Cang Bao Tian Xia International Art Trade Center, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION - Cang Bao Tian Xia International Art Trade Center, Inc.	txcb_ex32z1.htm
EX-31.1 - CERTIFICATION - Cang Bao Tian Xia International Art Trade Center, Inc.	txcb_ex31z1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q


þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended December 31, 2020

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________

Commission file number: 000-31091

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

(Exact name of registrant as specified in its charter)


Nevada	47-0925451
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Unit 609, Shengda Plaza, No. 61 Guoxing Ave. Meilan District, Hainan Province, China 570203

(Address of principal executive offices, Zip Code)

Registrant's telephone number, including area code: 86-898-66186181

Securities registered pursuant to Section 12(b) of the Act: None.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	þ	Smaller reporting company	þ
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

The number of shares of registrant’s common stock outstanding as of December 31, 2020 was 110,319,245.

FORM 10-Q

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

December 31, 2020

TABLE OF CONTENTS


	Page
PART I. - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS	1

Consolidated Balance Sheets as of December 31, 2020 and June 30, 2020 (Unaudited)	1

Consolidated Statements of Operations for the six months ended December 31, 2020 and 2019 (Unaudited)	2

Consolidated Statement of Stockholders’ Deficit for the six months ended December 31, 2020 and 2019 (Unaudited)	3

Consolidated Statements of Cash Flows for the six months ended December 31, 2020 and 2019 (Unaudited)	4

Notes to Consolidated Financial Statements (Unaudited)	5

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	26

ITEM 4. CONTROLS AND PROCEDURES	26

PART II. - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	28

ITEM 1A. RISK FACTORS	28

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	28

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	28

ITEM 4. MINE SAFETY DISCLOSURES	28

ITEM 5. OTHER INFORMATION	28

ITEM 6. EXHIBITS	28

SIGNATURES	29

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this report. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our report on Form 10-K which was filed with the SEC on October 13, 2020 (the “Form 10-K”), in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q and information contained in other reports that we file with the SEC. You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Throughout this Report, references to “the Company,” “Cang Bao,” “we” or “us” all refer to Cang Bao Tian Xia International Art Trade Center, Inc.

PART I. - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


	December 31,			June 30,
	2020			2020

ASSETS
Current assets
Cash and cash equivalents	$	3,702,385		$	2,715,689
Inventory		259,578			225,634
Advance to suppliers		5,620,099			2,527,969
Advance to suppliers - related parties		—			69,355
Due from related party		61,269			—
Prepayment and other current assets, net		52,252			42,841
Total current assets		9,695,583			5,581,488
Non-current assets
Property, plant and equipment, net		9,778			11,706
Intangible assets		287,483			322,557
Operating lease right of use asset, net		478,551			638,023
Total non-current assets		775,812			972,286
Total Assets	$	10,471,395		$	6,553,774

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expense	$	3,250,307		$	5,895,889
Advance from customers		13,120,301			3,857,871
Due to related party		321,461			53,543
Operating lease liabilities - current		416,369			400,461
Total current liabilities		17,108,438			10,207,764
Non-current liabilities
Operating lease liabilities - noncurrent		59,689			235,811
Total liabilities		17,168,127			10,443,575

Shareholders' equity
Series A Preferred Stock, 10,000,000 shares authorized at $0.001 per share: 9,920,000 shares issued and outstanding as of December 31, 2020 and June 30, 2020, respectively		9,920			9,920
Common stock, par value $0.001 per share; 500,000,000 shares authorized; 110,319,245 shares issued and outstanding as of December 31, 2020 and June 30, 2020, respectively		110,319			110,319
Additional paid-in capital		26,560,258			26,560,258
Shares Subscription Receivable		(6,125,418	)		(6,125,418	)
Accumulated deficit		(26,912,081	)		(24,504,986	)
Accumulated other comprehensive income		(339,730	)		60,106
Total shareholders' equity		(6,696,732	)		(3,889,801	)
Total Liabilities and Shareholders' Equity	$	10,471,395		$	6,553,774

The accompanying notes are an integral part of these financial statements.

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	For Three Months Ended December 31,						For Six Months Ended December 31,
	2020			2019			2020			2019

Net revenues	$	976,400		$	816,323		$	1,306,802		$	1,915,702
Cost of revenues		507,372			616,674			612,422			1,314,006
Gross margin		469,028			199,649			694,380			601,696
Operating expenses:
Selling expense		341,185			447,711			1,095,799			1,271,919
General and administrative		1,290,026			868,569			2,009,408			1,474,480
Total operating expenses		1,631,211			1,316,280			3,105,207			2,746,399
Loss from operations		(1,162,183	)		(1,116,631	)		(2,410,827	)		(2,144,703	)
Other income/(loss)
Interest income		2,072			4,651			2,267			5,046
Other income (expense)		1,481			183			3,238			251
Total other income (loss)		3,553			4,834			5,505			5,297
Operating loss before income taxes		(1,158,630	)		(1,111,797	)		(2,405,322	)		(2,139,406	)
Provision for income taxes expense		1,773			(31,424	)		1,773			9,037
Net loss		(1,160,403	)		(1,080,373	)		(2,407,095	)		(2,148,443	)
Other comprehensive income (loss)
Net loss		(1,160,403	)		(1,080,373	)		(2,407,095	)		(2,148,443	)
Foreign currency translation adjustment		(221,829	)		(75,832	)		(399,836	)		6,525
Total comprehensive income	$	(1,382,232	)	$	(1,156,205	)	$	(2,806,931	)	$	(2,141,918	)

The accompanying notes are an integral part of these financial statements.

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020 AND 2019

(UNAUDITED)


	Ordinary Shares				Preferred Stock				Additional Paid-in		Shares Subscription			Accumulated			Accumulated other Comprehensive
	Shares		Amount		Shares		Amount		capital		Receivable			Deficit			Income			Total

*For the six months ended December 31, 2020*
Balance at June 30, 2020		110,319,245	$	110,319		9,920,000	$	9,920	$	26,560,258	$	(6,125,418	)	$	(24,504,986	)	$	60,106		$	(3,889,801	)
Net Loss															(1,246,692	)					(1,246,692	)
Foreign Currency Translation Adjustment																		(178,007	)		(178,007	)
Balance at September 30, 2020		110,319,245		110,319		9,920,000		9,920		26,560,258		(6,125,418	)		(25,751,678	)		(117,901	)		(5,314,500	)
Net Loss															(1,160,403	)					(1,160,403	)
Foreign Currency Translation Adjustment																		(221,829	)		(221,829	)
Balance at December 31, 2020		110,319,245		110,319		9,920,000		9,920		26,560,258		(6,125,418	)		(26,912,081	)		(339,730	)		(6,696,732	)

*For the six months ended December 31, 2019*
Balance at June 30, 2019		110,319,245		110,319		9,920,000		9,920		20,434,840		—			(21,989,245	)		1,855			(1,432,311	)
Net Loss															(1,068,070	)					(1,068,070	)
Foreign Currency Translation Adjustment																		82,357			82,357
Balance at September 30, 2019		110,319,245		110,319		9,920,000		9,920		20,434,840		—			(23,057,315	)		84,212			(2,418,024	)
Net Loss															(1,080,373	)					(1,080,373	)
Foreign Currency Translation Adjustment																		(75,832	)		(75,832	)
Balance at December 31, 2019		110,319,245	$	110,319		9,920,000	$	9,920	$	20,434,840	$	—		$	(24,137,688	)	$	8,380		$	(3,574,229	)

The accompanying notes are an integral part of these financial statements.

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	For Six Months Ended December 31,
	2020			2019
Cash flows from operating activities
Net Loss	$	(2,407,095	)	$	(2,148,443	)
Adjustments to reconcile net loss to net cash from operations:
Depreciation and amortization		49,600			47,135
Changes in assets and liabilities:
Inventory		(14,847	)		126,657
Account receivable - related party		(59,053	)		—
Due from related party		43,288			(28,254	)
Advance to suppliers		(2,780,109	)		(1,161,054	)
Advance to suppliers - related party		72,340			(176,438	)
Other receivable		(5,677	)		(17,109	)
Account payable		(2,814,958	)		7,735,260
Account payable - related party		—			(135,095	)
Advance from customer		8,621,954			(6,645,105	)
Other payables		(17,939	)		17,802
Net cash used in operating activities	$	687,504		$	(2,384,644	)

Cash flows from investing activities
Disposal of intangible asset		12,535			6,445
Purchases of property, plant and equipment		—			(10,391	)
Net cash used in investing activities	$	12,535		$	(3,946	)

Cash flows from financing activities
Proceeds from (Repayment to) related parties		36,485			30,194
Net cash provided by financing activities	$	36,485		$	30,194

Effect of foreign exchange rate changes on cash and cash equivalents		250,172			(80,997	)

Net change in cash and cash equivalents		986,696			(2,439,393	)

Cash and cash equivalents, beginning of the year		2,715,689			4,677,460

Cash and cash equivalents, end of the year	$	3,702,385		$	2,238,067
		—			—
Supplementary non-cash investing and financing activities:
Lease assets and liability recognized	$	186,300		$	23,872

Supplemental cash flow information
Cash paid for interest	$	—		$	—
Cash paid for income taxes	$	—		$	—

The accompanying notes are an integral part of these financial statements.

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIODS ENDED DECEMBER 31, 2020 AND 2019

(UNAUDITED)

Note 1 – Organization and basis of accounting

Basis of Presentation and Organization

Cang Bao Tian Xia International Art Trade Center, Inc., formerly Zhongchai Machinery, Inc., and before that Equicap, Inc., a Nevada corporation (the “Company”, was a manufacturer and distributor of gears and gearboxes and drive axles that were marketed and sold to equipment manufacturers in China.

On July 6, 2007, the Board of Directors of Zhejiang Zhongchai Machinery Co., Ltd. (“Zhejiang Zhongchai”), the China based and 75% owned subsidiary of the Company, approved and finalized a Share Purchase Agreement (“Share Purchase Agreement”) with Xinchang Keyi Machinery Co., Ltd., (“Keyi”) a corporation incorporated in the People’s Republic of China. Pursuant to the Share Purchase Agreement, Zhejiang Zhongchai purchased all the outstanding equity of Zhejiang Shengte Transmission Co., Ltd. (“Shengte”) from Keyi, the sole owner of Shengte for approximately $3.7 million.

On March 7, 2007, the Company and Usunco Automotive, Ltd. (“Usunco”), a British Virgin Islands company, entered into a Share Exchange Agreement (“Exchange Agreement”) which was consummated on March 9, 2007. Under the terms of the Exchange Agreement, the Company acquired all of the outstanding equity securities of Usunco in exchange for 18,323,944 shares of the Company’s common stock.

Since the Company had been a public shell company prior to the share exchange, the share exchange was treated as a recapitalization of the Company. As such, the historical financial information prior to the share exchange was that of Usunco and its subsidiaries. Historical share amounts were restated to reflect the effect of the share exchange.

On June 18, 2006, Usunco acquired 100% of IBC Automotive Products Inc (“IBC”), a California Corporation as of May 14, 2004 (date of inception), through a Share Exchange Agreement of 28% of Usunco’s shares. IBC was considered a “predecessor” business to Usunco as its operations constituted the business activities of Usunco formed to consummate the acquisition of IBC. The consolidated financial statements at that time reflected all predecessor statements of income and cash flow activities from the inception of IBC in May 2004.

On June 15, 2009, IBC was sold to certain management persons of IBC in exchange for the following: (i) the cancellation of an aggregate of 555,994 shares of common stock of the Company which those individuals owned, and (ii) the payment of $60,000 in installments pursuant to the terms of an unsecured promissory note, the final payment of which was made on November 15, 2010. As part of the transaction, the Company cancelled $428,261 through the closing date, of inter-company debt which funds had been used in the business of IBC prior to the transaction.

On September 22, 2009, Xinchang Xian Lisheng Machinery Co., Ltd. (“Lisheng”) was incorporated by Zhejiang Zhongchai and two individual investors. Total registered capital of Lisheng was RMB 5 million, of which Zhejiang Zhongchai accounted for 60%. The Company started production of die casting products in 2010 for use in gearboxes, diesel engines and other machinery products.

On December 16, 2009, Zhongchai Machinery and its wholly owned subsidiaries, Usunco and Zhongchai Holding (Hong Kong) Limited, a Hong Kong company (“Zhongchai Holding”), took action to approve transfer of the shares of Zhejiang Zhongchai Machinery Co., from Usunco to Zhongchai Holding. The transfer was completed on December 23, 2009. The purpose of the transfer was to take advantage of the tax treaty between the Peoples Republic of China and the Special Administrative Region of Hong Kong which reduces the withholding tax rate of the PRC on payments to entities outside of China. Usunco, which no longer had any assets after transferring all of them to Zhongchai Holding was subsequently dissolved. The consolidated financial statements continued to account for Zhejiang Zhongchai Machinery Co., in the same manner as before the transfer of the ownership. Shareholder approval by the shareholders of Zhongchai Machinery was not required under Nevada law, as there was no sale of all or substantially all the assets of the Company. The shareholder ownership and shareholder rights of Zhongchai Machinery remained the same as before the transaction.

On April 26, 2010, Zhongchai Holding (Hong Kong) Limited (“Zhongchai Holding”), which owned 75% of the equity in Zhejiang Zhongchai Machinery Co., Ltd. (“Zhejiang Zhongchai”), executed a Share Purchase Agreement (“Share Purchase Agreement”) with Xinchang Keyi Machinery Co., Ltd., (“Keyi”) a corporation incorporated in the People’s Republic of China. Pursuant to the Share Purchase Agreement, Zhongchai Holding purchased the residual 25% equity of Zhejiang Zhongchai Machinery Co., Ltd. (“Zhejiang Zhongchai”) from Keyi at $2.6 million. The Share Purchase Agreement was approved by the local government agency and a new business license was issued as Wholly Foreign Owned Enterprise.

On July 26, 2011, the Company held a Special Meeting of Shareholders. At the special meeting the Company’s shareholders approved an amendment to cease its periodic reporting obligation under the Securities Exchange Act of 1934 and thereby forego many of the expenses associates with operating as a public company subject to SEC reporting obligations.

On July 27, 2011, the Company approved a 1-for-120 reverse stock split of its then outstanding shares of the Company’s Common Stock.

On July 29, 2011, the Company terminated its registration as a reporting issuer with the Securities and Exchange Commission. As a result, it became unclear when and if the Company ceased conducting business operations, as no further information became publicly available.

On May 11, 2018, the Eighth Judicial District Court of Nevada appointed Custodian Ventures, LLC as custodian for the Company, then known as Zhongchai Machinery, Inc., proper notice having been given to the officers and directors of Zhongchai Machinery, Inc. There was no opposition.

On May 16, 2018, the Company filed a certificate of revival with the State of Nevada, appointing David Lazar as, President, Secretary, Treasurer and Director. On June 19, 2018, the Company issued 3,096,200 shares of common stock issued at par value of $0.001, to Custodian Ventures, LLC, for services valued at $3,096.20. On June 19, 2018, the Company issued 10,000,000 shares of Series A Preferred Stock issued at par value of $0.001, to Custodian Ventures, LLC, for services valued at $4,000,000.

On July 24, 2018, the Company filed a Form 10 with the Securities and Exchange Commission, to again become a reporting issuer.

On December 28, 2018, a change of control of the Company took place. Mr. Xingtao Zhou acquired all 10,000,000 shares of Series A Preferred Stock previously owned by Mr. Lazar; and Mr. Zhou and Yaqin Fu acquired, respectively, 2,432,351 and 663,849 common shares previously owned by Mr. Lazar, who resigned as an officer and director and appointed Mr. Zhou as a director, CEO and CFO, and appointed Ms. Fu’s husband, Liang Tan, as a director.

On January 8, 2019, by majority consent of its principal shareholders, the Company changed its corporate name in Nevada from Zhongchai Machinery, Inc. to Cang Bao Tian Xia International Art Trade Center, Inc., its current name; and shortly thereafter, the Company’s trading symbol was changed to TXCB.

On July 27, 2020 (the “Closing Date”), and as reported in the Company’s Form 8-K filed with the SEC on that same date, we entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among (i) the Company, (ii) Zhi Yuan Limited, a Cayman Islands company (“Cayman Company”), and (iii) the three beneficial shareholders of Cayman Company (each, a “Cayman Company Shareholder” and collectively, the “Cayman Company Shareholders”).

Pursuant to the terms of the Exchange Agreement, the Cayman Company Shareholders agreed to sell to Cang Bao, and Cang Bao agreed to purchase, all shares of Cayman Company held by them, which shares represent 100% of the issued and outstanding shares of Cayman Company. In exchange, Cang Bao agreed to issue to the Cayman Company Shareholders an aggregate of 75,000,000 shares of Cang Bao common stock, representing approximately 67.98% of Cang Bao’s total issued and outstanding common stock (the “Share Exchange”).

Our directors approved the Exchange Agreement and the transactions contemplated thereby. Simultaneously, the directors of Cayman Company also approved the Exchange Agreement and the transactions contemplated thereby. The Share Exchange closed on July 27, 2020. Both Yaqin Fu, who is the wife of one of our directors, and Mr. Xingtao Zhou, our President, Chief Executive Officer, Chief Financial Officer, Chairman of the Board and principal shareholder, were Cayman Company Shareholders who exchanged their Cayman Company shares for shares of the Company. After giving effect to the Share Exchange, Mr. Zhou owns 59,839,271 shares of our common stock, which represents 54.24% of our outstanding common stock, and 100% of our issued and outstanding preferred shares.

As a result of the Share Exchange, Cayman Company became our wholly owned subsidiary and we are its public holding company. After giving effect to the Share Exchange, the Company acquired 100% of the assets and operations of Cayman Company and its subsidiaries, the business and operations of which now constitutes our primary business and operations. After giving effect to the Share Exchange, we own 100% of the issued and outstanding shares of capital stock of Cayman Company. Cayman Company is a holding company that owns Cangyun (Hong Kong) Limited (“Hong Kong Company”), which in turn owns and controls Shanghai Cangyun Management Consulting Co., Ltd. (“Management Consulting”), which has entered into contractual agreements to control Hainan Cangbao Tianxia Cultural Relic Co., Ltd. (“Hainan”) and Cangbao Tianxia (Shanghai) Cultural Relic Co., Ltd. (“Tianxia Cultural Relic,” and together with Hainan, the “Target Companies” or “VIEs”).

The Exchange Agreement contains customary representations, warranties, covenants and conditions for a transaction of this type for the benefit of the parties.

For federal income tax purposes, it is intended that the Share Exchange qualify as a reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). However, we did not obtain any tax opinion and there can be no assurance that our intent that the Share Exchange qualify as a reorganization under the provisions of Section 368(a) of the Code is correct. Cayman Company is considered the acquirer for accounting and financial reporting purposes. The assets and liabilities of Cayman Company have been brought forward at their book value and no goodwill has been recognized. As a result of the acquisition of all the issued and outstanding shares of Cayman Company, we have now assumed Cayman Company’s business operations as our own.

Immediately prior to the closing of the Share Exchange described above pursuant to which Cayman Company became a wholly owned subsidiary of the Company, the Company was a “shell company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of the Share Exchange, we are no longer a “shell company.”

The Share Exchange was accounted as a business combination under common control, in which all of the combining entities or businesses are ultimately controlled by the same party or parties, both before and after the business combination, and that control is not transitory. The business combination under common control of accounting is based on the historical consolidated financial statements of the Company and Cayman Company. In accordance with ASC 805-50-45-5, for transactions between entities under common control, financial statements and financial information presented for prior periods have been retroactively adjusted to furnish comparative information.

Zhi Yuan Limited (“Zhi Yuan”) was incorporated on April 15, 2019 under the laws of the Cayman Islands as a holding company. On May 22, 2019, ZhiYuan incorporated a wholly owned subsidiary Cang Yun (Hong Kong) Limited (“Cang Yun HK”) in Hong Kong. On July 30, 2019, Cang Yun HK incorporated a wholly foreign owned enterprise (“WFOE”) Shanghai Cangyun Management Consulting Co., Ltd. (“Shanghai Cangyun”) in Shanghai, China.

On August 8, 2019, Shanghai Cangyun entered into a series of Variable Interest Entity (“VIE”) agreements with the owners of Hainan Cangbao Tianxia Cultural Relic Co., Ltd. (“Hainan Cangbao”) and Cangbao Tianxia (Shanghai) Cultural Relic Co., Ltd. (“Shanghai Cangbao”). Pursuant to the VIE agreements, Hainan Cangbao and Shanghai Cangbao became Shanghai Cangyun’s contractually controlled affiliate. The purpose and effect of the VIE Agreements is to provide Shanghai Cangyun with all management control and net profits earned by Hainan Cangbao and Shanghai Cangbao. Hainan Cangbao was incorporated on May 30, 2018 and Shanghai Cangbao was incorporated on June 28, 2019. The entities operate an online and offline cultural exchange service platform, through which dedicated to create industry standards for art investment and creating a model of online art exchanges and transactions, which allows collectors, artists, art dealers and owners to access a much larger art trading market, allowing them to engage with a wide range of collectibles or artwork investors. Upon executing a series of VIE agreements, Hainan Cangbao and Shanghai Cangbao are considered Variable Interest entities (“VIE”) and Shanghai Cangbao is the primary beneficiary. Accordingly, Hainan Cangbao and Shanghai Cangbao are consolidated under the guidance of FASB Accounting Standards Codification (“ASC”) 810, Consolidation.

Cang Bao Tian Xia International Art Trade Center, Inc. and its consolidated subsidiaries and VIE are collectively referred to herein as the “Company” unless specific reference is made to an entity.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This basis of accounting differs in certain material respects from that used for the preparation of the books of Hainan Cangbao and Shanghai Cangbao, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC (“PRC GAAP”), the accounting standards used in the places of their domicile. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books of Hainan Cangbao and Shanghai Cangbao to present them in conformity with U.S. GAAP.

Interim Financial Information

The unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim financial information and the requirements of Form 10-Q and Rule 8-03 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. These financial statements should be read in conjunction with the audited financial statements as of and for the year ended June 30, 2020, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements as of and for the year ended June 30, 2020.

Principals of Consolidation

The consolidated financial statements include the accounts of the Company, its wholly and majority owned subsidiaries, and consolidated VIE and its subsidiaries for which the Company is the primary beneficiary.

All transactions and balances among the Company, its subsidiaries and consolidated VIE have been eliminated upon consolidation.

The accompanying consolidated financial statements of Cang Bao Tian Xia International Art Trade Center, Inc. reflect the activities of the following entities:


Name	Background	Ownership
Cang Bao Tian Xia International Art Trade Center, Inc.(“Cang Bao”)	· A holding company · A Nevada company

Zhi Yuan Limited (“Zhi Yuan”)	· A Cayman Island company · Incorporated on April 15, 2019	100% owned by Cang Bao

Cang Yun (Hong Kong) Limited (“Cang Yun HK”)	· A Hong Kong company · Incorporated on May 22, 2019 · A holding company	100% owned by Zhi Yuan

Shanghai Cangyun Management Consulting Co., Ltd. (“Shanghai Cangyun”)	· A PRC company and deemed a wholly foreign owned enterprise · Incorporated on July 30, 2019 · Subscribed capital of $10,000 · A holding company	100% owned by Cang Yun HK

Hainan Cangbao Tianxia Cultural Relic Co., Ltd. (“Hainan Cangbao”)	· A PRC limited liability company · Incorporated on May 30, 2018 · Subscribed capital of $1,454,491 (RMB 10,000,000) · Operate online and offline cultural exchange service platform	VIE of Shanghai Cangyun WFOE

Cangbao Tianxia (Shanghai) Cultural Relic Co., Ltd. (“Shanghai Cangbao”)	· A PRC limited liability company · Incorporated on May 30, 2018 · Subscribed capital of $4,799,821 (RMB 33,000,000) · Operate online and offline cultural exchange service platform	VIE of Shanghai Cangyun WFO

VIE Agreements with Shanghai Cangyun

Under the laws and regulations of the PRC, foreign persons and foreign companies are restricted from investing directly in certain businesses within the PRC. As such, Hainan Cangbao and Shanghai Cangbao are controlled through VIE Arrangements in lieu of direct equity ownership. Such VIE arrangements consist of a series of four agreements (collectively, the “VIE Arrangements”), which were signed on August 8, 2019. The significant terms of the VIE Arrangements are as follows:

Exclusive Management Consultation Service Agreement

Pursuant to the Exclusive Management Consultation Service Agreement between Management Consulting and Hainan Cangbao Tianxia Cultural Relic Co., Ltd. and Cangbao Tianxia (Shanghai) Cultural Relic Co. (the “Target Companies” or “VIEs”), dated August 8, 2019, Management Consulting has the exclusive right to provide consultation and services to the Target Companies in the areas of funding, human resources, technology and intellectual property rights. For such services, the Target Companies have agreed to pay service fees in the amount of 100% of their net income and also have the obligation to absorb 100% of their own losses. Management Consulting exclusively owns any intellectual property rights arising from the performance of this Management Consultation Service Agreement. The Management Consultation Service Agreement terminates at the same time as the Equity Pledge Agreement, described in the next paragraph.

Equity Pledge Agreement

Pursuant to those Equity Pledge Agreement dated August 8, 2019, among Management Consulting, the Target Companies, the Target Companies’ shareholders, who are our CEO Mr. Zhou, Yaqin Fu (the wife of Liang Tan, a director of the Company), and Wei Wang (collectively, the “Pledgors”), each of three persons pledged all of their equity interests in the Target Companies to Management Consulting to guarantee the Target Companies’ performance of relevant obligations and indebtedness under the Management Consultation Service Agreement and the other control agreements (collectively, the “Control Agreements”). If the Pledgors breach their obligations under the Control Agreements, Management Consulting, as pledgee, will be entitled to certain rights, including the right to dispose of the pledged equity interests in order to recover the damages associated with such breaches. The Pledgors’ obligations shall be continuously valid until all of the Pledgors are no longer shareholders of the Target Companies, or until the satisfaction of all of the Pledgors’ obligations under the Control Agreements.

Call Option Agreement

Pursuant to the Call Option Agreement among Management Consulting, the Target Companies and the Pledgors, dated August 8, 2019, Management Consulting has the exclusive right to require that the Pledgors fulfill and complete all approval and registration procedures required under PRC laws for Management Consulting to purchase, or designate one or more persons to purchase, such shareholders’ equity interests in the Target Companies , in one or multiple transactions, at any time or from time to time, at Management Consulting’s sole and absolute discretion. The purchase price shall be the lowest price allowed by PRC laws. The Equity Option Agreements shall remain effective until all the equity interests in the Target Companies owned by the Pledgors have been legally transferred to Management Consulting or its designee(s).

Proxy Agreement

Pursuant to the Proxy Agreement among Management Consulting, the Pledgors and the Target Companies, dated August 8, 2019, the Pledgors irrevocably appointed Management Consulting or Management Consulting’s designee to exercise all of their rights as a shareholder of the Target Companies, including but not limited to the power to exercise all such shareholder’s voting rights with respect to all matters to be discussed and voted in shareholder meetings of the Target Companies. The Proxy Agreement remains effective until all equity interests in the Target Companies owned by the Pledgors have been legally transferred to Management Consulting or its designee(s).

Based on the foregoing VIE Arrangements, Shanghai Cangyun deemed to have effective control over Hainan Cangbao and Shanghai Cangbao, which enables Shanghai Cangyun to receive all of their expected residual returns and absorb the expected losses of the VIE, and Shanghai Cangyun is deemed the primary beneficiary of Hainan Cangbao and Shanghai Cangbao.

The reorganization through VIE above are accounted as a transaction of entities under common control for accounting purposes where the shareholder of Hainan Cangbao and Shanghai Cangbao are the controlling shareholder of Cang Bao before and after the reorganization. Accordingly, the accompanying consolidated financial statements have been prepared as if the current corporate structure had been in existence throughout the periods presented.

The significant carrying amount and classification of the assets and liabilities of VIEs as of December 31, 2020 and June 30, 2020 as follows:


	December 31,		June 30,
	2020		2020
ASSETS
Current assets
Cash and cash equivalents	$	3,702,385	$	2,715,689
Account receivable - related parties		—		—
Inventory		259,578		225,634
Advance to suppliers		5,620,099		2,527,969
Advance to suppliers - related parties		—		69,355
Due from related party		61,269		-
Prepayment and other current assets, net		52,252		42,841
Total current assets of VIEs		9,695,583		5,581,488
Non-current assets
Property, plant and equipment, net		9,778		11,706
Intangible assets		287,483		322,557
Operating lease right of use asset, net		478,551		638,023
Total non-current assets of VIEs		775,812		972,286
Total Assets of VIEs	$	10,471,395	$	6,553,774

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expense	$	3,250,707		5,895,889
Advance from customers		13,120,301		3,857,871
Due to related party		321,461		53,543
Operating lease liabilities - current		416,369		400,461
Total current liabilities of VIEs		17,108,438		10,207,764
Non-current liabilities
Operating lease liabilities - noncurrent		59,689		235,811
Total liabilities of VIEs	$	17,168,127	$	10,443,575

Foreign Currency Translation

The accompanying consolidated financial statements are presented in United States dollar (“$”), which is the reporting currency of the Company. The functional currency of Cang Bao, Cayman Company and Hongkong Company is United States dollar. The functional currency of the Company’s subsidiaries and VIEs located in the PRC is Renminbi (“RMB”). For the entities whose functional currencies are RMB, results of operations and cash flows are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. The resulting translation adjustments are included in determining other comprehensive income. Transaction gains and losses are reflected in the consolidated statements of income.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on various other assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions of future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Significant estimates and assumptions by management include, among others, useful lives and impairment of long-lived assets, allowance for doubtful accounts, income taxes including the valuation allowance for deferred tax assets. While the Company believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from those estimates. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and cash in time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less.

Inventories

Inventories, mainly consisting of stock items prepared as gifts for the member customers, are stated at the lower of cost or net realizable value utilizing the weighted average method. Cost includes all costs of purchase, cost of conversion and other costs incurred to bring the inventories to their present location and condition. Net realizable value is the estimated selling price as gifts in the ordinary course of business less the estimated costs of completion of the service and the estimated costs necessary to delivering the service.

The valuation of inventory requires the Company to estimate excess and slow-moving inventories. The Company evaluates the recoverability of the inventory based on expected demand and market conditions of art trading service.

Impairment of Long-Lived Assets

The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of the asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial position. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

Property and Equipment

Property and equipment consist of computer, office furniture and equipment, and leasehold improvement. All property and equipment are stated at historical cost net of accumulated depreciation. Repairs and maintenance are expensed as incurred. Property and equipment are depreciated on a straight-line basis over the following periods:

Depreciation is computed using the straight-line method over the estimated useful lives of the assets.


Electronic equipment		3-5 years
Furniture and Fixture		5 years
Motor vehicles		4 years
Computer software		5 years
Leasehold improvements		5 years

Fair Value of Financial Instruments

The Company adopted ASC 820 “Fair Value Measurements,” which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosures requirements for fair value measures. Current assets and current liabilities qualified as financial instruments and management believes their carrying amounts are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their current interest rate is equivalent to interest rates currently available.

The three levels are defined as follow:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value.

As of the balance sheet date, the estimated fair values of the financial instruments approximated their fair values due to the short-term nature of these instruments.

The Company evaluates the hierarchy disclosures each year to determine which category an asset or liability falls within the hierarchy.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities - current, and operating lease liabilities - noncurrent on the balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities in our balance sheets. The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate, on a secured basis. The initial measurement of the right-of-use asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Revenue Recognition

The Company adopted ASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The Company has concluded that the new guidance did not require any significant change to its revenue recognition processes.

The Company operates an online and offline cultural service platform, through which dedicated to create industry standards for art investment and creating a model of online art exchanges and transactions, which allows collectors, artists, art dealers and owners to access a much larger art trading market, allowing them to engage with a wide range of collectibles or artwork investors.

The service includes trading facilitation, appraisal of treasures, consignment of artworks, storage of artworks and all-in-one advertising service, etc.

The Company derives its revenues from (1) platform membership service fee for member customers and (2) trading commission income, and (3) sales of all-in-one demonstration machine.

Membership service income

The Company recognizes membership fee revenue as the performance obligations are satisfied over time, usually, recognized on an average over the life of membership. The general contract terms of membership service include timeframe of the service, pricing and payment terms, rights and obligations of parties, performance test criteria, and liability for breach of contract. Payments received in advance from customers are recorded as “advance from customers” in the consolidated balance sheets. Advance from customers is recognized as revenue over the passage of time. Such advance payment received are non-refundable.

The cost of revenue consists primarily of platform maintenance expenses which are directly attributable to the membership fee revenue, including but not limited service charge for cloud computing, items prepared as gifts for the member, and related expenses.

Artwork Trading Service commission income

Artwork trading service commission income includes commission from artwork price guarantee service, and artwork ownership transfer facilitate service through the online platform. The Company charges both the buyer and the seller a commission based on the artwork trading amount. The revenue is derived from contracts with customers, which primarily include payment terms, rights and obligations of parties, acceptance criteria, and liability for breach of contract. The Company’s sales arrangements do not contain variable consideration. The Company recognizes revenue at a point in time based on management’s evaluation of when performance obligations under the terms of a contract with the customer are satisfied and the related artworks transactions has been successfully completed.

The Company did not recognize any trading service commission income for the six months ended December 31, 2020 and 2019.

Sales of multi-functional demonstration machine

The Company recognizes revenue when the transaction price is allocated to the performance obligations identified in the contracts or agreements with customer upon the delivery of multi-functional demonstration machine has completed.

The Company began to recognize revenue of $708,636 for sales of multi-functional demonstration machine for the six months ended December 31, 2020.

Advertising Expenses

Advertising costs, mainly including promotion expense for the APP launching, are expensed as incurred and the total amounts charged to “selling and marketing expenses” in the consolidated statements of income and comprehensive income were $850,191 and $859,904 for the six months ended December 31, 2020 and 2019, respectively.

New Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 - Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU provides an exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. This update also (1) requires an entity to recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, (2) requires an entity to evaluate when a step-up in the tax basis of goodwill should be considered part of the business combination in which goodwill was originally recognized for accounting purposes and when it should be considered a separate transaction, and (3) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective for the Company for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, “Financial Instruments – Credit Losses (Topic 326) and Leases (topic 842) Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (topic 842)”. This ASU provides guidance regarding methodologies, documentation, and internal controls related to expected credit losses. This ASU is effective for interim and annual periods beginning after December 15, 2019, and early adoption is permitted. The Company is evaluating the impact of this guidance on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments in this Update modify the disclosure requirements on fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impacts of ASU 2018-13 on its consolidated financial statements.

In February 2016 the FASB issued ASU 2016-02, “Leases (Topic 842).” This standard amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, which means that it will be effective for us in the first quarter of our fiscal year beginning January 1, 2019. Early adoption is permitted. This standard is required to be adopted using a modified retrospective approach.

The management has reviewed the accounting pronouncements and adopted the new standard on January 1, 2019 using the modified retrospective method of adoption. The transition method expedient which allows entities to initially apply the requirements by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of electing this transition method, prior periods have not been restated. The adoption of this ASU resulted in the recording of additional lease assets and liabilities, each with no effect to opening balance of retained earnings.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material impact on its the consolidated financial position, statements of operations and cash flows.

NOTE 3 – GOING CONCERN

The Company’s financial statements as of December 31, 2020, been prepared using generally accepted accounting principles in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues and cash flows sufficient to cover its operating costs and allow it to continue as a going concern. The Company has accumulated net loss of $26,912,081 as of December 31, 2020. These factors among others raise substantial doubt about the ability of the company to continue as a going concern for a reasonable period of time.

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking third party equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 4 – INVENTORY

Inventory consisted of the following:


	December 31,		June 30,
	2020		2020

Finished goods	$	259,578	$	225,634
Less: allowance for obsolete inventory		—		—
Total, net	$	259,578	$	225,634

Inventory consists of artwork merchandise and souvenir and multi-functional demonstration machine. Obsolete inventory amounted to $0 and $0 for the six months ended December 31, 2020 and 2019.

NOTE 5 - ADVANCE TO SUPPLIERS

Advance to suppliers consisted of the following:


	December 31,		June 30,
	2020		2020

Giveaway goods inventory	$	433,486	$	401,593
Marketing services		1,432,318		1,858,265
Multimedia tablets		3,486,183		—
Multimedia demonstration machines		268,112		268,111
Total, net	$	5,620,099	$	2,527,969

The Company is required to make advance payments to the suppliers for the customized multimedia tablets to be manufactured and for firmware updates and maintenance services covering a period of three years to be provided by the supplier. According to the agreement, the remaining balance is due upon delivery of the tablets, and the advances are non-refundable while only defective goods can be exchanged. The Company has not received any goods from the supplier as of December 31, 2020.

The Company is required to make advance payments to the suppliers to purchase the customized multimedia demonstration machines to be manufactured by the supplier. According to the agreement, the remaining balance is due upon delivery of the machines, the advances are non-refundable while only defective goods can be exchanged. The Company expects to receive the goods on an ongoing basis with no longer than one year.

NOTE 6 – INTANGIBLE ASSETS

Intangible assets consisted of the following:


	December 31,			June 30,
	2020			2020

Membership management system	$	460,815		$	437,844
Accounting system		2,307			2,131
		463,122			439,975
Less: Accumulated amortization		(175,639	)		(117,418	)
Total, net	$	287,483		$	322,557

Amortization expense amounted to $46,816 and $45,130 for the six months ended December 31, 2020 and 2019, respectively.

The membership management system was acquired from Guangdong Cangbaotianxia Art Co., Ltd, a related party of the Company on March 31, 2019.

NOTE 7 – PROPERTY & EQUIPMENT

Property and equipment, net, consisted of the following:


	December 31, 2020		June 30, 2020

Furniture and fixtures	$	18,065	$	16,694
		18,065		16,694
Less: Accumulate depreciation		8,287		4,988
Total, net	$	9,778	$	11,706

Depreciation expenses was $2,784 and $2,005 for the six months ended December 31, 2020 and 2019, respectively.

NOTE 8 – ADVANCE FROM CUSTOMERS

Advance from customers consisted of the following:


	December 31, 2020		June 30, 2020

Deferred revenues	$	307,269	$	517,650
Multimedia demonstration machines		906,530		953,377
Multimedia tablets		11,906,502		2,386,844
Total, net	$	13,120,301	$	3,857,871

Deferred revenues consist of one-year membership paid in advance by the customers. The deferred revenues are amortized over the life of the membership for a period of 12 months.

The Company collects payments in advance from customers for multimedia demonstration machines sold to customers. Such amounts are recognized as sales revenues when the goods are delivered to and accepted by the customers. Such advances are partially refundable prior to delivery of goods and defective goods can be exchanged for replacement. Such advances may be recognized as revenues when the goods are delivered to and accepted by customers.

The Company collects payments in advance for multimedia tablets and services to be provided pursuant to an agreement. Such advances are partially refundable prior to delivery of goods and defective goods can be exchanged for replacement. Such advances may be recognized as revenues when the goods are delivered to and accepted by customers. The Company did not recognize any revenue from for the six months ended December 31, 2020 and 2019.

NOTE 9 – LEASE

The Company has operating leases for corporate offices and employees’ accommodation. These leases have remaining lease terms of 1 year to 3 years. The Company has elected to not recognize lease assets and liabilities for leases with a term less than twelve months.

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The discount rate used to calculate present value is incremental borrowing rate or, if available, the rate implicit in the lease. The Company determines the incremental borrowing rate for each lease based primarily on its lease term in PRC which is approximately 4.75%.

Operating lease expenses were $219,068 and $196,010 for the six months ended December 31, 2020 and 2019, respectively.

The undiscounted future minimum lease payment schedule as follows:


As of December 31,
2021	$	425,089
2022		75,054
2023		—
Thereafter		—
Total	$	500,143

NOTE 10 – RELATED PARTY TRANSACTIONS

The related parties consisted of the following:


Name of related party		Nature of relationship
Mr. Xingtao Zhou		Majority shareholder of the Company
Mr. Wei Wang		Principal shareholder
Sichuan Cangbaotianxia Art Co., Ltd		A Company with significant influence
Guangdong Cangbaotianxia Art Co., Ltd		A Company with significant influence

Due from related parties

During the six months ended December 31, 2020, the Company lent $61,269 to Guangdong Cangbaotianxia Art Co., Ltd. As of December 31, 2020 and June 30, 2020, the outstanding balance of due from related party was $61,269 and $0 respectively.

Advance to suppliers - related parties

As of December 31, 2020 and June 30, 2020, the outstanding balance of advance to the supplier, Sichuan Cangbaotianxia Art Co., Ltd. was $0 and $69,355 respectively.

Due to related parties

During the six months ended December 31, 2020, the Company received $70,502 in advance from Mr. Xingtao Zhou. As of December 31, 2020 and June 30, 2020, the outstanding balance payable to Mr. Xingtao Zhou was $120,635 and $53,543 respectively.

During the six months ended December 31, 2020, the Company received $200,826 in advance from Sichuan Cangbaotianxia Art Co., Ltd. As of December 31, 2020 and June 30, 2020, the outstanding balance payable to Sichuan Cangbaotianxia Art Co., Ltd. was $200,826 and $0 respectively.

The amount is due on demand and non-interest bearing without any formal agreement.

NOTE 11 – EQUITY

Preferred Stock

The Company is authorized to issue 10,000,000 shares of $.001 par value preferred shares. On June 19, 2018, the Company created 10,000,000 shares of Series A Preferred Stock, out of the 10,000,000 shares that were already authorized. On that same date, the Company issued 10,000,000 shares of the Series A preferred stock to Custodian Ventures LLC, the company controlled by David Lazar, Chief Executive Officer for services valued at $4,000,000.

The following is a description of the material rights of our Series A Preferred Stock:

Each share of Series A Preferred Stock shall have a par value of $0.001 per share. The Series A Preferred Stock shall vote on any matter that may from time to time be submitted to the Company’s shareholders for a vote, on a 1 for one basis. If the Company effects a stock split which either increases or decreases the number of shares of Common Stock outstanding and entitled to vote, the voting rights of the Series A shall not be subject to adjustment unless specifically authorized.

Each share of Series A Preferred Stock shall be convertible at a rate of $0.0000025 per share of Common Stock (“Conversion Ratio”), at the option of a Holder, at any time and from time to time, from and after the issuance of the Series A Preferred Stock.

Subject to the rights of any existing series of Preferred Stock or to the rights of any series of Preferred Stock which may from time to time hereafter come into existence, the holders of shares of Series A Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, upon any payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation, as and if declared by the Board of Directors, as if the Series A Preferred Stock had been converted into Common Stock. Subject to the rights of any existing series of Preferred Stock or to the rights of any series of Preferred Stock which may from time to time hereafter come into existence, the payment of any dividends on the any series or classes of stock of the Corporation shall be subject to any priority set forth in Paragraph (I)(c)(3) of Article FIFTH of the Articles of Incorporation, as such may from time to time be amended.

In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, subject to the rights of any existing series of Preferred Stock or to the rights of any series of Preferred Stock which may from time to time hereafter come into existence, the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the price per share actually paid to the Corporation upon the initial issuance of the Series A Preferred Stock (each, the “the Original Issue Price”) for each share of Series A Preferred Stock then held by them, plus declared but unpaid dividends. Unless the Corporation can establish a different Original Issue Price in connection with a particular sale of Series A Preferred Stock, the Original issue price shall be $0.001 per share for the Series A Preferred Stock. If, upon the occurrence of any liquidation, dissolution or winding up of the Corporation, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of any existing series of Preferred Stock or to the rights of any series of Preferred Stock which may from time to time hereafter come into existence, the entire assets and funds of the corporation legally available for distribution shall be distributed ratably among the holders of the each series of Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.

The Series A Preferred Stock shares are nonredeemable other than upon the mutual agreement of the Company and the holder of shares to be redeemed, and even in such case only to the extent permitted by this Certificate of Designation, the Corporation’s Articles of Incorporation and applicable law.

Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price of the Series A Preferred Stock by the Series A Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Series A Conversion Price per share shall be $0.0000025 for shares of Series A Preferred Stock.

Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the applicable Series A Conversion Price in effect for such share immediately upon the earlier of (i) except as provided below in Section 4(c), the Corporation’s sale of its Common Stock in a public offering pursuant to a registration statement under the Securities Act of 1933, as amended; (ii) a liquidation, dissolution or winding up of the Corporation as defined in section 2(c) above but subject to any liquidation preference required by section 2(a) above; or (iii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock.

The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Series A Preferred Stock, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights shall be rounded to the nearest whole number (with one-half being rounded upward).

On February 14, 2019, the Company issued 32,000,000 common shares to shareholders pursuant to the conversion of 80,000 shares of Series A Preferred Stock at a conversion price of $0.0000025 per common share.

As of December 31, 2020, 9,920,000 preferred shares remain outstanding, which are owned by Xingtao Zhou, CEO.

Common Stock

On June 19, 2018, the Company issued 3,096,200 shares of common stock issued at par value of $0.001, for services valued at $3,096 to Custodian Ventures, LLC, the company controlled by David Lazar.

On July 27, 2020 (the “Closing Date”), Cang Bao entered into a Share Exchange Agreement (the “Exchange Agreement”) by and among (i) Cang Bao, (ii) Zhi Yuan Limited, a Cayman Islands company (“Cayman Company”), and (iii) the three beneficial shareholders of Cayman Company (each, a “Cayman Company Shareholder” and collectively, the “Cayman Company Shareholders”)

Pursuant to the terms of the Exchange Agreement, the Cayman Company Shareholders agreed to sell to Cang Bao, and Cang Bao agreed to purchase, all shares of Cayman Company held by them, which shares represent 100% of the issued and outstanding shares of Cayman Company. In exchange, Cang Bao agreed to issue to the Cayman Company Shareholders an aggregate of 75,000,000 shares of common stock, representing approximately 67.98% of Cang Bao’s total issued and outstanding common stock (the “Share Exchange”).

As of December 31, 2020, 110,319,245 common shares are issued and outstanding with a par value of 0.001.

Registered Capital of Subsidiaries

Shanghai Cangyun has subscribed capital of $10,000 which are not yet paid up by its shareholders. The subscribed capital is due for payment on July 30, 2039.

Hainan Cangbao has subscribed capital of $1,415,416 (RMB10,000,000) which are not yet paid up by its shareholders. The subscribed capital is due for payment on May 30, 2038.

Shanghai Cangbao has subscribed capital of $4,670,873 (RMB33,000,000) which are not yet paid up by its shareholders. The subscribed capital is due for payment on June 5, 2039.

Restricted net assets

The Company’s ability to pay dividends is primarily dependent on the Company receiving distributions of funds from its subsidiary or VIE. Relevant PRC statutory laws and regulations permit payments of dividends by Shanghai Cangyun, Hainan Cangbao, and Shanghai Cangbao only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiary and VIE and VIE’s subsidiaries included in the Company’s consolidated net assets are also non-distributable for dividend purposes. The results of operations reflected in the accompanying consolidated financial statements prepared in accordance with U.S. GAAP differ from those reflected in the statutory financial statements of Shanghai Cangyun, Hainan Cangbao, and Shanghai Cangbao. The Company is required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, the Company may allocate a portion of its after-tax profits based on PRC accounting standards to enterprise expansion fund and staff bonus and welfare fund at its discretion. The statutory reserve funds and the discretionary funds are not distributable as cash dividends.

The ability of the Company’s PRC subsidiary and VIE and VIE’s subsidiaries to make dividends and other payments to the Company may also be restricted by changes in applicable foreign exchange and other laws and regulations. Foreign currency exchange regulation in China is primarily governed by the following rules:


	·	Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;
	·	Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

Currently, under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may affect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.

Although the current Exchange Rules allow the convertibility of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. The Company cannot be sure that it will be able to obtain all required conversion approvals for its operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of the Company’s retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit the Company’s ability to use its retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

The Company’s VIE and its subsidiaries in Renminbi included in the Company’ consolidated net assets, aside from statutory reserve funds, that may be affected by increased restrictions on currency exchanges in the future and accordingly may further limit the Company’s PRC subsidiary and VIE and VIE’s subsidiaries’ ability to make dividends or other payments in U.S. dollars to the Company, in addition to restricted net assets as discussed above.

NOTE 12 – INCOME TAX

United States of America

Cang Bao Tian Xia International Art Trade Center Inc is incorporated in the State of Nevada and is subject to Nevada and US Federal tax laws. Cang Bao has not recognized an income tax benefit for its operating losses based on uncertainties concerning its ability to generate taxable in future period.

The components of deferred tax assets and liabilities as follows:


	December 31, 2020			June 30, 2020
Deferred tax asset
Net operating losses carry forwards	$	4,345,260		$	4,339,886
Valuation allowance		(4,345,260	)		(4,339,886	)
Deferred tax asset, net	$	—		$	—

Cayman Islands

Under the current laws of Cayman Islands, Zhi Yuan Limited is not subject to tax on income or capital gain. In addition, payments of dividends by the Company to their shareholders are not subject to withholding tax in the Cayman Islands.

Hong Kong

Cang Yun (Hong Kong) Limited was incorporated under the Hong Kong tax laws, and the statutory income tax rate was 16.5%. Cang Yun (Hong Kong) Limited has no operating profit or tax liabilities for the six months ended December 31, 2020 and 2019.

China, PRC

Shanghai Cangyun Management Consulting Co.,Ltd., Hainan Cangbao Tianxia Cultural Relic Co., Ltd. and Cangbao Tianxia (Shanghai) Cultural Relic Co., Ltd. were incorporated in the PRC and are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income tax laws. On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect on January 1, 2008. The law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises.

The Company has not recognized an income tax benefit for its operating losses based on uncertainties concerning its ability to generate taxable income in future periods.

The components of deferred tax assets and liabilities as follows:


	December 31, 2020			June 30, 2020
Net operating losses carry forwards	$	1,595,974		$	135,646
Valuation allowance		(1,595,974	)		(135,646	)
Deferred tax asset, net	$	—		$	—

Accounting for Uncertainty in Income Taxes

The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities.

ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and concluded that no provision for uncertainty in income taxes was necessary as of December 31, 2020 and June 30, 2020.

NOTE 13 – CONCENTRATIONS, RISKS AND UNCERTAINTIES

Credit risk

Cash deposits with banks are held in financial institutions in PRC, which are insured with deposit protection up to RMB500,000 (approximately $70,089). Accordingly, the Company has a concentration of credit risk related to the uninsured part of bank deposits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk.

Concentration

The Company has a concentration risk related to the suppliers. Failure to maintain existing relationships with the suppliers or to establish new relationships in the future could negatively affect the Company’s operations.

The concentration on purchases from suppliers’ as follows:


	Six Months Ended					Six Months Ended
	December 31, 2020					December 31, 2019
	Amount		%			Amount		%
Supplier A	$	1,703,616		22	%	$	N/A		N/A
Supplier B		1,279,940		16	%		N/A		N/A
Supplier C		N/A		N/A			473,352		21	%
Supplier D		N/A		N/A			352,492		16	%
Supplier E		N/A		N/A			311,747		14	%
Supplier F		N/A		N/A			253,668		11	%
	$	2,983,556		38	%	$	1,391,259		62	%

Risks of Variable Interest Entities Structure

Although the structure the Company has adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. There are uncertainties regarding the interpretation and application of PRC laws and regulations including those that govern the Company’s contractual arrangements, which could limit the Company’s ability to enforce these contractual arrangements. If the Company or any of its variable interest entities are found to be in violation of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including levying fines, revoking business and other licenses of the Company’s variable interest entities, requiring the Company to discontinue or restrict its operations, restricting its right to collect revenue, requiring the Company to restructure its operations or taking other regulatory or enforcement actions against the Company. In addition, it is unclear what impact the PRC government actions would have on the Company and on its ability to consolidate the financial results of its variable interest entities in the consolidated financial statements, if the PRC government authorities were to find the Company’s legal structure and contractual arrangements to be in violation of PRC laws, rules and regulations. If the imposition of any of these government actions causes the Company to lose its right to direct the activities of Hainan Cangbao and Shanghai Cangbao or the right to receive their economic benefits, the Company would no longer be able to consolidate the Hainan Cangbao and Shanghai Cangbao.

COVID-19 outbreak

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including ours. This outbreak could decrease spending, adversely affect demand for our services and harm our business and results of operations. It is not possible for us to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time. Since April 2020, the Company gradually resumed operation and is now operating in full capacity.

NOTE 14 - SUBSEQUENT EVENTS

The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. Based on this evaluation, the Company concluded there are no subsequent events that would require disclosure to or adjustment to the financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our audited and unaudited financial statements are stated in United States Dollars and are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

Overview

We conduct our operations through our two consolidated subsidiaries, Hainan Cangbao Tianxia Cultural Relic Co., Ltd. (“Hainan Cangbao”) and Cangbao Tianxia (Shanghai) Cultural Relic Co.,Ltd.(“Shanghai Cangbao”). These two subsidiaries were incorporated on May 30, 2018 and June 28, 2019 respectively, in PRC, as domestic Chinese limited liability corporations.

We commenced our operations in March 2019, and we intend to make a cultural service platform dedicated to creating industry standards for art investment and creating a model of online art exchanges and transactions, which allows collectors, artists, art dealers and owners to access a much larger art trading market, allowing them to engage with a wide range of collectibles or artwork investors.

Currently we facilitate trading by individual customers of all kinds of collectibles, artworks and commodities on our online platforms, which create two source of income: (1) membership fee income by offering different service packages for members; (2) transaction commission, charging from both the buyer and the seller a commission based on the artwork trading amount upon successfully facilitating artworks transaction.

Cang Bao Tian Xia International Art Trade Center, Inc. has administrative offices located at Unit 609, Shengda Plaza, No. 61 Guoxing Ave Meilan District, Haikou, Hainan Province, China 570203.

The Company’s fiscal year end is June 30.

Recent Developments

Early in January, 2020, we launched a new application, which enables our customers to communicate and list artworks to trade. We are currently working with a third-party technology company to design a tablet, which will have multiple built-in applications to facilitate membership enrollment and artworks trade. The tablet is now generating advertisement revenue for the Company.

Results of Operations

Results of Operations for the three months ended December 31, 2020 and 2019

The following table sets forth key components of Company’s results of operations for the three months ended December 31, 2020 and 2019. The discussion following the table addresses these results.


	For Three Months Ended December 31,
	2020			2019			Fluctuation			%
Net revenues	$	976,400		$	816,323			160,077			20	%
Cost of revenues		507,372			616,674			(109,302	)		-18	%
Gross margin		469,028			199,649			269,379			135	%
Operating expenses:
Selling expense		341,185			447,711			(106,526	)		-24	%
General and administrative		1,290,026			868,569			421,457			49	%
Total operating expenses		1,631,211			1,316,280			314,931			24	%
Loss from operations		(1,162,183	)		(1,116,631	)		45,552			-4	%
Other income/(loss)
Interest income		2,072			4,651			(2,751	)		-59	%
Other income (expense)		1,481			183			1,298			709	%
Total other income(loss)		3,553			4,834			(1,281	)		-26	%
Operating loss before income taxes		(1,158,630	)		(1,111,797	)		(46,833	)		4	%
Provision for income taxes expense		1,773			(31,424	)		33,197			-106	%
Net loss	$	(1,160,403	)	$	(1,080,373	)		(80,030	)		7	%

Revenues. For the three months ended December 31,2020 and 2019, we had revenue of $976,400 and $816,323, respectively, representing an increase of $160,077, or 20%, which were derived from service package sales for the members and sales of multi-functional demonstration machine. We have not generated revenue from transaction commission since the beginning of operation in March 2019. The significant increase in revenue was due to the sales of multi-functional demonstration machine in the amount of $708,636 for the three months ended December 31, 2020.

Cost of Revenue. For the three months ended December 31, 2020 and 2019, we had cost of revenue of $507,372 and $616,674 respectively, representing a decrease of $109,302 or 18%. The cost of revenue represents costs of maintaining our platform such as network service. and artwork merchandise and souvenirs sent to member.

Gross Margin. We generated gross profit of $469,028 and $199,649 for the three months ended December 31, 2020 and 2019, with a gross margin of 48% and 24% respectively. The increase in gross margin was due to much more giveaway merchandise sent to member for the three months ended December 31, 2019.

Operating expenses. For the three months ended December 31, 2020 and 2019, we had selling expenses of $341,185 and $447,711 respectively, which includes marketing and advertising costs related to the operations and development of the platform. For the three months ended December 31, 2020 and 2019, we had general and administrative expenses of $1,290,026 and $868,569, respectively which mainly consist of salaries and related employee benefits, office expenses, professional service fees, depreciation expenses, rent, and related costs. The total operating expenses was $1,631,211 and $1,316,280 for the three months ended December 31, 2020 and 2019, representing an increase of $314,931 or 24%. The increase in operating expenses was due to the significant increase in consulting expense for the three months ended December 31, 2020.

Loss from Operations. For the three months ended December 31, 2020 and 2019, we had loss from operations of $1,162,183 and $1,116,631, respectively, representing a decrease in loss of $45,552, or 4%.

Net loss. For the three months ended December 31, 2020 and 2019, we had net loss of $1,160,403 and $1,080,373 respectively, representing an increase in loss of $80,030, or 7%. The increase in net loss was mainly due to the increase in general and administrative expense.

Results of Operations for the six months ended December 31, 2020 and 2019

The following table sets forth key components of Company’s results of operations for the six months ended December 31, 2020 and 2019. The discussion following the table addresses these results.


	For Six Months Ended December 31,
	2020			2019			Fluctuation			%
Net revenues	$	1,306,802		$	1,915,702			(608,900	)		-32	%
Cost of revenues		612,422			1,314,006			(701,584	)		-53	%
Gross margin		694,380			601,696			92,684			15	%
Operating expenses:		53	%		31	%
Selling expense		1,095,799			1,271,919			(176,120	)		-14	%
General and administrative		2,009,408			1,474,480			534,928			36	%
Total operating expenses		3,105,207			2,746,399			358,808			13	%
Loss from operations		(2,410,827	)		(2,144,703	)		(266,124	)		12	%
Other income/(loss)
Interest income		2,267			5,046			(2,779	)		-55	%
Other income (expense)		3,238			251			2,987			1190	%
Total other income(loss)		(5,505	)		5,297			(208	)		-4	%
Operating loss before income taxes		(2,405,322	)		(2,139,406	)		(265,916	)		12	%
Provision for income taxes expense		1,773			9,037			(7,264	)		-80	%
Net loss	$	(2,407,095	)	$	(2,148,443	)		(258,652	)		12	%

Revenues. For the six months ended December 31,2020 and 2019, we had revenue of $1,306,802 and $1,915,702, respectively, representing a decrease of $608,900, or 32%, which were derived from service package sales for the members and sales of multi-functional demonstration machine. We have not generated revenue from transaction commission since the beginning of operation in March 2019. The significant decrease in revenue was due to significant decrease in service package sales for the members for the six months ended December 31, 2020.

Cost of Revenue. For the six months ended December 31, 2020 and 2019, we had cost of revenue of $612,422 and $1,314,006 respectively, representing a decrease of $701,584 or 53%. The cost of revenue represents costs of maintaining our platform such as network service. and artwork merchandise and souvenirs sent to member.

Gross Margin. We generated gross profit of $694,380 and $601,696 for the six months ended December 31, 2020 and 2019, with a gross margin of 53% and 31% respectively. The increase in gross margin was due to much more giveaway merchandise sent to members, which constituted part of the cost, for the three months ended December 31, 2019.

Operating expenses. For the six months ended December 31, 2020 and 2019, we had selling expenses of $1,095,799 and $1,271,919 respectively, which includes marketing and advertising costs related to the operations and development of the platform. For the six months ended December 31, 2020 and 2019, we had general and administrative expenses of $2,009,408 and $1,474,480, respectively which mainly consist of salaries and related employee benefits, office expenses, professional service fees, depreciation expenses, rent, and related costs. The total operating expenses was $3,105,207 and $2,746,399 for the six months ended December 31, 2020 and 2019, representing an increase of $358,808 or 13%. The increase in operating expenses was due to the significant increase in consulting expense for the six months ended December 31, 2020.

Loss from Operations. For the six months ended December 31, 2020 and 2019, we had loss from operations of $2,410,827 and $2,144,703, respectively, representing an increase in loss of $266,124, or 12%.

Net loss. For the six months ended December 31, 2020 and 2019, we had net loss of $2,407,095 and $2,148,443 respectively, representing an increase in loss of $258,652, or 12%. The increase in net loss was mainly due to the increase in general and administrative expense.

Liquidity and Capital Resources

Working Capital Deficit. As of December 31, 2020 and June 30 2020, the Company had working capital deficit of $7,412,855 and $4,626,276 respectively.

Cash Flows. The following is a summary of the Company’s cash flows from operating, investing and financing activities:


	Six Months Ended December 31, 2020		Six Months Ended December 31, 2019
Net cash provided by (used in) operating activities	$	687,504	$	(2,384,644	)
Net cash provided by (used in) investing activities		12,535		(3,946)
Net cash provided by financing activities		36,485		30,194
Net change in cash and cash equivalents	$	986,696	$	(2,439,393	)

Operating Activities.

Net cash provided by operating activities for the six months ended December 31, 2020 was primarily the result of the net loss of $2,407,095, the increase of $2,780,109 in advance to suppliers, decrease of $2,814,958 in account payable, offset by the increase of $8,621,954 in advance from customer, and the depreciation of $49,600 for the six months ended December 31, 2020.

Net cash used in operating activities for the six months ended December 31, 2019 was primarily the result of the net loss of $2,148,444, the increase of $1,161,054 in advance to suppliers, decrease of $6,645,105 in advance from customer, partly offset by the increase of $7,735,260 in account payable, and the depreciation of $47,135 for the six months ended December 31, 2019.

Investing Activities.

Net cash provided by investing activities was $12,535 for the six months ended December 31, 2020. Net cash provided reflect the disposal of intangible assets. Net cash used in investing activities was $3,946 for the six months ended December 31, 2019. Net cash used in investing activities reflect purchase of office equipment assets and disposal of intangible.

Financing Activities.

Net cash provided by financing activities was $36,485 and $30,194 for the six months ended December 31, 2020 and 2019, respectively, both of which referred to the proceeds from related parties.

Off-Balance Sheet Arrangements

As of December 31, 2020 and June 30, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.

Contractual Obligations and Commitments

As of December 31, 2020 and June 30, 2020, we did not have any contractual obligations.

Critical Accounting Policies

Our significant accounting policies are described in the notes to our financial statements for the six months ended December 31, 2020 and 2019, and are included elsewhere in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” (defined in SEC Rule 13a-15(e)) refers to the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within required time periods. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and the Company’s Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2020. Based upon that evaluation, the Company’s CEO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2020 due to the Company’s limited internal resources resulting in lack of ability to have segregation of duties and US GAAP accounting personnel to prepare the financials.

Management is in the process of determining how best to change our current system and implement a more effective system to insure that information required to be disclosed in the reports that we file or submit under the Exchange Act have been recorded, processed, summarized and reported accurately. Our management intends to develop procedures to address the current deficiencies to the extent possible given limitations in financial and manpower resources. While management is working on a plan, no assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the six months ended December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are included with this report.


Exhibit
Number		Name

31.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document

101.SCH		XBRL Schema Document

101.CAL		XBRL Calculation Linkbase Document

101.DEF		XBRL Definition Linkbase Document

101.LAB		XBRL Label Linkbase Document

101.PRE		XBRL Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

Date: February 22, 2021	By:	/s/ Xingtao Zhou
		Xingtao Zhou, Chief Executive Officer and Chief Financial Officer (principal executive officer and principal financial and accounting officer)

Cang Bao Tian Xia International Art Trade Center, Inc. - FORM 10-Q - February 22, 2021

Attached files

Cang Bao Tian Xia International Art Trade Center, Inc. Reports