ADAMANT DRI PROCESSING & MINERALS GROUP - Quarter Report: 2019 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

OR

COMMISSION FILE NUMBER: 000-49729

Adamant DRI Processing and Minerals Group

(Exact Name of Registrant as Specified in its Charter)

Issuer’s telephone number: 86-18126523457

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 [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [  ]

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

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

Name of each exchange on which registered

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 May 16, 2019 we had outstanding 19,110,005 shares of common stock.

ADAMANT DRI PROCESSING AND MINERALS GROUP

TABLE OF CONTENTS

Special Note Regarding Forward Looking Statements

This report contains forward-looking statements. 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 are subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on 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 the 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.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED BALANCE SHEETS

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

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

(UNAUDITED)

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

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

ADAMANT DRI PROCESSING AND MINERALS GROUP

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

THREE MONTHS ENDED MARCH 31, 2019 AND 2018

The accompanying notes are an integral part of the consolidated financial statements

ADAMANT DRI PROCESSING AND MINERALS GROUP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2019 (UNAUDITED) AND DECEMBER 31, 2018

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”).

Prior to the sale of certain operations in December 2018, the Company produced Direct Reduced Iron (“DRI”) using advanced reduction rotary kiln technology with iron ore as the principal raw material. ‘Reduced Iron’ derives its name from the chemical change that iron ore undergoes when 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 iron’s melting point.

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 17,839,800 shares of common stock. Following 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 Target Share Exchange was treated as a reverse acquisition, with Target as the acquirer and UHF as the acquired party. The shares issued to the Target Stockholders were accounted for as a recapitalization of Target and were retroactively restated for the periods presented because after the share exchange, the Target’s Stockholders 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 rather than a business combination.

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 time of the Merger was converted into one share of the common stock of Adamant, and the outstanding share of series A Preferred Stock was converted into 17,839,800 shares of common stock. The Merger was effected on August 29, 2014.

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 prior to its sale in December 2018, owned all of the issued and outstanding capital stock of Zhangjiakou Tongda Mining Technologies Service Co., Ltd. (“China Tongda”), a Chinese limited company.

Prior to December 22, 2018, the Company operated in China through Zhuolu Jinxin Mining Co., Ltd. (“China Jinxin”), the Company’s variable interest entity (“VIE”) which the Company controlled through a series of agreements between China Jinxin and China Tongda, and through Haixing Huaxin Mining Industry Co., Ltd. (“China Huaxin”) which was owned by China Tongda.

China Jinxin is an early stage mining company which processes iron ore and DRI at its production facility in Hebei Province. China Jinxin currently does not own any mines or hold any mining rights. Through contractual arrangements among China Tongda and China Jinxin, and its shareholders, the Company controlled China Jinxin’s operations and financial affairs. As a result of these agreements, China Tongda was considered the primary beneficiary of China Jinxin (see Note 2) and accordingly, China Jinxin’s results of operations and financial condition prior to December 22, 2018, were consolidated in the Group’s financial statements.

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 Huaxin produces and sells DRI.

On April 25, 2017, China Tongda incorporated Yancheng DeWeiSi Business Trading Co., Ltd. (“DeWeiSi”) with registered capital of RMB 10,000,000 ($1.48 million), to be paid before April 19, 2047. DeWeiSi was a wholly-owned subsidiary of China Tongda. DeWeiSi sells mineral products (except petroleum and petroleum products), hardware products, construction materials, and steel. During 2017, China Tongda sold 100% ownership of DeWeiSi for RMB 70,000 ($10,710), and the buyer took over the responsibility of fulfilling the $1.48 million registered capital requirement. The Company recorded $27,094 gain on the sale of DeWeiSi.

On December 22, 2018, the Company entered into an Exchange Agreement, among the Company, certain of its subsidiaries and 16 shareholders of the Company (“Exiting Shareholders”). Pursuant to the Exchange Agreement, the Company transferred all of the outstanding shares of its subsidiary, China Huaxin to the Exiting Stockholders in exchange for 48,403,969 shares of the Company’s common stock. As a result of the consummation of the Exchange Agreement, the Company no longer has an interest in China Huaxin or any of its assets and liabilities, including the DRI Facility. The company recorded $22,239,222 gain on sale of China Huaxin.

On December 22, 2018, the Company, certain of its subsidiaries and the Exiting Shareholders also entered into a Termination Agreement. Pursuant to the Termination Agreement, the Company, China Jinxin, China Tongda, and the Exiting Shareholders terminated the series of agreements known as variable interest entity agreements, or VIE Agreements, pursuant to which the Company acting through China Tongda, controlled the operations of China Jinxin and was to receive the economic benefits of the operations of China Jinxin.

As a result of the termination of the VIE Agreements, control of China Jinxin reverted to the Exiting Shareholders and the Company no longer has any influence over the operations of China Jinxin or any interest in its assets or the results of its operations. In consideration for the termination of the VIE Agreements, the Company received 5,378,219 shares of its common stock. The company recorded $2,688,996 gain on sale of China Jinxin.

On December 10, 2018, the Company entered into a series of agreements known as variable interest entity agreements, or the VIE Agreements, with Shenzhen Dingshang Technology Co., Ltd. (“Shenzhen Technology Company”), and its sole shareholder, Ms. Jing Xie. Shenzhen Technology Company was founded on December 24, 2009, with registered capital of RMB1 million. The Company is dedicated to the provision of a complete set of intelligent digital implementation plans for exhibition center projects and display booths, and the provision of innovative model designs for different exhibition centers and real estate. In consideration of her entry into the VIE Agreements and causing Shenzhen Technology Company to enter into the VIE Agreements, the Company issued 3,000,000 shares of its common stock to Ms. Xie. Through the contractual arrangements among the Company and Shenzhen Technology Company, and its shareholders, the Company controls Shenzhen Technology Company’s operations and financial affairs. As a result of these agreements, Adamant is considered the primary beneficiary of Shenzhen Technology Company (see Note 2) and accordingly, Shenzhen Technology Company’s results of operations and financial condition are consolidated in the Company’s financial statements.

The consolidated interim financial information as of March 31, 2019 and for the three month periods ended March 31, 2019 and 2018 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”) were 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, 2018, 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 March 31, 2019, results of operations for the three months ended March 31, 2019 and 2018, and cash flows for the three months ended March 31, 2019 and 2018, 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.

The Group’s current structure at March 31, 2019 is as follows:

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying Consolidated Financial Statements (“CFS”) are prepared in conformity with US GAAP. Adamant, Real Fortune BVI and Real Fortune HK’s functional currency is the US Dollar (“USD” or “$”), and Adamant’s VIE Shenzhen Technology Company, China Tongda and its wholly owned subsidiaries’ China Huaxin, and VIE China Jinxin’s functional currency is Chinese Renminbi (“RMB”). The accompanying CFS 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) (up to disposal date) for which the Company’s subsidiary China Tongda is the primary beneficiary; China Tongda’s 100% owned subsidiaries China Huaxin (up to disposal date), and Adamant’s VIE (Shenzhen Technology Company). 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:

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.

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:

The VIE structure of China Jinxin was terminated on December 22, 2018.

On December 10, 2018, the Company entered into a series of VIE Agreements, with Shenzhen Technology Company, and its sole shareholder, Ms. Jing Xie. Pursuant to the VIE Agreements, Shenzhen Technology Company became contractually controlled by Adamant. The material terms of the VIE Agreements are summarized below:

This Agreement grants the Company the right and obligation to manage all aspects of the operations of Shenzhen Technology Company and the Board of Directors and shareholders of Shenzhen Technology Company may not take any actions without the Company’s consent. The scope of the authority granted to the Company includes, but is not limited to, the right to make all major decisions, the right to manage the assets, capital and finances of Shenzhen Technology Company, authority for all decisions related to human resources, daily operation management and technical support. To facilitate its exercise of such rights, the Company has been granted powers of attorney by Ms. Xie, the sole shareholder of Shenzhen Technology Company, granting it the right to participate in all shareholders’ meetings of Shenzhen Technology Company and to make all significant decisions at such meetings, including the designation of candidates for election to the Board of Shenzhen Technology Company. In consideration of the Company’s services, the Company shall be paid quarterly an amount equal to the pre-tax profits of Shenzhen Technology Company and shall be required to pay to Shenzhen Technology Company the amount of any loss incurred by Shenzhen Technology Company within 30 days of a request for payment. Further, if Shenzhen Technology Company is unable to pay its debts, the Company will be responsible therefor. Similarly, if losses sustained by Shenzhen Technology Company result in a capital deficiency, the Company shall be obligated to make up the deficiency. To facilitate the Company’s management of Shenzhen Technology Company, the Company shall have access to and the right to maintain all books and records and other relevant documentation of Shenzhen Technology Company. Further, during the term of the Management Entrustment Agreement, without the Company’s consent, Shenzhen Technology Company will not issue, purchase or redeem any of its equity securities or debt or create any liens upon its property or assets, other than for expenses incurred in the ordinary course of business and permitted exceptions; or declare or pay any dividends. The term of the Management Entrustment Agreement is for 30 years, or until December 10, 2048 and will be extended automatically for successive 10-year periods thereafter, except that the agreement will terminate (i) at the expiration of the initial 30-year term, or any 10-year renewal term, if the Company notify Shenzhen Technology Company not less than 30 days prior to the applicable expiration date that the Company does not want to extend the term, (ii) upon prior written notice from the Company, or (iii) upon the date the Company acquires all of the assets or at least 51% of the equity interests of Shenzhen Technology Company.

Pursuant to this Agreement Shenzhen Technology Company and its sole shareholder granted the Company an exclusive option to purchase all of the assets or outstanding shares of Shenzhen Technology Company at such time as the purchase of such assets or shares is permissible under the laws of the PRC. The options are for an initial period of 30 years and will renew automatically for successive periods of 10 years each unless voluntarily terminated by the Company. At such time during the term as the Company determines to exercise its option to purchase either the assets or equity of Shenzhen Technology Company, the Company shall send a notice to Shenzhen Technology Company or its shareholder, as the case may be. Upon receipt of such notice, Shenzhen Technology Company or its shareholder shall take such steps and execute such documents as are necessary to transfer the assets or shares. Unless an appraisal is required by the laws of China, the purchase price of the assets or outstanding equity shall be equal to the lower of (i) the actual registered capital of Shenzhen Technology Company and (ii) RMB 500,000 ($72,656); provided that if the laws of the PRC do not permit the purchase at that price, the purchase price shall be the lowest price allowed under the laws of the PRC. All taxes relating to such purchase shall be borne by the Company.

Ms. Jing Xie, the sole shareholder of Shenzhen Technology Company entered into a Power of Attorney irrevocably authorizing the Company to exercise all of her rights as a shareholder of Shenzhen Technology Company. The rights granted include, without limitation, the right to: (i) attend the shareholders’ meetings of Shenzhen Technology Company and execute actions by written consent; (ii) exercise all of her rights as a shareholder under the laws of the PRC and the Articles of Association of Shenzhen Technology Company, including but not limited to the right to transfer or pledge or dispose of her shares in Shenzhen Technology Company; (iii) designate and appoint the legal representatives, Chairman of the Board of Directors, directors, supervisors, the chief executive officer, the chief financial officer and other senior management members of Shenzhen Technology Company; (iv) execute the relevant share and/or asset purchase agreements contemplated in the Exclusive Purchase Option Agreement, and to effect the terms of the Equity Pledge Agreement and Exclusive Purchase Option Agreement; and (v) transfer allocate, or utilize in some other ways the cash dividends and non-cash income of Shenzhen Technology Company. The power of attorney shall be in effect as long as Ms. Xie owns shares of Shenzhen Technology Company.

Pursuant to an Equity Pledge Agreement Ms. Xie, the sole shareholder of Shenzhen Technology Company, has pledged all of her shares in, representing all of the outstanding shares of, Shenzhen Technology Company as security for the performance by Shenzhen Technology Company and Ms. Xie of their respective obligations under the VIE Agreements. In addition to pledging her shares in the Equity Pledge Agreement, Ms. Xie has agreed not to impose any encumbrances or restrictions on the shares, not to sell, lease or transfer any of the shares and to provide notice to the Company should she receive any notice, order, ruling, verdict or other instrument in relation to the pledged shares or which may affect the ownership of the pledged shares.

Going Concern

The Company had net loss of $107,213 for the three months ended March 31, 2019, and had accumulated deficit of $9.70 million as of March 31, 2019, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company is currently seeking additional potential assets, properties or businesses to acquire, in a business combination, by reorganization, merger or acquisition. The plan of operation for the next 12 months is to: (i) determine which industries in which the Company may have an interest; (ii) adopt a business plan regarding engaging in the business of any selected industry; and (iii) commence operations through funding a start-up enterprise and/or acquiring an existing business or entering into a business combination with a “going concern” engaged in any industry selected. The Company is unable to predict when and if it may actually participate in any specific business endeavor, and the Company will be unable to do so until it determines the particular industry in which the Company may conduct business operations.

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 Combinations

For a business combination, the assets acquired, the liabilities assumed and any non-controlling 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 non-controlling 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 non-controlling interest in the acquiree, that excess in fair value is recognized as a gain attributable to the acquirer.

Deferred tax liability and assets 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.

Cash and Equivalents

Cash and equivalents include cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

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. The Company had $2,638 and $6,090 bad debt allowances at March 31, 2019 and December 31, 2018, respectively.

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:

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 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 March 31, 2019 and December 31, 2018, there was no impairment of long-lived assets.

Income Taxes

Income taxes are accounted for using an asset and liability method. 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.

The Company follows ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

Under the provisions of ASC Topic 740, 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 the merits of the position taken 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 percent 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 March 31, 2019 and December 31, 2018, the Company did not take any uncertain positions that would necessitate recording a tax related liability.

Adamant is subject to U.S. corporate income taxes on its taxable income at a rate of up to 21% for taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. On December 22, 2017, the Tax Cut and Jobs Act (“Tax Act”) was signed into law. The Tax Act introduced a broad range of tax reform measures that significantly changed the federal income tax laws. The provisions of the Tax Act that may have significant impact on the Company, including the permanent reduction of the corporate income tax rate from 35% to 21% effective for tax years including or commencing on January 1, 2018, one-time transition tax on post-1986 foreign unremitted earnings, provision for Global Intangible Low Tax Income (“GILTI”), deduction for Foreign Derived Intangible Income (“FDII”), repeal of the corporate alternative minimum tax, limitation of various business deductions, and modification of the maximum deduction of net operating loss with no carryback but indefinite carryforward provision. Many provisions in the Tax Act are generally effective in tax years beginning after December 31, 2017. Taxpayers may elect to pay the one-time transition tax over eight years, or in a single lump-sum payment.

To the extent that portions of its U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain limitations, the Company may be able to claim foreign tax credits to offset its U.S. income tax liabilities. Any remaining liabilities are accrued in the Company’s consolidated statements of comprehensive income and estimated tax payments are made when required by U.S. law.

The Act also created new taxes on certain foreign-sourced earnings such as global intangible low-taxed income (“GILTI”) under IRC Section 951A, which is effective for the Company for tax years beginning after January 1, 2018. For the three months ended March 31, 2019, the Company has calculated its best estimate of the impact of the GILTI in its income tax provision in accordance with its understanding of the Act and guidance available as of the date of this filing.

Revenue Recognition

In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

The new revenue standards became effective for the Company on January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the Company does not have significant sales yet. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

Cost of Goods Sold / Cost of Services Provided

Cost of goods sold (“COGS”) for China Jinxin and China Huaxin 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. Cost of services provided for Shenzhen Technology Company was mainly the labor cost for designing, assembling, installing and setting up exhibition center projects and display booths, and creating innovative model designs for different exhibition centers and real estate projects.

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 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.

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 FV 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 FVs 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:

As of March 31, 2019, and December 31, 2018, 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, China Huaxin and Shenzhen Technology Company 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 from using 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 three months period ended March 31, 2019 and 2018 consisted of net loss and foreign currency translation adjustments.

Share-based Compensation

The Company accounts for share-based compensation to employees in accordance with FASB ASC Topic 718, “Compensation – Stock Compensation”, which requires that share-based payment transactions with employees be measured based on the grant-date FV of the equity instrument issued and recognized as compensation expense over the requisite service period.

The Company accounts for share-based compensation awards to non-employees in accordance with FASB ASC Topic 718 and FASB ASC Subtopic 505-50, “Equity-Based Payments to Non-employees”. Share-based compensation associated with the issuance of equity instruments to non-employees is measured at the FV of the equity instrument issued or committed to be issued, as this is more reliable than the FV of the services received. The FV is measured at the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.

Earnings (Loss) per Share (EPS)

The Company presents net income (loss) per share (“EPS”) in accordance with FASB ASC Topic 260, “Earning Per Share.” 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).

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.

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.

In June 2018, the FASB issued ASU 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. An entity should apply the requirements of ASC 718 to non-employee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that ASC 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The new guidance is effective for SEC filers for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019 (i.e., January 1, 2020, for calendar year entities). Early adoption is permitted. The Company is evaluating the effects of the adoption of this guidance and currently believes that it will impact the accounting of the share-based awards granted to non-employees.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS.

3. NOTE RECEIVABLE-BANK ACCEPTANCES

The Company sold goods or provided services to its customers and received commercial notes (bank acceptances) from them in lieu of payments. The Company discounted the commercial notes with the banks or endorsed the commercial notes to vendors for payment of their own obligations or to get cash from third parties. Most of the commercial notes have a maturity of less than one year. As of March 31, 2019 and December 31, 2018, the Company had notes receivable of $15,883 and $15,583, respectively.

4. OTHER RECEIVABLES

Other receivables consisted of the followings at March 31, 2019 and December 31, 2018:

5. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following at March 31, 2019 and December 31, 2018:

Depreciation for the three months ended March 31, 2019 and 2018 was $23,468 and $717,184, respectively. Depreciation for the three months ended March 31, 2019 was for Shenzhen Technology Company and Real Fortune. Depreciation for the three months ended March 31, 2018 was for China Huaxin, China Jinxin and Real Fortune.

6. RELATED PARTIES TRANSACTIONS

The Company had advances from related parties of $4,455 and $4,371 at March 31, 2019 and December 31, 2018, respectively. The advance was from the Company’s management, bore no interest a2nd payable upon demand.

7. ACCRUED LIABILITIES AND OTHER PAYABLES

Accrued liabilities and other payables were $94,462 and $11,424, respectively, at March 31, 2019 and December 31, 2018, mainly consisted of accrued payroll, accrued legal fee and other miscellaneous accrued liabilities.

8. STOCKHOLDERS’ EQUITY

In March, 2019, the Company entered into a Subscription Agreement with Wanli Liu for the sale of 2,498,750 shares of the Company’s common stock for $49,975 ($0.02 per share). The issuance and sale of the shares was exempt from the registration requirements of the Securities Act pursuant to Regulation S. Wanli Liu is a non-U.S. Person. The certificates representing the shares are imprinted with a restrictive legend. The stock certificates were issued in May 2019.

In March 2019, the Company entered into a Subscription Agreement with the Company’s former CEO (resigned in May 2019) for the sale of 633,333 shares of the Company’s common stock for $19,000 ($0.03 per share). The stock certificates were issued in May 2019.

9. 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 three months ended March 31, 2019 and 2018:

10. STATUTORY RESERVES

Pursuant to the corporate law of the PRC effective January 1, 2006, the Company is 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. As of March 31, 2019 and December 31, 2018, the statutory reserve was $557,253.

11. 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.

12. BUSINESS ACQUISITION AND UNAUDITED PRO FORMA INFORMATION

On December 10, 2018, the Company entered into a series of agreements known as variable interest entity agreements, or the VIE Agreements, with Shenzhen Technology Company, and its sole shareholder, Ms. Jing Xie. In consideration of Ms. Xie’s entry into the VIE Agreements and causing Shenzhen Technology Company to enter into the VIE Agreements, the Company has agreed to issue 3,000,000 shares of its common stock to Ms. Xie. The market stock price was $0.008 per share at acquisition date. The acquisition was accounted as a business combination in accordance with ASC Topic 805 “Business Combination.”

According to ASC Topic 805, the allocation of Shenzhen Technology Company’s purchase price among assets acquired and liabilities assumed is based on estimates of the fair values. Under purchase method of accounting, the total purchase price is allocated to tangible assets and intangible assets acquired and liabilities assumed based on their estimated fair values with the excess changed to goodwill. Or in opposite, if the total acquisition-date fair value of the identifiable net assets acquired exceeds the fair value of the consideration transferred that excess in earnings is recognized as a gain attributable to the acquirer. Accordingly, the Company recognized a bargain purchase gain of $6,530 from this acquisition.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

The following unaudited pro forma consolidated results of operations of Adamant and Shenzhen Technology Company for the three months ended March 31, 2018, presents the operations of Adamant and Shenzhen Technology Company as if the acquisition of Shenzhen Technology Company occurred on January 1, 2018. The pro forma results are not necessarily indicative of the actual results that would have occurred had the acquisition been completed as of the beginning of the periods presented, nor are they necessarily indicative of future consolidated results.

13. DISPOSAL OF SUBSIDIARIES

On December 22, 2018, Adamant entered into an Exchange Agreement (the “Exchange Agreement”), among the Company, certain of its subsidiaries and 16 shareholders of the Company holding in the aggregate 53,782,198   shares of the Company’s common stock (the “Exiting Shareholders”).

Pursuant to the Exchange Agreement, the Company transferred all of the outstanding shares of its subsidiary, China Huaxin, to the Exiting Stockholders in exchange for 48,403,969 shares of the Company’s common. The market stock price was $0.01 per share at disposal date.

The following table summarizes the carrying value of the assets and liabilities disposed of China Huaxin at the closing date of disposal. The excess of the selling price over the carrying value of the net assets disposed was recorded as gain from disposal of subsidiary of $22,239,222.

On December 22, 2018, the Company, certain of its subsidiaries and the Exiting Shareholders also entered into a Termination Agreement (the “Termination Agreement”). Pursuant to the Termination Agreement, the Company, China Jinxin, China Tongda, and the Exiting Shareholders terminated the series of agreements known as variable interest entity agreements, or VIE Agreements, pursuant to which the Company acting through China Tongda, controlled the operations of China Jinxin and was to receive the economic benefits of the operations of China Jinxin. As a result of the termination of the VIE Agreements, control of China Jinxin reverted to the Exiting Shareholders and the Company no longer has any influence over the operations of China Jinxin or any interest in its assets or the results of its operations. In consideration for the termination of the VIE Agreements, the Company received an aggregate of 5,378,219 shares of its common stock. The market stock price was $0.01 per share at disposal date.

The following table summarizes the carrying value of the assets and liabilities disposed of China Jinxin at the closing date of disposal. The excess of the selling price over the carrying value of the net assets disposed was recorded as gain from disposal of subsidiary of $2,688,996.

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

Overview

Prior to the sale of certain operations in December 2018, we produced Direct Reduced Iron (“DRI”) using advanced reduction rotary kiln technology with iron ore as the principal raw material. ‘Reduced Iron’ derives its name from the chemical change that iron ore undergoes when 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 iron’s melting point.

We were seeking 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 had 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.

However, we were repeatedly frustrated in our attempts to operate our facilities by environmental initiatives undertaken by local and national governments in China which forced us to shut down our plants and upgrade them to comply with the newly enacted regulations. In addition, a downturn in the Chinese steel industry had a negative impact on our operations, as when the need for iron decreases state-owned enterprises tend to contract with other state owned enterprises to obtain supplies for reasons other than cost.

On December 22, 2018, we entered into an Exchange Agreement, whereby we transferred all of the outstanding shares of China Huaxin to the Exiting Stockholders in exchange for 48,403,969 shares of own common stock. As a result of the consummation of the Exchange Agreement, we no longer have an interest in China Huaxin or any of its assets and liabilities, including the DRI Facility.

On December 22, 2018, we entered into a Termination Agreement. Pursuant to the Termination Agreement, we terminated the series of VIE agreements, under which we, acting through China Tongda, controlled the operations of China Jinxin and were to receive the economic benefits of the operations of China Jinxin. As a result of the termination of the VIE Agreements, control of China Jinxin reverted to the Exiting Shareholders and we no longer have any influence over the operations of China Jinxin or any interest in its assets and liabilities or the results of its operations. In consideration for the termination of the VIE Agreements, we received 5,378,219 shares of our common stock.

On December 10, 2018, we entered into a series of VIE Agreements with Shenzhen Dingshang Technology and its sole shareholder, Ms. Jing Xie. Shenzhen Technology Company was founded December 24, 2009, with registered capital of RMB1 million ($0.15 million). Shenzhen Technology Company is dedicated to the provision of a complete set of intelligent digital implementation plans for exhibition center projects and display booths, and the provision of innovative model designs for different exhibition centers and real estate. We issued 3,000,000 shares of our common stock to Ms. Xie in consideration of her entry into, and causing Shenzhen Technology Company to enter into, a series of VIE Agreements. Pursuant to the VIE Agreements, we have acquired operating control of Shenzhen Technology Company and we are considered as the primary beneficiary of Shenzhen Technology Company.

Results of Operations

Comparison of the three months ended March 31, 2019 and 2018

Sales

Sales for the three months ended March 31, 2019 and 2018 were $6,460 and $0, respectively. The sales for the three months ended March 31, 2019 was attributable to the service revenue of Shenzhen Technology Company.

Cost of Services Provided

Cost of services consists primarily of labor cost of Shenzhen Technology Company for creating, designing, assembling, installing and setting up exhibition center projects and display booths. Cost of services for the three months ended March 31, 2019 and 2018 was $4,699 and $0, respectively.

Gross Profit

The gross profit for the three months ended March 31, 2019 and 2018 was $1,761 and $0, respectively.

Operating Expenses

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

Operating expenses were $108,837 for the three months ended March 31, 2019, compared to $153,901 for the three months ended March 31, 2018, a decrease of $45,064 or 29%, primarily as a result of a decrease of our stock based compensation expense by $62,250.

Non-operating expense, Net

Non-operating expense was $137 for the three months ended March 31, 2019, compared to $48 for the three months ended March 31, 2018.

Loss from Continuing Operations

Loss from continuing operations was $107,213 for the three months ended March 31, 2019, compared to loss from continuing operation of $153,949 for the three months ended March 31, 2018. The $46,736 or 30% decrease in loss from continuing operations was mainly due to the decrease of general and administrative expense as described above.

Loss from Operations of Discontinued Entities

Loss from operations of discontinued entities was $0 for the three months ended March 31, 2019, compared to $1,273,064 for the three months ended March 31, 2018, which was the operation of China Jinxin and China Huaxin.

Net Loss

We had a net loss of $107,213 for the three months ended March 31, 2019, compared to net loss of $1,427,013 for the three months ended March 31, 2018. The decrease in our net loss resulted from the decrease loss from operations of discontinued entities as described above.

Liquidity and Capital Resources

As of March 31, 2019, cash and equivalents and restricted cash were $27,206, compared to $34,389 as of December 31, 2018. At March 31, 2019, we had a working capital deficit of $36,029. The following is a summary of cash provided by or used in each of the indicated types of activities during the three months ended March 31, 2019 and 2018, respectively.

Net cash used in operating activities

Net cash used in operating activities was $30,804 for the three months ended March 31, 2019, compared to $330,821 for the three months ended March 31, 2018. The decrease of cash outflow from operating activities for the three months ended March 31, 2019 was principally attributable to 1) decreased net loss by $1,319,800, which was partly offset by decreased depreciation expense by $719,579 (due to disposal of China Jinxin and China Huaxin) and decreased stock compensation expense by $62,250; 2) increased cash inflow from accounts receivable of $51,062, which was partly offset by decreased cash inflow from accrued liability and other payable by $221,674 and increased cash outflow on accounts payable by $56,468.

Net cash provided by investing activities

Net cash provided by investing activities was $22,974 for the three months ended March 31, 2019, compared to net cash provided by investing activities of 0 for the three months ended March 31, 2018. The net cash provided by investing activities in the three months ended March 31, 2019 was the proceeds received from a vehicle which was disposed in 2018.

Net cash provided by financing activities

Net cash provided by financing activities was $0 for the three months ended March 31, 2019, compared to net cash provided by financing activities of $330,252 for the three months ended March 31, 2018. The net cash provided by financing activities in 2018 was from the advances from related parties.

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.

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 loss of $107,213 for the three months ended March 31, 2019, and had accumulated deficit of $9.70 million as of March 31, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

We are currently seeking additional potential assets, properties or businesses to acquire, in a business combination, by reorganization, merger or acquisition. The plan of operation for the next 12 months is to: (i) determine which industries in which the Company may have an interest; (ii) adopt a business plan regarding engaging in the business of any selected industry; and (iii) commence operations through funding a start-up enterprise and/or acquiring an existing business or entering into a business combination with a “going concern” engaged in any industry selected. The Company is unable to predict when and if it may actually participate in any specific business endeavor, and the Company will be unable to do so until it determines the particular industry in which the Company may conduct business operations.

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 those estimates.

Revenue Recognition

In May 2014 the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes all existing revenue recognition requirements, including most industry specific guidance. This new standard requires a company to recognize revenues when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB subsequently issued the following amendments to ASU No. 2014-09 that have the same effective date and transition date: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations; ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients; and ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The Company adopted these amendments with ASU 2014-09 (collectively, the new revenue standards).

The new revenue standards became effective for the Company on January 1, 2018, and were adopted using the modified retrospective method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the Company does not have significant sales yet. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

Under the new revenue standards, the Company recognizes revenues when its customer obtains control of promised goods or services, in an amount that reflects the consideration which it expects to receive in exchange for those goods. The Company recognizes revenues following the five step model prescribed under ASU No. 2014-09: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenues when (or as) we satisfy the performance obligation.

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.

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.

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.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of adopting this standard on its CFS.

In June 2018, the FASB issued ASU 2018-07, “Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,” which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 becomes effective for the Company on January 1, 2019. Early adoption is permitted. The adoption of this accounting pronouncement is not expected to have an impact on the Company’s CFS.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future CFS.

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 March 31, 2019, 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 March 31, 2019, 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 March 31, 2019 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 Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 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 2018 Form 10-K.

Item 6 - Exhibits

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

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.