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EX-32.2 - EXHIBIT 32.2 - SURGLINE INTERNATIONAL, INC.cnuv10k73110ex32_2.htm
EX-14.1 - EXHIBIT 14.1 - SURGLINE INTERNATIONAL, INC.cnuv10k73110ex14_1.htm
EX-21.1 - EXHIBIT 21.1 - SURGLINE INTERNATIONAL, INC.cnuv10k73110ex21_1.htm
EX-31.1 - EXHIBIT 31.1 - SURGLINE INTERNATIONAL, INC.cnuv10k73110ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - SURGLINE INTERNATIONAL, INC.cnuv10k73110ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - SURGLINE INTERNATIONAL, INC.cnuv10k73110ex32_1.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: JULY 31, 2010
   
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For 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. Employer
incorporation 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


Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: ¨Yes  xNo

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. ¨

Indicate by check mark whether the Registrant (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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not 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-K or any amendment to this Form 10-K: x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer:
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): ¨Yes  xNo

The aggregate market value of the voting common equity held by non-affiliates of the issuer as of November 10, 2010 was $744,372, based on the last sale price of the issuers common stock ($0.0025 per share) as reported by the OTC Bulletin Board.

The Registrant had 375,558,301 shares of common stock outstanding as of November 1, 2010.

Documents incorporated by reference: None

 
 

 

CHINA NUVO SOLAR ENERGY, INC.
FORM 10-K

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)           General Business development.

We were originally organized under the laws of the State of Nevada in 1996 as Zacman Enterprises, Inc. and subsequently changed our 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.

 
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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, 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.

 
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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.

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.

 
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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 was 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 had 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 was to provide technical, engineering development, testing and manufacturing employees and support staff.  The term of the Agreement was for one year, with automatic six-month renewal periods unless terminated by the parties.  Pursuant to the terms of the Agreement, the Company was to pay PMI $2,500 per month and PMI was 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 and has not performed under the agreement.

On December 10, 2008 we executed a Patent and Trademark Purchase Agreement (the “Purchase Agreement”) with Photovoltaics, Inc..  Through this agreement we acquired certain patent rights and trademarks in exchange for $39,900 paid in installments from December 2008 through July 2009.


(b)           Financial information about segments.

Through July 31, 2010, we operated in only one industry segment.

(c)           Narrative description of business.

We are a development-stage company that is working to develop and design, with a view toward manufacturing, solar photovoltaic (PV) cell technology products. We own certain patent applications and patent rights and other photovoltaic intellectual property.  Our primary technology involves 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.  

 
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We were working to develop, with plans to eventually manufacture and market in conjunction with strategic partners, 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 primary 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 primary 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.

Our business plan 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.  In order to do so, we must develop working prototypes that can be readily adapted to larger scale production and manufacturing.  To date we have not developed any prototypes and do not have any strategic working relationships to further our business plan.

In an attempt 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.  Following a serious earthquake in the Chengdu, China region, Pioneer ceased performing under the contract.  
 
During the past year the Company searched for a U.S.-based technology advisor or chief technology officer to assist the Company with the development of its photovoltaic intellectual property.  The Company believes that if the technology can be proven effective utilizing a production ready prototype, it will be able to attract a strategic partner to assist in the development of production and manufacturing activities.  However, the Company has not been successful in finding a candidate, and therefore has made no progress in developing any prototype.
 
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 and when available.

Our Technology

The science used in our primary 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.

 
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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.
 

 
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.
 
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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.

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 of shipping, storing, deploying, and securing large solar module arrays.

During the fiscal year 2009, we acquired additional patents and provisional patents that we believe may further increase the efficiency and lower the cost of our primary wave guide photovoltaic technology as well as currently available technology.

 
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 increase significantly over the next several decades. Demand increases may 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 world population growing at a rate currently estimated at 1.8% annually from an estimated 6.7 billion currently to 8.9 billion by 2050, energy demand will also increase substantially. Population growth and rising standards of living in developing countries should drive an increase in energy demand over the next few decades.  The US Department of Energy predicts world energy consumption will grow roughly 70% by 2030.

 
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The US Energy Information Administration is predicting that US solar thermal and solar photovoltaic installed net summer generating capacity will increase to nearly 400 megawatts by the year 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 a small fraction of the world's energy usage. Solar photovoltaic installations worldwide reached a record high of 3,800 megawatts in 2007.  According to published reports, in 2007 grid-connected photovoltaic electricity was the fastest growing energy source, with installations of all photovoltaics increasing by 83% in 2009 to bring the total installed capacity to 15 GW.

With government support in more than 40 markets, end-user demand for solar power significantly exceeds production capacity.  Germany, Japan and the US are the largest photovoltaic markets.  Solar cell production increased by 50% in 2007, to 3,800 megawatts, and has been doubling every two years. Nearly half of the increase was in Germany, now the world's largest consumer of photovoltaic electricity (followed by Japan).

Silicon Supplies

Silicon is the basic material used in the production of solar cells based on crystalline technology, which account for a vast majority of the world market. During the mid 2000's silicon usage increased from 14,000 tons in 2004 to 19,000 tons in 2006 and silicon prices rose with demand.  While prices have fallen and silicon supplies have increased, future silicon shortages and rising prices would compress the margins of solar cell manufacturers who rely on poly-silicon semiconductor materials, despite strong demand for solar photovoltaics. Because CNUV’s solar cell technology can use a variety of materials, the Company would not be impacted by potential silicon shortages and might actually benefit from market share gains made at the expense of higher- cost solar cell manufacturers if it were to reach production.

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.

 
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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.

ITEM 1A.  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.

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.

 
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           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.

Risks Related to Our Business

We currently have no product revenues and will need to raise additional capital to operate our business.

To date, we have generated minimal 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 ourselves or find a strategic partner to do so for us, 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 at any time.  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 could have a substantial dilutive effect on our stockholders.

 
-10-

 
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.

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, 2010, we had a total of $605,000 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.

 
-11-

 
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, 2010, we had a total of 18,225,000 stock options and common stock purchase warrants outstanding exercisable at a weighted average exercise price of $0.04 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 had expected to derive a substantial portion of our revenues from sales of new solar power products that were under development, however we didn’t successfully develop any new solar power products or technologies, we will likely be unable to recover the losses we  incurred to develop these products and technologies and have been unable to establish our sales and market share and become profitable.

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.

Any future 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.

 
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Technological changes in the solar power industry could render any future 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 currently do not have and we can provide no assurance that we will be able to establish any 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.

Our management team may not be able to successfully implement our business strategies.

Our management team has limited experience in the alternative energy sector, and to date our management team has been unable to execute on its business strategies, and our product development, the establishment of manufacturing operations and distribution network and our sales and marketing activities have been 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.

 
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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.

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.

 
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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.

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.

 
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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 currently do not have a key scientific advisor or chief technical officer with knowledge of our technology.  As such, we have been unable to significantly advance the development of our intellectual property during the past fiscal year.  We also 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.

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 have intentions to conduct certain 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:
 
 
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·  
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.

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.

 
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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. PROPERTIES.

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, 2010 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.


PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

(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 2009 and 2010, respectively:

   
Price Range
Quarter Ended
 
High ($)
 
Low ($)
 
October 31, 2008
 
$.027
 
$.01
 
January 21, 2009
 
0.16
 
.005
 
April 30, 2009
 
.01
 
.004
 
July 31, 2009
 
.014
 
.005
 
           
October 31, 2009
 
.013
 
.0065
 
January 21, 2010
 
.008
 
.0035
 
April 30, 2010
 
.006
 
.0035
 
July 31, 2010
 
.0055
 
.0026
 
 

 
 
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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 November 11, 2010, was approximately 83 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, 2010.  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.

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
16,500,000
 
$0.03
 
5,000,000
  Total
16,500,000
 
$0.03
 
5,000,000

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.

 
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Recent Sales of Unregistered Equity Securities

On September 24, 2009, the Company issued 16,666,667 shares of its common stock upon the conversion of $65,000 of convertible debentures to non affiliated third parties. The shares were converted at $.0039 per share.

On February 9, 2010, the Company issued 18,000,000 shares of its common stock upon the conversion of $54,000 of convertible debentures to non affiliated third parties.  The shares were converted at $.003 per share.

On April 1, 2010 the Company issued 55,940,455 shares of its common stock upon the two year mandatory conversion of the Company’s preferred stock of $123,069 (the “Stated Value”). Per the terms of the Certificate of Designation, the preferred stock converted at the result of the Stated Value multiplied by 120%, divided by the average of the closing price for the twenty (20) days prior to the conversion multiplied by seventy five percent (75%).  This conversion represents only a portion of the preferred stock outstanding.  The remaining amount of preferred stock outstanding at July 31, 2010 is $314,172 and the holders of those shares and the Company have agreed to extend the mandatory conversion period for one additional year to July 27, 2011.

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.


ITEM 6. SELECTED FINANCIAL DATA

                       Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

General:

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, 2010 and 2009.

The independent auditors’ report on our financial statements for the years ended July 31, 2010 and 2009 includes a “going concern” explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.  Management’s plans in regard to the factors prompting the explanatory paragraph are discussed below and also in Note 1 to the audited consolidated financial statements.

 
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While our independent auditor has presented our financial statements on the basis that we are a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time, they have raised a substantial doubt about our ability to continue as a going concern.


(a)           Liquidity and Capital Resources.

For the year ended July 31, 2010, net cash used in operating activities was $108,250 compared to $133,082 for the year ended July 31, 2009.  Net loss was $772,061 for the year ended July 31, 2010 compared to $787,050 for the year ended July 31, 2009. The net loss in the current period includes net non-cash expenses of $628,551, of which $333,403 are related to impairments of assets, $123,908 are costs associated with the issuance of common stock and warrants and $171,240 of depreciation and amortization.  These non cash expenses were offset by a decrease in the derivative liability of $154,188 and a change in the minority interest of $5,036.  The net loss in the year ago period includes net non-cash expenses of $388,352 of which $157,708 are costs associated with the issuance of common stock and warrants and $304,950 of depreciation and amortization expense.  These expenses were offset by a change in of $74,402 for minority interest.

Net cash used in investing activities for the year ended July 31, 2009 of $39,900 was a result of payments made to acquire intellectual property rights.

Net cash provided by financing activities for the year ended July 31, 2010 was $108,350 compared to $172,344 for the year ended July 31, 2009. For the year ended July 31, 2010 the Company received net proceeds of $79,485 and $37,900 for the issuance of related party notes payable and third party notes respectively, and repaid $7,550 and $1,485 of related party and third party notes payable respectively. For the year ended July 31, 2009, the Company received net proceeds of $157,405, offset by the repayment of $4,409 of notes payable.  Additionally the Company received payments of $19,848 from collections on notes and interest receivables.

For the year ended July 31, 2010, cash and cash equivalents increased by $100 compared to a decrease of $638 for the year ended July 31, 2009.  Ending cash and cash equivalents at July 31, 2010 was $404 compared to $304 at July 31, 2009.

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.

(b)              Results of Operations.

OPERATING EXPENSES

Operating expenses for the year ended July 31, 2010 were $392,679 compared to expenses of $520,168 for the year ended July 31, 2009.  The 2010 expenses were comprised management fees of $166,000, stock compensation costs of $123,908 comprised of deferred stock compensation costs, legal and accounting costs of $58,348 and general and administrative costs of $44,423. The 2009 expenses includes stock compensation costs of $157,708 comprised of deferred stock compensation expensed, management fees paid to related parties of $180,750, consulting and accounting and legal costs of $66,109 and $47,533 respectively and $68,068 of general and administrative costs.

 
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OTHER INCOME (EXPENSE)

Other expenses, net for the year ended July 31, 2010 was $379,382 compared to $270,048 for the year ended July 31, 2009.  The change in derivative liabilities included in other income (expenses) for the years ended July 31, 2010 was $154,188 compared to an expense of $96 for the year ended July 31, 2009.  Interest expense for the years ended July 31, 2010 and 2009 is summarized as:

   
July 31,
 
   
2010
   
2009
 
             
Amortization of debenture note discounts
  $ 142,753     $ 277,390  
Debenture interest
    14,350       26,951  
Notes interest, related
    28,637       24,383  
Note and other interest
    19,610       17,605  
                 
    $ 205,350     $ 346,329  
 
(c)           Off-Balance sheet arrangements

During the fiscal year ended July 31, 2010, 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 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We have limited exposure to market risks related to changes in interest rates. We do not currently invest in equity instruments of public or private companies for business or strategic purposes.

The principal risks of loss arising from adverse changes in market rates and prices to which we are exposed relate to interest rates on debt. We have only fixed rate debt. We had $505,000 of debt outstanding as of July 31, 2010, which has been borrowed at fixed rates ranging from 8% to 12% All of this fixed rate debt is due on demand or is due during the current fiscal year.



 
 
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ITEM 8.  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 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.


ITEM 9A(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, 2010 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.

 
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Our CEO and CFO have 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) to the extent possible given the limited personnel resources and 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 2009 audit and the 2010 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.

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 9B.  OTHER INFORMATION.

Not applicable.


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

(a)(b)           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
Position
Henry Fong
75
President, Chief Executive Officer and Director
Stephen D. King
55
Director
Richard W. Perkins
79
Director
Barry S. Hollander
53
Chief Financial Officer
Thomas B. Olson
44
Secretary

 
-24-

 
 (c)           Identification of significant employees.

Not applicable.

(d)           Identification of family relationships.

None.

(e)           Business experience.

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., a pubicly traded alternative energy company, from its inception in 1983 until January 2, 2007. Mr. Fong has been a director of FastFunds Financial Corporation, a publicly traded company that currently has limited business operations, since June 2004. Mr. Fong has been the president and a director of AlumiFuel Power Corporation since its inception in May 2004. AlumiFuel Power is a publicly held company developing hydrogen generation products. 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."

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 1984.  Perkins Capital Management 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, and Vital Images, Inc. since 1985.

 
-25-

 
Barry S. Hollander.  Mr. Hollander has been chief financial officer of the Company since 2002.  Mr. Hollander has been the acting Chief Executive Officer of FastFunds Financial Corporation, a publicly traded company with limited business operations, since January 2007.  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 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 the secretary of AlumiFuel Power Corporation since its inception in May 2004. AlumiFuel Power is a publicly held company developing hydrogen generation products. Mr. Olson has attended Arizona State University and the University of Colorado at Denver.

(f)           Involvement in certain legal proceedings.

Not applicable.

(g)           Promoters and control persons.

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.

 
-26-

 
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. Perkins would be considered an audit committee financial expert.

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 and Richard W. Perkins,  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
 
 
 
-27-

 
 
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 11. EXECUTIVE COMPENSATION.

(m)           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, 2010 and 2009; (ii) each other individual that served as an executive officer at the conclusion of the fiscal year ended July 31, 2010 and who received in excess of $100,000 in the form of salary and bonus during such fiscal year.

(n)           Summary compensation tables.

Table 1. Summary Compensation of Executive Officers

Name and Principal Position
 
Year
 
Salary (1)
 
Bonus
 
Equity
Awards (2)
 
Option
Awards(2)
 
All Other Compensation
 
Total
Henry Fong
Chief Executive Officer & President
 
2010
 
2009
 
$120,000
 
$120,000
 
-
 
-
 
-
 
-
 
$20,000
 
-
 
-
 
-
 
$140,000
 
$120,000

(1)  
Based on an accrual of $10,000 per month. During the fiscal year ended July 31, 2010 Mr. Fong received cash compensation of $13,000 and is owed $273,000.

(2)  
Amount reflects the dollar amount recognized for financial statement reporting purposes for the fiscal year ended July 31, 2010 and 2009, 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, 2010, which are included elsewhere in this report.

(o)           Narrative disclosure to summary compensation table.

There are no written agreements with respect to the employment of any of our executive officers including Mr. Fong.

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.  There was no bonus accrued or paid for the fiscal years ended July 31, 2010 or 2009.

 
-28-

 
On August 10, 2009, the Board of Directors granted 2,000,000 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 $0.01 per share (the market price of our common stock on the date of the grant) and expire August 10, 2019.  These options were valued using the Black-Scholes option pricing model and determined to have a value of $20,000, which amounts are included as “Option Awards” in the Summary Compensation Table for the fiscal year ended July 31, 2010.  No such awards were granted during the fiscal year ended July 31, 2009.

Beginning in July 2007, our board of directors authorized a management fee of $10,000 per month for Mr. Fong.  This amount is accrued and paid as cash flow permits.  As of July 31, 2009, Mr. Fong was owed $273,000 in accrued but unpaid management fees.

(p)           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, 2010.

Name
 
Number of Securities Underlying Unexercised
Options Exercisable
 
Number of Securities Underlying Unexercised Options Unexercisable
 
Option Exercise
Price ($)
 
Option
Expiration Date
Henry Fong
 
1,000,000
2,000,000
 
-
-
 
$0.07
$0.01
 
11/27/2012
8/10/2019
 
 
(q)           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.

(r)           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 2,000,000 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.  Mr. Dahl resigned as a director on December 15, 2009.  The options granted have an exercise price of $0.01 per share (the market price of our common stock on the date of the grant) and expire August 10, 2019.  These options were valued using the Black-Scholes option pricing model and determined to have a value of $60,000, or $20,000 per director.

 
-29-

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

(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, 2010.  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.

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
16,500,000
 
$0.03
 
5,000,000
  Total
16,500,000
 
$0.03
 
5,000,000

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.

(a)           Security ownership of certain beneficial owners.
(b)           Security ownership of management.

 
-30-

 
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 November 11, 2009 by: (1) each person known by the Company to beneficially own 5% or more of the Company’s outstanding common stock; (2) each of the named executive officers as defined in Item 402(a)(3); (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.

 
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
 
200,583 (2)
63.8%
25,760,799 (3)
6.8%
Stephen D. King
900 IDS Center
80 South 8th Street,
Minneapolis, MN 55402
 
   
4,000,000 (4)
1.1%
Richard W. Perkins
730 E Lake Street
Wayzata, MN 55391
 
   
30,742,406 (5)
8.1%
All Executive Officers and
Directors as a Group (5 persons)
 
200,583
63.8%
63,512,326 (6)
16.4%
Wayne W. Mills
2125 Hollybush Rd
Medina, MN  55340
 
   
26,196,959 (7)
7.0%
Gulfstream Financial Partners
319 Clematis Street – Ste. 703
West Palm Beach, FL 33401
 
36,110 (8)
11.5%
17,930,650 (8)
4.8%
 
 
Barry Hollander
319 Clematis Street, Suite 703
West Palm Beach, FL. 33401
   
3,009,121 (9)
0.8%

__________

 
(1)
As of October 31, 2010, 375,558,292 shares of our common stock and 314,172 of our preferred stock were outstanding.
 
(2)
Includes (i) 36,110 shares of preferred stock held by a partnership in which Mr. Fong is the managing partner,and (ii) 164,473 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, this includes: (i) 3,000,000 shares underlying options granted under our 2007 Stock Option Plan; (ii)  17,930,650 shares of common stock  owned by Gulfstream Financial Partners, of which Mr. Fong is the managing partner (which is separately identified in this stockholder table); (iii) 587,400 shares of common stock owned by a corporation in which Mr. Fong is an officer and director; (iv) 439,533 shares of common stock held by another corporation in which Mr. Fong is an 80% shareholder; and (v) 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 3,000,000 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) 3,000,000 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)
Includes 10,400,000 shares underlying options granted under our 2007 Stock Option Plan, and warrants to purchase 1,000,000 shares of our common stock.
 
(7)
Includes (i) 15,999,996 shares of common stock held directly by Mr. Mills, (ii)  warrants to purchase 500,000 shares of common stock each 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.
 
(8)
Mr. Fong, our President, Chief Executive Officer and Director, is a partner of Gulfstream Financial Partners.
 (9)
Includes 1,400,000 shares underlying options granted under our 2007 Stock Option Plan.

 
-31-

 
 (c)           Changes in control.

We are not aware of any arrangements that could result in a change in control of the Company.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

(a)           Transactions with related persons.

During the fiscal year ended July 31, 2009, we issued promissory notes totaling $33,500 to Henry Fong, our President and Chief Executive Officer.  We also converted $30,739 of principal and $1,274 of accrued interest due Mr. Fong to 6,437,874 shares of common stock, at a conversion price of $0.0049725 per share. There were no additional loans or loan repayments involving these entities during the year ended July 31, 2010.  As of July 31, 2010 we owe Mr. Fong a principal balance of $5,500 with accrued interest of $1,118 at July 31, 2010.  The remaining balance outstanding carries an interest rate of 10% and is due on demand.

During the fiscal year ended July 31, 2010 we issued promissory notes totaling $29,450 to corporations controlled by Mr. Fong and repaid $7,550 of notes owed Mr. Fong. During the fiscal year ended July 31, 2009, we issued promissory notes totaling $69,850 to corporations controlled by Mr. Fong and repaid $4,409 of notes.  During 2009, we also converted $42,393 of principal and $2,099 of accrued interest due the corporations to 8,947,596 shares of common stock, at a conversion price of $0.0049725 per share.  As of July 31, 2010, we owed the corporations $55,841 in principal and accrued interest of $5,276.  The remaining balances on these notes carry an interest rate of 10% and are due on demand.

During the fiscal year ended July 31, 2009 we issued a promissory note with a stated interest rate of 8% per annum in the amount of $17,500, to Richard Perkins, a director of the Company. This amount remains outstanding at July 31, 2010 as well as accrued and unpaid interest of $2,428. The note is due on demand and at the option of the lender, the principal and any accrued and unpaid interest may be converted to shares of common stock of the Company at $0.01 per share. In addition we owe a limited partnership controlled by Mr. Perkins  in the form of a convertible promissory note $125,000 as of July 31, 2010 as well as accrued and unpaid interest of $38,014.The note may be converted at a fifteen percent (15%) discount to the price of any offering the Company does that raises a minimum of $500,000. This note is due December 31. 2010.  There were no additional loans or loan repayments involving these entities during the year ended July 31, 2010.

 
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

RR Hawkins & Associates, International (f/ka/ Hawkins Accounting, Inc.) served as our certifying accountant for the fiscal years ended July 31, 2010 and 2009.


Audit Fees

Fees for audit services billed for the fiscal year ended July 31, 2010 and 2009 were $31,500 and $40,550 respectively 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 aggregated fees billed in the fiscal years ended July 31, 2010 and 2009 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, 2010 and 2009 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, 2010 and 2009 for any other service provided by Hawkins accounting.



ITEM 15. 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)
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)
 
 
-33-

 
 
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).


 
-34-

 

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 10, 2010
By: /s/ Henry Fong
 
Henry Fong
 
Principal Executive Officer
   
 
By: /s/ Barry S. Hollander
 
Barry S. Hollander
 
Principal 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 10, 2010
/s/ Henry Fong
 
Henry Fong
 
Director
   
Date: November 10, 2010
/s/ Stephen D. King
 
Stephen D. King
 
Director
   
Date: November 10, 2010
/s/ Richard W. Perkins
 
Richard W. Perkins
 
Director
   
   

 
 

 
-35-

 

CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES

FOR THE YEARS ENDED JULY 31, 2010 AND 2009

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


   
Report of Independent Registered Public Accounting Firm
F-2
   
Consolidated financial statements:
 
   
Consolidated balance sheet
F-3
   
Consolidated statements of operations
F-4
   
Consolidated statement of changes in stockholders' deficit and other comprehensive income
F-5
   
Consolidated statements of cash flows
F-6 – F-7
   
Notes to consolidated financial statements
F-8 – F23


 
 
 

 
 
 
Board of Directors
China Nuvo Solar Energy, Inc.
West Palm Beach, Florida
 
 
Report of Independent Registered Public Accounting Firm
 
 
We have audited the balance sheet of China Nuvo Solar Energy, Inc. as of July 31, 2010, the related statements of operations, stockholders’ equity and cash flows for the years ending July 31, 2010.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the schedule of accounts receivable is free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the schedule of accounts receivable.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides reasonable basis for our opinion.
 
In our 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, 2010, the results of operations and its cash flows for the year ended July 31, 2010 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/ R.R. Hawkins & Associates International, a PC
November 10, 2010
Los Angeles, CA
 
 
 
F-2

 
 

 CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
 (A Development Stage Company)  
 Consolidated Balance Sheets  
 For the Years Ended July  
             
             
Assets
           
   
2010
   
2009
 
   
 
   
 
 
Current Assets
           
Cash
  $ 404     $ 304  
Notes and interest receivable, related parties
    36,276       36,276  
                 
Total current assets
    36,680       36,580  
                 
Fixed assets, less accumulated depreciation of $14,208 (2010)
               
and $11,872 (2009)
          2,336  
Solar intellectual property, less accumulated depreciation of
               
$ 106,497 (2010) and $80,165 (2009)
          359,735  
Debt issuance costs
    12,464       59,204  
                 
Total assets
  $ 49,144     $ 457,855  
                 
Liabilities and Shareholders’ Deficit
               
                 
Current liabilities:
               
Accrued liabilities, related parties
  $ 836,770     $ 682,242  
Accounts payable and accrued expenses
    392,544       352,588  
Derivative liability convertible debentures
    206,590       572,334  
Notes payable
    211,559       175,144  
Notes payable, related parties
    317,231       245,296  
                 
Total current liabilities
    1,964,694       2,027,604  
                 
Long-term liabilities:
               
Convertible debentures payable, net
    173,644       172,904  
                 
Total liabilities
    2,138,338       2,200,508  
                 
Shareholders’ deficit:
               
Preferred stock, $.001 par value; 25,000,000 shares authorized,
               
314,172 (2010) and 437,241 (2009) shares issued and outstanding
    314,172       437,241  
Common stock, $.001 par value, 475,000,00 shares authorized;
               
375,558,301 issued and outstanding (2010) and 284,951,179 (2009)
    375,558       284,951  
Minority interest
    (140,724 )     (135,688 )
Deferred compensation
    -        
Additional paid-in capital
    8,821,369       8,358,351  
Retained earnings
    (11,459,569 )     (10,687,508 )
                 
Total shareholders' deficit
    (2,089,194 )     (1,742,653 )
                 
Total liabilities and shareholders' deficit
  $ 49,144     $ 457,855  
 
See accompanying notes to financial statements.
 
 
F-3

 
 
CHINA NUVO SOLAR ENERY, INC. AND SUBSIDIARY
 
(A Development Stage Company)
 
 Consolidated Statement of Operations
 
For the Years Ended July 31, 2010 and 2009
 
                   
               
From Inception
 
               
April 16, 2006-
 
   
2010
   
2009
   
July 31, 2010
 
                   
Revenues:
                 
Revenues
  $ -     $ 3,166     $ 9,766  
Cost of revenues
    -       -          
                         
Gross profit
    -       3,166       9,766  
                         
Operating costs and expenses:
                       
Selling, general and administrative
                       
Bonus, related party
            -       275,561  
Consulting fees
    -       66,109       331,859  
Management and consulting fees, related parties
    166,000       180,750       711,000  
Salaries including stock compensation cost
    123,908       157,708       853,626  
Legal and accounting
    58,348       47,533       239,420  
Other
    44,423       68,068       340,658  
                         
Total operating costs and expenses
    392,679       520,168       2,752,124  
                         
                         
Operating loss
    (392,679 )     (517,002 )     (2,742,358 )
                         
Other income (expenses)
                       
Interest expense, related parties
    (28,638 )     (24,382 )     (88,873 )
Interest expense, other
    (176,712 )     (321,947 )     (842,946 )
Interest income, related parties
    147       1,975       4,779  
Minority interest
    5,036       74,402       140,724  
Write off intellectual property
    (333,403 )             (333,403 )
Loss on investmet in subsidiary
                    (8,000,000 )
Fair value adjustment of derivative liabilities
    154,188       (96 )     412,568  
                         
Total other income (expenses)
    (379,382 )     (270,048 )     (8,707,151 )
                         
                         
Net loss
  $ (772,061 )   $ (787,050 )   $ (11,449,509 )
                         
                         
Basic and diluted net loss per common share **     (0.01 )     (0.01 )        
                         
Basic and diluted weighted average common
                       
 shares outstanding
    326,246,395       215,342,414          
                         
**Less than $.01
                       
 
See accompanying notes to financial statements.
 
 
F-4

 
 
 CHINA NUVO SOLAR ENERGY, INC AND SUBSIDIARY
 (A Development Stage Company)
 Consolidated Statement of Changes in Shareholders' Deficit
                                                 
               
Additional
                           
Total
 
   
Common stock
   
paid-in
   
Deferred
               
Accumulated
   
stockholders'
 
   
Shares
 
Amount
   
capital
   
compensation
   
Minority interest
   
Preferred stock
   
(deficit) equity
   
deficit
 
   
 
   
 
   
 
                     
 
   
 
 
Balance at August 1, 2007
    193,552,462     $ 193,552     $ 6,474,764     $ -     $ -     $ 535,891     $ (8,590,229 )   $ (1,386,022 )
                                                                 
Issuance of shares upon conversion of subordinated debentures
    6,473,975       6,474       320,448                                       326,922  
                                                                 
Issuance of shares for services
    1,650,000       1,650       350,850       (235,000 )                             117,500  
                                                                 
Amortization of deferred compensation
                    0       101,667                               101,667  
                                                                 
Issuance of options and warrants
                    328,375                                       328,375  
                                                                 
Issuance of shares pursuant to conversion of notes and interest payable
    1,000,000       1,000       99,000                                       100,000  
                                                                 
Issuance of shares for purchased technology
    2,000,000       2,000       148,000                                       150,000  
                                                                 
Sale of subsidiary common stock
                    50,000                                       50,000  
                                                                 
Issuance of shares of subsidiary common stock for notes and
                                               
and interest payable, related parties
                    300,023               (61,286 )                     238,737  
                                                                 
Net loss
                                                    (1,310,229 )     (1,310,229 )
                                                                 
Balances, July 31, 2008
    204,676,437       204,676       8,071,460       (133,333 )     (61,286 )     535,891       (9,900,458 )     (1,283,050 )
                                                                 
Issuance of shares upon conversion of subordinated
                                                 
debentures and accrued interest
    41,904,256       41,904       142,732                                       184,636  
                                                                 
Issuance of shares upon conversion of notes payable, related and
                                                               
accrued interest payable, related
    15,385,470       15,385       61,119                                       76,504  
                                                                 
Issuance of shares upon conversion of accounts payable, related
    1,287,692       1,288       6,087                                       7,375  
                                                                 
Issuance of common stock upon mandatory conversion of
                                                 
preferred stock
    21,697,324       21,697       76,953                       (98,650 )             0  
                                                                 
Amortization of deferred compensation
                            133,333                               133,333  
                                                                 
Minority interest
                                    (74,402 )                     (74,402 )
                                                                 
Net loss
                                                    (787,050 )     (787,050 )
      284,951,179       284,951       8,358,351       -       (135,688 )     437,241       (10,687,508 )     (1,742,653 )
                                                                 
Issuance of shares upon conversion of subordinated debentures
    34,666,667       34,667       295,889                                       330,556  
                                                                 
Minority interest
                                    (5,036 )                     (5,036 )
                                                                 
Warrants issued for services
                    100,000                                       100,000  
                                                                 
Issuance of common stock upon mandatory conversion of
                                                 
preferred stock
    55,940,455       55,940       67,129                       (123,069 )             0  
                      -                                          
Net loss
                                                    (772,061 )     (772,061 )
                                                                 
Balances July 31, 2010
    375,558,301     $ 375,558     $ 8,821,369       -     $ (140,724 )   $ 314,172     $ (11,459,569 )   $ (2,089,194 )
 
See accompanying notes to financial statements.

 
 
F-5

 
 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
 
(A Development Stage Company)
 
ConsolidatedStatement of Cash Flows
 
For the Years Ended July 31, 2010 and 2009
 
                   
   
 
         
From Inception
 
               
April 16, 2006-
 
   
2010
   
2009
   
July 31, 2010
 
                   
Cash flows from operating activities:
                 
Net income (loss)
  $ (772,061 )   $ (787,050 )   $ (11,449,509 )
                         
Adjustments to reconcile net income (loss)
                       
to net cash used in operating activities:
                    (1,519,381 )
Loss on impairment
    333,403               8,333,403  
Decrease in derivative liability
    (154,188 )     96       (416,854 )
Change in minority interest
    (5,036 )     (74,402 )     (140,724 )
Amortization of discount on debentures payable
    119,740       252,770       826,612  
Amortization of debt issuance costs
    22,832       24,620       118,793  
Common stock and warrant based compensation
    123,908       157,708       1,285,215  
Depreciation
    2,336       1,560       7,771  
Amortization of intellectual property
    26,332       26,000       106,498  
Change in operating assets and liabilities:
                    314,319  
Decrease (increase)  in prepaid expenses and other current assets
    -       53,400       12,917  
(Increase) in notes and interest receivable
    -       (1,975 )     (32,324 )
Increase in accounts payable and accrued expenses
    39,956       55,816       289,301  
Increase in amounts due to related parties
    154,528       158,375       883,994  
Net cash used in operating activities
    (108,250 )     (133,082 )     (1,379,969 )
                         
                         
Cash flows from investing activities:
                       
Purchase of property and equipment
    -       (39,900 )     (293,401 )
                         
Net cash used in investing activities
    -       (39,900 )     (293,401 )
                         
                         
Cash flows from financing activities:
                       
Proceeds from sale of common stock
                    687,500  
Proceeds from issuance of related party notes payable
    79,485       -       600,485  
Proceeds from debentures payable
    -       -       505,000  
Proceeds from sale of subsidiary common stock
                    50,000  
Proceeds from payments received on notes receivable, related parties
    -       19,848       19,848  
Placement fees paid
    -       -       (75,650 )
Proceeds from advances and loans
    37,900       157,405       579,383  
Payment of related party notes payable
    (7,550 )     (4,409 )     (482,327 )
Payment to related party for notes receivable
    0       (500 )     (23,800 )
Payment of notes payable
    (1,485 )     -       (221,839 )
Increase in bank overdraft
    -       -       0  
Net cash provided by financing activities
    108,350       172,344       1,638,600  
                         
                         
Net increase (decrease) in cash and cash equivalents
    100       (638 )     (34,770 )
 
(Continued)
 
 
F-6

 
 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
 
(A Development Stage Company)
 
Consolidated Statement of Cash Flows (Continued)
 
For the Years Ended July 31, 2010 and 2009
 
                   
               
From Inception
 
   
 
         
April 16, 2006-
 
   
2010
   
2009
   
April 30, 2010
 
                   
Cash and cash equivalents, beginning of period
    304       942       35,174  
                         
Cash and cash equivalents, end of period
  $ 404     $ 304     $ 404  
                         
                         
Supplemental disclosures of cash flow information:
            -          
Cash paid during the year for interest
  $ 1,880     $ 17,571     $ 100,220  
Cash paid during the year for taxes
  $ -     $ -     $ -  
                         
Non-cash investing and financial activities:
                       
Fair value of options and shares issued for notes payable,
                       
subordinated debentures and services
  $ 119,000     $ 268,515     $ 3,252,055  
Fair value of subsidiary common stock issued for notes and
                 
interest payable
  $ -     $ -     $ 300,023  
Common stock issued in connection with merger
                  $ 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, 2010 AND 2009

 
1.
Organization, basis of presentation and summary of significant accounting policies:

Organization

China Nuvo Solar Energy, Inc. (the “Company”), was formerly known as Interactive Games, Inc., a Nevada Corporation ("Interactive").

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.

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 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.  The shares issued were valued at approximately $8 million or $.06 per share (the market price of the common stock on the date of issuance).  The Company allocated the value of the shares to goodwill as the fair value of the liabilities assumed exceeded the fair value of the assets acquired. Management has determined that as of July 31, 2007 the goodwill amount of $8 million was impaired and recorded the write down of goodwill for the year ending July 31, 2007.


 
F-8

 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED JULY 31, 2010 AND 2009

 
1.
Organization, basis of presentation and summary of significant accounting policies (continued):

Organization (continued)

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 on April 13, 2006 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.  Through July 31, 2010 the Company had amortized $104,166 of the $250,000.  As of July 31, 2010 the Company has been unable to commercialize the license and management believes the asset has been permanently impaired and accordingly has expensed the remaining $145,834 of the intellectual property acquired, and such amount is included in other expenses for the year ended July 31, 2010.  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 had 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 was to provide technical, engineering development, testing and manufacturing employees and support staff.  The term of the Agreement was for one year, with automatic six-month renewal periods unless terminated by the parties.  


 
F-9

 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED JULY 31, 2010 AND 2009

 
1.
Organization, basis of presentation and summary of significant accounting policies (continued):

Organization (continued)

Pursuant to the 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. 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 originally suspended and has now discontinued their development work on our behalf. There has been no significant progress on product development and we continue to explore alternative avenues for development of our technology. We have suspended paying the $2,500 monthly fee.

The future milestones and potential shares that may be issued if we decide to continue the project with PMI are as follows:

Hiring of staff and readying of equipment
500,000
Demonstration of working single-junction solar cell with efficiency greater than 4%
500,000
Demonstration of working single-junction or multiple junction cell with efficiency greater than 10%
2,500,000

None of the above have been met as October 29, 2010, and the Company is not currently working with PMI.

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 initially, increased its intellectual property asset by $150,000 on the balance sheet. As of July 31, 2010 the Company reviewed this asset and as part of the review determined that since the Company has not been able to commercialize the technology and is currently not pursuing the commercialization of the technology that the asset has been permanently impaired. Accordingly, the Company has recorded an impairment expense of $150,000, included in other expenses for the year ended July 31, 2010.

On December 10, 2008 we executed a Patent and Trademark Purchase Agreement (the “Purchase Agreement”) with PV.  Nuvo acquired certain patent rights and trademarks in exchange for $39,900.  Accordingly, the Company increased its intellectual property by $39,900 which is included in the balance sheet presented herein. Through July 31, 2010 the Company had amortized $2,331 of the $39,900.  As of July 31, 2010 the Company has been

 
F-10

 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED JULY 31, 2010 AND 2009

 
1.
Organization, basis of presentation and summary of significant accounting policies (continued):
 
Organization (continued)

unable to commercialize the license and management believes the asset has been permanently impaired and accordingly has expensed the remaining $37,569 of the intellectual property acquired, and such amount is included in other expenses for the year ended July 31, 2010.

Going concern and management’s plans

The Company had a working capital deficit of approximately $1,928,000 at July 31, 2010. 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. The debt financing may include loans from our officers and directors.  Although our balance sheet includes current liabilities of approximately $1,967,000, a portion of this amount are in the form of a derivative liability of $206,590 and convertible notes of $300,000 (of which $125,000 is a related party).  These amounts, plus other related party loans of approximately $229,000 and accrued and unpaid interest may be converted to common stock, thereby reducing considerably our debt service obligations.  Nevertheless, we will be required to raise funds in order to fund our operations and costs associated with being a public company.
 
 
As part of our initial planned operations, our main focus was to be the development of a viable manufacturing process for our technology.  As discussed above we initially planned that our arrangement with PMI would 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.  Since this has not been successful we are continuing to develop our business plan. We do not intend to enter into any additional direct development of our technology.   Rather, we plan to become an incubator of the solar technology we currently own and technology that we may acquire in the future. We currently do not have any agreements to acquire any additional technology.  In order to acquire additional technology we would either have to raise additional money through equity or debt financing or in the alternative issue shares of our common stock. We intend to study the feasibility of sub-licensing or entering into other types of agreements with third parties, whereby the third party will compensate us by paying a license fee and subsequent royalties.  The compensation may be in the form of cash or in the licensee’s common stock.  Through our established relationships we plan to focus on the identification, acquisition and potential license or resale of renewable and alternative energy technologies. If we conclude that we are not able to acquire any additional technology, we may decide to longer be in the solar technology sector and may seek to merge with another entity in another industry.

We will require additional capital to fund any additional acquisitions of any technology 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

 
F-11

 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED JULY 31, 2010 AND 2009
 

1.
Organization, basis of presentation and summary of significant accounting policies (continued):

Going concern and management’s plans (continued)

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, 2010 and 2009 include the accounts of the Company and our majority owned subsidiary Interactive Entertainment Group, Inc, (f/k/a/ Interactive Games, Inc.) a Florida Corporation (“IGAM”) and and our wholly owned subsidiary Nuvo.  All of the intercompany accounts have been eliminated in consolidation.  Certain reclassifications to amounts reported in the July 31, 2009 consolidated financial statements have been made to conform to the July 31, 2010 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.  Upon the review as of July 31, 2010, the Company determined that their Intellectual Property has been permanently impaired and accordingly has expenses a total of $$333,403 for the year ended July 31, 2010, included in other expenses.
 
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.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

 
F-12

 
CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THE YEARS ENDED JULY 31, 2010 AND 2009

 
1.
Organization, basis of presentation and summary of significant accounting policies (continued):

Concentration on credit risks