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 quarter-ended September 30, 2020. The
audited financial statements for our fiscal year ended December 31, 2019 filed
with the Securities Exchange Commission on Form 10-K on April 27, 2020 and Form
10-K/A May 11, 2020 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.
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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 September 30, 2020 compared to the three months ended
September 30, 2019
Sales Revenue
Sales revenue for the three months ended September 30, 2020, was $201,874,
compared to $2,208,669 for the three months ended September 30, 2019, a decrease
of $2,006,795 or 90.9%. 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 three months ended September 30, 2020, was $123,331,
compared to $860,496 for the three months ended September 30, 2019, a decrease
of $737,165 or 85.7%. The decrease in cost of goods is directly related to the
decrease in sales.
Operating Expenses
Professional fees were $7,464 for the three months ended September 30, 2020,
compared to $4,730 for the three months ended September 30, 2019, a decrease of
$2,734 or 57.8%. Professional fees consist mostly of legal and audit expense.
Consulting expense was $5,968 for the three months ended September 30, 2020,
compared to $15,090 for the three months ended September 30, 2019, a decrease of
$9,122 or 60.5%.
Selling, general and administrative expense ("SG&A") was $56,987 for the three
months ended September 30, 2020, compared to $843,813 for the three months ended
September 30, 2019 a decrease of $786,826 or 93.3%. 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 income for the three months ended September 30, 2020 of
$2,904, compared to total other expense of $9,444 for the three months ended
September 30, 2019.
Net Loss
Net income for the three months ended September 30, 2020, was $11,028, compared
to net income of $475,096 for the three months ended September 30, 2019. The
decrease in net income from the prior period is primarily due to our significant
decrease in revenue as discussed above.
Nine months ended September 30, 2020 compared to the nine months ended September
30, 2019
Sales Revenue
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Sales revenue for the nine months ended September 30, 2020, was $1,483,312,
compared to $4,197,915 for the nine months ended September 30, 2019, a decrease
of $2,714,603 or 64.7%. 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 nine months ended September 30, 2020, was $729,789,
compared to $1,604,800 for the nine months ended September 30, 2019, a decrease
of $875,011 or 54.5%. The decrease in cost of goods is directly related to the
decrease in sales.
Operating Expenses
Professional fees were $78,695 for the nine months ended September 30, 2020,
compared to $38,659 for the nine months ended September 30, 2019, an increase of
$40,036 or 103.6%. Professional fees consist mostly of legal and audit expense.
Consulting expense was $123,265 for the nine months ended September 30, 2020,
compared to $65,420 for the nine months ended September 30, 2019, an increase of
$57,845 or 88.4%.
SG&A expense was $1,061,004 for the nine months ended September 30, 2020,
compared to $1,716,893 for the nine months ended September 30, 2019, a decrease
of $655,889 or 38.2%.
Other income/expenses
We had total other expenses for the nine months ended September 30, 2020 of
$21,396, compared to $9,860 for the nine months ended September 30, 2019. The
increase in other expense is due to an increase in asset impairment loss.
Net Loss
Net loss for the nine months ended September 30, 2020, was $530,837, compared to
net income of $762,283 for the nine months ended September 30, 2019. The change
from net income in the prior period to a net loss in the current period is
primarily due to our significant decrease in revenue as discussed above.
Liquidity and Capital Resources
During the nine months ended September 30, 2020, we used $332,358 of cash in
operating activities compared to $463,209 provided by operating activities in
the prior period.
During the nine months ended September 30, 2020, we used $0 for investing
activities compared to $12,732 for the purchase of property and equipment in the
prior period.
During the nine months ended September 30, 2020, we received $14,650 from
financing activities compared to $24,970 used in prior period.
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CAT9 GROUP INC. 
