NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2021
(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. Pursuant to the
Goodwill Rescission Agreement, Shuhua Liu delivered to the Company 3,000,000 shares of its common stock that were issued to Shuhua Liu
under the MoralArrival Share Exchange Agreement, which the Company canceled upon such delivery by Shuhua Liu. See NOTE 7. RELATED PARTY
BALANCES AND TRANSACTIONS.
On May 8, 2020, Sumnet (Canada) Inc. (“Sumnet
(Canada)”) was incorporated in Canada. Sumnet (Canada) issued all its ordinary shares to the Company 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.
On January 20, 2021, Beijing ALW and Green Energy
entered into a series of contractual agreements (the “VIE Agreement”) with Hengshui Jingzhen Environmental Company Limited
(“Hengshui Jingzhen”, or the “VIE”), whereby Beijing ALW gained control over Hengshui Jingzhen, a P.R. China
company, which provides integrated hazardous waste management services, including collecting, transferring, disposing, and recycling
of hazardous waste, primarily in Hebei, China. On March 29, 2021, the board of directors and a majority shareholder of the Company approved
the termination of the VIE Agreements with Hengshui Jingzhen. On the same date, Beijing ALW, Hengshui Jingzhen, and Hengshui Jingzhen’s
shareholders entered into a Termination Agreement (the “Termination Agreement”) to terminate all existing VIE Agreements
signed on January 20, 2021. Pursuant to the Termination Agreement, all of the rights and obligations under the existing VIE Agreements
were terminated and the Company no longer had control of Hengshui Jingzhen. See NOTE 4. EXECUTION AND TERMINATION OF VIE AGREEMENTS.
Currently, we are in the early stage of development
of our new business plan that involves acting as an international agent for a Japanese company to market its waste-to-energy technology
to develop projects utilizing its technology in Chinese markets. However, to date, our activities have been limited to capital formation,
organization, and development of a business plan.
On January 20, 2021, the Company changed its
fiscal year-end from July 31 to September 30.
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 $1,123,514 as of June 30, 2021. There is
no guarantee that Company will generate revenue and net income in the future.
At June 30, 2021, the Company had a working capital
deficiency of $667,597. 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.
Management has evaluated the effect of the ongoing
outbreak of the COVID-19, which was declared as a pandemic by the World Health Organization in March 2020. Although the ultimate disruption
caused by the outbreak and the timing on a return to more normal operations are still uncertain, it may have a material adverse impact
on the Company’s future business plan.
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
On January 20, 2021, the Company changed its
fiscal year-end from July 31 to September 30. Therefore, the consolidated balance sheets as of June 30, 2021 and September 30, 2020,
the consolidated statements of operations and stockholders’ deficit for the three and nine months ended June 30, 2021 and 2020,
and the consolidated statements of cash flows for the nine months ended June 30, 2021 and 2020 were prepared based on the Company’s
new fiscal year.
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 nine months ended June 30, 2021 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.
Fixed Assets
Fixed assets are recorded at cost less accumulated
depreciation. Gains or losses on disposals are reflected as gain or loss in the year of disposal. All ordinary repair and maintenance
costs are expensed as incurred.
Depreciation for financial reporting purposes
is provided using the straight-line method over the estimated useful lives of the assets:
|
|
Estimated
Useful
Life
|
Office furniture
|
|
3 years
|
Share-Based Compensation
The Company follows the provisions of ASC Topic
718, Compensation - Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation
expense for all share-based payment awards made to employees, non-employee directors, and consultants. Stock compensation expense, which
is based on the grant date’s fair value estimated in accordance with the provisions of ASC 718, is recognized as an expense over
the requisite service period, and the Company made a policy election to recognize forfeitures when they occur.
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.
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 June 30, 2021 and September 30, 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 carrying values of cash, accounts payable,
and accrued liabilities approximate fair value. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level
1” inputs, which consist of quoted prices in active markets for identical assets.
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. EXECUTION AND TERMINATION OF VIE AGREEMENTS
On January 20, 2021, Beijing ALW and Green Energy
entered into a series of contractual arrangements, including Equity Pledge Agreement, Exclusive Technology Development, Consulting and
Services Agreement, Exclusive Option Agreement, and Irrevocable Power of Attorney (collectively, the “VIE Agreements”) with
Hengshui Jingzhen, whereby Beijing ALW gained control over Hengshui Jingzhen, a P.R. China company, which provides integrated hazardous
waste management services, including collecting, transferring, disposing, and recycling of hazardous waste, primarily in Hebei, China.
This transaction was accounted for as a reverse merger in which the Company was the legal acquirer and Hengshui Jingzhen was the accounting
acquirer.
On March 29, 2021, due to changes of the Company’s
business plan, the board of directors and a majority shareholder of the Company approved the termination of the VIE Agreements with Hengshui
Jingzhen. On the same date, Beijing ALW, Hengshui Jingzhen, and Hengshui Jingzhen’s shareholders entered into a Termination Agreement
to terminate all existing VIE Agreements signed on January 20, 2021. Pursuant to the Termination Agreement, all of the rights and obligations
under the existing VIE Agreements were terminated and the Company had no control of Hengshui Jingzhen.
NOTE
5. FIXED ASSETS
Fixed assets consisted of the following:
|
|
June 30, 2021
|
|
|
September 30,
2020
|
|
|
|
|
|
|
|
|
Office furniture
|
|
$
|
5,536
|
|
|
$
|
-
|
|
|
|
|
5,536
|
|
|
|
-
|
|
Less: Accumulated depreciation
|
|
|
(1,276
|
)
|
|
|
-
|
|
Property, plant, and equipment, net
|
|
$
|
4,260
|
|
|
$
|
-
|
|
Depreciation expense for the nine months ended June 30, 2021 and 2020
were $1,276 and $Nil, respectively.
NoTE
6. PREPAID EXPENSES
The Company had prepaid expenses of $20,500 and
$5,470 as of June 30, 2021 and September 30, 2020, respectively.
Prepayment were made related to the compensations
for accounting services.
NOTE
7. RELATED PARTY BALANCES AND TRANSACTIONS
Related Party Balances
(i) Accounts payable – related party
On June 30, 2021 and September 30, 2020, accounts
payable to related party of $10,000 and $Nil, respectively, pertains to payable in respect to the office facility rental paid by Zenox
Enterprises Inc. (“Zenox Enterprises”) on behalf of the Company. Zenox Enterprises is a Canadian company controlled by the
Company’s former CFO.
(ii) Amounts due to related parties:
As of June 30, 2021 and September 30, 2020, the
amounts due to the shareholders of the Company, Shuhua Liu and Chiu Kin Wong, were $697,607 and $518,607, respectively, which were unsecured,
non-interest bearing with no specific repayment terms. During the nine months ended June 30, 2021, the Company borrowed $179,000
from Ms. Shuhua Liu, a shareholder of the Company.
Related Party Transactions
(i) MoralArrival Share Exchange Agreement
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.
(ii) Consulting Service Agreement
On December 9, 2019, the Company signed a consulting
service agreement (the “Service Agreement”) with Zenox Enterprises. The agreement lasts until the Company is listed on the
NASDAQ. Pursuant to the Service Agreement, Zenox Enterprises provided consulting services with respect to the coordination and management
of the Company’s financial reporting and other security listing activities. The Compensation for the consulting services was based
on hours and rates agreed-upon by both parties. On March 26, 2021, the Company paid Zenox Enterprises $70,000 as compensation for its
services. On March 20, 2021, the Company and Zenox Enterprises agreed to terminate the Service Agreement.
The Company rented a third party’s office
facilities, including mailbox and office equipment, for the Company’s daily operations. Zenox Enterprises paid $2,000 monthly rent
to the third party on behalf of the Company. On March 26, 2021, the Company reimbursed Zenox Enterprises $24,000 for its rental payments
from February 2020 to January 2021. There is no written lease between the Company and the third party and the rental can be ended by
the Company anytime.
NOTE
8. 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. On November 11, 2020, the Share Exchange Agreement
with MoralArrival was terminated and the 3,000,000 shares issued to Ms. Liu were cancelled. See Note 1 and Note 7 above.
On February 3, 2021, the Company issued 500,000
shares of common stock to Catalpa Holdings, Inc., a third party, as compensation for its consulting services. The fair value of 500,000
was determined to be $15,000 and was recognized as stock-based compensation for the three and nine months ended June 30, 2021.
On May 13, 2021, the Company issued 500,000 shares
of common stock to Mr. Jun Du, the Chief Operating Officer. The fair value of 500,000 was determined to be $15,000 and was recognized
as stock-based compensation for the three and nine months ended June 30, 2021.
As of June 30, 2021, the Company had 62,049,990
shares of common stock issued and outstanding.
NOTE
9. INCOME TAXES
The reconciliation of income tax benefit at the
U.S. statutory rate of 21% for nine months ended June 30, 2021 and 2020 to the Company’s effective tax rate is as follows:
|
|
Nine Months Ended
|
|
|
|
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
US statutory rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax benefit at statutory rate
|
|
$
|
(98,183
|
)
|
|
$
|
(22,452
|
)
|
Change in valuation allowance
|
|
|
98,183
|
|
|
|
22,452
|
|
Income tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The tax effects of temporary differences that
give rise to the Company’s net deferred tax assets are as follows:
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
Net operating loss carryforward
|
|
$
|
236,111
|
|
|
$
|
137,928
|
|
Valuation allowance
|
|
|
(236,111
|
)
|
|
|
(137,928
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2021, the Company has approximately
$1,124,074 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, approximately $141,400 can be carried forward for a period of twenty years from the year of
the initial loss and approximately $982,674 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
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through
the date these financial statements were available to be issued and concluded that no subsequent event needs to be disclosed.