Item 1. Financial Statements.
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
746,354
|
|
|
$
|
171,818
|
|
|
Account receivable, net
|
|
|
1,332,482
|
|
|
|
1,177,928
|
|
|
Inventory, net
|
|
|
2,710,886
|
|
|
|
3,045,718
|
|
|
Notes receivable and other current assets
|
|
|
11,918
|
|
|
|
20,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,801,640
|
|
|
|
4,416,311
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
938,777
|
|
|
|
1,448,071
|
|
|
Intangible assets, net
|
|
|
87,784
|
|
|
|
91,284
|
|
|
Deferred tax asset
|
|
|
264,327
|
|
|
|
325,807
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,092,528
|
|
|
$
|
6,281,473
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
637,764
|
|
|
$
|
1,042,828
|
|
|
Asset-based line of credit
|
|
|
1,004,885
|
|
|
|
896,913
|
|
|
Other liabilities
|
|
|
4,325
|
|
|
|
5,330
|
|
|
Current portion of long-term notes payable, rel. party
|
|
|
52,702
|
|
|
|
52,702
|
|
|
Current portion of long-term notes payable
|
|
|
258,604
|
|
|
|
257,610
|
|
|
Total current liabilities
|
|
|
1,958,280
|
|
|
|
2,255,383
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
Long-term notes payable, related party
|
|
|
710,189
|
|
|
|
749,074
|
|
|
Long-term notes payable
|
|
|
1,828,439
|
|
|
|
1,839,488
|
|
|
Total other liabilities
|
|
|
2,538,628
|
|
|
|
2,588,562
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,496,908
|
|
|
|
4,843,945
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares
|
|
|
|
|
|
|
|
|
|
authorized, no shares issued
|
|
|
-
|
|
|
|
-
|
|
|
Common stock, $0.001 par value; 200,000,000 shares authorized, 47,284,689 shares issued and outstanding as of March 31, 2021 and December 31, 2020.
|
|
|
47,285
|
|
|
|
47,285
|
|
|
Additional paid-in capital
|
|
|
2,569,249
|
|
|
|
2,569,249
|
|
|
Accumulated deficit
|
|
|
(1,020,914
|
)
|
|
|
(1,179,006
|
)
|
|
Total stockholders' equity
|
|
|
1,595,620
|
|
|
|
1,437,528
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
6,092,528
|
|
|
$
|
6,281,473
|
|
See accompanying notes to condensed consolidated financial statements
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
O-rings and rubber product sales
|
|
$
|
2,210,565
|
|
|
$
|
2,364,473
|
|
|
Freight services
|
|
|
135,789
|
|
|
|
31,181
|
|
|
Total revenues
|
|
|
2,346,354
|
|
|
|
2,395,654
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
Cost of goods
|
|
|
1,603,880
|
|
|
|
1,508,614
|
|
|
Cost of services
|
|
|
171,374
|
|
|
|
65,905
|
|
|
Total cost of sales
|
|
|
1,775,254
|
|
|
|
1,574,519
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
571,100
|
|
|
|
821,135
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
77,132
|
|
|
|
75,357
|
|
|
General and administrative
|
|
|
465,703
|
|
|
|
368,003
|
|
|
Total operating expenses
|
|
|
542,835
|
|
|
|
443,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28,265
|
|
|
|
377,775
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2,982
|
|
|
|
2,982
|
|
|
Loss on theft
|
|
|
-
|
|
|
|
(10,000
|
)
|
|
Interest expense
|
|
|
(37,005
|
)
|
|
|
(52,004
|
)
|
|
Gain on sale of real estate
|
|
|
225,330
|
|
|
|
-
|
|
|
Total other expense
|
|
|
191,307
|
|
|
|
(459,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
219,572
|
|
|
|
318,753
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
61,480
|
|
|
|
96,247
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
158,092
|
|
|
$
|
222,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
47,284,689
|
|
|
|
47,284,689
|
|
See accompanying notes to condensed consolidated financial statements
|
STERLING CONSOLIDATED CORP
|
|
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Accumulated Deficit
|
|
|
Total
|
|
|
Balance, December 31, 2019
|
|
|
47,284,689
|
|
|
$
|
47,285
|
|
|
$
|
2,569,249
|
|
|
$
|
(1,103,727
|
)
|
|
$
|
1,512,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,506
|
|
|
|
222,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020
|
|
|
47,284,689
|
|
|
$
|
47,285
|
|
|
$
|
2,569,249
|
|
|
$
|
(881,221
|
)
|
|
$
|
1,735,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2020
|
|
|
47,284,689
|
|
|
$
|
47,285
|
|
|
$
|
2,569,249
|
|
|
$
|
(1,179,006
|
)
|
|
$
|
1,437,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158,092
|
|
|
|
158,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021
|
|
|
47,284,689
|
|
|
$
|
47,285
|
|
|
$
|
2,569,249
|
|
|
$
|
(1,020,914
|
)
|
|
$
|
1,595,620
|
|
See accompanying notes to
condensed consolidated financial statements
|
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
158,092
|
|
|
$
|
222,506
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25,624
|
|
|
|
32,123
|
|
|
Gain on sale of real estate
|
|
|
(225,330
|
)
|
|
|
-
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(154,554
|
)
|
|
|
(88,033
|
)
|
|
Inventory
|
|
|
334,832
|
|
|
|
176,175
|
|
|
Prepaids and other current assets
|
|
|
8,929
|
|
|
|
(145,880
|
)
|
|
Deferred tax asset
|
|
|
61,480
|
|
|
|
95,626
|
|
|
Accounts payable and accrued interest payable
|
|
|
(405,064
|
)
|
|
|
(259,587
|
)
|
|
Other liabilities
|
|
|
(1,005
|
)
|
|
|
-
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(196,996
|
)
|
|
|
32,930
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of real estate
|
|
|
712,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
712,500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net borrowings on asset-based line of credit
|
|
|
107,972
|
|
|
|
78,796
|
|
|
Net paydown on notes payable
|
|
|
(10,055
|
)
|
|
|
(147,119
|
)
|
|
Net paydown on related party note
|
|
|
(38,885
|
)
|
|
|
(68,248
|
)
|
|
Net cash provided by financing activities
|
|
|
59,032
|
|
|
|
(136,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
574,536
|
|
|
|
(103,641
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
171,818
|
|
|
|
106,348
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
746,354
|
|
|
$
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
37,005
|
|
|
$
|
52,004
|
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
1,338
|
|
See accompanying notes to condensed consolidated financial statements
STERLING CONSOLIDATED CORP AND AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2021
NOTE 1 – BASIS OF PRESENTATION
The accompanying interim financial statements
have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of and for the period ended,
and for all periods presented herein, have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America
have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company’s December 31, 2020 audited financial statements. The results of
operations for the periods ended March 31, 2021 and March 31, 2020 are not necessarily indicative of the operating results for
the full years.
COVID-19
In the first quarter of 2020 the Company was affected
by COVID-19. The COVID-19 pandemic has caused us to modify our business practices (including employee travel, employee work locations,
and reduction of physical participation in meetings, events and conferences), and we may take further actions as may be required by government
authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that
such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. We reiterate
that COVID 19 has affected our results of operations and the first quarter 2020 financial results are not necessarily indicative of the
annual 2021 results.
COVID-19 continues to affect the world economy
in 2021. The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments,
which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the
actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result
of its global economic impact, including any recession that has occurred or may occur in the future.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
The accounting policies applied by the Company
in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements
as at and for the year ended December 31, 2020.
ASU 2016-13,
“Financial Instruments - Credit Losses” (Topic 326)
This pronouncement, along with subsequent ASUs
issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected
loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected
credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net
presentation of the amount expected The standard was effective for fiscal years beginning after December 15, 2019. Management has
evaluated the impact in 2021 and has concluded the effect is not material to the Consolidated Financial Statements as a whole.
Use of Estimates
The preparation of consolidated financial statements
in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial
statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our
estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, useful lives
of intangible assets and property and equipment, inventory valuations, income taxes, and contingent liabilities, among others. We base
our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities.
Inventories
Inventories, which are comprised of finished goods,
are stated at the lower of cost (based on weighted average method) Cost does not include shipping and handling fees, which are charged
directly to income. The Company provides for estimated losses from obsolete or slow-moving inventories, which is approximately 20% of
the total inventory, and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon
inventory on hand, historical sales activity, industry trends, the business environment, and the expected net realizable value. The net
realizable value is determined based upon current awareness of market prices.
|
Inventory Type
|
|
March 31,
2021
|
|
|
December 31,
2020
|
|
|
Finished goods
|
|
$
|
3,442,078
|
|
|
$
|
3,776,910
|
|
|
Raw materials
|
|
|
-
|
|
|
|
-
|
|
|
Work-in-progress
|
|
|
|
|
|
|
-
|
|
|
Inventory Reserve
|
|
|
(731,192
|
)
|
|
|
(731,192
|
)
|
|
Net Inventory
|
|
$
|
2,710,886
|
|
|
$
|
3,045,718
|
|
Revenue Recognition
The Company recognizes
revenue based on Account Standards Codification (“ASC”) 606, Revenue from Contracts with Customers,
and all of the related amendments (“new revenue standard”). In the case of Sterling, revenue is recognized only when the price
is fixed or determinable, persuasive evidence of an arrangement exists, shipment of the product has occurred, price is fixed or determinable
and collectability of the resulting receivable is reasonably assured. For provision of third-party freight services provided by
Integrity, revenue is recognized on a gross basis in accordance with ASC 606. Revenue is generally recognized when the contracted goods
arrive at their destination point. When revenues and expenses straddle a period end due to the time between shipment and delivery, Integrity
allocates revenue between reporting periods based on relative transit time in each period with expenses recognized as incurred. Cost of
goods is comprised of sale of o-rings and related rubber products. Freight services is comprised of freight forwarding and related services
earned by Integrity and rental services is comprised of revenue from rental of commercial space to third parties.
Basic and Diluted Earnings per Share
The computation of basic earnings (loss) per share
of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted
earnings (loss) per share includes common stock equivalents outstanding at the balance sheet date. The Company had 10,800,000 and zero
stock options and warrants that would have been included in the fully diluted earnings per share for the three- and 3-month periods ended
March 31, 2021 and 2020, respectively.
NOTE 3 – CLOSURE OF FLORIDA OFFICE AND SALE OF REAL ESTATE
In the first quarter of 2020, the Company closed
down its Florida operations and consolidated the sales accounts with its New Jersey based sales force based out of the Company’s
headquarters in Neptune, New Jersey. The Company owns the Florida property unencumbered and intends to sell it in 2020. The closure was
an effort to reduce costs and consolidate operations and was not related to COVID-19.
On March 30, 2021 the Company sold its building
and land in Apopka, Florida. The proceeds on the sale were $712,500 and the company recorded a gain on the sale of $225,330.
NOTE 4 – LOSS ON THEFT
In the first quarter of 2020, the Company was
subjected to a fraudulent request for refund from an individual posing as a customer. The Company honored the refund request, but soon
discovered the request was fraudulent. The Company had an initial loss of $92,435 and received $82,435 in the second quarter of 2020 from
a claim with its insurance company. The net loss of $10,000 was recorded in other expense in the consolidated statement of operations
for the 3 months ended March 31, 2020.
NOTE 5 – SUBSEQUENT EVENTS
PPP Forgiveness
In May of 2021, the Company’s PPP draw
1 loan of $326,100 was forgiven in full and was recorded as other income.
Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
Cautionary Notice Regarding Forward Looking
Statements
The information contained in Item 2 contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain
risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in
the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct
or that actual results will not be different from expectations expressed in this report.
This filing contains a number of forward-looking
statements which reflect management’s current views and expectations with respect to our business, strategies, products, future
results and events, and financial performance. All statements made in this filing other than statements of historical fact, including
statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the
future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds
from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking
statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,”
“may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means
of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements
are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could
differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements.
We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Readers should not place undue reliance on these
forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees
of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the
date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
Overview
We were incorporated in the State of Nevada as
Oceanview Acquisition Corp. on January 31, 2011. On May 18, 2012, we amended our Articles of Incorporation to change our name
to Sterling Consolidated Corp.
Our largest subsidiary is Sterling
Seal & Supply, Inc. (“Sterling Seal”), a New Jersey corporation which was incorporated in 1997. Its
predecessor was Sterling Plastic & Rubber Products, Inc., incorporated in New Jersey and was founded in 1970. Sterling
Seal engages primarily in the distribution and sale of O-rings, rubber seals, oil seals, custom molded rubber parts, custom Teflon
parts, Teflon rods, O-ring cord, bonded seals, O-ring kits, and stuffing box sealant.
We also own real property through our subsidiaries
ADDR Properties, LLC (“ADDR”) and Q5 Ventures, LLC (“Q5”). ADDR owns a 28,000 square foot facility in Neptune,
New Jersey, that is primarily used by Sterling Seal for its operations.
In addition, our subsidiary Integrity Cargo Freight
Corporation (“Integrity”) is a freight forwarding business. Integrity shares a facility with Sterling Seal and manages the
importation of Sterling Seal’s products and exports products on behalf of Sterling Seal to various countries. Currently eighty percent
(80%) of Sterling Seal’s imports come from Asia, and ten percent (10%) of the Company’s sales are exported to various countries.
However, all payables are billed and collected in USD, so Sterling does not bear any foreign exchange risk on open payables.
Results of Operations
Comparison for the three months ended March 31,
2021 and 2020
Net Revenue
Net revenue decreased by $49,300, or 2.1%, from
$2,395,654 for the three months ended March 31, 2020 to $2,395,654 for the three months ended March 31, 2021. This decrease
was due primarily to inventory shortages created by the COVID-19 pandemic. We expect this worldwide inventory shortage to continue through
2021.
Total Cost of Sales
Cost of sales increased by $200,735 or 12.7%,
from $1,574,519 for the three months ended March 31, 2020 to $1,775,254 for the three months ended March 31, 2021. This increase
was due primarily to price increases attributed to the worldwide o-ring inventory shortage.
Gross profit
Gross profit decreased by $250,035 or 30.4 %,
from $ 821,135 for the three months ended March 31, 2020 to $571,100 for the three months ended March 31, 2021. This decrease
was due primarily to the above mentioned decrease in sales and increase in cost of sales.
Operating income
Operating income decreased by $349,510, from $
377,775 for the three months ended March 31, 2020 to $28,625 for the three months ended March 31, 2021. This decrease can be
explained by the above explained decreases in net revenue and gross profit, coupled with an increase of $99,75 in operating expenses.
The increase in operating expenses is explained by a $43,984 increase in general and administrative costs related to the closing of the
Florida real estate sale coupled with increased payroll and related costs due to increased administrative headcount.
Other income (expense)
Other expense increased from a loss of $59,022
for the three months ended March 31, 2020 to income of $191,307 for the three months ended March 31, 2021. This increase was
primarily due to a gain on sale of real estate of $225,330 offset by a reduction in interest expense related to reduced debt.
Net Income
As a result of the above factors, the Company
showed a net income of $158,092 for the three months ended March 31, 2021, as compared to a net income of $222,504 for the three
months ended March 31, 2020.
Liquidity and Capital Resources
Cash requirements for, but not limited to, working
capital, capital expenditures, and debt repayments have been funded from cash balances on hand, revolver borrowings, loans from officers,
notes payable, CARES ACT loans and cash generated from operations.
On March 31, 2021, we had cash and cash equivalents
of $746,354 as compared to approximately $171,818 as of December 31, 2020, representing an increase of $574,536. This increase can
be explained by net cash used in operating activities of $196,996 primarily attributed to net income of $158,092, a decrease in inventory
of $334,832 offset by a decrease in accounts payable and accrued interest payable of $405,064. This was offset by net cash used in financing
activities of $136,571 attributed to the Company’s business acquisition and net cash provided by financing activities which was
primarily due to a paydown on notes payable of $147,119, a paydown of $68,248 on related party notes payable, offset by increased borrowing
on the asset-based line of credit of $78,796. On March 31, 2021, our working capital was approximately $2,843,360.
The cash flow from operating activities increased
from net cash used of $32,930 for the quarter ended March 31, 2020 to net cash used of $196,996 for the quarter ended March 31,
2021. This increase of $229,926 is primarily attributed to reduced net income coupled with an increase in paydown of accounts payable.
The cash flow from investing activities decreased
from cash provided of $0 for the quarter ended March 31, 2020 to $712,500 for the quarter ended March 31, 2021. This increase
is attributed to the sale of the Florida property on March 30, 2021.
The cash flow from financing activities increased
from net cash used of $136,571 for the quarter ended March 31, 2020 to net cash provided of $59,032 for the quarter ended March 31,
2021. This increase is primarily attributed to a increased borrowing on the asset-based line of credit coupled with decreased paydowns
on notes payable and related party notes payable.
Bank Loans
In the 4th quarter 2019, the Company
obtained a mortgage with a New Jersey commercial bank. The mortgage was for $1,650,000 and carries a fixed interest rate of 5.00% amortized
over 25 years with a re-financing required after 5 years. As of March 31, 2021 the Company had a balance of $1,604,532 outstanding
on the note.
The Company currently also utilizes an asset-based
line of credit from a New York-based asset-based lender. The Company was authorized for a line of $2,500,000 and currently pays 7% per
annum in interest. As of March 31, 2021 the Company had a balance of $1,004,885 outstanding on the asset-based line.
The Company being in arrears on its public company
reporting requirements may be considered a covenant breach by the lender.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial
Statements, in accordance with accounting principles generally accepted in the United States, requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures pertaining to contingent assets
and liabilities. Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements describes the significant
accounting policies used to prepare the Consolidated Financial Statements. On an ongoing basis we evaluate our estimates, including, but
not limited to, those related to bad debts, inventories, income taxes, and contingencies. We base our estimates on historical experience
and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from our estimates.
We believe the following accounting policies and estimates are the
most critical. Some of them involve significant judgments and uncertainties and could potentially result in materially different results
under different assumptions and conditions.
Revenue recognition
The Company recognizes revenue based on Account
Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, and all of the related
amendments (“new revenue standard”). In the case of Sterling, revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, shipment of the product has occurred, price is fixed or determinable and collectability
of the resulting receivable is reasonably assured. The new revenue standard does not materially change this calculation method.
For provision of third-party freight services provided by Integrity, revenue is recognized on a gross basis in accordance with ASC 606.
Revenue is generally recognized when the contracted goods arrive at their destination point. When revenues and expenses straddle
a period end due to the time between shipment and delivery, Integrity allocates revenue between reporting periods based on relative
transit time in each period with expenses recognized as incurred. Cost of goods is comprised of sale of o-rings and related rubber products.
Freight services is comprised of freight forwarding and related services earned by Integrity and rental services is comprised of revenue
from rental of commercial space to third parties.
Income taxes
Under the asset and liability method prescribed
under ASC 740, Income Taxes, the Company uses the liability method of accounting for income taxes. The liability
method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the
differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The
resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur. A valuation allowance
is provided when it is more likely than not that a deferred tax asset will not be realized.
The Company recognizes the financial statement
benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination.
For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in the financial statements will be
the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial
statement benefit is recognized. As of December 31, 2020, the Company had no uncertain tax positions.
Fair values of financial instruments
In January 2010, the FASB ASC Topic 825, Financial
Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual
reports. For the Company, this statement applies to certain investments and long-term debt. Also, the FASB ASC Topic
820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes
a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.
Various inputs are considered when determining
the value of the Company’s investments and long-term debt. The inputs or methodologies used for valuing securities are
not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the
three broad levels listed below.
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Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
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Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.…).
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Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
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The Company’s adoption of FASB ASC Topic
825, effectively at the beginning of the second quarter in FY 2010, did not have a material impact on the company’s financial statements.
The carrying value of financial assets and liabilities
recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring
basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried
and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are
those that are adjusted to fair value each time a financial statement is prepared.
Stock-based compensation
The Company records stock-based compensation at
fair value of the stock provided for services. The 10,300,000 of the stock options outstanding as of March 31, 2021 were fully vested
and therefore, no compensation expense was recorded in the quarters ended March 31, 2021 or 2020.
Recent Accounting Pronouncements
ASU 2016-13,
“Financial Instruments - Credit Losses” (Topic 326)
This pronouncement, along with subsequent ASUs
issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected
loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected
credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net
presentation of the amount expected The standard was effective for fiscal years beginning after December 15, 2019. Management has
evaluated the impact in 2021 and has concluded the effect is not material to the Consolidated Financial Statements as a whole.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
