U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-KSB**


[X]
      ANNUAL REPORT UNDER SECTION 13 OR 15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934


For
      the fiscal year ended December 31, 2006





OR





[
      ] TRANSITION UNDER SECTION 13 OR 15(d)


OF
      THE SECURITIES EXCHANGE ACT OF 1934


For
      the transition period from ________ to ________





**Summit
      Environmental Corporation, Inc.**


(Exact
      name of registrant as specified in its charter)




Texas
            
            333-48659
            
            73-1537206(state
                of
              incorporation)
            
            (Commission
                File Number)
            
            (IRS
                Employer
              I.D.
                Number)




12264
      El Camino Real #400, San Diego, CA 92130


Telephone
      (800) 522-7841


____________________________________________________


(Address
      and telephone number of registrant's principal


executive
      offices and principal place of business)





210
      South Green. Longview, TX 75601


800-522-7841


____________________________________________________


(Former
      address and telephone number of registrant's principal


executive
      offices and principal place of business)








Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act: None





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. [ ]





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or 15(d) of the Securities Exchange Act during the past twelve months (or for
      such shorter period that the registrant was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days. Yes
      [X]
      No [ ]










Check
      if there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of the registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. [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]





State
      issuer’s revenues for its most recent fiscal year: $389,325





State
      the aggregate market value of the 16,739,144 voting and non-voting common equity
      held by non-affiliates computed by reference to the $0.095 average bid and
      asked
      price of such common equity, as of April 10, 2007: $1,590,219.





As
      of February 22, 2007, there were 30,536,001 shares of the Registrant's Common
      Stock, par value $0.001 per share, outstanding.





DOCUMENTS
      INCORPORATED BY REFERENCE





If
      the following documents are incorporated by reference, briefly describe them
      and
      identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which
      the document is incorporated: (1) any annual report to security holders; (2)
      any
      proxy or information statement; and (3) any prospectus filed pursuant to Rule
      424(b) or (c) of the Securities Act of 1933 (“Securities Act”). The listed
      documents should be clearly described for identification purposes (e.g., annual
      report to security holders for fiscal year ended December 24, 1990).
      None





Transitional
      Small Business Disclosure Format (check one): Yes [ ] No [X]




ii


**TABLE
      OF CONTENTS**


PageItem
                  1
              Description
                  of Business
              1Business
                  Development
              1Recent
                  Developments
              1Principal
                  Products
              2Distribution
                  Methods
              4Competition
              5Raw
                  Materials and Suppliers
              6Dependence
                  on Major Customers or Suppliers
              7Patents,
                  Trademarks and Licenses
              7Government
                  Approval of Principal Products
              7Seasonality
              8Research
                  and Development
              8Environmental
                  Controls
              8Number
                  of Employees
              8Item
                  2
              Description
                  of Property
              8Item
                  3
              Legal
                  Proceedings
              9Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              9Item
                  5
              Market
                  for Common Equity and Related Stockholder Matters
              10Securities
                  Authorized for Issuance under Equity Compensation Plans
              10Recent
                  Sales of Unregistered Securities
              11Item
                  6
              Management’s
                  Discussion and Analysis
              11Results
                  of operations
              11Sales
              11Gross
                  Margin
              12Operating
                  Expenses
              12Net
                  Loss
              12Liquidity
                  and Capital Resources
              13Outlook
              13Off-Balance
                  Sheet Arrangements
              16Contractual
                  obligations
              16Item
                  7
              Financial
                  Statements
              17Item
                  8
              Changes
                  In and Disagreements With Accountants on Accounting and
                  Financial Disclosure
              26
  iii




Item
                  8A(T)
              Controls
                  and Procedures
              26Item
                  8B
              Other
                  Information
              27Item
                  9
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance
                  with Section 16(a) of the Exchange Act
              26Audit
                  Committee and Audit Committee Financial Expert
              29Code
                  of Ethics
              29Compliance
                  with Section 16(a) of the Exchange Act
              30Item
                  10
              Executive
                  Compensation
              30Employment
                  Contracts
              31Stock
                  Options
              31Compensation
                  of Directors
              31Item
                  11
              Security
                  Ownership of Certain Beneficial Owners and
                  Management
              32Item
                  12
              Certain
                  Relationships and Related Transactions
              33Item
                  13
              Exhibits
              33Item
                  14
              Principal
                  Accountant Fees and Services
              35Signatures
              
              37
  iv


**ITEM
      1.** **DESCRIPTION
      OF BUSINESS.**





**Business
      Development**





Our
      company, Summit Environmental Corporation, Inc., markets products manufactured
      for us by unaffiliated companies. We either own the patent and other
      intellectual property rights to our products, or we have licenses from the
      owners of the intellectual property rights to our products.





Our
      principal product is a non-toxic, biodegradable firefighting foam called **FlameOut** (TM).





We
      have not been successful in achieving profits or positive cash
      flow.





**Recent
      Developments** .
      After the third quarter last year, our company severely changed direction.
      Our
      chief financial officer, Chris Dellinges, resigned in October. Our chief
      executive officer, Keith Parker, resigned in November. A new chief executive,
      Doug Cox, an experienced businessman, took over the top management of our
      company as our new Chief Executive Officer. A new chief financial officer and
      president, Don Jordan, also an experienced businessman and CPA, joined us as
      our
      new Chief Financial Officer and President. We cut our paid staff down to zero.
      Both Cox and Jordan have their own staffs that are presently providing, at
      no
      direct cost to Summit, the necessary staff work for the company.





The
      board of directors approved a stock and salary compensation plan for CEO Cox
      and
      CFO Jordan. The plan calls for 4,000,000 shares of common stock to be issued
      to
      Cox and 2,000,000 to be issued to Jordan. In addition, the plan specifies
      certain shares to be issued and cash compensation to be paid contingent upon
      certain future targets being reached.





The
      directors approved the outline of a new business plan. We are postponing or
      dropping all efforts on promoting the array of products we have and will
      concentrate on promoting our best and core product - our fire suppression and
      retardant products.





We
      have moved our corporate offices to San Diego, California, where CEO Doug Cox
      maintains his staffed offices. CFO Don Jordan will maintain his staffed office
      in Dallas, Texas.





When
      Doug Cox, our new CEO, took the role as CEO in late November 2006, his initial
      goals were to determine the financial status of the company, evaluate the
      company’s products, and position the company for immediate sales revenue.





His
      initial findings were quite disturbing. The company’s financial position was
      deeply in the red with little to no sales revenue looking forward. F urther,
      the FlameOut aerosol extinguisher, our focused revenue product at the time,
      was
      under a cease-and-desist order that provided that we could not manufacture
      this
      product until we modified it to meet new certification standards. We
      also found that, beyond the patent for the FlameOut chemical formula, Summit
      had
      no other proprietary product ownership because the licensing agreements with
      BioGenesis were terminated due to a breach of agreement by Summit.




1





For
      the reasons above, our new management and our directors determined that focusing
      solely on the company’s environmentally friendly fire-fighting products offered
      the best opportunities for both domestic and global business growth and
      increased shareholder value. Since the aerosol extinguisher needed to be
      redesigned and reformulated, a focused attention then was given to our FlameOut
      bulk product.





As
      a result, we spent a substantial amount of time deeply evaluating all areas
      of
      Summit’s FlameOut bulk product, its certifications, competition and
      opportunities. We discovered that our FlameOut bulk product lacked a few
      certification requirements which limited its marketability within parts of
      the
      forestry, military and governmental markets. We are presently in the process
      of
      obtaining these certifications to position ourselves for sales opportunities
      in
      these markets.





To
      help determine the immediate sales and business opportunities for this product,
      we acquired some outside professional consulting advice. We concluded that
      our
      early sales success would come from fire departments in the Western Region
      of
      the country, specifically California, where they use more foam than in any
      other
      region. Since our corporate office was now located in Southern California,
      it
      was a natural place to start. It’s encouraging to note that many of the fire
      departments we have spoken with have been unaware of FlameOut and its
      capabilities, and yet they are open to its uniqueness. Thus, we believe the
      market potential for our FlameOut bulk product, specifically within the Western
      Region, is vast.





As
      a result, our marketing and sales strategy for 2007 is to minimize expenses
      and
      focus on the FlameOut bulk product sales to municipal fire departments. Our
      immediate sales will be slow, but in the third quarter of 2007 we expect to
      see
      a significant increase in sales which should stabilize the company’s
      financial position. Also in the third quarter, additional
      product certification procedures should be completed, providing Summit with
      sales and marketing opportunities within the forestry, industrial and
      governmental markets.





We
      will continue to learn from firefighting professionals and build strategic
      alliances to bring awareness to our company and product. We are also investing
      in research and development to strengthen our product and broaden our FlameOut
      product line.





With
      our new focused attention, team of consultants and the support of our product
      developer, Dr. Mohsen Amiran, we have the opportunity to be a significant player
      in the fire-suppressant and fire-retardant market.




2





**Principal
      Products.**





*FlameOut
      Bulk Product*





FlameOut â  is
      an effective, efficient and environmentally responsible firefighting foam.
      It's
      listed with UL as a wetting agent for extinguishing Class A and B fires. It’s
      also listed by the USDA Forest Service as a Class A foam. Some other features
      include:





·
            Encapsulates
                the fuel source, cools the fire, and smothers
                oxygen


·
            Safe
                to store, handle and use


·
            100%
                readily biodegradable


·
            Non-corrosive
                to firefighting apparatuses


·
            Non-toxic





*FlameOut
      Aerosol Fire Extinguisher*





In
      March 2006, we were advised by Applied Research Laboratories (“ARL”) that our
      aerosol products needed recertification. New standards had been adopted, and
      we
      were told to cease manufacturing containers stamped with ARL until
      recertification had been obtained. We are, however, allowed to sell all aerosol
      containers filled prior to March 16, 2006, and we are not required to recall
      any
      product on the retailers’ shelves. This product is currently under
      evaluation.





**Distribution
      Methods**





We
      market our bulk firefighting products both through strategic alliances and
      directly to the end user.





**Competition**





We
      own the patent and intellectual property rights to Surfactant Blend A -
      FlameOut â .





**Raw
      Materials and Suppliers**





The
      raw materials for our products are in abundant supply. Summit Environmental,
      by
      virtue of our purchase of the patent and intellectual property rights to
      Surfactant Blend A, has retained Dr. Amiran and his company, BioGenesis, to
      formulate and package our products on a cost-plus-10 percent basis.





**Patents,
      Trademarks and Licenses**





We
      own **** all
      patents and intellectual property rights associated with the firefighting
      products we market.




3





**Seasonality**





There
      is no known seasonal aspect to our business; however, summer fire season
      typically generates more activity.





**Environmental
      Controls**





We
      are not subject to environmental controls or restrictions that require the
      outlay of capital or the obtaining of a permit in order to engage in business
      operations.





**Number
      of Employees**





As
      of March 15, 2007, we employed no persons full time and no persons part time.
      Our new management, Doug Cox and Don Jordan, each have staffs that are
      performing our staff duties at no cost to our company. In addition, we are
      using
      specialty independent contractors to assist in the developmental growth of
      the
      company.





**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY.**





**FACILITIES**





We
      own no manufacturing plants. We lease space for storing inventory. CEO Doug
      Cox
      and CFO Don Jordan currently provide us office space at no cost.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS.**





In
      March 2003 we were sued by Lady Burd Exclusive Cosmetics, Inc. for $43,000
      in a
      collection lawsuit, *Lady
      Burd Exclusive Cosmetics, Inc. v. Summit Environmental
      Corporation* ,
      Case No. 104268/03, Supreme Court of the State of New York, County of New York.
      We filed a cross-petition against Lady Burd for breach of contract and unpaid
      commissions, in the amount of $45,000. In April we settled the New York suit
      by
      paying Lady Burd what we had said we owed all along but significantly less
      than
      what it claimed. We paid $22,550 for invoices. All other claims of debt in
      this
      suit were dismissed.





In
      March, 2003, we filed an action against Lady Burd Exclusive Cosmetics, Inc.,
      Case Number 2003-589-A in the 188 th District Court, Gregg County, Texas, for fraud and misrepresentation regarding
      our earlier purchase of patent rights to a “permanent” lipstick we sell under
      the name “Sugar Kiss Lip” collection. After paying $50,000 and 500,000 shares of
      our common stock to Lady Burd we discovered that Lady Burd had never filed
      for a
      patent. After agreeing to a settlement through both our New York and Texas
      counsel, Lady Burd refused to perform as agreed. This led to our appearing
      in
      court in New York as mentioned above. We did not dismiss our Texas patent fraud
      suit. Roberta Burd, President and CEO of Lady Burd Exclusive Cosmetics was
      deposed on May 10, 2006, in Longview, Texas. In June 2006, we agreed to a mutual
      settlement due to continued cost of litigation. We have received the formulas
      for the liquid lip color and have established a relationship with a new
      laboratory for the products production.




4




No
      director, officer or affiliate of the company, and no owner of record or
      beneficial owner of more than 5.0% of the securities of the company, or any
      associate of any such director, officer or security holder is a party adverse
      to
      the company or has a material interest adverse to the Company in reference
      to
      any litigation.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





The
      only matter submitted to a vote of the stockholders of our company during 2006
      through the solicitation of proxies or otherwise was the annual election of
      directors at the January 2006 annual meeting of shareholders.





**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.**





Summit’s
      Common Stock presently trades on the OTC Bulletin Board, having been added
      to
      the OTC Bulletin Board on April 5, 1999. The high and low bid and asked prices,
      as reported by the OTC Bulletin Board, are as follows for 2005 and 2006. The
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission and may not represent actual transactions.


High
              
              Low2005:1st
                  Qtr.
              
              
              0.32
              
              
              0.182nd
                  Qtr.
              
              
              0.46
              
              
              0.173rd
                  Qtr.
              
              
              1.09
              
              
              0.314th
                  Qtr.
              
              
              0.94
              
              
              0.842006:1st
                  Qtr.
              
              
              1.24
              
              
              0.722nd
                  Qtr.
              
              
              0.88
              
              
              0.523rd
                  Qtr.
              
              
              0.60
              
              
              0.354th
                  Qtr.
              
              
              0.38
              
              
              0.10


Holders .
      Based on information provided by our transfer agent, we had 632 shareholders
      of
      record of our common stock on February 22, 2007.





Dividends .
      We have declared no dividends on our Common Stock. There are no restrictions
      that would or are likely to limit the ability of the company to pay dividends
      on
      its Common Stock, but we have no plans to pay dividends in the foreseeable
      future and intend to use earnings for the expansion of its
      business.




5





**Recent
      Sales of Unregistered Securities.**





There
      were no issuances of our common stock during 2006 not previously reported in
      Forms 10-QSB as transactions exempt from registration pursuant to the provisions
      of Regulation D, Rule 506:





**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS.**





*The
      following discussion and analysis should be read in conjunction with the
      financial statements and the accompanying notes thereto and is qualified in
      its
      entirety by the foregoing and by more detailed financial information appearing
      elsewhere. See “Financial Statements.”*





**RESULTS
      OF OPERATIONS**





The
      following table presents, as a percentage of sales, certain selected financial
      data for each of the two years in the periods ended December 31, 2005 and
      2006:


Year
                  ended December 31
              
              2006
              
              2005Sales
              
              
              100.0
              %
              
              100.0
              %Cost
                  of Sales
              
              
              329.0
              
              
              59.0Gross
                  Margin
              
              
              (229.0
              )
              
              41.0Operating
                  Expenses
              
              
              918.0
              
              
              99.0Other
                  Income and Expenses, Net
              
              
              47.0
              
              
              2.0Net
                  income (loss)
              
              
              (1194
              )%
              
              (61.0
              )%





**SALES**





Our
      sales decreased from $1,793,502 in 2005 to $389,325 in 2006 - a decrease of
      78
      percent.





The
      amount of sales, by product segment, for 2005 and 2006, were as
      follows:





**Product**
            
            **2006**
            
            **2005**Fire
                Suppressants
            
            $
            382,587
            
            $
            1,331,314Ultimate
                Clean(R) Chemicals
            
            
            2,347
            
            
            2,661Cosmetics
            
            
            4,227
            
            
            10,787Energy
                Drinks(1)
            
            
            164
            
            
            422Remediation
                Chemicals
            
            
            0
            
            
            448,318





(1)
            In
                late 2003 we began test marketing an energy drink, similar to the
                Gatorade-like drinks, that was developed by Dr. Amiran, a director
                of our
                company and the inventor of all our products. No plans have been
                made to
                devote significant efforts to the promotion of this
                product.





The
      substantial decrease in sales of our fire suppressant products is attributed
      to
      the failure of prior management to fully grasp and pursue sales opportunities
      available to the company.




6





**GROSS
      MARGIN**





Our
      cost of sales in 2006 was 3.3 times the amount of sales and is primarily
      attributable to write-down of obsolete inventory of $981,940.





**OPERATING
      EXPENSES**




Our
      operating expenses increased from $1,782,565 in 2005 to $3,573,464 in 2006
      - an
      increase of $1,790,899 despite a 70% decrease in sales to $389,325 in 2006
      The
      increase in operating expenses is primarily due to non-cash compensation to
      officers and consultants equaling $1,539,499 and excessive overhead related
      to
      the management of the business. The $1,539,499 is added back to stockholder’s
      equity in the balance sheet.





**NET
      LOSS**




Our
      net loss increased from$1,088,943 in 2005 to $4,648,053 in 2006 - a 327%
      increase in net loss attributable to our 70% decrease in sales accompanied
      by
      substantial increases in costs as described above.





**LIQUIDITY
      AND CAPITAL RESOURCES**




We
      ended the year with current assets of $124,523, current liabilities of $798,990
      and a virtual collapse in revenue from sales. This performance cannot be
      sustained. Our principal executives resigned during the fourth quarter and
      were
      replaced with Doug Cox as CEO and Don Jordan as President and CFO. Overhead
      was
      cut to the bone - we now have no paid employees, and our new management provides
      a staff for the company at their expense. We have been able to raise $647,996
      during the first quarter and April of 2007 through the sale of stock, an amount
      we anticipate will carry us to the third quarter when we anticipate our new
      business strategy will result in positive cash flow.





**Notes
      Payable**





We
      are obligated on three notes payable totaling $733,633, as follows:





·
            $567,179
                to Paul and Gloria Burke, secured by the land and building described
                in
                Item 2 and the guaranty of one of our former officers. Terms of the
                note
                require monthly payments of $6,561 including interest at 13%. The
                note had
                a maturity date of August 2011.





·
            $119,073
                to Austin Bank, secured by the personal guaranty of one of our directors.
                Interest at 9.25% is payable monthly, with a balloon payment due
                in June
                2007.





·
            $47,381
                to Pacific Business Capital Corporation, secured by our accounts
                receivable, inventory, property and equipment and the guaranty of
                one of
                our former officers. This note is due on demand, and interest is
                computed
                based on the accounts receivable purchase discount rate of 1.5% plus
                an
                additional .1% per day for past-due
                accounts.




7





**OUTLOOK**





*The
      statements made in this Outlook are based on current plans and expectations.
      These statements are forward looking, and actual results may vary considerably
      from those that are planned.*





In
      2007, we are committed to focus on bulk firefighting products. We have
      contracted with top industry and technical experts to help guide our efforts.
      Below are some of our current strategies:





·
            Focus
                on generating interest and sales of our FlameOut bulk product within
                municipal fire departments and forestry services in the Western Region.
                Product samples have been delivered to various departments and group
                demonstrations are planned. A distribution and customer service plan
                is
                being defined. Strategic alliances with companies are being pursued.
                Summit intends to repeat this template as efforts are expanded to
                other
                regions and market opportunities.





·
            Summit
                is spending time and money in research and development to enhance
                our
                existing product and to develop new related products. Summit is also
                pursuing additional certifications that will lead to new markets
                and
                additional sales.





·
            Summit
                is committed to being environmentally responsible. We want to help
                firefighters save lives and protect property by developing and marketing
                firefighting foams, retardants and other products that pose the smallest
                possible threat to the environment, firefighters, the communities
                they
                protect and the environment upon which we all depend. Further, we
                will
                strive to become a truly “green” company in all of our corporate
                activities.





·
            Focus
                on generating interest and sales of our FlameOut bulk product within
                the
                U.S. government and military utilizing strategic alliances.





·
            Review
                all domestic and international opportunities and pursue substantial
                opportunities that are a good fit.





**Off-Balance
      Sheet Arrangements**





Our
      company has not entered into any transaction, agreement or other contractual
      arrangement with an entity unconsolidated with us under which we have





·
            an
                obligation under a guarantee
                contract,


·
            a
                retained or contingent interest in assets transferred to the
                unconsolidated entity or similar arrangement that serves as credit,
                liquidity or market risk support to such entity for such
                assets,


·
            an
                obligation, including a contingent obligation, under a contract that
                would
                be accounted for as a derivative instrument,
                or


·
            an
                obligation, including a contingent obligation, arising out of a variable
                interest in an unconsolidated entity that is held by, and material
                to, us
                where such entity provides financing, liquidity, market risk or credit
                risk support to, or engages in leasing, hedging, or research and
                development services with, us.




8





**Contractual
      obligations**





The
      following table sets forth, as of the end of the latest fiscal year-end balance
      sheet, information with respect to our known contractual
      obligations.





**Payments
                Due-by Period****Contractual**
              **Obligations**
            **Total**
            **Less
                Than**
              **1
                Year**
            **1-3
                Years**
            **3-5
                Years**
            **More
                Than**
              **5
                Years**Long-Term
                Debt Obligations
            $733,633
            $173,093
            $25,696
            $38,001
            $496,843Capital
                Lease Obligations
            $
                0Operating
                Lease Obligations
            $
                0Other
                Long-Term Liabilities Reflected on Our Balance Sheet under
                GAAP
            $
                0Total
            $733,633
            $173,093
            $25,696
            $38,001
            $496,843





*Our
      future results of operations and the other forward-looking statements contained
      in this Outlook involve a number of risks and uncertainties. Among the factors
      that could cause actual results to differ materially are the following: the
      inability of the company to obtain needed additional capital, loss of personnel,
      particularly chief executive officer Doug Cox or chief financial officer and
      president, Don Jordan, as a result of accident or for health reasons,
      interruptions in the supply of inventory from manufacturers of the inventory,
      the development of a competing fire suppressant by a well-capitalized competitor
      that either is able to develop a new product with the same attributes as our
      fire suppressant or is able to discover the additives to our fire suppressant
      that give it its unique and superior qualities, and an accident involving life
      or serious bodily harm that fairly or unfairly would bring into question the
      safety of using the company’s fire suppressant products.*





**ITEM
      7.**  **FINANCIAL
      STATEMENTS.**


Balance
                  Sheet December 31, 2006 (Unaudited)
              
              
              10Statements
                  of Operations Years Ended December 31, 2006 and 2005
                  (Unaudited)
              
              
              11Statements
                  of Changes in Stockholders’ Equity for the Years Ended December
                  31, 2006 and 2005 (Unaudited)
              
              
              12Statements
                  of Cash Flows Years Ended December 31, 2006 and 2005
                  (Unaudited)
              
              
              13Notes
                  to Financial Statements (Unaudited)
              
              
              14
  9
 
  **SUMMIT
            ENVIRONMENTAL CORPORATION, INC.**
 **BALANCE
            SHEET**
 **DECEMBER
          31, 2006**
 2006**Assets****Current
                      Assets**Cash
                      and Cash Equivalents
                  
                  $
                  5,344Accounts
                      Receivable, less allowance for doubtfulaccounts
                      of $55,506
                  
                  
                  35,321Note
                      receivable - related party, less allowance of $20,496
                  
                  
                  -Inventory
                  
                  
                  54,193Prepaid
                      Expenses
                  
                  
                  29,666Total
                      Current Assets
                  
                  
                  124,524**Property
                      and Equipment at Cost**Property
                      and Equipment
                  
                  
                  261,572Accumulated
                      Depreciation and Amortization
                  
                  
                  (7,672
                  )Net
                      Property and Equipment
                  
                  
                  253,900**Other
                      Assets**Prepaid
                      Royalties
                  
                  
                  451,938Deposits
                  
                  
                  2,118Patents
                      - net of accumulated amortizationof
                      $1,286,501
                  
                  
                  1,088,499Licenses
                      - net of accumulated amortizationof
                      $48,800
                  
                  
                  216,920Total
                      Other Assets
                  
                  
                  1,759,475**Total
                      Assets**
                  
                  $
                  2,137,899**Liabilities
                      and Stockholders' Equity****Current
                      Liabilities**Accounts
                      Payable
                  
                  $
                  357,698Advances
                      From Shareholders
                  
                  
                  115,311Accrued
                      Expenses
                  
                  
                  107,872Notes
                      Payable, current
                  
                  
                  251,745Total
                      Current Liabilities
                  
                  
                  832,626**Long-Term
                      Liabilities**Notes
                      Payable
                  
                  
                  481,888Commitments
                      and contingencies (Notes 6, 10 and 11)**Stockholders'
                      Equity**Preferred
                      stock, par value $.001; 10,000,000shares
                      authorized, no shares issued
                  
                  
                  -Common
                      stock, par value $.001; 40,000,000shares
                      authorized, 26,576,957 shares issued
                  
                  
                  26,037Additional
                      Paid in Capital
                  
                  
                  13,775,640Accumulated
                      Deficit
                  
                  
                  (12,953,292
                  )Treasury
                      Stock - 10,000 shares
                  
                  
                  (25,000
                  )Total
                      Stockholders' Equity
                  
                  
                  823,385**Total
                      Liabilities and Stockholders' Equity**
                  
                  $
                  2,137,899
  *The
            accompanying notes are an integral part of these financial
            statements.*
 10
 
  **SUMMIT
              ENVIRONMENTAL CORPORATION, INC.**
 **STATEMENTS
              OF OPERATIONS**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
  **2006**
                    
                    **2005****Sales**
                    
                    $
                    389,415
                    
                    $
                    1,793,502**Returns
                        and Allowances**
                    
                    
                    (90
                    )
                    
                    -**Net
                        Sales**
                    
                    
                    389,325
                    
                    
                    1,793,502**Cost
                        of Sales**Cost
                        of sales
                    
                    
                    1,280,839
                    
                    
                    1,064,677**Gross
                        Profit**
                    
                    
                    (891,514
                    )
                    
                    728,825**Operating
                        Expenses**Selling,
                        general, and administrative expenses
                    
                    
                    3,349,575
                    
                    
                    1,588,098Amortization
                    
                    
                    204,048
                    
                    
                    180,013Depreciation
                    
                    
                    19,476
                    
                    
                    14,454Total
                        operating expense
                    
                    
                    3,573,099
                    
                    
                    1,782,565**Net
                        Earnings (Loss) from Operations**
                    
                    
                    (4,464,613
                    )
                    
                    (1,053,740
                    )**Other
                        Income (Expense)**Interest
                        income
                    
                    
                    6,652
                    
                    
                    5,587Interest
                        expense
                    
                    
                    (127,689
                    )
                    
                    (40,654
                    )Royalty
                        income
                    
                    
                    3,681
                    
                    
                    1,599Gain/Loss
                        on Sale of Asset
                    
                    
                    (33,723
                    )
                    
                    (4,168
                    )Miscellaneous
                    
                    
                    (31,994
                    )
                    
                    2,433Total
                        other income (expense)
                    
                    
                    (183,073
                    )
                    
                    (35,203
                    )**Net
                        Loss**
                    
                    $
                    (4,647,686
                    )
                    $
                    (1,088,943
                    )**Net
                        Earnings (Loss) per Share**
                    
                    $
                    (0.19
                    )
                    $
                    (0.05
                    )**Weighted
                        Average Shares**
                    
                    
                    23,945,019
                    
                    
                    23,945,019
 *The
              accompanying notes are an integral part of these financial
              statements.*
 11
 
  **SUMMIT
                ENVIRONMENTAL CORPORATION, INC.**
 **STATEMENTS
                OF CHANGES IN STOCKHOLDERS' EQUITY**
 **FOR
                THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
  Common
                          Stock
                      
                      Additional
                        Paid-In
                      
                      Subscription
                      
                      Accumulated
                      
                      TreasuryShares
                      
                      Amount
                      
                      Capital
                      
                      to
                          Capital
                      
                      Deficit
                      
                      Stock
                      
                      TotalBalances
                          December 31, 2004
                      
                      
                      23,219,344
                      
                      $
                      23,220
                      
                      $
                      10,144,383
                      
                      $
                      -
                      
                      $
                      (7,216,663
                      )
                      $
                      (25,000
                      )
                      $
                      2,925,940Sale
                          of stock
                      
                      
                      964,000
                      
                      
                      964
                      
                      
                      384,636
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      385,600Stock
                          issued for services
                      
                      
                      360,686
                      
                      
                      361
                      
                      
                      296,261
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      296,622Stock
                          issued for license
                      
                      
                      240,000
                      
                      
                      240
                      
                      
                      149,760
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      150,000Stock
                          issued for warrants exercised
                      
                      
                      556,435
                      
                      
                      556
                      
                      
                      175,444
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      176,000Stock
                          issued for options exercised
                      
                      
                      12,500
                      
                      
                      13
                      
                      
                      1,988
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      2,001Exercise
                          of options issued for services
                      
                      
                      342,888
                      
                      
                      343
                      
                      
                      147,078
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      147,421Sale
                          of stock - shares not issued as ofDecember
                          31, 2005
                      
                      
                      -
                      
                      
                      -
                      
                      
                      14,400
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      14,400Exercise
                          of warrants for 352,500 shares of stock($.50
                          per share) - shares not issued as ofDecember
                          31, 2005
                      
                      
                      -
                      
                      
                      -
                      
                      
                      176,250
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      176,250Net
                          Loss
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
                      
                      
                      (1,088,943
                      )
                      
                      -
                      
                      
                      (1,088,943
                      )Balance,
                          December 31, 2005
                      
                      
                      25,695,853
                      
                      $
                      25,697
                      
                      $
                      11,490,200
                      
                      $
                      -
                      
                      $
                      (8,305,606
                      )
                      $
                      (25,000
                      )
                      $
                      3,185,291Sale
                          of stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Stock
                          issued for services
                      
                      
                      340,148
                      
                      
                      340
                      
                      
                      214,283
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      214,623Stock
                          issued for services
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -shares
                          not issued as of December 31, 2006
                      
                      
                      
                      
                      
                      
                      
                      
                      694,000
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      694,000Stock
                          issued for license
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Sale
                          of stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -shares
                          not issued as of December 31, 2006
                      
                      
                      
                      
                      
                      
                      
                      
                      639,501
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      639,501Options
                          issued for services
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -shares
                          not issued as of December 31, 2006
                      
                      
                      
                      
                      
                      
                      
                      
                      231,100
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      231,100Options
                          issued for services
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -shares
                          not issued as of December 31, 2006
                      
                      
                      
                      
                      
                      
                      
                      
                      400,116
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      400,116Exercise
                          of options for 380,123 shares of stock
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -shares
                          not issued as of December 31, 2006
                      
                      
                      
                      
                      
                      
                      
                      
                      106,440
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      106,440Net
                          Loss
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      (4,647,686
                      )
                      
                      
                      
                      
                      (4,647,686
                      )Balance,
                          December 31, 2006
                      
                      
                      26,036,001
                      
                      $
                      26,037
                      
                      $
                      13,775,640
                      
                      $
                      -
                      
                      $
                      (12,953,292
                      )
                      $
                      (25,000
                      )
                      
                      823,385
  12
 
  **SUMMIT
                  ENVIRONMENTAL CORPORATION, INC.**
 **STATEMENTS
                  OF CASH FLOWS**
 **FOR
                  THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
  **2006**
                        
                        **2005****Cash
                            Flows from Operating Activities**Net
                            loss
                        
                        $
                        (4,647,686
                        )
                        $
                        (1,088,943
                        )Adjustments
                            to reconcile net earnings (loss) to cashused
                            in operating activitiesAmortization
                        
                        
                        204,048
                        
                        
                        180,013Bad
                            debt expense
                        
                        
                        (113,811
                        )
                        
                        (3,361
                        )Provision
                            for inventory losses
                        
                        
                        913,209
                        
                        
                        -Depreciation
                        
                        
                        19,476
                        
                        
                        14,454(Gain)
                            loss on sale of assets
                        
                        
                        33,723
                        
                        
                        4,168Common
                            stock and options issued for services
                        
                        
                        -
                        
                        
                        359,177Change
                            in assets and liabilitiesAccounts
                            receivable
                        
                        
                        434,919
                        
                        
                        (289,589
                        )Inventory
                        
                        
                        89,488
                        
                        
                        (704,782
                        )Prepaid
                            expenses and deposits
                        
                        
                        96,744
                        
                        
                        69,218Accounts
                            payable
                        
                        
                        87,220
                        
                        
                        129,348Accrued
                            liabilities
                        
                        
                        22,826
                        
                        
                        47,001Net
                            cash used in operating activities
                        
                        
                        (2,859,844
                        )
                        
                        (1,283,296
                        )**Cash
                            Flows from Investing Activities**Acquisition
                            of property and equipment
                        
                        $
                        (6,287
                        )
                        $
                        (29,327
                        )Net
                            cash used in investing activities
                        
                        
                        (6,287
                        )
                        
                        (29,327
                        )**Cash
                            Flows from Financing Activities**Loan
                            proceeds
                        
                        $
                        686,259
                        
                        $
                        762,950Loan
                            principal repayments
                        
                        
                        (467,362
                        )
                        
                        (382,903
                        )Restricted
                            cash
                        
                        
                        50,000
                        
                        
                        (50,000
                        )Proceeds
                            from sale of stock
                        
                        
                        2,285,780
                        
                        
                        839,117Net
                            cash provided by financing activities
                        
                        
                        2,554,677
                        
                        
                        1,169,164**Net
                            Increase (Decrease) in Cash**
                        
                        
                        (311,454
                        )
                        
                        (143,459
                        )Cash
                            - Beginning of Period
                        
                        
                        316,798
                        
                        
                        460,257Cash
                            - End of Period
                        
                        $
                        5,344
                        
                        $
                        316,798**Supplemental
                            cash flow information**Cash
                            paid for interest
                        
                        
                        
                        
                        $
                        127,689
  *The
                  accompanying notes are an integral part of these financial
                  statements.*
 13
 
 Summit
                    Environmental Corporation, Inc.
 
 NOTES
                    TO
                    FINANCIAL STATEMENTS
 SIGNIFICANT
                              ACCOUNTING POLICIES
 
 Business
                    Activity
 
 Summit
                    Environmental Corporation, Inc. (the “Company”) was organized in accordance with
                    the Business Corporation Act of the State of Texas on February
                    2, 1998, for the
                    purpose of merging (the “Merger”) with Summit Technologies, Inc., a Texas
                    corporation. The Company continued to exist as the surviving
                    corporation under
                    its present name pursuant to the provisions of the Texas Business
                    Corporation
                    Act. The Merger was effected on December 2, 1998 as a tax-free
                    reorganization
                    accounted for as a pooling of interests.
  Under
                    new
                    management, the Company has developed a Strategic Plan for years
                    2007 and 2008
                    that will focus on the sale of the Company’s core product, FlameOut bulk. The
                    Strategic Plan focuses initially on the Western Region of the
                    United States and
                    ultimately into all regions of the United States by the middle
                    of 2008. The Plan
                    also includes establishing the Company as the “green solution” in all areas of
                    fire fighting with a focus on saving lives and property. Targeted
                    customers
                    include municipal fire departments, forestry services, the military
                    and other
                    Federal government agencies.
 
 Revenue
                    Recognition
 
 The
                    Company follows the provisions of SEC Staff Accounting Bulletin
                    (SAB) No.
                    104, *"Revenue Recognition"* which
                    was issued in December 2003, and recognizes revenues when its
                    products are
                    shipped to customers (terms are FOB shipping point), at which
                    time evidence of a
                    completed transaction and customer acceptance exists and when
                    title passes.
                    Appropriate provisions for estimated returns of product and other
                    allowances
                    have been made in the accompanying financial statements. SAB
                    No. 104 codified,
                    revised and rescinded certain sections of Staff Accounting Bulletin
                    (SAB) No.
                    101, *"Revenue Recognition in Financial Statements",* in order
                    to make this interpretive guidance consistent with current authoritative
                    accounting guidance and SEC rules and regulations.
 
 Revenues
                    earned under royalty agreements are recognized when the respective
                    products are
                    sold and the royalty amounts attributable to the Company have
                    been
                    determined.
 
 The
                    Company provides a reserve for sales returns and allowances in
                    the same period
                    as the related revenues are recognized, based on individual circumstances
                    and
                    historical experience. At December 31, 2006, no reserve was considered
                    necessary.
 
 The
                    amount of sales by product segment, for the years ended December
                    31, 2006 and
                    2005, were as follows:
 
 **Product**
                          
                          **2006**
                          
                          **2005**Fire
                              Suppressants
                          
                          $
                          382,587
                          
                          $
                          1,331,314Ultimate
                              Clean(R) Chemicals
                          
                          
                          2,347
                          
                          
                          2,661Cosmetics
                          
                          
                          4,227
                          
                          
                          10,787Remediation
                              Chemicals
                          
                          
                          0
                          
                          
                          448,318Energy
                              Drinks(1)
                          
                          
                          164
                          
                          
                          422Total
                              revenue
                          
                          $
                          389,325
                          
                          $
                          1,793,502
 
 Cash
                    and cash equivalents
 
 The
                    Company maintains cash balances at a financial institution located
                    in Longview,
                    Texas, which at times may exceed federally insured limits. The
                    Company has not
                    experienced any losses in such accounts and believes it is not
                    exposed to any
                    significant credit risk on cash and cash equivalents.
 
 The
                    Company considers all highly liquid investments with a maturity
                    of three months
                    or less when purchased to be cash equivalents. Cash restricted
                    as collateral or
                    for other purposes is reported separately from cash and cash
                    equivalents.
  14
 
 Summit
                        Environmental Corporation, Inc.
 
 NOTES
                        TO
                        FINANCIAL STATEMENTS
 
 Accounts
                    Receivable
 
 The
                    Company records accounts receivable at net realizable value.
                    This value includes
                    an appropriate allowance for estimated uncollectible accounts
                    to reflect any
                    loss anticipated on the accounts receivable balances and charged
                    to the provision for doubtful accounts. The Company calculates
                    this allowance
                    based on historical write-offs, level of past due accounts and
                    relationships
                    with and economic status of the customers.
 
 Inventories
 
 Inventories,
                    which consists of raw materials and products held for resale,
                    are recorded at
                    the lower of cost or market, with cost being determined by the
                    first-in,
                    first-out method. At December 31, 2006, fire suppression inventory
                    was
                    $54,193.
 
 The
                    Company periodically reviews inventory to determine which products,
                    if any, are
                    no longer marketable. The Company establishes a reserve for obsolete
                    inventory
                    to reduce its cost to management’s estimate of its net realizable value based on
                    forecasts of sales for ensuing years and other factors. At December
                    31, 2006, no
                    reserve was considered necessary.
 
 Intangible
                    Assets
 
 Patents
                    and licenses are recorded at cost. Amortization is computed on
                    the straight-line
                    method over the identifiable lives of the patent and licenses.
                    The Company has
                    adopted the provisions of Statement of Financial Accounting Standards
                    (SFAS) No.
                    142, *Goodwill and Other Intangible Assets,* effective
                    for periods beginning January 1, 2002, and thereafter. SFAS 142
                    addresses
                    financial accounting and reporting for acquired goodwill and
                    other intangible
                    assets and supersedes APB Opinion No. 17, *Intangible
                    Assets* .
                    Specifically, the statement addresses how intangible assets that
                    are acquired
                    should be accounted for in financial statements upon their acquisition,
                    as well
                    as how goodwill and other intangible assets should be accounted
                    for after they
                    have been initially recognized in the financial statements. The
                    statement
                    requires intangible assets to be reviewed for impairment whenever
                    events or
                    changes in circumstances indicate that their carrying amounts
                    may not be
                    recoverable and that a loss shall be recognized if the carrying
                    amount of an
                    intangible exceeds its fair value. The Company tested its intangible
                    assets for
                    impairment as of December 31, 2004, because of its emergence
                    from classification
                    as a company in the development stage and its history of extensive
                    losses and
                    minimal revenues. It was determined at that time that no impairment
                    existed
                    based primarily on projected sales and the resulting discounted
                    projected cash
                    flow analyses.
 
 Income
                    Taxes
 
 The
                    Company provides for income taxes under the asset and liability
                    method. Under
                    the asset and liability method, deferred tax assets and liabilities
                    are
                    recognized for the future tax consequences attributable to differences
                    between
                    the financial statement carrying amounts of existing assets and
                    liabilities and
                    their respective tax bases. Deferred tax assets and liabilities
                    are measured
                    using enacted tax rates expected to apply to taxable income in
                    the years in
                    which those temporary differences are expected to be recorded
                    or settled. The
                    effect on deferred tax assets and liabilities of a change in
                    tax rates is
                    recognized in income in the period that includes the enactment
                    date. Valuation
                    allowances are recognized to limit recognition of deferred tax
                    assets where
                    appropriate. Such allowances may be reversed when circumstances
                    provide evidence
                    that the deferred tax assets will more likely than not be realized.
 
 Property
                    and Equipment
 
 Depreciation
                    and amortization are provided in amounts sufficient to relate
                    the cost of
                    depreciable assets to operations over their estimated service
                    lives by the
                    straight-line method. .
 
 Major
                    repairs or replacements of property and equipment are capitalized.
                    Maintenance,
                    repairs and minor replacements are charged to operations as
                    incurred.
 
 When
                    units of property are retired or otherwise disposed of, their
                    cost and related
                    accumulated depreciation are removed from the accounts and any
                    resulting gain or
                    loss is included in operations.
  15
 
  Summit
                        Environmental Corporation, Inc.
 
 NOTES
                        TO
                        FINANCIAL STATEMENTS
 
 The
                    estimated service lives used in determining depreciation and
                    amortization
                    are:
 
 Description
                          
                          
                          Estimated
                              Service LifeOffice
                            furniture and equipment
                          
                          
                          5
                            - 7
                            yearsBuilding
                            and improvements
                          
                          
                          39
                            yearsLeasehold
                            improvements
                          
                          
                          4
                            years
 
 Advertising
                    and Marketing
 
 Advertising
                    and marketing costs are expensed as incurred, which totaled $439,124
                    and
                    $217,281 for 2006 and 2005, respectively.
 
 Shipping
                    and handling costs
 The
                        Company has changed its policies and now includes shipping
                        and handling costs in
                        "Cost of Sales" rather than “Selling, general and administrative expenses” for
                        purposes of income statement presentation. Shipping and handling
                        costs were
                        approximately $45,000 and $55,000, for the years ended December
                        31, 2006 and
                        2005, respectively.
 
 Research
                    and development costs
 
 The
                    costs
                    associated with research and development activities are expensed
                    as incurred.
                    Total research and development costs were approximately $42,000
                    and $10,000, for
                    the years ended December 31, 2006 and 2005, respectively.
 
 Use
                    of
                    Estimates
 
 The
                    preparation of financial statements in conformity with accounting
                    principles
                    generally accepted in the United States of America requires management
                    to make
                    estimates and assumptions that affect certain reported amounts
                    and disclosures.
                    Significant estimates include accruals for services, establishing
                    an allowance
                    for doubtful accounts receivable and the valuation allowance
                    for deferred income
                    taxes, determining the depreciable lives and usage of property
                    and equipment and
                    intangible assets, and assessing the potential impairment of
                    intangible and
                    other assets. Actual results could differ from those estimates
                    and the impact of
                    those differences on gross profit and results of operations could
                    be
                    material.
 
 Per
                    Share Information
 The
                        Company has adopted the provisions of Statement of Financial
                        Accounting
                        Standards (SFAS) No. 128, " *Earnings
                        per Share* ."
                        SFAS
                        No. 128 requires the presentation of basic earnings (loss)
                        per share (EPS) and
                        diluted EPS. Basic EPS is calculated by dividing net income
                        or loss (available
                        to common stockholders) by the weighted average number of
                        common shares
                        outstanding for the period. Diluted EPS reflects the potential
                        dilution that
                        could occur if securities or other contracts to issue common
                        stock, such as
                        stock options, warrants, convertible preferred stock and
                        convertible debentures,
                        were exercised or converted into common stock. Potential
                        dilutive securities
                        (stock warrants, stock options) have not been considered
                        since the Company
                        reported a net loss and, accordingly, their effects would
                        be
                        antidilutive.
 
 Financial
                    Instruments
  The
                    Company’s financial instruments recorded on the balance sheet include
                    cash and
                    cash equivalents, accounts receivable, accounts payable and notes
                    payable. The
                    carrying amounts approximate fair value because of the short-term
                    nature of
                    these items.
 
 Stock
                    based compensation
 
 Accounting
                    Principles Board (“APB”) Opinion No. 25, *Accounting
                    for Stock Issued to Employees* ,
                    and
                    related interpretations require that compensation expense be
                    recorded on the
                    date of the grant of stock options and warrants only if the current
                    market price
                    of the underlying stock exceeded the exercise price. Alternatively,
                    Statement of
                    Financial Accounting Standards (SFAS) No. 123, *Accounting
                    for Stock-Based Compensation* ,
                    permits
                    entities to recognize, as expense over the vesting period, the
                    fair value of all
                    stock-based awards on the date of grant. SFAS No. 123 allows
                    entities to
                    continue to apply the provisions of APB Opinion No. 25 and provide
                    proforma net
                    income and proforma earnings per share disclosures for employee
                    stock option
                    grants made in 1996 and future years as if the fair-valued-based
                    method defined
                    in SFAS No. 123 had been applied. However, under the provisions
                    of SFAS 123,
                    stock options and warrants granted to service providers are required
                    to be
                    recorded as expense over the service period at the fair value
                    of the service
                    received or the fair value of the instrument, whichever is more
                    identifiable.
                    The Company has elected to apply the provisions of APB Opinion
                    No. 25 and
                    provide the proforma disclosure provisions of SFAS No. 123 for
                    stock options
                    granted to employees.
  16
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 In
                    addition, the Company has adopted the provisions of Financial
                    Accounting
                    Standards Board Interpretation (FIN) 44, *Accounting for Certain Transactions Involving Stock
                    Compensation* ,
                    which
                    became effective July 1, 2000. FIN 44 clarifies the application
                    of APB 25 for
                    certain issues. Among other issues, this interpretation clarifies
                    the definition
                    of an employee for purposes of applying APB 25, the criteria
                    for qualification
                    of a plan as compensatory, the consequences of modifications
                    to the terms of a
                    plan, and the treatment of stock compensation issued to service
                    providers who
                    are not employees. Certain modifications made to existing grants
                    of options and
                    warrants require a remeasurement of their fair value and potential
                    expense to be
                    recognized by the Company.
 
 In
                    December 2002, the Financial Accounting Standards Board issued
                    SFAS No.
                    148, *Accounting for Stock-Based Compensation - Transition and
                    Disclosure* ,
                    which
                    amends SFAS No. 123. SFAS No. 148 provides alternative methods
                    of transition for
                    a voluntary change to the fair value based method of accounting
                    for stock-based
                    compensation. In addition, SFAS No. 148 amends the disclosure
                    requirements of
                    SFAS No. 123 to require more prominent and more frequent disclosures
                    in
                    financial statements about the effects of stock-based compensation.
                    The
                    transition guidance and annual disclosure provisions were effective
                    for years
                    ending after December 15, 2002. The interim disclosure provisions
                    were effective
                    financial reports containing financial statements for interim
                    periods beginning
                    after December 15, 2002. The transition rules of this standard
                    are not
                    applicable since the Company continues to account for stock-based
                    compensation
                    under the guidance of APB Opinion 25. The other requirements
                    of this standard
                    have been adopted by the Company for periods beginning January
                    1, 2003. Full
                    disclosures required by this statement are in Note 9.
 
 The
                    Company recognizes and measures compensation costs related to
                    the Employee Plan
                    utilizing the intrinsic value based method. Accordingly, no compensation
                    cost
                    has been recorded. Had compensation expense been determined on
                    the fair value of
                    awards granted, net loss and loss per share would have been as
                    follows:
 2006
                            
                            2005As
                                Reported
                            
                            Pro
                                forma
                            
                            As
                                Reported
                            
                            Pro
                                formaStock-based
                                  employee compensationcost
                            
                            $
                            908,283
                            
                            
                            
                            
                            $
                            $296,622
                            
                            $
                            455,365Net
                                loss
                            
                            $
                            (4,648,053
                            )
                            
                            
                            
                            $
                            $(1,088,943
                            )
                            $
                            (1,247,686
                            )Loss
                                per share
                            
                            $
                            (.19
                            )
                            $
                            (.0
                            )
                            $
                            (.05
                            )
                            $
                            (.05
                            )
 The
                    fair
                    value of all options and warrants are estimated using the Black-Scholes
                    option-pricing model with the following weighted-average assumptions,
                    respectively: risk free interest rate of 2.98% and 4.02% for
                    2006 and 2005,
                    expected life of 1 - 10 years; expected volatility of 160% and
                    156% for 2006 and
                    2005; dividend yield of 0%; and an exercise price of $0.92 and
                    $0.42 for 2006
                    and 2005. The fair values generated by the Black-Scholes model
                    may not be
                    indicative of the future benefit, if any, which may be received
                    by the
                    holders.
 
 Effective
                    January 1, 2006, the Company adopted the provisions of SFAS No.
                    123R,
                    "Share-Based Payment," which is a revision of SFAS No. 123, "Accounting
                    for
                    Stock-Based Compensation." This statement now requires the Company
                    to recognize
                    compensation costs related to stock-based payment transactions
                    (i.e. granting of
                    stock options and warrants to employees) in the financial statements.
                    With
                    limited exceptions, the amount of compensation cost will be measured
                    based on
                    the grant-date fair value of the equity or liability instruments
                    issued. In
                    addition, liability awards will be remeasured each reporting
                    period.
                    Compensation cost will be recognized over the period that an
                    employee provides
                    services in exchange for the award.
 
 The
                    Company has adopted the Modified Prospective Application method
                    of accounting
                    and disclosing transition to this new accounting policy. Under
                    this method, this
                    statement applies to new awards and to awards modified, repurchased,
                    or
                    cancelled after January 1, 2006. Additionally, compensation cost
                    for the portion
                    of awards for which the requisite service has not been rendered
                    that are
                    outstanding as of January 1, 2006, would be recognized as the
                    requisite service
                    is rendered after 2005. The compensation cost for those earlier
                    awards would be
                    attributed to periods beginning after 2005. The Company did not
                    have any options
                    outstanding as of January 1, 2006, for which the requisite service
                    had not been
                    performed.
  17
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 The
                    amount of compensation expense related to options issued for
                    services during the
                    twelve months ended December 31, 2006, and recognized in the
                    financial
                    statements, was $1,539,499.
 
 Recent
                    Accounting Pronouncements
 
 In
                    November 2004, the Financial
                    Accounting Standards Board issued
                    SFAS No. 151, *"Inventory
                    Costs - an amendment of ARB No. 43, Chapter 4."* This
                    Statement amends the guidance in ARB No. 43, Chapter 4, *"Inventory
                    Pricing,"* to
                    clarify the accounting for abnormal amounts of idle facility
                    expense, freight,
                    handling costs, and wasted material (spoilage). Paragraph 5 of
                    ARB No. 43,
                    Chapter 4, previously stated that "...under some circumstances, items such as idle
                    facility expense, excessive spoilage, double freight, and rehandling
                    costs may
                    be so abnormal as to require treatment as current-period charges..." This
                    Statement requires that those items be recognized as current-period
                    charges
                    regardless of whether they meet the criterion of "so abnormal."
                    In addition, the
                    Statement requires that allocation of fixed production overheads
                    to the costs of
                    conversion be based on the normal capacity of the production
                    facilities. This
                    statement is effective for inventory costs incurred during the
                    fiscal years
                    beginning after June 15, 2005. Management does not believe the
                    adoption of this
                    Statement will have any immediate material impact on the Company.
 
 In
                    December 2004, the Financial
                    Accounting Standards Board issued
                    SFAS No. 123R, *"Share-Based Payment,"* which is
                    a revision of SFAS No. 123, *"Accounting
                    for Stock-Based Compensation,"* and
                    supersedes APB No. 25, *"Accounting
                    for Stock Issued to Employees."* This
                    Statement will require the Company to recognize compensation
                    costs related to
                    stock-based payment transactions (i.e. granting of stock options
                    and warrants)
                    in the financial statements. With limited exceptions, the amount
                    of compensation
                    cost will be measured based on the grant-date fair value of the
                    equity or
                    liability instruments issued. In addition, liability awards will
                    be remeasured
                    each reporting period. Compensation cost will be recognized over
                    the period that
                    an employee provides services in exchange for the award. This
                    new standard will
                    be effective for awards that are granted, modified or settled
                    in cash in interim
                    and annual financial periods beginning after December 15, 2005.
                    Management has
                    not yet determined what impact this statement will have on the
                    Company's future
                    financial position or results of operations.
 
 In
                    December 2004, the Financial
                    Accounting Standards Board issued
                    SFAS No. 153, *"Exchanges of Non-monetary Assets an amendment of APB No. 29."* This
                    Statement amends APB Opinion No. 29, *"Accounting
                    for Non-monetary Transactions"* to
                    clarify the accounting for non-monetary exchanges of similar
                    productive assets
                    and replaces it with a general exception from fair value accounting
                    for
                    exchanges of non-monetary assets that do not have commercial
                    substance. A
                    non-monetary exchange has commercial substance if the future
                    cash flows of the
                    Company are expected to change significantly as a result of the
                    exchange. This
                    Statement will be applied prospectively and is effective for
                    non-monetary asset
                    exchanges occurring in fiscal periods beginning after June 15,
                    2005. Management
                    does not believe adoption of this Statement will have a material
                    impact on the
                    Company's financial position or results of operations.
 
 In
                    May
                    2005, the Financial
                    Accounting Standards Board issued
                    SFAS No. 154, *"Accounting Changes and Error Corrections - a replacement of
                    APB Opinion No. 20
                    and FASB Statement No. 3."* This
                    Statement changes the requirements for the accounting for and
                    reporting of a
                    change in accounting principle, including voluntary changes.
                    Rather than
                    reporting voluntary changes in accounting principles in net income
                    of the
                    current period, this Statement requires retrospective application
                    to prior
                    periods unless it is impracticable to do so. This Statement also
                    requires that a
                    change in depreciation and amortization be accounted for as a
                    change in
                    accounting estimate effected by a change in accounting principle.
                    This Statement
                    will be effective for accounting changes and corrections of errors
                    made in
                    fiscal periods beginning after December 15, 2005. Management
                    does not believe
                    adoption of this Statement will have a material impact on the
                    Company's
                    financial position or results of operations.
 
 Effective
                    January 1, 2006, the Financial Accounting Standards Board issued
                    SFAS No. 123R,
                    "Share-Based Payment," which is a revision of SFAS No. 123, "Accounting
                    for
                    Stock-Based Compensation." This statement now requires companies
                    to recognize
                    compensation costs related to stock-based payment transactions
                    (i.e. granting of
                    stock options and warrants to employees) in the financial statements.
                    With
                    limited exceptions, the amount of compensation cost will be measured
                    based on
                    the grant-date fair value of the equity or liability instruments
                    issued. In
                    addition, liability awards will be remeasured each reporting
                    period.
                    Compensation cost will be recognized over the period that an
                    employee provides
                    services in exchange for the award.
  18
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 1.
                          ACCOUNTS
                              RECEIVABLE
 
 As
                    of
                    December 31, 2006, the Company has financed, with recourse, certain
                    accounts
                    receivable. The related credit facilities are subject to recourse
                    in that the
                    Company is obligated to pay amounts due to the participating
                    financial
                    institution in the event the customer fails to pay. The outstanding
                    balance on
                    such receivables at December 31, 2006, was $35,321. Fees associated
                    with these
                    transactions are recorded as interest expense in the statement
                    of operations.
                    The agreement allows the Company to finance an aggregate amount
                    of $1,000,000.
 
 2.
                          INVENTORY
 Finished
                                goods
                            
                            $
                            54,193Raw
                                materials
                            
                            
                            0$
                            54,193
  3.
                          PATENT
 
 On
                    November 2, 1998, the Company purchased via issuance of common
                    stock and a note
                    payable, patent rights and intellectual property to various fire
                    suppression
                    products for a purchase price of $2,375,000. This purchase required
                    cash
                    payments of $150,000 and 1,625,000 shares of common stock of
                    the Company to be
                    issued and delivered to BioGenesis Enterprises, Inc. On January
                    14, 1999,
                    750,000 shares were issued as a down payment for the patent rights.
                    On February
                    2, 1999, $150,000 in cash was paid, and in December, 1999, we
                    issued 875,000
                    shares in full satisfaction of any further amounts due. The estimated
                    aggregate
                    amortization expense of patent rights for each of the five succeeding
                    years is
                    $158,333 per year. Amortization expense was $158,368 and $158,333
                    for the years
                    ended December 31, 2006 and 2005, respectively.
 
 4.
                          LICENSES
 
 Prior
                    to
                    2005, licenses for exclusive marketing rights to various products
                    have been
                    acquired for fees totaling $175,200 from related parties. The
                    prices paid were
                    demanded by the seller. The Company is the manufacturer/supplier
                    of the
                    products.
 
 During
                    2005, the Company purchased a license for exclusive marketing
                    and development
                    rights to certain proprietary trade secret chemical formulations.
                    The license
                    was acquired for 240,000 shares of common stock and was valued
                    at $150,000 based
                    on the stock price at that time.
 
 The
                    licenses owned by the Company do not have finite lives and will
                    expire only upon
                    the event the related products are no longer sold by the Company.
                    Management has
                    estimated useful lives for each of the licenses based upon its
                    expectations of
                    the viability of the specific products and is recording amortization
                    of those
                    licenses over those periods. The estimated aggregate amortization
                    expense of
                    licenses for each of the five succeeding years is expected to
                    be $21,680 per
                    year. The weighted-average amortization period for licenses is
                    15 years.
                    Amortization expense was $21,680 and $21,716 for the years ended
                    December 31,
                    2006 and 2005, respectively.
 
 Subsequent
                    to December 31, 2006, management determined that the license
                    purchased from
                    Moonlighting, a related party, is invalid. Therefore, an impairment
                    loss of
                    $24,000 was recognized as of December 31, 2006, leaving the licenses
                    for
                    exclusive marketing rights to various products having been acquired
                    for fees
                    totaling $115,720.
  19
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 5.
                          ACCRUED
                              EXPENSES
 
 Accrued
                    expenses are made up of the following as of December 31, 2006:
  Commissions
                            
                            $
                            14,664Salaries
                            
                            
                            4,642Taxes
                            
                            
                            18,437Royalties
                            
                            
                            34,208Interest
                            
                            
                            35,921$
                            107,872
  6.
                            NOTES
                                PAYABLE
  As
                                of December 31, 2006, notes payable consisted of
                                the
                                following:Note
                                payable, to Paul and Gloria Burke, due in monthlyInstallments
                                of $6,561, including interest at 13%. TheAmortization
                                period is 20 years and the maturity date isAugust
                                2011. Secured by the building and the guarantyof
                                one of its officers.
                            
                            $
                            567,179Note
                                payable, Austin Bank, interest is payable monthly
                                at9.25%,
                                with a balloon payment due June 2007. Secured bythe
                                personal guaranty of a stockholder.
                            
                            
                            119,073Note
                                payable, Pacific Business Capital Corporation, dueon
                                demand. Interest is computed based on the accountsreceivable
                                purchase discount rate of 1.5% plus an additional.1%
                                per day for past-due accounts. Secured by the Company’saccounts
                                receivable, inventory, property and equipment and
                                theguaranty
                                of one of its officers.
                            
                            
                            47,381733,633Less
                                current maturities
                            
                            
                            251,745Non-current
                                maturities
                            
                            $
                            481,888
 
 7.
                              INCOME
                                  TAXES
 
 Deferred
                    tax assets and liabilities are determined based on the difference
                    between the
                    financial statement and tax bases of assets and liabilities as
                    measured by the
                    currently enacted tax rates. Deferred tax expense or benefit
                    is the result of
                    the changes in deferred tax assets and liabilities.
 
 Deferred
                    income taxes and liabilities arise principally from the temporary
                    differences
                    between financial statement and income tax recognition of depreciation
                    and
                    amortization, bad debts and net operating losses.
  20
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 The
                    deferred tax assets include the following components:
  Deferred
                                tax assets:Current
                            
                            $
                            18,870Noncurrent
                            
                            
                            4,052,270Valuation
                                allowance
                            
                            
                            (4,054,530
                            )Deferred
                                tax assets, net
                            
                            
                            -Deferred
                                tax liabilities:Current
                            
                            
                            -Noncurrent
                            
                            
                            --$
                            -
 
 The
                    valuation allowance was established to reduce the deferred tax
                    asset for the
                    amounts that more likely than not will not be realized. This
                    reduction is
                    primarily necessary due to the uncertainty of the Company’s ability to utilize
                    all of the net operating loss carryforwards. The valuation allowance
                    increased
                    $1,207,630 and $385,860 in 2006 and 2005, respectively. The Company
                    has a net
                    operating loss carryforward of approximately $12,953,292 of which
                    $605,000
                    expires in 2018, $882,000 expires in 2019, $1,200,000 expires
                    in 2020, $819,000
                    expires in 2021, $1,240,000 expires in 2022, $1,190,000 expires
                    in 2023,
                    $1,174,000 expires in 2024, $1,084,000 expires in 2025, and 4,648,053
                    expires in
                    2026.
 
 8.
                          COMMITMENTS
                              AND CONTINGENCIES
 
 Leases
 
 The
                    Company is obligated under various operating leases for equipment,
                    and office
                    and warehouse space. Rent expense for all operating leases was
                    approximately
                    $29,072 and $65,404 for 2006 and 2005, respectively, which includes
                    related
                    party rent expense of $-0- and $-0-, respectively.
  Litigation
 
 The
                    Company is involved in various claims and legal actions arising
                    in the ordinary
                    course of business. These lawsuits are in various stages and
                    a determination as
                    to the outcome of these lawsuits and their effect on the financial
                    statements is
                    not determinable. The Company intends to vigorously defend its
                    positions in
                    regards to these lawsuits. In the opinion of management, the
                    ultimate
                    disposition of these matters will not have a material adverse
                    effect on the
                    Company’s results of operations and cash flows.
 
 9.
                          COMMON
                              STOCK
 
 Lady
                    Burd(R) stock rescission
 
 During
                    2002, the Company issued 500,000 shares of stock at $0.45 per
                    share with the
                    intention to purchase the rights to patents from Lady Burd(R).
                    Also included in
                    this exchange were a non-refundable deposit of $25,000 in late
                    2001 and a
                    payment of $25,000 in early 2002. As part of this transaction,
                    the Company
                    recorded a prepaid royalty asset of $200,000, a patent of $550,000
                    and an
                    initial liability of $525,000 due to Lady Burd(R) ($50,000 was
                    paid through
                    December 31, 2002).
 
 Late
                    in
                    2002, the Company was made aware that Lady Burd(R) did not have
                    the patents on
                    the products that it represented to the Company. Also at this
                    time, Lady Burd(R)
                    notified the Company that it did not have an agreement with the
                    Company and it
                    has no obligation to complete this transaction.
 
 Lady
                    Burd
                    commenced litigation against the Company in New York, and the
                    Company commenced
                    litigation against Lady Burd in Longview, Texas. The two suits
                    are being settled
                    with the Company obtaining ownership of the formula (not patented)
                    for a
                    purchase price of 500,000 shares of stock and $62,000 instead
                    of 500,000 shares
                    of stock and $350,000. Of the $62,000, $50,000 has been paid.
  21
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 Private
                    placement
 During
                        the first quarter of 2006, 1,658,000 shares of common stock
                        were sold in a
                        private placement at $.60 per share. . As noted below, warrants
                        to acquire
                        additional shares were issued along with the shares under
                        the private
                        placements. Also, during the first quarter of 2006 warrants
                        representing 380,123
                        shares of stock were exercised for $106,440.
 
 During
                    the third quarter of 2005, 772,500 shares of common stock were
                    sold in a private
                    placement at $.40 per share. During the fourth quarter of 2005,
                    227,500 shares
                    of common stock were sold in a private placement at $.40 per
                    share. As noted
                    below, warrants to acquire additional shares were issued along
                    with the shares
                    under the private placements.
 
 Warrants
 
 During
                    2003 and 2004, the Company issued warrants to acquire 2,256,500
                    and 1,354,000
                    shares of common stock, respectively, for a price of $.25 per
                    share through an
                    extended date of October 2004, in connection with private placement
                    offerings.
                    During 2004, 2,097,000 of these warrants were exercised and 1,333,500
                    expired.
                    During 2005 the Company reinstated the 1,333,500 expired warrants
                    at an exercise
                    price of $.50 per share expiring in December 2006. In addition,
                    during 2005, the
                    Company issued additional warrants to one of the warrant holders
                    to acquire
                    5,000 shares of common stock for $.50 per share through August
                    2006. During
                    2005, 95,000 of these warrants were exercised. As of December
                    31, 2006,
                    1,423,500 of these warrants were still outstanding. The business
                    purpose for
                    reinstating the warrants was to encourage additional investment
                    in the Company.
                    There is no additional expense related to the reinstatement as
                    the warrants were
                    issued in connection with private placement offerings.
 
 During
                    2004, the Company issued warrants to acquire 1,321,250 shares
                    of common stock
                    for $0.50 per share through January 30, 2005, in connection with
                    private
                    placement offerings. 460,000 of these warrants were exercised
                    during 2004.
                    During 2005, the expiration date of these warrants was extended
                    to December 31,
                    2006. The business purpose for extending the expiration date
                    of the warrants was
                    to make it more likely they would be exercised, as the warrants
                    were not “in the
                    money” at the time of the extension. There is no additional expense
                    related to
                    the extension of the expiration date as the warrants were issued
                    in connection
                    with private placement offerings. During 2005, the exercise price
                    was
                    temporarily reduced to $.35 per share, at which price 367,143
                    of these warrants
                    were exercised. The exercise price was then readjusted to $.50
                    per share, at
                    which price 150,000 shares were exercised. As of December 31,
                    2006, 344,107 of
                    these warrants were still outstanding.
 
 During
                    2004, the Company issued warrants to acquire 1,000,000 shares
                    of common stock
                    for $1.00 per share through May 7, 2005, in connection with private
                    placement
                    offerings. During 2005, the expiration date of these warrants
                    was extended to
                    December 31, 2006 and the exercise price was reduced to $.50
                    per share. The
                    business purpose for extending the warrants and reducing the
                    exercise price was
                    to make it more likely they would be exercised, as the warrants
                    were not “in the
                    money” at the time of the extension. There is no additional expense
                    related to
                    the extension of the expiration date as the warrants were issued
                    in connection
                    with private placement offerings. During 2005, none of these
                    warrants were
                    exercised. As of December 31, 2006, all of these warrants were
                    still
                    outstanding.
 
 During
                    2005, the Company issued warrants to acquire 1,000,000 shares
                    of common stock
                    for $.50 per share through December 31, 2005, in connection with
                    private
                    placement offerings. During 2005, the expiration date of these
                    warrants was
                    extended to January 18, 2006. The business purpose for extending
                    the warrants
                    was to make it more likely they would be exercised, as the warrants
                    were not “in
                    the money” at the time of the extension. There is not additional expense
                    related
                    to the extension of the expiration date as the warrants were
                    issued in
                    connection with private placement offerings. During 2005, 202,500
                    of these
                    warrants were exercised. As of December 31, 2006, 797,500 of
                    these warrants were
                    still outstanding.
  In
                    December of 2006 the Board of Directors voted to change the of
                    all the
                    outstanding warrants to $.05 per share and extend the expiration
                    date until
                    January 31, 2007.
  Common
                    Stock Options
  1998
                    Plan
  During
                    1998 the directors and stockholders approved the 1998 Stock Option
                    Plan (the
“Plan”) of the Company whereby, at the discretion of the directors
                    or of a Stock
                    Option Committee appointed by the board of directors, invited
                    employees of the
                    Company or directors of the Company or consultants to the Company
                    to have the
                    option of subscribing to common shares of the Company based on
                    a price
                    determined by the directors or Stock Option Committee. The number
                    of shares
                    subject to the Plan is 500,000. As of December 31, 2006,385,000
                    of these options
                    are exercisable; all with an exercise price of $.30 per share.
                    The
                    weighted-average remaining
                    contractual life of the outstanding options under this Plan at
                    December 31,
                    2006, was 4 years.
  22
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 The
                    following schedule summarizes the changes in the Plan for the
                    two years ended
                    December 31, 2006:
  Option
                                PriceWeightedNumber
                                of
                            
                            Average
                            
                            Total
                                OptionShares
                            
                            Per
                                Share
                            
                            PriceOutstanding
                                at December 31, 2004
                            
                            
                            395,000
                            
                            $
                            0.30
                            
                            $
                            118,500(395,000
                                exercisable)For
                                the year ended December 31, 2005:Granted
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Exercised
                            
                            
                            (10,000
                            )
                            $
                            0.30
                            
                            
                            (3,000
                            )Expired
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Outstanding
                                at December 31, 2005
                            
                            
                            385,000
                            
                            $
                            0.30
                            
                            $
                            115,500(395,000
                                exercisable)For
                                the year ended December 31, 2006:Granted
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -ExercisedExpired
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Outstanding
                                at December 31, 2006
                            
                            
                            385,000
                            
                            $
                            0.30
                            
                            $
                            115,500
  During
                    2002, the Company reduced the exercise price for all stock options
                    from $1.00
                    per share to $0.30 per share.
 
 2004
                    Plan
 
 During
                    2004, the board of directors approved the 2004 Stock Option Plan
                    (the “Plan”) of
                    the Company whereby, at the discretion of the directors or of
                    a Stock Option
                    Committee appointed by the board of directors, invited employees
                    of the Company
                    or directors of the Company or consultants to the Company to
                    have the option of
                    subscribing to common shares of the Company based on a price
                    determined by the
                    directors or Stock Option Committee. The number of shares subject
                    to the Plan is
                    1,000,000. As of December 31, 2006, 1,220,000 of these options
                    are exercisable;
                    with exercise prices ranging from $.16 to $.92 per share. The
                    weighted-average remaining
                    contractual life of the outstanding options under this Plan at
                    December 31,
                    2006, was 8 years. The weighted-average grant-date fair value
                    of options issued
                    under this Plan during 2006 and 2005 was $0.92 and $.42,
                    respectively.
  23
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 The
                    following schedule summarizes the changes in the Plan for the
                    two years ended
                    December 31, 2006:
 Option
                                PriceNumber
                                of
                            
                            
                            
                            Total
                                OptionShares
                            
                            Per
                                Share
                            
                            PriceFor
                                the year ended December 31, 2005:Granted
                            
                            
                            380,000
                            
                            $
                            0.42
                            
                            $
                            159,600Exercised
                            
                            
                            (82,500
                            )
                            
                            (.16
                            )
                            
                            (13,200
                            )Expired
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Outstanding
                                at December 31, 2005
                            
                            
                            780,000
                            
                            $
                            0.29
                            
                            $
                            223,600(482,500
                                exercisable)For
                                the year ended December 31, 2006:Granted
                            
                            
                            440,000
                            
                            
                            0.92
                            
                            
                            404,800ExercisedExpired
                            
                            
                            -
                            
                            
                            -
                            
                            
                            -Outstanding
                                at December 31, 2006
                            
                            
                            1,220,000
                            
                            $
                            0.52
                            
                            $
                            628,400
 Outside
                    of Plan
  During
                    2001, the Company issued options outside the Plan to purchase
                    250,000 shares of
                    common stock at $0.50 to a strategic alliance partner. During
                    2004, the Company
                    reduced the exercise price to $0.40 and extended the expiration
                    of these options
                    to June 30, 2005. During January 2005, the expiration date of
                    these options was
                    extended to February 12, 2006. During 2005, 50,000 of these stock
                    options were
                    exercised. As of December 31, 2006, 200,000 of these stock options
                    are
                    exercisable.  According
                    to SFAS 123, *Accounting
                    for Stock-Based Compensation* ,
                    additional expense is to be recognized if the modification of
                    the terms causes
                    the new award to be more valuable than the original award. The
                    Company
                    determined that no additional expense is to be recognized as
                    the value of the
                    new awards is less than the value of the original award.
 
 During
                    2004, the Company issued options to purchase 188,584 shares of
                    common stock at
                    $0.20 per share to a consultant offering investment and marketing
                    advice. During
                    2004, 94,292 of these options were exercised, with the remainder
                    being exercised
                    during 2005. During 2005, 94,292 of the remaining 2004 issued
                    options were
                    exercised at $.20 per share. Also, During 2005, the Company issued
                    additional
                    options to this consultant to purchase 237,192 shares of common
                    stock at $.28
                    per share of which 118,596 of those shares were exercised in
                    2005. As of
                    December 31, 2005, 118,596 of these options were exercisable.
                    During 2006, the
                    Company issued additional options to this consultant to purchase
                    261,534 shares
                    of common stock at $.28 per share. As of December 31, 2006, 0
                    of these options
                    were exercisable. For the year ended December 31, 2006 and 2005,
                    $231,100 and
                    $62,555 has been recognized in expense in connection with services
                    provided
                    under this option contract, respectively.
 
 Common
                    Stock Issued for Services Rendered
 
 During
                    2006, the Company issued1,308,399 shares of stock ranging from
                    $0.11 to $0.88
                    per share to officers and employees of the Company for services
                    rendered. During
                    2005, the Company issued 259,882 shares of stock ranging from
                    $0.20 to $1.36 per
                    share to officers of the Company for services rendered.
 
 During
                    2006, the Company issued 261,534 shares of stock for $0.92 per
                    share, for
                    services rendered by outside parties. During 2005, the Company
                    issued 100,804
                    shares of stock ranging from $0.40 to $1.30 per share, for services
                    rendered by
                    outside parties.
  10.
                          RELATED
                              PARTY TRANSACTIONS
 
 The
                    following transactions occurred between the Company and related
                    parties:
  24
 
  Summit
                          Environmental Corporation, Inc.
 
 NOTES
                          TO
                          FINANCIAL STATEMENTS
 
 The
                    Company and another business with common shareholders share office
                    space and the
                    related expenses.
 
 Accounts
                    receivables from related parties totaled $55,506 all of which
                    was reserved for
                    at December 31, 2006.
 
 The
                    Company acquired a patent from BioGenesis Enterprises, Inc. (BioGenesis)
                    on
                    November 2, 1998 (see Note 2), pursuant to which advanced royalty
                    fees totaling
                    $500,000 were paid. The purchase agreement requires the Company
                    to pay
                    BioGenesis a periodic royalty of $.50 per 16-oz. can and an equivalent
                    (approximately 7%) on all other product categories using the
                    fire suppressant
                    technology. During 2004, BioGenesis reduced the periodic royalty
                    to $.40 per
                    16-oz can. One-half of all periodic royalty fees due to BioGenesis
                    will be
                    credited against the advance royalty fee (until fully recovered)
                    and one-half
                    will be paid to BioGenesis in cash on the 30 th of each
                    month based upon invoiced sales through the close of the preceding
                    month. The
                    Company has prepaid royalties to BioGenesis totaling $451,938
                    as of December 31,
                    2006. Included in accrued expenses is $34,208 due to BioGenesis
                    at December 31,
                    2006, for royalties due. Included in accounts payable is $4,258
                    due to
                    BioGenesis at December 31, 2006, for goods received. We credited
                    against the
                    advance royalties $8,416 in 2006 and $29,737 in 2005. The product
                    certification
                    process that the Company was subjected to took 5-1/2 years to
                    complete before it
                    was allowed to begin test marketing, which first occurred in
                    2004.
 
 During
                    2003, the Company purchased a license for various products from
                    an entity with
                    common shareholders and management members of the Company, and
                    issued 360,000
                    shares of common stock at $.32 per share and 180,000 warrants
                    at $1.00 per share
                    for such license.
 
 During
                    2005, the Company purchased a license for various products from
                    an entity with
                    common shareholders of the Company, and issued 240,000 shares
                    of common stock at
                    $.625 per share for such license.
 
 11.
                          CONCENTRATIONS
 
 Approximately
                    58% of sales were made to one customer in 2006 and 78% of sales
                    were made to
                    four customers in 2005, respectively. Accounts receivable from
                    the customers was
                    $35,321 and $255,193 in 2006 and 2005,
                    respectively .
 
 12.
                          FINANCIAL
                              RESULTS AND LIQUIDITY
 
 The
                    accompanying financial statements have been prepared on a going
                    concern basis,
                    which contemplates the realization of assets and the satisfaction
                    of liabilities
                    in the normal course of business. As shown in the accompanying
                    financial
                    statements, the Company has incurred net losses of $4,648,053
                    and $1,088,943 for
                    the years ended December 31, 2006 and 2005, respectively, and
                    has incurred
                    losses of $12,953,292 since inception. The Company also has negative
                    cash flows
                    from operations of $1,085,577 and $1,283,296 for the years ended
                    December 31,
                    2006 and 2005, respectively, and has used cash in operations
                    of $8,576,948 since
                    inception. These factors, among others, may indicate that the
                    Company will be
                    unable to continue as a going concern for a reasonable period
                    of time. The
                    financial statements do not include any adjustments relating
                    to the
                    recoverability and classification of recorded assets, or the
                    amounts and
                    classification of liabilities that might be necessary in the
                    event the Company
                    cannot continue in existence.
 
 Despite
                    its negative cash flow, the Company has been able to secure financing
                    to support
                    its operations to date. The Company believes that the capital
                    raised in fiscal
                    2007 will be sufficient to support the Company’s liquidity requirements through
                    December 31, 2007, depending on operating results. Management
                    believes that,
                    despite the financial hurdles, it has under development a Strategic
                    Plan, that
                    if successfully executed,, can significantly improve operating
                    results.
 
 13.
                          SUBSEQUENT
                              EVENTS
 
 In
                    January 2007 shareholders executed warrants for 3,019,917 shares
                    of stock
                    receiving $150,996 of capital. In March 2007 the Company received
                    $485,000 for
                    9,700,000 shares of preferred stock. The preferred stock has
                    all the same
                    attributes as the existing common stock. The Company has received
                    a commitment
                    from a group of investors to purchase 2,000,000 shares of common
                    stock for
                    $100,000.
  25





**ITEM
      8.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





During
      the two most recent fiscal years or any later interim period, our principal
      independent accountant has not resigned, declined to stand for reelection or
      been dismissed.





**ITEM
      8A(T).**  **CONTROLS
      AND PROCEDURES.**




**Evaluation
      of disclosure controls and procedures** .
      The Company carried out an evaluation, under the supervision and with the
      participation of the Company's management, including the Company's Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      design and operation of the Company's disclosure controls and procedures as
      of
      the end of the period covered by this report. Based upon that evaluation, the
      Chief Executive Officer and Chief Financial Officer concluded that the Company's
      disclosure controls and procedures are effective and provide reasonable
      assurances that the information the Company is required to disclose in the
      reports it files or submits under the Securities Exchange Act of 1934 is
      recorded, processed, summarized and reported within the time period required
      by
      the Commission's rules and forms. Further, the Company’s officers
      concluded that its disclosure controls and procedures are also effective to
      ensure that information required to be disclosed in the reports that it files
      or
      submits under the Exchange Act is accumulated and communicated to its
      management, including its chief executive officer and chief financial officer,
      to allow timely decisions regarding required disclosure.  There
      were no significant changes in the Company's internal control over financial
      reporting during the period covered by this report that have materially
      affected, or are reasonably likely to materially affect our internal controls
      over financial reporting.





**ITEM
      8B.**  **OTHER
      INFORMATION**





There
      is no information that was required to be disclosed on Form 8-K during the
      fourth quarter of 2006 that was not reported.





**ITEM
      9.**  **DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION
      16(A)
      OF THE EXCHANGE ACT.**





**Directors,
      Officers and Significant Employees** **.**





The
      following table shows information as of April 13, 2007 with respect to each
      of
      the officers and directors of the company individually and as a
      group:


TERM
                  OFOFFICE
                  HELD
              
              
              OFFICENAME
              
              
              OFFICE
              
              
              SINCE
              
              
              EXPIRESDoug
                Cox, 56
              
              
              CEO,
                  Chairman and Director
              
              
              2006
              
              
              10-07Don
                Jordan, 58
              
              
              CFO,
                  President and Director
              
              
              2005
              
              
              10-07Dean
                  Haws, 35
              
              
              Director
              
              
              1998
              
              
              10-07James
                  J. Roach, 60
              
              
              Director
              
              
              1998
              
              
              10-07Thomas
                  J. Kenan, 75
              
              
              Director
              
              
              1998
              
              
              10-07Mohsen
                  Amiran, 55
              
              
              Director
              
              
              1999
              
              
              10-07Wilton
                  Dennis Stripling, 63
              
              
              Director
              
              
              2000
              
              
              10-07
  26





**Doug
      Cox, CEO, President and Chairman of the Board of Directors**




Born
      in Toronto, Canada, Mr. Cox began his career in 1976 selling life insurance
      door
      to door. Within a few years he was one of the leading sales professionals in
      the
      insurance industry. He soon established his own brokerage firm, which latter
      became recognized as one of the most prominent insurance/financial planning
      firms in the Toronto Region. In 1988, Mr. Cox expanded his firm to the United
      States where he continued to build, develop and sell his successful companies
      for other opportunities. Mr. Cox has been recognized as one of the most
      entrepreneurial and successful business people in the insurance industry. Along
      the way, he has invested, mentored, managed and influenced many other businesses
      in various industries to achieve success. Mr. Cox’s most recent company,
      Cox-Leadership was established in early 2006 to help other businesses grow
      and
      aspire to greater levels of success, but because of a prior investment in Summit
      Environmental and its need for leadership, Mr. Cox committed in November 2006
      to
      assume the role of CEO of Summit. His objective is to put Summit on the right
      path for recognized success. Today, he resides in San Diego where Summit’s
      corporate office will also be located.





**J.
      Don Jordan, Chief Financial Officer, President and
      Director**





Mr.
      Jordan began his public accounting career in 1970 and graduated from the
      University of North Texas in 1971 with a Bachelor of Business
      Administration-Accounting degree. He was licensed by the State of Texas as
      a CPA
      in 1974 and is a member of the American Institute of Certified Public
      Accountants and the Texas Society of Public Accountants. Mr. Jordan founded
      his
      own public accounting firm in 1977, and later acquired his former employer
      in
      1989 creating Jordan, Donohoe & Company, LLP. Mr. Jordan has specific
      expertise in manufacturing, restaurant, retail and construction industries
      with
      over 35 years experience which includes auditing privately held companies.
      During his career, Mr. Jordan has served at various times on boards of private
      companies and in an advisory capacity to various private boards. He has also
      served as the CFO of a privately owned retail chain. He will devote to the
      business of Summit whatever time is required for him to carry out his
      responsibilities as chief financial officer and president.




27





**Dean
      Haws, Director**





Mr.
      Haws was the owner and operator of a satellite dish sales and installation
      company, Gilmer Satellites of Gilmer, Texas, from 1988 to 2001. He has also
      been
      active in the oil field service business and the ostrich business. In 2001
      he
      was employed for three months as an administrative staff member for Summit
      Environmental. During 2002 he was employed by Mike Craig Ford Mercury in Gilmer,
      Texas, as a car salesman. In 2003 he became the manager of car sales for that
      company and still is so employed. He has been a director of our company since
      1998.





**James
      J. Roach, Director**





Mr.
      Roach is a retired Connecticut State Police sergeant and owned a private
      detective and security company in Connecticut for over 12 years. His clients
      included many insurance companies and the State of Connecticut. He is presently
      retired and living in the State of Florida. He has been a director of our
      company since 1998.





**Thomas
      J. Kenan, Director**





Mr.
      Kenan has practiced securities and corporation law in Oklahoma City, Oklahoma
      for the last 40 years. He was affiliated with Fuller, Tubb, Pomeroy & Stokes
      in an “of counsel” capacity from May 1, 1993 until October 1, 2006 when he
      became affiliated with Fuller Tubb, PLLC in an “of counsel” capacity. He has
      been a director and outside corporate counsel of Summit Environmental since
      1998.





**Dr.
      Mohsen Amiran, Director**





Dr.
      Amiran grew up with a passion for the environment. While attending a UK
      University, his two thesis papers on organic chemistry received national
      attention. He was viewed as one of the brilliant minds in his field. He was
      then
      invited by the Shah of Iran to set up a new technical university in Tehran
      to do
      research and development for both military and civilian causes. The operation
      quickly grew into the largest research facility in the Middle East. His work
      on
      solvents for cleaning oil spills and other environmentally safe cleaning
      solvents was historic. Subsequently, the Shah of Iran presented him with three
      awards, including a gold medal, the country’s highest honor.





Soon
      after, the Islamic revolution took place and a new government took over. For
      a
      two-month period, Dr. Amiran lived a life of torment and feared for his life.
      The new regime destroyed the laboratory, burned his equipment and destroyed
      all
      his research. Eventually, Ayatollah Khomeini, the new leader, stepped in and
      asked Dr. Amiran to become an advisor and help industry and the military to
      get
      back on their feet. After a short time, Dr. Amiran managed to escape with his
      wife and son to London. The news that one of Iran’s leading minds had defected
      caused much turmoil in Iran. Fearing that Dr. Amiran was working with the CIA,
      his possessions were seized and family members tormented, tortured or killed.
      He
      came to the United States and became a professor at Northwestern University.
      He
      later founded BioGenesis, where he again began working on his environment-saving
      fire suppressants and cleaning agents.




28





Dr.
      Amiran received his undergraduate degree in Organic Chemistry from Areya Mehr
      University in Tehran, Iran and his Ph.D. from the University of Essex in
      England. He has been employed the last five years as the CEO of BioGenesis
      and a
      director of our company since 1999.





**Dr.
      Wilton Dennis Stripling, Director**





Dr.
      Stripling is an orthopedic surgeon specializing in hand, wrist and forearm
      surgery in the Dallas area and has been practicing medicine there since 1968.
      He
      is board certified in Orthopedic Surgery. He is a member of the Dallas County
      Medical Society, Texas Medical Society, American Academy of Orthopedic Surgeons,
      and American Society for Surgery of the Hand. He has a certificate in finance
      from the Cox Business School at SMU and a certificate in Medical Management
      from
      Carnegie Mellon University. He has been a director of our company since
      2000.





No
      executive officer, director, person nominated to become a director, promoter
      or
      control person of our company has been involved in legal proceedings during
      the
      last five years such as





•
            bankruptcy,





•
            criminal
                proceedings (excluding traffic violations and other minor offenses),
                or





•
            proceedings
                permanently or temporarily enjoining, barring, suspending or otherwise
                limiting his involvement in any type of business, securities or banking
                activities.





•
            Nor
                has any such person been found by a court of competent jurisdiction
                in a
                civil action, or the Securities and Exchange Commission or the Commodity
                Futures Trading Commission to have violated a federal or state securities
                or commodities law.





**Audit
      Committee and Audit Committee Financial Expert**





We
      have an audit committee. There is no audit committee financial expert serving
      on
      the audit committee. However, the audit committee has the authority to hire
      a
      financial expert any time it has the need for expert financial
      advice.





**Code
      of Ethics**





We
      have adopted a Code of Ethics that applies to our chief executive officer,
      chief
      financial officer, and - should we acquire such - principal accounting officer
      or controller or persons performing similar functions. A copy of the Code of
      Ethics is filed as an exhibit to the Form 10-KSB annual report FYE
      12-31-04.




29





**Compliance
      With Section 16(a) of the Exchange Act** **.**





Our
      securities are not registered with the Securities and Exchange Commission under
      Section 12(b) or 12(g) of the Exchange Act. Accordingly, our officers, directors
      and beneficial owners of 10 percent or more of any class of stock are not
      subject to Section 16(a) of the Exchange Act.





**ITEM
      10.**  **EXECUTIVE
      COMPENSATION.**





The
      following information concerns the compensation of the named executive officers
      for each of the last two completed fiscal years:





SUMMARY
      COMPENSATION TABLE





**Name
                and Principal Position**
            **Year**
            **Salary**
            **Bonus**
            **Common**
              **Stock**
              **Awards**
            **Total**B.
                Keith Parker, CEO
            2006
              2005
            $82,500
              $90,000
            
            42,750
              60,187
            125,250
              150,187Paula
                Parker, Vice President and
              Secretary
            2006
              2005
            $45,000
              $60,000
            
            28,500
              40,125
            73,500
              100,125




OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END





The
      following information concerns unexercised stock options, stock that has not
      vested, and equity incentive plan awards for each named officer outstanding
      at
      the end of the last fiscal year:





Option
                Awards
            
            Stock
                AwardsName
            
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
                (#)
              Exercisable
            
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
                (#)
              Unexercisable
            
            Equity
              Incentive
              Plan
              Awards:
              Number
                of
              Securities
              Underlying
              Unexercised
              Unearned
              Options
                (#)
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date
            
            Number
              of
                Shares
              or
                Units
              of
                Stock
              That
              Have
                Not
              Vested
                (#)
            
            Market
              Value
                of
              Shares
                or
              Units
                of
              Stock
              That
              Have
                Not
              Vested
                ($)
            
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That
              Have
                Not
              Vested
                (#)
            
            Equity
              Incentive
              Plan
              Awards:
              Market
                or
              Payout
              Value
                of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That
              Have
                Not
              Vested
                ($)Doug
                Cox, CEO
            
            
            866,667
            
            
            
            
            
            
            
            
            0.05
            
            
            1-31-2007
            
            
            
            
            
            
            
            
            8,000,000Don
                Jordan, Pres.
              and
                CFO
            
            
            300,000
              20,000
              60,000
            
            
            
            
            
            
            
            
            0.05
              0.42
              0.92
            
            
            1-31-2007
              8-31-2015
              1-18-2016
            
            
            
            
            
            
            
            
            4,000,000




30





**Compensation
      of Directors**





The
      directors of Summit Environmental Corporation, Inc. and its subsidiaries
      received the following compensation in 2006 for their services as
      directors.





DIRECTOR
      COMPENSATION





**Name**
            
            **Fees**
              **Earned**
              **or
                Paid**
              **in
                Cash**
              **($)**
            
            **Stock**
              **Awards**
              **($)**
            
            **Option**
              **Awards**
              **($)**
            
            **Non-Equity**
              **Incentive**
              **Plan**
              **Compensa-**
              **tion
                ($)**
            
            **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings
                ($)**
            
            **All
                Other**
              **Compensa-**
              **tion
                ($)**
            
            **Total**
              **($)**Dean
                Haws
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0James
                J. Roach
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0Thomas
                J. Kenan
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0Mohsen
                Amiran
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0W.
                Dennis Stripling
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0Chris
                Dellinges
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0J.
                Don Jordan
            
            
            0
            
            
            0
            
            
            54,600
            
            
            0
            
            
            0
            
            
            0
            
            
            0





(1)
            Options
                to purchase 60,000 shares of common stock at $0.92 a share were awarded
                to
                these directors on January 19, 2006. The stock closed that day at
                $0.97 a
                share. On April 10, 2007 the stock closed at $0.095 a
                share.





**Employment
      Contracts** **.**





We
      have no employment agreements.





**Stock
      Options** **.**





We
      have two stock option plans. The major provisions of the plans are as
      follows:





Options
      granted under the 1998 Plan or the 2004 Plan may be "employee incentive stock
      options" as defined under Section 422 of the Internal Revenue Code or
      non-qualified stock options, as determined by the option committee of the board
      of directors at the time of grant of an option. The 1998 and 2004 plans enable
      the option committee of the board of directors to grant, respectively, up to
      500,000 and 1,000,000 stock options to employees and consultants from time
      to
      time.




31





**ITEM
      11.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.**





The
      following table shows information as of April 13, 2007 with respect to each
      beneficial owner of more than 5 percent of each class of voting stock of the
      company and to each of the officers and directors of the company individually
      and as a group. There are 30,536,001 shares of common stock of the company
      outstanding.


NO.
                  OF
              
              
              %
                  OFSUMMIT
                ENVIRONMENTAL CORP.
              
              
              SHARES
              
              
              CLASSDoug
                  Cox
              
              
              6,038,884(1
              )
              
              19.812264
                  El Camino Real #400San
                  Diego, CA 92130J.
                  Don Jordan
              
              
              2,
                  811,370(2
              )
              
              9.216610
                  Dallas Parkway, Suite 2100Dallas,
                  TX 75248B.
                  Keith Parker
              
              
              2,175,905(3
              )
              
              7.1P.O.
                  Box 3402Longview,
                  TX 75606Paula
                  Parker
              
              
              2,175,905
                  (4
              )
              
              7.1P.O.
                  Box 3402Longview,
                  TX 75606Dean
                  Haws
              
              
              780,000(5
              )
              
              2.6P.
                  O. Box 1071Gilmer,
                  TX 75644James
                  J. Roach
              
              
              281,300(6
              )
              
              *5107
                  SE Sweetbriar TerraceHobe
                  Sound, FL 33455Thomas
                  J. Kenan
              
              
              296,753(7
              )
              
              *212
                  NW 18th StreetOklahoma
                  City, OK 73103Mohsen
                  Amiran
              
              
              1,576,000(8
              )
              
              5.27420
                  Alban Station, Ste. B-208Springfield,
                  VA 22150Wilton
                  Dennis Stripling
              
              
              2,012,550(9
              )
              
              4.38230
                  Walnut Hill Lane, Ste. 2212Dallas,
                  TX 75231Officers
                  and Directors
              
              
              13,796,857
              
              
              45.2as
                  a group (7 persons)





*  Less
      than 1 percent.




32





(1)
            Mr.
                Cox owns directly 5,172,167shares of common stock and is attributed
                the
                ownership of an additional 866,667 shares that underlie presently
                exercisable stock purchase
                warrants.





(2)
            Mr.
                Jordan owns directly 2,431,370 shares of stock and is attributed
                the
                ownership of (i) 80,000 shares of stock that underlie presently
                exercisable stock options and (ii) 300,000 shares of stock that underlie
                presently exercisable stock purchase
                warrants.





(3)
            Mr.
                Parker directly owns 496,875 shares of common stock. He is attributed
                the
                beneficial ownership of 1,237,155 shares owned by a family limited
                partnership. He is also attributed the beneficial ownership of 441,875
                shares owned by his spouse, Paula Parker. All these same shares are
                attributed to Paula Parker. See footnote
                (4).





(4)
            Mrs.
                Parker, who is the spouse of B. Keith Parker, is attributed the beneficial
                ownership of the same shares attributed to Mr. Parker. See footnote
                (3).





(5)
            These
                shares include 280,000 shares that underlie stock options that are
                presently exercisable.





(6)
            Mr.
                Roach owns directly 1,300 shares of common stock, and he is attributed
                280,000 shares that underlie presently exercisable stock
                options.





(7)
            Mr.
                Kenan is attributed 280,000 shares that underlie presently exercisable
                stock options. He is also attributed the ownership of 16,753 shares
                owned
                by the Marilyn C. Kenan Trust, the trustee of which is Mr. Kenan’s spouse,
                Marilyn C. Kenan.





(8)
            Dr.
                Amiran owns directly 1,311,000 shares and is attributed the ownership
                of
                265,000 shares that underlie presently exercisable stock
                options.





(9)
            Dr.
                Stripling owns 1,669,050 shares held in his IRA account, is attributed
                the
                ownership of 13,500 shares held in a family limited partnership of
                which
                his spouse is a general partner, and is also attributed the ownership
                of
                240,000 shares that underlie stock options and 90,000 shares that
                underlie
                common stock purchase warrants.





**CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**





Summit
      Technologies early received an assignment from Moonlighting Distribution
      Corporation to the distribution rights to BioGenesis’s fire suppression
      products. Summit paid $10,000 to Moonlighting, and initially paid to
      Moonlighting a royalty of $0.50 for each 16-ounce can of **FirePower
      911** **Ô** **,** $0.35
      for each 1-liter can of **FirePower** **Ô** **,** and $0.50 for each gallon of **FlameOut** **â** .
      As of January 2005, the royalties for **FirePower** **Ô** and **FlameOut** **â** in aerosol form are now reduced to $0.25 a can. Moonlighting was and still
      is
      under the control of B. Keith Parker and his spouse, Paula Parker, who were
      both
      directors and officers of Summit until recently.





Our
      new management is researching the issue of whether Moonlighting had perfected
      its title to the distribution rights at the time that it purportedly transferred
      these rights to Summit Technologies.





**ITEM
      13.**  **EXHIBITS.**





The
      following exhibits are filed, by incorporation by reference, as part of this
      Form SB-2 Registration Statement:




33





Exhibit
              No.
            Description





2.1
            
            -
            Agreement
                of Merger of July 14, 1998, between Summit Environmental Corporation,
                Inc.
                and Summit Technologies, Inc.**





3.1
            
            -
            Articles
                of Incorporation of Summit Environmental Corporation,
                Inc.*





3.1.1
            
            -
            Amendment
                to Articles of Incorporation of Summit Environmental Corporation,
                Inc.**





3.2
            
            -
            Bylaws
                of Summit Environmental Corporation,
                Inc.*





5
            
            -
            Opinion
                of Thomas J. Kenan, Esquire, on the legality of the securities being
                registered.+++





10.1
            
            -
            1998
                Stock Option Plan adopted by Summit Environmental Corporation,
                Inc.*





10.4
            
            -
            2004
                Stock Option Plan adopted by Summit Environmental Corporation,
                Inc.+





10.5
            
            -
            Royalty
                Agreement between BioGenesis Enterprises, Inc. and Summit Environmental
                Corporation, Inc.+*





10.6
            
            -
            License
                Agreement - Consumer Chemicals and Proprietary Remediation Technology,
                executed 02-01-06 by BioGenesis Enterprises, Inc. and Summit Environmental
                Corporation, Inc.+++





10.7
            
            -
            Service
                Agreement by and between SMG and Summit Environmental Corporation
                dated
                September 25, 2005.**+





10.8
            
            -
            Advisory
                Services Agreement between AmBiz Associates, L.L.C. and Summit
                Environmental Corporation, Inc. dated February 25,
                2004.**+





10.9
            
            -
            Distribution,
                and Sales Agreement between Summit Environmental Corporation and
                VASA,
                Ltd. dated September 1, 2004.**+





14
            
            -
            Code
                of Ethics for the Chief Executive officer and Senior Financial
                Officers.*+





31
            
            -
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





31.1
            
            -
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





32
            
            -
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





32.1
            
            -
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




34





*
            Previously
                filed with Form SB-2; Commission File No. 333-48675 incorporated
                herein.


**
            Previously
                filed with Amendment No. 1 to Form SB-2; Commission File No. 333-48675
                incorporated herein.




+
            Previously
                filed with Form 10-KSB Annual Report FYE 12-31-03, Commission File
                No.
                333-48675 incorporated herein.




+++
            Being
                filed with Form SB-2 Am 1, Commission File No. 333-122402 incorporated
                herein.




+*
            Previously
                filed with Amendment No. 2 to Form 10-KSB 12-31-04, Commission File
                No.
                333-48675 incorporated herein.




*+
            Previously
                filed with Form 10-KSB Annual Report FYE 12-31-04, Commission File
                No.
                333-48675 incorporated herein.




**+
            Being
                filed with Form SB-2 Am 2, Commission File No. 333-122402 incorporated
                herein.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**





**Audit
      Fees** .
      Our principal independent accountant billed us, for each of the last two fiscal
      years, the following aggregate fees for its professional services rendered
      for
      the audit of our annual financial statements and review of financial statements
      included in our Form 10-QSB reports or other services normally provided in
      connection with statutory and regulatory filings or engagements for those two
      fiscal years:




Fiscal
              Year ended December 31,
              2006
            
            $
            64,000.00Fiscal
              Year ended December 31,
              2005
            
            $
            49,000.00





**Audit-Related
      Fees.** Our principal independent accountant billed us, for each of the last two fiscal
      years, the following aggregate fees for assurance and related services
      reasonably related to the performance of the audit or review of our financial
      statements and not reported above under “Audit Fees”:




Fiscal
              Year ended December 31,
              2006
            
            $
            0Fiscal
              Year ended December 31,
              2005
            
            $
            0





**Tax
      Fees** .
      Our principal independent accountant billed us, for each of the last two fiscal
      years, the following aggregate fees for professional services rendered for
      tax
      compliance, tax advice and tax planning:




35


Fiscal
                Year ended December 31,
                2006
              
              $
              0Fiscal
                Year ended December 31,
                2005
              
              $
              0





**All
      Other Fees** .
      Our principal independent accountant billed us, for each of the last two fiscal
      years, the following aggregate fees for products and services provided by it,
      other than the services reported in the above three categories:


Fiscal
                Year ended December 31,
                2006
              
              $
              0Fiscal
                Year ended December 31,
                2005
              
              $
              0


**Pre-Approval
      of Audit and Non-Audit Services.**  The
      Audit Committee charter requires that the committee pre-approve all audit,
      review and attest services and non-audit services before such services are
      engaged.




36


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date: April 16, 2007
            
            SUMMIT ENVIRONMENTAL CORPORATION,
              INC.By:
            */s/
              Doug Cox*Doug Cox, Chief Executive
              Officer,and individually as a
              Director




In
      accordance with the requirements of the Securities Act of 1933, this
      registration statement was signed by the following persons in the capacities
      and
      on the dates stated:




Date:
              April 16, 2007
            */s/
              Don Jordan*Don Jordan, Chief Financial
              Officer,Principal Accounting Officer,
              Presidentand individually as a
              DirectorDate:
              April 16, 2007
            */s/
              Dean Haws*Dean Haws, DirectorDate:
              April 16, 2007
            */s/
              James J. Roach*James J. Roach, DirectorDate:
              April 16, 2007
            */s/
              Thomas J. Kenan*Thomas J. Kenan, DirectorDate:
              April 16, 2007
            */s/
              Mohsen Amiran*Mohsen Amiran, DirectorDate:
              April 16, 2007
            /s/
              *Wilton
              Dennis Stripling*Wilton Dennis Stripling,
              Director




37


**Summit
      Environmental Corporation, Inc.**


Commission
      File No. 333-48659





**EXHIBIT
      INDEX**





**FORM
      10-KSB**


**For
      the year ended December 31, 2006**





The
      following exhibits are filed, by incorporation by reference, as part of this
      Form 10-KSB-Annual Report:





Exhibit
              No.
            Description





2.1
            
            -
            Agreement
                of Merger of July 14, 1998, between Summit Environmental Corporation,
                Inc.
                and Summit Technologies, Inc.**





3.1
            
            -
            Articles
                of Incorporation of Summit Environmental Corporation,
                Inc.*





3.1.1
            
            -
            Amendment
                to Articles of Incorporation of Summit Environmental Corporation,
                Inc.**





3.2
            
            -
            Bylaws
                of Summit Environmental Corporation,
                Inc.*





5
            
            -
            Opinion
                of Thomas J. Kenan, Esquire, on the legality of the securities being
                registered.+++





10.1
            
            -
            1998
                Stock Option Plan adopted by Summit Environmental Corporation,
                Inc.*





10.4
            
            -
            2004
                Stock Option Plan adopted by Summit Environmental Corporation,
                Inc.+





10.5
            
            -
            Royalty
                Agreement between BioGenesis Enterprises, Inc. and Summit Environmental
                Corporation, Inc.+*





10.6
            
            -
            License
                Agreement - Consumer Chemicals and Proprietary Remediation Technology,
                executed 02-01-06 by BioGenesis Enterprises, Inc. and Summit Environmental
                Corporation, Inc.+++





10.7
            
            -
            Service
                Agreement by and between SMG and Summit Environmental Corporation
                dated
                September 25, 2005.**+





10.8
            
            -
            Advisory
                Services Agreement between AmBiz Associates, L.L.C. and Summit
                Environmental Corporation, Inc. dated February 25,
                2004.**+




1




10.9
            
            -
            Distribution,
                and Sales Agreement between Summit Environmental Corporation and
                VASA,
                Ltd. dated September 1, 2004.**+





14
            
            -
            Code
                of Ethics for the Chief Executive officer and Senior Financial
                Officers.*+





31
            
            -
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





31.1
            
            -
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





32
            
            -
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





32.1
            
            -
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.





*
            Previously
                filed with Form SB-2; Commission File No. 333-48675 incorporated
                herein.




**
            Previously
                filed with Amendment No. 1 to Form SB-2; Commission File No. 333-48675
                incorporated herein.




+
            Previously
                filed with Form 10-KSB Annual Report FYE 12-31-03, Commission File
                No.
                333-48675 incorporated herein.




+++
            Being
                filed with Form SB-2 Am 1, Commission File No. 333-122402 incorporated
                herein.




+*
            Previously
                filed with Amendment No. 2 to Form 10-KSB 12-31-04, Commission File
                No.
                333-48675 incorporated herein.




*+
            Previously
                filed with Form 10-KSB Annual Report FYE 12-31-04, Commission File
                No.
                333-48675 incorporated herein.




**+
            Being
                filed with Form SB-2 Am 2, Commission File No. 333-122402 incorporated
                herein.




++*
            Filed
                with Form 8-K March 3, 2006, Commission file No. 333-48659 incorporated
                herein.




2