UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

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

For the quarterly period ended October 31, 2008

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 December 10, 2008 was 206,676,437.

Transitional Small Business Disclosure Format: Yes      . No  X .

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EXPLANATORY NOTE

This Amendment No. 1 (“Amendment”) on Form 10-Q/A amends the Periodic Report of China Nuvo Solar Energy, Inc. (the Company) on Form 10-Q for the period ended October 31, 2008 as filed with the Securities and Exchange Commission on December 16, 2008 (the “Original Filing”).  This Amendment is being filed to amend Part I, Item 4 (Controls and Procedures) as well as to restate the financial statements in their entirety to reflect the inclusion of the Company’s Florida based subsidiary, Imteractive Entertainment Group, Inc., formerly Interactive Games, Inc (“Igam”). Previously the Company excluded the balances and activity of Igam; based on the spinoff of Igam as being approved by the Company’s Board of Directors.  The Company determined that the spinoff of Igam was never effectuated as the shares of common stock were never issued and distributed as initially planned and approved by the Board of Directors.  Additionally, management determined that transactions related to any predecessor company should not be included in the financial statements.  Lastly, management determined that the accounting treatment of the July 27, 2007 transaction was deemed to be a reverse merger whereby the Company was the legal acquirer and Nuvo Solar Energy, Inc. (“Nuvo”) was the accounting acquirer. The effects of the restatements are shown in the tables in Footnote 8 to the financial statements.

Except as stated herein, this Form 10-Q/A does not reflect events occurring after the filing of the Original 10-Q on December 16, 2008 and no attempt has been made in this Periodic Report on Form 10-Q/A to modify or update other disclosures as presented in the Original Filing.  Accordingly, this Form 10-Q/A should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing,

Condensed consolidated financial statements:
Condensed consolidated balance sheets	3
Condensed consolidated statements of operations	4
Condensed consolidated statement of changes in shareholders’ deficit	5
Condensed consolidated statements of cash flows	6
Notes to condensed consolidated financial statements	7

2

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
(Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
				October 31, 2008			July 31, 2008
				RESTATED			RESTATED
				(unaudited)
Current Assets
	Cash			$	1,607		$	942
	Notes and interest receivable, related parties				54,317			53,649
	Prepaid expenses and other current assets				35,000			53,400
			Total current assets		90,924			107,991
Solar intellectual property, less accumulated depreciation of $60,416
	(October 31) and $54,166 (Juy 31)				339,584			345,834
Fixed assets, less accumulated depreciation of $10,312 (July 31)
	and $10,999 (October 31)				3,209			3,896
Debt issuance costs					95,801			108,199
			Total assets	$	529,518		$	565,920
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
	Accrued liabilities, related parties			$	558,578		$	527,239
	Accounts payable and accrued expenses				319,990			307,783
	Derivative liability convertible debentures				579,000			572,238
	Notes payable				175,144			175,644
	Notes payable, related party				208,647			164,932
			Total current liabilities		1,841,359			1,747,836
Long-term liabilities:
					140,499			101,134
			Total liabilities		1,981,858			1,848,970
Shareholders’ deficit:
	Preferred stock, $.001 par value; 5,000,000 shares authorized,
		535,981 shares issued and outstanding			535,891			535,891
	Common stock, $.001 par value, 495,000,00 shares authorized;
		206,676,437 (October 31) and 204,676,437 (July 31) issued and outstanding			206,676			204,676
	Minority interest				(91,088)			(61,286)
	Deferred compensation				(83,333)			(133,333)
	Additional paid-in capital				9,575,253			9,554,753
	Retained earnings				(11,595,739)			(11,383,751)
			Total shareholders' deficit		(1,452,340)			(1,283,050)
			Total liabilities and shareholders' deficit	$	529,518		$	565,920

See Accompanying notes to financial statements.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY
(DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
			For the three			For the three			From Inception
			months ended			months ended			April 16, 2006-
			October 31, 2008			October 31, 2007			October 31, 2008
			Restated			Restated			Restated
Revenues:
	Revenues		$	1,599		$	-		$	8,199
	Cost of revenues			-			-			-
		Gross profit		1,599			-			8,199
Operating costs and expenses:
	Selling, general and administrative
	Consulting fees			18,300			15,000			284,050
	Management and consulting fees, related parties			39,000			68,750			682,561
	Salaries and stock compensation cost			56,094			137,469			634,354
	Legal and accounting			9,500			72,305			143,039
	Other			29,432			58,679			257,659
		Total operating costs and expenses		152,326			352,203			2,001,663
		Operating loss		(150,727)			(352,203)			(1,993,464)
Other income (expenses)
	Interest expense, related parties			(4,736)			(8,746)			(40,122)
	Interest expense, other			(57,733)			(47,804)			(402,487)
	Interest income, related parties			668			668			3,325
	Minority interest			29,802			1,112			91,088
	Fair value adjustment of derivative liabilities			(29,262)			182,948			229,214
	Impairment of goodwill			-			-			(9,483,293)
		Total other income (expenses)		(61,261)			128,178			(9,602,275)
		Net (loss) income	$	(211,988)		$	(224,025)		$	(11,595,739)
Basic and diluted net (loss) income per common share			$	(0.01)		$	(0.01)
Basic and diluted weighted average common shares outstanding				205,379,734			195,178,268

See Accompanying notes to financial statements.

4

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

(DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT

RESTATED

See Accompanying notes to financial statements.

5

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See Accompanying notes to financial statements.

6

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 October 31, 2008, the results of operations for the three months ended October 31, 2008 and 2007 and cash flows for the three months ended October 31, 2008 and 2007.  The balance sheet as of July 31, 2008 is derived from the Company’s audited financial statements.

 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/A for the fiscal year ended July 31, 2008, 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 months ended October 31, 2008 are not necessarily indicative of the results of operations to be expected for the full fiscal year ending July 31, 2009.

Going concern and management’s plans

The Company had a working capital deficit of approximately $1,750,000 at October 31, 2008. Additionally, the Company to date has generated minimal revenues. Accordingly, the Company has no ready source of working capital. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. While management believes the Company may be able to raise funds through the issuance of debt or equity instruments, there is no assurance the Company will be able to raise sufficient funds to operate in the future.

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.  Management has determined that as of July 31, 2007 the goodwill amount of $8,000,000 was impaired and recorded the write down of goodwill for the year ending July 31, 2007.

Upon completion of the Share Exchange, we ceased all operations relating to the business of Interactive Games, Inc. and adopted the business plan of Nuvo, which is now our wholly owned subsidiary.  Our focus is the development of a viable manufacturing process for our solar cell technology.

7

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

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

Going concern and management’s plans (continued)

As part of our planned operations, our main focus will be the development of a viable manufacturing process for our technology.

We will require additional capital to fund the development of a pilot manufacturing process as well as for general corporate working capital to fund our day-to-day operations and costs associated with being a publicly-traded company. This amount does not include any amounts which may be necessary to pay off existing debt or accrued expenses. We presently believe the source of funds will primarily consist of debt financing, which may include debt instruments that may include loans from our officers or directors, or the sale of our equity securities in private placements or other equity offerings or instruments. The debt financing may include loans from our officers and directors. Although our balance sheet includes current liabilities of approximately $1,841,000, a portion of this amount are in the form of a derivative liability of $579,000 and convertible notes of $300,000 (of which $125,000 is a related party).  These amounts, plus other related party loans of $83,647 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.

 Management will continue over the next twelve months 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.

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 in Financial Accounting Standards Board Statement No. 7 ("SFAS 7"). Among the disclosures required by SFAS 7 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.

Summary of 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.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

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

 

Summary of significant accounting policies (continued):

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 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.

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

Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), Share Based Payment (“SFAS No, 123R”).  SFAS No. 123R establishes the financial accounting and reporting standards for stock-based compensation plans.  As required by SFAS No. 123R, the Company will recognize the cost resulting from all stock-based payment transactions including shares issued under its stock option plans in the financial statements. The Company did not issue any stock options during the three months ended October 31, 2008 and 2007.  There are 14,187,107 stock options and warrants outstanding as of October 31, 2008.

Prior to January 1, 2006, the Company accounted for stock-based employee compensation plans (including shares issued under its stock option plans) in accordance with APB Opinion No. 25 and followed the pro forma net income, pro forma income per share, and stock-based compensation plan disclosure requirements set forth in the Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”).  

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.

9

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

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

 

Summary of significant accounting policies (continued):

Income taxes

Income taxes are accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. SFAS No. 109 requires the recognition of deferred tax assets and liabilities to reflect 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, SFAS No. 109 requires an evaluation of the probability of being able to realize the future benefits indicated by such assets. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some, or all, of the deferred tax asset will not be realized.

Loss per common share

 

Loss per share of common stock is computed based on the weighted average number of common shares outstanding during the period.  Stock options, warrants and common stock underlying convertible promissory  notes at October 31, 2008 and 2007 were 152,108,676 and 23,547,466, 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

In connection with any obligations and instruments potentially to be settled in the Company's stock, the Company accounts for the instruments in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock.  This issue addresses the initial balance sheet classification and measurement of contracts that are indexed to, and potentially settled in, the Company's stock.

Under EITF 00-19, contracts are initially classified as equity or as either assets or liabilities, depending on the situation. All contracts are initially measured at fair value and subsequently accounted for based on the then current classification. Contracts initially classified as equity do not recognize subsequent changes in fair value as long as the contracts continue to be classified as equity. For contracts classified as assets or liabilities, the Company reports changes in fair value in earnings and discloses these changes in the financial statements as long as the contracts remain classified as assets or liabilities. If contracts classified as assets or liabilities are ultimately settled in shares, any previously reported gains or losses on those contracts continue to be included in earnings. The classification of a contract is reassessed at each balance sheet date.

Derivative instruments

In connection with the issuances of equity instruments or debt, the Company may issue options or warrants to purchase common stock. In certain circumstances, these options or warrants may be classified as liabilities, rather than as equity. In addition, the equity instrument or debt may contain embedded derivative instruments, such as conversion options or listing requirements, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative liability instrument. The Company accounts for derivative instruments under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.

Recent accounting pronouncements

In February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities”, which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company did not adopt SFAS No. 159 on any individual instrument as of October 31, 2008.

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.

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

Summary of significant accounting policies (continued):

Recent accounting pronouncements (continued)

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). SFAS No. 141R is a revision to SFAS No. 141 and includes substantial changes to the acquisition method used to account for business combinations (formerly the “purchase accounting” method), including broadening the definition of a business, as well as revisions to accounting methods for contingent consideration and other contingencies related to the acquired business, accounting for transaction costs, and accounting for adjustments to provisional amounts recorded in connection with acquisitions. SFAS No.141R retains the fundamental requirement of SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS No. 141R is effective for periods beginning on or after December 15, 2008, and will apply to all business combinations occurring after the effective date. The Company is currently evaluating the requirements of SFAS No. 141R.

The FASB also issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51, Consolidated Financial Statements” in December 2007.   This statement amends ARB No. 51 to establish new standards that will govern the (1) accounting for and reporting of non-controlling interests in partially owned consolidated subsidiaries and (2) the loss of control of subsidiaries.  Non-controlling interest will be reported as part of equity in the consolidated financial statements.  Losses will be allocated to the non-controlling interest, and, if control is maintained, changes in ownership interests will be treated as equity transactions.  Upon a loss of control, any gain or loss on the interest sold will be recognized in earnings.  SFAS No. 160 is effective for periods beginning after December 15, 2008.  The Company is currently evaluating the requirements of SFAS No. 160.

The FASB also issued SFAS No. 161 “Disclosures About Derivatives Instruments and Hedging Activities” in March 2008.  This statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.  This statement is effective for financial statements for fiscal years and interim periods beginning after November 15, 2008, with earlier application encouraged.  The Company is currently evaluating the requirements of SFAS No. 161.

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

2.

Accrued liabilities, related parties:

Accrued liabilities, related parties at October 31, 2008 and July 31, 2008 are as follows:

		October 31, 2008		July 31, 2008
Officer bonus	$	275,561	$	275,561
Management fees		263,600		237,000
Accrued interest		19,417		14,678
	$	558,578	$	527,239

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.

Convertible debentures payable:

In April 2006, the Company executed a Securities Purchase Agreement (the “Purchase Agreement”) with various accredited investors (the “Holder” or “Holders”) for the issuance and sale of up to $700,000 of 6% unsecured convertible debentures in private transactions (the “2006 Debentures”).  As of July 31, 2006, the Company completed the sale of the aggregate $385,000 in the 2006 Debentures under the Purchase Agreement.  We received $324,950 from these transactions net of $60,050 of debt issuance costs paid to our placement agents, Divine Capital Markets, LLC (“Divine”) (included in the accompanying balance sheet), which will be amortized as debt issuance costs over the three year term of the convertible notes.  At October 31, 2008 the remaining face amount of the 2006 Debentures is $0.

On October 21, 2007 the Board of Director of the Company authorized the sale of up to $700,000 of 6% unsecured convertible debentures (the “2007 Debentures”).  We have received net proceeds of $429,350 after $75,650 of debt issuance costs (included in the accompanying October 31, 2008 balance sheet), paid to Divine, who acted as our placement agent.  The debt issuance costs will be amortized as debt issuance costs over the three year term of the 2007 Debentures.  The terms and conditions of the 2007 Debentures are the same as the 2006 Debentures.  Accordingly, fair value of these derivative instruments have been recorded as a liability on the consolidated balance sheet with the corresponding amount recorded as a discount to the 2007 Debentures.  The change in the fair value of the liability will be credited or (charged) to other income or (expense) in the consolidated statement of operations.  The beneficial conversion feature included in the 2007 Debentures resulted in an initial debt discount of $465,000 and an initial loss on the valuation of derivative liabilities of $179,767. During the three months ended October 31, 2008 debenture holders redeemed $22,500, thereby reducing the face value of the debentures as we as the initial debt discount.  Based on the revaluation of the remaining 2007 Debentures of $482,500 at October 31, 2008, the Company recorded an expense of $29,262 and increased the derivative liability on the balance sheet by $29,262.

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.

The Debentures cannot be converted until nine (9) months after the issuance date of each Debenture.  During the three months ended October 31, 2008, the Holders converted  $22,500 of the 2007 Debentures to 2,000,000 shares of common stock at an average conversion price of approximately $0.01125 per share.

12

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.

Convertible debentures payable (continued):

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

4.

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 October 31, 2008 and July 31, 2008 consist of the following:

		October 31, 2008		July 31, 2008
Notes payable	$	175,144	$	175,644
Notes payable, related parties [A]		208,647		164,932
Convertible debentures, net of discount of $342,001 (October) and $403,866 (July)		140,499		101,134
		524,290		441,710
Less current portion		383,791		340,576
Long-term debt, net of current portion	$	140,499	$	101,134

[A]

The following table summarizes the activity of notes payable, related parties for the three months ended October 31, 2008:

Balance, August 1, 2008	$	164,932
Reclassification		500
Issuance of new notes		43,215
Balance, October 31, 2008	$	208,647

5.

Stockholders’ deficit:

Common stock

On September 29, 2008, the Company issued 2,000,000 shares of its common stock upon the conversion of $22,500 of convertible debentures.  The shares were converted at $0.01125 per share.

Stock options and warrants

In March 2002, the Company adopted the 2002 Stock Option Plan, covering up to 1,000,000 shares of the Company's common stock, and in July 2003, the Company adopted the 2003 Stock Option Plan covering up to 2,500,000 shares of the Company's common stock.

13

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.

Stockholders’ deficit (continued):

Stock options and warrants (continued)

A summary of the activity of the Company’s outstanding options and warrants for the three months ended October 31, 2008 is as follows:

		Options and warrants		Weighted average exercise price
Outstanding and exercisable August 1, and October 31, 2008		14,187,107	$	0.11
		14,187,107	$	0.11

Range of exercise prices		Warrants outstanding and exercisable		Weighted average  remaining contractual life		Weighted average exercise price
$ 0.05		300,000		0.04		$ 0.05
0.07 – 0.10		10,237,107		1.78		0.085
0.12		1,000,000		0.22		0.12
0.20		2,650,000		0.05		0.20

The weighted average remaining contractual life of the terms of the warrants and options is 2.08 years.

6.

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 October 31, 2008, 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 for the three months ended October 31, 2008 and 2007, respectively, is as follows:

		2008		2007
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%

14

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

7.

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.  Nuvo also agreed to pay PV a fee of $180,000 over the first three years of the agreement to act as a consultant.

On January 23, 2008, the Company purchased from PV the patents related to the solar technology in exchange for 2,000,000 restricted shares of common stock of the Company.  The Company now owns all rights, title and interest in the patents, including all issued patents or other intellectual property arising from the patents worldwide.  The Company valued the common stock at $0.075 per share (the market price of the common stock on November 16, 2007, the date the parties agreed to the number of shares to be issued) and accordingly, increased its intellectual property asset by $150,000 on the October 31, 2008 balance sheet included herein.

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 continue to work with PMI under the Collaboration Agreement, however, there has been no significant progress on product development and we continue to explore alternative avenues for development of our technology. We suspended paying the $2,500 monthly fee.

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

15

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.

Restatements:

Subsequent to the issuance of the Company’s October 31, 2008 consolidated financial statements, the Company’s management determined that corrections were required to the previously reported financial statements to reflect the inclusion of the Company’s Florida based subsidiary, Interactive Games, Inc (“Igam”). Previously the Company excluded the balances and activity of Igam based on the spinoff of Igam as being approved by the Company’s Board of Directors. The Company determined that the spinoff of Igam was never effectuated as the shares of common stock were never issued and distributed as initially planned and approved by the Board of Directors.  Additionally, management determined that transactions related to any predecessor company should not be included in the financial statements.  Lastly, management determined that the accounting treatment of the July 27, 2007 transaction was deemed to be a reverse merger whereby the Company was the legal acquirer and Nuvo Solar Energy, Inc. (“Nuvo”) was the accounting acquirer. The effects of the restatements are shown in the following tables.

China Nuvo Solar Energy, Inc. and Subsidiary

Consolidated Balance Sheet

ASSETS		October 31, 2008 Original		Adjustments		October 31, 2008 Restated
Current assets
Cash	$	1,105	$	502	$	1,607
Notes and interest and interest receivable		54,317				54,317
Prepaid expenses and other current assets		35,000				35,000
Total current assets		90,422		502		90,924
Fixed assets, net				3,209		3,209
Solar intellectual property, net		339,584				339,584
Debt issuance costs		95,801				95,801
Total assets	$	525,807	$	3,711	$	529,518
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accrued liabilities, related parties	$	368,953	$	189,625	$	558,578
Accounts payable and accrued expenses		109,911		210,079		319,990
Derivative liability convertible debentures		579,000				579,000
Notes payable		175,144				175,144
Notes payable, related parties		162,482		46,165		208,647
Total current liabilities		1,395,490		445,869		1,841,359
Long term liabilities
Convertible debentures, payable, net		140,499				140,499
Total Liabilities		1,535,989		445,869		1,981,858

16

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.

Restatements (continued):

		October 31, 2008 Original		Adjustments		October 31, 2008 Restated
Shareholders’ Deficit
Preferred stock, $.001 par value; 25,000,000
shares authorized, 535,891 issued and outstanding		535,891				535,891
Common stock, $.001 par value, 475,000,000
shares authorized, 206,676,437 issued and outstanding		206,676				206,676
Minority interest				(91,088)		(91,088)
Deferred compensation				(83,333)		(83,333)
Additional paid in capital		(949,653)		10,524,906		9,575,253
Retained deficit		(803,096)		(10,792,643)		(11,595,739)
Total shareholders’ deficit		(1,010,182)		(442,158)		(1,452,340)
Total liabilities and shareholders’ deficit	$	525,807	$	3,711	$	529,518

As a result of the restated consolidated balance sheet, to include the accounts of Interactive Games, Inc., (our Florida majority owned subsidiary), and to carry forward prior year adjustments, including the impairment of $9,483,293 of goodwill; total assets and liabilities increased by $3,711 and $445,869 respectively and shareholders’ deficit increased by $442,158.

China Nuvo Solar Energy, Inc. and Subsidiary

Consolidated Statement of Operations

		October 31, 2008				October 31, 2008
		Original		Adjustments		Restated
Revenues	$	0	$	1,599	$	1,599
Cost of sales		0		0		0
Gross profit		0		1,599		1,599
Operating costs and expenses:
Consulting fees		15,000		3,300		18,300
Management fees, related parties		39,000				39,000
Salaries, including stock compensation		6,094		50,000		56,094
Legal and accounting		9,500				9,500
Other		17,695		11,737		29,432
Total operating costs and expenses		87,289		65,037		152,326
Operating loss		(87,289)		(63,438)		(150,727)

17

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.

Restatements (continued):

		October 31, 2008				October 31, 2008
		Original		Adjustments		Restated
Interest expense, related		(669)		(4,067)		(4,736)
Interest expense, other		(54,580)		(3,153)		(57,733)
Interest income, related		668				668
Minority interest		0		29,802		29,802
Derivative liability		(29,262)				(29,262)
Total other (expenses) income		(83,843)		22,582		(61,261)
Net loss	$	(171,132)	$	(40,856)	$	(211,988)
Basic and diluted net loss per common share	$	(.**)	$	-	$	(.01)
Basis and diluted weighted average common shares
Outstanding		205,379,734		-		205,379,734

As a result of the restated consolidated statement of operations for the three months ending October 31, 2008, the Company’s net loss increased from $171,132 to $211,988.  The increase in the loss is a result of including the accounts of Interactive Games, Inc. (our Florida majority owned subsidiary).

China Nuvo Solar Energy, Inc. and Subsidiary

Consolidated Statement of Operations

		October 31, 2007				October 31, 2007
		Original		Adjustments		Restated
Revenues	$	0	$	0	$	0
Cost of sales		0		0		0
Gross profit		0		0		0
Operating costs and expenses:
Consulting fees		15,000				15,000
Management fees, related parties		41,250		27,500		68,750
Salaries, including stock compensation		137,469				137,469
Legal and accounting		60,805		11,500		72,305
Other		51,333		7,346		58,679
Total operating costs and expenses		305,857		46,346		352,203
Operating loss		(305,857)		(46,346)		(352,203)
Other (expenses) income
Interest expense, related		(38)		(8,708)		(8,746)
Interest expense, other		(46,479)		(1,325)		(47,804)
Interest income, related		668				668
Minority interest		0		1,112		1,112
Derivative liability expense		182,948				182,948
Total other (expenses) income		137,099		(8,921)		128,178
Net loss	$	(168,758)	$	(55,267)	$	(224,025)

18

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.

Restatements (continued):

		October 31, 2007				October 31, 2007
		Original		Adjustments		Restated
Basic and diluted net loss per common share	$	(**)	$	-	$	(0.01)
Basic and diluted weighted average common shares  outstanding		195,178,268		-		195,178,268

As a result of the restated consolidated statement of operations for the three months ended October 31, 2007, the Company’s originally reported net loss of $168,758 was increased by $55,267, resulting in a net loss of $224,025 for the three months ended October 31, 2007.  The increase in the loss is a result of including the accounts of Interactive Games, Inc., (our Florida majority owned subsidiary).

China Nuvo Solar Energy, Inc. and Subsidiary

Consolidated Statement of Cash Flows

		October 31, 2008 Original		Adjustments		October 31, 2008 Restated
Cash flows from operating activities:
Net loss	$	(171,132)	$	(40,856)	$	(211,988)
Adjustments to reconcile net loss to net cash used in operating activities:
Decrease in derivative liability		29,262		-		29,262
Change in minority interest		0		(29,802)		(29,802)
Amortization of discount on debentures payable		39,365		-		39,365
Amortization of debt issuance costs		6,303		1		6,304
Common stock and warrant based compensation		6,094		50,000		56,094
Depreciation		-		687		687
Amortization of intellectual property		6,250		-		6,250
Change in operating assets and liabilities:
Decrease (increase) in prepaid expenses and other assets		15,000		3,400		18,400
Increase in notes and interest receivable				(668)		(668)
Increase in accounts payable and accrued expenses		15,953		(3,746)		12,207
Increase in amounts due to related parties		29,370		1969		31,339
Net cash used in operating activities		(23,535)		(19,015)		(42,550)
Cash flows from investing activities:
Purchase of property and equipment		-		-		-
Net cash used in investing activities		-		-		-

19

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.

Restatements (continued):

As a result of the restatement of the consolidated statement of cash flows for the three months ended October 31, 2008, the net cash used in operations originally reported of $23,535 increased by $19,015 to $42,550, there was not any cash used in investing activities, and net cash provided by financing activities increased from the original reported amount of $23,700 by $19,515 to $43,215. The increase in net cash and cash equivalents originally reported of $165, increased by $500 to $665 for the three months October 31, 2008.

China Nuvo Solar Energy, Inc. and Subsidiary

Consolidated Statement of Cash Flows

20

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CHINA NUVO SOLAR ENERGY, INC. AND SUBSIDIARY

FOR THE THREE MONTHS ENDED OCTOBER 31, 2008 and 2007

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8.

Restatements (continued):