Notes to Unaudited Consolidated Financial Statements
June 30, 2021
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 on August 20, 2015, under the laws of the Cayman Islands. CAT9 Investment China Limited was incorporated on 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 the10,000,000 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
Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with the instructions from Regulation S-X and do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations for the interim period(s), and to make the financial statements not misleading, have been made and are of a recurring nature unless otherwise disclosed herein. The results of operations for such interim period(s) are not necessarily indicative of operations for a full year.
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, 2021. 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, 2020.
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; Chengdu Second Branch Company of Chongqing CAT9 Industrial Co., Ltd; and Chongqing CAT9 Bio-tech 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, 2021 and 2020, 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, 2021 and 2020 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, 2021 and December 31, 2020. 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, 2021 and December 31, 2020 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, 2021 and 2020, the Company’s sales were mainly made to customers located in the PRC. In addition, total accounts receivables as of June 30, 2021 and December 31, 2020 also arose from customers located in the PRC.
Major parts of net assets of the Company are also located in the PRC.
Customer Concentration
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 year ended June 30, 2020:
|
|
Amount
|
|
|
%
|
|
Zhejiang Quku Supply Chain Management Co., Ltd
|
|
|
346,975
|
|
|
|
36
|
|
Sichuan Songxiang Times Science and Technology Co., Ltd
|
|
|
194,574
|
|
|
|
20
|
|
Chongqing Zhongdao Bio-tech Co., Ltd.
|
|
|
220,188
|
|
|
|
36
|
|
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
|
|
|
%
|
|
Chongqing Zhongdao Bio-tech Co., Ltd.
|
|
|
11,212
|
|
|
|
27
|
|
Mingtong Chongqing Agricultural Technology Development Co., Ltd
|
|
|
10,516
|
|
|
|
26
|
|
NOTE 4 –ACCOUNTS RECEIVABLE
Accounts receivables consist of the following:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
Accounts receivable
|
$
|
40,887
|
|
$
|
12,824
|
Less: allowance for doubtful accounts
|
|
-
|
|
|
-
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
40,887
|
|
$
|
12,824
|
NOTE 5 –INVENTORIES
Inventories consist of the following:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Raw materials and parts
|
|
$
|
84,202
|
|
|
$
|
66,089
|
|
Finished goods
|
|
|
160,193
|
|
|
|
248,571
|
|
Total
|
|
|
244,395
|
|
|
|
314,660
|
|
Less: allowance for inventory reserve
|
|
|
-
|
|
|
|
(7,687
|
)
|
Total inventory, net
|
|
$
|
244,395
|
|
|
$
|
306,973
|
|
NOTE 6 — PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Equipment
|
|
$
|
15,238
|
|
|
$
|
15,074
|
|
Automobile
|
|
|
36,761
|
|
|
|
36,366
|
|
Acer Truncatum saplings
|
|
|
232
|
|
|
|
230
|
|
Total property and equipment
|
|
|
52,231
|
|
|
|
51,670
|
|
Less accumulated depreciation
|
|
|
(44,947
|
)
|
|
|
(39,443
|
)
|
Property and equipment, net
|
|
$
|
7,284
|
|
|
$
|
12,227
|
|
Depreciation expense was $5,065 and $5,932 for the six months ended June 30, 2021 and 2020, respectively.
NOTE 7 – CAPITALIZED SOFTWARE COSTS
Capitalized software costs consist of the following as of:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Software
|
|
$
|
30,192
|
|
|
$
|
23,495
|
|
Less accumulated amortization
|
|
|
(25,898
|
)
|
|
|
(19,247
|
)
|
Software costs, net
|
|
$
|
4,294
|
|
|
$
|
4,248
|
|
Amortization expense was $6,428 and $7,948 for the six months ended June 30, 2021 and 2020, respectively.
NOTE 8 – LOAN PAYABLE
As of June 30, 2021, the Company had outstanding loan agreements with some individuals in the amount of $95,222 (RMB $615,000). The Company’s vehicle with net value of $7,548 is pledged as security for a loan in the amount of $15,483 (RMB $100,000). During the six months ended June 30, 2020, the Company repaid two loans in full in the total amount of $18,891 (RMB $130,000). $34,063 (RMB220,000) of the loans are past due as of June 30, 2021. The annual interest rates for the loans are from 0% to 30%. For the six months ended June 30, 2021, the interest expense is $5,029.
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 $644,544 (RMB 5,000,000) credit line. The maturity date is December 31, 2020. The loan is unsecured, non-interest bearing. As of June 30, 2021, the balance of the loan is $37,480. As of June 30, 2021, this loan is past due.
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, 2021 and December 31, 2020, the Company was indebted to related parties that advanced loans to the Company without any formal repayment terms. As of June 30, 2021 and December 31, 2020, the Company owed the aforementioned related parties $423,095and $426,027, respectively.
NOTE 10 – ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance of related after-tax components comprising accumulated other comprehensive loss included members’ capital were as follows:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
Accumulated other comprehensive loss, beginning of period
|
|
$
|
(28,823
|
)
|
|
$
|
(12,338
|
)
|
Change in cumulative translation adjustment
|
|
|
(3,065
|
)
|
|
|
(16,485
|
)
|
Accumulated other comprehensive loss, end of period
|
|
$
|
(31,888
|
)
|
|
$
|
(28,823
|
)
|
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