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)

Securities registered pursuant to Section 12(b) of the Act: 

Registrant’s telephone number, including area code: 86-028-85594777 

N/A

(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 ☒ 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 ☒ 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 ☒   

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of May 17,November 19, 2021, the issuer had 102,166,400 shares of its common stock issued and outstanding.

TABLE OF CONTENTS

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Contents

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

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

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

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

CAT9 GROUP, INC.

Notes to Unaudited Consolidated Financial Statements

March 31,September 30, 2021

NOTE 1 - DESCRIPTION OF BUSINESS AND HISTORY

Description of business

CAT9 Group Inc.,(the (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 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 - BASIS OF PRESENTATION

The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited financial statements set forth in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 30, 2021 (the “Annual Report”).

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2021. These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020.

NOTE 3 - 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, 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 CAT9isCAT9 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, Chongqing CAT9 Bio-tech Co., Ltd (the subsidiary company of Chongqing CAT9 Industrial, was formed on June 15, 2020 for operational needs, and commenced operations and had an independent bank statement from Q2 of 2021), and Sichuan SequnDashidai Information Co., Ltd. (holds 48% by Chongqing CAT9 Bio-tech Co., Ltd, was formed at the date of July 6^th, 2021for operation needs). 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 nine months ended March 31,September 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 nine months ended March 31,September 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.

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to a concentration of credit risk are cash and accounts receivable. Occasionally, the Company’s cash in interest-bearing accounts may exceed FDIC insurance limits. The financial stability of these institutions is periodically reviewed by senior management.

Accounts Receivable

Trade receivables are carried at their estimated collectible amounts. Trade credit is generally extended on a short-term basis. Thus, trade receivables do not bear interest. Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition.

Allowance for Doubtful Accounts

Any charges to the allowance for doubtful accounts on accounts receivable are charged to operations in amounts sufficient to maintain the allowance for uncollectible accounts at a level management believes is adequate to cover any probable losses. Management determines the adequacy of the allowance based on historical write-off percentages and the current status of accounts receivable. Accounts receivable are charged off against the allowance when collectability is determined to be permanently impaired. As of September 30, 2021 and December 31, 2020, allowance for doubtful accounts was $37,632 and $0, respectively.

Inventories

Inventories are stated at the lower of cost or market with cost being determined on a first-in, first-out (FIFO) basis. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During the periods presented, there were no inventory write-downs.

Cost of Sales

Cost of sales is comprised of cost of product sold, packaging, and shipping costs.

Stock-Based Compensation - Employees

The Company accounts for the stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of ASC 718-10-30. Pursuant to ASC 718-10-30-6, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement based on sales to third parties or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing valuation model. The ranges of assumptions for inputs are as follows:

Generally, all forms of share-based payments, including stock options, warrants, restricted stock and stock appreciation rights are measured at their fair value on the grant date of the award based on the estimated number of awards that are ultimately expected to vest.

The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.

Stock-Based Compensation – Non Employees

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation: Improvement to Nonemployee Share-Based Payment Accounting (“Topic 718”).The ASU supersedes ASC 505-50, Equity-Based Payment to Non-Employment, and expands the scope of the Topic 718 to include stock-based payments granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for stock-based payments to non-employees are aligned with those of employees, most notably aligning the award measurement date with the grant date of an award. The new guidance is required to be adopted using the modified retrospective transition approach. The Company adopted the new guidance effective January 1, 2019, and the adoption did not have a material impact on its financial statements and related disclosures.

The fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The ranges of assumptions for inputs are as follows:

Earnings per Share

Basic earnings per share are calculated by dividing net income (loss) by the weighted average number of shares of the Company’s common stock outstanding during the period. “Diluted earnings per share” reflects the potential dilution that could occur if the Company’s share-based awards and convertible securities were exercised or converted into common stock. The dilutive effect of the Company’s share-based awards is computed using the treasury stock method, which assumes all share-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted earnings per share calculation. The dilutive effect of the Company’s convertible preferred stock and convertible debentures is computed using the if-converted method, which assumes conversion at the beginning of the year.

Property and Equipment

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.

Investments

The Company follows ASC subtopic 321-10, Investments-Equity Securities which requires the accounting for an equity security to be measured at fair value with changes in unrealized gains and losses are included in current period operations. Where an equity security is without a readily determinable fair value, the Company may elect to estimate its fair value at cost minus impairment plus or minus changes resulting from observable price changes (See Note 6).

Derivative Financial Instruments

The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement) providing that such contracts are indexed to the Company's own stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between equity and liabilities is required.

The Company’s free-standing derivatives consisted of conversion options embedded within its issued convertible debt and warrants with anti-dilutive (reset) provisions. The Company evaluated these derivatives to assess their proper classification in the balance sheet using the applicable classification criteria enumerated under GAAP. The Company determined that certain conversion and exercise options do not contain fixed settlement provisions. The convertible notes contain a conversion feature and warrants have a reset provision such that the Company could not ensure it would have adequate authorized shares to meet all possible conversion demands. As such, the Company was required to record the conversion feature and the reset provision which does not have fixed settlement provisions as liabilities and mark to market all such derivatives to fair value at the end of each reporting period.

The Company has adopted a sequencing policy that reclassifies contracts (from equity to assets or liabilities) with the most recent inception date first. Thus, any available shares are allocated first to contracts with the most recent inception dates.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2021 and December 31, 2020. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash, accounts payables and short term notes because they are short term in nature.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company charged to operations $183,491 and $159,428 for the nine months ended September 30, 2021 and 2020, respectively, as advertising costs.

Revenue Recognition Policy

The Company derives revenues from the sale of acer truncatum trees and products product income.

Revenue is recognized based on the following five step model:

On January 1, 2018, the Company adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers” and all the related amendments (“new revenue standard”) to all contracts using the modified retrospective method, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting standards under Topic 605. The adoption has had an immaterial impact to the Company’s comparative net income and as such comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

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 CONCENTRATIONRecent Accounting Pronouncements

November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842). This new guidance became effective for us on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2020 the Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU eliminates Step 2 of the goodwill impairment test and the qualitative assessment for any reporting unit with a zero or negative carrying amount. The ASU also requires an entity to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount. The adoption did not have an impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06,Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 reduces the number of accounting models for convertible debt instruments and convertible preferred stock. For convertible instruments with conversion features that are not required to be accounted for as derivatives under Topic 815, Derivatives and Hedging, or that do not result in substantial premiums accounted for as paid-in capital, the embedded conversion features no longer are separated from the host contract. ASU 2020-06 also removes certain conditions that should be considered in the derivatives scope exception evaluation under Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and clarify the scope and certain requirements under Subtopic 815-40. In addition, ASU 2020-06 improves the guidance related to the disclosures and earnings-per-share (EPS) for convertible instruments and contract in entity’s own equity. ASU 2020-06 is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Board specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The Company is currently evaluation the impact this ASU will have on its consolidated financial statements.

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.

Income Taxes

Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is not more likely than not that these deferred income tax assets will be realized.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. As of September 30, 2021 and 2020, the Company has not 0 recorded any unrecognized tax benefits.

NOTE 4 – GOING CONCERN

These consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company’s management has evaluated whether there is substantial doubt about the Company’s ability to continue as a going concern and has determined that substantial doubt existed as of the date of the end of the period covered by this Quarterly Report on Form 10-Q This determination was based on the following factors: (i) the Company has a working capital deficit as of September 30, 2021 and the Company’s available cash as of the date of this filing will not be sufficient to fund its anticipated level of operations for the next 12 months; (ii) the Company will require additional financing for the remainder of Fiscal 2021to continue at its expected level of operations; and (iii) if the Company fails to obtain the needed capital, it will be forced to delay, scale back, or eliminate some or all of its development activities or perhaps cease operations. In the opinion of management, these factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern as of the date of the end of the period covered by this Form 10-Q and for one year from the issuance of the unaudited condensed consolidated financial statements.

The Company recently received loans from private parties for additional working capital. However, there is no assurance that the Company will be successful in any other capital-raising efforts that it may undertake to fund operations during the next 12 months. The Company anticipates that it will issue equity and/or debt securities as a source of liquidity, until it begins to generate positive cash flow to support its operations. Any future sales of securities to finance operations will dilute existing stockholders’ ownership. The Company cannot guarantee when or if it will generate positive cash flow.

The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

NOTE 5 - SIGNIFICANT CONCENTRATION

Credit Risk

Financial instruments which potentially expose the Company to concentrations of credit risk consist of cash and accounts receivable as of March 31,September 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 March 31,September 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 nine months ended March 31,September 30, 2021 and 2020, the Company’s sales were mainly made to customers located in the PRC.In addition, total accounts receivables as of March 31,September 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

For the nine months ended September 30, 2021, the Company earned net revenues of $1,156,584. The Company has the following table sets forth information as to theconcentration of revenue derived from thosewith customers that represent over 10% of overall revenue. The highest revenue from (1) customer accounted for more than 10%29.94% (2) customer accounted for 23.16% and (3) customer accounted for 16.92% as percentage of ouroverall revenue for the yearnine months ended March 31, 2021:

September 30, 2021. 

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 March 31, 2021:

NOTE 6 - ACCOUNTS RECEIVABLE

NOTE 4 – ACCOUNTS RECEIVABLE

AccountAccounts receivables consist of the following:

NOTE 5 –7 - INVENTORIES

Inventories consist of the following:

NOTE 6 —8 - PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

Depreciation expense was $2,124$7,458 and $3,057$8,318 for the threenine months ended March 31,September 30, 2021 and 2020, respectively.

NOTE 7 —9 - CAPITALIZED SOFTWARE COSTS

Capitalized software costs consist of the following as of:

Amortization expense was $2,682$9,642 and $4,001$12,755 for the threenine months ended March 31,September 30, 2021 and 2020, respectively.

NOTE 8 –10 - LOAN PAYABLE

As of March 31,September 30, 2021, the Company had outstanding loan agreements with some individuals in the amount of $101,484$168,637 (RMB $665,000)$1,160,000). The Company’s vehicle with net value of $7,548 is pledged as security for a loan in the amount of $15,261 (RMB $100,000). This loan has been paid. During the threenine months ended March 31, 2020,September 30, 2021, the Company repaid a loantwo loans in full in the total amount of $15,261$44,256 (RMB $100,000)$290,000). All loans are past due as of March 31,September 30, 2021. The annual interest rates for the loans are from 0% to 30%. For the threenine months ended March 31,September 30, 2021, the interest expense is $2,381.was $6,395.

On August 5^th, 2021, the company entered a loan agreement with XiongXiuqiong, an individual in the amount of $145,377 (RMB $1,000,000). The loan is for three years and will be matured on August 5^th, 2024. The loan is bearing an interest rate at 10%. For the nine months ended September 30, 2021, the interest expense was $2,380.

NOTE 911 – CUSTOMER DEPOSITS

Customer deposits discloses an amount paid by the customer prior to the Company providing it with goods or services. The Company has an obligation to provide the goods or services to the customer or to return the money.  As of September 30, 2021 and December 31, 2020, customer deposits were $385,267 and $1,673, respectively.

NOTE 12 –OTHER PAYABLES

As of September 30, 2021 and December 31, 2020, the Company had other payables due to empoyees of $17,525 and $1,051, respectively.

NOTE 13 - 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 $763,035$644,544 (RMB 5,000,000) credit line. The maturity date is December 31, 2020. The loan is unsecured, non-interest bearing. As of March 31,September 30, 2021, the balance of the loan has been paid in full.

On September 22, 2020, the company entered into a loan agreement with Sichuan CAT9 Jiufuteng, under the control of Qiulin She, the Chongqing CAT9 Industrial Co., Ltd’s Legal Representative. The amount of the loan agreement is $160,369 and unused credit line is $602,666. As of March 31, 2021, this$45,762 (RMB $295,000).The loan is past due.due as of September 30, 2021.

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 March 31,September 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 March 31, September 30, 2021 and December 31,, 2020, the Companyamount owed to the aforementioned related parties $425,414were $422,557 and $426,027, respectively.

NOTE 1014 – ACCUMULATED OTHER COMPREHENSIVE LOSS

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

NOTE 1115 – 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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand CAT9 Group, Inc., our operations and our present business environment. MD&A is provided as a supplement to—and should be read in conjunction with—our consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q.10-Q for the third quarter-ended September 30, 2021. The audited financial statements for our fiscal year ended December 31, 2020 filed with the Securities Exchange Commission on Form 10-K on March 30, 2021and2021 should be read in conjunction with the discussion below. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in these unaudited financial statements. 

We were incorporated in the State of Delaware on January 26, 2015 and on February 6, 2015 as ANDES 4, Inc.; we filed our registration statement on Form 10 to register with the U.S Securities and Exchange Commission (the “SEC”) as a public company. We were organized as a vehicle to explore and acquire a target company or business that sought to find value with perceived advantages of being a publicly held corporation.

On July 31, 2015, the sole officer of ANDES 4, Inc., entered into a Share Purchase Agreement (“SPA”) with Chongqing Field Industrial Company Ltd (“CQFI”) whereby the sole officer then resigned and sold his entire position on August 12, 2015. On May 2, 2016, the Company issued 6,000,000 shares of common stock to its President, CEO and Chairman, Wenfa “Simon” Sun and 4,000,000 shares of common stock to its CFO, Meihong “Sanya” Qian via employment agreements, further, on May 3, 2016, CQFI consented to a redemption of its 10,000,000 shares held in the Company, with the redemption, the control over the Company was transferred to Wenfa “Simon” Sun and Meihong “Sanya” Qian.

On December 27, 2016, the Company entered into a merger agreement (the “Merger”) via CAT9 Group, Inc., CAT9 Holdings, a company organized under the laws of the Cayman Islands, CAT9 Investment China Limited, a company organized under the laws of Hong Kong (“CAT9 HK”) and its wholly-owned subsidiary, Chongqing Field Industrial Company Ltd. (“CQFI”).

On December 26, 2017, the Company filed its Form S-1 with the SEC and became effective on April 4, 2018. The Company was issued the trading symbol “CATN” by Financial Industry Regulatory Authority (“FINRA”) and began trading on the Over-the-Counter market pink venue, owned by OTC Markets Group Inc.

On December 7, 2018, our President, CEO and Chairman, Wenfa “Simon” Sun gifted 20,000,000 shares of his personal common stock in our Company to Guofu Industry Development Ltd in a private transaction fully disclosed on Form 13D. These shares represented approximately 19.6% of the shares in CAT9 Group, Inc.

On August 23, 2019, our President, CEO and Chairman, Wenfa “Simon” Sun acquired 10,000,000 shares of common stock held by our former CFO, Meihong “Sanya” Qian who resigned on May 14, 2019. The acquisition of these common shares was done as a privately negotiated transaction and post-purchase, Wenfa “Simon” Sun held 78.3% of CAT9 Group, Inc.

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 3,299,612.55 RMB which it does not believe is recoverable.  

The result of this event will likely place a significant limitation on our sales and revenues for the near future as we seek new distributor relationships for our products.

Covid-19 Coronavirus Risk

We also continue to face uncertainty operating under the conditions of COVID-19, (SARS-CoV-2), the novel coronavirus which began in Wuhan, China. During the first quarter of 2020, China placed several areas under mandatory quarantine which during this period our employees and staff worked from home. As China is slowly relaxing its quarantine measures, there has been additional quarantine lockdowns as COVID-19 infections have been found in other parts of the country. We cannot make any assurances that COVID-19 will not reappear with new infections and to the extent that COVID-19, or another virus appears, we may encounter prolonged operational lockdown measures that would disrupt our business operations.

Results of Operations

Three months ended March 31,September 30, 2021 compared to the three months ended March 31,September 30, 2020

Sales Revenue

Sales revenue for the three months ended March 31,September 30, 2021, was $256,190,$205,465 compared to $1,054,015$201,874 for the three months ended March 31,September 30, 2020, an increase of $3,591or 1.78% Our revenue has increased in the current period due to new customers obtained in the third quarter of 2021. 

Cost of Goods Sold

Cost of goods sold for the three months ended September 30, 2021, was $75,071 compared to $123,331 for the three months ended September 30, 2020, a decrease of $797,825$48,260 or65%. The decrease in cost of goods is directly related to the change of the exchange rate (6.9 RMB as of 9-30-2020, and 6.4RMBas of 9-30-2021), and the decreasing in cost of raw materials.

Operating Expenses

Professional fees were $4,730 for the three months ended September 30, 2021, compared to $7,464 for the three months ended September 30, 2020, a decrease of $2,734 or 75.7 57%. Professional fees consist mostly of legal and audit expenses.

Selling, general and administrative expense (“SG&A”) was $368,013 for the three months ended September 30, 2021, compared to $159,170 for the three months ended September 30, 2020, an increase of $208,843 or 131%. The increase is the result of the overall increase in marketing and promotional expenses.

Other income/expenses

We had total other expenses for the three months ended September 30, 2021 of $17,523, compared to $2,904 in income for the three months ended September 30, 2020. The change was mainly due to increase in interest expense associated with the financing.

Net Income/Loss

Net loss for the three months ended September 30, 2021, was $266,477, and compared to a net loss of $91,155 for the three months ended September 30, 2020. The change in the current period is primarily due to an increase of operating expenses related to sales.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Sales Revenue

Sales revenue for the nine months ended September 30, 2021, was $1,156,584, compared to $1,483,312 for the nine months ended September 30, 2020, a decrease of $326,728 or 22%. We have experienced a significant decrease in revenue primarily due to the largest distributor of our products ceasing all operations.

Cost of Goods Sold

Cost of goods sold for the threenine months ended March 31,September 30, 2021, was $93,204,$418,136, compared to $509,592$729,789 for the threenine months ended March 31,September 30, 2020, a decrease of $416,388$311,653 or 81.7%42.7%. The decrease in cost of goods is directly related to the decrease in sales.

Operating Expenses

Professional fees were $24,829$34,289 for the threenine months ended March 31,September 30, 2021, compared to $57,790$78,695 for the threenine months ended March 31,September 30, 2020, a decrease of $32,961$44,406 or 57%56%. Professional fees consist mostly of legal and audit expense.expenses.

ConsultingSG&A expense was $7,437$675,203 for the threenine months ended March 31,September 30, 2021, compared to $106,398$1,163,187 for the threenine months ended March 31,September 30, 2020, a decrease of $98,961$487,984 or 93%42%.Consulting In the prior period we had significant bad debt expense has decreasedthat we did not incur in the current period.

Other income/expenses

We had total other expenses for the nine months ended September 30, 2021 of $32,960, compared to $21,396 for the nine months ended September 30, 2020. The increase  in other expense was mainly due to decreased use of consulting for business management and intellectual property.increase in interest expense associated with the financing.

Selling, general and administrative expense (“SG&A”) was $103,758 for the three months ended March 31, 2021, compared to $643,897 for the three months ended March 31, 2020, a decrease of $540,139 or 83.9%. The decrease is the result of the overall decrease in operations including salaries and wages, rent, freight and marketing expense.Net Income/Loss

Net Loss

Net loss for the threenine months ended March 31,September 30, 2021, we had net income of $27,655,was $34,117 compared to a net loss of $276,295for$633,020 for the threenine months ended March 31,September 30, 2020. The increasechange from a net loss in the prior period to a net income can be contributedin the current period is primarily due to our decrease on SG&A expense.of operating expenses.

Liquidity and Capital Resources

During the threenine months ended March 31,September 30, 2021, we received $391,072 of cash from operating activities provided $71,648 of cash compared to $159,330$332,358 used forby operating activities in the prior period. The increase in cash provided by operating activities is mainly due to net income in first quarter of 2021.

During the threenine months ended March 31,September 30, 2021, we used $36,582$12,855 for investing activities for the purchase of software in financing activitiesthe prior period compared to $141,124 provided$0 in the prior period. The increase in cash

During the nine months ended September 30, 2021, we used $99,261 in financing activities is mainly due to higherthe repayment of loan payableloans compared to $144,650 received in first quarter of 2021.the prior period.

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, March 31,September 30, 2021. 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 March 31,September 30, 2021, 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 March 31,September 30, 2021, 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, 2021: (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 March 31,September 30, 2021 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.

None.

Item 6. Exhibits.