UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 
 Washington,
D.C. 20549
 
 FORM
10-KSB
 
 
 x
              ANNUAL
      REPORT UNDER SECTION 13 OR 15 (d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended: JULY 31,
      2008 ̈
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES
      EXCHANGE ACT OF 1934For
      transition period from ______ to ______
 
 Commission
File Number 333-48746
 
 
 CHINA NUVO SOLAR ENERGY,
INC.
 (Name of
small business issuer in its charter)
 
 NEVADA
              87-0567853(State
      or other jurisdiction of
              (I.R.S.
      Employerincorporation
      or organization)
              Identification
      Number)
 
 319
Clematis Street – Suite 703, West Palm Beach, Florida 33401
 (Address
of principal executive offices)(Zip Code)
 
 Issuer's
telephone number, including area code: (561) 514-9042
 
 Securities
registered pursuant to Section 12(b) of the Exchange Act: None
 
 Securities
registered under Section 12(g) of the Exchange Act: None
 
 Check
whether the issuer is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act:   ̈
 
 Check
whether the issuer (1) has filed all reports required to be filed by Section 13
or 15 (d) of the Exchange during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 Days: xYes   ̈No
 
 Check if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B contained in this form, and no disclosure will be contained, to the best of
the Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB: x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  ̈Yes  xNo
 
 Issuer’s
revenue for its most recent fiscal year: $-0-
 
 The
aggregate market value of the voting common equity held by non-affiliates of the
issuer as of October 31, 2008 was $1,580,133, based on the last sale price of
the issuers common stock ($0.012 per share) as reported by the OTC Bulletin
Board.
 
 The
Registrant had 206,676,431 shares of common stock outstanding as of October 31,
2008.
 
 Documents
incorporated by reference: None
  
  CHINA
NUVO SOLAR ENERGY, INC.
 FORM
10-KSB
 
 THIS
REPORT MAY CONTAIN CERTAIN “FORWARD-LOOKING” STATEMENTS AS SUCH TERM IS DEFINED
IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE SECURITIES AND
EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH REPRESENT THE
REGISTRANT’S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS
CONCERNING THE REGISTRANT’S OPERATIONS, ECONOMIC PERFORMANCE, FINANCIAL
CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AND FUTURE
OPERATIONAL PLANS.  FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN
THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING
STATEMENTS.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS
SUCH AS “MAY”, “EXPECT”, “BELIEVE”, “ANTICIPATE”, “INTENT”, “COULD”, “ESTIMATE”,
“MIGHT”, OR “CONTINUE” OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS.  THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL
RISKS AND UNCERTAINTIES, CERTAIN OF WHICH ARE BEYOND THE REGISTRANT’S CONTROL,
AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT
FACTORS, INCLUDING UNCERTAINTY RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION,
MANAGING AND MAINTAINING GROWTH, THE OPERATIONS OF THE COMPANY AND ITS
SUBSIDIARIES, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS
AND OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.
 
 PART
I
 
 ITEM
1. DESCRIPTION OF BUSINESS
 
 (a)           Business
development
 
 We were
originally organized under the laws of the State of Nevada in 1996 as Zacman
Enterprises, Inc. and subsequently changed its name to eNutrition, Inc.
eNutrition was a direct mail marketing company engaged in the development and
marketing of nutritional supplements.  Operation commenced in June
2000 by securing the exclusive rights to market the nutritional supplement,
HI-Q.  In September 2001, eNutrition entered into a License Agreement
with HI-Q Nutrition, Inc., a Nevada corporation, granting them the exclusive
right to engage in the business of marketing and distributing nutritional
products under the trade name HI-Q.
 
 On April
30, 2002, we entered into an agreement with HI-Q Nutrition, Inc. for the sale of
all of our assets relating to our HI-Q brand of nutritional supplements,
including the brand name, trademark, product formulations, customer base and
marketing ideas, which comprised all of the assets and business of our
company.  The agreement closed and became effective on May 20, 2002,
immediately prior to our acquisition of the Torpedo business described below. We
received cash consideration of $10,000, plus forgiveness of any uncollected
royalties owed to HI-Q Nutrition, Inc.  In addition, HI-Q Nutrition,
Inc. assumed all liabilities relating to the HI-Q brand products.  At
a special shareholders' meeting held on May 17, 2002, our stockholders approved
the sale of all of eNutrition's assets, and the assumption of all liabilities,
to HI-Q Nutrition, Inc. Our stockholders also approved a one share for 1.8870314
share reverse stock split and the purchase and retirement of 4,478,430
post-reverse-split shares.
 
 -1-
 On May
17, 2002, our stockholders also approved our acquisition of all of the issued
and outstanding securities of Torpedo Delaware in exchange for 8,000,000 shares
of our common stock issued to the Torpedo USA stockholders.  On May
20, 2002 we changed our name to Torpedo Sports USA, Inc.  Torpedo USA,
through its wholly-owned subsidiary Torpedo Canada, was a manufacturer and
distributor of outdoor recreational products for children, such as, toboggans,
baby sleds, snowboards, tricycles, scooters and skateboards. The transaction was
recorded as a reverse acquisition based on factors demonstrating that Torpedo
USA constituted the accounting acquirer.
 
 In
January 2004, Torpedo Canada filed in Canada, a notice of its intention to make
a proposal to its creditors for the restructuring of its debts.  The
proposal procedure allowed Torpedo Canada to continue to operate its business
subject to protection of the secured interests of its lenders and suspended
efforts by creditors to collect their debts while Torpedo Canada reviewed and
analyzed its financial condition.  On May 6, 2004, Torpedo Canada
filed for protection under the Bankruptcy and Insolvency Act of Canada with the
intention to liquidate its assets.  Torpedo Canada ceased its
operating activities in May 2004.  In June 2007, we executed a Stock
Purchase Agreement by and between the Company and CLB Investment Corp. (“CLB”),
pursuant to which CLB acquired all of the capital stock of Torpedo Canada in
exchange for $10.00. As a result of this transaction, approximately $2.3 million
in liabilities of Torpedo were eliminated from the consolidated balance sheet
and therefore no longer reflected on our financial statements.
 
 On
February 1, 2005, we acquired all of the issued and outstanding common stock of
Interactive Games, Inc. (“Interactive”).  Pursuant to terms of the
merger agreement, in exchange for all of the issued and outstanding common
shares of Interactive we issued 27,037,282 shares of our common stock to the
former Interactive shareholders in order for them to own 51% of our outstanding
common stock on the closing date of the merger, on a fully diluted
basis.  We agreed to issue additional shares if certain agreed upon
criteria, to be determined, were met in order to allow the former Interactive
security holders to hold 54% of our outstanding common stock (based on the
shares outstanding at the time of closing).  As of October 30, 2007,
we did not issue any of these additional shares.  In connection with
the merger agreement, the former Interactive shareholders agreed to use their
best efforts post-closing to cause our company to raise sufficient funds to
pay-off or otherwise dispose of up to $250,000 of our liabilities.  As
of October 31, 2007, $100,000 has been paid.  Finally, if Torpedo USA
did not dispose of all of assets and liabilities within three months following
the acquisition closing date, we were required to issue an additional 500,000
shares to the former Interactive shareholders.  The Company has
determined that it will issue such shares once Torpedo USA has raised sufficient
shares to satisfy up to $250,000 of its liabilities.
 
 In
conjunction with the merger agreement, we changed our name to Interactive Games,
Inc. and approved an increase in our authorized common stock from 50,000,000
shares to 100,000,000 shares.
 
 The
acquisition of Interactive by us was accounted for as a reverse merger because
on a post-merger basis, the former Interactive shareholders held a majority of
the outstanding common stock of our company on a voting and fully diluted
basis.  As a result, Interactive was deemed to be the acquirer for
accounting purposes.
 
 In June
2007, our stockholders approved the consolidation of our operating assets at
that time into one operating subsidiary and the spin-off of that operating
subsidiary on a pro-rata basis to our stockholders of record as of July 10,
2007, whereby each stockholder as of the record date will receive a pro rata
number of shares of common stock in the operating subsidiary for each share of
common stock in the Company held by such stockholder as of the record
date.  The board of directors of the Company has retained the
authority to cancel the spin-off distribution at any time prior to its
completion in the event it determines that the spin-off is not in the best
interests of the Company or its stockholders.  Importantly, all
shareholders who acquired or acquire common stock after July 10, 2007 will not
be entitled to participate in this “spin-off” distribution.  As of the
filing of this 10-KSB, the spin-off has not occurred and there is no assurance
it will occur as originally contemplated.
 
 -2-
 Also in
June 2007, our stockholders, through a written consent executed by stockholders
holding a majority of the outstanding shares of our common stock entitled to
vote, adopted and approved Amended and Restated Articles of Incorporation and
ratified the Amended and Restated Bylaws of the Company, which were adopted by
our board of directors on June 26, 2007.
 
 The
Amended and Restated Articles of Incorporation increased the authorized capital
stock of the Company from 105,000,000 shares to 500,000,000 shares, of which
25,000,000 shares now may be preferred stock having the voting powers,
designations, preferences, limitations, restrictions and relative rights as
determined by the board of directors from time to time.  The Company’s
stockholders also authorized our chief executive officer to change our name to
China Nuvo Solar Energy, Inc. at such time as the chief executive officer deemed
appropriate in his sole discretion.
 
 Generally,
the Amended and Restated Bylaws of the Company updated our former bylaws to
reflect changes to applicable law.  For example, under the Amended and
Restated Bylaws stockholders may now take action by written action signed by
stockholders holding a majority of the shares entitled to vote on the given
action.
 
 Pursuant
to an Agreement and Plan of Reorganization dated as of April 23, 2007, as
amended on July 25, 2007 (the “Share Exchange Agreement”), by and between
the Company and Nuvo Solar Energy, Inc., a Colorado corporation (“Nuvo”), we and
Nuvo entered into a share exchange whereby all of the issued and outstanding
capital stock of Nuvo, on a fully-diluted basis, was exchanged for like
securities of the Company, and whereby Nuvo became our wholly owned subsidiary
(the “Share Exchange”).  The Share Exchange was effective as of July
25, 2007, upon the completed filing of Articles of Exchange with the Nevada
Secretary of State and a Statement of Share Exchange with the Colorado Secretary
of State.  Contemporaneously with the Share Exchange, we changed our
name to “China Nuvo Solar Energy, Inc.”
 
 Immediately
prior to the effective time of the Share Exchange, Nuvo had outstanding
5,500,000 shares of its common stock (“Nuvo Common Stock”) and no shares of
preferred stock.  In accordance with the Share Exchange Agreement,
each share of Nuvo Common Stock was acquired by us in exchange for approximately
24.24 shares of our common stock for a total of 133,333,255 shares
issued.  Accordingly, after giving effect to the Share Exchange, the
Company had approximately 189,915,355 shares of Common Stock outstanding
immediately following the transaction.
 
 -3-
 As a
result of the Share Exchange, the former Nuvo shareholders together held
approximately 66.6% of the Company’s outstanding common stock immediately
following the transaction, on a fully-diluted basis.  Accordingly, the
Share Exchange constituted a change of control of the Company.  As a
result of the Share Exchange, Nuvo constituted the accounting acquirer in the
Share Exchange; however, we elected to have a July 31 fiscal year end, which is
the same fiscal year end that Interactive Games, Inc. had prior to the Share
Exchange.
 
 On June
9, 2006, Nuvo signed a license agreement with Photovoltaics.com, Inc. (“PV”),
which is based in Hutchinson Island, Florida. Nuvo acquired exclusive worldwide
rights to PV's solar cell technology relating to a multiple stacked solar cell
using wave guide transfers. This license agreement includes all patents issued
pursuant to certain patents applications or amendments that have been filed and
the rights to use all applicable copyrights, trademarks and related intellectual
property obtained on or in connection with the process and products. As
consideration for this license, Nuvo agreed to pay a total aggregate license fee
of $250,000, of which $150,000 was paid on June 9, 2006 and $100,000 was paid on
August 11, 2006.  The term of the license was for 10 years and
automatically renewable for successive ten-year terms under the same terms and
conditions as provided for in the license agreement.
 
 On
January 23, 2008, we purchased from PV the patents related to our solar
technology in exchange for 2,000,000 restricted shares of our common
stock.  We now own all rights, title and interest in the patents,
including all issued patents or other intellectual property arising from the
patents worldwide.
 
 On
November 27, 2007, we executed a Collaboration and Development Agreement (the
“Collaboration Agreement”) with Pioneer Materials, Inc. (“PMI”) of Torrance,
California.  PMI is a manufacturer and supplier of materials for the
semiconductor, hard drive media, optical media and photonic
industries.  PMI is developing for the solar energy industry advanced
materials for thin film photovoltaics (solar cell) processing.  Under
the terms of the Agreement, PMI is to help us build, equip, operate and manage,
for our benefit, a product development, testing and prototype manufacturing
facility in PMI’s Chengdu, Sichuan, China facility located in Chengdu’s West
High Tech development zone.  The agreement with PMI has the objective
to develop, test and manufacture prototypes of solar energy products using our
licensed technology based on an invention titled “Photovoltaic cell with integral
light transmitting waveguide in a ceramic
sleeve”.  Additionally, PMI is to provide technical,
engineering development, testing and manufacturing employees and support
staff.  The term of the Agreement is for one year, with automatic
six-month renewal periods unless terminated by the parties.  Pursuant
to the terms of the Agreement, the Company has agreed to pay PMI $2,500 per
month and PMI is eligible to receive up to 4,000,000 shares of the Company’s
common stock upon the satisfactory completion of certain milestone
accomplishments in the Agreement, of which 500,000 shares of common stock were
issued upon the execution of the Agreement.  In May of 2008, the
Chengdu region of China experienced a catastrophic earthquake.  As a
result of this earthquake and the after effects including significant problems
with the delivery of electricity, PMI suspended their development work for a
significant period of time.  We continue to work with PMI under the
Collaboration Agreement, however, there has been no significant progress on
product development and we continue to explore alternative avenues for
development of our technology.
 
 (b)           Business
of issuer
 
 We are a
development-stage company that is designing with a view toward manufacturing
solar photovoltaic (PV) cell technology products. We own a unique patent pending
solar cell technology based on photovoltaic cells with integral
light-transmitting wave guides in a ceramic sleeve.  The advantage of this
technology is that less exposed surface area is required to generate
electricity. The light-transmitting particles act as wave guides and allow the
sun-exposed conversion area of the solar cell to be shifted readily from
horizontal to vertical to capture more sunlight. The ceramic sleeve eliminates
the need for expensive vacuum chambers, thereby allowing less expensive
materials to be used in solar cell production.
 
 -4-
 We are
developing, with plans to eventually manufacture and market, innovative solar
cells and solar power products for a wide range of applications based on our
technology that increases light-trapping while enabling a variety of materials
to be used.  Our technology employs multiple stacked solar cells in a
ceramic sleeve that uses nano-particles and crystal wave guides to carry light
from the opening down to the last junction in the solar
cell.  Competitors’ processes that use vacuum chambers (instead of a
ceramic sleeve) generally don’t allow for material substitution because of
contamination issues. We believe our technology also will allow manufacturers to
quickly and economically shift to new materials if a shortage of any one type of
material occurs. We believe our technology will offer a flexible, cost-effective
solution for increased light-trapping and therefore increased
efficiency.
 
 To
minimize the start-up costs of solar cell manufacturing, we signed an agreement
with PMI to establish a pilot production line by building out and modifying
PMI’s existing manufacturing facility located in the Chengdu West High Tech
Development Zone in Chengdu, Sichuan, China.  While continuing to work with
PMI as part of the Collaboration Agreement, we are also seeking other partners
to assist us with the development of our technology with a view toward
commercialization.
 
 Our
business plan is focused on developing cost-effective, highly-efficient,
environmentally-friendly solar energy products.  We plan to enter into
strategic partnerships with companies that can help advance our technology and
may also acquire technologies and businesses that will help us implement our
business strategy in certain circumstances.
 
 We have
identified the solar energy category as extremely promising because of its
worldwide commercialization efforts to date. Solar power is a distributed energy
technology that uses solar cells to convert the sun's energy to electricity. The
major advantage of solar is its abundance for all purposes.  Today,
the cost of solar power substantially exceeds the cost of power furnished by the
electric utility grid. As a result, federal, state and local governmental bodies
in many countries, most notably the United States, Japan and Germany, have
provided subsidies in the form of cost reductions, tax write-offs and other
incentives to end users, distributors, systems integrators and manufacturers of
solar power products to promote the use of solar energy in on-grid applications
and to reduce dependency on other forms of energy. Nuvo intends to locate and
utilize such incentives in the development of its technology, if
available.
 
 Our
Technology
 
 The
science used in our solar cell technology is based on an invention entitled,
“Photovoltaic cell with
integral light transmitting waveguide in a ceramic sleeve”, and utilizes
Cadmium/Tellurium Cadmium/Sulfide powders layered in a ceramic sleeve with a
copper back contact.  The solar cell can utilize a variety of
materials in powdered form layered in a ceramic sleeve with a conductive metal
back contact.  The ceramic sleeve eliminates the need for vacuum
chambers or a vat with a molten material.  A removable lens is clamped
on to the cell.  By having a removable lens, we are able to repair or
add materials to the cell if necessary unlike existing
technology.  The cell utilizes a wave guide to carry light through the
cell.  In addition, the wave guide can photo generate an electrical
potential in the cell.  The material and amount of layers determines
voltage while amperage is dependent in part upon particle size.  In
essence, a multiple stacked solar cell using a wave guide transfers the square
conversion area of the solar cell exposed to the sun from the horizontal to the
vertical.
 
 -5-
 Our
patent pending technology incorporates a process that is conducive to
manufacturing using a batch process.  This is possible because the
solar cell cylinder itself replaces the necessity to use expensive vacuum
chambers during production.  We believe this approach is the most
expeditious and cost-effective alternative to development of manufacturing
capability.
 
 Our
technology uses a ceramic sleeve as a receptacle for the various materials used
for a solar cell.  The ceramic sleeve replaces typical equipment such
as expensive vacuum chambers thereby permitting the interchangeability of
materials.  Production processes using a vacuum chamber in many cases
cannot interchange materials because of contamination issues. We believe that by
utilizing the technology, if a shortage of one type of material occurs, a shift
can be made quickly and economically to a more cost effective but complementary
material.  The materials that can be used in these cells goes from
soft materials like Cadmium/Tellurium to hard materials like
Silicon.
 
 A
recently published independent report by the Joannopoulos Research Group at the
Massachusetts Institute of Technology (“MIT”) determined that light trapping by
wave guides they put into photovoltaic cells was increased by
37%.  This was accomplished by placing clear crystal particles as
waveguides within the solar cell’s layered or stacked semiconductor
materials.  We believe our technology offers a number of significant
advantages in light trapping efficiencies and certain production economies
compared to current technologies.  We believe our technology can
increase light trapping even further than the MIT method by inter-dispersing
these clear crystal particles in a random manner.  In addition, these
wave guides allow even more layers of photovoltaic materials to be put
down.   The wave guides bring the light down even further than
the few microns it can now travel in most materials.  We believe these
ceramic sleeve solar cells with wave guides lend themselves to ideal cells for
use in a concentrator system and other specialty applications.
 
 How it
works
 
 Our
photovoltaic cells consist of:
 ·
              An
      initial semiconductor layer, comprised of N type semiconductor1 material having a top surface and a
      bottom surface. Light-transmitting particles are interspersed within the N
      type semiconductor material; and
 ·
              A
      second semiconductor layer, consisting of P type semiconductor material
      having a top surface and a bottom surface. Light-transmitting particles
      are interspersed within the P type semiconductor material. The top surface
      of the second layer is in direct physical and electrical contact with the
      bottom surface of the first layer to form an N-P junction2.
 
 The
generation of electrical current from the lower N-P junctions of a stacked
multi-layer photovoltaic cell results from the transmission of light through
each semiconductor layer to the lower semiconductor layers. As a result,
photovoltaic cells are produced which exhibit greater current-generating
capacity for a given surface area of sunlight exposure.
  1
Semiconductors are typically categorized into either N-type or P-type
semiconductors.
 2www.freshpatents.com/Photovoltaic-cell-with-integral-light-transmitting-waveguide-in-a-ceramic-sleeve-dt20070920ptan20070215201.php.
 -6-
 The
technology utilizes light-transmitting materials reduced to a powder form,
typically through grinding the material to a size of 5 micrometers to 150
micrometers, followed by a further reduction in the particle size to 400 to 800
nanometers.
 
 A wave
guide carries light through the cell. This is achieved by exciting metallic
structures that cause the conduction electrons to oscillate. Conduction
electrons improve the absorption and emission of light from thin planar
semiconductor layers by coupling the light with the wave guide modes of the
semiconductor layer. Enhancing absorption through the use of conduction
electrons also avoids the increase in surface recombination that occurs with
conventional light-trapping methods.
 
 The wave
guide mode concentrates electrical potential in the cell. The material and
amount of layers determines voltage while amperage is determined by particle
size. The multiple stacked solar cell and wave guide mode enables sunlight-
exposed conversion areas to be maximized by shifting the orientation from
horizontal to vertical.
 
 In
addition, the technology enables PV cells to be packaged in any desired physical
shape and with a reduced overall surface area such as cubes or elongated tubular
structures designed to fit within specific size and shape constraints. This
design flexibility greatly reduces the difficulty and costs ofshipping, storing,
deploying, and securing large solar module arrays.
 
  Industry
Information
 
 Energy
demand
 
 Electricity
consumption is strongly influenced by economic and population growth in the
world’s developing economies. Demand for electrical power is projected to nearly
double between 2004 and 2030, growing at a 2.6% average annual rate from 17,408
TWh to 33,750 TWh. Demand increases will be most dramatic in developing
countries where some two billion people still lack access to electricity, and
addressing that issue is a high public priority.
 
 With the
United Nations predicting world population growth from 6.4 billion in 2004 to
8.1 billion by 2030, energy demand will also increase substantially. Population
growth and rising standards of living in developing countries will drive a 53%
increase in energy demand between 2004 and 2030.  The US Department of
Energy predicts world energy consumption will grow 71% by 2030.
 
 Solar energy industry
trends
 
 Solar
energy offers a clean, safe alternative to energy produced from coal, oil or
natural gas. Electricity is produced at low variable costs and solar energy
plants don’t emit carbon dioxide. Despite these advantages, solar energy
currently accounts for only 0.04% of the world's energy usage. Solar
photovoltaic (PV) installations worldwide reached a record high of 1,744
megawatts (MW) in 2006 and were up 19% from the prior year. An EPIA/Greenpeace
report forecasts 35% annual growth in the worldwide PV market through 2009 and
26% annual growth between 2010 and 2015.
 
 With
government support in more than 40 markets, end-user demand for solar power
significantly exceeds production capacity. CLSA Asia-Pacific Markets estimates
volume growth of at least 30% annually through 2010. This sector is poised to
grow four-fold from 1.5 Gigawatts in 2005 to at least 6 Gigawatts in 2010. The
European Photovoltaic Industry Association reached the same conclusion in their
published outlook for the global PV (photovoltaic) market.
 
 -7-
 According
to the US Energy Information Administration, each year roughly 100 Gigawatts
(GW) of incremental electricity-generating capacity are added globally. Most of
this capacity is powered by coal, natural gas, nuclear or hydro-electricity. In
2006, solar power accounted for only about 1.5% or 1.8 GW of new installed
capacity. Solar energy’s share is expected to increase to 5% by 2010 and 15-20%
by 2015.
 
 Worldwide
photovoltaic sales were approximately $16 billion in 2006 and have grown 40%
annually since 1997. According to a CLSA report, sales are projected to reach
$36 billion in 2010 and exceed $50 billion in 2020.
 
 Germany,
Japan and the US are the largest PV markets. Together, these three countries
represent 1.3 GW of a total 1.8 GW global installed capacity. Germany's
grid-connected PV market grew 16% in 2006 to 960 Megawatts and now accounts for
55% of the world PV market. While Japan's market size barely advanced last year,
Spain and the United States were strong performers. Spain’s market grew 200% in
2006 while the US market grew 33%.
 
 Tight poly-silicon
supplies
 
 Silicon
is the basic material used in the production of solar cells based on crystalline
technology, which account for more than 90% of the world market. Silicon usage
has increased from 14,000 tons in 2004 to 19,000 tons in 2006. Solar-grade
silicon prices have risen as well: from $24/kg in 2003 to $50/kg in 2006. Demand
continues to significantly exceed silicon supply. Production of solar cells
based on non-silicon technologies is rising as a result of tight silicon
supplies and soaring silicon prices. Production of non-silicon-based solar
products increased from 70 MW in 2004 to 140 MW in 2005 and 240 MW in
2006.
 
 Silicon
shortages and rising prices are compressing the margins of solar cell
manufacturers who rely on poly-silicon semiconductor materials, despite strong
demand for solar photovoltaics. Because CNUV’s solar cells can use cadmium and
telluride materials, the Company will not be impacted by silicon shortages and
may actually benefit from market share gains made at the expense of higher- cost
solar cell manufacturers.
 
 High oil
prices
 
 Rising
oil prices make solar energy an increasingly attractive and affordable power
alternative. After surging nearly 58% in 2007 (the biggest annual gain in
a decade), crude oil prices reached a high of over $140 per barrel in
2008.
 
 The
International Energy Agency recently announced its 2008 forecast, indicating
global oil demand will rise 2.3% in 2008 to 87.7 million barrels a day. The
Energy Information Administration’s (EIA) projects world oil demand will grow
much faster than non-OPEC supply, leaving OPEC and inventories to make up the
difference.
 -8-
 Competition
 
 Companies
pursuing similar technologies including different but related fields represent
substantial competition. Many of these organizations are some of the largest
companies in the world and have substantially greater capital resources,
research and development staffs and facilities, as well as greater manufacturing
and marketing capabilities than we do.   These organizations also
compete with Nuvo to attract qualified personnel, parties for acquisitions,
joint ventures or other collaborations.  As a result, there is no
assurance that our technology will prove viable or that it will be able to
compete with these larger organizations to produce any product or
service.
 
 Government
Regulation
  The
market for electricity generation products is heavily influenced by foreign,
federal, state and local government regulations and policies concerning the
electric utility industry, as well as internal policies and regulations
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries,
these regulations and policies are being modified and may continue to be
modified. We will also be required to comply with all foreign, federal, state
and local regulations regarding protection of the
environment.
 
 Compliance
with Environmental Laws
 
 We are
required to comply with all foreign, federal, state and local regulations
regarding protection of the environment. If more stringent regulations are
adopted in the future, the costs of compliance with these new regulations could
be substantial. We may need to procure certain governmental and other permits to
conduct our business. If we fail to comply with present or future environmental
regulations, however, we may be required to pay substantial fines, suspend
future production or cease operations. The manufacture of our potential products
may use, generate and discharge toxic, volatile and otherwise hazardous
chemicals and wastes. Any failure by us to control the use of, or to restrict
adequately the discharge of, hazardous substances could subject us to
potentially significant monetary damages and fines or suspensions in our
business operations. In addition, under some foreign, federal and state statutes
and regulations, a governmental agency may seek recovery and response costs from
operators of property where releases of hazardous substances have occurred or
are ongoing, even if the operator was not responsible for such release or
otherwise at fault.
 
 Employees
 
 The
Company currently does not have any full or part-time employees other than its
officers.
 
 Risk
Factors
 
 In
General.  The purchase of shares of our common stock is very
speculative and involves a very high degree of risk.  An investment in
us is suitable only for the persons who can afford the loss of their entire
investment.  Accordingly, investors should carefully consider the
following risk factors, as well as other information set forth herein, in making
an investment decision with respect to securities of the Company.
 
 -9-
 The market price of our common stock
may fluctuate significantly.
 
 The market price of our common shares
may fluctuate significantly in response to factors, some of which are beyond our
control, such as:
 
 ·
              the announcement of new products
      or product enhancements by us or our
  competitors;
 ·
              developments concerning
      intellectual property rights and regulatory
    approvals;
 ·
              quarterly variations in our and
      our competitors’ product development activities or results of
      operations;
 ·
              changes in earnings estimates or
      recommendations by securities
analysts;
 ·
              developments in our industry;
      and
 ·
              general market conditions and
      other factors, including factors unrelated to our own operating
      performance.
 
 Further, the stock market in general has
recently experienced extreme price and volume fluctuations.  Continued
market fluctuations could result in extreme volatility in the price of our
common shares, which could cause a decline in the value of our common
shares.  You should also be aware that price volatility might be worse
if the trading volume of our common shares is low.
 
 Because
we gained access to the public markets through a share exchange, we may not be
able to attract the attention of major brokerage firms.
 
 Additional risks may exist since we
gained access to the public markets through a share
exchange.  Security analysts of major brokerage firms may not cover us
since there is no incentive to brokerage firms to recommend the purchase of our
common stock.  No assurance can be given that brokerage firms will
want to conduct any secondary offerings on our behalf in the
future.
 
 Trading
of our common stock is limited.
 
 Trading
of our common stock is conducted on the National Association of Securities
Dealers’ Over-the-Counter Bulletin Board, or “OTC Bulletin Board.” This has
adversely effected the liquidity of our securities, not only in terms of the
number of securities that can be bought and sold at a given price, but also
through delays in the timing of transactions and reduction in security analysts'
and the media's coverage of us. This may result in lower prices for our common
stock than might otherwise be obtained and could also result in a larger spread
between the bid and asked prices for our common stock.
 
 Because it is a “penny stock,” it will
be more difficult for you to sell shares of our common stock.
 
 Our common stock is a “penny stock.”
Broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk-disclosure document prepared by the SEC. This document
provides information about penny stocks and the nature and level of risks
involved in investing in the penny-stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information
regarding broker and salesperson compensation, make a written determination that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser’s written agreement to the purchase. The penny stock rules may make it
difficult for you to sell your shares of our stock. Because of the rules, there
is less trading in penny stocks. Also, many brokers choose not to participate in
penny-stock transactions.  Accordingly, you may not always be able to
resell shares of our common stock publicly at times and prices that you feel are
appropriate.
 
 -10-
 Risks Related to Our New
Business
 
 We
currently have no product revenues and will need to raise additional capital to
operate our business.
 
 To date,
we have generated no product revenues.  Until we are able to prove
that our proprietary solar technology will work on a large commercial scale and
can set up adequate manufacturing facilities, we will not have product revenues.
Therefore, for the foreseeable future, we will have to fund all of our
operations and capital expenditures from additional financing, which may not be
available on favorable terms, if at all.  If we are unable to raise
additional funds on acceptable terms, or at all, we may be unable to complete
the development of our solar technology and set up adequate manufacturing
facilities to produce a commercially viable product.  In addition, we
could be forced to discontinue product development.  Any additional
sources of financing will likely involve the sale of our equity securities or
issuance of debt instruments that may be convertible into our common stock,
which will have a dilutive effect on our stockholders.
 
 We
are not currently profitable and may never become profitable.
 
 We have a
history of losses and expect to incur substantial losses and negative operating
cash flow for the foreseeable future, and we may never achieve or maintain
profitability. Even if we succeed in developing and commercializing one or more
products, we expect to incur substantial losses for the foreseeable future and
may never become profitable.  We also expect to continue to incur
significant operating and capital expenditures and anticipate that our expenses
will increase substantially in the foreseeable future as we continue to
undertake research and development of potential alternative energy
sources.
 
 We also expect to experience negative
cash flow for the foreseeable future as we fund our operating losses and capital
expenditures. As a result, we will need to generate significant revenues in
order to achieve and maintain profitability. We may not be able to generate
these revenues or achieve profitability in the future. Our failure to achieve or
maintain profitability could negatively impact the value of our
stock.
 
 We
have a lack of operating history in which to base an investment
decision.
 
 We are a
relatively new company that has a very limited operating history.  Our
acquisition of solar cell technology provides us with an opportunity for new
business development, which carries continued unique risks inherent with any new
business opportunity.  As a relatively new company, Nuvo is subject to
unforeseen costs, expenses, problems and difficulties inherent in new business
ventures.
 
 Our
operations to date have been limited to organizing the company, acquiring and
securing the proprietary technology, and limited product development. These
operations provide a limited basis for you to assess our ability to
commercialize any product and the advisability of investing in our
securities.
 
 -11-
 No
assurance of success or profitability.
 
 We have
no current business operations and expect to incur significant losses and
negative operating cash flow for the foreseeable future, and we may never
achieve or maintain profitability. Even if we succeed in developing and
commercializing one or more products, we expect to incur losses for the
foreseeable future and may never become profitable.
 
 We
currently have outstanding debt that is convertible into shares of our common
stock at prices that may be significantly below the market price at any given
time and therefore significant dilution could occur to our current
stockholders.
 
 At July
31, 2008, we had a total of $805,000 in debt that is convertible into shares of
our common stock at a discount of up to 25% of the market price for our common
stock at any given time.  The conversion of any or all of this debt
could result in significant dilution to our stockholders at the time such debt
is converted.
 
 We
currently have stock options and common stock purchase warrants outstanding that
may be exercisable at prices below the market price for our common stock at any
given time that could result in significant dilution to our
stockholders.
 
 At July
31, 2008, we had a total of 14,187,107 stock options and common stock purchase
warrants outstanding exercisable at a weighted average exercise price of $0.11
at that date.  The conversion of any or all of these options and
warrants could occur at prices below the market price of our common stock at a
given time and could cause substantial dilution to our
stockholders.  In addition, as we seek to raise additional capital to
fund our future business operations, we could issue additional stock options and
warrants at prices below market that cause additional dilution to our
stockholders.
 
 We
may fail to successfully bring to market products based on our technology, which
may prevent us from achieving product sales and market share.
 
 We expect
to derive a substantial portion of our revenues from sales of new solar power
products that are under development and not yet commercially available. If we
fail to successfully develop our new solar power products or technologies, we
will likely be unable to recover the losses we may incur to develop these
products and technologies and may be unable to establish our sales and market
share and become profitable. Many of our proposed product and manufacturing
technologies are novel and represent a departure from conventional solar power
technologies, and it is difficult to predict whether we will be successful in
completing their development.
 
 Evaluating
our business and future prospects may be difficult due to the rapidly changing
market landscape.
 
 The
market we are attempting to enter is rapidly evolving and is experiencing
technological advances and new market entrants. Our future success will require
us to commercialize our technology and we have limited experience upon which to
predict whether it will be successful. As a result, you should consider our
business and prospects in light of the risks, expenses and challenges that we
will face as an early-stage company seeking to develop and manufacture new
products in a growing and rapidly evolving market.
 
 -12-
 Our
solar power products may not gain market acceptance, which would prevent us from
achieving increased sales and market share.
 
 The
development of a successful market for solar power products may be adversely
affected by a number of factors, many of which are beyond our control,
including:
 
 ·
                our
      failure to produce solar power products that compete favorably against
      other solar power products on the basis of cost, quality and
      performance;
 ·
                whether
      or not customers will accept our new technology and any products based on
      that technology; and
 ·
                our
      failure to develop and maintain successful relationships with
      distributors, systems integrators and other resellers, as well as
      strategic partners.
 
 If our
proposed solar power products fail to gain market acceptance, we would be unable
to establish sales and market share and to achieve and sustain
profitability.
 
 Technological
changes in the solar power industry could render our solar power products
uncompetitive or obsolete, which could reduce our market share and cause our
sales to decline.
 
 Our
failure to develop our technology and introduce new solar power products could
cause our technology to become uncompetitive or obsolete, which could reduce our
ability to sell products or gain market share and cause potential sales to
decline. The solar power industry is rapidly evolving and competitive. We will
need to invest significant financial resources in future research and
development to keep pace with technological advances in the solar power industry
and to effectively compete in the future. Our development efforts may be
rendered obsolete by the technological advances of others and other technologies
may prove more advantageous for the commercialization of solar power
products.
 
 Our
success in the future may depend on our ability to establish and maintain
strategic alliances, and any failure on our part to establish and maintain such
relationships would adversely affect our market penetration and revenue
growth.
 
 We may be
required to establish strategic relationships with third parties in the solar
power industry, including in international markets.  Our ability to
establish strategic relationships will depend on a number of factors, many of
which are outside our control, such as the competitive position of our
technology and our products relative to our competitors. We can provide no
assurance that we will be able to establish other strategic relationships in the
future.
 
 In
addition, any strategic alliances that we establish, will subject us to a number
of risks, including risks associated with sharing proprietary information, loss
of control of operations that are material to developed business and
profit-sharing arrangements. Moreover, strategic alliances may be expensive to
implement and subject us to the risk that the third party will not perform its
obligations under the relationship, which may subject us to losses over which we
have no control or expensive termination arrangements. As a result, even if our
strategic alliances with third parties are successful, our business may be
adversely affected by a number of factors that are outside of our
control.
 
  -13-
  Our
management team may not be able to successfully implement our business
strategies.
 
 Our
management team has limited experience in the alternative energy
sector.  If our management team is unable to execute on its business
strategies, then our product development, the establishment of manufacturing
operations and distribution network and our sales and marketing activities would
be materially and adversely affected. In addition, we may encounter difficulties
in effectively managing the budgeting, forecasting and other process control
issues presented by any future growth. We may seek to augment or replace members
of our management team or we may lose key members of our management team, and we
may not be able to attract new management talent with sufficient skill and
experience.
 
 We
will compete with organizations of all sizes from multinational manufacturing
and energy companies to similar sized startup companies as well as research and
educational institutions.   Developments by competitors may
render our technologies or potential products obsolete or
non-competitive.
 
 Companies
pursuing similar technologies including different but related fields represent
substantial competition. Many of these organizations are some of the largest
companies in the world and have substantially greater capital resources,
research and development staffs and facilities, as well as greater manufacturing
and marketing capabilities than we do.   These organizations also
compete with us to attract qualified personnel, parties for acquisitions, joint
ventures or other collaborations.  As a result, there is no assurance
that our technology will prove viable or that we will be able to compete with
these larger organizations to produce any product or service.
 
 Existing
regulations and changes to such regulations may present technical, regulatory
and economic barriers to the purchase and use of solar power products, which may
significantly reduce demand for our products.
 
 The
market for electricity generation products is heavily influenced by foreign,
federal, state and local government regulations and policies concerning the
electric utility industry, as well as internal policies and regulations
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the United States and in a number of other countries,
these regulations and policies are being modified and may continue to be
modified. Customer purchases of, or further investment in the research and
development of, alternative energy sources, including solar power technology,
could be deterred by these regulations and policies, which could result in a
significant reduction in the potential demand for our solar power products. For
example, utility companies commonly charge fees to larger, industrial customers
for disconnecting from the electric grid or for having the capacity to use power
from the electric grid for back-up purposes. These fees could increase the cost
to our customers of using our solar power products and make them less desirable,
thereby harming our business, prospects, results of operations and financial
condition. We anticipate that our solar power products and their installation
will be subject to oversight and regulation in accordance with national and
local ordinances relating to building codes, safety, environmental protection,
utility interconnection and metering and related matters. There is also a burden
in having to track the requirements of individual states and design equipment to
comply with the varying standards. Any new government regulations or utility
policies pertaining to our solar power products may result in significant
additional expenses to us and our resellers and their customers and, as a
result, could cause a significant reduction in demand for our solar power
products.
 
 -14-
 Compliance
with environmental regulations can be expensive, and noncompliance with these
regulations may result in adverse publicity and potentially significant monetary
damages and fines.
 
 We are
required to comply with all foreign, federal, state and local regulations
regarding protection of the environment. If more stringent regulations are
adopted in the future, the costs of compliance with these new regulations could
be substantial. We may need to procure certain governmental and other permits to
conduct our business. If we fail to comply with present or future environmental
regulations, however, we may be required to pay substantial fines, suspend
future production or cease operations. The manufacture of our potential products
may use, generate and discharge toxic, volatile and otherwise hazardous
chemicals and wastes. Any failure by us to control the use of, or to restrict
adequately the discharge of, hazardous substances could subject us to
potentially significant monetary damages and fines or suspensions in our
business operations. In addition, under some foreign, federal and state statutes
and regulations, a governmental agency may seek recovery and response costs from
operators of property where releases of hazardous substances have occurred or
are ongoing, even if the operator was not responsible for such release or
otherwise at fault.
 
 Product
liability claims against us could result in adverse publicity and potentially
significant monetary damages.
 
 Like
other retailers, distributors and manufacturers of products that are used by
consumers, we may face an inherent risk of exposure to product liability claims
in the event that the use of the solar power products we intend to sell results
in injury. Since our intended products are electricity producing devices, it is
possible that consumers could be injured or killed by potential products,
whether by product malfunctions, defects, improper installation or other causes.
In addition, we cannot predict whether product liability claims will be brought
against us in the future or the effect of any resulting adverse publicity on our
business. Moreover, we may not have adequate resources in the event of a
successful claim against us. We will need to evaluate the potential risks we
face and procure appropriate levels of insurance for product liability
claims.  There is no assurance we will be able to afford such coverage
to adequately protect the Company and its stockholders.  The
successful assertion of any future product liability claims against us could
result in potentially significant monetary damages and if any insurance
protection is inadequate to cover these claims, they could require us to make
significant payments.
 
 If
we fail to adequately protect or enforce our intellectual property rights or
secure rights to patents of others, the value of our intellectual property
rights would diminish.
 
 Our
success, competitive position and future revenues will depend in part on our
ability, and the abilities of any licensors we may engage, to obtain and
maintain patent protection for our products, methods, processes and other
technologies, to preserve our trade secrets, to prevent third parties from
infringing on our proprietary rights and to operate without infringing the
proprietary rights of third parties.
 
 We cannot
predict:
 
 ·
              the
      degree and range of protection any patents will afford us against
      competitors, including whether third parties will find ways to invalidate
      or otherwise circumvent our licensed
patents;
 ·
              if
      and when patents will issue;
 ·
              whether
      or not others will obtain patents claiming aspects similar to those
      covered by our licensed patents and patent applications;
  or
 ·
              whether
      we will need to initiate litigation or administrative proceedings which
      may be costly whether we win or
lose.
 
 -15-
 Our
success also depends upon the skills, knowledge and experience of our scientific
and technical personnel, our consultants and advisors as well as any licensors
and contractors.  To help protect our proprietary know-how and our
inventions for which patents may be unobtainable or difficult to obtain, we will
rely on trade secret protection and confidentiality agreements.  To
this end and to the extent possible, we intend to require all of our employees
and consultants to enter into agreements which prohibit the disclosure of
confidential information and, where applicable, require disclosure and
assignment to us of the ideas, developments, discoveries and inventions
important to our business. These agreements may not provide adequate protection
for our trade secrets, know-how or other proprietary information in the event of
any unauthorized use or disclosure or the lawful development by others of such
information.  If any of our trade secrets, know-how or other
proprietary information is disclosed, the value of our trade secrets, know-how
and other proprietary rights would be significantly impaired and our business
and competitive position would suffer.
 
 If
we infringe the rights of third parties we could be prevented from selling
products, forced to pay damages, and defend against litigation.
 
 If our
products, methods, processes and other technologies infringe the proprietary
rights of other parties, we could incur substantial costs and we may have
to:
 
 ·
              obtain
      licenses, which may not be available on commercially reasonable terms, if
      at all;
 ·
              redesign
      our products or processes to avoid
infringement;
 ·
              stop
      using the subject matter claimed in the patents held by others, which
      could cause us to lose the use of one or more of our product
      candidates;
 ·
              pay
      damages; or
 ·
              defend
      litigation or administrative proceedings which may be costly whether we
      win or lose, and which could result in a substantial diversion of our
      valuable management resources.
 
 We
rely on key executive officers and scientific advisors, and their knowledge of
our business and technical expertise would be difficult to replace.
 
 We are
highly dependent on our consultant Mr. Lawrence Curtin, the developer of our
solar technology.  We do not have “key person” life insurance policies
for any of our officers.  The loss of the technical knowledge and
management and industry expertise of any of our current or future key personnel
could result in delays in product development, loss of customers and sales and
diversion of management resources, which could adversely affect our operating
results.
 
  -16-
  If
we are unable to hire additional qualified personnel, our ability to grow our
business may be harmed.
 
 We will
need to hire additional qualified personnel with expertise in solar cell
technology, government regulation, development and manufacturing, and sales and
marketing. We may face significant competition for qualified individuals, and we
cannot be certain that our search for such personnel will be successful.
Attracting and retaining qualified personnel will be critical to our
success.
 
 Risks
Related to Doing Business in China
 
 Adverse changes
in political and economic policies of the Peoples Republic of China (PRC)
government could have a material adverse effect on the overall economic growth
of China, which could reduce the demand for our anticipated products and
materially and adversely affect our competitive position.
 
 We
currently intend to conduct a majority of our business operations in China and a
portion of our potential sales could be made in China in the future.
Accordingly, our business, financial condition, results of operations and
prospects are affected significantly by economic, political and legal
developments in China. The Chinese economy differs from the economies of most
developed countries in many respects, including:
 
 ·
              the amount of government
      involvement;
 ·
              the level of
      development;
 ·
              the growth
      rate;
 ·
              the control of foreign exchange;
      and
 ·
              the allocation of
      resources.
 
 While the
Chinese economy has grown significantly in recent years, the growth has
been uneven, both geographically and among various sectors of the economy. The
PRC government has implemented various measures to encourage economic growth and
guide the allocation of resources. Some of these measures benefit the overall
Chinese economy, but may also have a negative effect on us. For example, our
financial condition and results of operations may be adversely affected by
government control over capital investments or changes in tax regulations that
are applicable to us.
 
 The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy. Although in recent years the PRC government has
implemented measures emphasizing the utilization of market forces for economic
reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, a
substantial portion of the productive assets in China is still owned by the PRC
government. The continued control of these assets and other aspects of the
national economy by the PRC government could materially and adversely affect our
business. The PRC government also exercises significant control over Chinese
economic growth through the allocation of resources, controlling payment of
foreign currency-denominated obligations, setting monetary policy and providing
preferential treatment to particular industries or companies. Efforts by the PRC
government to slow the pace of growth of the Chinese economy could result in
decreased capital expenditure by solar energy users, which in turn could reduce
demand for our anticipated products.
 
 -17-
 Any
adverse change in the economic conditions or government policies in China could
have a material adverse effect on the overall economic growth and the level of
renewable energy investments and expenditures in China, which in turn could lead
to a reduction in demand for our anticipated products and consequently have a
material adverse effect on our businesses.
 
 Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
us.
 
 We could
conduct a substantial portion of our business through an agreement with third
parties that conducts a majority of their business in China. These arrangements
may be subject to laws and regulations applicable to foreign investment in China
and, in particular, laws applicable to foreign-owned enterprises. The PRC legal
system is based on written statutes. Prior court decisions may be cited for
reference but have limited precedential value. Since 1979, PRC legislation and
regulations have significantly enhanced the protections afforded to various
forms of foreign investments in China. However, since these laws and regulations
are relatively new and the PRC legal system continues to rapidly evolve, the
interpretations of many laws, regulations and rules are not always uniform and
enforcement of these laws, regulations and rules involve uncertainties, which
may limit legal protections available to us. In addition, any litigation in
China may be protracted and result in substantial costs and diversion of
resources and management attention.
 
 Restrictions on
currency exchange may limit our ability to receive and use our revenues
effectively.
 
 Foreign
exchange transactions by companies under China’s capital account continue to be
subject to significant foreign exchange controls and require the approval of PRC
governmental authorities.
 
 
 ITEM
2. DESCRIPTION OF PROPERTY.
 
 Our
executive offices are located at 319 Clematis Street – Suite 703, West Palm
Beach, Florida 33401 and are provided to us on a month to month basis by a
corporation in which our officers and director are affiliated.  This
space was provided to rent free during the year ended July 31, 2008 and included
the use of office space and the occasional use of fax machines, copy machines
and other office equipment for which we paid nominal service fees.
 
 
 ITEM
3. LEGAL PROCEEDINGS.
 
 Our
company is not a party in to any bankruptcy, receivership or other legal
proceeding, and to the best of our knowledge, no such proceedings by or against
us have been threatened.
 
 
 ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
 
 None.
 
 
  -18-
  PART
II
 
 ITEM
5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
 
 (a)           Market
information
 
 Our
common stock is quoted on the Over-the-Counter Bulletin Board, or “OTC Bulletin
Board” under the trading symbol “CNUV”.  The following table lists the
high and low bid information for our common stock as quoted on the OTC Bulletin
Board for the fiscal years ended 2007 and 2008, respectively:
 
 Price
      RangeQuarter
      Ended
              
              High
      ($)
              
              Low
      ($)October
      31, 2006
              
              .10
              
              .05January
      21, 2007
              
              .12
              
              .05April
      30, 2007
              
              .14
              
              .06July
      31, 2007
              
              .15
              
              .06October
      31, 2007
              
              .13
              
              .06January
      21, 2008
              
              .17
              
              .06April
      30, 2008
              
              .12
              
              .04July
      31, 2008
              
              .06
              
              .02
 
 The above
quotations from the OTC Bulletin Board reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
  (b)           Holders
 
 The
number of record holders of our common stock as of October 31, 2008, was
approximately 84 based on information received from our transfer
agent.  This amount excludes an indeterminate number of shareholders
whose shares are held in “street” or “nominee” name with a brokerage firm or
other fiduciary.
 
 (c)           Dividends
 
 We have
not paid or declared any dividends on our common stock and we do not anticipate
paying dividends on our common stock for the foreseeable future.
 
 (d)           Securities authorized for issuance under
equity compensation plans
 
 We have
the following securities authorized for issuance under our equity compensation
plans as of July 31, 2008.  This includes our 2002 Stock Option Plan,
covering up to 1,000,000 shares of our common stock, our 2003 Stock Option Plan
covering up to 2,500,000 shares of our common stock and our 2007 Stock Option
Plan covering up to 18,000,000 shares of our common stock.
  -19-
  
 Equity
Compensation Plan Information
 Plan
      category
              Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              
              Weighted-average
      exercise price of outstanding options, warrants and rights
              
              Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column
      (a))(a)
              
              (b)
              
              (c)Equity
      compensation plans approved by security holders
              -0-
              
              $-0-
              
              -0-Equity
      compensation plans not approved by security holders
              7,650,000
              
              $0.12
              
              13,000,000Total
              7,650,000
              
              $0.12
              
              13,000,000
 
 The
purpose of both the 2003 Stock Option  Plan and the 2007 Stock
Option  Plan (together the “Plans”) is to increase shareholder value
and to advance the interests of the Company by furnishing a variety of economic
incentives designed to attract, retain and motivate employees, directors and
consultants.  Incentives may consist of opportunities to purchase or
receive shares of the Company’s common stock.  Grants may include both
purchase options as well as direct grants of common shares upon conversion of
accrued salaries, bonuses, notes payable, fees or other similar payments due
from us to an eligible participant.  The Plans are administered by our
board of directors which determines the terms of all grants including their
term, exercise price and vesting period, if applicable.  Generally,
grants must be at least 100% of the fair market value of our common stock on the
date of grant and may be exercisable for up to ten years.
 
 Recent Sales of Unregistered
Equity Securities
 
 On
February 15, 2008, we issued 1,233,720 shares of our common stock upon the
conversion of $68,175 of convertible debt and accrued interest.  The
debt and accrued interest was converted at $0.075 per share.
 
 On March
25, 2008, we issued 504,065 shares of our common stock upon the conversion of
$15,500 of convertible debt.  The debt was converted at approximately
$0.03 per share.
 
 We
offered and sold the securities in reliance on an exemption from federal
registration under Section 4(2) of the Securities Act of 1933 and Rule 506
promulgated thereunder. We relied on this exemption and rule based on the fact
that there were a limited number of investors, all of whom were accredited
investors and (i) either alone or through a purchaser representative, had
knowledge and experience in financial and business matters such that each was
capable of evaluating the risks of the investment, and (ii) we had obtained
subscription agreements from such investors indicating that they were purchasing
for investment purposes only. The securities were not registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. The
disclosure contained herein does not constitute an offer to sell or a
solicitation of an offer to buy any securities of the Company, and is made only
as permitted by Rule 135c under the Securities Act.
  -20-
 ITEM
6. PLAN OF OPERATION.
 
 (a)           Plan
of operation
 
 China
Nuvo Solar Energy, Inc. (the “Company”) formerly known as Interactive Games,
Inc. (“Interactive”), was previously known as Torpedo Sports USA, Inc. (“Torpedo
Sports”).
 
 Pursuant
to an Agreement and Plan of Reorganization dated as of April 23, 2007, as
amended on July 25, 2007 (the “Share Exchange”), by and between the Company
and Nuvo Solar Energy, Inc., a Colorado corporation (“Nuvo”) incorporated on
April 13, 2006, we and Nuvo entered into a share exchange whereby all of the
issued and outstanding capital stock of Nuvo, on a fully-diluted basis, was
exchanged for like securities of the Company, and whereby Nuvo became our wholly
owned subsidiary.  The Share Exchange was effective as of July 25,
2007, upon the completed filing of Articles of Exchange with the Nevada
Secretary of State and a Statement of Share Exchange with the Colorado Secretary
of State.  Contemporaneously with the Share Exchange, we changed our
name to “China Nuvo Solar Energy, Inc.”
 
 Nuvo was
formed for the purpose of seeking a business opportunity in the alternate energy
or “next-generation energy" sector. This industry sector encompasses non-hydro
carbon based energy production and renewable energy technologies that are
“net-zero" or emissions free.
  On June
9, 2006 Nuvo signed a license agreement with Photovoltaics.com, Inc. (“PV”),
Hutchinson Island, Florida.  Nuvo acquired exclusive worldwide rights
to PV's solar cell technology relating to a multiple stacked solar cell using
wave guide transfers. This license agreement includes all patents issued
pursuant to certain patent applications or amendments that have been filed and
the rights to use all applicable copyrights, trademarks and related intellectual
property obtained on or in connection with the process and products. As
consideration for this license, Nuvo paid a total aggregate license fee of
$250,000.   The term of the license is for 10 years,
automatically renewable for successive ten year terms under the same terms and
conditions as provided for in this agreement.  Nuvo also agreed to pay
PV a fee of $180,000 over the first three years of the agreement to act as a
consultant.
 
 On
January 23, 2008, the Company purchased from PV the patents related to the solar
technology in exchange for 2,000,000 restricted shares of common stock of the
Company.  The Company now owns all rights, title and interest in the
patents, including all issued patents or other intellectual property arising
from the patents worldwide.  The Company valued the common stock at
$0.075 per share (the market price of the common stock on November 16, 2007, the
date the parties agreed to the number of shares to be issued) and accordingly,
increased its intellectual property asset by $150,000 on the July 31, 2008
balance sheet included herein.
 
 OVERVIEW
 
 The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and notes thereto for the years ended July 31, 2007 and
2006.  The financial statements presented for the nine months ended
April 30, 2008 and 2007 include the Company and Nuvo, its wholly-owned
subsidiary.
 
 -21-
 In light
of the foregoing, the historical data presented below is not indicative of
future results. You should read this information in conjunction with the audited
consolidated financial statements of the Company, including the notes to those
statements and the following “Management’s Discussion and Analysis of Financial
Conditions and Results of Operations”.
 
 The
Company’s financial statements for the years ended July 31, 2008 and 2007 have
been prepared on a going concern basis, which contemplates the realization of
its remaining assets and the settlement of liabilities and commitments in the
normal course of business.  The Company has incurred significant
losses since its inception and has a working capital deficit of approximately
$1,316,000, and an accumulated shareholders’ deficit of approximately $862,000
as of July 31, 2008.  Nuvo has not yet earned any sources of
revenue.
 
 These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.  There can be no assurance that the Company will have
adequate resources to fund future operations or that funds will be available to
the Company when needed, or if available, will be available on favorable terms
or in amounts required by the Company.  The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of assets or the amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern.
 
 On
November 27, 2007, we executed a Collaboration and Development Agreement (the
“Agreement”) with Pioneer Materials, Inc. (“PMI”) of Torrance, California. Under
the terms of the Agreement, PMI will build, equip, operate and manage, for our
benefit, a product development, testing and prototype manufacturing facility in
PMI’s Chengdu, Sichuan, China facility located in Chengdu’s West High Tech
development zone.  The agreement with PMI has the objective to
develop, test and manufacture prototypes of solar energy products using our
licensed technology based on an invention titled “Photovoltaic cell with integral
light transmitting waveguide in a ceramic
sleeve”.  Additionally, PMI will provide technical, engineering
development, testing and manufacturing employees and support
staff.  The term of the Agreement is for one year, with automatic
six-month renewal periods unless terminated by the parties.  Pursuant
to the terms of the Agreement, the Company agreed to pay PMI $2,500 per month
and PMI is eligible to receive up to 4,000,000 shares of our common stock, of
which 500,000 shares of common stock were issued upon the execution of the
Agreement, upon the satisfactory completion of certain milestone accomplishments
in the Agreement.  No further shares have been issued.  PMI
is a manufacturer and supplier of materials for the semiconductor, hard drive
media, optical media and photonic industries.  PMI is developing for
the solar energy industry advanced materials for thin film photovoltaics (solar
cell) processing.
 
 In May of
2008, the Chengdu region of China experienced a catastrophic
earthquake.  As a result of this earthquake and the after effects
including significant problems with the delivery of electricity, PMI suspended
their development work for a significant period of time.  We continue
to work with PMI under the Collaboration Agreement, however, there has been no
significant progress on product development and we continue to explore
alternative avenues for development of our technology.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 For the
year ended July 31, 2008, net cash used in operating activities was $476,329
compared to $736,924 for the year ended July 31, 2007.  Net loss was
$1,145,702 for the year ended July 31, 2008 compared to net income of $296,757
for the year ended July 31, 2007. The net loss in the current period includes
net non-cash expenses of $577,315 of which $468,583 are costs associated with
the issuance of common stock and warrants and $321,842 of depreciation and
amortization expense.  These expenses were offset by a decrease of
$213,110 in the derivative liabilities of the Company related to the unsecured
convertible debentures.
 
 -22-
 Net cash
used in investing activities for the year ended July 31, 2007 was $26,500, which
was a result of payments made to acquire intellectual property
rights.
 
 Net cash
provided by financing activities for the year ended July 31, 2008 was $444,245
compared to $785,557 for the year ended July 31, 2007. For the year ended July
31, 2008, the Company received net proceeds of $685,300 on the issuance of notes
payable and convertible debentures, offset by the repayment of $142,105 of notes
payable, $76,650 paid for placement fees related to convertible debentures and
$23,300 paid in exchange for a note receivable from a related
party.  The significant activity for the year ended July 31, 2007
included the Company receiving proceeds of $530,949 from the sale of common
stock and $359,027 on the issuance of notes payable.  The Company
repaid notes payable totaling $50,569 and paid $53,580 in exchange for notes
receivable from related parties.
 
 For the
year ended July 31, 2008, cash and cash equivalents decreased by $32,084
compared to an increase in cash and cash equivalents of $22,133 for the year
ended July 31, 2007.  Ending cash and cash equivalents at July 31,
2008 was $938 compared to $33,021 at July 31, 2007.
 
 We have
limited cash and cash equivalents on hand and need to raise funds to continue to
be able to support our operating expenses and to meet our other obligations as
they become due.  Sources available to us that we may utilize include
the sale of unsecured convertible debentures, as well as the exercise of
outstanding options and warrants, all of which may cause dilution to our
stockholders.
  OPERATING
EXPENSES
 
 Operating
expenses for the year ended July 31, 2008 were $1,058,332 compared to expenses
of $1,071,487 for the year ended July 31, 2007.  The 2008 expenses
includes stock compensation costs of $468,583 comprised of the issuance of
5,000,000 options to directors and officers of the Company valued at $285,000
(based on the Black-Scholes option pricing model), the issuance of 1,100,000
shares of common stock, valued at $88,000 or $0.08 per share (the market price
of the common stock on the date of issuance) issued to the placement agent as
part of their fee related to the convertible debentures, the Black-Scholes
option pricing model cost of $35,125 for the issuance to two third parties of
the aggregate of 375,000 warrants to purchase shares of common stock at $0.10
per share, the extension of warrants, valued at $8,250 (based on the
Black-Scholes option pricing model), that were to expire, $35,000 deferred stock
compensation expensed, $4,500 for the issuance of 50,000 shares of common stock
valued at $0.07 (the market price of the common stock on the date of issuance)
and $24,376 amortization of stock based compensation.  The 375,000
warrants were issued in conjunction with notes payable issued of
$125,000.  Legal and accounting expenses of $66,892 were incurred for
the year ended July 31, 2008 related to the Share Exchange, as well as public
company expenses.  Management and consulting fees of $319,000 are
comprised of fees we pay our chief executive officer ($10,000 per month),
corporate secretary ($3,000 per month) and a financial consultant ($2,250 per
month beginning in October 2007), and $5,000 per month under our Licensing
Agreement with PV.  Other expenses of $192,142 include depreciation
and amortization of $75,859 and general and administrative costs of
$116,283.
 
 -23-
 OTHER
INCOME (EXPENSE)
 
 Other
income, net for the year ended July 31, 2008 was $87,418 compared to $343,545
for the year ended July 31, 2007.  The increase in derivative
liabilities included in other income (expenses) for the nine months ended July
31, 2008 is $213,110 compared to an expense of $15,565 for the year ended July
31, 2007.  Interest expense for the years ended July 31, 2008 and 2007
is summarized as:
 
 July
      31,2008
              
              
              2007Amortization
      of debenture note discounts
              
              $
              245,974
              
              
              $
              144,275Debenture
      interest
              
              
              23,890
              
              
              
              22,911Notes
      interest, related
              
              
              13,852
              
              
              
              149,431Note
      and other interest
              
              
              19,469
              
              
              
              12,555$
              303,185
              
              
              $
              329,172
  (c)           Off-Balance
sheet arrangements
 
 During
the fiscal year ended July 31, 2008, the Company did not engage in any
off-balance sheet arrangements as defined in Item 303(c) of the SEC’s Regulation
S-B.
 
 
 ITEM
7.  FINANCIAL STATEMENTS.
 
 The
financial statements and related information required to be filed are indexed
and begin on page F-1 and are incorporated herein.
 
 
 ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
 
 Not
applicable.
 
 
 -24-
 ITEM
8A(T). CONTROLS AND PROCEDURES.
 
 Evaluation of Disclosure
Controls and Procedures
 
 A review
and evaluation was performed by the Company's management, including the
Company's Chief Executive Officer (the "CEO") and Chief Financial Officer (the
“CFO”), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by this
quarterly report. Based on that review and evaluation, the CEO and CFO have
concluded that as of July 31, 2008 disclosure controls and procedures, were
effective at ensuring that the material information required to be disclosed in
our Exchange Act reports is recorded, processed, summarized and reported as
required in the application of SEC rules and forms.
 
 Management’s Report on
Internal Controls over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is a
set of processes designed by, or under the supervision of, a company’s principal
executive and principal financial officers, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP and includes
those policies and procedures that:
 
 •
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect our transactions and dispositions of our
      assets;
 •
              Provide
      reasonable assurance our transactions are recorded as necessary to permit
      preparation of our financial statements in accordance with GAAP, and that
      receipts and expenditures are being made only in accordance with
      authorizations of our management and directors;
  and
 •
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statement.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. It should be noted that any system of internal
control, however well designed and operated, can provide only reasonable, and
not absolute, assurance that the objectives of the system will be met. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
 
 Our CEO
and CFO have not evaluated the effectiveness of our internal control over
financial reporting as described in Exchange Act Rules 13a-15(e) and 15d-15(e)
as of the end of the period covered by this report based upon criteria
established in “Internal Control-Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO) due to the fact
that the we do not have the personnel resources or technological infrastructure
in place to perform the evaluation.  Based upon our management’s
discussions with our auditors and other advisors, our CEO and CFO believe that,
during the period covered by this report, such internal controls and procedures
were not effective as described below.
 
 In
connection with the 2007 audit and the 2008 quarterly reviews, our independent
registered public accounting firm has advised us and our Board of Directors that
there are material weaknesses in our internal controls and
procedures.  The identified material weaknesses primarily relate to
the limited number of Company employees engaged in the authorization, recording,
processing and reporting of transactions, as well as the overall financial
reporting process.  These material weaknesses have caused significant
delays in our financial reporting process.  We are currently
considering certain steps to correct the material weaknesses by enhancing our
reporting process in the future.  Enhancing our internal controls
to correct the material weaknesses will result in increased costs to
us.
 
 This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management’s report in this annual
report.
 
 -25-
 Changes in Internal Control
over Financial Reporting
 
 There
have been no changes in the Company’s internal controls over financial reporting
that have materially affected, or are reasonably likely to materially affect,
the Company’s internal controls over financial reporting.
 
 
 ITEM
8B. OTHER INFORMATION.
 
 Not applicable.
 
 
 PART
III
 
 ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
 
 (a)           Identification
of directors and executive officers
 
 The
following table sets forth the name, age, position and office term of each
executive officer and director of the Company.
 
 Name
              Age
              PositionHenry
      Fong
              73
              President,
      Chief Executive Officer and DirectorStephen
      D. King
              52
              DirectorRichard
      W. Perkins
              77
              DirectorChristopher
      T. Dahl
              65
              DirectorBarry
      S. Hollander
              51
              Chief
      Financial OfficerThomas
      B. Olson
              42
              Secretary
 
 Henry
Fong.  Mr. Fong has been
the president, chief executive officer, and a director of the Company since
March 2002 and president and a director of Nuvo since its inception in April
2006.  Mr. Fong was the president, treasurer and a director of
Hydrogen Power, Inc. from its inception in 1983 until January 2, 2007. Mr. Fong
has been a director of FastFunds Financial Corporation, a publicly traded
company, since June 2004. Mr. Fong has been president and a director of Equitex
2000, Inc. since its inception in 2001. Mr. Fong has been the president and a
director of Inhibiton Therapeutics, Inc. since its inception in May 2004.
Inhibiton Therapeutics is a publicly held company performing research and
development on new cancer therapies. From 1959 to 1982, Mr. Fong served in
various accounting, finance and budgeting positions with the Department of the
Air Force. During the period from 1972 to 1981 he was assigned to senior
supervisory positions at the Department of the Air Force headquarters in the
Pentagon. In 1978, he was selected to participate in the Federal Executive
Development Program and in 1981, he was appointed to the Senior Executive
Service. In 1970 and 1971, he attended the Woodrow Wilson School, Princeton
University and was a Princeton Fellow in Public Affairs. Mr. Fong received the
Air Force Meritorious Civilian Service Award in 1982. Mr. Fong has passed the
uniform certified public accountant exam. In March 1994, Mr. Fong was one of
twelve CEOs selected as Silver Award winners in FINANCIAL WORLD magazine's
corporate American "Dream Team."
 
 -26-
 Stephen D.
King.Mr. King has been a director since November
2006.  Mr. King was elected chief executive officer of Wits Basin
Precious Minerals, Inc., a publicly traded mineral exploration company,
effective September 15, 2006 and has served as a director since July 8,
2004.  Mr. King also served as president of Wits Basin from May 15,
2006 to September 15, 2006. Since October 2000, Mr. King has served as president
of SDK Investments, Inc., a private investment firm located in Atlanta, Georgia
specializing in corporate finance and investing. He served as president, from
January 1994 until July 2000 and chairman until October 2000, of PopMail.com,
Inc., a publicly traded company with businesses in the hospitality and Internet
sectors.
 
 Richard W.
Perkins.Mr. Perkins has over 50 years experience in the investment
business, has been President and Investment Manager for Perkins Capital
Management since October 1994.  Perkins Capital Management, with
assets under management exceeding $248 million, is a registered investment
advisor with significant experience in individual and institutional capital
management including working directly with the public markets emphasizing the
micro-cap sector.Mr. Perkins is also a director of several
public companies including: Synovis Life Technologies, Inc. since 1984, Nortech
Systems, Inc. since 1993, Lifecore Biomedical, Inc. since 1972, and Vital
Images, Inc. since 1985.
 
 Christopher T.
Dahl.For the
past five years Mr. Dahl has been the President and owner of CTD Properties, a
privately-held company that manages various investments including real estate
ownership and development.  Mr. Dahl, who was the founder and
President of Children’s Broadcasting Corp., has significant past experience in
the media industry including executive management and board of director
positions with publicly-traded companies that owned and operated radio stations
and provided public media content.
 
 Barry S.
Hollander.Mr. Hollander has been chief financial officer of
the Company since 2002.  Mr. Hollander has been the chief financial
officer of VP Sports, a privately-held company, since March
1999.  From 1994 to 1999, Mr. Hollander was the chief financial
officer of California Pro Sports, Inc., an in-line skate importer, marketer and
distributor.  In 1999 California Pro merged with Imaginon,
Inc.  Mr. Hollander has been in the sporting goods industry since 1980
in various accounting, senior management and executive positions. Mr. Hollander
has a BS degree from Fairleigh Dickinson University and passed the uniform
certified public accountant exam.
 
 Thomas B.
Olson. Mr.
Olson has been secretary of the Company since March 2002 and has been secretary
and treasurer of Nuvo since its inception in April 2006.  Mr. Olson
was secretary of Hydrogen Power, Inc., a publicly-traded alternative energy
company, from January 1988 to April 5, 2007.  Mr. Olson served as a
director of Chex Services, formerly a subsidiary of Hydrogen Power, Inc., from
May 2002 to January 2006. Mr. Olson has been Secretary of Equitex 2000, Inc.
since its inception in 2001. Mr. Olson has been the secretary of Inhibiton
Therapeutics, Inc. since its inception in May 2004. Inhibiton Therapeutics is a
publicly held company performing research and development on new cancer
therapies. From August 2002 to July 2004, Mr. Olson was secretary of El Capitan
Precious Metals, Inc., a publicly traded company with ownership interests in
mining properties. Mr. Olson has attended Arizona State University and the
University of Colorado at Denver.
 
  -27-
  (b)           Significant
employees
 
 Not
applicable.
 
 (c)           Family
relationships
 
 None.
 
 (d)           Involvement
in certain legal proceedings
 
 Not applicable.
 
 Code of
Ethics
 
 In 2003
we adopted a Code of Ethics for Senior Financial Management to promote honest
and ethical conduct and to deter wrongdoing.  This Code applies to our
Chief Executive Officer, Chief Financial Officer, controller, principal
accounting officer and other employees performing similar
functions.  The obligations of the Code of Ethics supplement, but do
not replace, any other code of conduct or ethics policy applicable to our
employees generally.
 
 Under the
Code of Ethics, all members of the senior financial management
shall:
 
 ·
              Act
      honestly and ethically in the performance of their duties at our
      company,
 ·
              Avoid
      actual or apparent conflicts of interest between personal and professional
      relationships,
 ·
              Provide
      full, fair, accurate, timely and understandable disclosure in reports and
      documents that we file with, or submits to, the SEC and in other public
      communications by our company,
 ·
              Comply
      with rules and regulations of federal, state and local governments and
      other private and public regulatory agencies that affect the conduct of
      our business and our financial
reporting,
 ·
              Act
      in good faith, responsibly, with due care, competence and diligence,
      without misrepresenting material facts or allowing the member's
      independent judgment to be
subordinated,
 ·
              Respect
      the confidentiality of information acquired in the course of work, except
      when authorized or legally obtained to disclosure such
      information,
 ·
              Share
      knowledge and maintain skills relevant to carrying out the member's duties
      within our company,
 ·
              Proactively
      promote ethical behavior as a responsible partner among peers and
      colleagues in the work environment and
  community,
 ·
              Achieve
      responsible use of and control over all assets and resources of our
      company entrusted to the member,
and
 ·
              Promptly
      bring to the attention of the Chief Executive Officer any information
      concerning (a) significant deficiencies in the design or operating of
      internal controls which could adversely to record, process, summarize and
      report financial date or (b) any fraud, whether or not material, that
      involves management or other employees who have a significant role in our
      financial reporting or internal
controls.
 
 -28-
 We will
provide a copy of the Code of to any person without charge, upon
request.  Requests can be sent to China Nuvo Solar Energy, Inc., 319
Clematis Street, Suite 703, West Palm Beach, Florida 33401.
 
 Corporate
Governance
 
 There
have been no material changes to procedures by which security holders may
recommend nominees to our board of directors.
 
 We
currently have no standing audit or nominating committees of our board of
directors.  Our entire board of directors currently performs these
functions.  While we currently have no standing audit or nominating
committee, we have determined that Mr. Dahl would be considered an audit
committee financial expert.
 
 
 ITEM
10. EXECUTIVE COMPENSATION.
 
 (a)           General
 
 The
following tables set forth all of the compensation awarded to, earned by or paid
to:
 
 In Table
(1):  (i) each individual serving as our principal executive officer
during the fiscal years ended July 31, 2007 and 2008; (ii) each other individual
that served as an executive officer at the conclusion of the fiscal year ended
July 31, 2008 and who received in excess of $100,000 in the form of salary and
bonus during such fiscal year (collectively, the “Interactive named
executives”).
 
 In Table
(2): each individual serving as Nuvo’s principal executive officer during the
fiscal year ended July 31, 2007 (collectively, the “Nuvo named
executives”).
 
 (b)           Summary
compensation tables
 
 Table
1. Summary Compensation of Executive Officers – Interactive Games,
Inc.
 
 Name
      and Principal Position
              
              Year
              
              Salary
              
              Bonus
              
              Equity
                Awards
      (1)
              
              Option
                Awards(1)
              
              All
      Other Compensation
              
              TotalHenry
      Fong
                Chief
      Executive Officer & President
              
              2008
                
                2007
              
              $120,000
                
                $80,000
              
              -
                
                $275,561
              
              -
                
                $66,214
              
              $57,000
                
                -
              
              -
                
                -
              
              $177,000
                
                $421,775
 
 (1)
              Amount
      reflects the dollar amount recognized for financial statement reporting
      purposes for the fiscal year ended July 31, 2008 and 2007, in accordance
      with SFAS 123(4) of stock option awards.  Assumptions used in
      calculating these amounts are included in Note 6 to our audited financial
      statements for the fiscal year ended July 31, 2008, which are included
      elsewhere in this report.
 
 Table
2. Summary Compensation of Executive Officers – Nuvo Solar Energy,
Inc.
 
 Name
      and Principal Position
              
              Year
              
              Salary
              
              Bonus
              
              Option
                Awards
              
              All
      Other Compensation
              
              TotalHenry
      Fong
                Chief
      Executive Officer & President
              
              2007
              
              $43,000
              
              -
              
              -
              
              -
              
              $43,000
 
 -29-
 (c)           Narrative disclosure to summary compensation
table.
 
 During
the fiscal year ended July 31, 2007, we had a month-to-month arrangement with
Mr. Fong for his management services, whereby we paid Mr. Fong a monthly
management fee of $6,667 in consideration of his services to the Company as
President and Chief Executive Officer.
 
 In July
2007, Mr. Fong , converted $90,000 in accrued fees owed to him into 642,857,
shares of our common stock at a conversion price of $0.14 per common
share.  In addition, Mr. Fong received warrants to purchase 642,857
shares of our common stock for a period of two years at an exercise price of
$0.10 per share.   These warrants were valued using the
Black-Scholes option pricing model and determined to have a value of $66,214,
which amounts are included as “Equity Awards” in the Summary Compensation Table
for the fiscal year ended July 31, 2007.
 
 In August
2007, the Board of Directors approved a bonus plan for Mr. Fong through which
Mr. Fong is to be paid an annual bonus equal to 2.5% of the increase in market
capitalization for the Company’s common stock.  Accordingly, a bonus
was accrued, but not yet paid, equaling $275,561 for the fiscal year ended July
31, 2007.  There was no bonus accrued or paid for the fiscal year
ended July 31, 2008.
 
 On
November 27, 2007, the Board of Directors granted 1,000,000 options to purchase
shares of common stock under our 2007 Stock Option Plan (the “2007 Plan”) to Mr.
Fong.  The options granted have an exercise price of $0.07 per share
(the market price of our common stock on the date of the grant) and expire
November 27, 2012.  These options were valued using the Black-Scholes
option pricing model and determined to have a value of $57,000, which amounts
are included as “Option Awards” in the Summary Compensation Table for the fiscal
year ended July 31, 2008.
 
 Nuvo did
not have any formal employment agreements with its officers.  Nuvo
paid Mr. Fong a management fee of $3,000 per month for his services until June
2007.
 
 Beginning
in July 2007, our board of directors authorized a management fee of $10,000 per
month for Mr. Fong.
 
 (d)           Outstanding
equity awards at fiscal year end table.
 
 The
following table sets forth information regarding each unexercised option and
non-vested stock award held by each of our named executive officers as of July
31, 2008.
 
 Name
              
              Number
      of Securities Underlying Unexercised
                Options
      Exercisable
              
              Number
      of Securities Underlying Unexercised Options Unexercisable
              
              Option
      Exercise
                Price
      ($)
              
              Option
                Expiration
      DateHenry
      Fong
              
              900,000
                1,000,000
              
              -
                -
              
              $0.20
                $0.07
              
              1/16/2009
                11/27/2012
 
  -30-
  (e)           Additional narrative disclosure.
 
 We
currently have no retirement plans or similar benefits for our
officers.  We also have no contracts or agreements with our officers
for payments that may result neither from their resignation, retirement, or
other termination, nor in the event of a change in control.
 
 (f)           Compensation
of directors
 
 We do not
pay fees to our directors for attendance at meetings of the board; however, we
may adopt a policy of making such payments in the future.  We will
reimburse out-of-pocket expenses incurred by directors in attending board and
committee meetings.
 
 On
November 27, 2007, the Board of Directors granted 1,000,000 options to purchase
shares of common stock under our 2007 Stock Option Plan (the “2007 Plan”) to
each of our independent directors Messrs. King, Perkins and Dahl.  The
options granted have an exercise price of $0.07 per share (the market price of
our common stock on the date of the grant) and expire November 27,
2012.  These options were valued using the Black-Scholes option
pricing model and determined to have a value of $171,000, or $57,000 per
director.
 
 
 ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
 
 The
following table sets forth information known to the Company with respect to the
beneficial ownership (as such term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of the outstanding common stock of the Company
as of October 31, 2008 by (1) each person known by the Company to
beneficially own 5% or more of the Company’s outstanding common stock,
(2) each named executive officer (as defined in Item 402(a)(2) of
Regulation S-B promulgated under the Securities Act of 1933, as amended),
(3) each of the Company’s directors and (4) all of the Company’s named
executive officers and directors as a group. The number of shares beneficially
owned is determined under rules promulgated by the SEC, and the information is
not necessarily indicative of beneficial ownership for any other
purpose.  Including those shares in the tables does not, however,
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares.
  -31-
  
 Name of Beneficial Owner
              Number
      of Shares of Preferred Stock
                Beneficially
      Owned
              Percent
      of
                Preferred
      Stock(1)
              Number
      of Shares of Common Stock
                Beneficially
      Owned
              Percent
      of
                Common
      Stock (1)Henry
      Fong
                319
      Clematis Street – Ste 703
                West
      Palm Beach, FL 33401
              520,953
      (2)
              97.20%
              26,348,948
      (3)
              12.5%Stephen
      D. King
                900
      IDS Center
                80
      South 8th
      Street,
                Minneapolis,
      MN 55402
              -
              0
              2,000,000
      (4)
              1.0%Richard
      W. Perkins
                730
      E Lake Street
                Wayzata,
      MN 55391
              -
              0
              28,742,406
      (5)
              13.8%Christopher
      T. Dahl
                5404
      Intercachen Blvd
                Edina,
      MN 55436
              -
              0
              3,424,241
      (6)
              1.6%All
      Executive Officers and
                Directors
      as a Group (4 persons)
              520,953
              97.20%
              65,967,189
      (7)
              30.4%Wayne
      W. Mills
                2125
      Hollybush Rd
                Medina,
      MN  55340
              -
              -
              19,960,595
      (8)
              9.6%Gulfstream
      Financial Partners
                319
      Clematis Street – Ste. 703
                West
      Palm Beach, FL 33401
              36,110  (9)
              6.74%
              18,059,614
      (9)
              8.7%
 __________
 
 
 (1)
              As
      of October 31, 2008, 206,676,431 shares of our common stock and 520,953
      shares of our preferred stock were
outstanding.
 (2)
              Includes
      (i) 36,110 shares of preferred stock held by a partnership in which Mr.
      Fong is a partner, (ii) 164,473 shares of preferred stock held by a
      corporation in which Mr. Fong is an 80% shareholder, (iii) 123,069 shares
      of preferred stock held by another corporation in which Mr. Fong is an 80%
      shareholder and (iv) 197,301 shares of preferred stock held by a
      corporation in which Mr. Fong is an
officer.
 (3)
              In
      addition to 1,692,591 shares of common stock and warrants to purchase
      642,857 shares of common stock owned directly by Mr. Fong, this includes:
      (i) 900,000 shares underlying options granted under our 2003 Stock Option
      Plan and 1,000,000 shares underlying options granted under our 2007 Stock
      Option Plan; (ii) warrants to purchase 642,857 shares of common stock;
      (iii) 17,930,650 shares of common stock and warrants to purchase 128,964
      shares of common stock owned by Gulfstream Financial Partners, of which
      Mr. Fong is the sole partner (which is separately identified in this
      stockholder table); (iv) 587,400 shares of common stock and warrants to
      purchase 587,400 shares of common stock owned by a corporation in which
      Mr. Fong is an officer and director; (v) 439,553 shares of common stock
      and warrants to purchase 439,533 shares of common stock held by another
      corporation in which Mr. Fong is an 80% shareholder; and (vi) 2,000,000
      shares owned by Mr. Fong’s
children.
 (4)
              Consists
      of warrants to purchase 1,000,000 shares of the Company’s common stock and
      1,000,000 shares underlying options granted under our 2007 Stock Option
      Plan.
 (5)
              In
      addition to 1,000,000 shares of common stock held directly by Mr. Perkins,
      this includes: (i) 1,000,000 shares underlying options granted under our
      2007 Stock Option Plan; (ii) 1,500,000 shares of common stock held by a
      limited partnership of which Mr. Perkins is the general partner; (iii)
      1,000,000 shares owned by a Corporation in which Mr. Perkins is a
      principal and stockholder; and (iv) 24,242,406 shares of common stock held
      by Richard W. Perkins Trust U/A 6/14/78 FBO Richard W.
      Perkins.
 (6)
              In
      addition to 2,424,421 shares owned personally by Mr. Dahl, this includes
      1,000,000 shares underlying options granted under our 2007 Stock Option
      Plan.
 (7)
              Includes
      6,650,000 shares underlying options granted under our 2003 Stock Option
      Plan, 5,000,000 shares underlying options granted under our 2007 Stock
      Option Plan, and warrants to purchase 3,379,132 shares of our common
      stock.
 (8)
              Includes
      (i) 5,363,632 shares of common stock and warrants to purchase 800,000
      shares of common stock held directly by Mr. Mills, (ii) 4,000,000 shares
      and warrants to purchase 100,000 shares of common stock held by a limited
      liability company of which Mr. Mills is the sole member, and (iii)
      9,696,963 shares held by limited liability company of which Mr. Mills
      holds 50% of the membership
interest.
 (9)
              Mr.
      Fong, our President, Chief Executive Officer and Director, is a partner of
      Gulfstream Financial Partners.  Includes warrants to purchase
      128,964 shares of common stock.
 
 -32-
 (c)           Changes
in control
 
 We are
not aware of any arrangements that could result in a change in control of the
Company.
 
 
 ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
 
 (a)           Transactions
with related persons.
 
 
 During
the fiscal year ended July 31, 2008, we repaid outstanding promissory notes to
Henry Fong, our President and Chief Executive Officer, in the amount of $46,987
leaving a principal balance due of $2,889 with accrued interest of $229 at July
31, 2008.  The remaining balance outstanding carries an interest rate
of 10% and is due on demand.
 
 During
the fiscal year ended July 31, 2008, we issued promissory notes totaling $13,500
to a corporation controlled by Henry Fong, our President and Chief Executive
Officer.  We also repaid $40,531 to the corporation on certain of
these promissory notes as well as notes issued in prior periods.  As
of July 31, 2008, we owed the corporation $6,093 in principal and accrued
interest of $499.  The remaining balances on these notes carry an
interest rate of 10% and are due on demand.
 
  -33-
  Director
Independence
 
 Our board
of directors has four directors and has no standing sub-committees at this time
due to the associated expenses and the small size of our board.  We
are not currently listed on a national securities exchange that has requirements
that a majority of the board of directors be independent, however, the board has
determined that Stephen D. King, Richard W. Perkins, and Christopher T. Dahl are
each “independent” under the definition set forth in the listing standards of
the NASDAQ Stock Market, Inc., which is the definition that our board has chosen
to use for the purposes of the determining independence.
 
 In
performing the functions of the audit committee, our board oversees our
accounting and financial reporting process.  In this function, our
board performs several functions.  Our board, among other duties,
evaluates and assesses the qualifications of the Company’s independent auditors;
determines whether to retain or terminate the existing independent auditors;
meets with the independent auditors and financial management of the Company to
review the scope of the proposed audit and audit procedures on an annual basis;
reviews and approves the retention of independent auditors for any non-audit
services; reviews the independence of the independent auditors; reviews with the
independent auditors and with the Company’s financial accounting personnel the
adequacy and effectiveness of accounting and financial controls and considers
recommendations for improvement of such controls; reviews the financial
statements to be included in our annual and quarterly reports filed with the
Securities and Exchange Commission; and discusses with the Company’s management
and the independent auditors the results of the annual audit and the results of
our quarterly financial statements. While we do not currently have a standing
compensation committee, our non-employee director considers executive officer
compensation, and our entire board participates in the consideration of director
compensation.  Our non-employee board members oversee our compensation
policies, plans and programs.  Our non-employee board members further
review and approve corporate performance goals and objectives relevant to the
compensation of our executive officers; review the compensation and other terms
of employment of our Chief Executive Officer and our other executive officers;
and administer our equity incentive and stock option plans.  Each of
our directors participates in the consideration of director
nominees.  In addition to nominees recommended by directors, our board
will consider nominees recommended by shareholders if submitted in writing to
our secretary.  Our board believes that any candidate for director,
whether recommended by shareholders or by the board, should be considered on the
basis of all factors relevant to our needs and the credentials of the candidate
at the time the candidate is proposed.  Such factors include relevant
business and industry experience and demonstrated character and
judgment.
 
 
 ITEM
13. EXHIBITS
 
 Exhibits
 
 2.1
              Agreement
      and Plan of Reorganization by and between the Company and Nuvo Solar
      Energy, Inc. dated April 23, 2007. (incorporated by reference to
      Company’s Form 8-K filed on May 1, 2007)2.2
              Amendment
      No. 1 to Agreement and Plan of Reorganization by and between the Company
      and Nuvo Solar Energy, Inc. dated July 25, 2007. (incorporated by reference to
      Company’s Form 8-K filed on July 31,
  2007)
   -34-
  2.3
              Articles
      of Exchange relating to the share exchange by and between Interactive
      Games, Inc. and Nuvo Solar Energy, Inc. as filed with the Nevada Secretary
      of State on July 25, 2007. (incorporated by reference to
      Company’s Form 8-K filed on July 31, 2007)2.4
              Statement
      of Share Exchange relating to the share exchange by and between
      Interactive Games, Inc. and Nuvo Solar Energy, Inc. as filed with the
      Colorado Secretary of State on July 25, 2007. (incorporated by reference to
      Company’s Form 8-K filed on July 31, 2007)3.1
              Amended
      and Restated Articles of Incorporation of Interactive Games, Inc. (incorporated by reference to
      Company’s Form 8-K filed on July 5, 2007).3.2
              Amended
      and Restated Bylaws of Interactive Games, Inc. (incorporated by reference to
      Company’s Form 8-K filed on July 5, 2007).3.3
              Amended
      and Restated Articles of Incorporation of China Nuvo Solar Energy,
      Inc.  (incorporated by reference to
      Company’s Form 8-K filed on July 31, 2007)3.4
              Certificate
      of Designation of Series A Preferred Stock. (incorporated by reference to
      Company’s Form 8-K filed on July 31, 2007)4.1
              Form
      of promissory note made by the Company in favor of certain investors in
      July 2007. (incorporated
      by reference to Company’s Form 8-K filed on July 31,
      2007)4.2
              Form
      of warrant issued by the Company to certain investors on July 2007. (incorporated by reference to
      Company’s Form 8-K filed on July 31, 2007)10.1
              Agreement
      between the Company and Photovoltiacs.com, Inc. dated June 9, 2006, as
      amended. (incorporated
      by reference to Company’s Form 8-K filed on July 31,
      2007)14.1
              Code
      of Ethics. (filed
      herewith)21.1
              List
      of Subsidiaries. (filed
      herewith).31.1
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed
      herewith).31.2
              Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed
      herewith).32.1
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed
      herewith).32.2
              Certification
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (filed
      herewith).
 
 
 -35-
 ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 Hawkins
Accounting served as our certifying accountant for the fiscal years ended July
31, 2008 and 2007.
 
 Fiscal
Year ended July 31, 2008
 
 Audit
Fees
 
 Fees for
audit services billed for the fiscal year ended July 31, 2008 were $38,100 and
consisted of (i) audit of the Company’s annual financial statements; (ii)
reviews of the Company’s quarterly financial statements; (iii) consultations on
financial accounting and reporting matters arising during the course of the
audit and reviews.
 
 Audit-Related
Fees
 
 There
were no other aggregate fees billed in the fiscal year ended July 31, 2008 for
assurance and related services by the principal accountants that were reasonably
related to the performance of the audit or review of the financial statements
that were not reported above.
 
 Tax Fees
 
 There
were no aggregate fees billed in the fiscal year ended July 31, 2008 for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning.
 
 All Other
Fees
 
 There
were no other fees billed in the fiscal year ended July 31, 2008 for any other
service provided by Hawkins accounting.
 
 Fiscal Year ended July 31,
2007
 
 Audit
Fees
 
 Fees for
audit services billed for the fiscal year ended July 31, 2007 were $24,000 and
consisted of (i) audit of the Company’s annual financial statements; and (ii)
consultations on financial accounting and reporting matters arising during the
course of the audit and reviews.
 
 Audit-Related
Fees
 
 There
were no other aggregate fees billed in the fiscal year ended July 31, 2007 for
assurance and related services by the principal accountants that were reasonably
related to the performance of the audit or review of the financial statements
that were not reported above.
 
 Tax Fees
 
 There
were no aggregate fees billed in the fiscal year ended July 31, 2007 for
professional services rendered by the principal accountant for tax compliance,
tax advice, and tax planning.
 
 -36-
 All Other
Fees
 
 During
the fiscal year ended July 31, 2007, while acting and independent accountant to
Nuvo prior to the Share Exchange, Hawkins accounting was paid $7,500 including
$5,000 for audit services related to Nuvo’s December 31, 2006 audited financial
statements and $2,500 for the review of Nuvo’s June 30, 2007 interim financial
statements.
 
 We do not
have an audit committee currently serving and as a result each member of our
board of directors performs the duties of an audit committee.  Our
board of directors will evaluate and approve in advance, the scope and cost of
the engagement of an auditor before the auditor renders audit and non-audit
services.  We do not rely on pre-approval policies and
procedures.
  -37-
  SIGNATURES
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 
 CHINA
      NUVO SOLAR ENERGY, INC.(Registrant)Date:
      November 13,
      2008
              By:
      /s/
      Henry FongHenry
      FongPrincipal
      Executive OfficerBy:
      /s/
      Barry S. HollanderBarry
      S. HollanderPrincipal
      Financial Officer
 
 
 
 In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
 
 
 
 Date:
      November 13,
      2008
              /s/ Henry
      FongHenry
      FongDirectorDate:
      November 13,
      2008
              /s/ Stephen D.
      KingStephen
      D. KingDirectorDate:
      November 13,
      2008
              /s/ Richard W.
      PerkinsRichard
      W. PerkinsDirectorDate:
      November 13,
      2008
              /s/ Christopher T.
      DahlChristopher
      T. DahlDirector
 -38-
   
  
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 FOR
THE YEARS ENDED JULY 31, 2008 AND 2007
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
 Report
      of Independent Registered Public Accounting Firm
              F-2Consolidated
      financial statements:Consolidated
      balance sheet
              F-3Consolidated
      statements of operations
              F-4Consolidated
      statement of changes in stockholders' deficit and other comprehensive
      income
              F-5Consolidated
      statements of cash flows
              F-6
      – F-7Notes
      to consolidated financial statements
              F-8
      – F23
 
 
 
 
  HAWKINS
ACCOUNTING
  
 To
the Board of Directors and Shareholders
 China
Nuvo Solar Energy, Inc.
 West Palm
Beach, Florida
 
 Report of Independent
Registered Public Accounting Firm
 
 I have
audited the balance sheet of China Nuvo Solar Energy, Inc. as of July 31, 2008
and 2007, the related statements of operations, stockholders’ equity and cash
flows for the years ending July 31, 2008 and 2007.  These financial
statements are the responsibility of the Company’s management. My responsibility
is to express an opinion on these financial statements based on my
audit.
 
 I
conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that I plan and perform the 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.  I believe that my audit provides reasonable basis for
my opinion.
 
 In my
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of China Nuvo Solar Energy, Inc. as of
July 31, 2008 and 2007, the results of operations and its cash flows for the
years ended July 31, 2008 and 2007 in conformity with generally accepted
accounting principles in the United States of America.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern.  As discussed in Note 1 to the financial
statements, the Company has incurred net losses since inception, which raise
substantial doubt about its ability to continue as a going
concern.  The financial statements do not include any adjustment that
might result from the outcome of this uncertainty.
 
 
 /s/ Hawkins
Accounting
 
 November
12, 2008
 Los
Angeles, CA
 
 1925
Century Park East Suite 2050 Los Angeles, CA 90067
 (310)
553-5707, Fax (310) 553-5337 info@cpahawkins.com
 
 F-2
  CHINA
      NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
                Consolidated Balance Sheet
                For the
      Year Ended July 31, 2008Assets2008Current
    AssetsCash
              
              $
              940Notes and interest
      receivable
              
              
              53,649Prepaid expenses and other current
      assets
              
              
              50,000Total current
      assets
              
              
              104,589Solar intellectual property, less
      accumulated depreciation of $54,166
              
              
              345,834Debt issuance
      costs
              
              
              108,199Total
assets
              
              $
              558,622Liabilities and Shareholders’
      DeficitCurrent
      liabilities:Accrued liabilities, related
      parties
              
              $
              338,915Accounts payable and accrued
      expenses
              
              
              93,959Derivative liability convertible
      debentures
              
              
              572,238Notes
    payable
              
              
              175,644Notes payable, related
      party
              
              
              138,282Total current
      liabilities
              
              
              1,319,038Long-term
      liabilities:Convertible debentures payable,
      net
              
              
              101,134Total
      liabilities
              
              
              1,420,172Shareholders’
      deficit:Preferred stock, $.001 par value;
      5,000,000 shares authorized,535,891  shares
      issued and outstanding
              
              
              535,891Common stock, $.001 par value,
      495,000,00 shares authorized;204,676,437 issued and
      outstanding
              
              
              204,676Additional paid-in
      capital
              
              
              (970,153
              )Retained
      earnings
              
              
              (631,964
              )Total shareholders'
      deficit
              
              
              (861,550
              )Total liabilities and
      shareholders' deficit
              
              $
              558,622
 See
accompanying notes to financial statements
 F-3
  CHINA NUVO SOLAR ENERGY, INC. AND
      SUBSIDIARY
                  Consolidated Statements of Operations
                  For
      the Years Ended July 31, 2008 and 20072008
                
                
                2007Revenues:RevenuesCost of
      revenuesGross
profitOperating costs and
      expenses:Selling, general and
      administrativeBonus, related
      party
                
                
                
                
                $
                275,561Consulting
    fees
                
                $
                130,250
                
                
                
                116,000Management fees, related
      parties
                
                
                188,750
                
                
                
                99,250Stock compensation
      cost
                
                
                480,250
                
                
                
                431,589Legal and
      accounting
                
                
                66,892
                
                
                
                82,547Other
                
                
                192,142
                
                
                
                66,540Total operating costs and
      expenses
                
                
                1,058,284
                
                
                
                1,071,487Operating
    loss
                
                
                (1,058,284
                )
                
                
                (1,071,487
                )Other (expenses)
      incomeInterest expense, related
      parties
                
                
                (13,853
                )
                
                
                (107,418
                )Interest expense,
      other
                
                
                (289,332
                )
                
                
                (221,754
                )Interest income, related
      parties
                
                
                2,657
                
                
                
                1,192Derivative liability
      expense
                
                
                213,110
                
                
                
                (15,565
                )Total other income
      (expenses)
                
                
                (87,418
                )
                
                
                (343,545
                )Loss before sale of
      subsidiary
                
                
                (1,145,702
                )
                
                
                (1,415,032
                )Gain from sale of
      subsidiary
                
                
                
                
                
                
                1,711,789Net  (loss)
      income
                
                $
                (1,145,702
                )
                
                $
                296,757Basic and diluted net loss from
      operations per common share
                
                $
                (0.01
                )
                
                $
                (0.03
                )Basic and diluted net gain from
      sale of subsidiary per common share
                
                $
                -
                
                
                $
                0.03Basic and diluted weighted average
      common shares outstanding
                
                
                200,777,284
                
                
                
                55,119,401
 See
accompanying notes to financial statements
 F-4
   CHINA
      NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
                  Consolidated Statement of Changes in Shareholders'
      Deficit
                  For
      the Years Ended July 31, 2008 and 2007AccumulatedAdditional
                
                
                
                
                
                other
                
                
                
                
                
                
                
                
                TotalCommon
      stock
                
                
                paid-in
                
                
                Deferred
                
                
                comprehensive
                
                
                
                
                
                Accumulated
                
                
                stockholders'Shares
                
                
                Amount
                
                
                capital
                
                
                compensation
                
                
                income
                
                
                Preferred
      stock
                
                
                (deficit)
      equity
                
                
                deficitBalance
      at August 1, 2006
                
                
                52,782,100
                
                
                $
                52,782
                
                
                $
                (3,128,677
                )
                
                $
                -
                
                
                $
                (177,873
                )
                
                $
                -
                
                
                $
                (1,379,708
                )
                
                $
                (4,633,476
                )Issuance
      of shares upon conversion of subordinated debentures
                
                
                2,000,000
                
                
                
                2,000
                
                
                
                83,875
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                85,875Issuance
      of shares for services
                
                
                1,800,000
                
                
                
                1,800
                
                
                
                106,200
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                108,000Issuance
      of shares pursuant to Agreement and Plan ofReorganization
                
                
                133,333,255
                
                
                
                133,333
                
                
                
                (208,572
                )
                
                
                
                
                
                
                -
                
                
                
                
                
                
                
                (4,480,854
                )
                
                
                (4,556,093
                )Sale
      of subsidiary
                
                
                
                
                
                
                
                
                
                
                (177,873
                )
                
                
                
                
                
                
                177,873
                
                
                
                
                
                
                
                4,550,983
                
                
                
                4,550,983Spin
      -off of subsidiary
                
                
                
                
                
                
                
                
                
                
                (468,591
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,526,560
                
                
                
                1,057,969Issuance
      of warrants in connection with notes payable issued
                
                
                
                
                
                
                
                
                
                
                73,125
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                73,125Issuance
      of common stock, preferred stock and warrants  pursuant
      toconversion
      of accrued expenses and notes and interest payable
                
                
                3,637,107
                
                
                
                3,637
                
                
                
                1,663,473
                
                
                
                
                
                
                
                
                
                
                
                535,891
                
                
                
                
                
                
                
                2,203,001Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                296,757
                
                
                
                296,757Balances,
      July 31, 2007
                
                
                193,552,462
                
                
                
                193,552
                
                
                
                (2,057,040
                )
                
                
                -
                
                
                
                -
                
                
                
                535,891
                
                
                
                513,738
                
                
                
                (813,859
                )Issuance
      of shares upon conversion of subordinated debentures
                
                
                6,473,975
                
                
                
                6,474
                
                
                
                385,662
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                392,136Issuance
      of shares for services
                
                
                1,650,000
                
                
                
                1,650
                
                
                
                125,850
                
                
                
                (35,000
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                92,500Amortization
      of deferred compensation
                
                
                
                
                
                
                
                
                
                
                0
                
                
                
                35,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                35,000Issuance
      of options and warrants
                
                
                
                
                
                
                
                
                
                
                328,375
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                328,375Issuance
      of shares pursuant to conversion of notes and interest 
      payable
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                99,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                100,000Issuance
      of shares for purchased technology
                
                
                2,000,000
                
                
                
                2,000
                
                
                
                148,000
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                150,000Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,145,702
                )
                
                
                (1,145,702
                )204,676,437
                
                
                $
                204,676
                
                
                $
                (970,153
                )
                
                $
                -
                
                
                $
                -
                
                
                $
                535,891
                
                
                $
                (631,964
                )
                
                $
                (861,550
                )
 
 See
accompanying notes to financial statements
 F-5
  CHINA NUVO SOLAR ENERGY, INC. AND
      SUBSIDIARYConsolidated Statement of Cash
      FlowsFor the Years Ended July 31, 2008
      and 20072008
                
                
                2007Cash flows from operating
      activities:Net income (loss) before sale of
      subsidiary
                
                $
                (1,145,702
                )
                
                $
                296,757Adjustments to reconcile net
      income (loss) before sale of subsidiaryto net cash used in operating
      activities:Gain on sale of
      subsidiary
                
                
                
                
                
                
                (1,711,789
                )Decrease in derivative
      liability
                
                
                (213,110
                )
                
                
                15,655Amortization of discount on
      debentures payable
                
                
                245,984
                
                
                
                36,368Amortization of debt issuance
      costs
                
                
                50,858
                
                
                
                20,483Common stock and warrant based
      compensation
                
                
                480,250
                
                
                
                431,589Depreciation
                
                
                
                
                
                
                2,083Amortization of intellectual
      property
                
                
                25,000Change in operating assets and
      liabilities:Decrease in prepaid expenses and
      other current assets
                
                
                (4,000
                )
                
                
                (46,000
                )Decrease in notes and interest
      receivable
                
                
                (2,657
                )Increase in accounts payable and
      accrued expenses
                
                
                59,489
                
                
                
                7,952Increase in amounts due to related
      parties
                
                
                27,561
                
                
                
                209,978Net cash used in operating
      activities
                
                
                (476,327
                )
                
                
                (736,924
                )Cash flows from investing
      activities:Purchase of property and
      equipment
                
                
                
                
                
                
                (26,500
                )Net cash used in investing
      activities
                
                
                -
                
                
                
                (26,500
                )Cash flows from financing
      activities:Proceeds from sale of common
      stock
                
                
                
                
                
                
                530,949Proceeds from issuance of third
      party notes payable
                
                
                164,000
                
                
                
                8,000Proceeds from debentures
      payable
                
                
                505,000Placement fees
      paid
                
                
                (75,650
                )Proceeds from advances and loans
      from related parties
                
                
                16,300
                
                
                
                351,027Payment of related party notes
      payable
                
                
                (87,517
                )
                
                
                (50,569
                )Payment to related party for notes
      receivable
                
                
                (23,300
                )
                
                
                (53,850
                )Payment of notes
      payable
                
                
                (54,588
                )Net cash provided by financing
      activities
                
                
                444,245
                
                
                
                785,557Net increase (decrease) in cash
      and cash equivalents
                
                
                (32,082
                )
                
                
                22,133
  Continued
 F-6
  CHINA NUVO SOLAR ENERGY, INC. AND
      SUBSIDIARYConsolidated Statement of Cash
      Flows (Continued)For the Years Ended July 31, 2008
      and 20072008
                
                
                2007Cash and cash equivalents,
      beginning of period
                
                
                33,021
                
                
                
                10,888Cash and cash equivalents, end of
      period
                
                $
                940
                
                
                $
                33,021Supplemental disclosures of cash
      flow information:
                
                
                
                
                
                
                -Cash paid during the year for
      interest
                
                $
                35,140
                
                
                $
                4,801Cash paid during the year for
      taxes
                
                $
                -
                
                
                $
                -Non-cash investing and financial
      activities:Fair value of options and shares
      issued for notes payable andservices
                
                $
                492,136
                
                
                $Common stock issued in connection
      with merger
                
                $
                150,000
                
                
                $
                133,333
  See
accompanying notes to financial statements  F-7
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting
      policies:
 
 Organization
 
 China
Nuvo Solar Energy, Inc. (the “Company”), formerly known as Interactive Games,
Inc. (the "Interactive"), was previously known as Torpedo Sports USA, Inc.
("Torpedo USA").  Torpedo USA, through its wholly-owned Canadian
subsidiary Torpedo Sports Inc. ("Torpedo") manufactured and distributed outdoor
recreational products for children for sale in the United States and Canada
through May 6, 2004.
 
 On May 6,
2004, Torpedo filed for protection under the Bankruptcy and Insolvency Act of
Canada (the "Torpedo Bankruptcy") with the intention to liquidate its assets.
Torpedo ceased its operating activities in May 2004.
 
 On
February 1, 2005, Torpedo USA acquired all of the issued and outstanding common
stock of Interactive, pursuant to a definitive merger agreement (the "Merger
Agreement"). Interactive's original plan was to deliver to its customers, gaming
technology by providing both software and gaming hardware. However, Interactive
has few assets and minimal revenue-generating operations.  Interactive
attempts to develop and market interactive casino technologies and slot machine
games to the Native American Class II, Class III and charitable gaming
markets.
 
 Pursuant
to terms of the Merger Agreement, Torpedo USA, in exchange for all of the issued
and outstanding common shares of Interactive, issued 27,037,282 shares of
Torpedo USA's common stock to the former Interactive shareholders in order for
them to own 51% of the outstanding common stock of the Company on the closing
date of the merger, on a fully diluted basis. The Company may issue additional
shares if certain agreed upon criteria, to be determined, are met in order to
allow the former Interactive security holders to hold 54% of the outstanding
common stock of the Company (based on the shares outstanding at the time of
closing). Accordingly, Torpedo could issue up to an additional 3,457,453 shares
to the former Interactive shareholders. In connection with the Merger Agreement,
the former Interactive shareholders agreed to use their best efforts
post-closing to cause Torpedo USA to raise sufficient funds to pay-off or
otherwise dispose of up to $250,000 of Torpedo USA's liabilities. Although
$100,000 was paid, such pay-off or disposal has not been completed. Finally,
should Torpedo USA not dispose of all of its assets and liabilities within three
months following the acquisition closing date, the Company will be required to
issue an additional 500,000 shares to the former Interactive shareholders. The
Company has determined that it will issue such shares once Torpedo USA raises
sufficient funds to satisfy up to $250,000 of its liabilities.
  In conjunction with the Merger Agreement, Torpedo USA
changed its name to Interactive Games, Inc. and approved an increase in its
authorized common stock ($0.001 par value) from 50,000,000 shares to 100,000,000
shares.
 The
acquisition of Interactive by Torpedo USA was accounted for as a reverse merger
because on a post-merger basis, the former Interactive shareholders hold a
majority of the outstanding common stock of Torpedo USA on a voting and fully
diluted basis. As a result, Interactive was deemed to be the acquirer for
accounting purposes. Accordingly, the financial statements presented, from
inception, are those of Interactive for all periods prior to the acquisition,
and the financial statements of the consolidated companies from the acquisition
date forward. The historical stockholders' deficit of Interactive prior to
the
 
 F-8
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Organization
(continued)
 
 acquisition
have been retroactively restated (a recapitalization) for the equivalent number
of shares received in the acquisition after giving effect to any differences in
the par value of Torpedo USA's and Interactive's common stock, with an offset to
additional paid-in capital. The restated consolidated accumulated deficit of the
accounting acquirer (Interactive) is carried forward after the
acquisition.
 
 In June
2007, our stockholders approved the consolidation of our operating assets at
that time into one operating subsidiary and the spin-off of that operating
subsidiary on a pro-rata basis to our stockholders of record as of July 10,
2007, whereby each stockholder as of the record date will receive a pro rata
number of shares of common stock in the operating subsidiary for each share of
common stock in the Company held by such stockholder as of the record
date.  Importantly, all shareholders who acquired or acquire common
stock after July 10, 2007 will not be entitled to participate in this “spin-off”
distribution.
 
 The
“distribution” of the spin-off shares will occur subject to completion of
certain legal and regulatory requirements and conditions.  We
currently anticipate that the distribution will occur prior to December 31,
2008.  Our intent is to make the newly created spin-off company
publicly traded subject to the filing of all necessary documentation and
obtaining all required regulatory approvals.
 
 Also in
June 2007, our stockholders, through a written consent executed by stockholders
holding a majority of the outstanding shares of our common stock entitled to
vote, adopted and approved Amended and Restated Articles of Incorporation and
ratified the Amended and Restated Bylaws of the Company, which were adopted by
our board of directors on June 26, 2007.
 
 The
Amended and Restated Articles of Incorporation increased the authorized capital
stock of the Company from 105,000,000 shares to 500,000,000 shares, of which
25,000,000 shares now may be preferred stock having the voting powers,
designations, preferences, limitations, restrictions and relative rights as
determined by the board of directors from time to time.  The Company’s
stockholders also authorized our chief executive officer to change our name to
China Nuvo Solar Energy, Inc. at such time as the chief executive officer deemed
appropriate in his sole discretion.
 
 Generally,
the Amended and Restated Bylaws of the Company updated our former bylaws to
reflect changes to applicable law.  For example, under the Amended and
Restated Bylaws stockholders may now take action by written action signed by
stockholders holding a majority of the shares entitled to vote on the given
action.
 
 Pursuant
to an Agreement and Plan of Reorganization dated as of April 23, 2007, as
amended on July 25, 2007 (the “Share Exchange”), by and between the Company
and Nuvo Solar Energy, Inc., a Colorado corporation (“Nuvo”) incorporated on
April 13, 2006, we and Nuvo entered into a share exchange whereby all of the
issued and outstanding capital stock of Nuvo, on a fully-diluted basis, was
exchanged for like securities of the Company, and whereby Nuvo became our wholly
owned subsidiary (the “Share Exchange”).  The Share Exchange was
effective as of July 25, 2007, upon the completed filing of Articles of Exchange
with the Nevada Secretary of State and a Statement of Share
 
 F-9
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Organization
(continued)
 
 Exchange
with the Colorado Secretary of State.  Contemporaneously with the
Share Exchange, we changed our name to “China Nuvo Solar Energy,
Inc.”
 
 Immediately
prior to the effective time of the Share Exchange, Nuvo had outstanding
5,500,000 shares of its common stock (“Nuvo Common Stock”) and no shares of
preferred stock.  In accordance with the Share Exchange Agreement,
each share of Nuvo Common Stock was acquired by us in exchange for approximately
24.24 shares of our common stock for a total of 133,333,255 shares
issued.  Accordingly, after giving effect to the Share Exchange, the
Company had approximately 189,915,355 shares of Common Stock outstanding
immediately following the transaction.
 
 As a
result of the Share Exchange, the former Nuvo shareholders together held
approximately 66.6% of the Company’s outstanding common stock immediately
following the transaction, on a fully-diluted basis.  Accordingly, the
Share Exchange constituted a change of control of the Company.  As a
result of the Share Exchange, Nuvo constituted the accounting acquirer in the
Share Exchange; however, we elected to have a July 31 fiscal year end, which is
the same fiscal year end that Interactive Games, Inc. had prior to the Share
Exchange.
 
 Nuvo was
formed for the purpose of seeking a business opportunity in the alternate energy
or “next-generation energy" sector. This industry sector encompasses non-hydro
carbon based energy production and renewable energy technologies that are
“net-zero" or emissions free.
  On June
9, 2006 Nuvo signed a license agreement with Photovoltaics.com, Inc. (“PV”),
Hutchinson Island, Florida.  Nuvo acquired exclusive worldwide rights
to PV's solar cell technology relating to a multiple stacked solar cell using
wave guide transfers. This license agreement includes all patents issued
pursuant to certain patent applications or amendments that have been filed and
the rights to use all applicable copyrights, trademarks and related intellectual
property obtained on or in connection with the process and products. As
consideration for this license, Nuvo paid a total aggregate license fee of
$250,000.   The term of the license is for 10 years,
automatically renewable for successive ten year terms under the same terms and
conditions as provided for in this agreement.  Nuvo also agreed to pay
PV a fee of $180,000 over the first three years of the agreement to act as a
consultant.
 
 On
November 27, 2007, we executed a Collaboration and Development Agreement (the
“Collaboration Agreement”) with Pioneer Materials, Inc. (“PMI”) of Torrance,
California. Under the terms of the Agreement, PMI will build, equip, operate and
manage, for our benefit, a product development, testing and prototype
manufacturing facility in PMI’s Chengdu, Sichuan, China facility located in
Chengdu’s West High Tech development zone.  The agreement with PMI has
the objective to develop, test and manufacture prototypes of solar energy
products using our licensed technology based on an invention titled “Photovoltaic cell with integral
light transmitting waveguide in a ceramic
sleeve”.  Additionally, PMI will provide technical, engineering
development, testing and manufacturing employees and support
staff.  The term of the Agreement is for one year, with automatic
six-month renewal periods unless terminated by the parties.  Pursuant
to the
 
 F-10
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Organization
(continued)
 
 terms of
the Agreement, the Company will pay PMI $2,500 per month and PMI is eligible to
receive up to 4,000,000 shares of the Company’s common stock upon the
satisfactory completion of certain milestone accomplishments in the Agreement,
of which 500,000 shares of common stock were issued upon the execution of the
Agreement.  The Company valued the shares at $0.07 per share (the
market price of the common stock on the date the parties agreed to the number of
shares to be issued) and recorded $35,000 as stock compensation for the year
ended July 31, 2008. PMI is a manufacturer and supplier of materials for the
semiconductor, hard drive media, optical media and photonic
industries.  PMI is developing for the solar energy industry advanced
materials for thin film photovoltaics (solar cell) processing.
 
 On
November 27, 2007, the Registrant appointed Mr. Richard W. Perkins and Mr.
Christopher T. Dahl to its Board of Directors. Additionally, the Company granted
5,000,000 options from its 2007 Stock Option Plan (See Note 5) to its officers
and directors. Each option has an exercise price of $0.07 per share and expires
on November 27, 2012.
 
 On
January 23, 2008, the Company purchased from PV the patents related to the solar
technology in exchange for 2,000,000 restricted shares of common stock of the
Company. The Company now owns all rights, title and interest in the patents,
including all issued patents or other intellectual property arising from the
patents worldwide. The Company valued the common stock at $0.075 per share (the
market price of the common stock on November 16, 2007, the date the parties
agreed to the number of shares to be issued) and accordingly, increased its
intellectual property asset by $150,000 on the balance sheet included
herein.
 
 Going
concern and management’s plans
 
 The
Company had a working capital deficit of approximately $1,316,000 at July 31,
2008. Additionally, the Company to date has generated minimal revenues.
Accordingly, the Company has no ready source of working capital. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of assets or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. While management believes the Company may
be able to raise funds through the issuance of debt or equity instruments, there
is no assurance the Company will be able to raise sufficient funds to operate in
the future.
 
 Upon
completion of the Share Exchange, we ceased all operations relating to the
business of Interactive Games, Inc. and adopted the business plan of Nuvo, which
is now our wholly owned subsidiary.  Our focus is the development of a
viable manufacturing process for our solar cell technology.
 
 F-11
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Going
concern and management’s plans (continued)
 
 As part
of our planned operations, our main focus will be the development of a viable
manufacturing process for our technology.  As discussed above our
arrangement with PMI will provide us with the facilities and expertise in China
necessary to develop a pilot manufacturing process and eventually, a full
manufacturing facility assuming the pilot process is
successful.
 
 We will
require additional capital to fund the development of a pilot manufacturing
process as well as for general corporate working capital to fund our day-to-day
operations and costs associated with being a publicly-traded
company.  This amount does not include any amounts which may be
necessary to pay off existing debt or accrued expenses.  We presently
believe the source of funds will primarily consist of debt financing, which may
include debt instruments that may include loans from our officers or directors,
or the sale of our equity securities in private placements or other equity
offerings or instruments.
 
 Basis
of presentation
 
 The
consolidated financial statements for the year ending July 31, 2008 and 2007
include the accounts of the Company and Nuvo, its subsidiary.  All of
the intercompany accounts have been eliminated in
consolidation.  Certain reclassifications to amounts reported in the
July 31, 2007 consolidated financial statements have been made to conform to the
July 31, 2008 presentation.
 
 Significant
accounting policies:
 
 Use
of estimates
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
will differ from those estimates.
 
 Intellectual
Property
 
 The
Company records intangible assets in accordance with Statement of Financial
Accounting Standard (SFAS) Number 142, “Goodwill and Other Intangible
Assets.” Goodwill and other intangible assets deemed to have indefinite lives
are not subject to annual amortization. Intangible assets which have finite
lives are amortized on a straight line basis over their remaining useful life;
they are also subject to annual impairment reviews.
  Revenue
recognition
 
 The
Company recognizes revenue in accordance with Staff Accounting Bulletin No. 104,
“Revenue Recognition in Financial Statements”.  This statement
established that revenue can be recognized when persuasive evidence of an
arrangement exists, the services have been delivered, all significant
contractual obligations have been satisfied, the fee is fixed or determinable
and collection is reasonably assured.
 
 F-12
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Revenue
recognition (continued)
 
 Cash
and cash equivalents
 
 The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
 
 Concentration
on credit risks
 
 The
Company is subject to concentrations of credit risk primarily from cash and
assets from discontinued operations.
 
 The
Company minimizes its credit risks associated with cash, including cash
classified as assets from discontinued operations, by periodically evaluating
the credit quality of its primary financial institutions.
 
 Significant
accounting policies
 
 Stock-based
compensation
 
 Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), Share Based Payment (“SFAS No, 123R”).  SFAS
No. 123R establishes the financial accounting and reporting standards for
stock-based compensation plans.  As required by SFAS No. 123R, the
Company will recognize the cost resulting from al stock-based payment
transactions including shares issued under its stock option plans in the
financial statements.
 
 Prior to
January 1, 2006, the Company accounted for stock-based employee compensation
plans (including shares issued under its stock option plans) in accordance with
APB Opinion No. 25 and followed the pro forma net income, pro forma income per
share, and stock-based compensation plan disclosure requirements set forth in
the Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (“SFAS No. 123”).  The Company did not issue
any stock options during the years ended July 31, 2007.  On November
27, 2007, the Company granted options to purchase 5,000,000 shares of common
stock to directors and officers.  The options have an exercise price
of $0.07 per share and expire in November 2012.  There are 14,287,107
stock options and warrants outstanding at July 31, 2008.
 
 Fair value of financial
instruments
 
 The carrying value of cash, assets of
discontinued operations, accounts payable and accrued expenses approximate their
fair value due to their short-term maturities.The carrying amount of the
note payable and due to related parties approximate their fair value based on
the Company's incremental borrowing rate.
 
 Income taxes
 
 Income taxes are accounted for in
accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires
the recognition of deferred tax assets and liabilities to
reflect
 
 F-13
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Significant
accounting policies (continued):
 
 Income taxes
(continued)
 
 the future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
Measurement of the deferred items is based on enacted tax laws. In the event the
future consequences of differences between financial reportingbases and tax bases of the Company's
assets and liabilities result in a deferred tax asset, SFAS No. 109 requires an
evaluation of the probability of being able to realize the future benefits
indicated by such assets. A valuation allowance related to a deferred tax asset
is recorded when it is more likely than not that some or all of the deferred tax
asset will not be realized.
 
 Loss
per common share
  Loss per share of common stock is
computed based on the weighted average number of common sharesoutstanding during the
period.  Stock options, warrants and common stock underlying
convertible promissory  notes atJuly 31,2008 and 2007were83,247,891 and 14,615,811, respectively,
are not considered in the calculation as the impact of the potential common
shares would be to decrease loss per share andtherefore no diluted loss per share figures are presented.
 
 Accounting
for obligations and instruments potentially settled in the Company’s common
stock
 
 In
connection with any obligations and instruments potentially to be settled in the
Company's stock, the Company accounts for the instruments in accordance with
EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in a Company’s Own
Stock.  This issue addresses the initial balance sheet
classification and measurement of contracts that are indexed to, and potentially
settled in, the Company's stock.
 
 Under
EITF 00-19, contracts are initially classified as equity or as either assets or
liabilities, depending on the situation. All contracts are initially measured at
fair value and subsequently accounted for based on the then current
classification. Contracts initially classified as equity do not recognize
subsequent changes in fair value as long as the contracts continue to be
classified as equity. For contracts classified as assets or liabilities, the
Company reports changes in fair value in earnings and discloses these changes in
the financial statements as long as the contracts remain classified as assets or
liabilities. If contracts classified as assets or liabilities are ultimately
settled in shares, any previously reported gains or losses on those contracts
continue to be included in earnings. The classification of a contract is
reassessed at each balance sheet date.
 
 Derivative
instruments
 
 In
connection with the issuances of equity instruments or debt, the Company may
issue options or warrants to purchase common stock. In certain circumstances,
these options or warrants may be classified as liabilities, rather than as
equity. In addition, the equity instrument or debt may contain embedded
derivative instruments, such as conversion
 
 F-14
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Significant
accounting policies (continued):
 
 Derivative
instruments (continued)
 
 options
or listing requirements, which in certain circumstances may be required to be
bifurcated from the associated host instrument and accounted for separately as a
derivative liability instrument. The Company accounts for derivative instruments
under the provisions of SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities.
 
 Recent
accounting pronouncements
 
 In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial
Assets and Financial Liabilities”, which permits entities to choose to measure
many financial instruments and certain other items at fair value that are not
currently required to be measured at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. SFAS No. 159 is effective for fiscal years beginning after November
15, 2007. The Company did not adopt SFAS No. 159 on any individual instrument as
of January 1, 2008.
 
 In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS No. 141R”). SFAS No. 141R is a revision to SFAS No. 141 and
includes substantial changes to the acquisition method used to account for
business combinations (formerly the “purchase accounting” method), including
broadening the definition of a business, as well as revisions to accounting
methods for contingent consideration and other contingencies related to the
acquired business, accounting for transaction costs, and accounting for
adjustments to provisional amounts recorded in connection with acquisitions.
SFAS No.141R retains the fundamental requirement of SFAS No. 141 that the
acquisition method of accounting be used for all business combinations and for
an acquirer to be identified for each business combination. SFAS No. 141R is
effective for periods beginning on or after December 15, 2008, and will apply to
all business combinations occurring after the effective date. The Company is
currently evaluating the requirements of SFAS No. 141R.
 
 The FASB
also issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial
Statements – an amendment of Accounting Research Bulletin No. 51, Consolidated
Financial Statements” in December 2007.   This statement amends ARB
No. 51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries.  Non-controlling
interest will be reported as part of equity in the consolidated financial
statements.  Losses will be allocated to the non-controlling interest, and,
if control is maintained, changes in ownership interests will be treated as
equity transactions.  Upon a loss of control, any gain or loss on the
interest sold will be recognized in earnings.  SFAS No. 160 is effective
for periods beginning after December 15, 2008.  The Company is currently
evaluating the requirements of SFAS No. 160.
 
 The FASB
also issued SFAS No. 161 “Disclosures about Derivatives Instruments and Hedging
Activities” in March 2008.  This statement requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial
 
 F-15
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  1.
              Organization,
      basis of presentation and summary of significant accounting policies
      (continued):
 
 Significant
accounting policies (continued):
 
 Recent
accounting pronouncements (continued)
 
 reporting.  This
statement is effective for financial statements for fiscal years and interim
periods beginning after November 15, 2008, with earlier application
encouraged.  The Company is currently evaluating the requirements of
SFAS No. 161.
 
 The Company does not believe that any
other recently issued, but not yet effective, accounting standards will have a
material will have an effect on the Company’s consolidated financial position,
results of operations or cash flow.
 
 2.
              Notes
      and interest receivable, related
parties:
 
 Notes and
interest receivable, related parties at July 31, 2008 and 2007 are as
follows:
 
 2008
              
              
              2007Due
      from VP Development
              
              $
              31,300
              
              
              $
              10,000Due
      from Inhibiton, Inc.
              
              
              16,500
              
              
              $
              16,500Due
      from E2000, Inc.
              
              
              2,000
              
              
              
              -Interest
      on above amounts
              
              
              3,849
              
              
              
              1,192$
              53,649
              
              
              $
              27,692
 
 3.
              Accrued
      liabilities, related parties:
 
 Accrued
liabilities, related parties at July 31, 2008 and 2007 are as
follows:
 
 2008
              
              
              2007Officer
      bonus
              
              $
              275,561
              
              
              $
              275,561Management
      fees
              
              
              49,500
              
              
              
              33,250Accrued
      interest
              
              
              13,854
              
              
              
              2,543$
              338,915
              
              
              $
              311,354
 
 4.
              Convertible
      debentures payable:
 
 In April
2006, the Company executed a Securities Purchase Agreement (the “Purchase
Agreement”) with various accredited investors (the “Holder” or “Holders”) for
the issuance and sale of up to $700,000 of 6% unsecured convertible debentures
in private transactions.  As of July 31, 2006, the Company completed
the sale of the aggregate $385,000 in Debentures under the Purchase
Agreement.  We received $324,950 from these transactions net of
$60,050 of debt issuance costs paid to our placement agents, Divine Capital
Markets, LLC (included in the accompanying balance sheet), which will be
amortized as debt issuance costs over the three year term of the convertible
notes.  For the years ended July 31, 2008 and 2007, debt issuance
costs were $50,859 and $20,016, respectively.  The Debentures cannot
be converted until nine (9) months after the issuance date of each
Debenture.  During the year ended July 31, 2008, the Holders
converted
 
 F-16
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  4.
              Convertible
      debentures payable (continued):
 
 $299,125
of the 2006 Debentures to 6,079,573 shares of common stock at an average
conversion price of approximately $0.049 per share.  At July 31, 2008
the remaining face amount of the 2006 Debentures is $0.
 
 On
October 21, 2007 the Board of Director of the Company authorized the sale of up
to $700,000 of 6% unsecured convertible debentures (the “2007
Debentures”).  During the year ended July 31, 2008, the Company
executed a Securities Purchase Agreement with various accredited investors,
whereby the Company sold in the aggregate $505,000 of the 2007
Debentures.  We received net proceeds of $429,350 after $75,650 of
debt issuance costs (included in the accompanying balance sheet), paid to
Divine, who acted as our placement agent.  The debt issuance costs
will be amortized as debt issuance costs over the three year term of the 2007
Debentures.  The terms and conditions of the 2007 Debentures are the
same as the 2006 Debentures.  Accordingly, fair value of these
derivative instruments have been recorded as a liability on the consolidated
balance sheet with the corresponding amount recorded as a discount to the 2007
Debentures.  The change in the fair value of the liability will be
credited or (charged) to other income or (expense) in the consolidated statement
of operations.  The beneficial conversion feature included in the 2007
Debentures resulted in an initial debt discount of $505,000 and an initial loss
on the valuation of derivative liabilities of $219,878.  Based on the
revaluation of the 2007 Debentures at July 31, 2008, the Company recorded a
credit to expense of $42,545 and decreased the derivative liability on the
balance sheet by $42,545.
 
 The
Debentures are due three years from the final Closing Date under the Purchase
Agreement (the “Maturity Date”), unless prepayment of the Debentures is required
in certain events, as described below.  The Debentures are convertible
at a conversion price (the “Conversion Price”) for each share of common stock
equal to 75% of the lowest closing bid price per share (as reported by
Bloomberg, LP) of the Corporation’s common stock for the twenty (20) trading
days immediately preceding the date of conversion.  In addition, the
Debentures provide for adjustments for dividends payable other than in shares of
common stock, for reclassification, exchange or substitution of the common stock
for another security or securities of the Corporation or pursuant to a
reorganization, merger, consolidation, or sale of assets, where there is a
change in control of the Corporation.
 
 The
outstanding principal balance of each Debenture bears interest, in arrears, at
six percent (6%) per annum, payable (i) upon conversion, or (ii) on the Maturity
Date, in shares of our common stock at the Conversion Price.  Upon the
occurrence of an Event of Default (as defined in the Purchase Agreement), then
the Corporation is required to pay interest to the Holder of each outstanding
Debenture, at the option of the Holders (i) at the rate of lesser of eighteen
percent (18%) per annum and the maximum interest rate allowance under applicable
law, and (ii) the Holders may at their option declare the Debentures, together
with all accrued and unpaid interest (the “Acceleration Amount”), to be
immediately due and payable.
 
 The
Corporation may at its option call for redemption all or part of the Debentures
prior to the Maturity Date, as follows:
 
 The
Debentures called for redemption shall be redeemable for an amount (the
“Redemption Price”) equal to (x) if called for redemption prior to the date
which is nine months from the date of issuance (the “Issuance Date”), 115%, if
called for redemption on or after the date that is nine months after the
Issuance Date but prior
 
 F-17
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  4.
              Convertible
      debentures payable (continued):
 
 to the
first anniversary of the Issuance Date, 131%, in either case of the principal
amount called for redemption, plus (y) interest accrued through the day
immediately preceding the date of redemption.
 
 (i)
              If
      fewer than all outstanding Debentures are to be redeemed, then all
      Debentures shall be partially redeemed on a prorata
      basis.
 
 In
connection with the Purchase Agreement, the Company entered into a Registration
Rights Agreement, dated as of April 24, 2006 (“Registration Rights Agreement”),
with the Holders of the Debentures to provide certain registration rights under
the Securities Act of 1933, as amended (the “Securities Act”), and the rules and
regulations thereunder.  Pursuant to the Registration Rights
Agreement, the Company contemplates making an offering of common stock (or other
equity securities convertible into or exchangeable for common stock) registered
for sale under the Securities Act or proposes to file a Registration Statement
covering any of its securities other than (i) a registration of Form S-8 or S-4,
or any successor or similar forms; and (ii) a shelf registration under Rule 415
for the sole purpose of registering shares to be issued in connection with the
acquisition of assets, the Company will at each such time give prompt written
notice to the Holders’ representative and the Holders of its intention to do
so.  Upon the written request of any Holder made within thirty (30)
days after the receipt of any such notice, the Company has agreed to use its
best efforts to effect the registration of all such registrable securities which
the Company has been so requested to register by the Holders, to the extent
requisite to permit the disposition by the requesting Holders of their
registrable securities pursuant to the Registration
Statement.
 
 The
Company determined that the conversion feature of the convertible Debentures
represents an embedded derivative since the Debentures are convertible into a
variable number of shares upon conversion. Accordingly, the convertible
Debentures are not considered to be conventional debt under EITF 00-19 and the
embedded conversion feature must be bifurcated from the debt host and accounted
for as a derivative liability. The Company believes that the aforementioned
embedded derivatives and freestanding warrants meet the criteria of SFAS 133 and
EITF 00-19, and should be accounted separately as derivatives with a
corresponding value recorded as a liability. Accordingly, the fair value of
these derivative instruments have been recorded as a liability on the
consolidated balance sheet with the corresponding amount recorded as a discount
to the 2006 Debentures. Such discount will be accreted from the date of issuance
to the maturity date of the 2006 Debentures. The change in the fair value of the
liability for derivative contracts will be credited to other income (expense) in
the consolidated statements of operations. The $385,000 face amount of the 2006
Debentures were stripped of their conversion feature due to the accounting for
the conversion feature as a derivative, which was recorded using the residual
proceeds to the conversion option would be attributed to the debt. The
beneficial conversion feature (an embedded derivative) included in the 2006
Debenture resulted in an initial debt discount of $385,000 and an initial loss
on the valuation of derivative liabilities of $75,874. Based on the revaluation
of this derivative liability, the Company had a derivative liability of $345,655
included in the balance sheet at July 31, 2007.
 
 During
the year ended July 31, 2008 and prior to the conversion of the remaining amount
of the 2006 Debentures, based on the value of the derivative liability, the
Company recorded a credit to expense of $345,655 and decreased the liability on
the valuation by $345,655.
 
 F-18
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  4.
              Convertible
      debentures payable (continued):
 
 The
Company issued 1,500,000 shares of its common stock to Divine Capital Markets,
LLC and/or its designees as consideration for its services as the placement
agent in connection with the financing transaction described
above.
 
 The
following table summarizes the balance sheet amounts as of July 31, 2008, as
well as the amounts included in the consolidated statement of operations for the
year ended July 31, 2008.
 
 
 
 Balance
      SheetDebentures
              
              Debt
      issuance costs
              
              Derivative
      liability
              
              Face
      value of Debentures
              
              Discount
      on Debentures2007
              
              $     59,916
              
              $    672,238
              
              $    505,000
              
              $     403,866
 
 
 Operating
      StatementDebentures
              
              Debt
      issuance costs expenses
              
              Increase
      (decrease) in derivative liability2006
              
              $        35,125
              
              $       (345,655)2007
              
              15,735
              
              232,545$        50,860
              
              $       (113,110)
 
 5.
              Convertible
      and other promissory notes and long-term debt, including related
      parties:
 
 Convertible
      and other promissory notes and long-term debt, including related parties
      at July 31, 2008 and 2007 consist of the
  following:
 
 2008
              
              
              2007Notes
      payable
              
              $
              175,644
              
              
              $
              191,232Notes
      payable, related parties [A]
              
              
              138,232
              
              
              
              184,499Convertible
      debentures, net of discount of $403,866 (2008) and $144,850
      (2007)
              
              
              101,134
              
              
              
              154,275$
              415,010
              
              
              $
              530,007Less
      current portion
              
              
              313,876
              
              
              
              375,732Long-term
      debt, net of current portion
              
              $
              101,134
              
              
              $
              154,275
 
 [A]
              The
      following table summarizes the activity of notes payable, related parties
      for the year ended July 31, 2008:
 
 F-19
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  5.
              Convertible
      and other promissory notes and long-term debt, including related parties
      (continued):
 
 Balance,
      August 1, 2007
              
              $
              184,449Converted
      to common stock
              
              
              (100,000
              )Reclassification
              
              
              125,000Issuance
      of new notes
              
              
              16,300Repayment
      of notes
              
              
              (87,517
              )Balance,
      July 31, 2008
              
              $
              138,232
 
 6.
              Stockholders’
      deficit:
 
 Common
stock
 
 On May
29, 2007, the Company issued 900,000 shares of its common stock upon the
conversion of $40,500 of convertible debentures.  The shares were
converted at $0.045 per share.
 
 On June
14, 2007, the Company issued 1,800,000 shares of its common stock to a third
party for services.  The shares were valued at $0.06 per share and
$108,000 is included in selling, general and administrative expense for the year
ended July 31, 2007.
 
 On July
2, 2007, the Company issued 1,100,000 shares of its common stock upon the
conversion of $45,375 of convertible debentures.  The shares were
converted at $0.04125 per share.
 
 In July
2007, we issued 500,000 shares of our common stock to CLB Investment Corporation
(“CLB”) in consideration of its assumption of approximately an additional
$418,000 of notes and accrued and unpaid interest, accounts payable and accrued
expenses.
 
 On August
9, 2007, the Company issued 1,000,000 shares of its common stock upon the
conversion of $40,500 of convertible debentures. The shares were converted at
$0.045 per share.
 
 On August
14, 2007, the Company issued 800,000 shares of its common stock upon the
conversion of $35,400 of convertible debentures. The shares were converted at
$0.04425 per share.
 
 In
October 2007, the Company issued 1,100,000 shares of its common stock to a
placement agent as fees related to the 2007 Debenture offering. The Company
valued the stock at $0.08 per share (the market price of the common stock on the
date of the issuance) and accordingly, $88,000 is included in selling, general
and administrative expense for the nine months ended April 30,
2008.
 
 On
November 14 and 15, 2007 the Company issued in the aggregate 936,190 shares of
its common stock upon the conversion of $47,560 of convertible debentures and
$1,500 of accrued interest. The shares were converted at $0.0525 per
share.
 
 F-20
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  6.
              Stockholders’
      deficit (continued):
 
 Common
stock (continued)
 
 In
November 2007 in conjunction with the Collaboration Agreement, the Company
issued 500,000 shares of its common stock.
 
 On
December 6, 2007, the Company issued 2,000,000 shares of its common stock upon
the conversion of $88,150 of convertible debentures and $1,850 of accrued
interest. The shares were converted at $0.045 per share.
 
 On
January 31, 2008, the Company issued 1,000,000 shares of its common stock upon
the conversion of $100,000 of debt. The debt was converted at $0.10 per
share.
 
 On
February 20, 2008, the Company issued 1,233,720 shares of its common stock upon
the conversion of $68,175 of convertible debentures and $24,354 of accrued
interest. The shares were converted at $0.075 per share.
 
 On March
25, 2008, the Company issued 504,065 shares of its common stock upon the
conversion of $15,500 of convertible debentures. The shares were converted at
$0.3075 per share.
 
 Stock
options and warrants
 
 In March 2002,the Company adopted the 2002 Stock
Option Plan, covering up to 1,000,000 shares of the Company's common stock, and
in July 2003, the Company adopted the 2003 Stock Option Plan covering up to
2,500,000 shares of the Company's common stock.
 
 Torpedo
USA issued options and warrants prior to its merger, which was assumed by the
Company.  A summary of the activity of the Company’s outstanding
options and warrants during fiscal 2007 and 2006 is as
follows:
 
 Options and
      warrants
              
              Weighted average exercise
      priceOutstanding, August 1,
      2006
              
              3,950,000
              
              $     0.17Granted
              
              5,262,107
              
              0.10Exercised
              
              -
              
              -Expired
              
              (300,000)
              
              (0.15)Outstanding and
      exercisable atJuly 31,
      2007
              
              8,912,107
              
              $     0.13Granted
              
              5,375,000
              
              0.07Exercised
              
              -
              
              -Expired
              
              -
              
              -Outstanding and
      exercisable atJuly 31,
      2008
              
              14,287,107
              
              $     0.11
 
 F-21
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  6.
              Stockholders’
      deficit (continued):
 
 Stock
options and warrants (continued)
 
 Range
      of exercise prices
              Warrants
      outstanding and
      exercisable
              Weighted
      average remaining contractual life
              Weighted
      average exercise
  price$  0.05
              300,000
              0.04
              $  0.050.07
      - 0.10
              10,237,107
              1.95
              0.0850.12
              1,000,000
              0.23
              0.120.20
              2,750,000
              0.10
              0.20
 
 During
the year ended July 31, 2008, the Company extended the life of 1,450,000
warrants to purchase Company stock for an additional one year. The Company
revalued the warrants in consideration of the extension and recorded an
additional stock compensation expense of $8,250 for the year ended July 31,
2008.
 
 In
October 2007 the Company issued 250,000 warrants to purchase shares of common
stock to a convertible noteholder.  The warrants have an exercise
price of $0.10 per share and expire in July 2009.  The Company
recorded an additional stock compensation expense of $35,125 for the year ended
July 31, 2008.
 
 On
November 27, 2007, the Board of Directors approved grants of 5,000,000 options
to purchase shares of common stock under its 2007 Stock Option Plan (the “2007
Plan”).  The number of shares of common stock that can be issued from
the 2007 Plan shall not exceed 18,000,000 shares of common stock.  The
options granted have an exercise price of $0.07 per share (the market price of
the Company’s common stock on the date of the grant) and expire November 27,
2012.  The Company valued the options at $285,000 and the amount was
recorded as stock based compensation expense during the year ended July 31,
2008.  Each of the four Directors of the Company received 1,000,000
options and two officers of the Company each received 500,000
options.
 
 The
weighted average remaining contractual life of the terms of the warrants and
options is 2.3 years.
 
 All
options and warrants issued by Torpedo USA were issued prior to the merger on
February 1, 2005 and have been expensed prior to such
date.  Accordingly, no expense associated with the assumption of the
warrants and options by the Company has been included in the accompanying
consolidated statement of operations.
 
 7.
              Income
      taxes:
 
 Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the net
deferred taxes, as of July 31, 2006, are as follows:
 
 Deferred
      tax assets:Net
      operating loss carryforward
              
              $
              336,000Less
      valuation allowance
              
              
              (336,000
              )Total
      net deferred tax assets
              
              
              -
  
 F-22
 CHINA
NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 THE
YEARS ENDED JULY 31, 2008 AND 2007
  7.
              Income
      taxes (continued):
 
 The Company may have had a change of
ownership as defined by the Internal Revenue Code Section 382. As a result, a
substantial annual limitation may be imposed upon the future utilization of its
net operating loss carryforwards. At this point, the Company has notcompleted a change in ownership study
and the exact impact of such limitations is unknown.The company has no accrued tax
liability, as the income was derived from the sale of a subsidiary and the
liabilities were alleviated through formal bankruptcy
proceedings.
  The federal statutory tax rate
reconciled to the effective tax rate during fiscal 2008 and 2007, respectively, is as
follows:
 
   2008
              
              2007Tax
      at U.S. Statutory Rate
              
              35.0%
              
              35.0%State
      tax rate, net of federal benefits
              
              5.0%
              
              5.0%Change
      in valuation allowance
              
              (40.0)
              
              (40.0)0.0%
              
              0.0%
 
 
 F-23