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 %





                                       23

--------------------------------------------------------------------------------

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 %





                                       24

--------------------------------------------------------------------------------

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         Six Months
                                                    Ended December     Ended December
                                                       31, 2020           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.







                                       25

--------------------------------------------------------------------------------





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.

© Edgar Online, source Glimpses