NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
October
31, 2020
(Unaudited)
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Summit
Networks Inc. (together with its subsidiary, the “Company”) was incorporated under the laws of the State of Nevada
on July 8, 2014. Originally, the Company was formed to engage in the development and operation of a business engaged in the distribution
of glass craft products produced in China. On May 8, 2018, the Company acquired Real Capital Limited, a Hong Kong company (“Real
Capital”), to seek opportunities in the food and beverage industry. On March 31, 2019, the Company entered into a Share
Purchase Agreement (the “Real Capital SPA”) pursuant to which it sold its interests in Real Capital. The closing of
the Real Capital SPA occurred on April 10, 2019.
On
April 9, 2019, the Company entered into a Share Exchange Agreement (the “MoralArrival Share Exchange Agreement”) with
MoralArrival Environmental and Blockchain Technology Services Limited, a British Virgin Islands company (“MoralArrival”),
and the sole shareholder of MoralArrival, Ms. Liu. The acquisition of MoralArrival was with a related party as Ms. Liu controls
The Hass Group, Inc., the Company’s largest stockholder, and it was accounted for as acquisition of entity under common
control. Under the terms of the MoralArrival Share Exchange Agreement, the Company agreed to exchange 3,000,000 shares of its
common stock for all the outstanding shares of common stock of MoralArrival. As a result of this transaction, MoralArrival became
a wholly-owned subsidiary of the Company. MoralArrival had no business activity as of the date of acquisition. MoralArrival changed
its name to Goodwill Motion Enterprises, Inc. (“Goodwill”) on May 4, 2020. On November 11, 2020, the Company entered
into a Mutual Rescission Agreement (the “Goodwill Rescission Agreement”) with Goodwill and Shuhua Liu, the shareholder
of Goodwill. Under the terms of the Goodwill Rescission Agreement, the obligations of all parties to the MoralArrival Share Exchange
Agreement shall be terminated and the transactions contemplated thereby unwound and voided as if the MoralArrival Share Exchange
Agreement was never entered into and the transactions contemplated thereby never occurred. See Note 7. SUBSEQUENT EVENTS.
On
July 17, 2019, the Company received FINRA approval to affect a 10-for-1 stock dividend to holders of its common stock as of June
1, 2019, the record date for the dividend. As a result, common stock figures, share capital, additional paid in capital, and earnings
per share information have been retroactively adjusted for all periods presented to reflect the stock dividend.
On
May 8, 2020, Sumnet (Canada) Inc. (“Sumnet (Canada)”) was incorporated in Canada. Sumnet (Canada) issued all its ordinary
shares to the Company on May 8, 2020 so that Sumnet (Canada) became the wholly owned subsidiary of Company. On July 29, 2020,
Smith Barney Enterprises Limited (“Smith Barney”) was incorporated in the British Virgin Islands. Smith Barney issued
all its ordinary shares to the Company on July 29, 2020 so that Smith Barney became the wholly owned subsidiary of Company. On
August 28, 2020, Green Energy (HK) Limited (“Green Energy”) was incorporated in Hong Kong. Green Energy issued all
its ordinary shares to Smith Barney on August 28, 2020 so that Green Energy became the wholly owned subsidiary of Smith Barney.
On September 27, 2020, Beijing Asian League Wins Technology Co., Ltd. (“Beijing ALW”) was incorporated in People’s
Republic of China. Green Energy subscribed all capital stock of Beijing ALW on September 27, 2020 so that Beijing ALW became the
wholly owned subsidiary of Green Energy.
Currently,
we are in the early stage of development of our new business plan involves acting as an international agent for a Chinese environmental
company to market its environmental technologies, equipment and products and to develop projects utilizing its environmental technologies,
equipment and products in worldwide markets. However, to date, our activities to have been limited to capital formation, organization
and development of a business plan.
NOTE
2. GOING CONCERN
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The
Company had limited operations and has not generated any revenue since its inception, July 8, 2014, resulting in accumulated deficit
of $715,637 as of October 31, 2020. There is no guarantee that Company will generate revenue and net income in the future.
At
October 31, 2020, the Company had a working capital deficiency of $289,720. These conditions, among others, raise substantial
doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include adjustments
that might result from the outcome of this uncertainty.
The
Company’s operations may be affected by the recent and ongoing outbreak of the coronavirus disease 2019 (COVID-19) which
in March 2020 was declared a pandemic by the World Health Organization. The ultimate disruption which may be caused by the outbreak
is uncertain; however it may result in a material adverse impact on the Company’s financial position, operations and cash
flows. Possible areas that may be affected include, but are not limited to, disruption to the Company’s potential customers,
unavailability of products and supplies used in operations, and the unavailability of capital.
The
Company actively looks for new business opportunities, and its operating expenses are solely relied on loans from the shareholders.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
The
accompanying unaudited interim consolidated financial statements and information have been prepared in accordance with accounting
principles generally accepted in the United States of America, and the applicable rules and regulations of the Securities and
Exchange Commission (SEC) regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures
required by accounting principles generally accepted in the United States of America for complete financial statements. In the
opinion of management, these financial statements contain all normal and recurring adjustments considered necessary to present
fairly the Company's financial position, results of operations, cash flows, and stockholders’ equity for the periods presented.
The results for the three months ended October 31, 2020 are not necessarily indicative of the results to be expected for the full
year.
These
unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements
and related notes included in our Annual Report on Form 10-K for the year ended July 31, 2020 filed with the Securities and Exchange
Commission on November 13, 2020.
Use
of Estimates
The
preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income
Taxes
The
Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income
Taxes”. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and for
operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax
rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance
to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Fair
Value
ASC
740 provides guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. If the Company determines that an uncertain tax position exists in which the Company could incur income taxes,
the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination
by the taxing authorities. A liability for uncertain tax positions would then be recorded if the Company determined it is more
likely than not that a position would not be sustained upon examination or if a payment would have to be made to a taxing authority
and the amount is reasonably estimable. The Company does not believe any uncertain tax positions exist that would result in the
Company having a liability to the taxing authorities. The Company classifies interest and penalties related to unrecognized tax
benefits, if and when required, as part of interest expense and other expense in the statements of operations. As of October 31,
2020 and July 31, 2020, the Company did not have any amounts recorded pertaining to uncertain tax positions.
Fair
Value Measurements
The
Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value
as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair
value measurements.
The
estimated fair value of certain financial instruments, including cash and cash equivalents are carried at historical cost basis,
which approximates their fair values because of the short-term nature of these instruments.
ASC
820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)
in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may
be used to measure fair value:
Level
1 — quoted prices in active markets for identical assets or liabilities
Level
2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level
3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
The
Company has no assets or liabilities valued at fair value on a recurring basis.
Recent
Accounting Pronouncements
The
Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued,
which may be in advance of their effective date. The Company has reviewed all recently issued, but not yet effective, accounting
pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact
on its financial condition or the results of its operations.
NOTE
4. RELATED PARTY TRANSACTIONS
As
of October 31, 2020, the amount due to the shareholders of the Company was $518,607, which was unsecured, non-interest
bearing with no specific repayment terms. During the three months ended October 31, 2020, the Company borrowed $Nil
from a related party.
On
April 9, 2019, the Company entered into MoralArrival Share Exchange Agreement with MoralArrival, a British Virgin Islands company,
and the sole shareholder of MoralArrival was Shuhua Liu. The acquisition of MoralArrival was with a related party, as Ms. Liu
controls The Hass Group, Inc., the Company’s largest stockholder and it was accounted for as acquisition of entity under
common control. Under the terms of that MoralArival Share Exchange Agreement, the Company agreed to exchange 3,000,000 shares
of its common stock for all the outstanding shares of common stock of MoralArrival. As a result of this transaction, MoralArrival
has become a wholly-owned subsidiary of the Company. The Company issued 3,000,000 shares of common stock to Ms. Liu in January
2020. This Share Exchange Agreement was terminated on November 11, 2020. See Note 1 and Note 7.
NOTE
5. STOCKHOLDERS’ EQUITY
On
January 7, 2020, in connection with the MoralArrival Share Exchange Agreement, the Company issued 3,000,000 shares of common stock
to Ms. Liu. See Note 1 and Note 4 above.
As
of October 31, 2020, the Company had 64,049,990 shares of common stock issued and outstanding.
NOTE
6 - INCOME TAXES
The
reconciliation of income tax benefit at the U.S. statutory rate of 21% for three months ended October 31, 2020 and 2019 to
the Company’s effective tax rate is as follows:
|
|
|
Three Months Ended
October 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
US statutory rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
Income tax benefit at statutory rate
|
|
$
|
(15,089
|
)
|
|
$
|
(5,726
|
)
|
|
Change in valuation allowance
|
|
|
15,089
|
|
|
|
5,726
|
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The
tax effects of temporary differences that give rise to the Company’s net deferred tax assets are as follows:
|
|
|
October 31,
2020
|
|
|
July 31,
2020
|
|
|
Net operating loss carryforward
|
|
$
|
149,488
|
|
|
$
|
134,399
|
|
|
Valuation allowance
|
|
|
(149,488
|
)
|
|
|
(134,399
|
)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As
of October 31, 2020, the Company has approximately $711,847 of net operating losses (“NOL”) carryovers to offset taxable
income, if any, in future years. Of the net operating loss from the Company’s operations, $141,356 can be carried forward
for a period of twenty years from the year of the initial loss and $570,491 can be carried forward with no time limit from the
year of the initial loss pursuant to relevant US laws and regulations. In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full
valuation allowance against all of the deferred tax assets relating to the NOL period because it is more likely than not that
all of the deferred tax assets will not be realized.
NOTE
7. SUBSEQUENT EVENTS
Management
has evaluated subsequent events through the date these financial statements were available to be issued and concluded the following
subsequent event need to be disclosed:
On
November 11, 2020, the Company entered into a Mutual Rescission Agreement (the “Goodwill Rescission Agreement”) with
Goodwill and Shuhua Liu, the shareholder of Goodwill. Under the Goodwill Rescission Agreement, Shuhua Liu agreed to deliver to
the Company 3,000,000 shares of its common stock that were issued to Liu under the MoralArrival Share Exchange Agreement, which
the Company agreed to cancel upon such delivery by Shuhua Liu. Under the terms of the Goodwill Rescission Agreement, the obligations
of all parties to the MoralArrival Share Exchange Agreement shall be terminated and the transactions contemplated thereby unwound
and voided as if the MoralArrival Share Exchange Agreement was never entered into and the transactions contemplated thereby never
occurred.
Currently,
the Company is in the early stage of development of its new business plan which involves acting as an international agent through
our wholly-owned subsidiaries, Smith Barney, Green Energy and Beijing ALW, for a Chinese environmental company, Hengshui Jingzhen
Environmental Technology Company Limited of Hebei, China (“Hengshui”), to market its environmental technologies, equipment
and products and to develop projects utilizing its environmental technologies, equipment and products in worldwide markets. However,
to date, the Company’s activities have been limited to capital formation, organization and development of a business plan.”