' meetings and to vote upon the election
of directors or upon any other matter as to which approval of the common
stockholders is required or requested. Stockholders will not have a right to
cumulate their votes for the election of directors.
Fiduciary
Duties of Directors
Both
Delaware and Nevada law provide that the board of directors has the ultimate
responsibility for managing the business and affairs of a corporation. In
discharging this function, directors of Nevada and Delaware corporations owe
fiduciary duties of care and loyalty to the corporations they serve and the
stockholders of those corporations.
With
respect to fiduciary duties, Nevada corporate law may provide broader
discretion, and increased protection from liability, to directors in exercising
their fiduciary duties, particularly in the context of a change in control.
Delaware courts have held that the directors of a Delaware corporation are
required to exercise an informed business judgment in performing their duties.
An informed business judgment means that the directors have informed themselves
of all material information reasonably available to them. Delaware courts have
also imposed a heightened standard of conduct on directors in matters involving
a contest for control of the corporation. A director of a Nevada business
corporation must perform his or her duties as a director in good faith and
with
a view to the interests of the corporation.
Delaware
corporate law does not contain any statutory provision permitting the board
of
directors, committees of the board and individual directors, when discharging
their duties, to consider the interests of any constituencies other than the
corporation or its stockholders. Nevada corporate law, on the other hand,
provides that in discharging their duties, the board of directors, committees
of
the board and individual directors may, in exercising their respective powers
with a view to the interests of the corporation, choose, to the extent they
deem
appropriate, to subordinate the interests of stockholders to the interests
of
employees, suppliers, customers or creditors of the corporation or to the
interests of the communities served by the corporation. Furthermore, the
officers and directors may consider the long-term and short-term interests
of
the corporation and its stockholders.
Under
Delaware corporate law, directors of a Delaware corporation are presumed to
have
acted on an informed basis, in good faith and in the honest belief that their
actions were in the best interest of the corporation. This presumption may
be
overcome, if a preponderance of the evidence shows that the directors’ decision
involved a breach of fiduciary duty such as fraud, overreaching, lack of good
faith, failure of the board to inform itself properly or actions by the board
to
entrench itself in office. Delaware courts have imposed a heightened standard
of
conduct upon directors of a Delaware corporation who take any action designed
to
defeat a threatened change in control of the corporation. The heightened
standard has two elements: the board must demonstrate some basis for concluding
that a proper corporate purpose is served by implementation of any defensive
measure and that measure must be reasonable in relation to the perceived threat
posed by the change in control.
Under
Nevada corporate law, unless there is a breach of fiduciary duty or a lack
of
good faith, any act of the board of directors, any committee of the board or
any
individual director is presumed to be in the corporation’s best interest. No
higher burden of proof or greater obligation to justify applies to any act
relating to or affecting an acquisition or a potential or proposed acquisition
of control of the corporation than to any other action. Nevada corporate law
imposes a heightened standard of conduct upon directors who take action to
resist a change or potential change in control of a corporation, if such action
impedes the exercise of the stockholders’ right to vote for or remove
directors.
Anti-Takeover
Laws
Section
203 of the DGCL contains certain “anti-takeover” provisions that apply to a
Delaware corporation, unless the corporation elects not to be governed by such
provisions in its Certificate of Incorporation or by-laws. Section 203 prohibits
a corporation from engaging in any “business combination” with any person that
owns 15% or more of its outstanding voting stock for a period of three years
following the time that such stockholder obtained ownership of more than 15%
of
the outstanding voting stock of the corporation. A business combination includes
any merger, consolidation, or sale of substantially all of a corporation’s
assets. The 3-year waiting period does not apply, however, if any of the
following conditions are met:
· |
the
board of directors of the corporation approved either the business
combination or the transaction which resulted in such stockholder
owning
more than 15% of such stock before the stockholder obtained such
ownership;
|
· |
after
the transaction which resulted in the stockholder owning more than
15% of
the outstanding voting stock of the corporation is completed, such
stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time that the transaction commenced;
or
|
· |
at
or after the time the stockholder obtains more than 15% of the outstanding
voting stock of the corporation, the business combination is approved
by
the board of directors and authorized at an annual or special meeting
of
stockholders (and not by written consent) by the affirmative vote
of at
least 66 2/3% of the outstanding voting stock that is not owned by
the
acquiring stockholder.
|
In
addition, Section 203 does not apply to any person who became the owner of
more
than 15% of a corporation’s stock if it was as a result of action taken solely
by the corporation.
Nevada
corporate law contains certain “anti-takeover” provisions that apply to a Nevada
corporation, unless the corporation elects not to be governed by such provisions
in its Articles of Incorporation or By-laws. Nevada corporate law prohibits
a
corporation from engaging in any “business combination” with any person that
owns 10% or more of its outstanding voting stock for a period of 3 years
following the time that such stockholder obtained ownership of more than 10%
of
the outstanding voting stock of the corporation. A business combination includes
any merger, consolidation, or sale of substantially all of a corporation’s
assets. The 3-year waiting period does not apply, however, if the board of
directors of the corporation approved either the business combination or the
transaction which resulted in such stockholder owning more than 10% of such
stock before the stockholder obtained such ownership.
Dividend
Rights and Repurchase of Shares
Under
the
DGCL, a corporation may declare and pay dividends out of surplus or, if no
surplus exists, out of net profits, for the fiscal year in which the dividends
are declared and/or for its preceding fiscal year. Dividends may not be paid
out
of net profits if the capital of the corporation is less than the aggregate
amount of capital represented by the outstanding stock of all classes having
a
preference upon the distribution of assets. Surplus is defined as net assets
minus stated capital. Delaware corporate law applies different tests to the
payment of dividends and the repurchase of shares. Delaware corporate law
generally provides that a corporation may redeem or repurchase its shares only
if such redemption or repurchase would not impair the capital of the
corporation.
Under
Nevada corporate law, a corporation is prohibited from making a distribution
(including dividends on, or redemption or repurchase of, shares of capital
stock) to its stockholders if, after giving effect to the
distribution:
· |
the
corporation would be unable to pay its debts as they become due in
the
usual course of business; or
|
· |
the
total assets of the corporation would be less than the sum of its
total
liabilities plus the amount that would be needed, if that corporation
were
then dissolved, to satisfy the rights of stockholders having superior
preferential rights upon dissolution to the stockholders receiving
the
distribution.
|
The
board
of directors of a Nevada corporation may base the above determination on
financial statements prepared on the basis of accounting principals, fair
valuation, including without limitation unrealized appreciation or depreciation,
or any other method that is reasonable under the circumstances.
Liability
of Directors and Officers
The
DGCL
permits a corporation to include in its certificate of incorporation a provision
limiting or eliminating the personal liability of its directors to the
corporation or its stockholders for monetary damages arising from a breach
of
fiduciary duty, except for:
·
|
a
breach
of the duty of loyalty to the corporation or its
stockholders;
|
· |
acts
or omissions not in good faith or which involve intentional misconduct
or
a knowing violation of law;
|
· |
a
declaration of a dividend or the authorization of the repurchase
or
redemption of stock in violation of Delaware corporate law;
or
|
· |
any
transaction from which the director derived an improper personal
benefit.
|
The
Nevada General Corporation Law or NGCL permits a corporation to adopt any
provision in its Articles of Incorporation that are not contrary to the laws
of
Nevada, and there is no restriction on a corporation’s ability to limit the
personal liability of a director or officer to the corporation. Under Nevada
corporate law, a director or officer is not individually liable to a corporation
or its stockholders for any damages as a result of any act or failure to act
in
his capacity as a director or officer unless it is proved that:
· |
his
act or failure to act constituted a breach of his fiduciary duties;
and
|
· |
his
breach of those duties involved intentional misconduct, fraud or
a knowing
violation of the law.
|
Both
Thorium Power’s Certificate of Incorporation and Novastar’s Articles of
Incorporation contain the above permissible limitations on liability of their
respective corporate officers and directions.
Indemnification
of Directors and Officers
Both
Delaware and Nevada, in a substantially similar manner, permit a corporation
to
indemnify officers, directors, employees and agents for actions taken in good
faith and in a manner they reasonably believed to be in, or not opposed to,
the
best interests of the corporation, and with respect to any criminal action,
which they had no reasonable cause to believe that their conduct was unlawful.
Both companies provide for such indemnifications under their respective
corporate statutes.
Annual
Meetings
Under
the
DGCL, if the annual meeting for the election of directors is not held on the
designated date, or action by written consent to elect directors in lieu of
an
annual meeting has not been taken, the directors are required to cause that
meeting to be held as soon as is convenient. If there is a failure to hold
the
annual meeting or to take action by written consent to elect directors in lieu
of an annual meeting for a period of 30 days after the designated date for
the
annual meeting, or if no date has been designated for a period of 13 months
after the latest to occur of the organization of the corporation, its last
annual meeting or the last action by written consent to elect directors in
lieu
of an annual meeting, the Court of Chancery may summarily order a meeting to
be
held upon the application of any stockholder or director.
Under
the
NGCL, if the annual meeting is not held within 18 months after the last election
of directors, the district court has jurisdiction to order the election of
directors, upon application of any one or more stockholders holding at least
15%
of the voting power.
Adjournment
of Stockholder Meetings
Under
the
DGCL, if a meeting of stockholders is adjourned due to lack of a quorum and
the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting must
be
given to each stockholder of record entitled to vote at the meeting. At the
adjourned meeting the corporation may transact any business which might have
been transacted at the original meeting.
Under
the
NGCL, a corporation is not required to give any notice of an adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the board
fixes a new record date for the adjourned meeting.
Amendments
to Bylaws
Under
the
DGCL, bylaws may be adopted, amended or repealed by the stockholders entitled
to
vote thereon. A corporation may, in its certificate of incorporation, confer
this power upon the directors, although the power vested in the stockholders
is
not divested or limited where the board of directors also has such power. The
Certificate of Incorporation of Thorium Power gives the board of directors
authority to adopt, amend or repeal the Bylaws.
The
NGCL
provides that the board of directors of a corporation may make the bylaws,
but
that such bylaws are subject to those adopted by the stockholders, if any.
Further, although not part of Nevada corporate law, an opinion of the Nevada
Attorney General also provides that directors may adopt bylaws for a corporation
if the stockholders do not. Stockholders nevertheless retain the right to adopt
bylaws superseding those adopted by the board of directors.
Interested
Director Transactions
Under
the
DGCL, contracts or transactions in which one or more of a corporation’s
directors has an interest are not void or voidable because of such interest,
if
certain conditions are met. To meet these conditions, either (i) the
stockholders or the disinterested directors must approve any such contract
or
transaction after the full disclosure of material facts, or (ii) the contract
or
transaction must have been fair as to the corporation at the time it was
approved. Under the DGCL, if board approval is sought, the contract or
transactions must be approved by a majority of the disinterested directors
(even
though less than a quorum).
The
NGCL
does not automatically void contracts or transactions between a corporation
and
one of the corporation’s directors. Under Nevada corporate law, a contract or
transaction may not voided solely because:
· |
the
contract is between the corporation and a director of the corporation
or
an entity in which a director of the corporation has a financial
interest;
|
· |
an
interested director is present at the meeting of the board of directors
that authorizes or approves the contract or transaction;
or
|
· |
the
vote or votes of the interested director are counted for purposes
of
authorizing or approving the contract or transaction involving the
interested transaction.
|
Removal
of Directors
Under
the
DGCL, any director or the entire board of directors may be removed, with or
without cause, by the majority vote of the stockholders then entitled to vote
at
an election of directors. The Thorium Power Certificate of Incorporation
provides that a director may be removed with by a majority vote taken at a
meeting called for that purpose with the unanimous consent of the stockholders.
A
director of a Nevada corporation or the entire board of directors may be removed
with or without cause during their term of office only by a vote of 2/3s of
the
voting power of the then outstanding shares entitled to vote in an election
of
directors.
Stockholders’
Rights to Examine Books and Records
The
DGCL
provides that any stockholder of record may, in a written demand made under
oath, demand to examine a corporation’s books and records for a proper purpose
reasonably related to such person’s interest as a stockholder. If management of
the corporation refuses, the stockholder can compel an examination by court
order.
The
NGCL
permits any person who has been a stockholder of record for at least 6 months,
or any person holding at least 5% of all outstanding shares, to inspect and
copy
the stockholders’ list, articles of incorporation or by-laws, if the stockholder
gives at least 5 business days’ prior written notice. The corporation may deny
inspection if the stockholder refuses to furnish an affidavit that the
inspection is not desired for a purpose or object other than the business of
the
corporation and that he or she has not at any time offered for sale or sold
any
stockholders’ lists of any corporation or aided and abetted any person in
procuring a list for that purpose. In addition, a Nevada corporation must allow
stockholders who own or represent at least 15% of the corporation’s outstanding
shares the right, upon at least 5 days’ written demand, to inspect the books of
account and financial records of the corporation, to make copies from them
and
to conduct an audit of those records, except that any corporation listed and
traded on any recognized stock exchange or any corporation that furnishes to
its
stockholders a detailed, annual financial statement is exempt from this
requirement.
Duration
of Proxies
The
DGCL,
a proxy executed by a stockholder will remain valid for a period of 3 years,
unless the proxy provides for a longer period. Under the NGCL, a proxy is
effective only for a period of 6 months, unless it is coupled with an interest
or unless otherwise provided in the proxy, which duration may not exceed 7
years.
Differences
in Franchise Taxes
Nevada
does not have a corporate franchise tax. The Delaware franchise tax is based
on
a formula involving the number of authorized shares or the asset value of the
corporation, whichever would impose a lesser tax.
Blank
Check Preferred Stock
The
certificate of incorporation of Novastar authorizes Novastar’s boards of
directors to issue shares of preferred stock in series with such preferences
as
designated at the time of issuance. The Thorium Power certificate of
incorporation contains no such authorization. Novastar’s board of directors does
not currently intend to seek stockholder approval prior to any issuance of
shares of preferred stock, except as required by law or regulation.
It
should
be noted that the voting rights and other rights to be accorded to any unissued
series of preferred stock of Novastar remain to be fixed by the board.
Accordingly, if the board of directors so authorizes, the holders of preferred
stock may be entitled to vote separately as a class in connection with approval
of certain extraordinary corporate transactions or might be given a
disproportionately large number of votes. Such preferred stock could also be
convertible into a large number of shares of Novastar common stock under certain
circumstances or have other terms that might make acquisition of a controlling
interest in Novastar more difficult or more costly, including the right to
elect
additional directors to the board of directors. Potentially, preferred stock
could be used to create voting impediments or to frustrate persons seeking
to
effect a merger or otherwise to gain control of Novastar. Also, preferred stock
could be privately placed with purchasers who might side with the management
of
Novastar opposing a hostile tender offer or other attempt to obtain
control.
TRANSFER
AGENT AND REGISTRAR
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.
LEGAL
MATTERS
The
validity of the shares of common stock offered in this prospectus has been
passed upon for Novastar by Gary Henrie, 8275 S. Eastern Ave, Suite 200, Las
Vegas, Nevada 89123.
The
tax
consequences of the merger as described above under “MATERIAL FEDERAL INCOME TAX
CONSEQUENCES” has been passed upon for Thorium Power by Thelen Reid & Priest
LLP.
EXPERTS
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 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 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.
WHERE
YOU CAN FIND MORE INFORMATION
Novastar
has filed a registration statement on Form S-4 to register with the SEC the
Novastar common stock to be issued to Thorium Power stockholders in the merger.
This prospectus, which forms a part of that registration statement, does not
contain all of the information included in the registration statement and the
exhibits and schedules thereto as permitted by the rules and regulations of
the
SEC. For further information with respect to Novastar Resources Ltd. and the
shares of common stock offered hereby, please refer to the registration
statement, including its exhibits and schedules. Statements contained in this
prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and, where the contract or other document
is
an exhibit to the registration statement, each such statement is qualified
in
all respects by the provisions of such exhibit, to which reference is hereby
made. You may review a copy of the registration statement at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. Please call the
SEC
at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The registration statement can also be reviewed by accessing
the SEC's Internet site at http://www.sec.gov. Novastar is subject to the
information and reporting requirements of the Securities Exchange Act of 1934
and, in accordance therewith, files periodic reports, proxy statements or
information statements, and other information with the SEC. These reports can
also be reviewed by accessing the SEC's Internet site.
You
should rely only on the information provided in this prospectus, any prospectus
supplement or as part of the registration statement Filed on Form S-4 of which
this prospectus is a part, as such registration statement is amended and in
effect with the SEC. Novastar has not authorized anyone else to provide you
with
different information. Novastar is not making an offer of these securities
in
any state where the offer is not permitted. Novastar should not assume that
the
information in this prospectus, any prospectus supplement or any document
incorporated by reference is accurate as of any date other than the date of
those documents.
PART
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
ITEM
20. 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.
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.
The
foregoing indemnification provisions are broad enough to encompass certain
liabilities of directors and officers of Novastar under the Securities Act.
However, insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Novastar
Resources Ltd., Novastar 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.
ITEM
21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
Exhibits
Exhibit
Number
|
|
Description
|
|
|
|
3.1
|
|
Articles
of Incorporation (incorporated by reference from Novastar’s Registration
Statement on Form 10-SB filed on December 17, 1999).
|
|
|
|
3.2
|
|
By-laws
(incorporated by reference from Novastar’s 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)
|
8*
|
|
Tax
opinion of Thelen Reid & Priest LLP
|
|
|
|
10.1
|
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Walter Doyle (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
|
10.2
|
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Adam Harrison (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
|
10.3
|
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Tim Lelek (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
|
10.4
|
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Bruce Fearn (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
|
10.5
|
|
Compensation
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Paul G. Carter (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
|
10.6
|
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Walter Doyle (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on January 27, 2005).
|
|
|
|
10.7
|
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Sanjeev Pamnani (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on January 27, 2005).
|
|
|
|
10.8
|
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Seth Shaw (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on January 27, 2005).
|
|
|
|
10.9
|
|
Assignment
of Specific Mineral Rights dated September 14, 2005 between American
Graphite Holdings and Novastar Resources Ltd. (incorporated by
reference
from Novastar’s Current Report on Form 8-K filed on October 11,
2005).
|
|
|
|
10.10
|
|
Amendment
No. 1, dated March 5, 2006, to Assignment of Specific Mineral Rights
between American Graphite Holdings and Novastar Resources Ltd.
(incorporated by reference from Exhibit 10.10 of the initial filing
of
this Registration Statement on Form S-4 filed June 14,
2006).
|
|
|
|
10.11
|
|
Mining
Acquisition Agreement dated September 30, 2005 between Walter Doyle
and
Novastar Resources Ltd. (incorporated by reference from Novastar’s Current
Report on Form 8-K filed on October 11, 2005).
|
10.12
|
|
Amendment
No. 1, dated March 5, 2006, to Mining Acquisition Agreement between
Walter
Doyle and Novastar Resources Ltd. (incorporated by reference
from Exhibit
10.12 of the initial filing of this Registration Statement on Form
S-4
filed June 14, 2006).
|
|
|
|
10.13
|
|
Agreement
and Plan of Merger dated as of February 14, 2006, between Novastar
Resources Ltd., TP Acquisition Corp. and Thorium Power, Inc. (incorporated
by reference from Novastar’s Current Report on Form 8-K filed on June 13,
2006).
|
|
|
|
10.14
|
|
Amendment
No. 1, dated June 9, 2006, to Agreement and Plan of Merger between
Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
Inc.
(incorporated by reference to Exhibit 10.1 of the current report
of
Novastar on Form 8-K filed June 13, 2006).
|
|
|
|
10.15
|
|
Employment
Agreement, dated as of February 14, 2006, between Novastar and
Seth Grae
(incorporated by reference to Exhibit 10.2 of the current report
of
Novastar on Form 8-K filed February 21, 2006)
|
|
|
|
10.16
|
|
Stock
Option Agreement, dated as of February 14, 2006, between Novastar
and Seth
Grae (incorporated by reference to Exhibit 10.3 of the current
report of
Novastar on Form 8-K filed February 21, 2006)
|
|
|
|
10.17
|
|
Subscription
Agreement, dated as of February 14, 2006, between Novastar and
Thorium
Power (incorporated by reference to Exhibit 10.4 of the current
report of
Novastar on Form 8-K filed February 21, 2006)
|
|
|
|
10.18
|
|
Amended
and Restated Consulting Agreement, dated February 6, 2006, between
Novastar and Alan Gelband (incorporated by reference to Exhibit
10.5 of
the current report of Novastar on Form 8-K filed February 21,
2006)
|
|
|
|
10.19
|
|
Form
of Subscription Agreement between Novastar and the investors in
the
private placement closed on February 14, 2006 (incorporated by
reference
to Exhibit 10.6 of the current report of Novastar on Form 8-K filed
February 21, 2006)
|
|
|
|
10.20
|
|
Assignment
of Minerals Lease, dated December 31, 2005, between CM Properties
and
Novastar Resources Ltd. (incorporated by reference to Exhibit 10.1
of the
current report of Novastar on Form 8-K filed January 10,
2006)
|
|
|
|
10.21
|
|
Amendment
No. 1 to Assignment of Minerals Lease, dated March 5, 2006 between
CM
Properties and Novastar Resources Ltd. (incorporated by reference
from
Exhibit 10.21 of the initial filing of this Registration Statement
on Form
S-4 filed June 14, 2006).
|
|
|
|
10.22
|
|
Office
Service Renewal Agreement, dated September 21, 2005, between Tysons
Business Center, LLC and Thorium Power (incorporated by reference
from
Exhibit 10.22 of the initial filing of this Registration Statement
on Form
S-4 filed June 14, 2006).
|
10.23
|
|
Sublease
Agreement, dated May 28, 2004, between Thorium Power and Carmen
&
Muss, P.L.L.C. (incorporated by reference from Exhibit 10.23 of
the
initial filing of this Registration Statement on Form S-4 filed
June 14,
2006).
|
|
|
|
10.24
|
|
Office
Building Lease, dated August 14, 2001, between Washington Real
Estate
Investment Trust and Thorium Power (incorporated by reference from
Exhibit
10.24 of the initial filing of this Registration Statement on Form
S-4
filed June 14, 2006).
|
|
|
|
10.25
|
|
Teaming
Agreement dated February 22, 2006 between The University of Texas
System,
The University of Texas of the Permian Basin, The University of
Texas at
Austin, The University of Texas at Arlington, The University of
Texas at
Dallas, The University of Texas at El Paso, The City of Andrews,
Texas,
Andrews County, Texas, the Midland Development Corporation, the
Odessa
Development Corporation, Thorium Power and General Atomics (incorporated
by reference from Exhibit 10.25 of the initial filing of this Registration
Statement on Form S-4 filed June 14, 2006).
|
|
|
|
10.26
|
|
Amendment
No. 1 to Amended and Restated Consulting Agreement, dated June
12, 2006,
among Novastar Resources, Ltd., Alan Gelband and Alan Gelband Company,
Inc. (incorporated by reference to Exhibit 10.1 of the current
report of
Novastar on Form 8-K filed June 13, 2006).
|
|
|
|
10.27
|
|
Employment
Agreement, dated June 6, 2006, between Novastar Resources, Ltd.
and
Cornelius J. Milmoe (incorporated by reference to Exhibit 10.1
of the
current report of Novastar on Form 8-K filed June 13,
2006).
|
|
|
|
10.28
|
|
Stock
Option Agreement, dated June 6, 2006, between Novastar Resources,
Ltd. and
Cornelius J. Milmoe (incorporated by reference to Exhibit 10.1
of the
current report of Novastar on Form 8-K filed June 13,
2006).
|
|
|
|
10.29
|
|
Consulting
Agreement, dated June 12, 2006, between Novastar Resources, Ltd.
and Larry
Goldman (incorporated by reference to Exhibit 10.1 of the current
report
of Novastar on Form 8-K filed June 13, 2006).
|
|
|
|
10.30
|
|
Stock
Option Agreement, dated June 12, 2006, between Novastar Resources,
Ltd.
and Larry Goldman (incorporated by reference to Exhibit 10.1 of
the
current report of Novastar on Form 8-K filed June 13,
2006).
|
|
|
|
10.31
|
|
Office
Service Agreement, dated April 19, 2006, between Tysons Business
Center
LLC and Novastar Resources Ltd. (incorporated by reference from
Exhibit
10.31 of the initial filing of this Registration Statement on Form
S-4
filed June 14, 2006).
|
|
|
|
10.32
|
|
Employment
Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
and
Andrey Mushakov (incorporated by reference to Exhibit 10.1 of the
current
report of Novastar on Form 8-K filed August 4,
2006).
|
10.33
|
|
Stock
Option Agreement, dated July 27, 2006, between Novastar Resources,
Ltd.
and Andrey Mushakov (incorporated by reference to Exhibit 10.2
of the
current report of Novastar on Form 8-K filed August 4,
2006).
|
|
|
|
10.34
|
|
Employment
Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
and
Thomas Graham, Jr. (incorporated by reference to Exhibit 10.3 of
the
current report of Novastar on Form 8-K filed August 4,
2006).
|
|
|
|
10.35
|
|
Stock
Option Agreement, dated July 27, 2006, between Novastar Resources,
Ltd.
and Thomas Graham, Jr. (incorporated by reference to Exhibit 10.4
of the
current report of Novastar on Form 8-K filed August 4,
2006).
|
|
|
|
10.36
|
|
Amendment
No. 2, dated August 8, 2006, to Agreement and Plan of Merger between
Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
Inc.
(incorporated by reference to Exhibit 10.1 of the current report
of
Novastar on Form 8-K filed August 9, 2006).
|
|
|
|
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 Thelen Reid & Priest LLP (included in Exhibit 8)
|
|
|
|
23.2*
|
|
Consent
of Gary Henrie, Esq. (included in Exhibit 5)
|
|
|
|
23.3*
|
|
Consent
of Telford Sadovnick, P.L.L.C.
|
|
|
|
23.4*
|
|
Consent
of Morgan and Company, Chartered Accountants
|
|
|
|
23.5*
|
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC
|
|
|
|
24*
|
|
Power
of Attorney (included on the signature page to this registration
statement)
|
*
filed
herewith
(b)
Financial
Statement Schedules
Not
applicable.
ITEM
22. UNDERTAKINGS.
The
undersigned registrant hereby undertakes:
|
(1)
|
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration statement:
|
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act;
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease
in
volume of securities offered (if the total dollar value of 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 Securities and
Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
|
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in the registration statement or any material
change to such information in the registration statement.
|
|
(2)
|
That,
for the purpose of determining any liability under the Securities
Act,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein,
and the
offering of such securities at that time shall be deemed to be in
the
initial bona fide offering thereof.
|
|
(3)
|
To
remove from registration by means of a post-effective amendment any
of the
securities being registered which remain unsold at the termination
of the
offering.
|
|
(4)
|
That,
for purposes of determining any liability under the Securities Act,
each
filing of the registrant's annual report pursuant to Section 13 (a)
or
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934,
as
amended) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that
time shall be deemed to be the initial bona fide offering thereof.
|
|
(5)
|
To
respond to requests for information that is incorporated by reference
into
the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form,
within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes
information contained in documents filed subsequent to the effective
date
of this registration statement through the date of responding to
the
request.
|
|
(6)
|
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 provisions described under Item 20 above,
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 registrants
in
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, as amended, and will be governed by the final adjudication
of such issue.
|
|
(7)
|
That
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by
the
applicable registration form with respect to reofferings by persons
who
may be deemed underwriters, in addition to the information called
for by
the other Items of the applicable
form.
|
|
(8)
|
That
every prospectus (i) that is filed pursuant to paragraph (h)(1) of
Item
512 of Regulation S-K, or (ii) that purports to meet the requirements
of
section 10(a)(3) of the Securities Act and is used in connection
with an
offering of securities subject to Rule 415, will be filed as a part
of an
amendment to the registration statement and will not be used until
such
amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that
time shall be deemed to be the initial bona fide offering
thereof.
|
|
(9)
|
To
supply by means of a post-effective amendment all information concerning
a
transaction, and the company being acquired involved therein, that
was not
the subject of and included in the registration statement when it
became
effective.
|
SIGNATURES
Pursuant
to the requirements of the Securities Act, the Registrant has duly caused
this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of McLean, State of
Virginia, on August 9, 2006.
|
|
|
|
NOVASTAR RESOURCES
LTD. |
|
|
|
|
By: |
/s/ Seth
Grae |
|
Seth
Grae, Chief Executive Officer
|
|
|
POWER
OF
ATTORNEY
Each
director and/or officer of the registrant whose signature appears below hereby
appoints Seth Grae and Thomas Graham, Jr., and each of them severally, as
his/her attorney-in-fact to sign in his/her name and behalf, in any and all
capacities stated below, and to file with the Securities and Exchange
Commission, any and all amendments, including post-effective amendments, to
this
registration statement, and the registrant hereby also appoints each such person
as its attorney-in-fact with like authority to sign and file any such amendment
in its name and behalf.
Pursuant
to the requirements of the Securities Act, this Registration Statement has
been
signed by the following persons in the capacities indicated below on August
9,
2006:
SIGNATURE
|
TITLE
|
|
|
/s/
Seth Grae
Seth
Grae
|
Chief
Executive Officer, President and Director
(Principal
Executive Officer)
|
|
|
/s/
Larry Goldman
Larry
Goldman
|
Acting
Chief Financial Officer and Treasurer
(Principal
Financial Officer)
|
|
|
/s/
Thomas Graham, Jr.
Thomas
Graham, Jr.
|
Director
|
|
|
/s/
Cornelius J. Milmoe
Cornelius
J. Milmoe
|
Director
|
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
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., Independent Auditor 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 (Deficiency)
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 and nine 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
2006
|
|
F-63
|
|
|
|
Thorium
Power Audited Statements of Operations for the year 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, 2006
|
|
F-69
|
|
|
|
Notes
to Audited Financial Statements
|
|
F-71
|
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
|
|
|
INDEX
TO FINANCIAL STATEMENTS
|
Page
|
|
|
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., Independent Auditor 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 (Deficiency)
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 and nine 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
2006
|
F-63
|
|
|
Thorium
Power Audited Statements of Operations for the year 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, 2006
|
F-69
|
|
|
Notes
to Audited Financial Statements
|
F-71
|
|
|
UNAUDITED
CONDENSED CONSOLIDATED PRO FORMA FINANCIAL
STATEMENTS
|
|
|
|
(An
Exploration Stage Company)
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(Stated
in U.S. Dollars)
|
|
|
|
|
|
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
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(Stated
in U.S. Dollars)
|
|
THREE
MONTHS ENDED
MARCH
31
|
|
NINE
MONTHS ENDED
MARCH
31
|
|
CUMULATIVE
PERIOD FROM
INCEPTION
JUNE
18
1999
TO
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
NOVASTAR
RESOURCES LTD.
(An
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Stated
in U.S. Dollars)
|
|
NINE
MONTHS ENDED
MARCH
31
|
|
CUMULATIVE
PERIOD
FROM
JUNE
28, 1999(INCEPTION) TO
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
|
|
|
-
|
|
|
442,813
|
|
|
579,379
|
|
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
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)
|
|
COMMON
STOCK
|
|
COMMON
STOCK PURCHASE WARRANTS
|
|
ADDITIONAL
PAID-IN
|
|
DEFERRED
|
|
SHARE
SUBSCRIPTIONS
|
|
SHARES
COMMITTED 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
|
)
|
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)
|
|
COMMON
STOCK
|
|
COMMON
STOCK PURCHASE WARRANTS
|
|
ADDITIONAL
PAID-IN CAPITAL
|
|
DEFERRED
COMPENSATION
|
|
SHARE
SUBSCRIPTIONS
RECEIVED
|
|
SHARES
COMMITTE
FOR
ISSUANCE
|
|
ACCUMULATED
DEFICIT
|
|
TOTAL
|
|
|
|
SHARES
|
|
AMOUNT
|
|
WARRANTS
|
|
AMOUNT
|
|
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
|
)
|
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)
|
|
COMMON
STOCK
|
|
COMMON
STOCK
PURCHASE
WARRANTS
|
|
ADDITIONAL
PAID-IN
|
|
DEFERRED
|
|
SHARE
SUBSCRIPTIONS
|
|
SHARES
COMMITTED
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
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.
|
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.
|
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.
|
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).
|
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.
|
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.
|
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.
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:
|
|
NUMBER
OF
SHARES
|
|
WEIGHTED
AVERAGE
EXERCISE
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:
NUMBER
OF
OPTIONS
|
|
EXERCISE
PRICE
|
|
WEIGHTED
AVERAGE
REMAINING
CONTRACTUAL
LIFE
(YEARS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,050,000
|
|
$
0.80
|
|
9.917
|
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.
|
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.
|
|
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.
|
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.
|
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.
|
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.
|
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
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
|
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.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Audited)
(Stated
in U.S. Dollars)
|
|
YEAR
ENDED
|
|
CUMULATIVE
FROM
JUNE
28, 1999
(INCEPTION)
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.
NOVASTAR
RESOURCES LTD.
(formerly
Custom Branded Networks, Inc.)
(an
Exploration Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Audited)
(Stated
in U.S. Dollars)
|
|
YEAR
ENDED
|
|
CUMULATIVE
PERIOD
FROM
JUNE
28, 1999
(INCEPTION)
TO
|
|
|
|
JUNE
30
|
|
JUNE
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
Cash
provided by (used in):
|
|
|
|
|
|
|
|
Operating
Activities
|
|
|
|
|
|
|
|
Loss
for the period
|
|
<3trong>$
|
(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.
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
|
|
|
-
|
|
$$
|
-
|
|
|
18,947
|
|
$
|
-
|
|
$
|
-
|
|
$
|
18,950
|
|
Net
loss for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(159,909
|
)
|
|
(159,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2000
|
|
|
3,465
|
|
|
3
|
|
|
-
|
|
|
-
|
|
|
18,947
|
|
|
-
|
|
|
(159,909
|
)
|
|
(140,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock by consideration of forgiveness of loan payable
to
shareholder
|
|
|
(1,445
|
)
|
|
(1
|
)
|
|
-
|
|
|
-
|
|
|
16,098
|
|
|
-
|
|
|
-
|
|
|
16,097
|
|
|
|
|
2,020
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
35,045
|
|
|
-
|
|
|
(159,909
|
)
|
|
(124,862
|
)
|
Adjustment
to number of shares issued and outstanding as a result of the
reverse
take-over transaction -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Custom
Branded Networks, Inc.
|
|
|
(2,020
|
)
|
|
(2
|
)
|
|
-
|
|
|
-
|
|
|
2
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Aquistar
Ventures (USA) Inc.
|
|
|
15,463,008
|
|
|
15,463
|
|
|
-
|
|
|
-
|
|
|
(15,463
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
15,463,008
|
|
|
15,463
|
|
|
-
|
|
|
-
|
|
|
19,584
|
|
|
-
|
|
|
(159,909
|
)
|
|
(124,862
|
)
|
Shares
allotted in connection with the acquisition of Custom Branded
Networks,
Inc.
|
|
|
25,000,000
|
|
|
25,000
|
|
|
-
|
|
|
-
|
|
|
(9,772
|
)
|
|
-
|
|
|
-
|
|
|
15,228
|
|
Less:
Allotted and not yet issued
|
|
|
(8,090,476
|
)
|
|
(8,090
|
)
|
|
-
|
|
|
-
|
|
|
8,090
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock conversion rights
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
421,214
|
|
|
-
|
|
|
-
|
|
|
421,214
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(723,239
|
)
|
|
(723,239
|
)
|
Balance,
June 30, 2001
|
|
|
32,372,532
|
|
$
|
32,373
|
|
|
-
|
|
$$
|
-
|
|
|
439,116
|
|
$
|
-
|
|
$
|
(883,148
|
)
|
$
|
(411,659
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
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
|
|
|
-
|
|
$$
|
-
|
|
|
439,116
|
|
$
|
-
|
|
$
|
(883,148
|
)
|
$
|
(411,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
shares issued in connection with the acquisition of Custom Branded
Networks, Inc.
|
|
|
1,500,000
|
|
|
1,500
|
|
|
-
|
|
|
-
|
|
|
(1,500
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock conversion rights
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
109,748
|
|
|
-
|
|
|
-
|
|
|
109,748
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(326,038
|
)
|
|
(326,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2002
|
|
|
33,872,532
|
|
|
33,873
|
|
|
-
|
|
|
-
|
|
|
547,364
|
|
|
-
|
|
|
(1,209,186
|
)
|
|
(627,949
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue
of common stock for deferred compensation expense
|
|
|
4,500,000
|
|
|
4,500
|
|
|
-
|
|
|
-
|
|
|
40,500
|
|
|
(45,000
|
)
|
|
-
|
|
|
-
|
|
Amortization
of deferred compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
22,500
|
|
|
-
|
|
|
22,500
|
|
Common
stock conversion rights
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,116
|
|
|
-
|
|
|
-
|
|
|
45,116
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(142,233
|
)
|
|
(142,233
|
)
|
Balance,
June 30, 2003
|
|
|
38,372,532
|
|
$
|
38,373
|
|
|
-
|
|
$$
|
-
|
|
|
632,980
|
|
$
|
(22,500
|
)
|
$
|
(1,351,419
|
)
|
$
|
(702,566
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
(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)
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
|
|
|
|
|
|
|
COMMON
STOCK
|
|
PUHASE
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 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
|
|
|
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.
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:
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.
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.
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.
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.
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.
(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.
|
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.
|
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.
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.
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).
|
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)
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.
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.
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
|
|
$
|
-
|
|
$
|
-
|
|
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.
|
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.
|
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.
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.
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;
|
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.
|
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
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
|
|
For
the three months ended
March
31,
|
|
Cumulative
From
January
8, 1992
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 comput% per share data
|
|
|
3,558,395
|
|
|
3,289,463
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
(Deficit)
|
|
Stockholders’
Equity
|
|
|
|
Shares
|
|
Amount
|
|
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
|
)
|
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
(Deficit)
|
|
Stockholders’
Equity
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
(Deficit)
|
|
Stockholders’
Equity
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
|
Common
Stock
|
|
Additional
Paid-in
Capital
|
|
Accumulated
(Deficit)
|
|
Stockholders’
Equity
|
|
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
|
|
For
the three months ended March 31
|
|
Cumulative
From
January
8, 1992
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
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
|
|
For
the quarters ended March 31
|
|
Cumulative
From
January
8, 1992
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
|
|
The
accompanying notes are an integral part of these financial
statements.
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.
Continued
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.
Continued
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.
|
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.
Continued
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.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
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
Costs
|
|
Accumulated
Depreciation
|
|
Net
Book
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
|
|
Continued
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.
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:
|
|
Beginning
Balance
|
|
In
Exchange
for
Services
|
|
In
Connection
with
purchase
of
stock
|
|
Issued
as
Incentive
|
|
Converted
to
stock/
Exercised
|
|
Expired
|
|
Repriced
|
|
Ending
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
|
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
|
Beginning
Balance
|
|
In
Exchange
for
Services
|
|
In
Connection
with
purchase
of
stock
|
|
Issued
as
Incentive
|
|
Converted
to
stock/
Exercised
|
|
Expired
|
|
Repriced
|
|
Ending
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
|
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
|
Beginning
Balance
|
|
In
Exchange
for
Services
|
|
In
Connection
with
purchase
of
stock
|
|
Issued
as
Incentive
|
|
Converted
to
stock/
Exercised
|
|
Expired
|
|
Repriced
|
|
Ending
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
|
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
|
$9.6017-10.00
|
|
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 1,322324,100
558
were
warrants. All of the stock options and warrants outstanding at March 31,
2006
have vested.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
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.
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.
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.
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
|
|
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.
Child,
Van Wagoner & Bradshaw, PLLC
A
PROFESSIONAL LIMITED LIABILITY COMPANY OF
CERTIFIED PUBLIC ACCOUNTANTS
1284
W. Flint Meadow Dr., Suite D, Kaysville, UT
84037 PHONE:
(801) 927-1337 FAX: (801) 927-1344
5296
S. Commerce Dr., Suite 300, Salt Lake City, UT
84107 PHONE:
(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
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
|
|
The
accompanying notes are an integral part of these financial
statements.
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
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Operations
|
|
For
the years ended December 31
|
|
Cumulative From
January
8, 1992
|
|
|
|
2005
|
|
2004
|
|
December
31, 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
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
|
Common
Stock
|
|
Additional
Paid-in
|
|
Accumulated
|
|
Stockholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
|
|
|
|
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
|
)
|
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Changes in Stockholders’ Equity
|
|
Common
Stock
|
|
|
|
|
|
Accumulated
|
|
|
Stockholders’ |
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
See
notes to financial statements.
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
See
notes to financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows
|
|
For
the years ended December 31
|
|
Cumulative From
January
8, 1992
|
|
|
|
2005
|
|
2004
|
|
Through
December
31, 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
|
|
See
notes to financial
statements.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Statements
of Cash Flows
|
|
For
the years ended December 31
|
|
Cumulative
From January 8, 1992
|
|
|
|
2005
|
|
2004
|
|
Through
December
31, 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
|
|
See
notes to financial
statements.
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.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
2. |
Summary
of Significant Accounting
policies
|
A
summary
of significant accounting policies follows:
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.
|
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.
|
Continued
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.
|
Continued
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.
Continued
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
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:
December
31, 2005
|
|
Original
Costs
|
|
Accumulated
Depreciation
|
|
Net
Book 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
|
|
Continued
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.
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:
|
|
Beginning
Balance
|
|
In
Exchange for Services
|
|
In
Connection with purchase of stock
|
|
Issued
as Incentive
|
|
Converted
to
stock/
Exercised
|
|
Expired
|
|
Repriced
|
|
Ending
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
|
|
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
|
Beginning
Balance
|
|
In
Exchange for Services
|
|
In
Connection with purchase of stock
|
|
Issued
as Incentive
|
|
Converted
to
stock/
Exercised
|
|
Expired
|
|
Repriced
|
|
Ending
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
|
|
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
|
|
Beginning
Balance
|
|
In
Exchange for Services
|
|
In
Connection with purchase of stock
|
|
Issued
as
Incentive
|
|
Converted
to
stock/
Exercised
|
|
Expired
|
|
Repriced
|
|
Ending
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
|
|
Continued
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
|
|
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.
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.
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.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
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
|
|
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.
Thorium
Power, Inc.
(A
Development Stage Enterprise)
Notes
to Financial Statements
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.
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.
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.
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
|
|
|
|
|
|
|
|
|
|
|
|
Pro-Forma
Adjustment - 1
|
|
Debit
|
|
Credit
|
|
|
|
|
|
|
|
Cash
|
|
|
15,580,434
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
36,660
|
|
Additional
Paid In Capital
|
|
|
|
|
|
15,543,774
|
|
To
record private placement sale of 36,659,837 shares at $.425
per share,
money raised due to the merger
|
Note
for pro-forma purposes only, this PPM equity raise is for accounting
purposes deemed to be raised subsequent to the recapitalization
of
Thorium
|
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)
|
|
|
|
|
|
|
|
Novastar
Resources Ltd.
Unaudited
Pro Forma Condensed Consolidated Statement of
Operations
Fiscal
Year Ended June 30, 2005
|
|
|
|
|
|
|
|
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
|
ANNEX
A
AGREEMENT
AND PLAN OF MERGER
DATED
AS
OF FEBRUARY 14, 2006
BY
AND
AMONG
NOVASTAR
RESOURCES LTD.,
TP
ACQUISITION CORP.,
AND
THORIUM
POWER, INC.
TABLE
OF
CONTENTS
|
|
|
Page
|
1. |
THE
MERGER AND CONSIDERATION; CERTAIN DEFINITIONS
|
1
|
|
1.1
|
The
Merger
|
1
|
|
1.2
|
Merger
Consideration
|
2
|
|
1.3
|
Appraisal
Rights
|
4
|
|
1.4
|
Certain
Definitions
|
5
|
|
1.5
|
Other
Definitions
|
10
|
2. |
REPRESENTATIONS
AND WARRANTIES OF THORIUM POWER
|
11
|
|
2.1
|
Organization
|
12
|
|
2.2
|
Capitalization
|
12
|
|
2.3
|
Authorization;
Validity of Agreement
|
12
|
|
2.4
|
No
Violations; Consents And Approvals
|
13
|
|
2.5
|
Financial
Statements
|
13
|
|
2.6
|
Operation
of Business
|
13
|
|
2.7
|
No
Undisclosed Liabilities
|
15
|
|
2.8
|
Litigation;
Compliance With Law; Licenses And Permits
|
15
|
|
2.9
|
Employee
Benefit Plans; ERISA
|
15
|
|
2.10
|
Intellectual
Property
|
16
|
|
2.11
|
Material
Contracts
|
16
|
|
2.12
|
Taxes
|
17
|
|
2.13
|
Affiliated
Party Transactions
|
17
|
|
2.14
|
Environmental
Matters
|
18
|
|
2.15
|
No
Brokers
|
18
|
|
2.16
|
Assets
Utilized in The Business
|
18
|
|
2.17
|
Insurance
|
19
|
|
2.18
|
Delivery
of Documents; Corporate Records
|
19
|
|
2.19
|
Labor
And Employment Matters
|
19
|
|
2.20
|
Restrictive
Covenants
|
20
|
|
2.21
|
Directors,
Officers And Certain Employees
|
20
|
|
2.22
|
No
Misstatements Or Omissions
|
20
|
3. |
REPRESENTATIONS
AND WARRANTIES OF NOVASTAR AND ACQUISITION SUB
|
20
|
|
3.1
|
Organization
|
20
|
|
3.2
|
Authorization;
Validity of Agreement
|
21
|
|
3.3
|
No
Violations; Consents and Approvals
|
21
|
|
3.4
|
The
Shares
|
22
|
|
3.5
|
SEC
Filings; Disclosure
|
22
|
|
3.6
|
Litigation;
Compliance With Law; Licenses And Permits
|
22
|
|
3.7
|
No
Misstatements Or Omissions
|
23
|
|
3.8
|
Information
Supplied
|
23
|
|
3.9
|
Acquisition
Sub
|
23
|
|
3.10
|
Capitalization
|
23
|
|
3.11
|
Financial
Statements
|
24
|
|
3.12
|
Operation
of Business
|
25
|
|
3.13
|
No
Undisclosed Liabilities
|
26
|
|
3.14
|
Employee
Benefit Plans; ERISA
|
26
|
|
3.15
|
Intellectual
Property
|
26
|
|
3.16
|
Material
Contracts
|
27
|
|
3.17
|
Taxes
|
28
|
|
3.18
|
Affiliated
Party Transactions
|
28
|
|
3.19
|
Environmental
Matters
|
29
|
|
3.20
|
No
Brokers
|
29
|
|
3.21
|
Assets
Utilized in The Business
|
29
|
|
3.22
|
Insurance
|
29
|
|
3.23
|
Delivery
of Documents; Corporate Records
|
30
|
|
3.24
|
Labor
And Employment Matters
|
30
|
|
3.25
|
Restrictive
Covenants
|
31
|
|
3.26
|
Directors,
Officers And Certain Employees
|
31
|
|
3.27
|
Continuity
of Business Enterprise
|
31
|
4. |
CONDITIONS
TO OBLIGATIONS OF THORIUM POWER TO CLOSE
|
31
|
|
4.1
|
Correctness
of Representations And Warranties
|
31
|
|
4.2
|
Performance
of Covenants And Agreements
|
32
|
|
4.3
|
Effectiveness
of Registration Statement
|
32
|
|
4.4
|
No
New Proceedings
|
32
|
|
4.5
|
Board
of Directors Approvals
|
32
|
|
4.6
|
Stockholder
Approval of Charter Amendment
|
32
|
|
4.7
|
Receipt
of Releases
|
33
|
|
4.8
|
Employment
Agreements
|
33
|
|
4.9
|
Dissenting
Stockholders
|
33
|
|
4.10
|
Financing
|
33
|
|
4.11
|
14F-1
Information Statement
|
33
|
|
4.12
|
Amendment
of Novastar Material Contracts
|
33
|
|
4.13
|
Absence
of Material Adverse Change
|
33
|
|
4.14
|
Due
Diligence
|
34
|
|
4.15
|
Consents
And Approvals
|
34
|
|
4.16
|
Delivery
of Secretary’s Certificate
|
34
|
|
4.17
|
Exchange
Agent
|
34
|
|
4.18
|
Exchangeable
Securities
|
34
|
|
4.19
|
Novastar
Tax Returns
|
34
|
|
4.20
|
Other
Closing Documents
|
34
|
5. |
CONDITIONS
TO OBLIGATIONS OF NOVASTAR AND ACQUISITION SUB TO CLOSE
|
34
|
|
5.1
|
Correctness
of Representations And Warranties
|
35
|
|
5.2
|
Performance
of Covenants And Agreements
|
35
|
|
5.3
|
Board
Approval of Merger
|
35
|
|
5.4
|
Stockholder
Approval of Merger
|
35
|
|
5.5
|
Board
of Directors Approvals
|
35
|
|
5.6
|
Stockholder
Approval of Charter Amendment
|
35
|
|
5.7
|
Receipt
of Releases
|
36
|
|
5.8
|
Employment
Agreements
|
36
|
|
5.9
|
Effectiveness
of Registration Statement
|
36
|
|
5.10
|
No
New Proceedings
|
36
|
|
5.11
|
Dissenting
Stockholders
|
36
|
|
5.12
|
Consents
And Approvals
|
36
|
|
5.13
|
Absence
of Material Adverse Change
|
36
|
|
5.14
|
14F-1
Information Statement
|
36
|
|
5.15
|
Exchangeable
Securities
|
36
|
|
5.16
|
Delivery
of Secretary’s Certificate
|
37
|
|
5.17
|
Due
Diligence
|
37
|
|
5.18
|
Other
Closing Documents
|
37
|
6. |
PRE-CLOSING
COVENANTS
|
37
|
|
6.1
|
General
|
37
|
|
6.2
|
Full
Access
|
37
|
|
6.3
|
Notice
of Developments
|
38
|
|
6.4
|
Preparation
of Registration Statement
|
38
|
|
6.5
|
Regulatory
And Other Approvals
|
38
|
|
6.6
|
Periodic
Reports
|
39
|
|
6.7
|
Preservation
of Business
|
39
|
|
6.8
|
Publicity
|
41
|
|
6.9
|
Thorium
Power Exchangeable Securities
|
41
|
|
6.10
|
Appointment
of Seth Grae as CEO and President of Novastar
|
41
|
|
6.11
|
Continuity
of Business Enterprise
|
41
|
|
6.12
|
No
Solicitation
|
41
|
|
6.13
|
Financing
|
43
|
|
6.14
|
Amendment
of Novastar Material Contracts
|
43
|
7. |
INDEMNIFICATION
|
44
|
|
7.1
|
Indemnification
By Thorium Power
|
44
|
|
7.2
|
Indemnification
By Novastar
|
44
|
|
7.3
|
Limitations
Period
|
44
|
|
7.4
|
Procedures
For Resolution And Payment of Claims For Indemnification
|
44
|
|
7.5
|
Limitation
on Indemnification
|
45
|
|
7.6
|
Exclusive
Remedy
|
45
|
8. |
CONFIDENTIAL
INFORMATION
|
46
|
9. |
TERMINATION
|
46
|
|
9.1
|
Ability
to Terminate
|
46
|
|
9.2
|
Procedure
and Effect of Termination
|
47
|
|
9.3
|
Remedies
upon Termination
|
47
|
|
9.4
|
Liquidated
Damages
|
47
|
10. |
MISCELLANEOUS
PROVISIONS
|
48
|
|
10.1
|
Construction;
Governing Law
|
48
|
|
10.2
|
Notices
|
48
|
|
10.3
|
Assignment
|
49
|
|
10.4
|
Amendments
And Waivers
|
50
|
|
10.5
|
Attorneys’
Fees
|
50
|
|
10.6
|
Binding
Nature of Agreement
|
50
|
|
10.7
|
Expenses
|
50
|
|
10.8
|
Entire
Agreement
|
50
|
|
10.9
|
Severability
|
50
|
|
10.10
|
Counterparts;
Signatures; Section Headings
|
51
|
|
10.11
|
Waiver
of Jury Trial
|
51
|
|
10.12
|
Submission
to Jurisdiction
|
51
|
SCHEDULES
Schedule
2.2
|
-
|
Thorium
Power - Capitalization
|
Schedule
2.4
|
-
|
Thorium
Power - No Violations; Consents and Approvals
|
Schedule
2.5
|
-
|
Thorium
Power - Financial Statements
|
Schedule
2.6
|
-
|
Thorium
Power - Operation of Business
|
Schedule
2.7
|
-
|
Thorium
Power - No Undisclosed Liabilities
|
Schedule
2.8
|
-
|
Thorium
Power - Litigation; Compliance With Law; Licenses And
Permits
|
Schedule
2.9
|
-
|
Thorium
Power - Employee Benefit Plans; ERISA
|
Schedule
2.10
|
-
|
Thorium
Power - Intellectual Property
|
Schedule
2.11
|
-
|
Thorium
Power - Material Contracts
|
Schedule
2.12
|
-
|
Thorium
Power - Taxes
|
Schedule
2.13(a)
|
-
|
Thorium
Power - Affiliated Party Transactions
|
Schedule
2.13(b)
|
-
|
Thorium
Power - Affiliated Party Transactions
|
Schedule
2.14
|
-
|
Thorium
Power - Environmental Matters
|
Schedule
2.15
|
-
|
Thorium
Power - No Brokers
|
Schedule
2.17
|
-
|
Thorium
Power - Insurance
|
Schedule
2.19
|
-
|
Thorium
Power - Labor And Employment Matters
|
Schedule
2.20
|
-
|
Thorium
Power - Restrictive Covenants
|
Schedule
2.21
|
-
|
Thorium
Power - Directors, Officers And Certain Employees
|
Schedule
3.3
|
-
|
Novastar
- No Violations; Consents And Approvals
|
Schedule
3.6
|
-
|
Novastar
- Litigation; Compliance With Law; Licenses And Permits
|
Schedule
3.10
|
-
|
Novastar
- Capitalization
|
Schedule
3.11
|
-
|
Novastar
- Financial Statements
|
Schedule
3.12
|
-
|
Novastar
- Operation of Business
|
Schedule
3.13
|
-
|
Novastar
- No Undisclosed Liabilities
|
Schedule
3.14
|
-
|
Novastar
- Employee Benefit Plans; ERISA
|
Schedule
3.15
|
-
|
Novastar
- Intellectual Property
|
Schedule
3.16
|
-
|
Novastar
- Material Contracts
|
Schedule
3.17
|
-
|
Novastar
- Taxes
|
Schedule
3.18(a)
|
-
|
Novastar
- Affiliated Party Transactions
|
Schedule
3.18(b)
|
-
|
Novastar
- Affiliated Party Transactions
|
Schedule
3.19
|
-
|
Novastar
- Environmental Matters
|
Schedule
3.20
|
-
|
Novastar
- No Brokers
|
Schedule
3.22
|
-
|
Novastar
- Insurance
|
Schedule
3.24
|
-
|
Novastar
- Labor and Employment Matters
|
Schedule
3.25
|
-
|
Novastar
- Restrictive Covenants
|
Schedule
3.26
|
-
|
Novastar
- Directors, Officers And Certain Employees
|
Schedule
4.4
|
-
|
Novastar
- No New Proceedings
|
Schedule
4.12
|
-
|
Amendment
of Novastar Material Contracts
|
Schedule
5.10
|
-
|
Thorium
Power - No New Proceedings
|
Schedule
6.7
|
-
|
Preservation
of Business
|
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (this “Agreement”)
is
made as of February 14, 2006, by and among Novastar Resources Ltd., a Nevada
corporation (“Novastar”),
TP
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of
Novastar (“Acquisition
Sub”),
and
Thorium Power, Inc., a Delaware corporation (“Thorium
Power”).
Novastar, Acquisition Sub, and Thorium Power are each referred to herein as
a
“Party”
or
collectively as the “Parties”.
BACKGROUND
Novastar
is the owner of certain rights to properties that Novastar believes may contain
Thorium deposits and other rare earth minerals. Thorium Power designs
proliferation resistant thorium based nuclear fuels. The boards of directors
of
Novastar and Thorium Power believe that a business combination of Novastar
and
Thorium Power would be in the best interests of the stockholders of both
companies.
This
Agreement contemplates a transaction in which Novastar will acquire one hundred
percent (100%) of the outstanding common stock of Thorium Power through a
reverse merger (the “Merger”)
of
Acquisition Sub with and into Thorium Power.
As
a
result of the Merger, Thorium Power will become a wholly-owned subsidiary of
Novastar and the stockholders of Thorium Power will become stockholders of
Novastar.
NOW,
THEREFORE, in consideration of the premises and the mutual promises herein
made,
intending to be legally bound hereby, and in consideration of the
representations, warranties, and covenants herein contained, the Parties agree
as follows.
AGREEMENT
1. THE
MERGER AND CONSIDERATION; CERTAIN DEFINITIONS.
1.1 The
Merger.
(a) Structure.
Subject
to the terms and provisions of this Agreement, and in accordance with Section
251 of the General Corporation Law of the State of Delaware (the “DGCL”),
at
the Effective Time, Acquisition Sub shall be merged with and into Thorium Power.
Thorium Power will be the surviving corporation of the Merger (sometimes
hereinafter called the “Surviving
Corporation”)
and
will continue its corporate existence under the laws of the State of Delaware
as
a subsidiary of Novastar. At the Effective Time, the separate corporate
existence of Acquisition Sub shall cease. For federal income tax purposes,
the
parties intend that the Merger shall qualify as a tax-free reorganization under
Section 351 and Section 368 of the Internal Revenue Code of 1986, as amended
(the “Code”).
(b) The
Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”)
shall
take place at the offices of Pillsbury Winthrop Shaw Pittman, 1540 Broadway,
New
York, New York 10036, commencing at 10:00 a.m. local time on the later to occur
of (a) the business day following the date on which all the conditions set
forth
in Sections 4 and 5 have been satisfied or waived (other than conditions with
respect to actions the respective Parties will take at the Closing itself);
or
(b) such other date as the parties may mutually determine (in each case, the
“Closing
Date”).
(c) Actions
At The Closing.
At the
Closing, (i) Novastar and Acquisition Sub will deliver to Thorium Power the
various certificates, instruments, and documents referred to in Section 4 below,
(ii) Thorium Power will deliver to Novastar the various certificates,
instruments, and documents referred to in Section 5 below, and (iii) the
Surviving Corporation shall file with the Secretary of State of the State of
Delaware a properly executed Certificate of Merger.
(d) Effect
of Merger.
(i) General.
The Merger shall become effective at the time (the “Effective
Time”)
the
Surviving Corporation files the Certificate of Merger with the Secretary of
State of the State of Delaware. The Merger shall have the effect set forth
in
the DGCL.
(ii) Certificate
of Incorporation. The Certificate of Incorporation of the Surviving Corporation
will be the Certificate of Incorporation of Acquisition Sub in effect
immediately prior to the Merger.
(iii) Bylaws.
The Bylaws of the Surviving Corporation will be the Bylaws of Acquisition Sub
in
effect immediately prior to the Merger.
(iv) Conversion
of Capital Stock of Acquisition Sub. At and as of the Effective Time, each
issued and outstanding share of capital stock of Acquisition Sub will be
canceled and retired and shall cease to exist and neither shares of capital
stock of the Surviving Corporation nor any cash, property, rights, other
securities or obligations of the Surviving Corporation shall be issued therefor,
except as provided in Section 1.2 below.
(v) Directors
and Officers. The directors and officers of Thorium Power will be the directors
and officers of the Surviving Corporation as of the Effective Time (retaining
their respective positions and terms of office).
1.2 Merger
Consideration.
(a) Purchase
Price.
At the
Closing, each issued and outstanding share of Thorium Power’s common stock,
$0.05 par value per share (the “Thorium
Power Common Stock”)
other
than shares of Thorium Power Common Stock held by Novastar shall be converted
into the right to receive a number of shares
of
Novastar’s common stock, $0.001 par value per share (the “Novastar
Common Stock”)
equal
to the Conversion Ratio and each Exchangeable Security shall be converted into
the right to receive a number of shares of Novastar Common Stock as specified
in
a resolution to be adopted by the board of directors of Thorium Power prior
to
the Closing; provided, however, that the total number of shares of Novastar
Common Stock issued to the holders of Exchangeable Securities, in the aggregate,
will not exceed 50% of the number represented by “X” in the definition of
Conversion Ratio. All shares of Thorium Power Common Stock and all Exchangeable
Securities converted in accordance with this paragraph will no longer be
outstanding and will automatically be cancelled and retired and shall cease
to
exist, and each holder of a certificate representing any such shares of Thorium
Power Common Stock or certificate or other instrument evidencing any such
Exchangeable Securities shall cease to have any rights with respect thereto,
except the right to receive the shares of Novastar Common Stock to be issued
in
consideration therefor upon the surrender of such certificate or other
instrument in accordance with Section 1.2(c), without interest. Any securities
convertible into or exercisable for shares of Thorium Power Common Stock (the
“Thorium
Power Convertible Securities”)
immediately prior to the Effective Time (other than the Exchangeable Securities)
will become, at the Effective Time, securities convertible into or exercisable
for such number of shares of Novastar Common Stock as the holder of such
securities would have received had such holder converted such securities into
Thorium Power Common Stock immediately prior to the Effective Time. Appropriate
adjustment will be made to any exercise or conversion price of such
securities.
(b) Cancellation
of Thorium Power Common Stock; Issuance of Thorium Power Common Stock To
Novastar.
At and
as of the Effective Time, each issued and outstanding share of Thorium Power
Common Stock, the Exchangeable Securities, the other Thorium Power Convertible
Securities, and any other equity interest in Thorium Power issued and
outstanding or held in Thorium Power’s treasury shall automatically be canceled
and extinguished and no payment shall be made in respect thereof except
according to the provisions of this Agreement. No share of Thorium Power Common
Stock or Exchangeable Security outstanding prior to the Effective Time shall
be
deemed to be outstanding or to have any rights after the Effective Time. After
the Effective Time, there shall be no further registration of transfers of
Thorium Power Common Stock or Exchangeable Securities outstanding immediately
prior to the Effective Time on Thorium Power’s security transfer books. At the
Effective Time, Thorium Power shall issue a stock certificate to and in the
name
of Novastar for ten shares of Thorium Power Common Stock.
(c) Exchange
of Certificates.
(i) As
of the
Effective Time, Novastar shall enter into an agreement (the terms of which
shall
be reasonably satisfactory to Thorium Power) with such bank or trust company
as
may be designated by Novastar (the “Exchange
Agent”),
which
will provide that Novastar shall deposit with the Exchange Agent as of the
Effective Time, for the benefit of the holders of shares of Thorium Power Common
Stock and the Exchangeable Securities, for exchange in accordance with this
Section 1, through the Exchange Agent, certificates representing the number
of
duly authorized whole shares of Novastar Common Stock issuable in connection
with the Merger (such shares of Novastar Common Stock being referred to herein
as the “Exchange
Fund”).
(ii) As
soon
as reasonably practicable after the Effective Time, and in any event within
ten
business days after the Effective Time, Novastar shall cause the Exchange Agent
to mail to each holder of record of a certificate or certificates or other
instrument or instruments which immediately prior to the Effective Time
represented outstanding shares of Thorium Power Common Stock or Exchangeable
Securities (the “Certificates”)
whose
shares are converted pursuant to Section 1.2(a) a letter of transmittal in
customary form, and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing whole shares of Novastar
Common Stock. Upon surrender of a Certificate for cancellation to the Exchange
Agent, together with such letter of transmittal duly executed and completed
in
accordance with its terms, the holder of such Certificate shall be entitled
to
receive in exchange therefor a certificate representing that number of shares
of
Novastar Common Stock, which such holder has the right to receive pursuant
to
the provisions of this Agreement and the Certificate so surrendered shall
forthwith be cancelled. The Exchange Agent shall have discretion to determine
and apply reasonable rules and procedures relating to the surrender for exchange
of a Certificate that is lost or destroyed. In no event shall the holder of
any
Certificate be entitled to receive any fractional shares or interest on any
funds to be received in the Merger.
(iii) Until
surrendered as contemplated by Section 1.2(c)(ii), and subject to the rights
of
appraisal of any stockholder, each Certificate shall be deemed at any time
after
the Effective Time to represent ownership of the number of shares of Novastar
Common Stock (and any rights derivative thereof) into which the number of shares
of Thorium Power Common Stock or Exchangeable Securities represented thereby
have been converted as contemplated by this Agreement.
(iv) No
certificate or scrip representing fractional shares of Novastar Common Stock
will be issued in the Merger upon the surrender for exchange of Certificates,
and any such fractional share interests will not entitle the owner thereof
to
any rights of a stockholder of Novastar. Each holder of Certificates who would
otherwise have been entitled to a fraction equal to one-half or more of a share
of Novastar Common Stock will receive a full share of Novastar Common Stock,
and
fractional interests of less than one-half of a share of Novastar Common Stock
will be canceled.
1.3 Appraisal
Rights.
(a) Notwithstanding
Section 1.2 above, shares of Thorium Power Common Stock which are held by a
holder of Thorium Power Common Stock immediately prior to the Effective Time
who
has properly preserved and perfected appraisal rights with respect to such
shares pursuant to Section 262 of the DGCL (“Dissenting
Stockholder”),
shall
not be converted into Novastar Common Stock as specified in Section 1.2 hereof,
and instead shall be treated in accordance with that provision of the DGCL,
unless and until the right of such Dissenting Stockholder under Section 262
of
the DGCL to payment for such Dissenting Stockholder’s shares shall
cease.
(b) If
any
Dissenting Stockholder shall effectively withdraw or lose (through failure
to
perfect or otherwise) such Dissenting Stockholder’s right to payment for any of
such Dissenting Stockholder’s shares under Section 262 of the DGCL, as the case
may be, such Dissenting Stockholder’s shares shall automatically be converted
into Novastar Common Stock on the terms specified in Section 1.2
above.
(c) Each
Dissenting Stockholder who becomes entitled, pursuant to the provisions of
Section 262 of the DGCL, to payment of the fair value of any such Dissenting
Stockholder’s shares shall receive payment therefor from Thorium Power, and
following the Merger, Novastar.
1.4 Certain
Definitions.
As
used
in this Agreement:
(a) “Affiliate”
means,
with respect to any Person, any other Person that controls, is controlled by,
or
is under common control with such Person.
(b) “Confidential
Information”
means
(whether disclosed in writing or orally) any and all non-public and/or
proprietary information with respect to the business, services, operations,
assets, properties, financial condition, plans and prospects of a Party and
its
Subsidiaries and Affiliates including, without limitation, Intellectual Property
and information relating to acquisition targets and acquisition strategies,
pricing for acquisitions, financial information or projections and other
information concerning acquisition targets and potential acquisition targets,
proposed financing arrangements, customers and vendors, business strategies,
plans and prospects, agreements, business records, information relating to
intellectual property, marketing and sales strategies, pricing strategies,
programs, source codes, object codes, algorithms and the related documentation,
software designs (in each case regardless of the medium in which it is
maintained or stored), internet strategies, URL designations and any other
information which a Party designates that it has received pursuant to a
confidentiality obligation to another Person, together with all derivative
works, copies, reports, summaries, studies, compilations and other documentation
which contain or otherwise reflect or are generated from any of the
foregoing.
(c) “Contract”
means
any note, bond, mortgage, indenture, guarantee, other evidence of indebtedness,
license, lease, option, employment agreement, contract, undertaking,
understanding, covenant, agreement or other instrument, whether oral or
written.
(d) “Conversion
Ratio”
means
the quotient of (X minus ES) divided by TO, where
ES
= the
number of shares of Novastar Common Stock issuable in the aggregate to the
holders of the Exchangeable Securities in accordance with Section 1.2(a)
hereof;
TO
= the
number of shares of Thorium Power Common Stock outstanding immediately prior
to
the Closing; and
X
= the
product of M
multiplied by Y
(and
shall equal, in the aggregate, the total number of shares of Novastar Common
Stock issued in exchange for all of the equity securities of Thorium Power
other
than the Thorium Power Convertible Securities that are not Exchangeable
Securities), where
M
=
1.22471910112, and
Y
= the
sum of NO
+
SS
+
FS
+
DS,
where
NO
= the
number of shares of Novastar Common Stock outstanding on the date
hereof;
SS
= the
number of shares of Novastar Common Stock issued to Seth Shaw and Sean Mulhearn
between the date hereof and the Closing Date for services rendered by Seth
Shaw
and Sean Mulhearn to Novastar (it being understood that for purposes of
determining SS, any securities issued to Seth Shaw and Sean Mulhearn during
such
period that are convertible into or exercisable or exchangeable for Novastar
Common Stock shall be deemed to have been so converted, exercised or
exchanged);
FS
=
4,180,000 plus the number of additional shares of Novastar Common Stock issued
between the date hereof and the Closing Date in order to raise the aggregate
$2,750,000 since January 1, 2006, as described in Section 4.10 (it being
understood that for purposes of determining FS, any securities issued in such
financing that are convertible into or exercisable or exchangeable for Novastar
Common Stock shall be deemed to have been so converted, exercised or exchanged);
and
DS
= the
number of shares of Novastar Common Stock issued to directors and officers
of
Novastar (other than Seth Grae) between the date hereof and the Closing Date,
which number shall not exceed 1,000,000 (it being understood that for purposes
of determining DS, any securities issued to such directors and officers that
are
convertible into or exercisable or exchangeable for Novastar Common Stock shall
be deemed to have been so converted, exercised or exchanged).
(e) “Employee
Benefit Plan”
means
(a) any “employee pension benefit plan” (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”));
(b)
any “employee welfare benefit plan” (as defined in Section 3(1) of ERISA); and
(c) any other written or oral plan, agreement, program, policy, practice,
contract, understanding, or other arrangement or commitment of any kind
providing for, either directly or indirectly, compensation, bonuses, vacation,
termination pay, performance awards, fringe benefits, insurance coverage,
severance benefits, disability benefits, deferred compensation, stock options,
stock purchase, phantom stock, stock appreciation or any type of stock-related
awards, early retirement benefits, welfare benefits, one or more severance
plans, any other form of incentive compensation or post-retirement compensation
or any other employee benefit of any kind, whether formal or informal, funded
or
unfunded, and whether or not legally binding, which currently is or has been
sponsored, maintained, contributed to, or required to be contributed to, by
a
Party, any Subsidiary of a Party, or any ERISA Affiliate, or for which a Party,
any Subsidiary of a Party, or any ERISA Affiliate has or has had any obligation
or any liability of any nature, contingent or otherwise, or for which there
is a
reasonable expectation of such obligation or liability, on or before the Closing
for the benefit of any present or former employees, retirees, directors or
independent contractors (or their beneficiaries, dependents or spouses) of
a
Party, any Subsidiary of a Party, or any ERISA Affiliate.
(f) “Employee
Pension Benefit Plan”
has
the
meaning set forth in Section 3(2) of ERISA.
(g) “Employee
Welfare Benefit Plan”
has
the
meaning set forth in Section 3(1) of ERISA.
(h) “Encumbrance”
means
a
claim, lien, mortgage, encumbrance, pledge or other security interest of any
kind.
(i) “Environmental
Laws”
means
any federal, state or local law or ordinance or regulation pertaining to the
protection of human health or the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act, 42
USC
ss.ss.9601 et seq., the Emergency Planning and Community Right-to-Know Act,
42
USC ss.ss. 11001 et seq., and the Resource Conservation and Recovery Act, 42
USC
ss.ss. 6901 et seq.
(j) “ERISA
Affiliate”
means
any entity which with respect to a Party or Subsidiary of a Party is or was
a
member of (i) a controlled group of corporations (as defined in Section 414(b)
of the Code); (ii) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code); or (iii) an affiliated service group
(as
defined under Section 414(m) of the Code or the regulations under Section 414(o)
of the Code), any of which includes or included a Party or any Subsidiary of
a
Party.
(k) “Exchangeable
Securities”
means
the Thorium Power Convertible Securities that have an exercise price of $5.00
or
less.
(l) “GAAP”
means
United States generally accepted accounting principles, consistently
applied.
(m) “Governmental
Authorizations”
means
any approval, consent, license, permit, waiver, or other authorization issued,
granted, given, or otherwise made available by or under the authority of any
Governmental Entity or pursuant to any Legal Requirement.
(n) “Governmental
Entity”
means
any:
(i) nation,
state, county, city, town, village, district, or other political jurisdiction
of
any nature;
(ii) federal,
state, local, municipal, foreign, or other government;
(iii) governmental
or quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other
tribunal);
(iv) multi-national
organization or body; or
(v) body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any
nature.
(o) “Hazardous
Substance”
means
asbestos, polychlorinated biphenyls, ureaformaldehyde, and any other materials
classified as hazardous or toxic under any Environmental Laws.
(p) “Intellectual
Property”
means
with respect to any Party and its Subsidiaries, collectively (a) trademarks,
trade names, service marks, service names, domain names, uniform resource
locators (URLs), keywords, designs, logos and assumed names; (b) copyrights
and
other rights in original works of authorship; (c) patents and industrial design
registrations or applications (including any continuations, divisionals,
continuations-in-part, renewals, reissues, and applications for any of the
foregoing); (d) computer software programs or applications (in both source
and
object code versions), including any related technical documentation; (e) trade
secrets and invention disclosures, that are owned by such Party, its
Subsidiaries or any other Person and that have been or are used by such Party
or
its Subsidiaries in the operation of their respective businesses, or that are
used in or necessary for the conduct of the respective businesses of such Party
or its Subsidiaries as currently conducted or contemplated to be conducted;
and
(f) know-how and general intangibles of like nature, together with all goodwill,
registrations and applications related to any of the foregoing whether or not
protectable as a matter of law.
(q) “Legal
Requirement”
means
any federal, state, local, municipal, foreign, international, multinational,
or
other administrative order, constitution, law, ordinance, principle of common
law, regulation, statute, or treaty.
(r) “License”
means
a
license, permit, certification, qualification, or franchise issued by any
Governmental Entity.
(s) “Material
Adverse Effect”
means
a
material adverse effect (financial or otherwise) on the business, assets,
liabilities, condition, property, prospects or results of operations of a
Party.
(t) “Person”
means
any individual, corporation (including any non-profit corporation), general
or
limited partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or Governmental
Entity.
(u) “Proceeding”
means
a
claim, suit, action, inquiry, investigation or proceeding.
(v) “Required
Consents”
means
the consents, approvals, orders, authorizations, notifications, notices,
estoppel certificates, releases, registrations, ratifications, declarations,
filings, waivers, exemptions or variances (each a “Consent”)
with
respect to any License or Legal Requirement or otherwise as are set forth on
Schedule
2.4
hereof
with respect to Thorium Power, and Schedule
3.3
with
respect to Novastar.
(w) “SEC”
means
the United States Securities and Exchange Commission.
(x) “Subsidiary”
means
any Person with respect to which a specified Person (or a Subsidiary thereof)
owns a majority of the equity interests or has the power to vote or direct
the
voting of sufficient securities to elect a majority of the
directors.
(y) “Tax”
means
any tax (including any income tax, capital gains tax, value-added tax, sales
tax, property tax, gift tax, or estate tax), levy, assessment, tariff, duty
(including any customs duty), deficiency, or other fee, and any related charge
or amount (including any fine, penalty, interest, or addition to tax), imposed,
assessed, or collected by or under the authority of any Governmental Entity
or
payable pursuant to any tax-sharing agreement.
(z) “Tax
Return”
means
any return (including any information return), report, statement, schedule,
notice, form, or other document or information filed with or submitted to,
or
required to be filed with or submitted to, any Governmental Entity in connection
with the determination, assessment, collection, or payment of any Tax or in
connection with the administration, implementation, or enforcement of or
compliance with any Legal Requirement relating to any Tax.
(aa) “Transaction
Documents”
means
this Agreement and each other agreement, instrument, document, and certificate
to be executed and delivered by the Parties pursuant to this
Agreement.
1.5 Other
Definitions.
The
definitions of other terms used in this Agreement may be found as
follows:
(a) “Acquisition
Sub”
is
defined in the introductory paragraph.
(b) “Agent”
or
“Agents”
is
defined at Section 8.
(c) “Agreement”
is
defined in the introductory paragraph.
(d) “Alternative
Proposal”
is
defined at Section 6.12(b).
(e) “Alternative
Proposal Notice”
is
defined at Section 6.12(d).
(f) “Certificates”
is
defined at Section 1.2(c)(ii).
(g) “Closing”
is
defined at Section 1.1(b).
(h) “Closing
Date”
is
defined at Section 1.1(b).
(i) “Code”
is
defined at Section 1.1(a).
(j) “Consent”
is
defined at Section 1.4(v).
(k) “Conversion
Ratio”
is
defined at Section 1.4(d).
(l) “Costs”
is
defined at Section 7.1.
(m) “DGCL”
is
defined at Section 1.1(a).
(n) “Dissenting
Stockholder”
is
defined at Section 1.3(a).
(o) “Effective
Time”
is
defined at Section 1.1(d)(i).
(p) “ERISA”
is
defined at Section 1.4(e).
(q) “Exchange
Agent”
is
defined in Section 1.2(c)(i).
(r) “Exchange
Fund”
is
defined in Section 1.2(c)(i).
(s) “Indemnification
Period”
is
defined at Section 7.3.
(t) “Indemnitee”
is
defined at Section 7.4(a).
(u) “Indemnitor”
is
defined at Section 7.4(a).
(v) “Indemnity
Certificate”
is
defined at Section 7.4(a).
(w)
“Latest
Novastar Balance Sheet”
is
defined at Section 3.11(a).
(x)
“Latest
Thorium Power Balance Sheet”
is
defined at Section 2.5(a).
(y) “Merger”
is
defined in the Recitals.
(z) “Novastar”
is
defined in the introductory paragraph.
(aa)
“Novastar
Common Stock”
is
defined at Section 1.2(a).
(bb) “Novastar
Disclosure Documents”
is
defined at Section 3.5.
(cc) “Novastar
Financial Statements”
is
defined at Section 3.11(a).
(dd) “Novastar
Material Contracts”
is
defined at Section 3.16(a).
(ee) “Party”
or
“Parties”
is
defined in the introductory paragraph.
(ff) “Registration
Statement”
is
defined at Section 3.8.
(gg) “Representatives”
is
defined at Section 6.12(a).
(hh) “Superior
Proposal”
is
defined at Section 6.12(d).
(ii) “Surviving
Corporation”
is
defined at Section 1.1(a).
(jj) “Tax
Liability”
is
defined in Section 2.12(c).
(kk) “Thorium
Power”
is
defined in the introductory paragraph.
(ll) “Thorium
Power Common Stock”
is
defined at Section 1.2(a).
(mm)
|
“Thorium
Power Convertible Securities”
is defined at Section 1.2(a).
|
(nn)
|
“Thorium
Power Financial Statements”
is defined at Section 2.5(a).
|
(oo)
|
“Thorium
Power Material Contracts”
is defined at Section 2.11(a).
|
(pp) “1933
Act”
is
defined at Section 3.5.
(qq)
“1934
Act”
is
defined at Section 3.5.
2. REPRESENTATIONS
AND WARRANTIES OF THORIUM POWER.
Thorium
Power represents and warrants to Novastar and Acquisition Sub that each of
the
following statements is true and correct as of the date hereof (unless stated
as
of another date):
2.1 Organization.
Thorium
Power is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. Thorium Power is duly qualified or
licensed to do business as a foreign corporation and is in good standing in
each
jurisdiction in which the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to so qualify
would not have a Material Adverse Effect. Thorium Power has delivered to
Novastar true, correct and complete copies of the Certificate of Incorporation
and Bylaws and other organizational documents, as currently in effect, of
Thorium Power. Thorium Power does not have any direct or indirect Subsidiaries
or hold any equity or ownership interest of any kind, whether beneficially
or of
record, in any Person.
2.2 Capitalization.
(a) The
authorized capital stock of Thorium Power, the issued and outstanding capital
stock of Thorium Power and the record and beneficial ownership of the capital
stock of Thorium Power is set forth on Schedule
2.2.
The
shares of Thorium Power Common Stock are duly authorized, validly issued, fully
paid and non-assessable. Except as contemplated by this Agreement or set forth
on Schedule
2.2,
there
are no (i) options, warrants, calls, preemptive rights, subscriptions or other
rights, convertible securities, agreements or commitments of any character
obligating, now or in the future, Thorium Power to issue, transfer or sell
any
shares of capital stock, options, warrants, calls or other equity interest
of
any kind whatsoever in Thorium Power or securities convertible into or
exchangeable for such shares or equity interests, (ii) contractual obligations
of Thorium Power to repurchase, redeem or otherwise acquire any capital stock
or
equity interest of Thorium Power or (iii) voting trusts, proxies or similar
agreements to which Thorium Power is a party with respect to the voting of
the
capital stock of Thorium Power.
(b) Except
as
set forth on Schedule
2.2
and
except for the equity interest of the Subsidiaries of Thorium Power and
temporary investments of cash in marketable securities, Thorium Power does
not
own any outstanding shares of capital stock (or other equity interests of
entities other than corporations) of any Person.
2.3 Authorization;
Validity of Agreement.
Thorium
Power has the requisite power and authority to execute, deliver and perform
this
Agreement and each of the other Transaction Documents to be executed and
delivered by Thorium Power pursuant to this Agreement, and to assume and perform
any obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. Each of this Agreement and the other
Transaction Documents to be executed and delivered by Thorium Power pursuant
to
this Agreement have been duly authorized, executed and delivered by Thorium
Power and are valid and binding obligations of Thorium Power, enforceable
against it in accordance with their respective terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of
general application referring to or affecting enforcement of creditors’ rights
and general principles of equity.
2.4 No
Violations; Consents And Approvals.
(a) Except
as
set forth on Schedule
2.4,
the
execution, delivery and performance of each of this Agreement and the other
Transaction Documents by Thorium Power do not, and the consummation by it of
the
transactions contemplated hereby and thereby will not: (i) violate any provision
of its Certificate of Incorporation, Bylaws or other organizational documents,
(ii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation or acceleration) under any of the terms,
conditions or provisions of any Thorium Power Material Contract, after giving
effect to any Required Consents, or (iii) violate any Legal Requirement
applicable to Thorium Power or any of their respective properties or
assets.
(b) No
Consent with, to or of any legislative or executive agency or department or
other regulatory service, authority or agency or any court, arbitration panel
or
other tribunal or judicial authority of any Governmental Entity or Person,
is
required in connection with the execution, delivery and performance of this
Agreement or any of the other Transaction Documents by Thorium Power or the
consummation by Thorium Power of the transactions contemplated hereby and
thereby, except the Required Consents set forth on Schedule
2.4
hereof.
2.5 Financial
Statements.
(a) Attached
as Schedule
2.5
are the
unaudited balance sheets of Thorium Power as of December 31, 2005 (the
“Latest
Thorium Power Balance Sheet”)
and
December 31, 2004, together with the related unaudited statements of income
for
the fiscal years then ended (collectively, the “Thorium
Power Financial Statements”).
(b) The
Thorium Power Financial Statements have been prepared by Thorium Power and
have
been derived from, and agree with, the books and records of Thorium Power and
fairly present the financial position of Thorium Power as of the respective
dates thereof and the results of operations of Thorium Power for the respective
periods set forth therein. The Thorium Power Financial Statements have been
prepared in accordance with GAAP as of the dates and for the periods involved,
subject to the absence of notes.
(c) Thorium
Power maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in accordance with
GAAP and to maintain assets accountability, and (iii) access to assets is
permitted only in accordance with management’s general or specific
authorization, except for any controls the absence of which would not result
in
a Material Adverse Effect.
2.6 Operation
of Business.
(a) Since
the
date of the Latest Thorium Power Balance Sheet, Thorium Power and each
Subsidiary of Thorium Power has continued to operate its business in a manner
and system of operation employed immediately prior to the date of the Latest
Thorium Power Balance Sheet, and Thorium Power has used its commercially
reasonable efforts to prevent harm or damage to the reputation of Thorium
Power.
(b) Except
as
specifically contemplated by this Agreement or as set forth on Schedule
2.6,
since
the date of the Latest Thorium Power Balance Sheet, Thorium Power has not (i)
incurred any liabilities, except in the ordinary course of business consistent
with past practice; (ii) paid any obligation or liability, or discharged or
satisfied any Encumbrance other than those securing current liabilities, in
each
case in the ordinary course of business; (iii) mortgaged, pledged or subjected
to any Encumbrance any of its assets, tangible or intangible, except in the
ordinary course of business; (iv) sold, transferred or leased any of its assets;
(v) suffered any material physical damage, destruction or loss (whether or
not
covered by insurance) affecting its properties, business or prospects; (vi)
entered into any transaction other than in the ordinary course of business;
(vii) encountered any labor difficulties or labor union organizing activities;
(viii) issued or sold any shares of capital stock or other securities or granted
any options, warrants, or other purchase rights with respect thereto other
than
pursuant to this Agreement; (ix) made any acquisition or disposition of any
assets or become involved in any other material transaction, including, without
any limitation, any merger or consolidation with, purchase of all or part of
the
assets of, or acquisition of any business of any proprietorship, firm,
association, corporation or other business organization or division thereof;
(x)
increased the compensation payable, or to become payable, to any of its
directors or employees or increased the scope or nature of any fringe benefits
provided for its employees or directors; (xi) made any capital investment in,
any loan to or any acquisition of the securities or assets of any other Person;
(xii) canceled, compromised, waived or released any material right or claim;
(xiii) made any change in employment terms for any of its officers or employees;
(xiv) made or pledged to make any charitable contribution or other capital
contribution outside the ordinary course of business; (xv) violated any Legal
Requirement, if such violation could have resulted in a Material Adverse Effect
on Thorium Power, or failed to maintain all governmental licenses and approvals
required to operate its business as it is currently being conducted; or (xvi)
agreed or committed, whether in writing or otherwise, to do any of the foregoing
other than pursuant to the Transaction Documents and the transactions
contemplated hereby and thereby. In addition, since the date of the Latest
Thorium Power Balance Sheet, Thorium Power has not accelerated, terminated,
modified or canceled any material Contract to which it is a party or by which
it
or its assets are bound.
(c) Since
the
date of the Latest Thorium Power Balance Sheet, no event, condition or
circumstance has occurred that could, or could be reasonably likely to, have
a
Material Adverse Effect on Thorium Power.
2.7 No
Undisclosed Liabilities.
(a) Except
as
set forth on Schedule
2.7,
Thorium
Power has no liabilities (whether accrued, contingent, known, or otherwise)
other than those that (i) are set forth or reserved against on the Latest
Thorium Power Balance Sheet; or (ii) were incurred in the ordinary course of
business since the date of the Latest Thorium Power Balance Sheet.
(b) The
accounts payable of Thorium Power are set forth on Schedule
2.7.
All
such accounts payable are the result of bona fide transactions in the ordinary
course of business.
2.8 Litigation;
Compliance With Law; Licenses And Permits.
(a) Except
as
set forth on Schedule
2.8,
there
is no Proceeding pending, nor, to Thorium Power’s knowledge, is there any
Proceeding threatened, that involves or affects Thorium Power, by or before
any
Governmental Entity, court, arbitration panel or any other Person.
(b) Since
January 1, 2004, Thorium Power has complied with all applicable Legal
Requirements, including but not limited to Legal Requirements relating to Taxes,
zoning, building codes, antitrust, occupational safety and health, industrial
hygiene, environmental protection, water, ground or air pollution, the
generation, handling, treatment, storage or disposal of Hazardous Substances,
consumer product safety, product liability, hiring, wages, hours, employee
benefit plans and programs, collective bargaining and the payment of withholding
and social security Taxes. Except as set forth on Schedule
2.8,
since
January 1, 2005, Thorium Power has not received any written notice of any
violation or alleged violation of any Legal Requirement from a Governmental
Entity or others.
(c) Except
as
set forth on Schedule
2.8,
Thorium
Power has every License and every Consent by or on behalf of any Person required
for it to conduct its business as presently conducted. All such Licenses and
Consents are in full force and effect and Thorium Power has not received notice
of any pending cancellation or suspension of any thereof nor, to Thorium Power’s
knowledge, is any cancellation or suspension thereof threatened. The
applicability and validity of each such License and Consent will not be
adversely affected by the consummation of the transactions contemplated by
this
Agreement or any other Transaction Document.
2.9 Employee
Benefit Plans; ERISA.
(a) Schedule
2.9
lists
each Employee Benefit Plan that Thorium Power maintains or to which Thorium
Power contributes.
(b) To
the
knowledge of Thorium Power, each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) has been maintained, funded and administered
in accordance with the terms of such Employee Benefit Plan and complies in
form
and in operation in all respects with the applicable requirements of ERISA
and
the Code, except where the failure to comply would not have a Material Adverse
Effect.
(c) All
contributions (including all employer contributions and employee salary
reduction contributions) which are due have been made to each such Employee
Benefit Plan which is an Employee Pension Benefit Plan. All premiums or other
payments which are due have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
2.10 Intellectual
Property.
(a) To
Thorium Power’s knowledge, Thorium Power owns or has the right to use pursuant
to license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of its business as presently conducted, except
where
the failure to so own or have the right to use such Intellectual Property would
not have a Material Adverse Effect. Except as specified in Schedule
2.10,
Thorium
Power possesses all right, title and interest in and to each item of owned
Intellectual Property, free and clear of any Encumbrance.
(b) Schedule
2.10
identifies each patent or registration which has been issued to Thorium Power
with respect to any of its Intellectual Property and identifies each pending
patent application or application for registration which Thorium Power has
made
with respect to any of its Intellectual Property. Schedule
2.10
also
identifies each registered or unregistered trade name, service mark or trademark
used by Thorium Power in connection with its business.
(c) To
Thorium Power’s knowledge, Thorium Power has not interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and except as specified in Schedule
2.10,
Thorium
Power has never received any charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation.
No
third party has interfered with, infringed upon, misappropriated, or otherwise
come into conflict with any Intellectual Property rights of Thorium
Power.
2.11 Material
Contracts.
(a) Schedule
2.11
sets
forth a true, complete and correct list of every written Contract currently
in
effect to which Thorium Power is a party that: (i) provides or provided for
aggregate future payments by Thorium Power of more than $10,000; (ii) was
entered into by Thorium Power with an officer, director, key employee or
Affiliate of Thorium Power; (iii) guarantees or indemnifies or otherwise causes
or caused Thorium Power to be liable or otherwise responsible for the
obligations or liabilities of another or provides or provided solely for a
charitable contribution by Thorium Power; (iv) involves or involved an agreement
with any bank, finance company or similar organization; (v) restricts or
restricted Thorium Power from engaging in any business or activity anywhere
in
the world; (vi) is or was an employment agreement, consulting agreement,
independent sales representative agreement or similar arrangement; (vii) is
or
was a lease; or (viii) is or was otherwise material to the rights, properties,
assets, business or operations of Thorium Power (the foregoing, collectively,
“Thorium
Power Material Contracts”).
Thorium Power has heretofore made available true, complete and correct copies
of
all Thorium Power Material Contracts to Novastar.
(b) Each
of
the Thorium Power Material Contracts is in full force and effect and there
is
not now and there has not been claimed or alleged by any Person with respect
to
any Thorium Power Material Contract, any existing default, or event that with
notice or lapse of time or both would constitute a default or event of default,
on the part of Thorium Power or any Subsidiary of Thorium Power or on the part
of any other party thereto. No Consent from or to any Governmental Entity or
other Person is required in order to maintain in full force and effect any
of
the Thorium Power Material Contracts, other than such Consents that have been
obtained and are in full force and effect or that have been duly given and,
in
each case copies of such Consents have been delivered to Novastar and
Acquisition Sub.
2.12 Taxes.
(a) Thorium
Power has filed all Tax Returns that it was required to file. All such Tax
Returns were correct and complete in all respects. All Taxes owed by Thorium
Power have been paid except for those not yet due. Thorium Power is not
currently the beneficiary of any extension of time within which to file any
Tax
Return. No claim has ever been made by an authority in a jurisdiction where
Thorium Power does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. There are no Encumbrances on any of the assets of Thorium
Power that arose in connection with any failure (or alleged failure) to pay
any
Tax.
(b) Thorium
Power has withheld and paid all Taxes required to have been withheld and paid
in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(c) Thorium
Power is not aware that any authority plans to assess any additional Taxes
for
any period for which Tax Returns have been filed. There is no dispute or claim
concerning any liability with respect to any Taxes (a “Tax
Liability”)
of
Thorium Power either (A) claimed or raised by any Governmental Entity in writing
or (B) as to which Thorium Power has knowledge based upon personal contact
with
any agent of such Governmental Entity. Schedule
2.12
lists
all federal, state, local, and foreign income Tax Returns filed with respect
to
Thorium Power for the last two years, indicates those Tax Returns that have
been
audited, and indicates those Tax Returns that currently are the subject of
audit. Thorium Power has delivered to Novastar correct and complete copies
of
all federal and state income and other material Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to by Thorium
Power for the last two years.
(d) Thorium
Power has not waived any statute of limitations in respect of Taxes or agreed
to
any extension of time with respect to a Tax assessment or
deficiency.
2.13 Affiliated
Party Transactions.
(a) Except
as
listed on Schedule
2.13(a)
and
except for obligations arising under the Transaction Documents, no Affiliate
of
Thorium Power has, directly or indirectly, any obligation to or cause of action
or claim against Thorium Power.
(b) Except
as
listed on Schedule
2.13(b)
Thorium
Power has not made any loan or advance to any stockholder, officer, director
or
employee of Thorium Power and no officer or director of Thorium Power or any
Affiliate of Thorium Power has, either directly or indirectly:
(i) an
equity
interest of five percent (5%) or more in any Person that purchases from or
sells
or furnishes to Thorium Power any goods or otherwise does business with Thorium
Power; or
(ii) a
beneficial interest in any Contract to which Thorium Power is a party or under
which Thorium Power is obligated or bound or to which the property of Thorium
Power may be subject, other than Contracts between Thorium Power and such
Persons in their capacities as employees, officers or directors of Thorium
Power; provided, however, that such representation and warranty shall not apply
to the ownership, as a passive investment, by any such director, officer or
Affiliate of less than one percent (1%) of a class of securities listed for
trading on a national securities exchange, automated
quotation system or
publicly traded in the over-the-counter market.
2.14 Environmental
Matters.Thorium
Power has not caused or allowed, or contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any Hazardous
Substances in connection with the operation of its business or otherwise. Except
as set forth in Schedule
2.14,
the
operation of Thorium Power’s business is in compliance with all applicable
Environmental Laws and orders or directives of any Governmental Entity having
jurisdiction under such Environmental Laws, including, without limitation,
any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances, and
no
actions are presently required to comply with any such applicable Environmental
Laws. Thorium Power has not received any written citation, directive, letter
or
other communication or notice of any proceeding, claim or lawsuit arising out
of
or relating to any Environmental Laws, from any Person arising out of the
ownership of its properties or the conduct of its operations, and Thorium Power
is not aware of any basis therefor. Thorium Power has obtained and is
maintaining in full force and effect all Licenses required by all Environmental
Laws applicable to the business operations conducted on Thorium Power’s property
and is in compliance with all such Licenses.
2.15 No
Brokers.Except
as
specified in Schedule
2.15,
neither
Thorium Power nor any Affiliate of Thorium Power has employed, or otherwise
engaged, any broker or finder or incurred any liability for any brokerage or
investment banking fees, commissions, finders’ fees or other similar fees in
connection with the transactions contemplated by this Agreement.
2.16 Assets
Utilized in The Business.The
assets, properties and rights owned, leased or licensed by Thorium Power and
used in connection with its business and all the agreements to which Thorium
Power is a party relating to its business, constitute all of the assets,
properties, rights and agreements required in connection with the operation
and
conduct by Thorium Power of its business as presently conducted.
2.17 Insurance.Set
forth
in Schedule
2.17
is a
list of all insurance policies of any kind covering Thorium Power. Novastar
and
Acquisition Sub have been provided copies of all such policies. Each of these
insurance policies (a) are with insurance companies that are financially sound
and reputable and are in full force and effect; (b) are sufficient for
compliance with all material Legal Requirements and of all applicable Thorium
Power Material Contracts; and (c) are valid, outstanding and enforceable
policies. Since January 1, 2004, neither Thorium Power nor any Subsidiary of
Thorium Power has been denied any insurance coverage which it has
requested.
2.18 Delivery
of Documents; Corporate Records.The
minute and stock record books of Thorium Power contain true, correct and
complete copies of the records of all meetings and consents in lieu of meetings
of Thorium Power’s board of directors (and all committees thereof) and the
stockholders of Thorium Power since the date of its incorporation or
organization.
2.19 Labor
And Employment Matters.
(a) Set
forth
on Schedule
2.19
is a
list of all employees of Thorium Power as of the date hereof and their
respective positions and hire dates.
(b) (i)
Thorium Power is not a party to or bound by any collective bargaining agreement
or similar agreement with any labor organization, or work rules or practices
agreed to with any labor organization or employee association applicable to
employees of Thorium Power; (ii) none of the employees of Thorium Power are
represented by any labor organization and there are no organizational campaigns,
demands, petitions or proceedings pending or, to Thorium Power’s knowledge,
threatened by any labor organization or group of employees seeking recognition
or certification as collective bargaining representative of any group of
employees of Thorium Power; (iii) there are no union claims to represent the
employees of Thorium Power; and (iv) there are no strikes, controversies,
slowdowns, work stoppages, lockouts or labor disputes pending or, to Thorium
Power’s knowledge, threatened against or affecting Thorium Power, and there have
not been any such actions during the past five (5) years.
(c) Thorium
Power is, and has at all times during at least the last three (3) years been,
in
compliance with all applicable Legal Requirements respecting immigration,
employment and employment practices, and the terms and conditions of employment,
including, without limitation, employment standards, equal employment
opportunity, family and medical leave, wages, hours of work and occupational
health and safety, and is not engaged in any unfair labor practices as defined
in the National Labor Relations Act or any other applicable Legal Requirement.
There are no written employment contracts, severance agreements or retention
agreements with any employees of Thorium Power and no written personnel
policies, rules or procedures applicable to employees of Thorium Power, other
than those listed in Schedule
2.19,
true
and correct copies of which have heretofore been provided to Novastar and
Acquisition Sub. Except as set forth in Schedule
2.19,
(i)
there are no Proceedings related to Thorium Power pending, or, to Thorium
Power’s knowledge, threatened, in any court or with any agency responsible for
the enforcement of federal, state, local or foreign labor or employment laws
regarding breach of any express or implied contract of employment, any Legal
Requirement or regulation governing employment or the termination thereof or
other illegal, discriminatory, wrongful or tortious conduct in connection with
the employment relationship, the terms and conditions of employment, or
applications for employment with Thorium Power; and (ii) to Thorium Power’s
knowledge, no federal, state, local or foreign Governmental Entity responsible
for the enforcement of immigration, labor, equal employment opportunity, family
and medical leave, wages, hours of work, occupational health and safety or
any
other employment laws intends to conduct or is conducting an investigation
with
respect to or relating to Thorium Power.
2.20 Restrictive
Covenants.Except
as
set forth on Schedule
2.20,
Thorium
Power is not subject to any covenant that would restrict Thorium Power from
engaging in its business.
2.21 Directors,
Officers And Certain Employees.Schedule
2.21
sets
forth a complete and correct list of the names and title, for each director
and
officer of Thorium Power, who received compensation during Thorium Power’s most
recently ended fiscal year. Novastar has been provided current annual salary
and
bonus information for all Thorium Power employees, officers and directors.
Thorium Power is not aware of any employee who intends to terminate his or
her
employment relationship with Thorium Power, as a result of the transactions
contemplated hereby or otherwise.
2.22 No
Misstatements Or Omissions.No
representation or warranty by Thorium Power contained in this Agreement or
in
any certificate, list, Schedule, Exhibit or other instrument specified or
referred to in this Agreement, whether heretofore furnished to Novastar or
Acquisition Sub or hereafter furnished to Novastar or Acquisition Sub pursuant
to this Agreement on the part of Thorium Power, contains or will contain any
untrue statement of a material fact or omits or will omit any material fact
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading.
3. REPRESENTATIONS
AND WARRANTIES OF NOVASTAR AND ACQUISITION SUB.Novastar
and Acquisition Sub represent and warrant to Thorium Power that, except as
set
forth in the Novastar Disclosure Documents, each of the following statements
is
true and correct as of the date hereof (unless stated as of another
date):
3.1 Organization.Each
of
Acquisition Sub, Novastar and any other Subsidiaries of Novastar is a
corporation duly organized, validly existing and in good standing under the
laws
of its state of incorporation and has the requisite corporate power and
authority to own, lease and operate its respective properties and to carry
on
its respective business as it is now being conducted. Each of Acquisition Sub,
Novastar and any other Subsidiaries of Novastar is duly qualified or licensed
to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the respective business conducted by it
makes such qualification or licensing necessary, except where the failure to
so
qualify would not have a Material Adverse Effect. Novastar has delivered to
Thorium Power true, correct and complete copies of the Certificate of
Incorporation and Bylaws and other organizational documents, as currently in
effect, of Novastar and Acquisition Sub. Other than Novastar’s ownership
interest in Acquisition Sub and the Subsidiaries set forth in Exhibit 21 to
Novastar’s Form 10-KSB/A filed November 25, 2005, none of Novastar and its
Subsidiaries has any direct or indirect Subsidiaries or hold any equity or
ownership interest of any kind, whether beneficially or of record, in any
Person.
3.2 Authorization;
Validity of Agreement.Each
of
Acquisition Sub and Novastar has the requisite power and authority to execute,
deliver and perform this Agreement and each of the other Transaction Documents
to be executed and delivered by Acquisition Sub or Novastar, as appropriate,
pursuant to this Agreement, and to assume and perform any obligations hereunder
and thereunder, and to consummate the transactions contemplated hereby and
thereby. Each of this Agreement and the other Transaction Documents to be
executed and delivered by Acquisition Sub or Novastar pursuant to this Agreement
have been duly authorized, executed and delivered by Acquisition Sub or
Novastar, as appropriate, and are valid and binding obligations of Acquisition
Sub or Novastar, as appropriate, enforceable against each such entity in
accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application referring to or affecting enforcement of creditors’ rights and
general principles of equity.
3.3 No
Violations; Consents and Approvals.
(a) The
execution, delivery and performance of each of this Agreement and the other
Transaction Documents by Acquisition Sub and Novastar do not, and the
consummation by each of them of the transactions contemplated hereby and thereby
will not: (i) violate any provision of its respective Certificate of
Incorporation, Bylaws or other organizational documents, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse
of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under any of the terms, conditions or provisions
of any Novastar Material Contract, after giving effect to any Required Consents,
or (iii) violate any Legal Requirement applicable to Acquisition Sub or Novastar
or any of their respective properties or assets.
(b) No
Consent with, to or of any legislative or executive agency or department or
other regulatory service, authority or agency or any court, arbitration panel
or
other tribunal or judicial authority of any Governmental Entity or Person,
is
required in connection with the execution, delivery and performance of this
Agreement or any of the other Transaction Documents by Acquisition Sub or
Novastar or the consummation by Acquisition Sub or Novastar of the transactions
contemplated hereby and thereby, except the Required Consents set forth on
Schedule
3.3
hereof.
3.4 The
Shares.The
shares of Novastar Common Stock to be issued to Thorium Power’s stockholders
pursuant to this Agreement, when issued in accordance with the terms of this
Agreement, will be duly authorized, validly issued, fully paid and
non-assessable.
3.5 SEC
Filings; Disclosure.Novastar
has filed with the SEC all forms, statements, reports and documents required
to
be filed by it since January 1, 2003 under each of the Securities Act of 1933,
as amended (the “1933
Act”),
the
Securities Exchange Act of 1934, as amended (the “1934
Act”),
and
the respective rules and regulations thereunder (the “Novastar
Disclosure Documents”)
all of
which, as amended, if applicable, complied when filed in all material respects
with the applicable requirements of the appropriate Act and the rules and
regulations thereunder. As of the filing date of each, the Novastar Disclosure
Documents did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.6 Litigation;
Compliance With Law; Licenses And Permits.
(a) Except
as
set forth in Schedule
3.6,
there is
no Proceeding pending, nor, to Novastar’s knowledge, is there any Proceeding
threatened, that involves or affects either Novastar or any of its Subsidiaries,
by or before any Governmental Entity, court, arbitration panel or any other
Person.
(b) Since
January 1, 2004, Novastar and each of
its
Subsidiaries have,
and
since its formation Acquisition Sub has, complied with all applicable Legal
Requirements, including but not limited to Legal Requirements relating to Taxes,
zoning, building codes, antitrust, occupational safety and health, industrial
hygiene, environmental protection, water, ground or air pollution, the
generation, handling, treatment, storage or disposal of Hazardous Substances,
consumer product safety, product liability, hiring, wages, hours, employee
benefit plans and programs, collective bargaining and the payment of withholding
and social security Taxes. Except as set forth on Schedule
3.6,
since
January 1, 2005, neither Novastar nor any of its Subsidiaries has received
any
written notice of any violation of any Legal Requirement from a Governmental
Entity or others.
(c) Except
as
set forth on Schedule
3.6,
Novastar and each of its Subsidiaries have every License and every Consent
by or
on behalf of any Person required for them to conduct their respective businesses
as presently conducted. All such Licenses and Consents are in full force and
effect and neither Novastar nor any of its Subsidiaries has received notice
of
any pending cancellation or suspension of any thereof nor, to Novastar’s
knowledge, is any cancellation or suspension thereof threatened. The
applicability and validity of each such License and Consent will not be
adversely affected by the consummation of the transactions contemplated by
this
Agreement or any other Transaction Document.
3.7 No
Misstatements Or Omissions.
No
representation or warranty by Novastar and Acquisition Sub contained in this
Agreement or in any certificate, list, Schedule, Exhibit or other instrument
specified or referred to in this Agreement, whether heretofore furnished to
Thorium Power or hereafter furnished to Thorium Power pursuant to this Agreement
on the part of Novastar and Acquisition Sub, contains or will contain any untrue
statement of a material fact or omits or will omit any material fact necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
3.8 Information
Supplied.
The
registration statement on Form S-4 or Form SB-2 (or such other form as may
be
used) to be filed with the SEC by Novastar in connection with the issuance
of
shares of Novastar Common Stock (including shares of Novastar Common Stock
issuable upon exercise or conversion of the Thorium Power Convertible
Securities) in the Merger, as amended or supplemented from time to time (as
so
amended and supplemented, the “Registration
Statement”),
and
any other documents to be filed by Novastar with the SEC or any other
Governmental Entity in connection with the Transaction Documents and the
transactions contemplated thereby prior to the Closing will (in the case of
the
Registration Statement and any such other documents filed with the SEC under
the
1933 Act or the 1934 Act) comply as to form in all material respects with the
requirements of the 1933 Act and the 1934 Act, and will not, on the date of
its
filing or, in the case of the Registration Statement, at the time it becomes
effective under the 1933 Act contain any untrue statement of a material fact
or
omit to state any material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, except that no representation is made by Novastar
with respect to information supplied in writing by or on behalf of Thorium
Power
expressly for inclusion therein.
3.9 Acquisition
Sub.
Acquisition
Sub is a wholly-owned subsidiary of Novastar incorporated on February 9, 2006
that has not engaged in any operations through the Closing Date, except as
contemplated by this Agreement.
3.10 Capitalization.
(a) The
authorized capital stock of Novastar and Acquisition Sub, the issued and
outstanding capital stock of Novastar and Acquisition
Sub and
the
record and beneficial ownership of the capital stock of Novastar and Acquisition
Sub is set forth on Schedule
3.10
or in
the Novastar Disclosure Documents. The shares of Novastar Common Stock are
duly
authorized, validly issued, fully paid and non-assessable. Except as
contemplated by this Agreement or as set forth on Schedule
3.10,
there
are no
(i) options,
warrants, calls, preemptive rights, subscriptions or other rights, convertible
securities, agreements or commitments of any character obligating, now or in
the
future, Novastar or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock, options, warrants, calls or other equity interest
of
any kind whatsoever in Novastar or any of its Subsidiaries or securities
convertible into or exchangeable for such shares or equity
interests,
(ii) contractual
obligations of Novastar to repurchase, redeem or otherwise acquire any capital
stock or equity interest of Novastar or any of its Subsidiaries or
(iii) voting
trusts, proxies or similar agreements to which Novastar or any of its
Subsidiaries is a party with respect to the voting of the capital stock of
Novastar or any of its Subsidiaries.
(b) Except
as
set forth on Schedule
3.10
and
except for the equity interests of the Subsidiaries of Novastar and temporary
investments of cash in marketable securities, Novastar does not own any
outstanding shares of capital stock (or other equity interests of entities
other
than corporations) of any Person.
3.11 Financial
Statements.
(a) Attached
as Schedule
3.11
are (i)
the audited balance sheet of Novastar as of June 30, 2005 and 2004 together
with
the related audited statement of income (including the related notes and audit
reports of independent auditors, if any) for the fiscal year then ended, and
(ii) the unaudited balance sheet of Novastar as of September 30, 2005 (the
“Latest
Novastar Balance Sheet”)
together with the related unaudited statement of income (including related
notes
and review reports of independent auditors, if any) for the three month period
ended September 30, 2005 (collectively, the “Novastar
Financial Statements”).
The
balance sheet of Novastar at December 31, 2005 that will be included in the
unaudited financial statements of Novastar and included in Novastar’s quarterly
report on Form 10-QSB for the quarter ended December 31, 2005 will show total
liabilities of Novastar that do not exceed $250,000.
(b) The
Novastar Financial Statements have been prepared by Novastar and have been
derived from, and agree with, the books and records of Novastar and fairly
present the financial position of Novastar as of the respective dates thereof
and the results of operations of Novastar for the respective periods set forth
therein. The Novastar Financial Statements have been prepared in accordance
with
GAAP as of the dates and for the periods involved, subject, in the case of
the
Novastar Financial Statements covering the periods ended September 30, 2005,
to
normal fiscal year-end adjustments in the ordinary course (none of which,
individually or in the aggregate, is expected to be material to the business
or
the operations of Novastar).
(c) Novastar
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in accordance with
GAAP and to maintain assets accountability, and (iii) access to assets is
permitted only in accordance with management’s general or specific
authorization, except for any controls the absence of which would not result
in
a Material Adverse Effect.
3.12 Operation
of Business.
(a) Since
the
date of the Latest Novastar Balance Sheet, each of Novastar and its Subsidiaries
has continued to operate its business in a manner and system of operation
employed immediately prior to the date of the Latest Novastar Balance Sheet,
and
Novastar has used commercially reasonable efforts to prevent harm or damage
to
the reputation of Novastar or its Subsidiaries.
(b) Except
as
specifically contemplated by this Agreement or as set forth on Schedule
3.12,
since
the date of the Latest Novastar Balance Sheet, neither Novastar nor any of
its
Subsidiaries has (i) incurred any liabilities, except in the ordinary course
of
business consistent with past practice; (ii) paid any obligation or liability,
or discharged or satisfied any Encumbrance other than those securing current
liabilities, in each case in the ordinary course of business; (iii) mortgaged,
pledged or subjected to any Encumbrance any of its assets, tangible or
intangible, except in the ordinary course of business; (iv) sold, transferred
or
leased any of its assets except the sale of inventory in the ordinary course
of
business; (v) suffered any material physical damage, destruction or loss
(whether or not covered by insurance) affecting its properties, business or
prospects; (vi) entered into any transaction other than in the ordinary course
of business; (vii) encountered any labor difficulties or labor union organizing
activities; (viii) issued or sold any shares of capital stock or other
securities or granted any options, warrants, or other purchase rights with
respect thereto other than pursuant to this Agreement; (ix) made any acquisition
or disposition of any assets or become involved in any other material
transaction, including, without any limitation, any merger or consolidation
with, purchase of all or part of the assets of, or acquisition of any business
of any proprietorship, firm, association, corporation or other business
organization or division thereof; (x) increased the compensation payable, or
to
become payable, to any of its directors or employees or increased the scope
or
nature of any fringe benefits provided for its employees or directors, other
than as Novastar has separately informed Thorium Power; (xi) made any capital
investment in, any loan to or any acquisition of the securities or assets of
any
other Person; (xii) canceled, compromised, waived or released any material
right
or claim; (xiii) made any change in employment terms for any of its officers
or
employees; (xiv) made or pledged to make any charitable contribution or other
capital contribution outside the ordinary course of business; (xv) violated
any
Legal Requirement, if such violation could have resulted in a Material Adverse
Effect on Novastar or any of its Subsidiaries, or failed to maintain all
governmental licenses and approvals required to operate its business as it
is
currently being conducted; or (xvi) agreed or committed, whether in writing
or
otherwise, to do any of the foregoing other than pursuant to the Transaction
Documents and the transactions contemplated hereby and thereby. In addition,
since the date of the Latest Novastar Balance Sheet, neither Novastar nor any
of
its Subsidiaries has accelerated, terminated, modified or canceled any material
Contract to which it is a party or by which it or its assets are
bound.
(c) Since
the
date of the Latest Novastar Balance Sheet, no event, condition or circumstance
has occurred that could, or could be reasonably likely to, have a Material
Adverse Effect on Novastar or any of its Subsidiaries.
3.13 No
Undisclosed Liabilities.
(a) Except
as
set forth on Schedule
3.13,
neither
Novastar nor any of its Subsidiaries has any liabilities (whether accrued,
contingent, known, or otherwise) other than those that (i) are set forth or
reserved against on the Latest Novastar Balance Sheet; or (ii) were incurred
in
the ordinary course of business since the date of the Latest Novastar Balance
Sheet.
(b) The
accounts payable of each of Novastar and its Subsidiaries are set forth on
Schedule
3.13.
All
such accounts payable are the result of bona fide transactions in the ordinary
course of business.
3.14 Employee
Benefit Plans; ERISA.
(a) Schedule
3.14
lists
each Employee Benefit Plan that each of Novastar or its Subsidiaries maintains
or to which Novastar or any of its Subsidiaries contributes.
(b) To
the
knowledge of Novastar, each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) has been maintained, funded and administered in
accordance with the terms of such Employee Benefit Plan and complies in form
and
in operation in all respects with the applicable requirements of ERISA and
the
Code, except where the failure to comply would not have a Material Adverse
Effect.
(c) All
contributions (including all employer contributions and employee salary
reduction contributions) which are due have been made to each such Employee
Benefit Plan which is an Employee Pension Benefit Plan. All premiums or other
payments which are due have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
3.15 Intellectual
Property.
(a) To
Novastar’s knowledge, each of Novastar and its Subsidiaries owns or has the
right to use pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary for the operation of its business as presently
conducted, except where the failure to so own or have the right to use such
Intellectual Property would not have a Material Adverse Effect. Except as
specified in Schedule
3.15,
each of
Novastar and its Subsidiaries, as applicable, possesses all right, title and
interest in and to each item of owned Intellectual Property, free and clear
of
any Encumbrance.
(b) Schedule
3.15
identifies each patent or registration which has been issued to Novastar or
any
of its Subsidiaries with respect to any of its Intellectual Property and
identifies each pending patent application or application for registration
which
Novastar or any of its Subsidiaries has made with respect to any of its
Intellectual Property. Schedule
3.15
also
identifies each registered or unregistered trade name, service mark or trademark
used by Novastar in connection with its business.
(c) To
Novastar’s knowledge, neither Novastar nor any of its Subsidiaries has
interfered with, infringed upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of third parties, and except
as
specified in Schedule
3.15,
neither
Novastar nor any of its Subsidiaries has received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation. No third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of Novastar or any of its Subsidiaries.
3.16 Material
Contracts.
(a) Other
than those documents filed with the SEC in connection with the Novastar
Disclosure Documents, Schedule
3.16
sets
forth a true, complete and correct list of every written Contract currently
in
effect to which Novastar or any of its Subsidiaries is a party that: (i)
provides or provided for aggregate future payments by Novastar or any of its
Subsidiaries of more than $10,000; (ii) was entered into by Novastar or any
of
its Subsidiaries with an officer, director, key employee or Affiliate of
Novastar or any of its Subsidiaries; (iii) guarantees or indemnifies or
otherwise causes or caused Novastar or any of its Subsidiaries to be liable
or
otherwise responsible for the obligations or liabilities of another or provides
or provided solely for a charitable contribution by Novastar or any of its
Subsidiaries; (iv) involves or involved an agreement with any bank, finance
company or similar organization; (v) restricts or restricted Novastar or any
of
its Subsidiaries from engaging in any business or activity anywhere in the
world; (vi) is or was an employment agreement, consulting agreement, independent
sales representative agreement or similar arrangement; (vii) is or was a lease;
or (viii) is or was otherwise material to the rights, properties, assets,
business or operations of Novastar or any of its Subsidiaries (the foregoing,
collectively, “Novastar
Material Contracts”).
Novastar has heretofore made available true, complete and correct copies of
all
Novastar Material Contracts to Thorium Power.
(b) Each
of
the Novastar Material Contracts is in full force and effect and there is not
now
and there has not been claimed or alleged by any Person with respect to any
Novastar Material Contract, any existing default, or event that with notice
or
lapse of time or both would constitute a default or event of default, on the
part of Novastar or any Subsidiary of Novastar or on the part of any other
party
thereto. No Consent from or to any Governmental Entity or other Person is
required in order to maintain in full force and effect any of the Novastar
Material Contracts, other than such Consents that have been obtained and are
in
full force and effect or that have been duly given and, in each case copies
of
such Consents have been delivered to Thorium Power.
3.17 Taxes.
(a) Novastar
has filed all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all respects. All Taxes owed by Novastar have
been
paid, except for those not yet due. Novastar is not currently the beneficiary
of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where Novastar does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are
no Encumbrances on any of the assets of Novastar that arose in connection with
any failure (or alleged failure) to pay any Tax.
(b) Novastar
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(c) Novastar
is not aware that any authority plans to assess any additional Taxes for any
period for which Tax Returns have been filed. There is no Tax Liability of
Novastar either (A) claimed or raised by any Governmental Entity in writing
or
(B) as to which Novastar has knowledge based upon personal contact with any
agent of such Governmental Entity. Schedule
3.17
lists
all federal, state, local, and foreign income Tax Returns filed with respect
to
Novastar for the last two years, indicates those Tax Returns that have been
audited and indicates those Tax Returns that currently are the subject of audit.
Novastar has delivered to Novastar correct and complete copies of all federal
and state income and other material Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by Novastar for the
last two years.
(d) Novastar
has not waived any statute of limitations in respect of Taxes or agreed to
any
extension of time with respect to a Tax assessment or deficiency.
3.18 Affiliated
Party Transactions.
(a) Except
as
listed on Schedule
3.18(a)
and
except for obligations arising under the Transaction Documents, no Affiliate
of
Novastar has, directly or indirectly, any obligation to or cause of action
or
claim against Novastar or any of its Subsidiaries.
(b) Except
as
listed on Schedule
3.18(b)
neither
Novastar nor any of its Subsidiaries has made any loan or advance in excess
of
$1,000 outstanding to any stockholder, officer, director or employee thereof
and
no officer or director of Novastar or any of its Subsidiaries or any Affiliate
of Novastar has, either directly or indirectly:
(i) an
equity
interest of five percent (5%) or more in any Person that purchases from or
sells
or furnishes to Novastar or any of its Subsidiaries any goods or otherwise
does
business with Novastar or any of its Subsidiaries; or
(ii) a
beneficial interest in any Contract to which Novastar or any of its Subsidiaries
is a party or under which Novastar or such Subsidiary is obligated or bound
or
to which the property of Novastar or such Subsidiary may be subject, other
than
Contracts between Novastar or such Subsidiary and such Persons in their
capacities as employees, officers or directors of Novastar or a Subsidiary
of
Novastar; provided, however, that such representation and warranty shall not
apply to the ownership, as a passive investment, by any such director, officer
or Affiliate of less than one percent (1%) of a class of securities listed
for
trading on a national securities exchange, automated quotation system or
publicly traded in the over-the-counter market.
3.19 Environmental
Matters.Novastar
has not caused or allowed, or contracted with any party for, the generation,
use, transportation, treatment, storage or disposal of any Hazardous Substances
in connection with the operation of its business or otherwise. Except as set
forth in Schedule
3.19,
the
operation of Novastar’s business is in compliance with all applicable
Environmental Laws and orders or directives of any Governmental Entity having
jurisdiction under such Environmental Laws, including, without limitation,
any
Environmental Laws or orders or directives with respect to any cleanup or
remediation of any release or threat of release of Hazardous Substances, and
no
actions are presently required to comply with any such applicable Environmental
Laws. Novastar has not received any written citation, directive, letter or
other
communication or notice of any proceeding, claim or lawsuit arising out of
or
relating to any Environmental Laws, from any Person arising out of the ownership
of its properties or the conduct of its operations, and Novastar is not aware
of
any basis therefor. Novastar has obtained and is maintaining in full force
and
effect all Licenses required by all Environmental Laws applicable to the
business operations conducted on Novastar’s property and is in compliance with
all such Licenses.
3.20 No
Brokers.Except
as
specified in Schedule
3.20,
neither
Novastar nor any Affiliate of Novastar has employed, or otherwise engaged,
any
broker or finder or incurred any liability for any brokerage or investment
banking fees, commissions, finders’ fees or other similar fees in connection
with the transactions contemplated by this Agreement.
3.21 Assets
Utilized in The Business.The
assets, properties and rights owned, leased or licensed by Novastar and its
Subsidiaries and used in connection with their respective businesses and all
the
agreements to which Novastar or any of its Subsidiaries is a party relating
to
their businesses, constitute all of the assets, properties, rights and
agreements required in connection with the operation and conduct by Novastar
and
its Subsidiaries of their respective businesses as presently
conducted.
3.22 Insurance.Set
forth
in Schedule
3.22
is a
list of all insurance policies of any kind covering Novastar and its
Subsidiaries. Thorium Power has been provided copies of all such policies.
Each
of these insurance policies (a) are with insurance companies that are
financially sound and reputable and are in full force and effect; (b) are
sufficient for compliance with all material Legal Requirements and of all
applicable Novastar Material Contracts; and (c) are valid, outstanding and
enforceable policies. Since January 1, 2004, neither Novastar nor any Subsidiary
of Novastar has been denied any insurance coverage which it has requested.
3.23 Delivery
of Documents; Corporate Records.Novastar
has provided to Thorium Power true, correct and complete copies of all
documents, instruments, agreements and records referred to in Section 3 of
this
Agreement as having been so provided and copies of the minute and stock record
books of Novastar and Acquisition Sub. The minute and stock record books of
each
of Novastar and Acquisition Sub contain true, correct and complete copies of
the
records of all meetings and consents in lieu of meetings of Novastar’s or
Acquisition Sub’s, as applicable, board of directors (and all committees
thereof) and the stockholders of Novastar and Acquisition Sub since the
respective dates of their incorporation or organization.
3.24 Labor
And Employment Matters.
(a) Set
forth
on Schedule
3.24
is a
list of all employees of Novastar and its Subsidiaries as of the date hereof
and
their respective positions.
(b) (i)
Neither Novastar nor any of its Subsidiaries is party to or bound by any
collective bargaining agreement or similar agreement with any labor
organization, or work rules or practices agreed to with any labor organization
or employee association applicable to employees of Novastar or its Subsidiaries;
(ii) none of the employees of Novastar or any of its Subsidiaries are
represented by any labor organization and there are no organizational campaigns,
demands, petitions or proceedings pending or, to Novastar’s knowledge,
threatened by any labor organization or group of employees seeking recognition
or certification as collective bargaining representative of any group of
employees of Novastar or its Subsidiaries; (iii) there are no union claims
to
represent the employees of Novastar or any of its Subsidiaries; and (iv) there
are no strikes, controversies, slowdowns, work stoppages, lockouts or labor
disputes pending or, to Novastar’s knowledge, threatened against or affecting
Novastar or any of its Subsidiaries, and there have not been any such actions
during the past five (5) years.
(c) Novastar
and each of its Subsidiaries is, and has at all times during at least the last
three (3) years been, in compliance with all applicable Legal Requirements
respecting immigration, employment and employment practices, and the terms
and
conditions of employment, including, without limitation, employment standards,
equal employment opportunity, family and medical leave, wages, hours of work
and
occupational health and safety, and is not engaged in any unfair labor practices
as defined in the National Labor Relations Act or any other applicable Legal
Requirement. There are no written employment contracts, severance agreements
or
retention agreements with any employees of Novastar or any of its Subsidiaries
and no written personnel policies, rules or procedures applicable to employees
of Novastar or any of its Subsidiaries, other than those listed in Schedule
3.24,
true
and correct copies of which have heretofore been provided to Thorium Power.
Except as set forth in Schedule
3.24,
(i)
there are no Proceedings related to Novastar or any of its Subsidiaries pending,
or, to Novastar’s knowledge, threatened, in any court or with any agency
responsible for the enforcement of federal, state, local or foreign labor or
employment laws regarding breach of any express or implied contract of
employment, any Legal Requirement or regulation governing employment or the
termination thereof or other illegal, discriminatory, wrongful or tortious
conduct in connection with the employment relationship, the terms and conditions
of employment, or applications for employment with Novastar or any of its
Subsidiaries; and (ii) to Novastar’s knowledge, no federal, state, local or
foreign Governmental Entity responsible for the enforcement of immigration,
labor, equal employment opportunity, family and medical leave, wages, hours
of
work, occupational health and safety or any other employment laws intends to
conduct or is conducting an investigation with respect to or relating to
Novastar or any of its Subsidiaries.
3.25 Restrictive
Covenants.Except
as
set forth on Schedule
3.25,
neither
Novastar nor any of its Subsidiaries is subject to any covenant that would
restrict Novastar or its Subsidiaries from engaging in their respective
businesses.
3.26 Directors,
Officers And Certain Employees.Schedule
3.26
sets
forth a complete and correct list of the names and title, for each director
and
officer of Novastar and Acquisition Sub, who received compensation during
Novastar’s and Acquisition Sub’s, as applicable, most recently ended fiscal
year. Thorium Power has been provided current annual salary and bonus
information for all Novastar employees, officers and directors. Except as
disclosed on Schedule
3.26,
Novastar is not aware of any employee who intends to terminate his or her
employment relationship with Novastar or Acquisition Sub, as a result of the
transactions contemplated hereby or otherwise.
3.27 Continuity
of Business Enterprise.
It is
the present intention of Novastar to cause Thorium Power to continue at least
one significant historic business line of Thorium Power, or to use at least
a
significant portion of Thorium Power’s historic business assets in a business,
in each case within the meaning of Treasury Regulations section 1.368-1(d),
except that Novastar may transfer Thorium Power’s historic business assets (i)
to a corporation that is a member of Novastar’s qualified group, within the
meaning of Treasury Regulations section 1.368-1(d)(4)(ii), or (ii) to a
partnership if (A) one or more members of Novastar’s qualified group have active
and substantial management functions as a partner with respect to Thorium
Power’s historic business or (B) members of Novastar’s qualified group in the
aggregate own an interest in the partnership representing a significant interest
in Thorium Power’s historic business, in each case within the meaning of
Treasury Regulations section 1.368-1(d)(4)(iii).
4. CONDITIONS
TO OBLIGATIONS OF THORIUM POWER TO CLOSE.The
obligations of Thorium Power to consummate the transactions contemplated hereby
and to make the deliveries contemplated at the Closing shall, in addition to
the
conditions set forth elsewhere herein, be subject to the satisfactory completion
on or prior to the Closing Date of each of the following conditions, any of
which may be waived by Thorium Power:
4.1 Correctness
of Representations And Warranties.Each
of
the representations and warranties of Novastar and Acquisition Sub contained
in
this Agreement shall have been true and correct on the date hereof (unless
stated as of another date) and shall be true and correct on the Closing Date
with the same effect as if made on the Closing Date, and Novastar shall have
executed and delivered to Thorium Power at Closing a certificate of an officer
of Novastar to that effect.
4.2 Performance
of Covenants And Agreements.All
of
the covenants and agreements of Novastar and Acquisition Sub contained in this
Agreement and required to be performed by Novastar or Acquisition Sub on or
before the Closing Date shall have been performed in all respects, and an
officer of Novastar shall have executed and delivered to Thorium Power at
Closing a certificate to that effect.
4.3 Effectiveness
of Registration Statement.The
Registration Statement shall have become effective, and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
remain in effect.
4.4 No
New
Proceedings.Novastar
shall not be named as a defendant or respondent in any new Proceeding during
the
period between the execution of this Agreement and the Closing alleging damages
in excess of the amount set forth in Schedule
4.4.
No
preliminary or permanent injunction or other order by any federal or state
court
preventing consummation of the transactions contemplated hereby shall have
been
issued and shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under any applicable
federal or state law or regulation.
4.5 Board
of Directors Approvals.The
Board
of Directors of Novastar shall have approved:
(a) this
Agreement and the transactions contemplated hereby;
(b) Amended
and Restated Bylaws of Novastar in form and substance reasonably satisfactory
to
Thorium Power; and
(c) an
amendment to Novastar’s certificate of incorporation to: (i) increase the number
of authorized shares of Novastar Common Stock to 500,000,000, (ii) change the
name of Novastar to Thorium
Power Ltd.,
and
(iii) make such other changes to the Novastar certificate of incorporation
as
may be mutually agreed upon by Novastar and Thorium Power.
4.6 Stockholder
Approval of Charter Amendment.Novastar
shall have obtained the written consent of the holders of a majority in interest
of the Novastar Common Stock to the amendments to the certificate of
incorporation of Novastar described in Section 4.5(c) above and Novastar shall
have complied with the requirements of Regulation 14C under the 1934 Act,
including requirements relating to the filing of a preliminary information
statement and a definitive information statement (or other appropriate
document(s)) and the mailing of a definitive information statement (or other
appropriate document(s)) to the stockholders of Novastar.
4.7 Receipt
of Releases.Thorium
Power shall have received representation letters and releases in form and
substance reasonably satisfactory to Thorium Power from such persons as Thorium
Power may reasonably request, including Chris Davis.
4.8 Employment
Agreements.Seth
Grae
and Andrey Mushakov shall have entered into employment agreements with Novastar
on terms and subject to conditions that are reasonably satisfactory to Thorium
Power.
4.9 Dissenting
Stockholders.The
total
number of shares of Thorium Power Common Stock held by Dissenting Stockholders
shall not exceed 10% of the outstanding shares of Thorium Power Common Stock
at
the proposed Effective Time.
4.10 Financing.Since
January 1, 2006, Novastar shall have raised at least $2,750,000 (it being
understood that $1,312,500 has already been raised) in an equity financing
transaction and shall have invested at least $1,200,000 of such funds in Thorium
Power for
Thorium Power Common Stock at a price per share of $4.00 (exclusive of the
$150,000 that has already been invested in Thorium Power, but after giving
a
credit for any funds invested in Thorium Power by Novastar on or about the
date
hereof).
4.11 14F-1
Information Statement.Novastar
shall have filed an information statement that complies with Rule 14f-1 under
the 1934 Act relating to a change of majority of the directors of Novastar
and,
if requested by Thorium Power, the current directors of Novastar shall have
provided Novastar with resignation letters in form satisfactory to Thorium
Power
and the persons designated by Thorium Power shall comprise the entire board
of
Novastar.
4.12 Amendment
of Novastar Material Contracts.Novastar
shall have amended the contracts listed on Schedule
4.12
such
that the only remedy for a breach of obligations by Novastar thereunder would
be
termination of such contracts.
4.13 Absence
of Material Adverse Change.There
shall not have been any occurrence, event, incident, action, failure to act,
or
transaction since the date hereof which has had or is reasonably likely to
cause
a Material Adverse Effect on Novastar.
4.14 Due
Diligence.Thorium
Power shall have completed its business, accounting, and legal due diligence
review of Novastar and its business, its assets and liabilities, and the results
thereof shall be reasonably satisfactory to Thorium Power.
4.15 Consents
And Approvals.Thorium
Power shall have received written evidence satisfactory to it that all Required
Consents have been obtained or made.
4.16 Delivery
of Secretary’s Certificate.Thorium
Power shall have received a certificate from each of Novastar and Acquisition
Sub, signed by its respective Secretary or Assistant Secretary, certifying
that
the attached copies of its respective Certificate of Incorporation, bylaws
and
resolutions of the board of directors approving this Agreement and the
transactions contemplated hereby are all true, complete and correct and remain
in full force and effect.
4.17 Exchange
Agent.Novastar
shall have entered into an agreement with the Exchange Agent in accordance
with
Section 1.2(c) hereof.
4.18 Exchangeable
Securities.The
holders of the Exchangeable Securities shall have agreed to exchange the
Exchangeable Securities on the basis specified in Section 1.2(a).
4.19 Novastar
Tax Returns.
To the
extent required by applicable law, Novastar shall have filed all Tax Returns
required to have been filed by it through the Closing Date.
4.20 Other
Closing Documents.Thorium
Power shall have received the executed Certificate of Merger and such other
agreements and instruments as Thorium Power shall reasonably request, in each
case, in form and substance reasonably satisfactory to Thorium
Power.
5. CONDITIONS
TO OBLIGATIONS OF NOVASTAR AND ACQUISITION SUB TO CLOSE.The
obligations of Novastar and Acquisition Sub to consummate the transactions
contemplated hereby and to make the deliveries contemplated at the Closing
shall, in addition to the conditions set forth elsewhere herein, be subject
to
the satisfactory completion on or prior to the Closing Date of each of the
following conditions, any of which may be waived by Novastar or Acquisition
Sub:
5.1 Correctness
of Representations And Warranties.Each
of
the representations and warranties of Thorium Power contained in this Agreement
shall have been true and correct on the date hereof (unless stated as of another
date) and shall be true and correct on the Closing Date with the same effect
as
if made on the Closing Date, and Thorium Power shall have executed and delivered
to Novastar and Acquisition Sub at Closing a certificate of an officer of
Thorium Power to that effect.
5.2 Performance
of Covenants And Agreements.All
of
the covenants and agreements of Thorium Power contained in this Agreement and
required to be performed by Thorium Power on or before the Closing Date shall
have been performed in all respects, and an officer of Thorium Power shall
have
executed and delivered to Novastar and Acquisition Sub at Closing a certificate
to that effect.
5.3 Board
Approval of Merger.The
board
of directors of Thorium Power shall have approved this Agreement and the
transactions contemplated hereby.
5.4 Stockholder
Approval of Merger.The
stockholders of Thorium Power shall have taken all corporate action required
to
approve the Merger, and Thorium Power shall have delivered to Novastar and
Acquisition Sub at Closing a certificate of Thorium Power’s corporate secretary
to that effect.
5.5 Board
of Directors Approvals.The
Board
of Directors of Novastar shall have approved:
(a) Amended
and Restated Bylaws of Novastar in form and substance reasonably satisfactory
to
Thorium Power; and
(b) An
amendment to Novastar’s certificate of incorporation to: (i) increase the number
of authorized shares of Novastar Common Stock to 500,000,000, (ii) change the
name of Novastar to Thorium
Power Ltd.,
and
(iii) make such other changes to the Novastar certificate of incorporation
as
may be mutually agreed upon by Novastar and Thorium Power.
5.6 Stockholder
Approval of Charter Amendment.Novastar
shall have obtained the written consent of the holders of a majority in interest
of the Novastar Common Stock to the amendments to the certificate of
incorporation of Novastar described in Section 4.5(c) above and Novastar shall
have complied with the requirements of Regulation 14C under the 1934 Act,
including requirements relating to the filing of a preliminary information
statement and a definitive information statement (or other appropriate
document(s)) and the mailing of a definitive information statement (or other
appropriate document(s)) to the stockholders of Novastar.
5.7 Receipt
of Releases.Novastar
shall have received representation letters and releases in form and substance
reasonably satisfactory to Novastar from such persons as Novastar may reasonably
request.
5.8 Employment
Agreements.Seth
Grae
and Andrey Mushakov shall have entered into employment agreements with Novastar
on terms and subject to conditions that are reasonably satisfactory to
Novastar.
5.9 Effectiveness
of Registration Statement.The
Registration Statement shall have become effective, and no stop order suspending
the effectiveness of the Registration Statement shall have been issued and
remain in effect.
5.10 No
New
Proceedings.Thorium
Power shall not be named as a defendant or respondent in any new Proceeding
during the period between the execution of this Agreement and the Closing
alleging damages in excess of the amount set forth on Schedule
5.10.
No
preliminary or permanent injunction or other order by any federal or state
court
preventing consummation of the transactions contemplated hereby shall have
been
issued and shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under any applicable
federal or state law or regulation.
5.11 Dissenting
Stockholders.The
total
number of shares of Thorium Power Common Stock held by Dissenting Stockholders
shall not exceed 10% of the outstanding shares of Thorium Power Common Stock
at
the proposed Effective Time.
5.12 Consents
And Approvals.Novastar
and Acquisition Sub shall have received written evidence satisfactory to them
that all Required Consents have been obtained or made.
5.13 Absence
of Material Adverse Change.There
shall not have been any occurrence, event, incident, action, failure to act,
or
transaction since the date hereof which has had or is reasonably likely to
cause
a Material Adverse Effect on Thorium Power.
5.14 14F-1
Information Statement.Novastar
shall have filed an information statement that complies with Rule 14f-1 under
the 1934 Act relating to a change of majority of the directors of Novastar
and,
if requested by Thorium Power, the current directors of Novastar shall have
provided Novastar with resignation letters in form satisfactory to Thorium
Power
and the persons designated by Thorium Power shall comprise the entire board
of
Novastar.
5.15 Exchangeable
Securities.The
holders of the Exchangeable Securities shall have agreed to exchange the
Exchangeable Securities on the basis specified in Section 1.2(a).
5.16 Delivery
of Secretary’s Certificate.Novastar
shall have received a certificate from Thorium Power, signed by its Secretary
or
Assistant Secretary, certifying that the attached copies of its Certificate
of
Incorporation, bylaws and resolutions of the board of directors approving this
Agreement and the transactions contemplated hereby are all true, complete and
correct and remain in full force and effect.
5.17 Due
Diligence.Novastar
shall have completed its business, accounting, and legal due diligence review
of
Thorium Power and its business, its assets and liabilities, and the results
thereof shall be reasonably satisfactory to Novastar and Acquisition
Sub.
5.18 Other
Closing Documents. Novastar
and Acquisition Sub shall have received the executed Certificate of Merger
and
such other agreements and instruments as Novastar or Acquisition Sub shall
reasonably request, in each case, in form and substance reasonably satisfactory
to Novastar and Acquisition Sub.
6. PRE-CLOSING
COVENANTS.The
Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing.
6.1 General.Each
of
the Parties will use its commercially reasonable efforts to take all action
and
to do all things necessary, proper, or advisable in order to consummate and
make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of their respective closing conditions set forth
in Section 4 and Section 5).
6.2 Full
Access.Each
Party shall permit representatives of each other Party to have full access
to
all premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to such Party.
6.3 Notice
of Developments.Thorium
Power will give prompt written notice to Novastar of any material adverse
development causing a breach of any of the representations and warranties of
Thorium Power herein. Novastar or Acquisition Sub will give prompt written
notice to Thorium Power of any material adverse development causing a breach
of
any of their respective representations and warranties herein. No disclosure
by
any Party pursuant to this section, however, shall be deemed to amend or
supplement any Schedule or to prevent or cure any misrepresentation, breach
of
warranty, or breach of covenant.
6.4 Preparation
of Registration Statement.Novastar
shall prepare and file with the SEC, as soon as reasonably practicable after
the
date hereof, the Registration Statement. Novastar and Thorium Power shall use
their commercially reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as practicable after such filing
and
Thorium Power will cooperate with Novastar in the preparation of such
Registration Statement. As soon as practicable following the date hereof,
Thorium Power shall deliver to Novastar such audited financial statements as
are
required by the rules and regulations of the SEC for inclusion in the
Registration Statement. Novastar shall also take any action (other than
qualifying as a foreign corporation or taking any action which would subject
it
to taxation or service of process in any jurisdiction where Novastar is not
now
so qualified or subject) required to be taken under applicable state blue sky
or
provincial or federal securities laws in connection with the issuance of
Novastar Common Stock in connection with the Merger. If at any time prior to
the
Effective Time any event shall occur that should be set forth in an amendment
of
or a supplement to the Registration Statement, Novastar shall prepare and file
with the SEC such amendment or supplement as soon thereafter as is reasonably
practicable. Novastar, Thorium Power and Acquisition Sub shall cooperate with
each other in the preparation of the Registration Statement and any amendment
or
supplement thereto, and each shall notify the other of the receipt of any
comments of the SEC with respect to the Registration Statement and of any
requests by the SEC for any amendment or supplement thereto or for additional
information, and shall provide to the other promptly copies of all
correspondence between Novastar or Thorium Power, as the case may be, or any
of
their respective Representatives and the SEC with respect to the Registration
Statement. Novastar shall give Thorium Power and its counsel the opportunity
to
review the Registration Statement and all responses to requests for additional
information by and replies to comments of the SEC before their being filed
with,
or sent to, the SEC. Each of Thorium Power, Novastar and Acquisition Sub agrees
to use its commercially reasonable efforts, after consultation with the other
Parties, to respond promptly to all such comments of and requests by the SEC
and
to cause the Registration Statement to be declared effective by the SEC at
the
earliest practicable time and to be kept effective as long as is necessary
to
consummate the Merger.
6.5 Regulatory
And Other Approvals.Subject
to the terms and conditions of this Agreement, each Party will proceed
diligently and in good faith to, as promptly as practicable, (a) obtain all
Required Consents, make any other filings with and give any other notices to
Governmental Entities or any other public or private third parties required
of a
Party or any of their Subsidiaries to consummate the Merger and the other
matters contemplated hereby, and (b) provide such other information and
communications to such Governmental Entity or other public or private third
parties as any other Party or such Governmental Entity or other public or
private third parties may reasonably request in connection
therewith.
6.6 Periodic
Reports.Until
the
Effective Time, Novastar will, subject to the requirements of applicable laws,
furnish to Thorium Power all filings to be made with the SEC and all materials
to be mailed to Novastar’s stockholders and will solicit comments with respect
thereto from Thorium Power, in each case, at least 48 hours (or as soon
thereafter as is practicable) prior to the time of such filings and the time
of
such mailings.
6.7 Preservation
of Business.From
the
date of this Agreement until the Closing Date, Thorium Power and Novastar (on
behalf of itself and the Subsidiaries of Novastar) shall operate only in the
ordinary and usual course of business consistent with past practice (provided,
however, that Novastar shall not issue any securities to employees, consultants,
advisors or others in consideration for services rendered or to be rendered
without the prior written consent of Thorium Power), and shall use reasonable
commercial efforts to (a) preserve intact its respective business organization,
(b) preserve the good will and advantageous relationships with customers,
suppliers, independent contractors, employees and other Persons material to
the
operation of its respective business, and (c) not permit any action or omission
which would cause any of its respective representations or warranties contained
herein to become inaccurate or any of its respective covenants to be breached
in
any material respect. Without limiting the generality of the foregoing, except
as contemplated by this Agreement or as set forth in Schedule
6.7,
prior
to the Closing, neither Novastar nor Thorium Power shall, without the prior
written consent of the other:
(i) take
any
action, incur any obligation or enter into or authorize any Contract or
transaction other than in the ordinary course of business;
(ii) sell,
transfer, convey, assign or otherwise dispose of any of its assets or
properties, except in the ordinary course of business;
(iii) waive,
release or cancel any claims against third parties or debts owing to it, or
any
rights which have any value, in any such case in an amount greater than
$25,000;
(iv) make
any
changes in its accounting systems, policies, principles or practices except
as
may be required by applicable law or GAAP;
(v) except
in
connection with this Agreement, the financing (and any other similar financings)
described in Section 4.10 hereof, and pursuant to the terms of outstanding
options, warrants or convertible or exchangeable securities, authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, convertible
or
exchangeable securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of its capital stock or any other securities, or amend
any
of the terms of any such securities;
(vi) split,
combine, or reclassify any capital stock, declare, set aside or pay any
distribution (whether in cash, shares or property or any combination thereof)
in
respect of its capital stock, or redeem or otherwise acquire any of its
securities, except consistent in time and amount with past
practice;
(vii) make
any
borrowings, incur any debt (other than trade payables in the ordinary course
of
business), or assume, guarantee, endorse or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other Person
in
an aggregate principal amount exceeding $25,000, or make any unscheduled payment
or repayment of principal in respect of any debt;
(viii) make
any
new loans, advances or capital contributions to, or new investments in, any
other Person, except in connection with travel and expense reimbursement of
employees in the ordinary course of business;
(ix) enter
into, adopt, amend in any material respect or terminate any bonus, profit
sharing, compensation, termination, stock option, stock appreciation right,
restricted stock, performance unit, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreements, trusts, plans,
funds
or other arrangements for the benefit or welfare of any director, officer or
employee, or increase in any manner the compensation or fringe benefits of
any
director, officer or employee, except for normal increases in the ordinary
course of business consistent with past practice that, in the aggregate, do
not
result in a material increase in benefits or compensation expense to such party,
or pay any benefit not required by any existing plan and arrangement or enter
into any Contract to do any of the foregoing;
(x) borrow,
acquire, lease or encumber any assets outside the ordinary course of
business;
(xi) authorize
or make any capital expenditures that individually, or in the aggregate, exceed
$25,000;
(xii) make
any
material Tax election or settle or compromise any material federal, state,
local
or foreign income Tax liability, or waive or extend the statute of limitations
in respect of any such Taxes;
(xiii) pay
or
agree to pay any amount in settlement or compromise of any suits or claims
of
liability in an amount more than $25,000; or
(xiv) terminate,
or modify, amend or otherwise alter or change in any material respect, any
of
the terms or provisions of any material Contract (other than as required by
the
terms thereof), or pay any amount not required by law or by any Contract in
an
amount more than $25,000.
6.8 Publicity.
Prior
to
issuing any public announcement or statement with respect to the transactions
contemplated hereby Thorium Power and Novastar will, subject to their respective
legal obligations, consult with each other and will allow each other to review
the contents of any such public announcement or statement and any such filing.
Subject to the preceding sentence, Thorium Power and Novastar each agree to
furnish to the other copies of all other public announcements they may make
concerning their respective business and operations promptly after such public
announcements are made.
6.9 Thorium
Power Exchangeable Securities.Thorium
Power shall use commercially reasonable efforts to cause the holders of the
Exchangeable Securities to exchange such securities at the Closing pursuant
to
Section 1.2(a) hereof.
6.10 Appointment
of Seth Grae as CEO and President of Novastar.As
soon
as practicable following the execution of this Agreement, Novastar shall take
such action as may be necessary to appoint Seth Grae as the Chief Executive
Officer and President of Novastar.
6.11 Continuity
of Business Enterprise.
Novastar will cause Thorium Power to continue at least one significant historic
business line of Thorium Power, or use at least a significant portion of Thorium
Power’s historic business assets in a business, in each case within the meaning
of Treasury Regulations section 1.368-1(d), except that Novastar may transfer
Thorium Power’s historic business assets (i) to a corporation that is a member
of Novastar’s qualified group, within the meaning of Treasury Regulations
section 1.368-1(d)(4)(ii), or (ii) to a partnership if (A) one or more members
of Novastar’s qualified group have active and substantial management functions
as a partner with respect to Thorium Power’s historic business or (B) members of
Novastar’s qualified group in the aggregate own an interest in the partnership
representing a significant interest in Thorium Power’s historic business, in
each case within the meaning of Treasury Regulations section 1.368-1(d)(4)(iii).
Novastar (or its Subsidiary) will not transfer Thorium Power’s stock to (i) a
corporation that is not a member of Novastar’s qualified group or (ii) a
partnership.
6.12 No
Solicitation.
(a) Immediately
following the execution of this Agreement, the Parties will (and will cause
each
of their respective employees, officers, directors and agents (“Representatives”)
to)
terminate any and all existing activities, discussions and negotiations with
third parties (other than each other) with respect to any Alternative
Proposal.
(b) No
Party
will (and each will cause its Representatives not to), directly or indirectly,
solicit, initiate or knowingly encourage the submission of any offer or proposal
to acquire all or a majority of a Party’s capital stock or all or ten percent
(10%) or more of the assets or business of a Party (other than the transactions
contemplated by this Agreement), whether by merger, purchase of stock, purchase
of assets, tender offer, exchange offer or otherwise (an “Alternative
Proposal”);
provided, however, that, if a Party shall receive an unsolicited Alternative
Proposal, then such Party and its Representatives may enter into discussions
or
negotiations with respect to such Alternative Proposal with the Person
presenting such Alternative Proposal and provide information to such Person
if
(i) the board of directors of such Party determines in good faith, after
receiving the advice of its outside legal counsel, that such action is required
in order for the board of directors of such Party to act in a manner consistent
with its fiduciary duties under applicable law, (ii) the board of directors
of
such Party concludes in good faith, in consultation with its financial advisors,
that such Alternative Proposal constitutes a Superior Proposal, (iii) such
Party
receives from such Person an executed confidentiality agreement on terms
substantially similar and no less favorable to such Party as the confidentiality
provisions contained herein or pursuant to any other confidentiality agreement
among the Parties hereto, and (iv) such Party has complied with its obligations
under this Section 6.12.
(c) A
Party
shall promptly (and in any event by 5:00 p.m. New York City time, on the next
business day) communicate to the other Parties in writing the identity of the
Person making an Alternative Proposal or any related inquiries, proposals or
offers, and the terms and conditions of such Alternative Proposal, inquiry,
proposal or offer that it may receive. The Party receiving the Alternative
Proposal will keep the other Parties informed as to the status of any actions,
including any discussions, taken with respect to such Alternative Proposal.
The
Party receiving the Alternative Proposal shall also keep the other Parties
informed of the status of any modifications to any Alternative Proposal (each
Party agreeing that it (and its Subsidiaries) will not enter into any
confidentiality agreement with any Person subsequent to the date of this
Agreement which prohibits the Party from providing such information to the
other
Parties).
(d) A
Party’s
board of directors (or a committee thereof) shall not approve or recommend
an
Alternative Proposal, or withdraw or modify its approval or recommendation
of
this Agreement and the transactions contemplated hereby, including the Merger
(or publicly propose to do any of the foregoing) except as expressly provided
in
this Section 6.12. In response to the receipt of an unsolicited written
Alternative Proposal, if a Party has complied with this Section 6.12 and the
board of directors of the Party (A) determines in good faith that the
Alternative Proposal is a Superior Proposal (and continues to constitute a
Superior Proposal after taking into account any modifications proposed by the
other Parties hereto during any five business day period referred to below),
and
(B) after receiving the advice of its outside counsel has concluded in good
faith that such action is required in order for the board of directors of the
Party receiving the Alternative Proposal to act in a manner consistent with
its
fiduciary duties under applicable law, then, on the sixth business day following
the other Party’s receipt of written notice from the Party receiving the
Alternative Proposal of the intention of the board of directors of such Party
to
do so, the board of directors of the Party that received the Alternative
Proposal may approve and recommend such Superior Proposal and, in connection
with such Superior Proposal, withdraw or modify its approval or recommendation
of this Agreement and the Merger. As used herein, the term “Superior
Proposal”
means
an Alternative Proposal which the board of directors of a Party determines
in
good faith and after consultation with its financial advisor and after receiving
the advice of its outside legal counsel to be more favorable to that Party’s
stockholders from a financial point of view than the Merger and which is
reasonably likely to be financed and otherwise completed without any undue
delay. Notwithstanding the foregoing, the board of directors of a Party that
received an Alternative Proposal shall not approve or recommend a Superior
Proposal or withdraw or modify its approval or recommendation of this Agreement
and the Merger in response to a Superior Proposal (X) until five business days
after the Party that received the Alternative Proposal provides written notice
to the other Parties (an "Alternative
Proposal Notice")
advising the other Parties that the board of directors of the Party that
received the Alternative Proposal or a committee thereof has received a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal, and identifying the Person or group making such Superior Proposal
and
(Y) if during such five business day period, the other Parties propose any
alternative transaction (including any modifications to the terms of this
Agreement), unless the board of directors of the Party that received the
Alternative Proposal or a committee thereof determines in good faith (after
consultation with its financial advisors and outside legal counsel, and taking
into account all financial, legal, and regulatory terms and conditions of such
alternative transaction proposal) that such alternative transaction proposal
is
not at least as favorable to the Party that received the Alternative Proposal
and its stockholders from a financial point of view as the Superior Proposal
(it
being understood that any change in the financial or other material terms of
a
Superior Proposal shall require a new Alternative Proposal Notice and a new
five
business day period under this Section 6.12).
(e) Nothing
in this Section 6.12 shall permit a Party to terminate this Agreement except
as
specifically provided in Section 9. For the avoidance of doubt, no Party may
enter into any agreement with respect to an Alternative Proposal during the
term
of this Agreement unless it first complies with the provisions of this Section
6.12 and Section 9.
6.13 Financing.
On or
before March 31, 2006, Novastar shall use commercially reasonable efforts to
raise at least $2,750,000 (it being understood that $1,312,500 has already
been
raised) in an equity financing transaction and shall invest at least $1,200,000
of such funds in Thorium Power for Thorium Power Common Stock at a price per
share of $4.00 (exclusive of the $150,000 that has already been invested in
Thorium Power, but after giving a credit for any funds invested in Thorium
Power
by Novastar on or about the date hereof).
6.14 Amendment
of Novastar Material Contracts.
6.15 On
or
before March 31, 2006, Novastar shall use commercially reasonable efforts to
amend the contracts listed on Schedule
4.12
such
that the only remedy for a breach of obligations by Novastar thereunder is
termination of such contracts.
7. INDEMNIFICATION.
7.1 Indemnification
By Thorium Power.
Thorium
Power shall indemnify and hold harmless Novastar and Acquisition Sub and their
respective officers, directors, employees, attorneys, agents and controlling
persons from any liability, damage, loss, penalty, cost or expense, including
attorneys fees and costs of investigating and defending against lawsuits,
complaints, actions or other pending or threatened litigation (collectively,
“Costs”), arising from or attributable to any breach of any representation,
warranty or agreement made by Thorium Power herein or in any certificate
delivered by Thorium Power in connection with the transactions contemplated
herein.
7.2 Indemnification
By Novastar.
Novastar shall indemnify and hold harmless Thorium Power and its officers,
directors, employees, attorneys, agents and controlling persons from Costs
arising from or attributable to any breach of any representation, warranty
or
agreement made by Novastar or Acquisition Sub herein or in any certificate
delivered by Novastar or Acquisition Sub in connection with the transactions
contemplated herein.
7.3 Limitations
Period.
The
indemnification rights provided in Sections 7.1 and 7.2 apply only with respect
to claims asserted by written notice provided to the Party from whom
indemnification is sought, no later than the Effective Date (the “Indemnification
Period”).
This
limitations period is not intended to restrict the right of a director, officer,
employee, attorney or agent of a Party to seek indemnification from that Party,
consistent with the Party’s bylaws or corporate policies.
7.4 Procedures
For Resolution And Payment of Claims For Indemnification.
(a) If
a
Person entitled to be indemnified under this Section 7 (the “Indemnitee”)
shall
incur any Costs or determine that it is likely to incur any Costs, including
without limitation claims by third parties, and believes that it is entitled
to
be indemnified against such Costs by a Party hereunder (the “Indemnitor”),
such
Indemnitee shall deliver to the Indemnitor a certificate (an “Indemnity
Certificate”)
signed
by the Indemnitee which Indemnitee Certificate shall:
(i) state
that the Indemnitee has paid or properly accrued Costs, or anticipates that
it
will incur liability for Costs for which such Indemnitee is entitled to
indemnification pursuant to this Agreement; and
(ii) specify
in reasonable detail each individual item of Cost included in the amount so
stated, the date such item was paid or properly accrued, the basis for any
anticipated liability and the nature of the misrepresentation, breach of
warranty or breach of covenant to which each such item is related and the
computation of the amount to which such Indemnitee claims to be entitled
hereunder.
(b) In
case
the Indemnitor shall object to the indemnification of an Indemnitee in respect
of any claim or claims specified in any Indemnity Certificate, the Indemnitor
shall within 30 days after receipt by the Indemnitor of such Indemnity
Certificate deliver to the Indemnitee a written notice to such effect and the
Indemnitor and the Indemnitee shall, within the 30-day period beginning on
the
date of receipt by the Indemnitee of such written objection, attempt in good
faith to agree upon the rights of the respective parties with respect to each
of
such claims to which the Indemnitor shall have so objected. If the Indemnitee
and the Indemnitor shall succeed in reaching agreement on their respective
rights with respect to any of such claims, the Indemnitee and the Indemnitor
shall promptly prepare and sign a writing setting forth such
agreement.
(c) Promptly
after the assertion by any third party of any claim against any Indemnitee
that,
in the judgment of such Indemnitee, may result in the incurrence by such
Indemnitee of Costs for which such Indemnitee would be entitled to
indemnification pursuant to this Agreement, such Indemnitee shall deliver to
the
Indemnitor a written notice describing in reasonable detail such claim and
such
Indemnitor may, at its option, assume the defense of the Indemnitee against
such
claim (including the employment of counsel, who shall be satisfactory to such
Indemnitee, and the payment of expenses), which assumption shall not be deemed
an admission of liability for indemnification. Any Indemnitee shall have the
right to employ separate counsel in any such action or claim and to participate
in the defense thereto, but the fees and expenses of such counsel shall not
be
at the expense of the Indemnitor unless (i) the Indemnitor shall have failed,
within a reasonable time after having been notified by the Indemnitee of the
existence of such claim as provided in the preceding sentence, to assume the
defense of such claim, (ii) the employment of such counsel has been specifically
authorized by the Indemnitor, or (iii) the named parties to any such action
(including any impleaded parties) include both such Indemnitee and the
Indemnitor and such Indemnitee shall have been advised in writing by such
counsel that there may be one or more legal defenses available to it which
are
different from or additional to those available to Indemnitor. No Indemnitor
shall be liable to indemnify any Indemnitee for any settlement of any such
action or claim effected without the consent of the Indemnitor but if settled
with the written consent of the Indemnitor, or if there be a final judgment
for
the plaintiff in any such action, the Indemnitor shall jointly and severally
indemnify and hold harmless each Indemnitee from and against any loss or
liability by reason of such settlement or judgment. If an Indemnitor assumes
the
defense of an Indemnitee against a claim asserted hereunder, the Indemnitee
shall give the Indemnitor access to its books and records as necessary to
conduct such defense and cooperate in such defense.
7.5 Limitation
on Indemnification.
Notwithstanding any other provision of this Section 7: (i) no Party will have
any indemnification obligations for Costs under Section 7 unless and until
the
Costs exceed Twenty Five Thousand Dollars ($25,000), and then only to the extent
of such excess; and (ii) in no event will the aggregate indemnification to
be
paid by a Party under Section 7 exceed Two Hundred Fifty Thousand Dollars
($250,000);
provided,
however,
that
this Section 7.5 shall not apply to any intentional breach.
7.6 Exclusive
Remedy.
The
Parties acknowledge and agree that the sole and exclusive remedy for any breach
or inaccuracy, or alleged breach or inaccuracy, of any representation or
warranty in this Agreement or any covenant or agreement to be performed
hereunder on or prior to the Closing Date, will be indemnification in accordance
with this Section 7. In furtherance of the foregoing, the Parties hereby waive,
to the fullest extent permitted by applicable law, any and all other rights,
claims and causes of action (including rights of contributions, if any) that
may
be based upon, arise out of or relate to this Agreement, or the negotiation,
execution or performance of this Agreement (including any tort or breach of
contract claim or cause of action based upon, arising out of, or related to
any
representation or warranty made in or in connection with this Agreement or
as an
inducement to enter into this Agreement), known or unknown, foreseen or
unforeseen, which exist or may arise in the future, that it may have against
the
other arising under or based upon any law (including any such law under or
relating to environmental matters), common law or otherwise.
8. CONFIDENTIAL
INFORMATION.Each
Party agrees that it will use the Confidential Information that it receives
solely for the purpose of evaluating and implementing the transactions
contemplated hereby and for no other purpose. Each Party shall keep the
Confidential Information strictly confidential, and shall not disclose any
of
the Confidential Information to any Person or use any of the Confidential
Information for any other purpose; provided that each Party may disclose the
Confidential Information to its accountants and attorneys (each an “Agent”
and
collectively the “Agents”)
who
need to know such Confidential Information solely for purposes of assisting
such
Party in evaluating the transactions contemplated hereby and, provided further,
that such Confidential Information may be disclosed where required by applicable
law or any rules and regulations of an exchange or automated quotation system.
As a condition precedent to disclosing any Confidential Information to any
such
Agent, the Party will inform such Agent of the confidential nature of the
Confidential Information and such Agent will agree to be bound to the terms
and
provisions hereof, as if such Agent was a party hereto.
9. TERMINATION.
9.1 Ability
to Terminate.
This
Agreement shall terminate at any time prior to the Closing as
follows:
(a) By
the
mutual written consent of the Parties.
(b) By
Novastar or Acquisition Sub, (i) upon written notice to Thorium Power that
any
of the conditions in Section 5 have not been fulfilled or waived on or prior
to
October 31, 2006, (ii) if there has been a breach by Thorium Power of any
representation, warranty or covenant made by it in this Agreement which has
prevented the satisfaction of any condition to the obligations of Novastar
and/or Acquisition Sub to effect the Closing and such breach has not been cured
by Thorium Power or waived by Novastar and Acquisition Sub within 20 business
days after all other conditions to Closing have been satisfied or are capable
of
being satisfied, (iii) if an Alternative Proposal relating to Thorium Power
has
not been rejected within thirty (30) days after receipt thereof by Thorium
Power, or (iv) if Novastar and/or Acquisition Sub has complied with the
provisions of Sections 6.12 and 9.3(c) with regard to a Superior Proposal.
(c) By
Thorium Power, (i) upon written notice to Novastar and Acquisition Sub that
any
of the conditions in Section 4 have not been fulfilled or waived on or prior
to
October 31, 2006, (ii) if there has been a breach by Novastar or Acquisition
Sub
of any representation, warranty or covenant made by it in this Agreement which
has prevented the satisfaction of any condition to the obligations of Thorium
Power to effect the Closing and such breach has not been cured by Novastar
and/or Acquisition Sub or waived by Thorium Power within 20 business days after
all other conditions to Closing have been satisfied or are capable of being
satisfied, (iii) if an Alternative Proposal relating to Novastar and/or
Acquisition Sub has not been rejected within thirty (30) days after receipt
thereof by Novastar and/or Acquisition Sub, or (iv) if Thorium Power has
complied with the provisions of Sections 6.12 and 9.3(b) with regard to a
Superior Proposal.
(d) By
any
Party if any Governmental Entity shall have issued an order, decree or ruling
or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have
become final and nonappealable (provided, however, that the right to terminate
this Agreement pursuant to this Section 9.1(d) shall not be available to any
Party until such Party has used all commercially reasonable efforts to remove
such order, decree, ruling or other action unless such removal is not reasonably
likely to be obtained).
9.2 Procedure
and Effect of Termination.
In the
event of termination of this Agreement by any of the Parties pursuant to this
Section 9, written notice thereof will forthwith be given by the terminating
Party to the other Parties and this Agreement will terminate and the
transactions contemplated hereby will be abandoned, without further action
by
either Party, whereupon the liabilities of the Parties hereunder will terminate,
except as otherwise expressly provided in this Agreement
(including Section 9.3).
9.3 Remedies
upon Termination.
If this
Agreement is terminated as provided herein:
(a) Except
as
otherwise provided in this Section 9.3, such termination will be the sole remedy
of the Parties with respect to breaches of any representation, warranty or
covenant contained in this Agreement and none of the Parties nor any of their
trustees, directors, officers, employees or Affiliates, as the case may be,
will
have any liability or further obligation to the other Parties or any of their
trustees, directors, officers, employees or Affiliates, as the case may be,
pursuant to this Agreement.
(b) Notwithstanding
Section 9.3(a), if Novastar or Acquisition Sub terminates this Agreement
pursuant to Section 9.1(b)(iii) or if Thorium Power terminates this Agreement
pursuant to Section 9.1(c)(iv), then Thorium Power shall pay to Novastar
liquidated damages equal to $500,000.
(c) Notwithstanding
Section 9.3(a), if Thorium Power terminates this Agreement pursuant to Section
9.1(c)(iii) or if Novastar or Acquisition Sub terminates this Agreement pursuant
to Section 9.1(b)(iv), then Novastar shall pay to Thorium Power liquidated
damages equal to $500,000.
9.4 Liquidated
Damages.
In view
of the difficulty of determining the amount of damages which may result from
a
termination under the circumstances set forth in Sections 9.3(b) and 9.3(c),
and
the failure of the Parties to consummate the transactions contemplated by this
Agreement, the Parties have mutually agreed that the payment set forth in such
sections will be made to the respective Parties as liquidated damages, and
not
as a penalty. In the event of any such termination, the Parties have agreed
that
the payment set forth in Sections 9.3(b) and 9.3(c) will be the sole and
exclusive remedy for monetary damages of the Parties. ACCORDINGLY, THE PARTIES
HEREBY ACKNOWLEDGE THAT (i) THE EXTENT OF DAMAGES CAUSED BY THE FAILURE OF
THIS
TRANSACTION TO BE CONSUMMATED WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO
ASCERTAIN, (ii) THE AMOUNT OF THE LIQUIDATED DAMAGES PROVIDED FOR IN SECTION
9.3(b) AND SECTION 9.3(c) IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES
UNDER THE CIRCUMSTANCES, AND (iii) RECEIPT OF SUCH LIQUIDATED DAMAGES BY THE
RESPECTIVE PARTIES DOES NOT CONSTITUTE A PENALTY. THE PARTIES HEREBY FOREVER
WAIVE AND AGREE TO FOREGO TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE
LAW
ANY AND ALL RIGHTS THEY HAVE OR IN THE FUTURE MAY HAVE TO ASSERT ANY CLAIM
DISPUTING OR OTHERWISE OBJECTING TO ANY OR ALL OF THE FOREGOING PROVISIONS
OF
THIS SECTION 9. Any payment under Section 9.3(b) or Section 9.3(c) will be
made
by wire transfer of immediately available funds to a bank account in the United
States of America designated in writing by the Party entitled to receive such
payment not later than ten business days following the date such Party delivers
notice of such account designation to the Party responsible to make such
payment.
10. MISCELLANEOUS
PROVISIONS.
10.1 Construction;
Governing Law.This
Agreement shall be construed and enforced in accordance with and governed by
the
laws of the State of New York without regard to principles of conflicts of
laws.
10.2 Notices.All
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms of this Agreement shall be
in
writing, and shall be sent to the applicable Party at the following addresses
or
facsimile numbers, as applicable:
If
to
Novastar:
Novastar
Resources Ltd.
c/o
Sean
Mulhearn
364
West
18th
Street,
Suite 5G
New
York,
NY 10001
Attention:
Charles Merchant
Fax:
(212) 366-4312
With
a
copy to:
Pillsbury
Winthrop Shaw Pittman LLP
1540
Broadway
New
York,
NY 10036-4039
Attention:
Jerry P. Peppers, Esq.
Fax:
(212) 858-1500
If
to
Acquisition Sub:
TP
Acquisition Corp.
c/o
Novastar Resources Ltd.
c/o
Sean
Mulhearn
364
West
18th
Street,
Suite 5G
New
York,
NY 10001
Attention:
Charles Merchant
Fax:
(212) 366-4312
With
a
copy to:
Pillsbury
Winthrop Shaw Pittman LLP
1540
Broadway
New
York,
NY 10036-4039
Attention:
Jerry P. Peppers, Esq.
Fax:
(212) 858-1500
If
to
Thorium Power:
Thorium
Power, Inc.
8300
Greensboro Drive
Suite
800
McLean,
VA 22102
Attention:
Seth Grae
Fax:
(202) 318-2502
With
a
copy to:
Thelen
Reid & Priest LLP
701
Eighth Street, N.W.
Washington,
DC 20001
Attention:
Louis A. Bevilacqua, Esq.
Fax:
(202) 654-1804
or
to
such other address or facsimile number as any Party may have furnished to each
other Party in writing in accordance herewith. All notices, consents,
directions, approvals, instructions, requests and other communications hereunder
shall be sent and effective as follows: (i) on the business day delivered,
when
delivered personally; (ii) five (5) business days after mailing if mailed by
registered or certified mail, return receipt requested (postage prepaid); (iii)
on the next business day if sent by a nationally recognized overnight express
courier service with all costs prepaid and provided evidence of delivery is
available; or (iv) on the business day of a facsimile transmission if received
on a business day before 5:00 p.m., local time, or on the next business day
if
received after that time, in each case provided that an automatic machine
confirmation indicating the time of receipt is generated.
10.3 Assignment.Neither
this Agreement nor any right, remedy, obligation or liability arising hereunder
or by reason hereof may be assigned by Novastar or Acquisition Sub without
Thorium Power’s prior written consent or by Thorium Power without Novastar’s
prior written consent. Nothing contained herein, express or implied, is intended
to confer upon any Person other than the Parties hereto and their successors
in
interest and permitted assignees any rights or remedies under or by reason
of
this Agreement unless so expressly stated herein to the contrary.
10.4 Amendments
And Waivers.No
breach
of any covenant, agreement, warranty or representation shall be deemed waived
unless expressly waived in writing by the Party who is entitled to assert such
breach. No waiver of any right hereunder shall operate as a waiver of any other
right or of the same or a similar right on another occasion. This Agreement
and
the Exhibits and Schedules hereto may be modified only by a written instrument
duly executed by the Parties hereto.
10.5 Attorneys’
Fees.In
the
event that any action or proceeding is commenced by any Party hereto for the
purpose of enforcing any provision of this Agreement, the Parties to such action
or proceeding may receive as part of any award, judgment, decision or other
resolution of such action, proceeding or arbitration their costs and attorneys’
fees as determined by the Person or body making such award, judgment, decision
or resolution. Should any claim hereunder be settled short of the commencement
of any such action or proceeding, the Parties in such settlement shall be
entitled to include as part of the damages alleged to have been incurred costs
of attorneys or other professionals in investigation or counseling on such
claim.
10.6 Binding
Nature of Agreement.This
Agreement includes each of the Schedules and Exhibits that are referred to
herein or attached hereto, all of which are incorporated by reference herein.
All the terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the Parties hereto and their respective executors, heirs,
legal representatives, successors and permitted assigns.
10.7 Expenses.The
costs
and expenses and the professional fees and disbursements incurred by Thorium
Power in connection herewith shall be borne by Thorium Power. The costs and
expenses and the professional fees and disbursements incurred by Novastar and
Acquisition Sub in connection herewith shall be borne by Novastar and
Acquisition Sub, respectively.
10.8 Entire
Agreement.This
Agreement contains the entire understanding of the Parties with respect to
the
subject matter hereof, and supersedes all prior representations, agreements
and
understandings relating to the subject matter hereof.
10.9 Severability.Any
provision of this Agreement that is invalid, illegal or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability, without affecting in any way
the remaining provisions hereof in such jurisdiction or rendering that or any
other provision of this Agreement invalid, illegal or unenforceable in any
other
jurisdiction.
10.10 Counterparts;
Signatures; Section Headings.This
Agreement may be executed by the Parties in separate counterparts, each of
which
when so executed and delivered shall be an original, but all such counterparts
shall together constitute but one and the same instrument. A facsimile signature
shall bind the signatory in the same way that an original signature would bind
the signatory. The headings of each section, subsection or other subdivision
of
this Agreement are for reference only and shall not limit or control the meaning
thereof.
10.11 Waiver
of Jury Trial.EACH
PARTY HERETO WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY DISPUTE IN CONNECTION
WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE RELATED AGREEMENTS,
AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH
WAIVER.
10.12 Submission
to Jurisdiction.
All
actions or proceedings arising in connection with this Agreement shall be tried
and litigated exclusively in the State of New York. The aforementioned choice
of
venue is intended by the parties to be mandatory and not permissive in nature,
thereby precluding the possibility of litigation between the parties with
respect to or arising out of this Agreement. Each party hereby waives (i) any
right it may have to assert the doctrine of forum non conveniens or similar
doctrine or to object to venue with respect to any proceeding brought in
accordance with this Section 10.12, and (ii) the right each may have to a
trial by jury.
Each
party stipulates that the court in the State of New York shall have in personam
jurisdiction over each of them for the purpose of litigating any such dispute,
controversy or proceeding. Each party hereby authorizes and accepts service
of
process sufficient for personal jurisdiction in any action against it as
contemplated by this Section 10.12 by registered or certified mail, return
receipt requested, postage prepaid, to its address for the giving of notices
as
set forth in Section 10.2. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law.
[Remainder
of page intentionally left blank.]
IN
WITNESS WHEREOF, this Agreement has been duly executed by the Parties hereto as
of the date first written above.
|
|
|
|
NOVASTAR
RESOURCES LTD. |
|
|
|
|
By: |
/s/ Charles
Merchant |
|
Name:
Charles Merchant
Title:
Chief Operating Officer
and
Interim Chief Executive Officer
|
|
|
|
|
TP
ACQUISITION CORP. |
|
|
|
|
By: |
/s/ Charles
Merchant |
|
Name:
Charles Merchant
Title:
President
|
|
|
|
|
THORIUM
POWER, INC. |
|
|
|
|
By: |
/s/ Seth
Grae |
|
Name:
Seth Grae
Title:
President
|
AMENDMENT
NO. 1 TO AGREEMENT AND PLAN OF MERGER
This
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER is entered into as of June
___,
2006 (this “Amendment”)
among
NOVASTAR RESOURCES LTD., a Nevada corporation (“Novastar”), TP ACQUISITION
CORP., a Delaware corporation and wholly-owned subsidiary of Novastar
(“Acquisition Sub”), and THORIUM POWER, INC., a Delaware corporation (“Thorium
Power”). Capitalized terms used, but not otherwise defined, herein have the
meanings ascribed to such terms in the Agreement (as defined
below).
BACKGROUND
The
Parties entered into an Agreement and Plan of Merger on February 14, 2006 (the
“Agreement”)
relating to the acquisition by Novastar of one hundred percent (100%) of the
outstanding common stock of Thorium Power through a reverse merger of
Acquisition Sub with and into Thorium Power. The Parties now desire to enter
into this Amendment to modify the terms of the Agreement as more specifically
set forth herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual promises of the parties hereto, and
of
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment
to Section 1.2(a).
Section
1.2(a) of the Agreement is deleted in its entirety and in lieu thereof the
following new Section 1.2(a) is inserted:
“(a) Purchase
Price.
(i) At
the
Closing, each issued and outstanding share of Thorium Power’s common stock,
$0.05 par value per share (the “Thorium
Power Common Stock”)
other
than shares of Thorium Power Common Stock held by Novastar shall be converted
into the right to receive 25.454 shares of Novastar’s common stock, $0.001 par
value per share (the “Novastar
Common Stock”).
(ii) At
the
Closing, each Exchangeable Security that has an exercise price of $5.00 or
$1.00
(constituting the only prices at which Exchangeable Securities are exercisable)
shall be converted into the right to receive 22.750 and 11.936 shares of
Novastar Common Stock, respectively.
(iii) All
shares of Thorium Power Common Stock and all Exchangeable Securities will no
longer be outstanding and will automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
of
Thorium Power Common Stock or certificate or other instrument evidencing any
such Exchangeable Securities that are so exchanged shall cease to have any
rights with respect thereto, except the right to receive the shares of Novastar
Common Stock to be issued in consideration therefor upon the surrender of such
certificate or other instrument in accordance with Section 1.2(c), without
interest.
(iv)
Any
securities convertible into or exercisable for shares of Thorium Power Common
Stock (the “Thorium
Power Convertible Securities”)
immediately prior to the Effective Time (other than the Exchangeable Securities)
will become, at the Effective Time, securities exercisable for such number
of
shares of Novastar Common Stock as the holder of such securities would have
received had such holder converted such securities into Thorium Power Common
Stock immediately prior to the Closing. Appropriate adjustment will be made
to
any exercise or conversion price of such securities.”
2. Amendments
to Section 1.4(d) - Definition of Conversion Ratio.
Section
1.4(d) is deleted and in its place “[intentionally omitted]” is
inserted.
3. Agreement.
In all
other respects, the Agreement shall remain in full force and
effect.
4. Counterparts.
This
Amendment may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute one and the same
instrument.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of
the
date first above written.
|
|
|
|
NOVASTAR
RESOURCES LTD. |
|
|
|
|
By: |
/s/ Seth
Grae |
|
Name: Seth Grae
Title: President and Chief Executive
Officer
|
|
|
|
|
TP
ACQUISITION CORP.
|
|
|
|
|
By: |
/s/ Seth
Grae |
|
Name: Seth Grae
Title: President and Chief Executive
Officer
|
|
|
|
|
THORIUM
POWER, INC. |
|
|
|
|
By: |
/s/ Seth
Grae |
|
Name: Seth Grae
Title: President and Chief Executive
Officer
|
|
|
AMENDMENT
NO. 2 TO AGREEMENT AND PLAN OF MERGER
This
AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER is entered into as of August
8,
2006 (this “Amendment”)
among
NOVASTAR RESOURCES LTD., a Nevada corporation (“Company”), TP ACQUISITION CORP.,
a Delaware corporation and wholly-owned subsidiary of Company (“Acquisition
Sub”), and THORIUM POWER, INC., a Delaware corporation (“Thorium Power”).
Capitalized terms used, but not otherwise defined, herein have the meanings
ascribed to such terms in the Agreement (as defined below).
BACKGROUND
The
Parties entered into an Agreement and Plan of Merger on February 14, 2006 (the
“Agreement”)
relating to the acquisition by Company of one hundred percent (100%) of the
outstanding common stock of Thorium Power through a reverse merger of
Acquisition Sub with and into Thorium Power. The Agreement was thereafter
amended on June 12, 2006. The Parties now desire to enter into this Amendment
to
further modify the terms of the Agreement as more specifically set forth
herein.
AGREEMENT
NOW,
THEREFORE, in consideration of the mutual promises of the parties hereto, and
of
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment
to Section 1.2(a).
Section
1.2(a) of the Agreement is deleted in its entirety and in lieu thereof the
following new Section 1.2(a) is inserted:
“(a) Purchase
Price.
(i) At
the
Closing, each issued and outstanding share of Thorium Power’s common stock,
$0.05 par value per share (the “Thorium
Power Common Stock”)
other
than shares of Thorium Power Common Stock held by Company shall be converted
into the right to receive 25.628 shares of Company’s common stock, $0.001 par
value per share (the “Company
Common Stock”).
(ii) At
the
Closing, each Exchangeable Security that has an exercise price of $5.00 or
$1.00
(constituting the only prices at which Exchangeable Securities are exercisable)
shall be converted into the right to receive 22.965 and 12.315 shares of Company
Common Stock, respectively.
(iii) All
shares of Thorium Power Common Stock and all Exchangeable Securities will no
longer be outstanding and will automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
of
Thorium Power Common Stock or certificate or other instrument evidencing any
such Exchangeable Securities that are so exchanged shall cease to have any
rights with respect thereto, except the right to receive the shares of Company
Common Stock to be issued in consideration therefor upon the surrender of such
certificate or other instrument in accordance with Section 1.2(c), without
interest.
(iv)
Any
securities convertible into or exercisable for shares of Thorium Power Common
Stock (the “Thorium
Power Convertible Securities”)
immediately prior to the Effective Time (other than the Exchangeable Securities)
will become, at the Effective Time, securities exercisable for such number
of
shares of Company Common Stock as the holder of such securities would have
received had such holder converted such securities into Thorium Power Common
Stock immediately prior to the Closing. Appropriate adjustment will be made
to
any exercise or conversion price of such securities.”
2. Agreement.
In all
other respects, the Agreement shall remain in full force and
effect.
3. Counterparts.
This
Amendment may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which together shall constitute one and the same
instrument.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of
the
date first above written.
|
|
|
|
NOVASTAR
RESOURCES LTD. |
|
|
|
|
By: |
/s/ Seth
Grae |
|
Name:
Seth Grae
Title:
President and Chief Executive Officer
|
|
|
|
|
|
|
TP
ACQUISITION CORP.
|
|
|
|
|
By: |
/s/ Seth
Grae |
|
Name:
Seth Grae
Title:
President and Chief Executive Officer
|
|
|
|
|
|
|
THORIUM
POWER, INC.
|
|
|
|
|
By: |
/s/ Seth
Grae
|
|
Name:
Seth Grae
Title:
President and Chief Executive Officer
|
|
|
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)
|
|
|
8*
|
Tax
opinion of Thelen Reid & Priest LLP
|
|
|
10.1
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Walter Doyle (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
10.2
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Adam Harrison (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
10.3
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Tim Lelek (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
10.4
|
Consulting
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Bruce Fearn (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19, 2004).
|
|
|
10.5
|
Compensation
Agreement dated October 15, 2004 between Custom Branded Networks,
Inc. and
Paul G. Carter (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on October 19,
2004).
|
10.6
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Walter Doyle (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on January 27, 2005).
|
|
|
10.7
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Sanjeev Pamnani (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on January 27, 2005).
|
|
|
10.8
|
Consulting
Agreement dated January 24, 2005 between Custom Branded Networks,
Inc. and
Seth Shaw (incorporated by reference from Novastar’s Registration
Statement on Form S-8 filed on January 27, 2005).
|
|
|
10.9
|
Assignment
of Specific Mineral Rights dated September 14, 2005 between American
Graphite Holdings and Novastar Resources Ltd. (incorporated by
reference
from Novastar’s Current Report on Form 8-K filed on October 11,
2005).
|
|
|
10.10
|
Amendment
No. 1, dated March 5, 2006, to Assignment of Specific Mineral Rights
between American Graphite Holdings and Novastar Resources Ltd.
(incorporated by reference from Exhibit 10.10 of the initial filing
of
this Registration Statement on Form S-4 filed June 14,
2006).
|
|
|
10.11
|
Mining
Acquisition Agreement dated September 30, 2005 between Walter Doyle
and
Novastar Resources Ltd. (incorporated by reference from Novastar’s Current
Report on Form 8-K filed on October 11, 2005).
|
|
|
10.12
|
Amendment
No. 1, dated March 5, 2006, to Mining Acquisition Agreement between
Walter
Doyle and Novastar Resources Ltd. (incorporated by reference from
Exhibit
10.12 of the initial filing of this Registration Statement on Form
S-4
filed June 14, 2006).
|
|
|
10.13
|
Agreement
and Plan of Merger dated as of February 14, 2006, between Novastar
Resources Ltd., TP Acquisition Corp. and Thorium Power, Inc. (incorporated
by reference from Novastar’s Current Report on Form 8-K filed on June 13,
2006).
|
|
|
10.14
|
Amendment
No. 1, dated June 9, 2006, to Agreement and Plan of Merger between
Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
Inc.
(incorporated by reference to Exhibit 10.1 of the current report
of
Novastar on Form 8-K filed June 13, 2006).
|
|
|
10.15
|
Employment
Agreement, dated as of February 14, 2006, between Novastar and
Seth Grae
(incorporated by reference to Exhibit 10.2 of the current report
of
Novastar on Form 8-K filed February 21, 2006)
|
|
|
10.16
|
Stock
Option Agreement, dated as of February 14, 2006, between Novastar
and Seth
Grae (incorporated by reference to Exhibit 10.3 of the current
report of
Novastar on Form 8-K filed February 21,
2006)
|
10.17
|
Subscription
Agreement, dated as of February 14, 2006, between Novastar and
Thorium
Power (incorporated by reference to Exhibit 10.4 of the current
report of
Novastar on Form 8-K filed February 21, 2006)
|
|
|
10.18
|
Amended
and Restated Consulting Agreement, dated February 6, 2006, between
Novastar and Alan Gelband (incorporated by reference to Exhibit
10.5 of
the current report of Novastar on Form 8-K filed February 21,
2006)
|
|
|
10.19
|
Form
of Subscription Agreement between Novastar and the investors in
the
private placement closed on February 14, 2006 (incorporated by
reference
to Exhibit 10.6 of the current report of Novastar on Form 8-K filed
February 21, 2006)
|
|
|
10.20
|
Assignment
of Minerals Lease, dated December 31, 2005, between CM Properties
and
Novastar Resources Ltd. (incorporated by reference to Exhibit 10.1
of the
current report of Novastar on Form 8-K filed January 10,
2006)
|
|
|
10.21
|
Amendment
No. 1 to Assignment of Minerals Lease, dated March 5, 2006 between
CM
Properties and Novastar Resources Ltd. (incorporated by reference
from
Exhibit 10.21 of the initial filing of this Registration Statement
on Form
S-4 filed June 14, 2006).
|
|
|
10.22
|
Office
Service Renewal Agreement, dated September 21, 2005, between Tysons
Business Center, LLC and Thorium Power (incorporated by reference
from
Exhibit 10.22 of the initial filing of this Registration Statement
on Form
S-4 filed June 14, 2006).
|
|
|
10.23
|
Sublease
Agreement, dated May 28, 2004, between Thorium Power and Carmen
&
Muss, P.L.L.C. (incorporated by reference from Exhibit 10.23 of
the
initial filing of this Registration Statement on Form S-4 filed
June 14,
2006).
|
|
|
10.24
|
Office
Building Lease, dated August 14, 2001, between Washington Real
Estate
Investment Trust and Thorium Power (incorporated by reference from
Exhibit
10.24 of the initial filing of this Registration Statement on Form
S-4
filed June 14, 2006).
|
|
|
10.25
|
Teaming
Agreement dated February 22, 2006 between The University of Texas
System,
The University of Texas of the Permian Basin, The University of
Texas at
Austin, The University of Texas at Arlington, The University of
Texas at
Dallas, The University of Texas at El Paso, The City of Andrews,
Texas,
Andrews County, Texas, the Midland Development Corporation, the
Odessa
Development Corporation, Thorium Power and General Atomics (incorporated
by reference from Exhibit 10.25 of the initial filing of this Registration
Statement on Form S-4 filed June 14, 2006).
|
|
|
10.26
|
Amendment
No. 1 to Amended and Restated Consulting Agreement, dated June
12, 2006,
among Novastar Resources, Ltd., Alan Gelband and Alan Gelband Company,
Inc. (incorporated by reference to Exhibit 10.1 of the current
report of
Novastar on Form 8-K filed June 13,
2006).
|
10.27
|
Employment
Agreement, dated June 6, 2006, between Novastar Resources, Ltd.
and
Cornelius J. Milmoe (incorporated by reference to Exhibit 10.1
of the
current report of Novastar on Form 8-K filed June 13,
2006).
|
|
|
10.28
|
Stock
Option Agreement, dated June 6, 2006, between Novastar Resources,
Ltd. and
Cornelius J. Milmoe (incorporated by reference to Exhibit 10.1
of the
current report of Novastar on Form 8-K filed June 13,
2006).
|
|
|
10.29
|
Consulting
Agreement, dated June 12, 2006, between Novastar Resources, Ltd.
and Larry
Goldman (incorporated by reference to Exhibit 10.1 of the current
report
of Novastar on Form 8-K filed June 13, 2006).
|
|
|
10.30
|
Stock
Option Agreement, dated June 12, 2006, between Novastar Resources,
Ltd.
and Larry Goldman (incorporated by reference to Exhibit 10.1 of
the
current report of Novastar on Form 8-K filed June 13,
2006).
|
|
|
10.31
|
Office
Service Agreement, dated April 19, 2006, between Tysons Business
Center
LLC and Novastar Resources Ltd. (incorporated by reference from
Exhibit
10.31 of the initial filing of this Registration Statement on Form
S-4
filed June 14, 2006).
|
|
|
10.32
|
Employment
Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
and
Andrey Mushakov (incorporated by reference to Exhibit 10.1 of the
current
report of Novastar on Form 8-K filed August 4, 2006).
|
|
|
10.33
|
Stock
Option Agreement, dated July 27, 2006, between Novastar Resources,
Ltd.
and Andrey Mushakov (incorporated by reference to Exhibit 10.2
of the
current report of Novastar on Form 8-K filed August 4,
2006).
|
|
|
10.34
|
Employment
Agreement, dated July 27, 2006, between Novastar Resources, Ltd.
and
Thomas Graham, Jr. (incorporated by reference to Exhibit 10.3 of
the
current report of Novastar on Form 8-K filed August 4,
2006).
|
|
|
10.35
|
Stock
Option Agreement, dated July 27, 2006, between Novastar Resources,
Ltd.
and Thomas Graham, Jr. (incorporated by reference to Exhibit 10.4
of the
current report of Novastar on Form 8-K filed August 4,
2006).
|
|
|
10.36
|
Amendment
No. 2, dated August 8, 2006, to Agreement and Plan of Merger between
Novastar Resources Ltd., TP Acquisition Corp. and Thorium Power,
Inc.
(incorporated by reference to Exhibit 10.1 of the current report
of
Novastar on Form 8-K filed August 9, 2006).
|
|
|
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 Thelen Reid & Priest LLP (included in Exhibit 8)
|
|
|
23.2*
|
Consent
of Gary Henrie, Esq. (included in Exhibit 5)
|
|
|
23.3*
|
Consent
of Telford Sadovnick, P.L.L.C.
|
|
|
23.4*
|
Consent
of Morgan and Company, Chartered Accountants
|
|
|
23.5*
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC
|
|
|
24*
|
Power
of Attorney (included on the signature page to this registration
statement)
|
*
filed
herewith