CAT9 Group Inc. - Quarter Report: 2018 June (Form 10-Q)

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number: 333-222288

CAT9 Group Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 86 023 62984671

Yudong Miaoshitai #46-9, Banan District, Chongqing, China 401320

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes [X] No [  ] 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data 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 such files). Yes [X] No [  ]   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]   

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 13, 2018, the issuer had 102,166,400 shares of its common stock issued and outstanding.  

TABLE OF CONTENTS

  PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Contents

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 

CAT9 Group Inc. & Subsidiaries
Condensed Consolidated Statements of Operations
(UNAUDITED)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 

CAT9 Group Inc. & Subsidiaries
Condensed Consolidated Statements of Cash Flows
(UNAUDITED) 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CAT9 Group Inc. & Subsidiary

Notes to Condensed Consolidated Financial Statements

June 30, 2018

(Unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS AND HISTORY

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 Industry 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 Industry 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. On March 9, 2017, Chongqing Field Industrial Company Ltd. was renamed Chongqing CAT9 Industry Company Ltd.

On December 26, 2017, the Company filed its Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (the “SEC”), the Form S-1 became effective on April 4, 2018 and a post-effective amendment was filed amending the shares unsold on its Form S-1. The Company sold 1,166,400 shares pursuant to its Form S-1 registration statement.

NOTE 2 - GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to raise additional capital through debt and/or equity financing is unknown. The obtainment of additional financing and the successful development of the Company’s contemplated plan of operations are necessary for the Company to continue. The ability to successfully resolve these factors raise substantial doubt about the Company’s ability to continue as a going concern. However; management believes that the Company will generate sufficient cash flows to fund its operations and to meet its obligations on timely basis for the next twelve months. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

NOTE 3 - SUMMARY OF SIGNIFICANT POLICIES

Basis of presentation

The accompanying unaudited condensed consolidated financial statements of CAT9 Group Inc. have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the audited financial statements of CAT9 Group Inc. in our Form 10-K filed on March 29, 2018.

The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2018 and the results of operations and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 consist of cash and short-term investments with original maturities of less than 90 days. Cash equivalents are placed with high credit quality financial institutions and are primarily in money market funds. The carrying value of those investments approximates fair value.

Revenue recognition

Revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects the consideration that the Company expects to receive in exchange for those goods. The Company applies the following five-step model in order to determine this amount: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company's performance obligations are transferred to customers at a point in time, typically upon delivery.

Accounts receivable

Accounts receivable are recorded net of allowance for doubtful accounts. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. Periodically, management assesses customer credit history and relationships as well as performs accounts receivable aging analysis. Accounts are considered past due after three months. As of June 30, 2018 and June 30, 2017, no allowance was deemed necessary since sales were comparatively recent.

Inventories

Inventories are valued at the lower of cost or market. Management compares the cost of inventories with the market value and allowance is made for writing down their inventories to market value, if lower.

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, and Chongqing CAT9 Industry Company 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.

Translation Adjustment

For the six months ended June 30, 2018 and the year ended December 31, 2017, 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 six months ended June 30, 2018and 2017 is included net income and foreign currency translation adjustments.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

NOTE 4 - RELATED PARTY TRANSACTIONS

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, 2018, and December 31, 2017, the Company was indebted to related parties that advanced loans to the Company without any formal repayment terms. As of June 30, 2018, and December 31, 2017, the Company owed the aforementioned related parties $239,350 and $150,927, respectively.

NOTE 5 - STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 5,000,000 shares of $.0001 par value preferred stock. As of June 30, 2018, no shares of preferred stock had been issued.

Common Stock

Pursuant to the Share Exchange Agreement dated December 27, 2016 the company cancelled and retired 9,000,000 shares of issued and outstanding common stock, (the “cancelled shares”), reducing the issued and outstanding shares to 1,000,000 shares. A cash amount of $1 was paid to Wenfa “Simon” Sun and Meihong “Sanya” Qian, the Company’s majority shareholders and owners of the cancelled shares, as consideration for cancelling the shares. The Company issued a total of 19,000,000 shares of common stock pursuant to the Share Exchange and as a result of the cancellation of the cancelled shares and the Share Exchange; there are 20,000,000 shares of common stock issued and outstanding following the Share Exchange.

On March 31, 2017, the Company entered into a Subscription Agreement with one subscriber for the issuance of its restricted common stock – Tech Associates, Inc. an entity engaged to provide advisory and consulting services to the Company purchased 1,000,000 shares for total cash proceeds of $100.

On April 26, 2017, the Company filed a Certificate of Amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the authorized shares from 100,000,000 shares of common stock to 500,000,000 shares of common stock.

On May 10, 2017, Wenfa “Simon” Sun, our President, Chief Executive Officer and Chairman purchased 78,000,000 shares of the Issuer’s restricted common stock from the Company in a private transaction at $0.0001. He is currently as of the date of this filing, the beneficial owner of 90,000,000 shares.

On May 10, 2017, Meihong “Sanya” Qian, our Chief Financial Officer and Secretary purchased 2,000,000 shares of the Issuer’s restricted common stock from the Company in a private transaction at $0.0001. She is currently as of the date of this filing, the beneficial owner of 10,000,000 shares.

On December 26, 2017, the Company filed its Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (the “SEC”), the Form S-1 became effective on April 4, 2018 and a post effective amendment was filed amending the shares unsold on its Form S-1. The Company sold 1,166,400 shares pursuant to its Form S-1 registration statement for total cash proceeds of $93,312.

NOTE 6 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Balance of related after-tax components comprising accumulated other comprehensive income included members’ capital were as follows at:

NOTE 7– 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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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. 

Results of Operations

Three months ended June 30, 2018 compared to the three months ended June 30, 2017

Sales Revenue

Sales revenue for the three months ended June 30, 2018, was $8,318, compared to $5,694 for the three months ended June 30, 2017, an increase of $2,624. The increase in revenue in the current period is partly attributed to the Chinese New Year that falls during the first quarter. We are also seeking new sales channels such as supermarkets in China to sell product through, however, no agreements have been finalized yet.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2018, was $4,490, compared to $14,553 for the three months ended June 30, 2017, a decrease of $10,063.

Operating Expenses

Professional fees were $16,201 for the three months ended June 30, 2018, compared to $0 for the three months ended June 30, 2017. Professional fees consist mostly of legal and audit expense. The increase is the result of increased audit and legal expense.

Consulting expense was $24,713 for the three months ended June 30, 2018, compared to $0 for the three months ended June 30, 2017.

General and administrative expense was $95,114 for the three months ended June 30, 2018, compared to $80,353 for the three months ended June 30, 2017, an increase of $14,761. The increase is the primarily due to increased wages for new employees and expenses related to the Hangzhou, China office.

In 2016 the company advanced a supplier money to secure a purchase. It was thought that $183,219 was not going to be refunded so the Company wrote it off. During Q2 of 2017 that money was returned to the Company resulting in a credit to our bad debt expense provision for the three months ended June 30, 2017.

Net Income (Loss)

Net loss for the three months ended June 30, 2018, was $131,854, compared to net income of $94,007 for the three months ended June 30, 2017. The decrease in net income resulting in a net loss is due to the increased operations and the added expense associated with it; as well as the refund of money that was previously written off as uncollectable and was returned during the three months ended June 30, 2017.

Six months ended June 30, 2018 compared to the six months ended June 30, 2017

Sales Revenue

Sales revenue for the six months ended June 30, 2018, was $28,427, compared to $94,174 for the six months ended June 30, 2017, a decrease of $65,747. Revenue has temporarily decreased as we seek new sales channels such as supermarkets in China to sell product through, however, no agreements have been finalized yet.

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2018, was $14,185, compared to $44,210 for the six months ended June 30, 2017, a decrease of $30,025.The decrease in cost of goods sold in the current period is in conjunction with the decrease in sales.

Operating Expenses

Professional fees were $56,634 for the six months ended June 30, 2018, compared to $0 for the six months ended June 30, 2017. Professional fees consist mostly of legal and audit expense. The increase is the result of increased audit and legal expense.

Consulting expense was $42,023 for the six months ended June 30, 2018, compared to $0 for the six months ended June 30, 2017.

General and administrative expense was $285,540 for the six months ended June 30, 2018, compared to $141,630 for the six months ended June 30, 2017,an increase of $143,910. The increase is the result of increased operations.

In 2016 the company advanced a supplier money to secure a purchase. It was thought that $183,219 was not going to be refunded so the Company wrote it off. During Q2 of 2017 that money was returned to the Company resulting in a credit to our bad debt expense provision for the six months ended June 30, 2017.

Net Income (Loss)

Net loss for the six months ended June 30, 2018, was $367,331, compared to net income of $91,553 for the six months ended June 30, 2017. The decrease in net income resulting in a net loss is due to the increased operations and the added expense associated with it; as well as the refund of money that was previously written off as uncollectable and was returned during the six months ended June 30, 2017.

Liquidity and Capital Resources 

During the six months ended June 30, 2018, we used cash of $253,542 in operating activities, used $2,802 in investing activities and had net cash of $100,991 provided by financing activities. 

Operating Capital and Capital Expenditure Requirements

Our controlling shareholders expect to advance us additional funding for operating costs in order to implement our business plan. The funds are loaned to the Company as required to pay amounts owed by the Company. As such, our operating capital is currently limited to the resources of our controlling shareholders. The loans from our controlling shareholders are unsecured and non-interest bearing and have no set terms of repayment. We anticipate receiving additional capital once we are able to have our securities actively trading on a public exchange. There is no guarantee our stock will develop a market on that public exchange.

Plan of Operation and Funding

We do not currently engage in enough business activities that provide cash flow. During the next twelve months we anticipate incurring costs related to:

  (i) Filing of Exchange Act reports, and

  (ii) Costs relating to developing our business plan

We believe we will be able to meet these costs through amounts, as necessary, to be loaned to or invested in us by our controlling shareholder.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

None.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this quarterly report, June 30, 2018. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to a material weakness in our internal control over financial reporting, which is described below.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of June 30, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of June 30, 2018, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending December 31, 2018: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2018 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

There are not presently any material pending legal proceedings to which the Registrant is a party or as to which any of its property is subject, and no such proceedings are known to the Registrant to be threatened or contemplated against it.

Item 1A. Risk Factors

A smaller reporting company is not required to provide the information required by 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.

On May 30, 2018, the board of directors (the "Board") and majority shareholders of CAT9 Group Inc. dismissed De Leon & Company, P.A. (“De Leon”) as the independent registered public accounting firm of the Company effective immediately.

On May 30, 2018, the Company engaged Yichien Yeh CPA ("YY") as our new independent principal accountant to audit the Company’s financial statements and to perform reviews of interim financial statement

Item 6. Exhibits.

SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CAT9 Group Inc.

By: /s/ Wenfa “Simon” Sun

Wenfa “Simon” Sun.
President, Chief Executive Officer, and Chairman of the Board of Directors

By: /s/ Meihong “Sanya” Qian

Meihong “Sanya” Qian.
Chief Financial Officer, Secretary

Dated: August 13, 2018