UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 X . QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2011

or

     . TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                  

Commission file number: 333-48746

CHINA NUVO SOLAR ENERGY, INC.

(Name of small business issuer as specified 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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 Days: Yes  X . No      .

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	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      . No  X .

Number of shares of common stock outstanding at June 10, 2011 was 590,294,389.

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TABLE OF CONTENTS

		Page
	PART I
Item 1.	Financial Statements	3-20
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4T	Controls and Procedures	24
	PART II
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
SIGNATURES		27

2

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Balance Sheets

Assets
					April 30,2011		July 31,2010
					(Unaudited)		(Audited)
Current Assets
	Cash			$	142	$	404
	Notes and interest receivable, related parties				40,676		36,276
			Total current assets		40,818		36,680
Debt issuance costs					8,931		12,464
			Total assets	$	49,749	$	49,144
Liabilities and Shareholders’ Deficit
Current liabilities:
	Accrued liabilities, related parties			$	320,716	$	970,170
	Accounts payable and accrued expenses				221,348		259,145
	Convertible debentures payable, net				237,339		-
	Derivative liability convertible debentures				821,777		206,590
	Notes payable				183,259		211,559
	Notes payable, related parties				242,180		317,231
			Total current liabilities		2,026,619		1,964,695
Long-term liabilities:
		Convertible debentures payable, net			—		173,644
			Total liabilities		2,026,619		2,138,339
Shareholders’ deficit:
	Preferred stock, $.001 par value; 25,000,000 shares authorized,
		385,583 (April) and 314,172 shares (July) issued and outstanding			385,583		314,172
	Common stock, $.001 par value, 1,475,000,000 shares authorized;
		558,048,618 (April) and 375,558,301 (July) issued and outstanding			558,044		375,558
	Minority interest				0		(140,724)
	Deferred compensation				-		—
	Additional paid-in capital				10,285,119		10,304,662
	Retained earnings				(13,205,615)		(12,942,862)
			Total shareholders' deficit		(1,976,870)		(2,089,195)
			Total liabilities and shareholders' deficit	$	49,749	$	49,144

See accompanying notes to financial statements

3

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Operations

For the Three and Nine Months Ended April 30, 2011 and 2010

See accompanying notes to financial statements

4

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Changes in Shareholders' Deficit

See accompanying notes to financial statements

5

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Cash Flows

For the Nine Months Ended April 30, 2011 and 2010

								From Inception
								April 16, 2006-
				2011		2010		April 30, 2011
Cash flows from operating activities:
	Net income (loss)		$	(262,753)	$	(572,472)	$	(13,205,616)
Adjustments to reconcile net income (loss)
	to net cash used in operating activities:
		Gain on debt settlement		(115,561)				(115,561)
		Impairment of goodwill						9,483,293
		Loss on impairment		-				333,403
		Decrease in derivative liability		476,256		76,416		63,688
		Change in minority interest		(2,007)		(3,784)		(142,731)
		Gain on sale of minority interest		(440,599)				(440,599)
		Amortization of discount on debentures payable		76,947		103,656		695,441
		Amortization of debt issuance costs		16,033		17,124		114,343
		Common stock and warrant based compensation		40,000		118,281		893,626
		Depreciation		-		1,754		5,478
		Amortization of intellectual property		-		19,749		106,498
Change in operating assets and liabilities:
	Decrease (increase)  in prepaid expenses and other current assets			-		-		0
	(Increase) in notes and interest receivable			(4,400)				(9,032)
	Increase in accounts payable and accrued expenses			(84,354)		31,268		133,444
	Increase in amounts due to related parties			168,338		114,376		445,509
Net cash used in operating activities				(132,100)		(93,632)		(1,638,816)
Cash flows from investing activities:
	Purchase of property and equipment			-		-		(293,401)
								33,074
Net cash used in investing activities				-		-		(260,327)
Cash flows from financing activities:
	Proceeds from sale of common stock			-				766,985
	Proceeds from issuance of related party notes payable			5,000		68,285		376,000
	Proceeds from debentures payable			151,000		-		656,000
	Proceeds from sale of subsidiary common stock							69,848
	Proceeds from payments received on notes receivable, related parties			-		-		0
	Placement fees paid			(12,500)		-		107,155
	Proceeds from advances and loans			15,700		34,500		392,076
	Payment of related party notes payable			(27,362)		(7,550)		(223,630)
	Payment to related party for notes receivable			-		-		(24,785)
	Payment of notes payable			-		(1,485)		(220,354)
	Increase in bank overdraft			-		-		(9)
Net cash provided by financing activities				131,838		93,750		1,899,286
Net increase (decrease) in cash and cash equivalents				(262)		118		142

See accompanying notes to financial statements

6

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

 (A Development Stage Company)

Consolidated Statement of Cash Flows (Continued)

For the Nine Months Ended April 30, 2011 and 2010

								From Inception
								April 16, 2006-
				2011		2010		April 30, 2011
Cash and cash equivalents, beginning of period				404		304		-
Cash and cash equivalents, end of period			$	142	$	422	$	142
Supplemental disclosures of cash flow information:						-
	Cash paid during the year for interest		$	5,576	$	1,868	$	105,796
	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 interest	$	192,663	$	119,000	$	3,444,718
	Fair value of preferred shares issued for related party bonus payable		$	160,000	$	-	$	160,000
	Fair value of options and shares issued for services		$	40,000	$	-	$	40,000
	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

7

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

1.

Basis of presentation and summary of significant accounting policies:

Basis of presentation

The accompanying interim condensed consolidated financial statements are unaudited, but in the opinion of management of China Nuvo Solar Energy, Inc. (the “Company”) contain all adjustments, which include normal recurring adjustments necessary to present fairly the financial position at April 30, 2011, the results of operations for the three and nine months ended April 30, 2011 and 2010 and form date of inception of April 16, 2006 thru April 30, 2011 and cash flows for the nine months ended April 30, 2011 and 2010 and from date of inception of April 16, 2006 thru April 30, 2011  The balance sheet as of July 31, 2010 is derived from the Company’s audited financial statements.

The consolidated financial statements for the three and nine months ending April 30, 2011 and 2010 include the accounts of the Company and our wholly owned subsidiary Nuvo Solar Energy, Inc. (“Nuvo”).  All of the intercompany accounts have been eliminated in consolidation.  Certain reclassifications to amounts reported in the July 31, 2010 consolidated financial statements have been made to conform to the April 30, 2011 presentation. April 29, 2011 we sold the shares we owned of our majority owned subsidiary Interactive Entertainment Group, Inc, (f/k/a/ Interactive Games, Inc.) a Florida Corporation (“IGAM”).

On certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), although management of the Company believes that the disclosures contained in these financial statements are adequate to make the information presented therein not misleading.  For further information, refer to the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2010, as filed with the SEC.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period.  Actual results could differ from those estimates.

The results of operations for the three and nine months ended April 30, 2011 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending July 31, 2011.

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 well as $1,603,957, the amount that the fair value of the liabilities assumed exceeded the fair value of the assets acquired. Management determined that as of July 31, 2007 the goodwill amount of $9,603,957 was impaired and recorded the write down of goodwill for the year ending July 31, 2007.

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.

8

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

1.

Basis of presentation and summary of significant accounting policies (continued):

Basis of presentation (continued):

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.

Going concern and management’s plans

The Company had a working capital deficit of approximately $2,102,000 and $1,986,000 at July 31, 2010 and April 30, 2011, respectively. 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.

We will require additional capital to fund the development of our 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 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.

Over the next twelve months management will be re-examining its 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.

On March 9, 2011 the Company announced that it had signed a non-binding Letter of Intent (“LOI”) to acquire 100% of Freya Energy, Inc. (“Freya”). Pursuant to the terms and conditions of the LOI the parties were to enter into a Stock Purchase Agreement (“SPA”) within sixty days, whereby Freya would become a wholly owned subsidiary of the Company. Closing of the transaction was subject to customary conditions including, among other things, the negotiation and execution of the SPA and other agreements, if necessary, as well as the approval of both company’s board of directors and any required stockholder or regulatory approval.  Freya is a manufacturer of safe large format lithium ion cells and batteries. As of the filing of this report although the LOI has expired, the parties have continued the negotiations of the SPA regarding a number of issues.  In addition, the Company has not been able to meet the financing condition to close, whereby the Company was to have raised working capital prior to the closing of the SPA.  The Company can make no assurances that it will be able to meet the financing closing condition or reach agreement on the issues under discussion.

Description of business

DEVELOPMENT STAGE COMPANY

The Company has earned limited revenues from operations.  Accordingly, the Company's activities have been accounted for as those of a "Development Stage Company" as set forth by the Financial Accounting Standards Board Statement. Among the disclosures required are that the Company's financial statements be identified as those of a development stage company, and that the statements of operations, stockholders' equity and cash flows disclose activity since the date of the Company's inception.

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.

9

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

1.

Basis of presentation and summary of significant accounting policies (continued):

Intellectual property

The Company records intangible assets in accordance with ASC 350, “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.

Long-lived assets and certain identifiable intangibles

Long-lived assets, such as property and equipment and definite-lived intangible assets are stated at cost or fair value for impaired assets.  Depreciation and amortization is computed principally by the straight line method for financial reporting purposes.

Asset impairment charges are recorded for long-lived assets and intangible assets subject to amortization when events and circumstances indicate that such assets may be impaired and the undiscounted net cash flows estimated to be generated by those assets are less than their carrying value of the assets exceeds its fair value.  Fair value is determined using appraisals, management estimates or discounted cash flow calculations.

Revenue recognition

The Company recognizes revenue in accordance with ASC 605, “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.

Concentration on credit risks

The Company is subject to concentrations of credit risk primarily from cash.  The Company minimizes its credit risks associated with cash, by periodically evaluating the credit quality of its primary financial institutions.

Stock-based compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). As required by ASC 718, the Company will recognize the cost resulting from all stock-based payment transactions including shares issued under its stock option plans in the financial statements. There are 17,500,000 stock options and warrants outstanding as of April 30, 2011.

Fair value of financial instruments

The carrying value of cash, accounts payable and accrued expenses approximate their fair value due to their short-term maturities. The carrying amount of the note payable and due to related parties approximate their fair value based on the Company's incremental borrowing rate.

Income taxes

Income taxes are accounted for in accordance with ACS 740, Accounting for Income Taxes. ACS 740 requires the recognition of deferred tax assets and liabilities to reflect the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Measurement of the deferred items is based on enacted tax laws. In the event the future consequences of differences between financial reporting bases and tax bases of the Company's assets and liabilities result in a deferred tax asset, ASC 740 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some, or all, of the deferred tax asset will not be realized.

10

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

1.

Basis of presentation and summary of significant accounting policies (continued):

 

Summary of significant accounting policies (continued):

Loss per common share

 

Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period.  Stock options, warrants and common stock underlying convertible promissory  notes at April 30, 2011 and 2010 were 243,572,036 and 239,551,396, respectively, are not considered in the calculation as the impact of the potential common shares would be to decrease loss per share and therefore no diluted loss per share figures are presented.

Accounting for obligations and instruments potentially settled in the Company’s common stock

The adoption of this guidance did not have a material impact on our consolidated financial statements.

All contracts are initially measured at fair value and subsequently accounted for based on the then current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included in earnings. The classification of a contract is reassessed at each balance sheet date.

Derivative instruments

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative instruments under the provisions ACS 815, Accounting for Derivative Instruments and Hedging Activities.

The Company does not believe that any recently issued, but not yet effective, accounting standards will have a material will have an effect on the Company’s consolidated financial position, results of operations or cash flow.

ASC 105, Generally Accepted Accounting Principles (“ASC 105”) (formerly Statement of Financial Accounting Standards No.168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No.162) reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification (“ASC”) carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed “non-authoritative”. The implementation of this guidance changed the Company's references to GAAP authoritative guidance but did not impact the Company's financial position or results of operations.

In August 2009, the FASB issued FASB ASU 2009-05, “Measuring Liabilities at Fair Value”. FASB ASU 2009-05 amends FASB ASC 820, “Fair Value Measurements”. Specifically, FASB ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of FASB ASC 820 of the Accounting Standards Codification (e.g. an income approach or market approach). FASB ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption of such standard did not have a material impact on the Company's financial statements.

11

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

1.

Basis of presentation and summary of significant accounting policies (continued):

 

Summary of significant accounting policies (continued):

In 2010, ASC 855 “Subsequent Events” codified SFAS No. 165, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements. The standard was subsequently amended by FASB ASU 2010-09 which exempts an entity that is an SEC filer from the requirement to disclose the date through which subsequent events have been evaluated. In February 2010, the FASB issued Accounting Standards Update 2010-09 (ASU 2010-09), “Subsequent Events (Topic 855).” The amendments remove the requirements for an SEC filer to disclose a date, in both issued and revised financial statements, through which subsequent events have been reviewed. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. ASU 2010-09 is effective for interim or annual financial periods ending after June 15, 2010. The provisions of ASU 2010-09 did not have a material effect on the Company's financial statements.

2.

Notes and interest receivable, related parties:

Notes and interest receivable, related parties at April 30, 2011 and July 31, 2010 are as follows:

		April		July
Due from VP Development	$	31,300	$	31,300
Due from E2000, Inc.		2,500		2,500
Due from FastFunds		4,400
Interest on above amounts		2,476		2,476
	$	40,676	$	36,276

Each of the above listed related parties is a related party to the Company through common control.

3.

Accrued liabilities, related parties:

Accrued liabilities, related parties at April 30, 2011 and July 31, 2010 are as follows:

		April		July
Officer bonus	$	-	$	275,561
Management fees		261,839		633,650
Accrued interest		58,877		60,959
	$	320,716	$	970,170

4.   Fair Value Measurements:

In connection with any obligations and instruments potentially to be settled in the Company's stock, the Company accounts for the instruments in accordance with ASC 820, Fair Value Measurements and Disclosure. The guidance defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs. The guidance describes a fair value hierarchy utilizing three levels of input. The first two levels are considered observable and the third, unobservable:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are directly or indirectly observable, such as quoted prices for similar assets or liabilities or quoted prices in markets which are not active. The inputs are generally observable or can be corroborated in observable markets.

Level 3 – Unobservable inputs where there is little or no market activity to support valuation.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

5.

Convertible debentures payable:

2007 Convertible Notes

On October 21, 2007 the Board of Director of the Company authorized the sale of up to $700,000 of 6% unsecured convertible debentures (the “2007 Debentures”).  During the year ended July 31, 2008, the Company executed a Securities Purchase Agreement with various accredited investors, whereby the Company sold in the aggregate $505,000 of the 2007 Debentures.  We received net proceeds of $429,350 after $75,650 of debt issuance costs (included in the balance sheet), paid to Divine Capital Markets, LLC (“Divine”), who acted as our placement agent.  The debt issuance costs have been amortized as debt issuance costs over the three year term of the 2007 Debentures.  Fair value of these derivative instruments have been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the 2007 Debentures.  The change in the fair value of the liability will be credited or (charged) to other income or (expense) in the consolidated statement of operations.

The Debentures are due three years from the final Closing Date under the Purchase Agreement (the “Maturity Date”), unless prepayment of the Debentures is required in certain events, as described below.  The Debentures are convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 75% of the lowest closing bid price per share (as reported by Bloomberg, LP) of the Corporation’s common stock for the twenty (20)trading days immediately preceding the date of conversion.  In addition, the Debentures provide for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Corporation or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Corporation.

The outstanding principal balance of each Debenture bears interest, in arrears, at six percent (6%) per annum, payable (i) upon conversion, or (ii) on the Maturity Date, in shares of our common stock at the Conversion Price.  Upon the occurrence of an Event of Default (as defined in the Purchase Agreement), then the Corporation is required to pay interest to the Holder of each outstanding Debenture, at the option of the Holders (i) at the rate of lesser of eighteen percent (18%) per annum and the maximum interest rate allowance under applicable law, and (ii) the Holders may at their option declare the Debentures, together with all accrued and unpaid interest (the “Acceleration Amount”), to be immediately due and payable.

The Corporation may at its option call for redemption all or part of the Debentures prior to the Maturity Date, as follows:

The Debentures called for redemption shall be redeemable for an amount (the “Redemption Price”) equal to (x) if called for redemption prior to the date which is nine months from the date of issuance (the “Issuance Date”), 115%, if called for redemption on or after the date that is nine months after the Issuance Date but prior to the first anniversary of the Issuance Date, 131%, in either case of the principal amount called for redemption, plus (y) interest accrued through the day immediately preceding the date of redemption.

(i)

If fewer than all outstanding Debentures are to be redeemed, then all Debentures shall be partially redeemed on a pro rata basis.

In connection with the Purchase Agreement, the Company entered into a Registration Rights Agreement, dated as of October 31, 2007 (“Registration Rights Agreement”), with the Holders of the Debentures to provide certain registration rights under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations thereunder.  Pursuant to the Registration Rights Agreement, the Company contemplates making an offering of common stock (or other equity securities convertible into or exchangeable for common stock) registered for sale under the Securities Act or proposes to file a Registration Statement covering any of its securities other than (i) a registration of Form S-8 or S-4, or any successor or similar forms; and (ii) a shelf registration under Rule 415 for the sole purpose of registering shares to be issued in connection with the acquisition of assets, the Company will at each such time give prompt written notice to the Holders’ representative and the Holders of its intention to do so.  Upon the written request of any Holder made within thirty (30) days after the receipt of any such notice, the Company has agreed to use its best efforts to effect the registration of all such registrable securities which the Company has been so requested to register by the Holders, to the extent requisite to permit the disposition by the requesting Holders of their registrable securities pursuant to the Registration Statement.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

5.

Convertible debentures payable (continued):

The Company determined that the conversion feature of the 2007 Debentures represents an embedded derivative since the 2007 Debentures are convertible into a variable number of shares upon conversion. Accordingly, the convertible Debentures are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The Company believes that the aforementioned embedded derivatives and freestanding warrants meet the criteria of SFAS 133 and EITF 00-19, and should be accounted separately as derivatives with a corresponding value recorded as a liability. Accordingly, the fair value of these derivative instruments have been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the 2007 Debentures. Such discount will be accreted from the date of issuance to the maturity date of the 2007 Debentures. The change in the fair value of the liability for derivative contracts will be credited to other income (expense) in the consolidated statements of operations. The

$505,000 face amount of the 2007 Debentures were stripped of their conversion feature due to the accounting for the conversion feature as a derivative, which was recorded using the residual proceeds to the conversion option would be attributed to the debt. The beneficial conversion feature (an embedded derivative) included in the 2007 Debenture resulted in an initial debt discount of $505,000 and an initial loss on the valuation of derivative liabilities of $210,878. Based on the revaluation of the 2007 Debentures at April 30, 2011, the Company recorded a an expense of $221,188 and decreased the derivative liability on the balance sheet by $221,188 for the six months ended April 30, 2011.

The Company issued 1,500,000 shares of its common stock to Divine and/or its designees as consideration for its services as the placement agent in connection with the financing transaction described above.

2010-2011 Convertible Notes

During the nine months ended April 30, 2011, the Company entered into five separate note agreements with an institutional investor for the issuance of five convertible promissory notes in, for a total at April 30, 2011 of $151,000 in principal outstanding (together, the “2010-2011 Convertible Notes”).

Among other terms, the 2010-2011 Convertible Notes mature on their nine month anniversary(together, the “Maturity Dates”), unless prepayment of the 2010-2011 Convertible Notes is required in certain events, as called for in the agreements.  The 2010-2011 Convertible Notes are convertible at a conversion price (the “Conversion Price”) for each share of common stock equal to 50% of the average of the lowest three trading prices per share of the Company’s common stock for the ten (10) trading days immediately preceding the date of conversion.  In addition, the 2010 Convertible Notes provide for adjustments for dividends payable other than in shares of common stock, for reclassification, exchange or substitution of the common stock for another security or securities of the Company or pursuant to a reorganization, merger, consolidation, or sale of assets, where there is a change in control of the Company.

The Convertible Notes each bears interest at eight percent (8%) per annum, payable in cash or shares of our common stock at the Conversion Price.  Upon the occurrence of an Event of Default (as defined in the 2010-2011 Convertible Notes), the Company is required to pay interest to the Holder of each outstanding note at twenty-two percent (22%) per annum and the Holders may at their option declare the 2010-2011 Convertible Notes, together with all accrued and unpaid interest, to be immediately due and payable.

The Company may at its option prepay the 2010-2011 Convertible Notes in full during the first ninety days following their issuance in an amount equal to 150% of the outstanding principal and interest, and during the 91^st to 180^th days following the Notes in an amount equal to 175% of the outstanding principal and interest.  Further terms call for the Company to maintain sufficient authorized shares reserved for issuance under the agreement 2010-2011 Convertible Notes.

We received net proceeds from the 2010-2011 Convertible Notes of $138,500 after debt issuance costs of $12,500 paid for lender legal fees.  These debt issuance costs will be amortized over the terms of the 2010-2011 Convertible Notes or such shorter period as the 2010-2011 Convertible Notes may be outstanding.  Accordingly, as the 2010-2011 Convertible Notes are converted to common stock prior to their expiration date, that amount of debt issuance costs attributable to the amounts converted will be accelerated and expensed as of the applicable conversion dates. As of April 30, 2011, $3,750 of these costs had been expensed as debt issuance costs.

14

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

5.

Convertible debentures payable (continued):

We have determined that the conversion feature of the 2010-2011 Convertible Notes represents an embedded derivative since the 2010-2011 Convertible Notes are convertible into a variable number of shares upon conversion. Accordingly, the convertible 2010-2011 Convertible Notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature must be bifurcated from the debt host and accounted for as a derivative liability. The Company believes that the aforementioned embedded derivatives meet the criteria of ASC 815 (formerly SFAS 133 and EITF 00-19), and should be accounted separately as derivatives with a corresponding value recorded as a liability. Accordingly, the fair value of these derivative instruments have been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the 2010-2011 Convertible Notes. Such discount will be accreted from the date of issuance to the maturity dates of the 2010-2011 Convertible Notes. The change in the fair value of the liability for derivative contracts will be credited to other income (expense) in the consolidated statements of operations at the end of each quarter. The $151,000 face amount of the 2010-2011 Convertible Notes were stripped of their conversion feature due to the accounting for the conversion feature as a derivative, which was recorded using the residual proceeds to the conversion option attributed to the debt. The beneficial conversion feature (an embedded derivative) included in the 2010-2011 Convertible Notes resulted in an initial debt discount of $138,931 and an initial loss on the valuation of derivative liabilities of $137,799 for a derivative liability balance of $276,710 at issuance.

The fair value of the 2010-2011 Convertible Notes was calculated at issue date utilizing the following assumptions:

Issuance Date	Fair Value	Term	Assumed Conversion Price	Market Price on Issue Date	Volatility Percentage	Interest Rate
12/3/2010	$32,931	9 months	$0.00136	$0.0024	141%	4.72%
1/7/2011	$70,000	9 months	$0.0008	$0.0024	251%	4.72%
2/22/11	$75,000	9 months	$0.001	$0.0041	158%	4.72%
3/12/11	$33,333	9 months	$0.0015	$0.0037	156%	4.72%
3/29/11	$65,446	9 months	$0.00128	$0.0041	156%	4.72%

At April 30, 2011, the Company revalued the derivative liability balance of the remaining outstanding 2010-2011 Convertible Notes.  Therefore, for the period from their issuance to April 30, 2011, the Company has recorded an expense and increased the previously recorded liabilities by $117,289 resulting in a derivative liability balance of $393,999 at April 30, 2011.

The fair value of the 2010-2011 Convertible Notes was calculated at April 30, 2011 utilizing the following assumptions:

Fair Value	Term	Assumed Conversion Price	Volatility Percentage	Interest Rate
$393,999	9 months	$0.001533	155%	4.72%

The following table summarizes the balance sheet amounts as of April 30, 2011, as well as the amounts included in the consolidated statement of operations for the nine months ended April 30, 2011.

Balance Sheet

Debentures		Debt issuance costs		Derivative liability		Face value of Debentures		Discount on Debentures
2007	$	181	$	427,778	$	192,500	$	12,822
2010-2011		8,750		393,999		151,000		93,339
	$	8,931	$	821,777	$	343,500	$	106,161

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

5.

Convertible debentures payable (continued):

Operating Statement
Debentures		Debt issuance costs (interest expense)		Fair value adjustment of derivative liability
2007	$	12,283	$	221,188
2010-2011		3,750		255,068
	$	16,033	$	476,256

6.

Convertible and other promissory notes and long-term debt, including related parties:

Convertible and other promissory notes and long-term debt, including related parties at April 30, 2011 and July 31, 2010 consist of the following:

		April		July
Notes payable	$	183,259	$	211,559
Notes payable, related parties [A]		242,180		317,231
Convertible debentures, net of discount of $6106,161 (April) and $31,356 (July)		237,339		173,644
	$	662,778	$	702,434
Less current portion		662,778		528,790
Long-term debt, net of current portion	$	-	$	173,644

[A]

The following table summarizes the activity of notes payable, related parties for the nine months ended April 30, 2011:

Balance, August 1, 2010	$	317,231
Issuance of new notes		15,700
Repayment of notes		(27,361)
Notes converted to common stock		(32,955)
Notes of minority owned subsidiary, sold		(30,435)
Balance, April 30, 2011	$	242,180

7.

Stockholders’ deficit:

Preferred Stock

On November 30, 2010, the Company filed a Certificate of Amendment to Certificate of Designations for its Series A Preferred Stock whereby the Company and the holders of the Series A Preferred stock agreed to extend the Mandatory Conversion date for the Series A Preferred Stock to November 30, 2013.  Additionally, the holders of the Series A Preferred were granted voting rights, whereby the shares of preferred stock held are eligible to vote on an as if converted basis pursuant to the conversion terms in the Certificate of Designation of Designation of Series A Preferred Stock on matters presented for a vote by the Company's stockholders. Effective on November 30, 2010, the Company issued upon the conversion of $275,541 in debt payable to the Company's Chief Executive Officer, 160,000 shares of its Series A Preferred Stock. As of April 30, 2011 there are 385,583 shares of Series A Preferred stock outstanding.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

7.

Stockholders’ deficit:

Common Stock

Effective December 1, 2010, the stockholders of the Company through a written consent executed by stockholders holding 59% of the outstanding shares of the Company’s preferred and common stock entitled to vote, adopted and approved the Amended and Restated Articles of Incorporation, which were adopted by the Company’s board of directors on November 30, 2010.  In addition, stockholders authorized the Company’s officers, in their discretion, to take any and all actions as they deem necessary, advisable or appropriate in order to effectuate any potential business opportunity, including without any limitation, executing and delivering such agreements, instruments and documents contemplated by any agreement that the Company may enter into, and performing any obligations of the Company thereunder, including without limitation any reverse stock split and increase in authorized shares of the Company.

On December 1, 2010, the Company filed Amended and Restated Articles of Incorporation with the Secretary of State of Nevada, pursuant to which the Company increased the authorized capital stock of the Company from 500,000,000 shares to 1,500,000,000 shares par value $0.001, of which 25,000,000 shares 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.

On December 9, 2010 the Company issued 11,442,140 shares of common stock upon the conversion of $12,500 of debentures and $5,522 of unpaid interest on the debentures. The shares were issued at approximately $0.001575 per share.

On February 2, 2011, the Company issued 18,390,805 shares of common stock upon the conversion of 20,000 shares of Series A Preferred Stock.  Pursuant to the Certificate of Designation of the Preferred Stock, as amended the shares were issued at approximately $0.001087 per share.

On February 14, 2011 the Company issued 36,936,879 shares of common stock upon the conversion of 39,938 shares of Series A Preferred stock.  Pursuant to the Certificate of Designation of the Preferred Stock, as amended the shares were issued at approximately $0.001081 per share.

Also in February 2011, the Company issued 13,266,666 shares of common stock pursuant to Debt Settlement and Release Agreements in exchange for the cancellation of $19,900 of notes and accrued liabilities.  The shares were issued at $0.0015, the price of the common stock on the date the parties had agreed to the settlements.

On April 1, 2011 the Company issued 10,949,427 shares of common stock upon the conversion of 28,651 shares of Series A Preferred Stock. Pursuant to the Certificate of Designation of the Preferred Stock, as amended the shares were issued at approximately $0.001337 per share.

From December 14, 2010 to February 14, 2011 the Company issued 56,500,000 shares of common stock upon the conversion of $66,255 of notes payable.  The shares were issued at an average price of approximately $0.00173.

During the three months ended April 30, 2011 the Company issued 25,000,000 shares of restricted common stock to an officer and director of the Company in satisfaction of $76,665 of amounts owed.  The shares were issued at an average price of approximately $.003 per share.

Lastly, during the quarter ended April 30, 2011 the Company issued 10,000,000 shares to a consultant.  The Company valued the shares at $.004, (the price of the common stock on the date of the agreement) and recorded an expense of $40,000 for the three and nine months ended April 30, 2011.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

7.

Stockholders’ deficit (continued):

Stock options and warrants

In March 2002, the Company adopted the 2002 Stock Option Plan, covering up to 1,000,000 shares of the Company's common stock, and in July 2003, the Company adopted the 2003 Stock Option Plan covering up to 2,500,000 shares of the Company's common stock. There are currently no options outstanding under the 2002 stock Option Plan and 300,000 under the 2003 Stock Option Plans. In August 2007, the Company adopted the 2007 Stock Option Plan covering up to 18,000,000 shares of the Company’s common stock. On August 10, 2009 the Company granted options to purchase 10,000,000 shares of the Company’s common stock under the 2007 Plan. The options have an exercise price of $0.01 (the market price of the common stock on the date of the grant) and expire in August 2019.  The options were valued at $100,000 based upon the Black-Scholes option pricing model. As of April 30, 2011 there were options to purchase 16,500,000 shares of the Company’s common stock outstanding under the 2007 Stock Option Plan.

A summary of the activity of the Company’s outstanding options and warrants during the three months ended April 30, 2011 is as follows:

		Options and warrants		Weighted average exercise price
Outstanding, August 1, 2010		18,225,000	$	0.04
Granted		-		-
Exercised		-		-
Expired		725,000		0.08
Outstanding and exercisable at
April 30, 2011		17,500,000	$	0.04

Range of exercise prices	Warrants outstanding and exercisable	Weighted average remaining contractual life	Weighted average exercise price
$.01	10,000,000	4.73	$0.01
0.07	6,500,000	2.44	0.07
0.12	1,000,000	0.03	0.12

The weighted average remaining contractual life of the terms of the warrants and options is 7.2 years.

Minority Interest

In December 2007, the Financial Accounting Standards Board (FASB) issued new guidance which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income (loss) attributable to the parent and to the noncontrolling interests, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. This guidance requires that the noncontrolling interest continue to be attributed its share of losses even if that attribution results in a deficit.

Utilizing this guidance we have classified the noncontrolling interest in IGAM in stockholders’ equity on our Consolidated Balance Sheets on a retrospective basis. In addition, consolidated net loss has been adjusted to include the net loss attributed to the noncontrolling interest in IGAM, through April 29, 2011, the date we sold the stock we owned to a third party.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

8.

Agreements:

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 (the “Solar Technology”). 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. 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 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 by $150,000. 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 November 27, 2007, we executed a Collaboration and Development Agreement (the “Collaboration Agreement”) with Pioneer Materials, Inc. (“PMI”) of Torrance, California. Under the terms of the Agreement, PMI will build, equip, operate and manage, for our benefit, a product development, testing and prototype manufacturing facility in PMI’s Chengdu, Sichuan, China facility located in Chengdu’s West High Tech development zone.  The agreement with PMI has the objective to develop, test and manufacture prototypes of solar energy products using our licensed technology based on an invention titled “Photovoltaic cell with integral light transmitting waveguide in a ceramic sleeve”.

Additionally, PMI will provide technical, engineering development, testing and manufacturing employees and support staff.  The term of the Agreement is for one year, with automatic six-month renewal periods unless terminated by the parties.  Pursuant to the 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 deferred stock compensation.  PMI is a manufacturer and supplier of materials for the semiconductor, hard drive media, optical media and photonic industries.  PMI is developing for the solar energy industry advanced materials for thin film photovoltaics (solar cell) processing.  In May of 2008, the Chengdu region of China experienced a catastrophic earthquake.  As a result of this earthquake and the after effects including significant problems with the delivery of electricity, PMI suspended their development work for a significant period of time.  We are no longer continuing to work with PMI under the Collaboration Agreement, as there has been no progress on product development.

The future milestones and potential shares to be issued 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

We have discontinued the monthly payments, as PMI has not been able to continue its development work and accordingly the Company does not anticipate that there will be any future compensation to PMI.

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 was initially included in the balance sheet. Through July 31, 2010 the Company had amortized $2,331 of the $39,900.  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 $37,569 of the intellectual property acquired, and such amount is included in other expenses for the year ended July 31, 2010.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2011 and 2010

9.

Income taxes:

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the net deferred taxes, as of April 30, 2011, are as follows:

Deferred tax assets:
Net operating loss carryforward	$	336,000
Less valuation allowance		(336,000)
Total net deferred tax assets	$	-

The Company may have had a change of ownership as defined by the Internal Revenue Code Section 382. As a result, a substantial annual limitation may be imposed upon the future utilization of its net operating loss carryforwards. At this point, the Company has not completed a change in ownership study and the exact impact of such limitations is unknown. The company has no accrued tax liability, as the income was derived from the sale of a subsidiary and the liabilities were alleviated through formal bankruptcy proceedings.

The federal statutory tax rate reconciled to the effective tax rate during the three months ended April 30, 2011 and 2010, respectively, is as follows:

		2011		2010
Tax at U.S. Statutory Rate		35.0%		35.0%
State tax rate, net of federal benefits		5.0%		5.0%
Change in valuation allowance		(40.0)		(40.0)
		0.0%		0.0%

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ITEM TWO

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED TO, STATEMENTS CONCERNING THE COMPANY'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", "WILL", "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 COMPANY'S CONTROL, AND ACTUAL RESULTS MAY DIFFER MATERIALLY DEPENDING ON THE VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY RELATED TO THE COMPANY'S OPERATIONS, MERGERS OR ACQUISITIONS, GOVERNMENTAL REGULATION, THE VALUE OF THE COMPANY'S ASSETS AND ANY OTHER FACTORS DISCUSSED IN THIS AND OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.

GENERAL

China Nuvo Solar Energy, Inc. (the “Company”) formerly known as Interactive Games, Inc. (“Interactive”).

Pursuant to an Agreement and Plan of Reorganization dated as of April 23, 2007, as amended on July 25, 2007 (the “Share Exchange”), by and between the Company and Nuvo Solar Energy, Inc., a Colorado corporation (“Nuvo”) incorporated on April 13, 2006, we and Nuvo entered into a share exchange whereby all of the issued and outstanding capital stock of Nuvo, on a fully-diluted basis, was exchanged for like securities of the Company, and whereby Nuvo became our wholly owned subsidiary.  The Share Exchange was effective as of July 25, 2007, upon the completed filing of Articles of Exchange with the Nevada Secretary of State and a Statement of Share Exchange with the Colorado Secretary of State.  Contemporaneously with the Share Exchange, we changed our name to “China Nuvo Solar Energy, Inc.”

Nuvo was formed for the purpose of seeking a business opportunity in the alternate energy or “next-generation energy" sector. This industry sector encompasses non-hydro carbon based energy production and renewable energy technologies that are “net-zero" or emissions free.

 

On June 9, 2006 Nuvo signed a license agreement with Photovoltaics.com, Inc. (“PV”), Hutchinson Island, Florida.  Nuvo acquired exclusive worldwide rights to PV's solar cell technology relating to a multiple stacked solar cell using wave guide transfers. This license agreement includes all patents issued pursuant to certain patent applications or amendments that have been filed and the rights to use all applicable copyrights, trademarks and related intellectual property obtained on or in connection with the process and products. As consideration for this license, Nuvo paid a total aggregate license fee of $250,000.   The term of the license is for 10 years, automatically renewable for successive ten year terms under the same terms and conditions as provided for in this agreement. 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 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.

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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.  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 $37,569 of the intellectual property acquired, and such amount is included in other expenses for the year ended July 31, 2010.

OVERVIEW

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto for the years ended July 31, 2010 and 2009.  The financial statements presented for the three and nine months ended April 30, 2011 and 2010 include the Company, Nuvo, its wholly-owned subsidiary and Interactive Games, Inc., its majority owned subsidiary, a Florida Corporation.

In light of the foregoing, the historical data presented below is not indicative of future results. You should read this information in conjunction with the audited consolidated financial statements of the Company, including the notes to those statements and the following “Management’s Discussion and Analysis of Financial Conditions and Results of Operations”.

The Company’s financial statements for the three and nine months ended April 30, 2011 and 2010 have been prepared on a going concern basis, which contemplates the realization of its remaining assets and the settlement of liabilities and commitments in the normal course of business.  The Company has incurred significant losses since its inception and has a working capital deficit of approximately $1,862,000, and an accumulated shareholders’ deficit of approximately $1,977,000 as of April 30, 2011.  Nuvo has not yet earned any sources of revenue.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.  There can be no assurance that the Company will have adequate resources to fund future operations or that funds will be available to the Company when needed, or if available, will be available on favorable terms or in amounts required by the Company.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

On November 27, 2007, we executed a Collaboration and Development Agreement (the “Agreement”) with Pioneer Materials, Inc. (“PMI”) of Torrance, California. Under the terms of the Agreement, PMI will build, equip, operate and manage, for our benefit, a product development, testing and prototype manufacturing facility in PMI’s Chengdu, Sichuan, China facility located in Chengdu’s West High Tech development zone.  The agreement with PMI 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”.  

Pursuant to the terms of the Agreement, the Company agreed to pay PMI $2,500 per month and PMI is eligible to receive up to 4,000,000 shares of our common stock, of which 500,000 shares of common stock were issued upon the execution of the Agreement, upon the satisfactory completion of certain milestone accomplishments in the Agreement.   

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.  There had been no significant progress on product development and we no longer are continuing to work with PMI under the Collaboration Agreement. We have discontinued paying the $2,500 monthly fee and have not, nor expect to issue any additional shares to PMI.

LIQUIDITY AND CAPITAL RESOURCES

For the nine months ended April 30, 2011, net cash used in operating activities was $132,100 compared to $93,632 for the nine months ended April 30, 2010.  Net loss was $262,753 for the nine months ended April 30, 2011 compared to $572,472 for the nine months ended April 30, 2010. These losses were partially offset by a gain of $115,561 on a debt settlement with the CEO, whereby the market value of shares of preferred stock that were issued in exchange for debt cancellation were less than the debt cancelled and a gain on the sale of the shares of our equity position in IGAM of $440,599. Included in the current period were non-cash expenses of $609,236 of which $476,256 is associated with the fair market valuation of the convertible debentures, $92,980 is depreciation and amortization, and $40,000 of common stock based compensation to consultants.  

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Net cash provided by financing activities for the nine months ended April 30, 2011 was $131,838 compared to $93,750 for the nine months ended April 30, 2010. For the nine months ended April 30, 2011, the Company received $151,000 on the issuance of convertible notes, $15,700 on the issuance of third party notes and $5,000 on the issuance of related notes payable. During the nine months ended April 30, 2011 the Company repaid $27,632 of related party notes payable and also paid $12,500 closing costs on the newly issued convertible notes.  For the nine months ended April 30, 2010 the Company received proceeds of $102,785 on the issuance of notes payable, of which $68,285 were from related parties, and also repaid $9.035 of notes payable, including $7,550 of related party notes payable.  

For the nine months ended April 30, 2011, cash and cash equivalents decreased by $262 compared to a increase in cash and cash equivalents of $118 for the nine months ended April 30, 2010.  Ending cash and cash equivalents at April 30, 2011 was $142 compared to $422 at April 30, 2010.

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.

Over the next twelve months management will be re-examining its 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.

OPERATING EXPENSES

Operating expenses for the three and nine months ended April 30, 2011 and 2010 were $90,550 and $202,219, respectively, compared to $73,109 and $332,159 for the three and nine months ended April 30, 2011 and 2010, respectively. The current year expenses include management and consulting fees of $115,200 are comprised of wages of $90,000 accrued to our chief executive officer, $15,000 to our former corporate secretary, and $10,200 to our CFO. Additional expenses were $24,800 for accounting, $53,800 for consulting and other services and $8,419 for general and administrative costs. The expenses for the nine months ended April 30, 2010 were comprised of salaries and stock compensation costs of $118,281 comprised of the Black Sholes option model costs of $100,000 for options granted to purchase 10,000,000 shares of common stock at an exercise price of $0.01, expiring in August 2019 and $18,281 of deferred stock compensation expensed.  Legal and accounting expenses were $49,833, management and consulting fees of $127,000 are comprised of wages accrued to our chief executive officer ($90,000), our corporate secretary ($27,000), and payments of $10,000 to our CFO.  Other expenses of $37,045 include $21,503 of amortization and depreciation expense and general and administrative costs of $15,542.

OTHER INCOME (EXPENSE)

Other expenses for the three and nine months ended April 30, 2011 and 2010 was $51,859 and $60,534 respectively, compared to $320,744 and $240,313, for the three and nine months ended April 30, 2010.  The increase in derivative liabilities included in other expenses for the three and nine months ended April 30, 2011 and 2010 was $436,568 and $476,256, respectively, compared to $264,228 and $74,616 for the three and nine months ended April 30, 2010. For the nine months ended April 30, 2011 there was a gain on settlement of debt of $115,561 and for the three and nine months ended April 30, 2011 there was a gain on the sale of the majority owned shares of Interactive.  Interest expense for the three and nine months ended April 30, 2011 and 2010 is summarized as:

		Three months ended				Nine months ended
		April 30,				April 30,
		2011		2010		2011		2010
Amortization of debenture note discounts	$	39,691	$	42,736	$	92,980	$	120,780
Debenture interest		5,103		3,019		12,024		11,430
Notes interest, related		5,690		5,557		17,795		16,502
Notes and other interest		6,076		6.453		19,647		19,116
	$	56,560	$	57,765	$	142,446	$	167,828

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CONTRACTUAL OBLIGATIONS

No material changes outside the ordinary course of business during the quarter ended April 30, 2011.

CRITICAL ACCOUNTING POLICIES

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.

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). As required ASC 718, the Company will recognize the cost resulting from all stock-based payment transactions including shares issued under its stock option plans in the financial statements. There are 16,500,000 stock options outstanding as of April 30, 2011.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards ("SFAS'") SFAS No. 165 (ASC Topic 855), "Subsequent Events", SFAS No. 166 (ASC Topic 810), "Accounting for Transfers of Financial Assets-an Amendment of FASB Statement No. 140", SFAS No. 167 (ASC Topic 810), "Amendments to FASB Interpretation No. 46(R)", and SFAS No. 168 (ASC Topic 105), "The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162" were recently issued. The Company does not believe that these new pronouncements have applicability to the Company or their effect on the financial statements would not have been significant.  The Company evaluated for subsequent events through the issuance date of the Company’s financial statements.

Accounting Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

 

The Company does not expect that adoption of these or other recently issued accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company we are not required to provide the information required by this item.

ITEM 4T.

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 report. Based on that review and evaluation, the CEO and CFO have concluded that as of April 30, 2011 disclosure controls and procedures, were not effective to ensure that information relating to us required to be disclosed in our Securities and Exchange Commission (“SEC”) reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company first intends to focus it’s efforts on stabilizing the business as a going concern, and secondly, designing and installing effective controls as soon as cash flow, and funding to do so become available.

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;

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·

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.

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may still occur.

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.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

None

Item 1A. Risk Factors

As a smaller reporting company we are not required to provide the information required by this item.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

On December 9, 2010 the Company issued 11,442,140 shares of common stock upon the conversion of $12,500 of debentures and $5,522 of unpaid interest on the debentures. The shares were issued at approximately $0.001575 per share.

On February 2, 2011, the Company issued 18,390,805 shares of common stock upon the conversion of 20,000 shares of Series A Preferred Stock.  Pursuant to the Certificate of Designation of the Preferred Stock, as amended the shares were issued at approximately $0.001087 per share.

On February 14, 2011 the Company issued 36,936,879 shares of common stock upon the conversion of 39,938 shares of Series A Preferred stock.  Pursuant to the Certificate of Designation of the Preferred Stock, as amended the shares were issued at approximately $0.001081 per share.

Also in February 2011, the Company issued 13,266,666 shares of common stock pursuant to Debt Settlement and Release Agreements in exchange for the cancellation of $19,900 of notes and accrued liabilities.  The shares were issued at $0.0015, the price of the common stock on the date the parties had agreed to the settlements.

On April 1, 2011 the Company issued 10,949,427 shares of common stock upon the conversion of 28,651 shares of Series A Preferred Stock. Pursuant to the Certificate of Designation of the Preferred Stock, as amended the shares were issued at approximately $0.001337 per share.

From December 14, 2010 to February 14, 2011 the Company issued 56,500,000 shares of common stock upon the conversion of $66,255 of notes payable.  The shares were issued at an average price of approximately $0.00173.

During the three months ended April 30, 2011 the Company issued 25,000,000 shares of restricted common stock to an officer and director of the Company in satisfaction of $76,665 of amounts owed.  The shares were issued at an average price of approximately $.003 per share.

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Lastly, during the quarter ended April 30, 2011 the Company issued 10,000,000 shares to a consultant.  The Company valued the shares at $.004, (the price of the common stock on the date of the agreement) and recorded an expense of $40,000 for the three and nine months ended April 30, 2011.

Item 3.

Defaults upon Senior Securities

None.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

Item 5.

Other Information

None.

Item 6.

Exhibits

Exhibit Number	Description
31.1	CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
31.2	CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
32.1	CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
32.2	CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	China Nuvo Solar Energy, Inc.
	(Registrant)
Date: June 17, 2011	By: /s/ Henry Fong
	Henry Fong
	Principal Executive Officer

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