NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
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, which was Shuhua Liu, 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 has become 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 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.
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 involves acting as an international agent through our wholly owned subsidiary, MoralArrival, 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.
On July 17, 2019, the Company received FINRA approval to effect 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 to reflect the stock dividend.
Management has evaluated the effect of the recent and ongoing outbreak of the coronavirus disease 2019 (the "COVID- 19"), which was declared a pandemic by the World Health Organization in March 2020. Although the ultimate disruption caused by the outbreak is uncertain, it may not have significant impact on the Company's financial position, operations and cash flows.
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 during the period from July 8, 2014 (date of inception) to September 30, 2021, resulting in accumulated deficit of $1,110,050 and has not generated any revenue. There is no guarantee that Company will generate revenue and net income in the future.
At September 30, 2021, the Company had a working capital deficiency of $654,133. 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.
The ability of the Company to continue as a going concern is dependent on the undertaking of its shareholders to provide continuing financial support to enable the Company to meet its liabilities as and when they fall due.
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 accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP).
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 September 30, 2021, September 30, 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. 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:
|
|
September 30,
2021
|
|
September 30,
2020
|
|
July 31,
2020
|
Office furniture
|
|
$
|
5,536
|
|
$
|
-
|
|
$
|
-
|
|
|
|
5,536
|
|
|
-
|
|
|
-
|
Less: Accumulated depreciation
|
|
|
(2,214)
|
|
|
-
|
|
|
-
|
Fixed assets, net
|
|
$
|
3,322
|
|
$
|
-
|
|
$
|
-
|
Depreciation expense for the year ended September 30, 2021, September 30, 2020, and July 31, 2020 were $2,214, $Nil and $Nil, respectively.
NOTE 6. PREPAID EXPENSES
The Company had prepaid expenses of $Nil, $5,470 and $5,470 as of September 30, 2021, September 30, 2020 and July 31, 2020, respectively.
NOTE 7. RELATED PARTY BALANCES AND TRANSACTIONS
Related Party Balances
(i) Accounts payable – related party
On September 30, 2021, September 30, 2020 and July 31, 2020, accounts payable to related party of $16,000, $Nil 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 September 30, 2021, September 30, 2020 and July 31, 2020, the amounts due to the shareholders of the Company, Shuhua Liu and Chiu Kin Wong, were $579,000, $518,607 and $518,607, respectively, which were unsecured, non-interest bearing with no specific repayment terms. During the year ended September 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 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 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 July 8, 2019, the Company filed an Amended and Restated Articles of Incorporation (the "Restated Charter") with the Secretary of State of the State of Nevada. Pursuant to the Restated Charter, the Company's capital stock consists of 510,000,000 shares, of which 500,000,000 are designated common stock and 10,000,000 are designated as preferred stock.
On July 17, 2019, the Company received FINRA approval to effect 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 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 year ended September 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 year ended September 30, 2021.
As of September 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 the year ended September 30, 2021, September 30, 2020 and July 31, 2020 to the Company's effective tax rate is as follows:
|
|
September 30,
2021
|
|
September 30,
2020
|
|
July 31,
2020
|
US statutory rate
|
|
|
21%
|
|
|
21%
|
|
|
21%
|
Income tax benefit at statutory rate
|
|
$
|
(95,356)
|
|
$
|
(2,561)
|
|
$
|
(27,620)
|
Change in valuation allowance
|
|
|
95,356
|
|
|
2,561
|
|
|
27,620
|
Income tax expense
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
The tax effects of temporary differences that give rise to the Company's net deferred tax assets are as follows:
|
|
September 30,
2021
|
|
September 30,
2020
|
|
July 31,
2020
|
Net operating loss carryforward
|
|
$
|
232,316
|
|
$
|
136,960
|
|
$
|
134,399
|
Valuation allowance
|
|
|
(232,316)
|
|
|
(136,960)
|
|
|
(134,399)
|
Net deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
As of September 30, 2021, the Company has approximately $1,125,829 of net operating losses ("NOL") carryovers to offset taxable income, if any, in future years. 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.