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

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

On July 27, 2011, the Company approved a 1-for-1201 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 Judicialeighth judicial District Court of Nevada appointed Custodian Ventures, LLC as custodian for the Company, then known as Zhongchai Machinery, Inc., proper notice having been given to the officers and directors of Zhongchai Machinery, Inc. There was no opposition.

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

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

On December 28,16, 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 took place. Mr. Xingtao Zhou acquired all 10,000,000 shares of Series A Preferred Stock previously owned by Mr. Lazar;Company. There is no family relationship or other relationship between the Seller and Mr. Zhou and Yaqin Fu acquired, respectively, 2,432,351 and 663,849 common shares previously owned by Mr. Lazar, who resigned as an officer and director and appointed Mr. Zhou as a director, CEO and CFO, and appointed Ms. Fu’s husband, Liang Tan, as a director.the Purchaser.

On January 8,08, 2019, by majority consentthe corporate name of its principal shareholders, the Company was changed its corporate name in Nevada from Zhongchai Machinery, Inc. to Cang Bao Tian Xia International Art Trade Center, Inc., its current name; and shortly thereafter the Company’s trading symbol was changed to TXCB.

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

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

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

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.

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 conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This basis of accounting differs in certain material respects from that used for the preparation of the books of Hainan Cangbao and Shanghai Cangbao, which are prepared in accordance with the accounting principles and the relevant financial regulations applicable to enterprises with limited liabilities established in the PRC (“PRC GAAP”), the accounting standards used in the places of their domicile. The accompanying 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.

Interim Financial InformationPrincipals of Consolidation

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

Principals of Consolidation

Thecondensed 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.

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:

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.

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 significant carrying amount and classification of the VIE’s assets and liabilities of VIEs as of December 31, 2020 and June 30, 2020are as follows:

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Stated in US Dollars)

The summarized operating results of the VIE’s are as follows:

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 are translated at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period, and equity is translated at historical exchange rates. The resulting translation adjustments are included in determining other comprehensive income. Transaction gains and losses are reflected in the consolidated statements of income.

Use of Estimates

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

Cash and Cash Equivalents

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

CANG BAO TIAN XIA INTERNATIONAL ART TRADE CENTER, INC.