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 for the second quarter-ended June 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, 2021 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.
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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.
We also continue to face uncertainty operating under the conditions of COVID-19,
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 June 30, 2021 compared to the three months ended June 30,
2020
Sales Revenue
Sales revenue for the three months ended June 30, 2021, was $694,929, compared
to $227,423 for the three months ended June 30, 2020, an increase of $467,506 or
205.6%. Our revenue has increased in the current period due to new customers
obtained in the second quarter of 2021.
Cost of Goods Sold
Cost of goods sold for the three months ended June 30, 2021, was $249,861,
compared to $96,866 for the three months ended June 30, 2020, an increase of
$152,995 or 157.9%. The increase in cost of goods is directly related to the
increase in sales.
Operating Expenses
Professional fees were $4,730 for the three months ended June 30, 2021, compared
to $13,441 for the three months ended June 30, 2020, a decrease of $8,711 or
64.8%. Professional fees consist mostly of legal and audit expense.
Selling, general and administrative expense ("SG&A") was $203,432 for the three
months ended June 30, 2021, compared to $360,120 for the three months ended June
30, 2020, a decrease of $156,688 or 43.5%. The decrease is the result of the
overall decrease in operations including salaries and wages, rent, freight and
marketing expense.
Other income/expenses
We had total other expenses for the three months ended June 30, 2021of $16,130,
compared to $11,665 for the three months ended June 30, 2020.
Net Income/Loss
Net income for the three months ended June 30, 2021, was $204,675, and compared
to a net loss of $265,568 for the three months ended June 30, 2020. The change
from a net loss in the prior period to a net income in the current period is
primarily due to our increase in revenue with a decrease of operating expenses.
Six months ended June 30, 2021 compared to the six months ended June 30, 2020
Sales Revenue
Sales revenue for the six months ended June 30, 2021, was $951,119, compared to
$1,281,438 for the six months ended June 30, 2020, a decrease of $330,319 or
25.8%. We have experienced a decrease in revenue primarily due to the largest
distributor of our products ceasing all operations.
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Cost of Goods Sold
Cost of goods sold for the six months ended June 30, 2021, was $343,065,
compared to $606,458 for the six months ended June 30, 2020, a decrease of
$263,393 or 43.4%. The decrease in cost of goods is directly related to the
decrease in sales.
Operating Expenses
Professional fees were $29,559 for the six months ended June 30, 2021, compared
to $71,231 for the six months ended June 30, 2020, a decrease of $41,672 or
58.5%. Professional fees consist mostly of legal and audit expense.
SG&A expense was $307,190 for the six months ended June 30, 2021, compared to
$1,004,017 for the six months ended June 30, 2020, a decrease of $696,827 or
69.4%. In the prior period we had significant bad debt expense tat we did no
incur in the current period
Other income/expenses
We had total other expenses for the six months ended June 30, 2021 of $15,436,
compared to $24,299 for the six months ended June 30, 2020. The decrease in
other expense is due to lower other loss.
Net Income/Loss
Net income for the six months ended June 30, 2021, was $232,331, compared to a
net loss of $541,864 for the six months ended June 30, 2019. The change from a
net loss in the prior period to a net income in the current period is primarily
due to our decrease of operating expenses.
Liquidity and Capital Resources
During the six months ended June 30, 2021, we received $450,881 of cash from
operating activities compared to $296,669 used by operating activities in the
prior period.
During the six months ended June 30, 2021, we used $6,428 for investing
activities for the purchase of property and equipment in the prior period
compared to $0 in the prior period.
During the six months ended June 30, 2021, we used $168,052 in financing
activities due to the repayment of loans compared to $109,794 received in the
prior period.
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