Notes to Unaudited Consolidated Financial
Statements
June 30, 2020
NOTE 1
- DESCRIPTION OF BUSINESS AND HISTORY
Description of business
CAT9 Group
Inc., (the “Company”) formerly
known as ANDES 4 Inc. ("ANDES 4"), was incorporated under the laws of the State of Delaware on January 26,
2015. On December 27, 2016, the Company and its wholly-owned subsidiary, CAT9 Holdings Ltd, a company organized under the
laws of the Cayman Islands, ("CAT9 Cayman"); CAT9 Cayman's wholly-owned subsidiary, CAT9 Investment China Limited, a
company organized under the laws of Hong Kong ("CAT9 HK"); and its wholly-owned subsidiary, Chongqing CAT9 Industry Company
Ltd, a company organized under the laws of the People's Republic of China closed a share exchange transaction pursuant to which
CAT9 became the 100% parent of CAT9 Cayman, assumed the operations of CAT9 Cayman and its subsidiaries, including CAT9 Investment
China, and Chongqing CAT9 Industrial Company Ltd.
CAT9 Cayman is a holding company incorporated
in August 20, 2015, under the laws of the Cayman Islands. CAT9 Investment China Limited was incorporated in September 10, 2015,
under the laws of Hong Kong. CAT9 Investment China is a window for the group to handle the business operations outside of China.
Chongqing CAT9 Industrial Company Ltd. is located
in Chongqing, PRC and was incorporated under the laws of the PRC on June 26, 2014. Chongqing Field Industrial Company Ltd. operates
through strategic alliance and distribution rights agreements in the PRC, the Company is engaged in the marketing and sales of
(1) fresh fruits, vegetables meats (including primarily organic and non-organic from both domestically grown and imported (2) Acquisition
of land for the planting of Acer Truncatum trees and harvesting of Acer Truncatum seeds to produce edible oil, (3) providing Hi-Tech
cooperative farm management services in the PRC and overseas and (4) farm machinery sales.
Prior to the events above, the Company on July
31, 2015, the sole officer and director of the Company entered into a Share Purchase Agreement (the “SPA”) pursuant
to which he entered into an agreement to sell an aggregate of 10,000,000 shares of his shares of the Company’s common stock
to Chongqing Field Industrial Company Ltd. at an aggregate purchase price of $40,000. These shares represent 100% of the Company’s
issued and outstanding common stock. Effective upon the closing date of the Share Purchase Agreement, August 12, 2015, the sole
officer and director of the Company executed the agreement and owned no shares of the Company’s stock and Chongqing Field
Industrial Company Ltd. was the sole stockholder of the Company.
On May 2, 2016, the Company entered into Employee
Agreements with Wenfa "Simon" Sun, its President, Chief Executive Officer, and Chairman of the Board of Directors, and
MeiHong "Sanya" Qian, its Chief Financial Officer and Secretary. Pursuant to the Employment Agreement, the Company issued
6,000,000 shares of restricted common stock to Wenfa "Simon" Sun, and 4,000,000 shares of restricted common stock to
MeiHong "Sanya" Qian.
On May 3, 2016, the sole shareholder of the
Company, Chongqing Field Industrial Ltd., ("CQFI") consented to a redemption of its 10,000,000 shares of common stock
at a price of $0.0001 per share for an aggregate redemption price of $1,000. As a result of this action by CQFI, management of
the Company now control 100% of the issued and outstanding shares.
With the redemption and subsequent issuance
of the 10,000,000 shares of restricted common stock, the Company effected a change in its control and the new majority shareholders
are the current members of management of the Company.
NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The Company’s unaudited condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The accompanying unaudited condensed financial statements reflect all
adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair
statement of the results of operations for the periods shown and are not necessarily indicative of the results to be expected
for the full year ending December 31, 2020. These unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2019.
The Company's functional currency
for Chongqing CAT9 is the Chinese Renminbi (“RMB”); however, the accompanying financial statements have been translated
and presented in the United States Dollars (“USD”).
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, CAT9 Cayman, and its subsidiaries, including CAT9 Investment
China, Chongqing CAT9 Industrial Co., Ltd: Chongqing Yubei Branch Company of Chongqing
CAT9 Industrial Co., Ltd; Chengdu First Branch Company of Chongqing CAT9 Industrial Co., Ltd; and Chengdu Second Branch Company
of Chongqing CAT9 Industrial Co., Ltd.All financial information has been prepared in conformity with accounting principles
generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated
in consolidation.
Translation Adjustment
For the three and six months ended June 30,
2020 and 2019, the accounts of the Chongqing CAT9 were maintained, and its financial statements were expressed, in RMB. Such
financial statements were translated into USD in accordance with the Foreign Currency Matters Topic of the Codification (ASC 830),
with the RMB as the functional currency. According to the Codification, all assets and liabilities were translated at
the current exchange rate at respective balance sheets dates, members’ capital are translated at the historical rates and
income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with the Comprehensive Income Topic of the Codification (ASC 220), as a component
of members’ capital. Transaction gains and losses are reflected in the income statement.
Comprehensive Income
The Company uses SFAS 130 “Reporting
Comprehensive Income” (ASC Topic 220). Comprehensive income is comprised of net income and all changes to the
statements of members’ capital, except those due to investments by members, changes in paid-in capital and distributions
to members. Comprehensive income for the three and six months ended June 30, 2020 and 2019 is included net income and foreign currency
translation adjustments.
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates
and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. These estimates and judgments are based on historical information, information that is currently available
to the Company and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand
and cash in time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or
less.
NOTE 3 - SIGNIFICANT
CONCENTRATION
Credit Risk
Financial instruments which potentially expose
the Company to concentrations of credit risk consist of cash and accounts receivable as of June 30, 2020 and December 31, 2019.
The Company performs ongoing evaluations of its cash position and credit evaluations to ensure collections and minimize losses.
The major part of the Company’s
cash at June 30, 2020 and December 31, 2019 is maintained at financial institutions in the PRC which provide insurance on
deposit for no more than 500,000 yuan for each depositor in a bank. The Company has not experienced any losses in
such accounts and believes it is not exposed to significant credit risk in this area.
Geographic Concentration
For the three and six months ended June 30,
2020 and 2019, the Company’s sales were mainly made to customers located in the PRC. In addition, total accounts
receivables as of June 30, 2020 and December 31, 2019 also arose from customers located in the PRC.
Major parts of net assets of the Company are
also located in the PRC.
Customer Concentration
On April 7, 2020, the Company’s largest
distributor of its products which it received 90% of its revenues doing business under the trade names Zhongjun Jilian (Shanghai) Tech Development
Co., Ltd., Shanghai Hanan E-business Co., Lt., and Nanjing Hemu E-business Co., Ltd.
ceased all operations. Due to this event, the Company has uncollectible accounts receivables in the amount of $466,954 (3,299,058
RMB) which it does not believe is recoverable.
The following table sets forth information
as to the revenue derived from those customers that accounted for more than 10% of our revenue for the three and six months ended
June 30, 2020:
Three Months Ended June 30, 2020
|
|
Amount
|
|
%
|
Shanghai Haan E-Business Co., Ltd.
|
|
$
|
58,637
|
|
|
|
26
|
%
|
Zhongjun Jilian (Shanghai)Tech Co., Ltd.
|
|
$
|
78,358
|
|
|
|
34
|
%
|
Mingtong Chongqing Agricultural Technology Development Co., Ltd
|
|
$
|
34,781
|
|
|
|
15
|
%
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
Shanghai Haan E-Business Co., Ltd.
|
|
$
|
729,008
|
|
|
|
57
|
%
|
Zhongjun Jilian (Shanghai)Tech Co., Ltd.
|
|
$
|
289,677
|
|
|
|
23
|
%
|
The following table sets forth information
as to the accounts receivable derived from those customers that accounted for more than 10% of our accounts receivable as of June
30, 2020:
|
|
Amount
|
|
%
|
She Qiulin
|
|
$
|
134,311
|
|
|
|
77
|
%
|
Sichuan Jiawanjia.Tech Co Ltd.
|
|
$
|
27,391
|
|
|
|
20
|
%
|
NOTE 4 - ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
|
|
June 30,
2020
|
|
|
December 31,
2019
|
Accounts receivable
|
$
|
638,590
|
|
$
|
434,810
|
Less: allowance for doubtful accounts
|
|
(504,279)
|
|
|
(7,915)
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
134,311
|
|
$
|
426,895
|
NOTE 5 - INVENTORIES
Inventories consist of the following:
|
|
June 30,
2020
|
|
December 31,
2019
|
Raw materials and parts
|
|
$
|
74,041
|
|
|
$
|
36,710
|
|
Finished goods
|
|
|
290,676
|
|
|
|
198,391
|
|
Total
|
|
|
364,717
|
|
|
|
235,101
|
|
Less: allowance for inventory reserve
|
|
|
—
|
|
|
|
—
|
|
Total inventory, net
|
|
$
|
364,717
|
|
|
$
|
235,101
|
|
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
|
|
June 30,
2020
|
|
December 31,
2019
|
Equipment
|
|
$
|
13,930
|
|
|
$
|
14,134
|
|
Automobile
|
|
|
33,605
|
|
|
|
34,098
|
|
Acer Truncatum saplings
|
|
|
212
|
|
|
|
215
|
|
Total property and equipment
|
|
|
47,747
|
|
|
|
48,447
|
|
Less accumulated depreciation
|
|
|
(31,784
|
)
|
|
|
(26,259
|
)
|
Property and equipment, net
|
|
$
|
15,963
|
|
|
$
|
22,188
|
|
Depreciation expense was $5,932 and $6,559
for the six months ended June 30, 2020 and 2019, respectively.
NOTE 7 - CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of
the following as of:
|
|
June 30,
2020
|
|
December 31,
2019
|
Software
|
|
$
|
15,823
|
|
|
$
|
16,055
|
|
Less accumulated amortization
|
|
|
(10,549
|
)
|
|
|
(2,676
|
)
|
Software costs, net
|
|
$
|
5,274
|
|
|
$
|
13,379
|
|
Amortization expense was $7,948 and $0
for the six months ended June 30, 2020 and 2019, respectively.
NOTE 8 - LOAN PAYABLE
On June 16, 2018, the Company entered a loan
agreement with an individual in the amount of $70,771 (RMB $500,000). The maturity date is June 15, 2019. The loan is unsecured,
non-interest bearing. This loan is currently in default.
NOTE 9 - RELATED PARTY
TRANSACTIONS
Loan payable, related parties
On January 1, 2020, the Company
entered into a loan agreement with Sichuan CAT9 Technology, the company under control of Wenfa Sun, the Company’s President,
Chief Executive Officer and Chairman. The loan agreement offers the Company $706,228 (RMB 5,000,000) credit line. The maturity
date is December 31, 2020. The loan is unsecured, non-interest bearing. As of June 30, 2020, the balance of the loan is $110,077
and unused credit line is $597,631.
Due to related parties
During the normal course of
business, affiliated companies, members, and/or officers may advance the Company funds to pay for certain operating expenses. All
advances are unsecured, non-interest bearing and due on demand.
As of June 30,
2020 and December 31, 2019, the Company was indebted to related parties that advanced loans to the Company without any formal
repayment terms. As of June 30, 2020 and December 31, 2019,
the Company owed the aforementioned related parties $417,562 and $416,807, respectively.
NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
Balance of related after-tax components comprising accumulated
other comprehensive income (loss) included members’ capital were as follows:
|
June 30,
2020
|
|
December 31,
2019
|
Accumulated other comprehensive income (loss), beginning of period
|
$
|
(12,338)
|
|
$
|
(1,933)
|
Change in cumulative translation adjustment
|
|
37,635
|
|
|
(10,405)
|
Accumulated other comprehensive income (loss), end of period
|
$
|
25,297
|
|
$
|
(12,338)
|
NOTE 11 - SUBSEQUENT EVENTS
In accordance with SFAS 165 (ASC 855-10) management
has performed an evaluation of subsequent events through the date that the financial statements were issued and has determined
that it does not have any material subsequent events to disclose in these financial statements.
Special Note Regarding Forward-Looking
Statements
The following discussion should be read in
conjunction with our unaudited financial statements, which are included elsewhere in this Form 10-Q (the “Report”).
This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as “may,” “should,” “expects,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”
or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results,
levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by these forward-looking statements. While these forward-looking statements, and any assumptions
upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual
results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do
not intend to update any of the forward-looking statements to conform these statements to actual results.