UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MarchDecember 31, 2011
☐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 Namename of Registrantregistrant as Specifiedspecified 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, China570203
(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. Yesx ☒ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive DateData File required to be submitted and posted 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 and post
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non acceleratednon-accelerated filer, ora smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, x
Indicate by check mark whether the issuerregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ Nox
The number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 27,613,019 shares ofregistrant’s common stock par value $.001 per share, outstanding as of May 11, 2011.
| 1 |
FORM 10-Q
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
December 31, 2021
TABLE OF CONTENTS
| i | ||||
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 annual report on Form 10-K which was filed with the SEC on October 13, 2021 (the “Form 10-K”), in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-Q (the “Quarterly Report”)and information contained in other reports that we file with the SEC. You are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements often can be identified by the use of terms such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate”, “approximate”, or “continue”, or the negative thereof. Zhongchai Machinery, Inc. (the “Company”) intends that such forward-looking statements be subject to the safe harbors for such statements. The Company wishes to caution readersurged not to place undue reliance on any suchthese forward-looking statements, which speak only as of the date made. Anyof 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 represent management’s best judgmentin 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 what may occur incarefully review and consider the future. However, forward-looking statementsvarious disclosures made throughout the entirety of this quarterly report, which are subjectdesigned to risks, uncertainties and important factors beyond the controladvise interested parties of the Companyrisks and factors that could cause actual results and events to differ materially from historicalmay affect our business, financial condition, results of operations and events and those presently anticipatedprospects.
Throughout this Report, references to “the Company,” “Cang Bao,” “we” or projected. These factors include our current dependence on a limited number of products and customers, the focus of the business on the gear and transmission gearbox markets in the Peoples Republic of China, the need“us” all refer to develop new products and create demand for them, the effect of the global recession and availability of credit, pricing pressures on our products and margins, product quality, customer satisfaction and the ability to sustain and grow sales and expand the customer base, warranty obligations and claims, operating a business primarily in the Peoples Republic of China, currency controls and exchange rate exposure, and the other risk factors discussed in our reports filed with the Securities and Exchange Commission. The Company disclaims any obligation to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.Cang Bao Tian Xia International Art Trade Center, Inc.
| ii |
PART I –I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AT December 31, 2021 AND JUNE 30, 2021
(Stated in US Dollars)
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 132,988 | $ | 1,200,060 | ||||
| Accounts receivable, net | — | — | ||||||
| Other receivables, net | 28,658 | 38,266 | ||||||
| Related party receivable | 194,300 | 1,197,938 | ||||||
| Inventories | 269,897 | 109,381 | ||||||
| Advance to suppliers | 10,806,272 | 9,252,512 | ||||||
| Prepaid taxes | 296 | — | ||||||
| Total current assets | 11,432,411 | 11,798,157 | ||||||
| Non-current assets | ||||||||
| Plant and equipment, net | 166,658 | 184,703 | ||||||
| Intangible assets, net | 192,473 | 239,066 | ||||||
| Right-of-use assets | 6,691,254 | 8,220,399 | ||||||
| Total non-current assets | 7,050,385 | 8,644,168 | ||||||
| Total Assets | $ | 18,482,796 | $ | 20,442,325 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 8,391,346 | $ | 8,160,433 | ||||
| Deferred revenues | 239,092 | 121,490 | ||||||
| Taxes payable | 2,319 | 4,115 | ||||||
| Accrued liabilities and other payables | 471,837 | 6,873 | ||||||
| Advance from customers | 23,338,584 | 17,256,693 | ||||||
| Related party payable | 1,412,674 | 128,793 | ||||||
| Lease payable-current portion | 3,275,929 | 3,233,130 | ||||||
| Total current liabilities | 37,131,781 | 28,911,527 | ||||||
| Lease payable- non-current | 3,415,325 | 4,987,269 | ||||||
| Total Liabilities | $ | 40,547,106 | $ | 33,898,796 | ||||
| Stockholders’ Deficit | ||||||||
| Series A Preferred Stock, shares authorized at $ per share: shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively | $ | 9,920 | $ | 9,920 | ||||
| Common stock, par value $ per share; shares authorized; shares issued and outstanding as of December 31, 2021 and June 30, 2021, respectively | 110,319 | 110,319 | ||||||
| Additional paid-in capital | 20,434,840 | 20,434,840 | ||||||
| Accumulated deficit | (41,857,108 | ) | (33,499,423 | ) | ||||
| Accumulated other comprehensive loss | (762,281 | ) | (512,127 | ) | ||||
| Total Stockholders’ Deficit | $ | (22,064,310 | ) | $ | (13,456,471 | ) | ||
| Total Liabilities and Stockholders’ Deficit | $ | 18,482,796 | $ | 20,442,325 | ||||
See Accompanying Notes to the Financial Statements.
| March 31, | June 30, | |||||||
| 2011 | 2010 | |||||||
| Assets | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 4,687,656 | $ | 1,495,597 | ||||
| Restricted cash | 1,371,280 | 90,810 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $35,053 | 6,222,150 | 3,618,030 | ||||||
| and $37,670 at March 31, 2011 and June 30, 2010, respectively | ||||||||
| Inventory | 3,920,950 | 2,680,666 | ||||||
| Notes receivable | 2,761,806 | 463,465 | ||||||
| Advance payments | 130,247 | 33,132 | ||||||
| Other current assets | 321,313 | 110,131 | ||||||
| Total current assets | 19,415,402 | 8,491,831 | ||||||
| Property and equipment, net | 5,791,640 | 3,017,569 | ||||||
| Goodwill | 3,546,808 | 3,425,868 | ||||||
Advance payments – non current portion | 3,185,583 | 4,960,475 | ||||||
| Other assets | - | 451 | ||||||
| Total assets | $ | 31,939,433 | $ | 19,896,194 | ||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 6,832,919 | $ | 3,504,923 | ||||
| Trade notes payable | 3,428,200 | 142,365 | ||||||
| Short-term bank loans | 5,893,510 | 1,428,810 | ||||||
| Taxes payable | 395,994 | 224,108 | ||||||
| Dividend payable | 389,250 | 381,201 | ||||||
| Other current liabilities | 1,047,833 | 3,322,277 | ||||||
| Total current liabilities | 17,987,706 | 9,003,684 | ||||||
| Total liabilities | 17,987,706 | 9,003,684 | ||||||
| Equity | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.001 par value, 500,000,000 shares authorized, | ||||||||
| 27,613,019 shares issued and outstanding at March 31, 2011 and | ||||||||
| June 30, 2010, respectively | 27,613 | 27,613 | ||||||
| Stock subscription receivable | (33,120 | ) | (33,120 | ) | ||||
| Additional paid-in capital | 16,487,924 | 16,484,097 | ||||||
| Statutory reserves | 315,152 | 315,152 | ||||||
| Accumulated deficit | (5,036,035 | ) | (7,558,542 | ) | ||||
| Accumulated other comprehensive income | 1,894,033 | 1,361,646 | ||||||
| Total stockholders’ equity | 13,655,567 | 10,596,846 | ||||||
| Non-controlling interest | 296,160 | 295,664 | ||||||
| Total equity | 13,951,727 | 10,892,510 | ||||||
| Total liabilities and equity | $ | 31,939,433 | $ | 19,896,194 | ||||
| 1 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(Stated in US Dollars)
| For the three months ended | For the six months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenues | $ | 1,132 | $ | 259,358 | $ | 6,249 | $ | 329,928 | ||||||||
| Cost of revenues | 834,455 | 619,498 | 1,670,312 | 660,244 | ||||||||||||
| Gross profit | (833,323 | ) | (360,140 | ) | (1,664,063 | ) | (330,316 | ) | ||||||||
| Operating expenses: | ||||||||||||||||
| Selling and marketing expenses | 2,233,554 | 446,753 | 5,564,923 | 1,365,329 | ||||||||||||
| General & administration expenses | 535,227 | 1,146,730 | 1,109,612 | 1,623,077 | ||||||||||||
| Total operating expenses | 2,768,781 | 1,593,483 | 6,674,535 | 2,988,406 | ||||||||||||
| Operating loss | (3,602,104 | ) | (1,953,623 | ) | (8,338,598 | ) | (3,318,722 | ) | ||||||||
| Other income (expenses): | ||||||||||||||||
| Interest income | 23 | 1,034 | 1,394 | 2,267 | ||||||||||||
| Interest expense | (275 | ) | — | (275 | ) | — | ||||||||||
| Other income | — | 115 | — | 115 | ||||||||||||
| Other expenses | (121 | ) | (1,090 | ) | (20,098 | ) | (112,041 | ) | ||||||||
| Total other income (expenses) | (373 | ) | 59 | (18,979 | ) | (109,659 | ) | |||||||||
| Loss before income taxes | (3,602,477 | ) | (1,953,564 | ) | (8,357,577 | ) | (3,428,381 | ) | ||||||||
| Provision for income taxes | 1 | 1,773 | 108 | 1,773 | ||||||||||||
| Net loss | (3,602,478 | ) | (1,955,337 | ) | (8,357,685 | ) | (3,430,154 | ) | ||||||||
| Other comprehensive income: | ||||||||||||||||
| Foreign currency translation loss | (312,820 | ) | (306,053 | ) | (250,154 | ) | (498,869 | ) | ||||||||
| Comprehensive loss | $ | (3,915,298 | ) | $ | (2,261,390 | ) | $ | (8,607,839 | ) | $ | (3,929,023 | ) | ||||
| Loss per share | ||||||||||||||||
| - Basic and diluted | (0.03 | ) | (0.02 | ) | (0.08 | ) | (0.03 | ) | ||||||||
| Basic and diluted weighted average shares outstanding | 110,319,245 | 110,319,245 | 110,319,245 | 110,319,245 | ||||||||||||
See Accompanying Notes to the Financial Statements
| 2 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIENCY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(Stated in US Dollars)
| For the Six Months Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||
| Additional | Accumulated Deficit | Accumulated Other | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Statutory | Comprehensive | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Reserves | Unrestricted | Loss | Total | ||||||||||||||||||||||||||||
| BALANCE, July 1, 2020 | 9,920,000 | $ | 9,920 | 110,319,245 | $ | 110,319 | $ | 20,434,840 | — | $ | (25,054,266 | ) | $ | 115,264 | $ | (4,383,923 | ) | |||||||||||||||||||
| Net loss | — | — | — | — | — | — | (3,430,154 | ) | — | (3,430,154 | ) | |||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | (498,869 | ) | (498,869 | ) | |||||||||||||||||||||||||
| BALANCE, December 31, 2020 (Unaudited) | 9,920,000 | $ | 9,920 | 110,319,245 | $ | 110,319 | 20,434,840 | $ | — | $ | (28,484,420 | ) | $ | (383,605 | ) | $ | (8,312,946 | ) | ||||||||||||||||||
| For the Six Months Ended December 31, 2021 | ||||||||||||||||||||||||||||||||||||
| Additional | Accumulated Deficit | Accumulated Other | ||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Paid-in | Statutory | Comprehensive | ||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Reserves | Unrestricted | Loss | Total | ||||||||||||||||||||||||||||
| BALANCE, July 1, 2021 | 9,920,000 | $ | 9,920 | 110,319,245 | $ | 110,319 | $ | 20,434,840 | $ | — | $ | (33,499,423 | ) | $ | (512,127 | ) | $ | (13,456,471 | ) | |||||||||||||||||
| Net loss | — | — | — | — | — | — | (8,357,685 | ) | — | (8,357,685 | ) | |||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | — | (250,154 | ) | (250,154 | ) | |||||||||||||||||||||||||
| BALANCE, December 31, 2021 (Unaudited) | 9,920,000 | $ | 9,920 | 110,319,245 | $ | 110,319 | $ | 20,434,840 | $ | — | $ | (41,857,108 | ) | $ | (762,281 | ) | $ | (22,064,310 | ) | |||||||||||||||||
See Accompanying Notes to the Financial Statements of Operations
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Sales | $ | 7,044,067 | $ | 3,202,350 | $ | 15,778,471 | $ | 7,040,579 | ||||||||
| Cost of sales | 5,128,888 | 2,454,953 | 11,599,149 | 5,481,480 | ||||||||||||
| Gross profit | 1,915,179 | 747,397 | 4,179,322 | 1,559,099 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative | 265,020 | 284,340 | 1,213,875 | 916,530 | ||||||||||||
| Income from operations | 1,650,159 | 463,057 | 2,965,447 | 642,569 | ||||||||||||
| Other income (expenses): | ||||||||||||||||
| Interest expense, net | (15,197 | ) | (29,095 | ) | (217,935 | ) | (63,364 | ) | ||||||||
| Other income, net | 47,564 | 16,289 | 190,663 | 56,598 | ||||||||||||
| Total other income (expenses) | 32,367 | (12,806 | ) | (27,272 | ) | (6,766 | ) | |||||||||
| Income before provision for income taxes | 1,682,526 | 450,251 | 2,938,175 | 635,803 | ||||||||||||
| Provision for income taxes | 230,742 | 73,448 | 415,397 | 140,541 | ||||||||||||
| Net income | 1,451,784 | 376,803 | 2,522,778 | 495,262 | ||||||||||||
| Less: Net income attributable to noncontrolling interest | 46 | 112,942 | 271 | 213,424 | ||||||||||||
| Net income attributable to Zhongchai Machinery, Inc. | 1,451,738 | 263,861 | 2,522,507 | 281,838 | ||||||||||||
| Income per common share: | ||||||||||||||||
| Basic | $ | 0.05 | $ | 0.01 | $ | 0.09 | $ | 0.01 | ||||||||
| Diluted | $ | 0.05 | $ | 0.01 | $ | 0.09 | $ | 0.01 | ||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
| Basic | 27,613,019 | 27,613,019 | 27,613,019 | 27,613,019 | ||||||||||||
| Diluted | 27,904,892 | 27,613,019 | 27,901,009 | 27,613,019 | ||||||||||||
| 3 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(STATED IN US DOLLARS)
| For the Six Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (8,357,685 | ) | $ | (3,430,154 | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation of plant and equipment | 20,309 | 3,314 | ||||||
| Amortization of intangible assets | 49,320 | 58,742 | ||||||
| Accounts receivables | — | 3,363,818 | ||||||
| Other receivables | 10,026 | 6,031 | ||||||
| Inventories | (157,668 | ) | 86,233 | |||||
| Prepayments | (1,418,975 | ) | (1,101,202 | ) | ||||
| Accounts payable | 61,923 | (17,273,006 | ) | |||||
| Other payables and accrued liabilities | 520,874 | 395,596 | ||||||
| Customer deposits | 5,916,918 | 19,384,366 | ||||||
| Taxes payable | (1,833 | ) | 4,740 | |||||
| Net cash (used in) provided by operating activities | (3,356,791 | ) | 1,498,478 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of intangible assets | — | (24,308 | ) | |||||
| Purchase of equipment | — | (1,416 | ) | |||||
| Net cash used in investing activities | — | (25,724 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from related parties, net | 2,283,365 | 20,466 | ||||||
| Net cash provided by financing activities | 2,283,365 | 20,466 | ||||||
| EFFECT OF EXCHANGE RATE ON CASH | 6,354 | (498,869 | ) | |||||
| NET (DECREASE) INCREASE IN CASH | (1,067,072 | ) | 994,351 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 1,200,060 | 2,710,150 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 132,988 | $ | 3,704,501 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid for income tax | $ | 108 | $ | 1,773 | ||||
| Cash paid for interest | $ | 275 | $ | — | ||||
See Accompanying Notes to the Financial Statements of Comprehensive Income
For the Three Months Ended March 31, | For the Nine Months Ended March 31, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net income | $ | 1,451,784 | $ | 376,803 | $ | 2,522,778 | $ | 495,262 | ||||||||
| Other comprehensive income | ||||||||||||||||
| Foreign currency translation adjustment | 111,732 | 398 | 532,387 | 16,521 | ||||||||||||
| Total other comprehensive income | 111,732 | 398 | 532,387 | 16,521 | ||||||||||||
| Comprehensive income | 1,563,516 | 377,201 | 3,055,165 | 511,783 | ||||||||||||
| Less: Comprehensive income attributable to the | 46 | 112,942 | 271 | 213,424 | ||||||||||||
| noncontrolling interest | ||||||||||||||||
| Comprehensive income attributable to Zhongchai Machinery, Inc. | $ | 1,563,470 | $ | 264,259 | $ | 3,054,894 | $ | 298,359 | ||||||||
| 4 |
| For the Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 2,522,778 | $ | 495,262 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| Provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 272,806 | 229,508 | ||||||
| Loss on disposal of fixed assets | - | 4,846 | ||||||
| Provision for bad debts | (3,880 | ) | 10,442 | |||||
| Share-based payments | 3,827 | 63,606 | ||||||
| Changes in assets and liabilities: | ||||||||
| Restricted cash | (1,255,487 | ) | 224,710 | |||||
| Accounts receivable | (2,430,296 | ) | (894,050 | ) | ||||
| Inventory | (1,126,119 | ) | (636,675 | ) | ||||
| Notes receivable | (2,265,971 | ) | (620,622 | ) | ||||
| Advance payments for inventory | (94,309 | ) | (136,150 | ) | ||||
| Other current assets | (205,497 | ) | (494,611 | ) | ||||
| Accounts payable and accrued expenses | 3,151,777 | 1,557,049 | ||||||
| Trade notes payable | 3,224,874 | (225,048 | ) | |||||
| Taxes payable | 161,178 | 123,839 | ||||||
| Other current liabilities | (2,336,663 | ) | 44,461 | |||||
| Total adjustments | (2,903,760 | ) | (748,695 | ) | ||||
| Net cash used in operating activities | (380,982 | ) | (253,433 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Advance payments for purchase of equipment | (406,689 | ) | - | |||||
| Advance payments for purchase of land use rights and building | 2,323,450 | (2,199,600 | ) | |||||
| Additions to property and equipment | (2,894,422 | ) | (529,260 | ) | ||||
| Proceeds from notes receivable | 22,500 | 11,500 | ||||||
| Net cash used in investing activities | (955,161 | ) | (2,717,360 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from (repayment of) short-term bank loans | 4,437,345 | (777,192 | ) | |||||
| Contribution from minority shareholders | - | 293,280 | ||||||
| Net cash provided by (used in) financing activities | 4,437,345 | (483,912 | ) | |||||
| Effect of foreign currency translation on cash | 90,857 | 3,852 | ||||||
| Net increase (decrease) in cash and cash equivalents | 3,192,059 | (3,450,853 | ) | |||||
Cash and cash equivalents – beginning | 1,495,597 | 3,990,767 | ||||||
Cash and cash equivalents – ending | $ | 4,687,656 | $ | 539,914 | ||||
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
Note 1 – Organization and Naturebasis of Business
Basis of Presentation and Organization
Cang Bao Tian Xia International Art Trade Center, Inc., formerly Zhongchai Machinery, Inc. (“Zhongchai Machinery” or “the Company”) (Formerly “Equicap,, and before that Equicap, Inc.”), a Nevada corporation is(the “Company”, was a manufacturer and distributor of gears and gearboxes and drive axles that arewere 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 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 iswas that of Usunco and its subsidiaries. Historical share amounts have beenwere 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 reflectat 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 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 iswas RMB 5 million, of which Zhejiang Zhongchai accountsaccounted for 60%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 will continuecontinued 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 remainremained the same as before the transaction.
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
On April 26, 2010, Zhongchai Holding (Hong Kong) Limited.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 agreement has beenShare Purchase Agreement was approved by the local government agency and a new business license has beenwas 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 shares of common stock issued at par value of $, to Custodian Ventures, LLC, for services valued at $3,096.20. On June 19, 2018, the Company issued shares of Series A Preferred Stock issued at par value of $, 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 16, 2018, Custodian Ventures LLC (the “Seller”), entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) pursuant to which the Seller agreed to sell to Xingtao Zhou and Yaqin Fu (together, the “Purchaser”), the 3,096,200 common shares and the 10,000,000 preferred shares of the Company (together, the “Shares”) owned by the Seller, for a total purchase price of $375,000. As a result of the sale, and David Lazar’s resignation as sole officer and director of the Company, there was a change of control of the Company. There is no family relationship or other relationship between the Seller and the Purchaser.
On January 08, 2019, the corporate name of the Company was changed to Cang Bao Tian Xia International Art Trade Center, Inc., 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 shares of our common stock, which represents 54.24% of our outstanding common stock, and 100% of our issued and outstanding preferred shares.
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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.
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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.
NOTE 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordanceconformity with generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by 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 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 presentationpreparation of the financial positionbooks 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 unaudited condensed 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.
Principals of Consolidation
The unaudited condensed 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.
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
All transactions and balances among the Company, its subsidiaries and consolidated VIE have been eliminated upon consolidation.
The accompanying unaudited condensed consolidated financial statements of Cang Bao Tian Xia International Art Trade Center, Inc. reflect the activities of the following entities:
| Schedule of consolidated financial statements activities | ||||
Name | Background | Ownership | ||
Cang Bao Tian Xia International Art Trade Center, Inc.(“Cang Bao”) | · A holding company · A Nevada company | |||
Zhi Yuan Limited (“ZhiYuan”) | · 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.
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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 carrying amount of the VIE’s assets and liabilities are as follows:
| Significant carrying amount and classification of the assets and liabilities of VIEs | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Current assets | $ | 11,594,119 | $ | 11,850,943 | ||||
| Property, plants and equipment, Intangible Assets | 359,131 | 423,769 | ||||||
| Other noncurrent assets | 6,691,254 | 8,220,399 | ||||||
| Total assets | 18,644,504 | 20,495,111 | ||||||
| Current liabilities | 37,119,579 | 28,819,519 | ||||||
| Non-current liabilities | 3,415,325 | 4,987,269 | ||||||
| Total liabilities | 40,534,904 | 33,806,788 | ||||||
| Net assets | $ | (21,890,400 | ) | $ | (13,311,677 | ) | ||
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Short-term loan | ||||||||
| Accounts payable | $ | 8,245,447 | $ | 8,076,065 | ||||
| Other payables and accrued liabilities | 1,002,536 | 249,516 | ||||||
| Related party payables | 1,254,764 | — | ||||||
| Tax payables | 2,319 | 4,115 | ||||||
| Customer Advances | 23,338,584 | 17,256,693 | ||||||
| Lease liabilities | 3,275,929 | 3,233,130 | ||||||
| Total current liabilities | 37,119,579 | 28,819,519 | ||||||
| Lease liabilities - noncurrent | 3,415,325 | 4,987,269 | ||||||
| Total liabilities | $ | 40,534,904 | $ | 33,806,788 | ||||
The summarized operating results of the VIE’s are as follows:
| Schedule of operating results of the VIE's | ||||
| For the six months ended December 31, 2021 | ||||
| Operating revenues | $ | 6,249 | ||
| Gross profit | 40,511 | |||
| Loss from operations | (8,328,460 | ) | ||
| Net loss | $ | (8,328,568 | ) | |
Foreign Currency Translation
The accompanying unaudited condensed consolidated financial statements are presented in United States dollar (“$”), which is the reporting currency of the Company. The functional currency of Cang Bao, Cayman Company and Hongkong Company is United States dollar. The functional currency of the Company’s subsidiaries and VIEs located in the PRC is Renminbi (“RMB”). For the entities whose functional currencies are RMB, results of operations and cash flows forare translated at average exchange rates during the interim periods have been included.
| Schedule of other comprehensive income | ||||||||||||
| 12/31/2021 | 6/30/2021 | 12/31/2020 | ||||||||||
| Period/year end RMB: US$ exchange rate | 6.3757 | 6.4601 | 6.5249 | |||||||||
| Period/annual average RMB: US$ exchange rate | 6.4323 | 6.6273 | 6.7729 | |||||||||
| Period/year end HKD: US$ exchange rate | 7.7981 | 7.7638 | 7.7526 | |||||||||
| Period/annual average HKD: US$ exchange rate | 7.7837 | 7.7558 | 7.7512 | |||||||||
The RMB is not freely convertible into foreign currencies and all foreign exchange transactions must be conducted through authorized financial institutions.
Use of Estimates
The preparation of financial statements we evaluatedin conformity with U.S. GAAP requires management to make estimates and judgments that affect the period from March 31, 2011 throughreported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements were issued,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 material subsequent events requiring recognition or disclosure. No such events were identifieddoubtful accounts, income taxes including the valuation allowance for this period.
Cash and methodsCash Equivalents
Cash and cash equivalents include cash on hand and cash in time deposits, certificates of computationsdeposit and all highly liquid instruments with original maturities of three months or less.
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
Inventories
Inventories, mainly consisting of stock items prepared as the audited consolidated financial statementsgifts for the years ended June 30, 2010 and 2009.
The valuation of inventory requires the Company to estimate excess and slow-moving inventories. The Company evaluates the recoverability of the inventory based on management’s periodic reviewexpected demand and market conditions of agingart trading service.
Impairment of outstanding balances and customer credit history. IfLong-Lived Assets
The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the financial conditioncarrying amount of the Company’s customers deteriorate, resulting inasset may not be recoverable. Recoverability of an impairment of their abilityasset to make payments, additional allowances are recorded.
| March 31, | June 30, | |||||||
| 2011 | 2010 | |||||||
| By Type: | ||||||||
| Gears products | $ | 2,318,298 | $ | 1,372,326 | ||||
| Gearbox products | 1,574,965 | 1,307,940 | ||||||
| Transaxles products | 27,687 | - | ||||||
| Other | - | 400 | ||||||
| Total | $ | 3,920,950 | $ | 2,680,666 | ||||
| March 31, | June 30, | |||||||
| 2011 | 2010 | |||||||
| By Category: | ||||||||
| Raw materials | $ | 1,700,232 | $ | 896,273 | ||||
| Work in process | 733,173 | 487,235 | ||||||
| Finished goods | 1,487,545 | 1,297,158 | ||||||
| Total | $ | 3,920,950 | $ | 2,680,666 | ||||
| March 31, 2011 | June 30, 2010 | |||||||
| Notes receivable-trade | $ | 2,761,806 | $ | 440,965 | ||||
| Notes receivable-other | - | 22,500 | ||||||
| Total | $ | 2,761,806 | $ | 463,465 | ||||
| March 31, 2011 | June 30, 2010 | |||||||
| Inventory | $ | 130,247 | $ | 33,132 | ||||
| Equipment | 413,743 | - | ||||||
| Land use rights and buildings | 2,771,840 | 4,960,475 | ||||||
| Total | 3,315,830 | 4,993,607 | ||||||
| Less: Current portion | 130,247 | 33,132 | ||||||
| Total non current portion | $ | 3,185,583 | $ | 4,960,475 | ||||
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 of March 31, 2011incurred. Property and June 30, 2010 consistsequipment 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 following:
| March 31, | June 30, | |||||||
| 2011 | 2010 | |||||||
| Manufacturing equipment | $ | 3,863,765 | $ | 3,272,563 | ||||
| Office equipment and furniture | 60,596 | 51,306 | ||||||
| Vehicles | 127,306 | 122,965 | ||||||
| Subtotal | 4,051,667 | 3,446,834 | ||||||
| Less: Accumulated depreciation | 1,004,747 | 702,871 | ||||||
| 3,046,920 | 2,743,963 | |||||||
| Property and equipment estimated useful lives | ||||
| 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 Statements
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 Equipment (continued)
| Add: Construction in progress | 2,744,720 | 273,606 | ||||||
| Total | $ | 5,791,640 | $ | 3,017,569 |
| Balance as of June 30, 2009 | $ | 3,407,262 | ||
| Goodwill acquired during the year | - | |||
| Effect of foreign currency translation | 18,606 | |||
| Impairment | - | |||
| Balance as of June 30, 2010 | 3,425,868 | |||
| Goodwill acquired during the year | - | |||
| Effect of foreign currency translation | 120,940 | |||
| Impairment | - | |||
Balance as of March 31, 2011 | $ | 3,546,808 |
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. |
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| March 31, 2011 | June 30, 2010 | |||||||
| Accounts payable | $ | 6,789,211 | $ | 3,419,595 | ||||
| Accrued expenses | 43,708 | 85,328 | ||||||
| Total | $ | 6,832,919 | $ | 3,504,923 | ||||
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
As of accounts payable and accrued expenses approximatesthe balance sheet date, the estimated fair values of the financial instruments approximated their fair valuevalues due to the short-term nature of these obligations.
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 following: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 unaudited condensed 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 to service charges for cloud computing, items prepared as gifts for the member, and related expenses.
| 13 |
| March 31, | June 30, | |||||||
| 2011 | 2010 | |||||||
| On June 10, 2010, the Company obtained a loan from Agricultural Bank | ||||||||
| of China, the principal of which was paid in full before June 10, 2011. | ||||||||
| Interest was paid monthly, at 5.31% per annum. The loan was guaranteed | ||||||||
| by a third party. | $ | - | $ | 1,428,810 | ||||
| On September 28, 2010, the Company obtained a loan from Agricultural | ||||||||
| Bank of China, the principal of which is due on September 20, 2011. | ||||||||
| Interest is paid monthly, at 5.31% per annum. The loan is guaranteed | ||||||||
| by a third party, Zhejiang Xinchai Co., Ltd. | 1,525,000 | - | ||||||
| On November 9, 2010, the Company obtained a loan from Agricultural | ||||||||
| Bank of China, the principal of which is due on November 7, 2011. | ||||||||
| Interest is paid monthly, at 5.56% per annum. The loan is guaranteed | ||||||||
| by a third party, Zhejiang Xinchai Co., Ltd. | 305,000 | - | ||||||
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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.
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 did 0t recognize any trading commission income or demonstration machine sales revenue for the six months ended December 31, 2021 and 2020.
Shipping and handling
All outbound shipping and handling costs are expensed as incurred.
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 unaudited condensed consolidated statements of income and comprehensive income were $625,986 and $602,652 for the three months ended September 30, 2021 and 2020, 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 unaudited condensed 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 unaudited condensed 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 Consolidated 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 unaudited condensed consolidated financial statements.
| 14 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The guidance supersedes existing guidance on accounting for leases with the main difference being that operating leases are to be recorded in the statement of financial position as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. For operating leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. For public business entities, the guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the guidance is permitted. In transition, entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company adopted ASU 2016-02 on July 1, 2019 and recognize operating lease liabilities with corresponding right of use (“ROU”) assets of the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases with a term longer than 12 months.
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 unaudited condensed consolidated financial position, statements of operations and cash flows.
NOTE 3 – GOING CONCERN
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern; however, the Company has incurred a net loss of $8,357,685 for the six months ended December 31, 2021. As of December 31, 2021, the Company had an accumulated deficit of $41,857,108, working capital deficit of $25,699,370.
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:
| Inventory | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Finished goods | $ | 269,897 | $ | 109,381 | ||||
| Less: allowance for obsolete inventory | — | — | ||||||
| Total, net | $ | 269,897 | $ | 109,381 | ||||
Inventory consists of artwork merchandises and souvenir and multi-functional demonstration machine. Obsolete inventory amounted to $00 and $00 for the six months ended December 31, 2021 and 2020.
| 15 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following:
| Intangible Assets | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Membership management system | $ | 472,495 | $ | 466,322 | ||||
| Accounting system | 1,735 | 1,712 | ||||||
| 474,230 | 468,034 | |||||||
| Less: Accumulated amortization | (281,757 | ) | (228,968 | ) | ||||
| Total, net | $ | 192,473 | $ | 239,066 | ||||
Amortization expense amounted to $49,320 and $58,742 for the six months ended December 31, 2021 and 2020, respectively.
NOTE 6 – PLANT & EQUIPMENT
Plant and equipment, net, is consisted of the following:
| Property & Equipment | ||||||||
December 31, 2021 | June 30, 2021 | |||||||
| Furniture and fixtures | $ | 18,499 | $ | 18,257 | ||||
| Automobile | 182,912 | 180,523 | ||||||
| 201,411 | 198,780 | |||||||
| Less: Accumulate depreciation | (34,753 | ) | (14,077 | ) | ||||
| Total, net | $ | 166,658 | $ | 184,703 | ||||
Depreciation expenses was $20,309 and $3,314 for the six months ended December 31, 2021 and 2020, respectively.
NOTE 7 - ADVANCE TO SUPPLIERS
Advance to suppliers consisted of the following:
| Schedule of Advance to suppliers | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Multimedia tablets | $ | 4,851,888 | $ | 5,228,488 | ||||
| Marketing services | 4,967,203 | 3,652,262 | ||||||
| Gifts for members | 8,444 | 139,549 | ||||||
| Other services | 978,737 | 232,213 | ||||||
| Total, net | $ | 10,806,272 | $ | 9,252,512 | ||||
| 16 |
| On December 2, 2010, the Company obtained a loan from Agricultural | ||||||||
| Bank of China, the principal of which is due on November 28, 2011. | ||||||||
| Interest is paid monthly, at 5.56% per annum. The loan is guaranteed | ||||||||
| by a third party, Zhejiang Xinchai Co., Ltd. | 1,372,500 | - | ||||||
| On December 29, 2010, the Company obtained a loan from Standard | ||||||||
| Chartered Bank (Hong Kong) Limited at 1.98% per annum. Accrued | ||||||||
| interest amounting to $53,701 together with principal is due and payable | ||||||||
| on December 20, 2011. | 2,691,010 | - | ||||||
Total short-term bank loans | $ | 5,893,510 | $ | 1,428,810 | ||||
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.
NOTE 8 –
Advance from customers consisted of the following:
| Schedule of Advance from customers | ||||||||
December 31, 2021 | June 30, 2021 | |||||||
| Multimedia demonstration machines | $ | — | $ | — | ||||
| Multimedia tablets | 23,338,584 | 17,256,693 | ||||||
| Total, net | $ | 23,338,584 | $ | 17,256,693 | ||||
The Company collects payments in advance for multimedia tablets. 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.
NOTE 9 – REVENUE AND COST OF REVENUE
| Schedule of Revenue Cost of revenue | ||||||||
| December 31, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Revenue | ||||||||
| Membership service income | $ | 6,249 | $ | 175,325 | ||||
| Multimedia tablets | — | 154,603 | ||||||
| 6,249 | 329,928 | |||||||
| Cost of revenue | ||||||||
| Membership service income | 46,760 | 413,144 | ||||||
| Multimedia tablets | 1,623,552 | 247,100 | ||||||
| 1,670,312 | 660,244 | |||||||
| Gross profit | $ | (1,664,063 | ) | $ | (330,316 | ) | ||
NOTE 10 – LEASE
The Company has operating leases for multimedia tablets which the Company sublease to customers. 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 $1,047,833recognized 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 $1,623,552 and $3,322,277$247,100 for the six months ended December 31, 2021 and 2020, respectively.
The undiscounted future minimum lease payment schedule as follows:
| Future lease payments | ||||
| As of December 31, | ||||
| 2022 | $ | 1,637,965 | ||
| 2023 | 3,275,929 | |||
| 2024 | 1,665,440 | |||
| 2025 | 111,920 | |||
| Thereafter | — | |||
| Total | $ | 6,691,254 | ||
| 17 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
NOTE 11 – RELATED PARTY TRANSACTIONS
The related parties consisted of Marchthe following:
| Schedule of related party transactions | ||
| Name of related party | Nature of relationship | |
| Mr. Xingtao Zhou | Majority shareholder of the Company | |
| Guangdong Cangbaotianxia Art Co., Ltd | A Company with significant influence | |
| Xi 'an Cangbaotianxia Art Co., Ltd | A Company with significant influence |
Related party sale and Account receivable - related parties
During the six months ended December 31, 20112021, the Company made sales of $62,738 to Guangdong Cangbaotianxia Art Co., Ltd. As of December 31, 2021 and June 30, 2010,2020, the outstanding balance of accounts receivable - related parties was $156,846 and $92,878, respectively. Approximately $440,612
During the six months ended December 31, 2021, the Company made sales of $15,685 to Xi 'an Cangbaotianxia Art Co., Ltd. As of December 31, 2021 and $425,588June 30, 2021, the outstanding balance of accounts receivable - related parties was $37,455 and $21,486, respectively.
Due to related parties
During the six months ended December 31, 2021, the Company received $1,283,881 in advance from Mr. Xingtao Zhou. As of December 31, 2021 and June 30, 2021, the outstanding balance payable to Mr. Xingtao Zhou was $1,412,674 and $128,793 respectively.
Due from related parties
During the six months ended December 31, 2021, Mr. Xingtao Zhou paid back $1,003,638 to the Company. As of December 31, 2021 and June 30, 2021, the balance receivable from Mr. Xingtao Zhou was $0 and $1,083,575 respectively. As of December 31, 2021 and June 30, 2021, the balance receivable from Guangdong Cangbaotianxia Art Co., Ltd was $156,845 and $0 respectively. As of December 31, 2021 and June 30, 2021, the balance receivable from Xi 'an Cangbaotianxia Art Co., Ltd was $37,455 and $0 respectively.
The amount is due on demand and non-interest bearing without any formal agreement.
NOTE 12 – EQUITY
Preferred Stock
The Company is authorized to issue shares of $.001 par value preferred shares. On June 19, 2018, the Company created shares of Series A Preferred Stock, out of the 10,000,000 shares that were already authorized. On that same date, the Company issued 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 $ 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 representseither increases or decreases the lastnumber 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 dueof any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to Keyireceive, 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.
| 18 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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 $ per share for the acquisitionSeries A Preferred Stock. If, upon the occurrence of Shengteany 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 common shares to shareholders pursuant to the conversion of shares of Series A Preferred Stock at a conversion price of $0.0000025 per common share.
As of December 31, 2021, preferred shares remain outstanding, which are owned by Xingtao Zhou, CEO.
Common Stock
On June 19, 2018, the Company issued 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 February 14, 2019, the Company issued common shares to shareholders pursuant to the conversion of shares of Series A Preferred Stock at a conversion price of $0.0000025 per common share.
| 19 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
On July 2007.
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, 2021, common shares are issued and outstanding with a par value of .
Restricted net assets
The Company’s operations are carriedability 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 PRC.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.
| 20 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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 13 – 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:
| Deferred tax assets | ||||||||
December 31, 2021 | June 30, 2021 | |||||||
| Deferred tax asset | ||||||||
| Net operating losses carry forwards | $ | 29,117 | $ | 33,748 | ||||
| Valuation allowance | (29,117 | ) | (33,748 | ) | ||||
| 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, 2021 and 2020.
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.
| 21 |
CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
The components of deferred tax assets and liabilities as follows:
| Deferred tax assets | ||||||||
December 31, 2021 | June 30, 2021 | |||||||
| Net operating losses carry forwards | $ | 8,328,568 | $ | 8,411,409 | ||||
| Valuation allowance | (8,328,568 | ) | (8,411,409 | ) | ||||
| 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 0 provision for uncertainty in income taxes was necessary as of December 31, 2021 and June 30, 2021.
NOTE 14 – 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:
| Concentration on purchases from suppliers | ||||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||
| December 31, 2021 | December 31, 2020 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| Supplier A | $ | 1,655,504 | 100 | % | $ | 1,899,646 | 91 | % | ||||||||
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CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Stated in US Dollars)
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 operations and is now operating at full capacity.
NOTE 15 - SUBSEQUENT EVENTS
The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the dates of the balance sheets, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date.
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 that subsequent to December 31, 2021 but prior to the date the financial statements were available to be issued, and has determined that it does not have any material events to disclose.
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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.
Critical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations may be influenced byare based upon our consolidated financial statements, which have been prepared in accordance with US GAAP. Our financial statements reflect the political, economicselection and legal environmentsapplication of accounting policies that require management to make significant estimates and judgments. We believe the following critical accounting policies used in the PRC as well as bypreparation of our financial statements require significant judgments and estimates. For additional information relating to these and other accounting policies, see Note 2 to our financial statements included elsewhere in this report.
Basis of Presentation
Our financial statements are prepared in accordance with generally accepted accounting principles in the general state of the PRC’s economy. United States, or U.S. GAAP.
Going Concern
The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, rates and methods of taxation, etc.
| For the Nine Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Cash paid for interest | $ | 251,140 | $ | 76,107 | ||||
| Cash paid for income taxes | $ | 211,621 | $ | 93,222 | ||||
| Three Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Net income attributable to Zhongchai | $ | 1,451,738 | $ | 263,861 | ||||
| Machinery, Inc. | ||||||||
| Weighted average common shares | 27,613,019 | 27,613,019 | ||||||
| (denominator for basic income per share) | ||||||||
| Effect of dilutive securities: | 291,873 | - | ||||||
| Weighted average common shares | 27,904,892 | 27,613,019 | ||||||
| (denominator for diluted income per share) | ||||||||
| Basic net income per share | $ | 0.05 | $ | 0.01 | ||||
| Diluted net income per share | $ | 0.05 | $ | 0.01 | ||||
| Nine Months Ended March 31, | ||||||||
| 2011 | 2010 | |||||||
| Net income attributable to Zhongchai | $ | 2,522,507 | $ | 281,838 | ||||
| Machinery, Inc. | ||||||||
| Weighted average common shares | 27,613,019 | 27,613,019 | ||||||
| (denominator for basic income per share) | ||||||||
| Effect of dilutive securities: | 287,990 | - | ||||||
| Weighted average common shares | ||||||||
| (denominator for diluted income per share) | 27,901,009 | 27,613,019 | ||||||
| Basic net income per share | $ | 0.09 | $ | 0.01 | ||||
| Diluted net income per share | $ | 0.09 | $ | 0.01 | ||||
The Company plans to continue its expansion and investments, which will require continued improvements in revenue and net income.
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Results of Operations or Plan of Operations.
Results of Operations
The following table sets forth key components of Company’s results of operations for the three months ended MarchDecember 31, 2010. Sales2021 and 2020. The discussion following the table addresses these results.
| For Three Months Ended December 31, | ||||||||||||||||
| 2021 | 2020 | Fluctuation | % | |||||||||||||
| Net revenues | $ | 1,132 | $ | 259,358 | (258,226 | ) | (99.6 | )% | ||||||||
| Cost of revenues | 834,455 | 619,498 | 214,957 | 34.7 | % | |||||||||||
| Gross profit | (833,323 | ) | (360,140 | ) | (473,183 | ) | 131.4 | % | ||||||||
| Operating expenses | 2,768,781 | 1,593,483 | 1,175,298 | 73.8 | % | |||||||||||
| Loss from operations | (3,602,104 | ) | (1,953,623 | ) | (1,648,481 | ) | 84.4 | % | ||||||||
| Interest income | 23 | 1,034 | (1,011 | ) | (97.8 | )% | ||||||||||
| Interest expense | (275 | ) | — | (275 | ) | N/A | ||||||||||
| Other expense | (121 | ) | (975 | ) | 854 | (87.6 | )% | |||||||||
| Provision for income taxes expense | 1 | 1,773 | (1,772 | ) | (99.9 | )% | ||||||||||
| Net loss | (3,602,478 | ) | (1,955,337 | ) | (1,647,141 | ) | 84.2 | % | ||||||||
Revenues. For the three months ended December 31,2021 and 2020, we had revenue of $1,132 and $259,358 respectively, representing a decrease of $258,226 or 99.6%, which were derived from service package sales for the members and the sales and leasing income from multimedia tablets. The significant decrease in revenue was due to there were decrease in revenue from service package and leasing income from multimedia tablets.
Cost of Revenue. For the three months ended December 31, 2021 and 2020, we had cost of revenue of $834,455 and $619,498 respectively, representing an increase of $214,957 or 34.7%. The cost of revenue represents costs of merchandise and souvenirs sent to members and cost of multimedia tablets. The increase in cost was mainly due to increase in the leasing expenses of multimedia tablets.
Gross Profit. We generated gross profit of $ (833,323) and $ (360,140) for the three months ended MarchDecember 31, 2011 consisted mainly the sales2021 and 2020, with a gross margin of gears(73,615.1)% and transmission gearboxes in China.(138.9)% respectively.
Operating expenses. The increase in geartotal operating expenses was $2,768,781 and transmission gearbox sales was attributable to the continued increasing of the Company’s production capabilities, increase sales and an increased share of the market due to the recognition of the Company and its products.
Loss from $2,454,953 forOperations. For the three months ended MarchDecember 31, 2010. The gross profit margin was approximately 27% for2021 and 2020, we had loss from operations of $3,602,104 and $1,953,623 respectively, representing an increase in loss of $1,648,481 or 84.4 %.
Net loss. For the three months ended MarchDecember 31, 2011,2021 and 2020, we had net loss of $3,602,478 and $1,955,337 respectively, representing an increase of $1,647,141 or 84.2%. The increase was mainly due to market expansion and decrease in revenue.
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Results of Operations for the six months ended December 31, 2021 and 2020
The following table sets forth key components of Company’s results of operations for the six months ended December 31, 2021 and 2020. The discussion following the table addresses these results.
| For Six Months Ended December 31, | ||||||||||||||||
| 2021 | 2020 | Fluctuation | % | |||||||||||||
| Net revenues | $ | 6,249 | $ | 329,928 | (323,679 | ) | (98.1 | )% | ||||||||
| Cost of revenues | 1,670,312 | 660,244 | 1,010,068 | 153.0 | % | |||||||||||
| Gross profit | (1,664,063 | ) | (330,316 | ) | (1,333,747 | ) | 403.8 | % | ||||||||
| Operating expenses | 6,674,535 | 2,988,406 | 3,686,129 | 123.3 | % | |||||||||||
| Loss from operations | (8,338,598 | ) | (3,318,722 | ) | (5,019,876 | ) | 151.3 | % | ||||||||
| Interest income | 1,394 | 2,267 | (873 | ) | (38.5 | )% | ||||||||||
| Interest expense | (275 | ) | — | (275 | ) | N/A | ||||||||||
| Other income | — | 115 | (115 | ) | (100.0 | )% | ||||||||||
| Other expense | (20,098 | ) | (112,041 | ) | 91,943 | (82.1 | )% | |||||||||
| Provision for income taxes expense | 108 | 1,773 | (1,665 | ) | (93.9 | )% | ||||||||||
| Net loss | (8,357,685 | ) | (3,430,154 | ) | (4,927,531 | ) | 143.7 | % | ||||||||
Revenues. For the six months ended December 31,2021 and 2020, we had revenue of $6,249 and $329,928 respectively, representing a decrease of $323,679 or 98.1%, which were derived from service package sales for the members and the sales and leasing income from multimedia tablets. The significant decrease in revenue was due to there were decrease in revenue from service package.
Cost of Revenue. For the six months ended December 31, 2021 and 2020, we had cost of revenue of $1,670,312 and $660,244 respectively, representing an increase of $1,010,068 or 153.0%. The cost of revenue represents costs of merchandise and souvenirs sent to members and cost of multimedia tablets. The increase in cost was mainly due to increase in the leasing expenses of multimedia tablets.
Gross Profit. We generated gross profit of $(1,664,063) and $(330,316) for the six months ended December 31, 2021 and 2020, with a gross margin of (26,629.3)% and (100.1)% respectively.
Operating expenses. The total operating expenses was $6,674,535 and $2,988,406 for the six months ended December 31, 2021 and 2020, representing an increase of $3,686,129 or 123.3 %. The increase was mainly due to market expansion.
Loss from Operations. For the six months ended December 31, 2021 and 2020, we had loss from operations of $8,338,598 and $3,318,722 respectively, representing an increase in loss of $5,019,876 or 151.3%.
Net loss. For the six months ended December 31, 2021 and 2020, we had net loss of $8,357,685 and $3,430,154 respectively, representing an increase of $4,927,531 or 143.7%. The increase was mainly due to market expansion and decrease in revenue.
26
Liquidity and Capital Resources
Working Capital Deficit. As of December 31, 2021 and June 30, 2021, the Company a working capital deficit of $25,699,370 and a working capital deficit of $17,113,370, 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, 2021 | Six Months Ended December 31, 2020 | |||||||
| Net cash (used in) provided by operating activities | $ | (3,356,791 | ) | $ | 1,498,478 | |||
| Net cash used in investing activities | — | (25,724 | ) | |||||
| Net cash provided by financing activities | 2,283,365 | 20,466 | ||||||
| Effect of exchange rate change on cash | 6,354 | (498,869 | ) | |||||
| Net change in cash and cash equivalents | $ | (1,067,072 | ) | $ | 994,351 | |||
Operating Activities.
Net cash used in operating activities was approximately $3.4 million for the six months ended December 31, 2021, as compared to approximately 23%$1.5 million net cash provided by operating activities for the threesix months ended MarchDecember 31, 2010. The increase in gross profit margin in this quarter as compared to the same period in the prior fiscal year was attributable mainly to the decrease in transmission gearbox unit cost and therefore the increase in transmission gearbox margin after the expansion in transmission gearbox production capacity and sales.
Investing Activities.
There are no investing activities for the decrease of $1.59 million in accounts payable, and $3.45 million in trade related notes payable during the nine-month period.
Financing Activities.
Net cash provided by financing activities was approximately $2.3 million for the nine-month periodsix months ended MarchDecember 31, 2011, a decrease from $2.722021, as compared to approximately $0.02 million net cash provided by financing activities for the same period in fiscal year 2010.six months ended December 31, 2020. The decreaseincrease was mainly due to the $2.3 million advance payment being returned to the Companyincrease in December 2010. The advance payment was originally made by the Zhongchai China to Xinchai Holdings in 2009, for the purchase of land use rights and building for Zhongchai China’s future expansion of its production capabilities. Because there were several legal issues regarding the transferring of title of ownership, the deposit was returned; however, the Company believes that the issues shall be solved in the future and the Company will pursue title ownership.
Off-Balance Sheet Arrangements
As of this liability. The remaining other current liabilities of $607,221 are as follows:
| Professional Fees | $ | 94,524 | ||
| Accrued Consulting Fees | $ | 123,601 | ||
| Tax Payment | $ | 84,236 | ||
| Pension Payment | $ | 3,832 | ||
| Employee Rent Withhold | $ | 5,767 | ||
| Rent Payment | $ | 9,471 | ||
| Working Meal Payment | $ | 993 | ||
| Working Cloth Deposit | $ | 2,333 | ||
| Other Trade Related Payments | $ | 282,464 | ||
| Total | $ | 607,221 |
Contractual Obligations and Commitments
As of December 31, 2021 and June 30, 2021, we did not have any contractual obligations.
Critical Accounting Policies and Estimates
Our significant accounting policies are described in the notes to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-Kfinancial statements for the yearsix months ended June 30, 2010, for disclosures regarding Zhongchai Machinery, Inc.’s critical accounting policiesDecember 31, 2021 and estimates. The interim financial statements follow the same accounting policies2020, and methods of computations as those for the year ended June 30, 2009. There were no new accounting policies and estimates during the period ended March 31, 2011 which affects the Company.are included elsewhere in this report.
| 27 |
ITEM 3. QuantitativeQUANTITATIVE 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 Qualitative Disclosures about Market Risk
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of theour management, Xingtao Zhou, who is our Chairman, Founder, Chief Executive Officerexecutive officer and Chief Financial Officer,financial officer, as of the Company’sDecember 31, 2021, we conducted an evaluation of our disclosure controls and procedures, (asas such term is defined in Rulesunder Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act.Act of 1934, as amended. Based on this evaluation, theour Chief Executive Officer and Acting Chief Financial Officerhas concluded that, based on the Company’smaterial weaknesses discussed below, our disclosure controls and procedures arewere not effective as of such date to ensure that information required to be disclosed by the Companyus in reports that it filesfiled or submitssubmitted under the Securities Exchange Act iswere recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange CommissionAct Commission's rules and forms. There was no changeforms and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the Company’sreports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, Xingtao Zhou, the Company's Chief Executive Officer, and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records, that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company's management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting at December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on that assessment under those criteria, management has determined that, as of December 31, 2021, our internal control over financial reporting was not effective.
Our internal controls are not effective for the following reasons: (i) there is an inadequate segregation of duties consistent with control objectives as management is comprised of only two persons, one of which is the Company's principal executive officer and principal financial officer and, (ii) the Company does not have an audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.
In order to mitigate the foregoing material weakness, we have engaged an outside accounting consultant with significant experience in the preparation of financial statements in conformity with GAAP to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity with GAAP. We will continue to monitor the effectiveness of this action and make any changes that our management deems appropriate.
We would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will continue to reassess this matter to determine whether improvement in segregation of duty is feasible. In addition, we would need to expand our board to include independent members.
Going forward, we intend to evaluate our processes and procedures and, where practicable and resources permit, implement changes in order to have more effective controls over financial reporting.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the Company’s most recently completed fiscal quartersix months ended December 31, 2021, that hashave materially affected, or isare reasonably likely to materially affect, the Company’sour internal controlcontrols 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.
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| 30 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrantregistrant has duly caused this Reportreport to be signed on its behalf by the undersigned, thereunto duly authorized.
| CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC. | ||
| Date: February 22, 2022 | By: | /s/ Xingtao Zhou |
| Xingtao Zhou, Chief Executive Officer and Chief Financial Officer (principal executive officer and principal financial and accounting officer) | ||
| 31 | |||