ADAMANT DRI PROCESSING & MINERALS GROUP - Quarter Report: 2016 September (Form 10-Q)

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2016

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________.

COMMISSION FILE NUMBER: 000-49729

Adamant DRI Processing and Minerals Group

(Exact Name of Registrant as Specified in its Charter)

Nevada	61-1745150
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Chunshugou Luanzhuang Village, Zhuolu County, Zhangjiakou, Hebei Province, China	075600
(Address of principal executive offices)	(Zip code)

Issuer's telephone number: 86-313-6732526

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 o

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 o No x

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

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company x

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

State the number of shares outstanding of each of the issuer's classes of common equity, for the period covered by this report and as at the latest practicable date:

At November 1, 2016, we had 63,760,110 shares of common stock outstanding.

ADAMANT DRI PROCESSING AND MINERALS GROUP

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements	1

Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015	1

Consolidated Statements of Operations and Other Comprehensive Loss for the Three Months and Nine Months Ended September 30, 2016 and 2015 (Unaudited)	2

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 (Unaudited)	3

Notes to Consolidated Financial Statements	4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 4. Controls and Procedures	29

PART II
OTHER INFORMATION

Item 1A. Risk Factors	29

Item 6. Exhibits	30

Signatures	30

Special Note Regarding Forward Looking Statements

This report contains forward-looking statements. The forward-looking statements are contained principally in the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

Also, forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference and filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2016 (UNAUDITED) AND DECEMBER 31, 2015

	2016			2015

ASSETS

CURRENT ASSETS
Cash & equivalents	$	89,947		$	26,957
Advance to suppliers		49,079			67,187
Value-added tax receivable		2,864,407			2,898,546
Inventory, net		1,417,003			1,457,828

Total current assets		4,420,436			4,450,518

NONCURRENT ASSETS
Advance to suppliers for construction and equipment		-			37,267
Property and equipment, net		24,437,769			26,988,223
Intangible assets, net		3,155,757			3,321,299
Construction in progress		7,963,656			8,074,674
Goodwill		5,992,508			6,162,494

Total noncurrent assets		41,549,690			44,583,957

TOTAL ASSETS	$	45,970,126		$	49,034,475

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	5,078,069		$	5,090,947
Accrued liabilities and other payables		11,190,518			10,927,063
Income tax payable		123,798			127,310
Short term loan		194,675			200,197
Payable to contractors		823,625			846,988
Advance from related parties		40,186,553			39,947,504

Total current liabilities		57,597,238			57,140,009

NONCURRENT LIABILITIES
Deferred tax liability		8,280			34,897
Accrued expense		12,258			12,606

Total noncurrent liabilities		20,538			47,503

Total liabilities		57,617,775			57,187,512

STOCKHOLDERS' DEFICIT
Convertible preferred stock: $0.001 par value; 1,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $0.001 par value; authorized shares 100,000,000; issued and outstanding 63,760,110 shares		63,760			63,760
Additional paid in capital		6,949,954			6,949,954
Statutory reserves		557,253			557,253
Accumulated other comprehensive income		1,304,664			1,038,408
Accumulated deficit		(20,523,280	)		(16,762,412	)

Total stockholders' deficit		(11,647,649	)		(8,153,037	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	45,970,126		$	49,034,475

Table of Contents

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 (UNAUDITED)

	Nine Months Ended September 30						Three Months Ended September 30
	2016			2015			2016			2015

Net Sales	$	1,476		$	732,147		$	1,476		$	-

Cost of Goods Sold		-			1,226,911			-			-

Gross Loss		1,476			(494,764	)		1,476			-

Operating expenses
Trial production related expenses		-			1,655,318			-			770,317
General and administrative		2,990,052			2,156,535			1,065,900			854,334

Total operating expenses		2,990,052			3,811,854			1,065,900			1,624,651

Loss from operations		(2,988,576	)		(4,306,618	)		(1,064,424	)		(1,624,651	)

Non-operating income (expenses)
Interest income		99			452			15			16
Other income (expenses)		10			(18,501	)		-			(17,086	)
Interest expense		(797,561	)		(849,424	)		(263,648	)		(281,575	)
Bank charges		(887	)		(1,305	)		(211	)		(689	)

Total non-operating expenses, net		(798,339	)		(868,778	)		(263,844	)		(299,334	)

Loss before income tax		(3,786,915	)		(5,175,396	)		(1,328,268	)		(1,923,985	)

Income tax benefit		(26,047	)		(26,576	)		(8,719	)		(11,313	)

Net loss		(3,760,868	)		(5,148,820	)		(1,319,549	)		(1,912,672	)

Other comprehensive income
Foreign currency translation gain		266,256			106,685			71,431			113,619

Net comprehensive loss	$	(3,494,612	)	$	(5,042,135	)	$	(1,248,118	)	$	(1,799,053	)

Basic and diluted weighted average shares outstanding		63,760,110			63,760,110			63,760,110			63,760,110

Basic and diluted net loss per share	$	(0.06	)	$	(0.08	)	$	(0.02	)	$	(0.03	)

Table of Contents

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 (UNAUDITED)

	2016			2015

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,760,868	)	$	(5,148,820	)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization		2,139,204			2,383,311
Inventory impairment provision		-			177,367
Changes in deferred taxes		(26,047	)		(26,576	)
(Increase) decrease in assets and liabilities:
Advance to suppliers		(45,986	)		232,626
Other receivables		185			1,104,807
Inventory		621			423,848
Accounts payable		129,504			2,640,618
Unearned revenue		-			275,357
Accrued liabilities and other payables		452,456			(403,354	)
Taxes payable		(46,516	)		59,661

Net cash provided by (used in) operating activities		(1,157,448	)		1,718,845

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in progress		(105,822	)		(163,460	)
Acquisition of fixed assets		-			(75,718	)

Net cash used in investing activities		(105,822	)		(239,178	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from (repayment to) related parties		1,327,880			(1,697,007	)

Net cash provided by (used in) financing activities		1,327,880			(1,697,007	)

EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS		(1,620	)		(3,757	)

NET INCREASE (DECREASE) IN CASH & EQUIVALENTS		62,990			(221,097	)

CASH & EQUIVALENTS, BEGINNING OF PERIOD		26,957			269,250

CASH & EQUIVALENTS, END OF PERIOD	$	89,947		$	48,153

Supplemental Cash Flow Data:
Income tax paid	$	-		$	-
Interest paid	$	14,803		$	17,093

Table of Contents

ADAMANT DRI PROCESSING AND MINERALS GROUP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016 (UNAUDITED) AND DECEMBER 31, 2015

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

Adamant DRI Processing and Minerals Group (“Adamant’ or “the Company or “Group”), is a Nevada corporation incorporated in July 2014 and successor by merger to UHF Incorporated, a Delaware corporation (“UHF”).

The Company produces Direct Reduced Iron (“DRI”) using advanced reduction rotary kiln technology with iron sand as the principal raw material. ‘Reduced Iron’ derives its name from the chemical change that iron ore undergoes when it is heated in a furnace at high temperatures in the presence of hydrocarbon-rich gasses. ‘Direct reduction’ refers to processes which reduce iron oxides to metallic iron below the melting point of iron.

On July 4, 2014, the Company entered into an Agreement and Plan of Merger with UHF, pursuant to which UHF merged with and into Adamant with Adamant as the surviving entity (the “Merger”), as a result of which each outstanding share of common stock of UHF at the effective time of the Merger was converted into one share of the common stock of Adamant, and the outstanding share of series Preferred Stock was converted into 17,839,800 shares of common stock. The Merger was effected on August 29, 2014.

UHF was the successor to UHF Incorporated, a Michigan corporation (“UHF Michigan”), as a result of domicile merger effected on December 29, 2011.

On June 30, 2014, UHF entered into and closed a share exchange agreement, or the Target Share Exchange Agreement, with Target Acquisitions I, Inc., a Delaware corporation (“Target”), and the stockholders of Target (the “Target Stockholders”), pursuant to which UHF acquired 100% of the issued and outstanding capital stock of Target for 43,375,638 shares of UHF’s common stock and one share of UHF’s series A convertible preferred stock, convertible into an additional 17,839,800 shares of common stock. Since UHF’s certificate of incorporation only authorized the issuance of 50,000,000 shares of common stock, UHF did not have sufficient authorized but unissued shares of common stock to complete the acquisition of Target, so the Board of Directors authorized the issuance to one of the Target Stockholders one share of series A convertible preferred stock convertible into 17,839,800 shares of common stock at such time as UHF amended its certificate of incorporation to increase the number of authorized shares of common stock or merged with and into another corporation which had sufficient shares of authorized but unissued shares of common stock for issuance upon conversion. Following the closing of the share exchange, UHF had outstanding 45,920,310 shares of common stock and one share of series A convertible preferred stock, which was converted into 17,839,800 common shares on August 29, 2014.

For accounting purposes, the share exchange transaction with Target and the Target Stockholders was treated as a reverse acquisition, with Target as the acquirer and UHF as the acquired party. The shares issued to Target’s shareholders were accounted for as a recapitalization of Target and have been retroactively restated for the periods presented because after the share exchange, Target’s shareholders owned the majority of UHF’s outstanding shares and exercised significant influence over the operating and financial policies of the consolidated entity, and UHF was a non-operating shell with nominal net assets prior to the acquisition. Pursuant to Securities and Exchange Commission (“SEC”) rules, this is considered a capital transaction in substance, rather than a business combination.

Table of Contents

As a result of the acquisition of Target and UHF, the Company now owns all of the issued and outstanding capital stock of Real Fortune BVI, which in turn owns all of the issued and outstanding capital stock of Real Fortune Holdings Limited, a Hong Kong limited company (“Real Fortune HK”), which in turn owns all of the issued and outstanding capital stock of Zhangjiakou Tongda Mining Technologies Service Co., Ltd. (“China Tongda”), a Chinese limited company.

The Company operates in China through Zhuolu Jinxin Mining Co., Ltd. (“China Jinxin”), the Company’s variable interest entity which the Company controls through a series of agreements between China Jinxin and China Tongda and, as of January 24, 2014, owned Haixing Huaxin Mining Industry Co., Ltd. (“China Huaxin”) which is owned by China Tongda. The Group’s structure is as follows:

China Jinxin is an early stage mining company which processes iron ore at its production facility in Hebei Province. China Jinxin currently does not own any mines or hold any mining rights. In 2015, management determined to further upgrade the facility to enable it to produce DRI due to increased demand for DRI products in China; accordingly, China Jinxin will produce DRI at its facility using iron ore processed at the facility. Through contractual arrangements among China Tongda and China Jinxin, and its shareholders, the Company controls China Jinxin’s operations and financial affairs. As a result of these agreements, China Tongda is considered the primary beneficiary of China Jinxin (see Note 2) and accordingly, China Jinxin’s results of operations and financial condition are consolidated in the Group’s financial statements. All issued and outstanding shares of China Jinxin are held by 15 Chinese citizens.

Table of Contents

On January 17, 2014, the Company entered into a series of substantially identical agreements with five shareholders of Haixing Huaxin Mining Industry Co., Ltd. (“China Huaxin”) pursuant to which the Company acquired 100% of the outstanding shares of China Huaxin. The consideration paid to the shareholders of China Huaxin for their interests consisted of cash of RMB 10 million ($1.64 million) and 5.1 million shares of the Company’s common stock, valued at $0.014 per share ($71,400).

China Tongda, the Company’s wholly-owned Chinese subsidiary, filed a notice of transfer with respect to the change of ownership of China Huaxin with the local company registration authority which was approved on January 23, 2014.

China Huaxin was established in August 2010 and is located in Haixing Qingxian Industrial Park, Cangzhou, Hebei Province PRC. China Huaxin is engaged in producing and selling DRI. Prior to 2015, China Huaxin conducted no business activities other than construction of its DRI production facility. Construction of the DRI Facility has been completed, and China Huaxin completed trial production and expected to commence commercial production in May 2015. However, as a result of recent environmental initiatives by national, provincial and local government authorities in China, starting in June 2015, China Huaxin began upgrading the DRI facilities by converting the existing coal-gas station systems to liquefied natural gas (“LNG”) station systems. The conversion to LNG systems will reduce pollutants and produce higher quality DRIs with less impurities. The Company expects to commence trial production at China Huaxin’s upgraded DRI facilities in the mid of 2017.

The consolidated interim financial information as of September 30, 2016 and for the nine and three month periods ended September 30, 2016 and 2015 was prepared without audit, pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures, which are normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) was not included. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, previously filed with the SEC. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of September 30, 2016, results of operations and cash flows for the nine and three months ended September 30, 2016 and 2015, as applicable, were made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Consolidated Financial Statements (“CFS”) are prepared in conformity with United States Generally Accepted Accounting Principles (“US GAAP”). Adamant, Real Fortune BVI and Real Fortune HK’s functional currency is the US Dollar (‘‘USD’’ or “$”), and China Tongda, China Jinxin and China Huaxin’s functional currency is Chinese Renminbi (‘‘RMB’’). The accompanying financial statements are translated from functional currencies and presented in USD.

Principles of Consolidation

The CFS include the financial statements of the Company, its subsidiaries and its VIE (China Jinxin) for which the Company’s subsidiary China Tongda is the primary beneficiary; and China Tongda’s 100% owned subsidiary China Huaxin. All transactions and balances among the Company, its subsidiaries and VIE are eliminated in consolidation.

The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810 which requires a VIE to be consolidated by a company if that company is subject to a majority of the risk of loss from the VIE or is entitled to a majority of the VIE’s residual returns. In determining China Jinxin to be the VIE of China Tongda, the Company considered the following indicators, among others:

Table of Contents

China Tongda has the right to control and administer the financial affairs and operations of China Jinxin and to manage and control all assets of China Jinxin. The equity holders of China Jinxin as a group have no right to make any decision about China Jinxin’s activities without the consent of China Tongda. China Tongda will be paid quarterly, management consulting and technical support fees equal to all pre-tax profits, if any, of that quarter. If there are no earnings before taxes and other cash expenses, during any quarter, no fee shall be paid. If China Jinxin sustains losses, they will be carried to the next period and deducted from the next service fee. China Jinxin has the right to require China Tongda to pay China Jinxin the amount of any loss incurred by China Jinxin.

The shareholders of China Jinxin pledged their equity interests in China Jinxin to China Tongda to guarantee China Jinxin’s performance of its obligations under the Management Entrustment and Option Agreements. If either China Jinxin or its equity owners is in breach of the Equity Pledge or Exclusive Purchase Option Agreements, then China Tongda is entitled to require the equity owners of China Jinxin to transfer their equity interests in China Jinxin to it.

The shareholders of China Jinxin irrevocably granted China Tongda or its designated person an exclusive option to acquire, at any time, all of the assets or outstanding shares of China Jinxin, to the extent permitted by PRC law. The purchase price for the shareholders’ equity interests in China Jinxin shall be the lower of (i) the actual registered capital of China Jinxin or (ii) RMB 500,000 ($74,000), unless an appraisal is required by the laws of China.

Each shareholder of China Jinxin executed an irrevocable power of attorney to appoint China Tongda as its attorney-in-fact to exercise all of its rights as equity owner of China Jinxin, including 1) attend the shareholders’ meetings of China Jinxin and/or sign the relevant resolutions; 2) exercise all the shareholder's rights and shareholder's voting rights that the shareholder is entitled to under the laws of the PRC and the Articles of Association of China Jinxin, including but not limited to the sale or transfer or pledge or disposition of the shares in part or in whole; 3) designate and appoint the legal representative, Chairman of the Board of Directors (“BOD”), Directors, Supervisors, the Chief Executive Officer, Financial Officer and other senior management members of China Jinxin; and 4) execute the relevant share purchases and other terms stipulated in the Exclusive Purchase Option and Share Pledge Agreements.

However, the VIE is monitored by the Company to determine if any events have occurred that could cause its primary beneficiary status to change. These events include whether:

a.	China Jinxin's governing documents or contractual arrangements are changed in a manner that changes the characteristics or adequacy of China Tongda's equity investment at risk.

b.	The equity investment in China Jinxin or some part thereof is returned to its shareholders or China Tongda, and other entities become exposed to expected losses of China Jinxin.

c.	China Jinxin undertakes additional activities or acquires additional assets, beyond those anticipated at the later of the inception of China Jinxin or the latest reconsideration event, that increase the entity's expected losses.

d.	China Jinxin receives an additional equity investment that is at risk, or China Jinxin curtails or modifies its activities in a way that decreases its expected losses.

There has been no change in the VIE structure during the nine months ended September 30, 2016 and 2015, and none of the events listed in a-d above have occurred.

The accompanying CFS include the accounts of Real Fortune BVI, Real Fortune HK, China Tongda, China Jinxin and China Huaxin, which are collectively referred to as the “Company”. All significant intercompany accounts and transactions were eliminated in the CFS.

Table of Contents

Going Concern

The Company incurred a net loss of $3.76 million for the nine months ended September 30, 2016. The Company also had a working capital deficit of $53.18 million as of September 30, 2016. In addition, China Jinxin has refused to sell its iron ore concentrate to its sole customer because of the low price offered. These conditions raise a substantial doubt about the Company's ability to continue as a going concern. China Jinxin is upgrading its facility and equipment, which when completed, will enable the Company to produce DRI. China Jinxin’s DRI facility upgrade was almost complete as of the date of this report and is currently in the final stage of adjusting the equipment and making certain modification to the facility after relevant authority’s inspection and testing. A shareholder of the Company indicated she will continue to fund China Jinxin, although there is no written agreement in place and China Jinxin currently owes $10.40 million to this shareholder. In addition, China Huaxin currently owes $24.59 million to three of the Company’s shareholders for constructing its DRI facility; one is the major lender of China Jinxin who lent $16.7 million to China Huaxin, and the other two are also members of the Company’s management. In addition, China Huaxin borrowed $3.89 million from companies owned by its major shareholder. China Huaxin completed trial production and expected to commence commercial production in May 2015. However, as a result of recent environmental initiatives by national, provincial and local government authorities in China, in June 2015, China Huaxin began upgrading the DRI facilities by converting the existing coal-gas station systems to liquefied natural gas (“LNG”) station systems. The conversion to LNG systems will reduce pollutants and produce higher quality DRIs with less impurities. China Huaxin expects to commence trial production with upgraded DRI facilities in the middle of 2017. The CFS do not include any adjustments that might result from the outcome of this uncertainty.

Use of Estimates

In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates, required by management, include the recoverability of long-lived assets, allowance for doubtful accounts, and the reserve for obsolete and slow-moving inventories. Actual results could differ from these estimates.

Business Combination

For a business combination, the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree are recognized at the acquisition date, measured at their fair values as of that date. In a business combination achieved in stages, the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, are recognized at the full amounts of their fair values. In a bargain purchase in which the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred plus any noncontrolling interest in the acquiree that excess in earnings is recognized as a gain attributable to the acquirer.

Deferred tax liability and asset are recognized for the deferred tax consequences of differences between the tax bases and the recognized values of assets acquired and liabilities assumed in a business combination in accordance with FASB ASC Subtopic 740-10.

Goodwill

Goodwill is the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. In accordance with FASB ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value, with the fair value of the reporting unit determined using discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the application of DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return and projections of realizations and costs to produce. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated.

On January 23, 2014, the Company completed the acquisition of China Huaxin. Under the acquisition method of accounting, the total purchase price is allocated to tangible assets and intangible assets acquired and liabilities assumed based on their fair values with the excess recorded to goodwill. The Company recognized RMB 40.02 million ($6.54 million) goodwill from the acquisition. At December 31, 2014, the Company reappraised the fair value of China Huaxin by using the replacement cost due to the fact China Huaxin did not start official production in 2015 due to the upgrading of its DRI facilities. As of December 31, 2015, the Company evaluated the impairment goodwill of using DCF analysis and believed nothing has changed since December 31, 2014. The Company expects to commence trial production with upgraded DRI facilities in the middle of 2017. Accordingly, the Company concluded the goodwill of Huaxin was not impaired.

Table of Contents

Cash and Equivalents

For financial statement purposes, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable, net

The Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns to evaluate the adequacy of these reserves. Based on historical collection activity, the Company had no accounts receivable or bad debt allowances at September 30, 2016 and December 31, 2015.

Inventory, net

Inventory mainly consists of iron ore, iron ore concentrate, mineral powder and coal slime for DRI. Inventory is valued at the lower of average cost or market, cost being determined on a moving weighted average basis method; including labor and all production overheads.

Property and Equipment, net

Property and equipment are stated at cost, less accumulated depreciation. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is computed using shorter of useful lives of the property or the unit of depletion method. For shorter-lived assets the straight-line method over estimated lives ranging from 3 to 20 years is used as follows:

Office Equipment	3-5 years
Machinery	10 years
Vehicles	5 years
Building	20 years

Impairment of Long-Lived Assets

Long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of long-lived assets to be held and used is measured by comparing the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by it. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds its fair value (“FV”). FV is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. Based on its review, the Company believes that, as of September 30, 2016 and December 31, 2015, there were $1.11 million and $1.14 million in impairments of its long-lived assets, respectively (See Note 6).

Income Taxes

The Company utilizes FASB ASC Topic 740, “Income Taxes”, which requires recognition of deferred tax assets and liabilities for expected future tax consequences of events included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Table of Contents

When tax returns are filed, it is likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about their merits or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits are classified as interest expense and penalties are classified in selling, general and administrative expenses in the statements of income. At September 30, 2016 and December 31, 2015, the Company did not take any uncertain positions that would necessitate recording a tax related liability.

Revenue Recognition

The Company’s revenue recognition policies are in compliance with FASB ASC Topic 605, “Revenue Recognition”. Sales are recognized when a formal arrangement exists, which is generally represented by a contract between the Company and the buyer; the price is fixed or determinable; title has passed to the buyer, which generally is at the time of delivery; no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.

Sales are the invoiced value of iron ore concentrate and DRI products, net of value-added tax (“VAT”). All of the Company’s iron ore concentrate sold in the PRC is subject to a value-added tax of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.

Cost of Goods Sold

Cost of goods sold (“COGS”) consists primarily of fuel and power, direct material and labor, depreciation of mining plant and equipment, attributable to the production of iron ore concentrate. Any write-down of inventory to lower of cost or market is also recorded in COGS.

Concentration of Credit Risk

The operations of the Company are in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, and by the general state of the PRC economy.

The Company has cash on hand and demand deposits in accounts maintained with state-owned banks within the PRC. Cash in state-owned banks is not covered by insurance. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in these bank accounts.

Statement of Cash Flows

In accordance with FASB ASC Topic 230, “Statement of Cash Flows”, cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet. Cash from operating, investing and financing activities is net of assets and liabilities acquired.

Table of Contents

Fair Value of Financial Instruments

For certain of the Company’s financial instruments, including cash and equivalents, accrued liabilities and accounts payable, carrying amounts approximate their fair values due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.

Fair Value Measurements and Disclosures

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines FV, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for FV measures. The three levels are defined as follow:

	●	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	●	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
	●	Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement.

As of September 30, 2016 and December 31, 2015, the Company did not identify any assets and liabilities that are required to be presented on the balance sheet at FV.

Foreign Currency Translation and Comprehensive Income (Loss)

The functional currency of China Jinxin and China Huaxin is RMB. For financial reporting purposes, RMB is translated into USD as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet dates. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.

Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There was no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.

The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive income (loss) is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders. Comprehensive loss for the nine and three months ended September 30, 2016 and 2015 consisted of net loss and foreign currency translation adjustments.

Earnings (loss) per Share (EPS)

Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similar to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if all the potential common shares, warrants and stock options had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options and warrants were converted or exercised. Dilution is computed by applying the treasury stock method for the outstanding options and warrants, and the if-converted method for the outstanding convertible instruments. Under the treasury stock method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later) and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Under the if-converted method, outstanding convertible instruments are assumed to be converted into common stock at the beginning of the period (or at the time of issuance, if later).

Table of Contents

Segment Reporting

FASB ASC Topic 280, “Segment Reporting”, requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the Company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

FASB ASC Topic 280 has no effect on the Company’s financial statements as substantially all of its operations are conducted in one industry segment – iron ore mining. With the upgrading of DRI facilities for both China Jinxin and China Huaxin, the Company will be shifting its main product from iron ore to DRI when the upgrading is completed and trial production starts in the middle of 2017.

New Accounting Pronouncements

In August 2014, the FASB issued Presentation of Financial Statements — Going Concern. This standard requires management to evaluate for each annual and interim reporting period whether it is probable that the reporting entity will not be able to meet its obligations as they become due within one year after the date that the financial statements are issued. If the entity is in such a position, the standard provides for certain disclosures depending on whether or not the entity will be able to successfully mitigate its going concern status. This guidance is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. Early application is permitted. The Company does not anticipate this adoption will have a significant impact on its CFS, results of operations, or cash flows.

The FASB has issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The Company is in the process of evaluating the impact of adoption of this guidance on the CFS.

In July 2015, the FASB issued ASU 2015-11, Inventory, which requires an entity to measure inventory within the scope at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The effective date for the standard is for fiscal years beginning after December 15, 2016. Early adoption is permitted. The Company does not anticipate that this adoption will have a significant impact on its CFS.

Table of Contents

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The Company does not anticipate that this adoption will have a significant impact on its CFS. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of adoption of this ASU on the CFS.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of adoption of this ASU on the consolidated financial statements.

3. INVENTORY

Inventory consisted of the following at September 30, 2016 and December 31, 2015:

	2016			2015
Material	$	1,823,282		$	1,875,631
Finished goods		617,132			634,638
Less: inventory impairment allowance		(1,023,411	)		(1,052,441	)
Total	$	1,417,003		$	1,457,828

4. MINING RIGHTS

The Company is currently negotiating with the Department of Land and Resources of Hebei Province and the local Zhuolu County government to obtain the rights to mine in Zhuolu County where one of its production facilities is located. Pending the final contract, the Company accrued the cost of mining rights based on the quantity of ore extracted (see Note 12). The Company used $0.68 (RMB 2.4 per ton) based on a royalty rate prescribed by the local authority based on the purity of ore in the subject mines. If the rate per ton of ore changes when the contract is finalized, the Company will account for the change prospectively as a change in an accounting estimate. The Company did not extract any ore in the nine and three months ended September 30, 2016 and 2015, and accordingly did not accrue the cost of mining rights for the nine and three months ended September 30, 2016 and 2015.

5. VALUE-ADDED TAX RECEIVABLE

At September 30, 2016 and December 31, 2015, the Company had VAT receivable of $2,864,407 and $2,898,546, respectively. It was the VAT paid on purchases, and it can be carried forward indefinitely for offsetting against future VAT payable.

6. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following at September 30, 2016 and December 31, 2015:

	2016			2015
Building	$	19,469,780		$	20,022,068
Production equipment		16,619,022			16,850,805
Transportation equipment		1,215,625			1,250,108
Office equipment		200,648			206,339
Total		37,505,075			38,329,320
Less: Accumulated depreciation		(11,958,989	)		(10,201,342	)
Less: impairment allowance		(1,108,317	)		(1,139,755	)
Net	$	24,437,769		$	26,988,223

Table of Contents

Depreciation for the nine months ended September 30, 2016 and 2015 was $2,064,144 and $2,299,994, respectively. Depreciation for the three months ended September 30, 2016 and 2015 was $678,654 and $744,006, respectively.

7. ADVANCE FROM RELATED PARTIES

At September 30, 2016 and December 31, 2015, China Jinxin owed one of its shareholders $10,403,519 and $10,396,794, respectively, for the purchase of equipment used in construction in progress and for working capital needs. The advance from shareholders will not bear interest prior to the commencement of the Company's production pursuant to an amended loan agreement entered on January 16, 2013. Commencing on the production date, interest will begin to accrue at the bank's annual interest rate on certificates of deposit at that time on the amount outstanding from time to time and all amounts inclusive of accrued interest is to be repaid within three years of commencement of production at the Zhuolu Mine. China Jinxin had not commenced production as of September 30, 2016.

In addition, at September 30, 2016, China Huaxin owed three shareholders, two of whom are also the Company’s management, $24.59 million used to construct its DRI facility. Of the $24.59 million, $7.22 million had an annual interest rate of 10% and a due date of six months from the start date of official production. The remaining payable bore no interest, and is payable upon demand. China Huaxin also borrowed $3.89 million from certain companies owned by its major shareholder, which bore no interest and is payable upon demand. At September 30, 2016, China Huaxin also owed one related party who is the brother of the Company’s major shareholder the amount of $74,875, this loan bore interest of 10% and is payable upon demand.

At December 31, 2015, China Huaxin owed three shareholders, two of whom are also the Company’s management, $25.06 million used to construct its DRI facility. Of the $25.06 million, $7.42 million had an annual interest rate of 10% and a due date of six months from the start date of official production. The remaining payable bore no interest, and is payable upon demand. China Huaxin also borrowed $3.25 million from certain companies owned by its major shareholder, which bore no interest and is payable upon demand. In addition, China Huaxin also owed one related party who is the brother of the Company’s major shareholder the amount of $76,999, this loan bore interest of 10% and is payable upon demand.

At September 30, 2016 and December 31, 2015, Real Fortune HK owed one shareholder $1.20 million for advances to meet operating needs. This advance bears no interest and is payable upon demand.

Below is the summary of advances from related parties at September 30, 2016 and December 31, 2015, respectively.

	2016			2015
Advance from shareholders (also the management)	$	36,223,433		$	36,688,649
Advance from a related party individual		74,875			76,999
Advance from related party companies		3,892,711			3,246,507
Total		40,191,019			40,012,155
Less: Advance to related parties’ companies		(4,466	)		(64,651	)
Advance from related parties, net	$	40,186,553		$	39,947,504

8. INTANGIBLE ASSETS, NET

Intangible assets consisted solely of land use rights. All land in the PRC is government-owned and cannot be sold to any individual or company. However, the government grants the user a “land use right” to use the land. China Jinxin acquired land use rights during 2006 for $0.75 million (RMB 5 million). China Huaxin acquired land use rights for $2.96 million (RMB 18.24 million) in November 2012 with FV of $5.04 million (RMB 31 million) at acquisition date. China Jinxin and China Huaxin have the right to use their land for 20 and 49 years, respectively, and are amortizing such rights on a straight-line basis for 20 and 49 years, respectively.

Table of Contents

Intangible assets consisted of the following at September 30, 2016 and December 31, 2015:

	2016			2015
Land use rights	$	3,679,124		$	3,783,487
Less: Accumulated amortization		(523,367	)		(462,188	)
Net	$	3,155,757		$	3,321,299

Amortization of intangible assets for the nine months ended September 30, 2016 and 2015 was $75,060 and $83,318, respectively. Amortization of intangible assets for the three months ended September 30, 2016 and 2015 was $24,691 and $29,607, respectively. Annual amortization for the next five years from October 1, 2016, is expected to be: $98,571; $98,571; $98,571; $98,571and $98,571.

9. CONSTRUCTION IN PROGRESS

Construction in progress is for the purchase and installation of equipment for future iron ore refining for China Jinxin. China Jinxin had construction in progress of $7,963,656 and $8,074,674 at September 30, 2016 and December 31, 2015, respectively. China Jinxin completed most of the construction for iron ore refining; however, the management plans to further upgrade the facility for DRI production due to increased demand for DRI products in China. China Jinxin will produce DRI at its facility using iron ore processed at the facility. The construction for China Jinxin’s DRI facility upgrade was almost completed as of the date of this report date and is currently in the final stage of adjusting the equipment and making certain modification to the facility after relevant authority’s inspection and testing.

In addition, as a result of recent environmental initiatives by government authorities in China, starting from June 2015, China Huaxin has been upgrading the DRI facilities by converting the existing coal-gas station systems to liquefied natural gas (“LNG”) station systems. The conversion to LNG systems will reduce pollutants and produce higher quality DRIs with less impurities. Total estimated cost for this upgrade is RMB 10 million ($1.64 million). China Huaxin did not incur any construction costs for the nine and three months ended as of September 30, 2016.

10. DEFERRED TAX LIABILITY

At September 30, 2016, deferred tax liability of $8,280 arose from the differences between the tax bases and book bases of property and equipment and intangible assets arising from the acquisition of China Huaxin. The non-current deferred tax liability is presented net of non-current deferred tax asset of $3,065, which arose from the difference between the tax and book amounts for accrued mine restoration costs.

At December 31, 2015, deferred tax liability of $34,897 arose from the differences between the tax bases and book bases of property and equipment and intangible assets arising from the acquisition of China Huaxin. The non-current deferred tax liability is presented net of non-current deferred tax asset of $3,151, which arose from the difference between the tax and book amounts for accrued mine restoration costs.

11. ACCRUED LIABILITIES AND OTHER PAYABLES

CURRENT

Accrued liabilities and other payables consisted of the following at September 30, 2016 and December 31, 2015:

	2016		2015
Accrued payroll	$	78,566	$	275,916
Accrued mining rights (see note 4)		66,247		68,126
Accrued interest		4,561,056		3,897,613
Due to unrelated parties		6,372,112		6,297,423
Payable for social insurance		45,473		35,383
Payable for construction		65,890		67,759
Other		1,174		284,843
Total	$	11,190,518	$	10,927,063

Table of Contents

As of September 30, 2016, the $6,372,112 due to unrelated parties were short-term advances from unrelated companies or individuals for the Company’s construction and working capital needs, of which, $2,629,384 bore interest of 10% and is due 6 months after the commencement of China Huaxin’s official production. The remaining amount of short-term advances bore no interest, and is payable upon demand.

As of December 31, 2015, the $6,297,423 due to unrelated parties were short-term advances from unrelated companies or individuals for the Company’s construction and working capital needs, of which, $2,703,970 bore interest of 10% and was due 6 months after the commencement of China Huaxin’s official production. The remaining amount of short-term advances bore no interest, and is payable upon demand.

NONCURRENT

Under local environmental regulations, the Company is obligated at the end of the mine’s useful life to restore and rehabilitate the land that is used in its mining operations. The Company estimates it would cost $560,000 (RMB 3.5 million) to restore the entire Zhuolu mine after extracting all the economical ore for such efforts.

The Company accrued certain mine restoration expenses based on the actual production volume during the period it extracted ore. As of September 30, 2016 and December 31, 2015, the long term accrued mine restoration cost was $12,258 and $12,606, respectively. There was no production during the nine and three months ended September 30, 2016 and 2015.

12. SHORT TERM LOAN

At September 30, 2016 and December 31, 2015, China Jinxin had a short-term bank loan of $194,675 and $200,197, respectively. This loan was entered in June 2013 for one year, and renewed on June 27, 2014 to June 26, 2015, with monthly interest rate of 0.9%. This loan was renewed on June 30, 2015, for a one-year term to June 29, 2016, and was further renewed to June 26, 2017, with monthly interest rate of 0.8285%. The loan was secured by a lien on a fixed asset of China Jinxin.

13. PAYABLE TO CONTRACTORS

In 2007 and 2008, the Company entered into contracts with an equipment supplier and a construction company for equipment and construction of a water pipeline for $5.75 million (RMB 38 million). The Company recorded the payable in 2009. In 2010, the Company amended the payment terms and paid $2.2 million (RMB 14.5 million) and agreed to pay the remaining balance as follows: $2.08 million (RMB 13.5 million) on December 31, 2011, and $1.47 million (RMB 10 million) on December 31, 2012. During 2011, the Company paid $2.86 million (RMB 18.0 million). During 2012, the Company did not make any payment on this payable. On March 20, 2013, the Company amended the payment terms and agreed to pay the remaining balance of $902,098 (RMB 5,500,000) on December 31, 2014. Based on the amended agreement, if the Company paid in full by December 31, 2014, no interest would be charged. The Company agreed that if it defaulted it would pay interest starting on January 1, 2015 based on the current bank interest rate for the remaining balance at that time. Starting from January 1, 2015, the Company agreed to pay interest based on the current bank interest rate of 5.35% for the outstanding balance at December 31, 2014. As of September 30, 2016 and December 31, 2015, the Company has $823,625 and $846,988 of payable to contractors, respectively.

The Company recorded the restructuring of this payable in accordance with ASC 470-60-35-5, as it was a modification of its terms, it did not involve a transfer of assets or grant of an equity interest. Accordingly, the Company accounted for the effects of the restructuring prospectively from the time of restructuring, and did not change the carrying amount of the payable at the time of the restructuring as the carrying amount did not exceed the total future cash payments specified by the new terms.

Table of Contents

14. INCOME TAXES

The Company’s operating subsidiary is governed by the Income Tax Laws of the PRC and various local tax laws. Effective January 1, 2008, China adopted a uniform tax rate of 25% for all enterprises (including foreign-invested enterprises).

The following table reconciles the statutory rates to the Company’s effective tax rate for the nine months ended September 30, 2016 and 2015:

	2016			2015
US statutory rates (benefit)		(34.0	)%		(34.0	)%
Tax rate difference		9.2	%		9.1	%
Valuation allowance on NOL		24.1	%		24.3	%
Tax per financial statements		(0.7	)%		(0.6	)%

The following table reconciles the statutory rates to the Company’s effective tax rate for the three months ended September 30, 2016 and 2015:

	2016			2015
US statutory rates (benefit)		(34.0	)%		(34.0	)%
Tax rate difference		9.1	%		9.1	%
Valuation allowance on NOL		24.2	%		24.3	%
Tax per financial statements		(0.7	)%		(0.6	)%

The income tax for the nine months ended September 30, 2016 and 2015, consisted of the following:

	2016			2015
Income tax (benefit) expense – current	$	-		$	-
Income tax (benefit) expense – deferred		(26,047	)		(26,576)
Total income tax benefit	$	(26,047	)	$	(26,576)

The income tax for the three months ended September 30, 2016 and 2015, consisted of the following:

	2016			2015
Income tax (benefit) expense - current	$	-		$	-
Income tax (benefit) expense - deferred		(8,719	)		(11,313	)
Total income tax expense	$	(8,719	)	$	(11,313	)

15. MAJOR CUSTOMER AND VENDORS

There was $1,476 of sales from consulting services performed by China Tongda during the nine and three months ended September 30, 2016; and sales for the nine and three months ended September 30, 2015 were $732,147 and $0, respectively, all of which were derived from China Huaxin’s trial production.

China Jinxin made a 10-year contract with Handan Steel Group Company (“HSG”) a state-owned enterprise, and agreed to sell all of its output from its Zhuolu production facility to HSG. The selling price was to be based on the market price. HSG agreed to purchase all the Company’s products from its Zhuolu production facility regardless of changes in the market. China Jinxin is economically dependent on HSG. However, as of today, China Jinxin has refused to sell its iron ore concentrate to its sole customer because of the low price offered.

Table of Contents

16. STATUTORY RESERVES

Pursuant to the corporate law of the PRC effective January 1, 2006, the Company is now only required to maintain one statutory reserve by appropriating money from its after-tax profit before declaration or payment of dividends. The statutory reserve represents restricted retained earnings.

17. OPERATING RISKS

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environments and foreign currency exchange. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

The Company’s sales, purchases and expenses are denominated in RMB and all of the Company’s assets and liabilities are also denominated in RMB. The RMB is not freely convertible into foreign currencies under the current law. In China, foreign exchange transactions are required by law to be transacted only by authorized financial institutions. Remittances in currencies other than RMB may require certain supporting documentation in order to effect the remittance.

All mineral resources in China are owned by the state. Thus, the Company’s ability to obtain iron ore is dependent upon its ability to obtain mineral rights from the relevant state authorities, purchase ore from another party that has mining rights from the state or import ore from outside the PRC. It is generally not feasible to transport iron ore any significant distance before processing. The Company has yet to obtain long term rights to any iron mine and there is no assurance the Company will be able to do so. Although the Company has extracted iron ore from the Zhuolu Mine on which the Company’s production facilities are located, the Company does not have the right to do so and can be subjected to various fines and penalties. The Company is not able to determine the amount of fines and penalties at the current stage; however, the Company believes the fines and penalties are negotiable with the authorities. If the Company is not able to obtain mining rights to the Zhuolu Mine in the future, the Company will have to cease mining operations at the Zhuolu Mine and the Company will seek to acquire iron ore from third parties. The failure to obtain iron ore reserves for processing at all or on reasonably acceptable terms would have a material adverse impact on our business and financial results.

Table of Contents

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

Overview

We seek to profit by participating in various aspects of the Chinese steel making industry including the mining and processing of iron ore and other forms of iron, which can be used to produce iron concentrate, fines, pellets or sinter. To date we have been engaged in iron ore processing and the production of iron ore concentrate in the People’s Republic of China (“PRC”) through our variable interest entity (‘VIE’), China Jinxin, and through the production of DRI by our subsidiary, China Huaxin.

China Jinxin is currently in the process of upgrading its Zhuolu facilities and adding the equipment necessary to produce DRI.

On January 17, 2014, we acquired a direct reduced iron (“DRI”) production facility in Haixing County, Hebei Province. We completed trial production at this facility and expected to commence commercial production in May 2015. However, as a result of recent environmental initiatives by government authorities in China, starting in June 2015, we began upgrading the DRI facilities by converting the existing coal-gas station systems to liquefied natural gas (“LNG”) station systems. The conversion to LNG systems will reduce pollutants and produce higher quality DRIs with less impurities.

On June 30, 2014, we, then known as UHF Incorporated, a shell company incorporated under the laws of Delaware (“UHF”), completed a reverse acquisition transaction through a share exchange with Target Acquisitions I, Inc. (“Target”) and its shareholders (the “Target Shareholders”) whereby we acquired 100% of the outstanding shares of common stock of Target in exchange for a total of 43,375,638 shares of our common stock and one share of our series A convertible preferred stock, convertible into an additional 17,839,800 shares common stock at such time as we amended our certificate of incorporation to increase the number of authorized shares of common stock or merge with and into another corporation which has sufficient shares of authorized but unissued shares of common stock for issuance upon conversion. The preferred stock was subsequently converted into shares of common stock upon the merger of UHF with and into its newly-formed wholly-owned Nevada subsidiary, Adamant DRI Processing and Minerals Group, the surviving corporation in the merger. As a result of the reverse acquisition, Target became our wholly-owned subsidiary and the Target Shareholders became our controlling stockholders. For accounting purposes, the share exchange transaction with Target and the Target Stockholders was treated as a reverse acquisition, with Target as the acquirer and UHF as the acquired party.

On July 2, 2014, we merged Target, our wholly-owned subsidiary, into our company pursuant to Section 253 of the Delaware General Corporation Law.

On August 29, 2014, we then known as UHF Incorporated, a Delaware corporation, became a Nevada corporation with the corporate name Adamant DRI Processing and Minerals Group as a result of a merger with UHF’s newly formed wholly-owned subsidiary, Adamant DRI Processing and Minerals Group, pursuant to an Agreement and Plan of Merger dated July 4, 2014. The reincorporation was approved by written consent of stockholders of UHF owning in the aggregate 67.58% of its outstanding voting shares as of July 4, 2014. Adamant is deemed to be the successor issuer of UHF under Rule 12g-3 of the Securities Exchange Act of 1934, as amended.

As a result of our acquisition of Target, we now own all of the issued and outstanding capital stock of Real Fortune BVI, which in turn owns all of the issued and outstanding capital stock of Real Fortune Holdings Limited, a Hong Kong limited company (“Real Fortune HK”), which in turn owns all of the issued and outstanding capital stock of Zhangjiakou Tongda Mining Technologies Service Co., Ltd., a Chinese limited company (“China Tongda”). Real Fortune BVI was established in the BVI in September 2010 to serve as an intermediate holding company. Real Fortune HK was established in HK in April 2010. China Tongda was established in the PRC in August 2010, and in August 2010, the local government of the PRC issued a certificate of approval regarding the foreign ownership of China Tongda by Real Fortune HK. China Jinxin, our operating affiliate, was established in the PRC in December 2006.

Table of Contents

We have effective control of the management and operations of China Jinxin, an iron ore processing and high grade iron ore concentrate producer with a production line located in Zhuolu County, Zhangjiakou City, Hebei Province, China, through a series of agreements among China Tongda, China Jinxin and its shareholders, referred to as “VIE agreements.” China Jinxin has an annual capacity of approximately 300,000 tons. Under the VIE agreements, China Tongda is entitled to receive the pre-tax profits of China Jinxin.

On January 17, 2014, China Tongda acquired all of the outstanding shares of China Huaxin. China Huaxin produces Direct Reduced Iron (DRI) at its DRI production facility (the “DRI Facility”) in Haixing County, Hebei Province, about 50 km from the nearest port, using advanced reduction rotary kiln technology with iron sand as the principal raw material. China Huaxin imports iron sands from New Zealand, Australia, Indonesia and the Philippines. The total amount expended to construct the DRI Facility, inclusive of both hard and soft costs, was approximately 244,270,000 RMB or $39 million. China Huaxin completed trial production in May 2015. However, due to environmental initiatives by government authorities in China, starting in June 2015, China Huaxin began upgrading the DRI facilities by converting the existing coal-gas station systems to liquefied natural gas (“LNG”) station systems. Unlike China Jinxin, which we control through the VIE agreements, China Huaxin is directly owned by China Tongda, our wholly owned subsidiary.

To date, we have received only temporary manufacturing licenses granted by the agencies of the local government, which allowed us to process ore that we obtained from Zhuolu Mine, the mine on which our facility is located, or other third parties.

Our ability to profit from our facility in Zhuolu is dependent upon our ability to extract and process iron ore from the Zhuolu Mine and sell the output for a price that enables us to profit. To date, all of our sales from this facility have been made to a single customer. We entered into a ten-year contract with this customer, which expires in January 2019. Pursuant to this agreement, we agreed to sell the customer, HSG all of the output from our Zhuolu facility, which it agreed to purchase. The price paid to us by HSG is to be determined by HSG in light of the quality of our product and market prices and is to be such that it results in a proper margin to us. Thus, our ability to profit from our current production facility at the Zhuolu Mine over the next few years will be determined by the prices we receive from HSG. We cannot guarantee that HSG will not offer a price below what it pays to the Company’s competitors. The lower price will reduce our profit margin. However, if we are not satisfied with the price set by HSG, we can attempt to renegotiate the price. In an effort to obtain a higher price from HSG, we have yet to deliver iron ore concentrate we produced in the fourth quarter of 2011. We are continuing to negotiate with HSG to resolve our dispute over the price to be paid for our output.

The volume of the iron ore concentrates we sell from the Zhuolu facility is determined, in part, by the quality of the crude iron ore we process and the rate at which we process such crude ore. Inasmuch as the price we sell our concentrate to HSG should result in a gross profit, our ability to operate profitably will be determined by the volume of iron ore concentrate we produce and our operating expenses. Our facilities began processing crude iron ore in March 2010 and were idle for approximately six months because of the government shutdown of our electricity and have been idle since December 2011 because of our decision to upgrade our production lines. Thus, to date, our Zhuolu facilities have not operated at maximum capacity for a full year on an uninterrupted basis.

Our current Zhuolu production plant can process up to 800,000 tons of iron ore every year from which we can derive approximately 300,000 tons of iron ore concentrate. However, in December 2011 we halted production to upgrade the production lines to improve their iron ore refinement and iron ore concentration rates, and later to install the equipment necessary to produce DRI.

Sales for the nine and three months ended September 30, 2016 was $1,476 from consulting services performed by China Tongda; and sales for the nine and three months ended September 30, 2015 were $732,147 and $0, respectively, which was from China Huaxin’s trial production.

Table of Contents

All mineral resources in China are owned by the state. Thus, our ability to obtain iron ore depends upon our ability to obtain mineral licenses from the relevant state authorities, purchase ore from another party that has mining rights or import ore from outside of China. It is generally not feasible to transport iron ore any significant distance before processing. We believe, as evidenced by our shareholders’ willingness to finance the construction of our Zhuolu facilities, there is sufficient iron ore in the vicinity of our Zhuolu facilities to enable us to operate them at a profit. Nevertheless, we have yet to obtain long term rights to any iron mine and there is no assurance we will be able to do so. Although we extracted iron ore from the Zhuolu Mine where our production facilities are located, we do not have the right to do so and can be subjected to various fines and penalties. However, since we paid geological survey fees on behalf of the local government so it could process applications related to the right to mine the Zhuolu Mine and has not received any challenges from any authorities regarding our mining activities, we believe that even if fines and penalties are assessed against us in the future, the amount should be negotiable with the authorities. If we are unable to obtain mining rights to the Zhuolu Mine, we will have to acquire iron ore from third parties. The failure to obtain iron ore for processing at all or on reasonably acceptable terms would have a material adverse impact on our business and financial results.

To date we have been dependent upon cash advances from shareholders of the Company. If we were not to obtain sufficient iron ore for processing, it is likely our operations would cease unless our shareholders continue to provide sufficient funds to maintain our plant and equipment until such time as our operations could be resumed.

We may seek to grow our operations by acquiring mining rights and other production facilities. The cash necessary to acquire such rights may exceed that which we have on hand. In such event, we may seek to raise the necessary cash through bank loans or the issuance of equity to the vendors of such rights, our shareholders or third parties. There can be no assurance such cash will be available to us on reasonable terms, if at all. The prices and terms at which we issue equity securities and the performance of any rights or facilities we acquire, will determine whether we operate profitably.

The profitability of the mining industry in China and of our Company in particular, is dependent upon the demand for iron ore and other metals within China. This demand in turn, is influenced by general economic factors, such as the rate of growth of the economy and of the construction industry. There can be no assurance that China will return to the rapid rates of growth it experienced in the recent past. If the rate of growth of the Chinese economy remains low or were to slow down, demand for iron and steel could fall, adversely impacting our operations.

Results of Operations

Comparison of the nine months ended September 30, 2016 and 2015

													Dollar			Percentage
	2016			% of Sales			2015			% of Sales			Increase (Decrease)			Increase (Decrease)
Sales	$	1,476			-	%	$	732,147			-	%	$	(730,671	)		(100	)%
Cost of goods sold		-			-	%		1,226,911			168	%		(1,226,911	)		(100	)%
Gross income (loss)		1,476			100	%		(494,764	)		(68	)%		496,240			100	%
Operating expenses		2,990,052			202,578	%		3,811,854			521	%		(821,801	)		(22	)%
Loss from operations		(2,988,576	)		(202,478)	%		(4,306,618	)		(588	)%		(1,318,041)			(31	)%
Other expense, net		(798,339	)		(54,088)	%		(868,778	)		(119	)%		(70,439)			(8	)%
Loss before income taxes		(3,786,915	)		(256,566)	%		(5,175,396	)		(707	)%		(1,388,480)			(27	)%
Income tax benefit		(26,047	)		(1,765)	%		(26,576	)		(4	)%		(529	)		(2)	%
Net loss	$	(3,760,868	)		(254,801)	%	$	(5,148,820	)		(703	)%	$	(1,387,951	)		(27	)%

Sales

Our revenues have been from the sale of DRI and iron ore concentrate. We commenced production of iron ore at our Zhuolu facility in March 2010. However, we ceased production from September 2010 to March 2011 because the local government implemented an “Energy Saving and Emission Reduction Plan” to reduce local power consumption. We installed power equipment to enable us to maintain a stable power supply to our production equipment and management believes the Energy Saving and Emission Reduction Plan is one-time event and disruptions to our access to energy will not have a material impact on our production in the future. We also ceased production in December 2011 due to a pricing dispute with our major customer and to upgrade our production facilities. Construction for China Jinxin’s DRI facility upgrade was complete as of the date of this report and we are currently in the final stages of adjusting the equipment and making certain modification to the facility after relevant authority’s inspection and testing.

Table of Contents

We acquired a new subsidiary, China Huaxin, in January 2014, through which we own a direct reduced iron production facility, which was recently constructed. China Huaxin completed trial production and expected to commence commercial production in May 2015. However, as a result of recent environmental initiatives by government authorities in China, starting in June 2015, China Huaxin has been upgrading the DRI facilities by converting the existing coal-gas station systems to liquefied natural gas (“LNG”) station systems. The conversion to LNG systems will reduce pollutants and produce higher quality DRIs with less impurities. Sales for the nine months ended September 30, 2016 were $1,476, which were from consulting services performed by China Tongda. Sales for the nine months ended September 30, 2015 were $732,147, which were from China Huaxin’s trial production. We expect to commence trial production with upgraded DRI facilities of Huaxin in the mid of 2017.

Cost of Goods Sold

Cost of goods ("COGS”) sold consists primarily of fuel, power, direct material, direct labor, depreciation of production plant items and equipment, and accrual of the mining rights, which are attributable to the production of iron ore, iron ore concentrate and DRI.

There were no COGS for the nine months ended September 30, 2016 due to the absence of production. COGS were $1,226,911 for the nine months ended September 30, 2015, which was for China Huaxin’s trial production.

Gross Income (Loss)

Gross income for the nine months ended September 30, 2016 was $1,476 due to the revenue from consulting service performed by China Tongda and the absence of cost of goods sold. For the nine months ended September 30, 2015, due to our low sales volume, low unit selling prices resulting from the sale of semi-finished products, and high COGS during the trial production period, we incurred a gross loss of $494,764.

Operating Expenses

Operating expenses consist mainly of employee salaries and welfare, business meeting and promotion expense, depreciation and amortization of items not associated with production, utilities, and audit and legal expenses.

Operating expenses were $2,990,052 for the nine months ended September 30, 2016, compared to $3,811,854 for the period in 2015, a decrease of $821,801 or 22%, which was mainly due to the absence of trial production related expenses in the nine months ended September 30, 2016, compared to $1,655,318 of such expenses incurred in 2015.

Other Expenses

Other expenses were $798,339 for the nine months ended September 30, 2016, compared to $868,778 for the 2015 period. The 8% decrease in other expense was mainly due to decreased interest expense of $51,863.

Net Loss

We had a net loss of $3,760,868 for the nine months ended September 30, 2016, compared to net loss of $5,148,819 for the nine months ended September 30, 2015. The net loss in the current year reflects the continued absence of meaningful revenues and the reduction in our net loss year over year results from a reduction in our general and administrative expenses and the absence of trial production expenses.

Comparison of the three months ended September 30, 2016 and 2015

													Dollar			Percentage
	2016			% of Sales			2015			% of Sales			Increase (Decrease)			Increase (Decrease)
Sales	$	1,476			-	%	$	-			-	%	$	1,476			-	%
Cost of goods sold		-			-	%		-			-	%		-			-	%
Gross income (loss)		1,476			100	%		-			-	%		1,476			-	%
Operating expenses		1,065,900			72,215	%		1,624,652			-	%		(558,751	)		(34	)%
Loss from operations		(1,064,424	)		(72,115)	%		(1,624,652	)		-	%		(560,227	)		(34	)%
Other expense, net		(263,844	)		(17,876)	%		(299,334	)		-	%		(35,490)			(12	)%
Loss before income taxes		(1,328,268	)		(89,991)	%		(1,923,986	)		-	%		(595,717	)		(31	)%
Income tax benefit		(8,719	)		(591)	%		(11,313	)		-	%		(2,594)			(23)	%
Net loss	$	(1,319,549	)		(89,400)	%	$	(1,912,673	)		-	%	$	(593,123)			(31	)%

Table of Contents

Sales

Sales for the three months ended September 30, 2016 were $1,476 from consulting services provided by China Tongda, and sales for the three months ended September 30, 2015 were $0. We expect to commence trial production with upgraded DRI facilities in Huaxin in the middle of 2017.

Cost of Goods Sold

COGS consists primarily of fuel, power, direct material, direct labor, depreciation of production plant items and equipment, and accrual of the mining rights, which are attributable to the production of iron ore, iron ore concentrate and DRI.

COGS were $0 for the three months ended September 30, 2016 and 2015 due to the absence of production.

Gross Income (Loss)

We had gross income of $1,476 for the three months ended September 30, 2016. For the three months ended September 30, 2015, due to the absence of sales and production, we had gross income of $0.

Operating Expenses

Operating expenses were $1,065,900 for the three months ended September 30, 2016, compared to $1,624,651 for the period in 2015, a decrease of $558,751 or 34%, which was mainly due to the absence of trial production related expenses in the three months ended September 30, 2016, which were $770,317 in the three months ended September 30, 2015.

Other Expenses

Other expenses were $263,844 for the three months ended September 30, 2016, compared to $299,334 for the period in 2015. The decrease in other expenses was mainly due to decreased interest expenses and decreased other operating expenses in the three months ended September 30, 2016.

Net Loss

As a result of lack of production, we had a net loss of $1,319,549 for the three months ended September 30, 2016, compared to net loss of $1,912,672 for the three months ended September 30, 2015. The reduction in our net loss principally results from the absence of trial production expenses as noted above.

Liquidity and Capital Resources

The Company’s ability to generate cash from operations is dependent upon its ability to obtain iron ore and iron sands to process and to maintain the permits necessary to process such ore at its current facilities, neither of which is assured. If the Company cannot obtain iron ore and iron sands to process or is no longer able to process ore and sands, it would be dependent upon cash infusions from its current shareholders or third parties in the form of loans or equity contributions, or a combination thereof, to maintain its facilities until it can resume operations. One shareholder has indicated she will continue to fund China Jinxin, though there is no written agreement in place and China Jinxin currently owes $10.40 million to the shareholder. In addition, China Huaxin borrowed $24.59 million from three of the Company’s shareholders (one of whom is the individual who funded China Jinxin and who has lent $16.70 million to China Huaxin, another of whom is the Company’s CEO and who has loaned $2.12 million, and the third of whom is a shareholder and senior officer who has loaned $5.78 million). Despite such commitments, there is no assurance adequate cash will be available from current shareholders or from third parties and, if it is available, what the terms of any loan or investment might be. If we are unable to obtain the funding required, we may have to curtail or cease our operations. The Company has no specific plans, understandings or agreements with respect to the raising of such funds, and it may seek to raise the required capital by the issuance of equity or debt securities or by other means. Since we have no such arrangements or plans currently in effect, our inability to raise funds may have a severe negative impact on our ability to become a viable company.

Table of Contents

Other than current construction in progress, which will be funded by one of the Company’s shareholders, we do not anticipate significant cash expenditures in the immediate future on our current production facilities. Nevertheless, we may require working capital once we resume production at our facilities. The shareholders of the Company verbally agreed to continue to provide cash to satisfy the Company’s working capital needs. However, in the future, the Company intends to continue the expansion of operations by acquiring new production facilities and mines. The acquisitions will be paid for with cash or our equity securities, or combinations of both. Failure to obtain such financing could have a material adverse effect on our business expansion. The sale by the Company of its equity securities would dilute the interest of its current shareholders. Further, there is no guarantee of the terms on which such an issuance would occur, if at all, or whether such terms would be favorable to the Company’s current shareholders.

As of September 30, 2016, cash and equivalents were $89,947, compared to $26,957 as of December 31, 2015. The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2016 and 2015, respectively.

	2016			2015
Net cash provided by (used in) operating activities	$	(1,157,447	)	$	1,718,845
Net cash provided by (used in) investing activities		(105,822	)		(239,178	)
Net cash provided by (used in) financing activities	$	1,327,880		$	(1,697,007	)

Net cash provided by (used in) operating activities

Net cash used in operating activities was $1,157,448 for the nine months ended September 30, 2016, compared to net cash provided by operating activities of $1,718,845 in 2015. The increase of cash outflow from operating activities for the nine months ended September 30, 2016 was principally attributable to advances to suppliers of $45,986, decreased cash inflow from inventory of $621, and changes in accounts payable of $129,504 and other receivables of $185, in contrast to the 2015 period when we had cash inflow of $232,626 from a reduction in advances to suppliers, $423,848 from inventory, $2,640,618 from an increase in accounts payable, and $1,104,807 from a reduction in other receivables. Despite the use of cash in the nine months ended September 30, 2016, as compared to the same period of 2015, we decreased our net loss in the nine months ended September 30, 2016, compared to the earlier period as described above.

Net cash provided by (used in) investing activities

Net cash used investing activities was $105,822 for the nine months ended September 30, 2016, compared to cash used in investing activities of $239,178 for the period in 2015. During the nine months ended September 30, 2016, we had cash outflow of $105,822 for construction projects. During the nine months September 31, 2015, we paid $163,460 for construction projects, and $75,718 for the acquisition of fixed assets.

Net cash provided by (used in) financing activities

Net cash provided by financing activities was $1,327,880 for the nine months ended September 30, 2016, compared to net cash used in financing activities of $1,697,007 in 2015. The net cash provided by financing activities in the nine months ended September 30, 2016 was due to advances from related parties; while in 2015, we paid $1,697,007 to related parties in respect of prior loans.

Table of Contents

At September 30, 2016, we had a working capital deficit of $53.18 million, an increase of $0.49 million from the deficit at December 31, 2015 of $52.69 million, which was mainly from increased accrued liabilities and other payables and decreased value-added tax receivable.

As of September 30, 2016, China Jinxin had borrowed $10.40 million from one of its shareholders for working capital and production facility construction needs. The loan of $10.40 million will not bear interest prior to the commencement of the Company's production pursuant to an amended loan agreement entered on January 16, 2013. Commencing on the production date, interest will begin to accrue at the bank's annual interest rate on certificates of deposit at that time on the amount outstanding from time to time and all amounts inclusive of accrued interest is to be repaid within three years of our commencement of production at the Zhuolu Mine. China Huaxin borrowed $24.59 million from three shareholders; of the $24.59 million, $7.22 million has an interest rate of 10% with a due date of the 6th month anniversary of the date of official production. The remaining payables bear no interest, and are payable upon demand. In addition, China Huaxin borrowed $3.89 million from certain companies owned by its major shareholder, which bear no interest and are payable upon demand.

Contractual Obligations

We have certain fixed contractual obligations and commitments in respect of which we estimate future payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We present below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our consolidated financial position, results of operations, and cash flows.

The following table summarizes our contractual obligations as of September 30, 2016, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		5 Years +

Contractual Obligations:
Payable to contractor	$	823,625	$	823,625	$	-	$	-	$	-
Short-term bank loan		194,675		194,675
Loan payable to related party with 10% annual interest rate		7,217,946		7,217,946		-		-		-
Loan payable to unrelated party with 10% annual interest rate		2,629,384		2,629,384		-		-		-
Total	$	10,865,630	$	10,865,630	$	-	$	-	$	-

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Table of Contents

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which were prepared in accordance with US GAAP. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe the following accounting policies are the most critical to aid you in fully understanding and evaluating this management discussion and analysis.

Emerging Growth Company

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we may, under Section 7(a)(2)(B) of the Securities Act, delay adoption of new or revised accounting standards applicable to public companies until such standards would otherwise apply to private companies. We may take advantage of this extended transition period until the first to occur of the date that we (i) are no longer an "emerging growth company" or (ii) affirmatively and irrevocably opt out of this extended transition period. We elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. Until the date we are no longer an "emerging growth company" or affirmatively and irrevocably opt out of the exemption provided by Securities Act Section 7(a)(2)(B), upon issuance of a new or revised accounting standard that applies to our financial statements and that has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard. The Jobs Act also provides exemption from auditor reporting on the Company’s Internal Control Over Financial reporting as required by section 404(b) of the Sarbanes Oxley Act of 2002.

Basis of Presentations

Our financial statements are prepared in accordance with US GAAP and the requirements of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”).

Going Concern

We incurred net losses of $3.76 million and $1.32 million for the nine and three months ended September 30, 2016, respectively. We also had a working capital deficit of $53.18 million as of September 30, 2016. In addition, we have refused to sell our iron ore concentrate to our sole customer because of the low price offered for our product. The price of iron ore concentrate is still in decline. These conditions raise a substantial doubt as to whether we can continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. We are in the process of upgrading our equipment. Once the upgrading project is completed, we will be able to resume production. One shareholder has indicated she will continue to fund China Jinxin, though there is no written agreement in place and the Company currently owes $10.40 million to the shareholder. In addition, China Huaxin borrowed $24.59 million from three shareholders, and borrowed $3.89 million from certain companies owned by its major shareholder. Despite such commitments, there is no assurance that adequate cash will be available from current shareholders or from third parties and, if it is available, what the terms of any loan or investment might be. If we are unable to obtain the funding required, we may have to curtail or cease our operations. The Company has no specific plans, understandings or agreements with respect to the raising of such funds, and it may seek to raise the required capital by the issuance of equity or debt securities or by other means. Since it has no such arrangements or plans currently in effect, its inability to raise funds may have a severe negative impact on its ability to become a viable company.

Use of Estimates

Table of Contents

Revenue Recognition

The Company’s revenue recognition policies are in compliance with SEC Staff Accounting Bulletin (“SAB”) 104 (codified in FASB ASC Topic 605). Sales are recognized when a formal arrangement exists, which is generally represented by a contract between the Company and the buyer; the price is fixed or determinable; title has passed to the buyer, which generally is at the time of delivery; no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are recorded as unearned revenue.

Sales were the invoiced value of iron ore and iron ore concentrate, net of value-added tax (“VAT”). All of the Company’s iron ore concentrate sold in the PRC is subject to a VAT of 17% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.

The Company uses FASB ASC Topic 220, “Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except those due to investments by stockholders, changes in paid-in capital and distributions to stockholders.

Foreign Currency Translation and Comprehensive Income (Loss)

The functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.

Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income. There has been no significant fluctuation in the exchange rate for the conversion of RMB to USD after the balance sheet date.

The fluctuation of exchange rates does not imply free convertibility of RMB to other foreign currencies. All foreign exchange transactions continue to take place either through the People’s Bank of China (“PBOC”) or other banks authorized to buy and sell foreign currencies at the exchange rate quoted by the PBOC.

Segment Reporting

Disclosures about segments of an enterprise and related information require use of the “management approach” model for segment reporting, codified in FASB ASC Topic 280. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

FASB ASC Topic 280 has no effect on the Company’s financial statements as substantially all of its operations are conducted in one industry segment – iron ore refining.

Recent Accounting Pronouncements

Table of Contents

As of September 30, 2016, there is no other recently issued accounting standards not yet adopted that would have a material effect on the Company’s CFS.

Table of Contents

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures.

Management of Adamant DRI Processing and Minerals Group is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.

At September 30, 2016, an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based on their evaluation of our disclosure controls and procedures, they concluded that at September 30, 2016, such disclosure controls and procedures were not effective. This was due to our limited resources, including the absence of a financial staff with accounting and financial expertise and deficiencies in the design or operation of our internal control over financial reporting that adversely affected our disclosure controls and that may be considered to be “material weaknesses.”

We plan to designate individuals responsible for identifying reportable developments and to implement procedures designed to remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

(b) Changes in Internal Control over Financial Reporting.

There have been no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2016 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting. Given the limitations of our accounting personnel, we need to take additional steps to ensure that our financial statements are in accordance with US GAAP.

PART II

OTHER INFORMATION

Item 1A – Risk Factors.

The purchase of our common stock involves a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described under the heading “Risk Factors” in Item 1A. of our 2015 Form 10-K and “Management's Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 2 of Part I of this report and our consolidated financial statements and related notes included in Item 1 of Part I of this report. Readers should carefully review those risks, as well as additional risks described in other documents we file from time to time with the SEC.

Except as otherwise disclosed in “Management's Discussion and Analysis of Financial Condition and Results of Operations” set forth in Item 2 of Part I of this report and our consolidated financial statements and related notes included in Item 1 of Part I of this report, there have been no material changes in the risk factors previously disclosed in the 2015 Form 10-K.

Table of Contents

Item 6 - Exhibits

The following exhibits are filed with this amendment to this report:

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1

Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation
101.DEF		XBRL Taxonomy Extension Definition
101.LAB		XBRL Taxonomy Extension Label
101.PRE		XBRL Taxonomy Extension Presentation

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ADAMANT DRI PROCESSING AND MINERALS GROUP

Dated: November 14, 2016	By:	/s/ Changkui Zhu
		Changkui Zhu
		Chief Executive Officer