Item 1. Financial Statements.
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
89,564
|
|
|
$
|
32,034
|
|
|
Account receivable, net
|
|
|
1,725,124
|
|
|
|
942,683
|
|
|
Inventory, net
|
|
|
3,183,617
|
|
|
|
2,560,136
|
|
|
Notes receivable and other current assets
|
|
|
20,763
|
|
|
|
42,483
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,019,068
|
|
|
|
3,577,336
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,601,055
|
|
|
|
1,631,614
|
|
|
Intangible assets, net
|
|
|
114,591
|
|
|
|
68,905
|
|
|
Deferred tax asset
|
|
|
300,926
|
|
|
|
309,520
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,035,640
|
|
|
$
|
5,587,375
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,567,520
|
|
|
$
|
1,278,479
|
|
|
Asset-based line of credit
|
|
|
2,262,833
|
|
|
|
1,775,452
|
|
|
Other liabilities
|
|
|
38
|
|
|
|
339
|
|
|
Current portion of long-term notes payable, related party
|
|
|
52,702
|
|
|
|
52,702
|
|
|
Current portion of long-term notes payable
|
|
|
54,130
|
|
|
|
3,929
|
|
|
Total current liabilities
|
|
|
3,937,223
|
|
|
|
3,110,901
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
Long-term notes payable, related parties
|
|
|
1,721,603
|
|
|
|
1,664,199
|
|
|
Long-term notes payable
|
|
|
56,511
|
|
|
|
11,648
|
|
|
Total other liabilities
|
|
|
1,778,114
|
|
|
|
1,675,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,715,337
|
|
|
|
4,786,748
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and 41
,
965,540 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
|
|
|
47,285
|
|
|
|
41,966
|
|
|
Additional paid-in capital
|
|
|
2,569,249
|
|
|
|
2,074,568
|
|
|
Accumulated deficit
|
|
|
(1,296,231
|
)
|
|
|
(1,315,907
|
)
|
|
Total stockholders' equity
|
|
|
1,320,303
|
|
|
|
800,627
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
7,035,640
|
|
|
$
|
5,587,375
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
|
|
|
For the Three Months Ended
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
O-rings and rubber product sales
|
|
$
|
2,217,708
|
|
|
$
|
1,754,356
|
|
|
Freight services
|
|
|
32,730
|
|
|
|
43,100
|
|
|
Total revenues
|
|
|
2,250,438
|
|
|
|
1,797,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
Cost of goods
|
|
|
1,531,102
|
|
|
|
1,260,031
|
|
|
Cost of services
|
|
|
80,185
|
|
|
|
70,224
|
|
|
Total cost of sales
|
|
|
1,611,287
|
|
|
|
1,330,255
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
639,151
|
|
|
|
467,201
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
84,894
|
|
|
|
90,177
|
|
|
General and administrative
|
|
|
454,239
|
|
|
|
358,028
|
|
|
Research and development
|
|
|
30,000
|
|
|
|
112,500
|
|
|
Total operating expenses
|
|
|
569,133
|
|
|
|
560,705
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
70,018
|
|
|
|
(93,504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
6,000
|
|
|
|
3,112
|
|
|
Gain/(loss) on interest rate swap
|
|
|
-
|
|
|
|
2,373
|
|
|
Loss on disposal of software
|
|
|
-
|
|
|
|
(20,498
|
)
|
|
Interest expense
|
|
|
(47,571
|
)
|
|
|
(32,217
|
)
|
|
Total other expense
|
|
|
(41,571
|
)
|
|
|
(47,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
28,447
|
|
|
|
(140,734
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
8,771
|
|
|
|
(41,032
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,676
|
|
|
$
|
(99,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of common stock:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.00
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
45,157,029
|
|
|
|
40,715,540
|
|
See accompanying notes to consolidated financial statements
STERLING CONSOLIDATED CORP
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY
(UNAUDITED)
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Common
Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Subscribed
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance, December 31, 2018
|
|
|
41,965,540
|
|
|
$
|
41,966
|
|
|
|
2,074,568
|
|
|
$
|
-
|
|
|
$
|
(1,315,907
|
)
|
|
$
|
800,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to acquire F&S Distributors, Inc.
|
|
|
5,319,149
|
|
|
|
5,319
|
|
|
|
494,681
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the three months ended March 31, 2019
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,676
|
|
|
|
19,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
47,284,689
|
|
|
$
|
47,285
|
|
|
|
2,569,249
|
|
|
$
|
-
|
|
|
$
|
(1,296,231
|
)
|
|
$
|
1,320,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
40,715,540
|
|
|
$
|
40,716
|
|
|
$
|
1,963,318
|
|
|
$
|
-
|
|
|
$
|
(1,249,181
|
)
|
|
$
|
754,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock subscribed
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
97,500
|
|
|
|
-
|
|
|
|
97,500
|
|
|
Net loss for the three months ended March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(99,702
|
)
|
|
|
(99,702
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
|
40,715,540
|
|
|
$
|
40,716
|
|
|
$
|
1,963,318
|
|
|
$
|
97,500
|
|
|
$
|
(1,348,883
|
)
|
|
$
|
752,651
|
|
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For the Three Months Ended
March 31
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,676
|
|
|
$
|
(99,702
|
)
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
36,873
|
|
|
|
36,637
|
|
|
Loss on disposal of software
|
|
|
-
|
|
|
|
20,498
|
|
|
Gain on swap
|
|
|
-
|
|
|
|
(2,373
|
)
|
|
Stock for services
|
|
|
-
|
|
|
|
97,500
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(470,023
|
)
|
|
|
(179,432
|
)
|
|
Inventory
|
|
|
(5,087
|
)
|
|
|
191,918
|
|
|
Prepaids and other current assets
|
|
|
31,681
|
|
|
|
9,804
|
|
|
Deferred tax asset
|
|
|
8,594
|
|
|
|
(41,032
|
)
|
|
Accounts payable and accrued interest payable
|
|
|
176,268
|
|
|
|
(8,739
|
)
|
|
Other liabilities
|
|
|
(301
|
)
|
|
|
7,108
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(202,319
|
)
|
|
|
32,187
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Net cash paid for acquisition of business
|
|
|
(280,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(280,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Borrowing on asset-based line of credit
|
|
|
487,381
|
|
|
|
-
|
|
|
Payments on notes payable
|
|
|
(4,936
|
)
|
|
|
(7,782
|
)
|
|
Net loan (paydown) on related party note
|
|
|
57,404
|
|
|
|
(35,819
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
539,849
|
|
|
|
(43,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
57,530
|
|
|
|
(11,414
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
32,034
|
|
|
|
36,888
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
89,564
|
|
|
$
|
25,474
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
47,571
|
|
|
$
|
33,767
|
|
|
Cash paid for taxes
|
|
$
|
2,191
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued for business acquisition
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
Note payable issued for business acquisition
|
|
$
|
100,000
|
|
|
$
|
-
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
MARCH 31, 2019
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, 2018 audited financial statements.
The results of operations for the periods ended March 31, 2019 and March 31, 2018 are not necessarily indicative of the operating
results for the full years.
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, 2018.
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 the first in, first out method) or market. 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, 2019
|
|
|
December 31, 2018
|
|
|
Finished goods
|
|
$
|
3,912,482
|
|
|
$
|
3,145,900
|
|
|
Raw materials
|
|
|
-
|
|
|
|
-
|
|
|
Work-in-progress
|
|
|
2,327
|
|
|
|
-
|
|
|
Inventory Reserve
|
|
|
(731,192
|
)
|
|
|
(585,764
|
)
|
|
Net Inventory
|
|
$
|
3,183,617
|
|
|
$
|
2,560,136
|
|
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.
On January 1, 2018, we adopted the new
accounting standard ASC 606,
Revenue from Contracts with Customers
, and all of the related amendments (“new revenue
standard”). Under this method, we are required to recognize the cumulative effect of initially applying the new revenue standard
as an adjustment to the opening balance of retained earnings. The adjustment was not material, and therefore was not made. This
results in no restatement of prior periods, which continue to be reported under the accounting standards in effect for those periods.
We expect the impact of the adoption of the new revenue standard to continue to be immaterial on an ongoing basis.
The impact of recording this change as
of January 1, 2018 resulted in no change to deferred revenue at that date and no corresponding change in retained earnings. The
impact of adopting the new revenue standard in 2019 did not create a material impact on our financial statements.
STERLING CONSOLIDATED CORP
AND AFFILIATES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2019
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 10,300,000 and 10,800,000 options and warrants that would have been included in the fully diluted earnings per share for the
three month periods ended March 31, 2019 and 2018, respectively.
NOTE 3 – STOCK TRANSACTIONS
In the first quarter of 2019, the
Company issued 5,319,149 shares of common stock as part of the acquisition of F&S Distributors, Inc. that were valued at
$500,000.
In the first quarter of 2018, the Company
signed a stock for services agreement authorizing the issuance of 750,000 shares of stock to a consultant at a valuation of $.10/share
related to its development of DiMO, the Company’s proprietary cryptocurrency. $0 and $75,000 was expensed to research and
development related to this transaction for the 3 months ended March 31, 2019 and March 31, 2018, respectively.
NOTE 4 – BUSINESS ACQUISITION
On February 12, 2019 the Company acquired
F & S Distributors, Inc., a New Jersey, distributor of o-rings and rubber products. The consideration paid consisted of $300,000
cash and 5,319,149 shares of common stock that were valued at $500,000 on the date of acquisition and a note payable carried by
the seller, for $100,000 payable in two equal installments of $50,000 paid 12 months after closing and another $50,000 paid 18
months after closing. The acquisition was accounted for under the purchase method of accounting.
The following assets and liabilities were acquired as part
of the transaction:
|
Assets Acquired
|
|
|
|
|
|
Cash
|
|
$
|
20,000
|
|
|
Accounts receivable
|
|
|
312,418
|
|
|
Inventory
|
|
|
763,822
|
|
|
Inventory reserve
|
|
|
(145,428
|
)
|
|
Security deposit
|
|
|
9,961
|
|
|
Client list
|
|
|
50,000
|
|
|
Equipment
|
|
|
2,000
|
|
|
Total assets acquired
|
|
|
1,012,773
|
|
|
|
|
|
|
|
|
Liabilities Acquired
|
|
|
|
|
|
Accounts payable
|
|
|
112,773
|
|
|
|
|
|
|
|
|
Net Assets Acquired
|
|
$
|
900,000
|
|
NOTE 5 – SUBSEQUENT EVENTS
The Company reviewed any significant transactions
that would qualify for subsequent event reporting up through May 29, 2019. None were noted.
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, 2019 and 2018
Net Revenue
Net revenue
increased by approximately $452,982 or approximately 25.20 %, from $
1,797,456
for the three
months ended March 31, 2018 to $
2,250,438
for the three months ended March 31, 2019. This
increase was due primarily to the incremental sales from the Company’s acquisition
Total Cost of Sales
Cost of sales increased by approximately
$281,032 or approximately 21.13 %, from $1,330,255 for the three months ended March 31, 2018 to $1,611,287 for the three months
ended March 31, 2019. This increase was due primarily to tariffs and the increased sales related to the above-named acquisition.
Gross profit
Gross profit increased by approximately
$171,950 or approximately 36.80 %, from $467,201 for the three months ended March 31, 2018 to $639,151 for the three months ended
March 31, 2019. This increase was due primarily to the above described increase in total revenue.
Net Income
As a result of the above factors, the Company
showed a net income of $19,876 for the three months ended March 31, 2019, as compared to a net loss of $99,702 for the three months
ended March 31, 2018. This increase of $119,378 or approximately 119.00 % is attributed to a combination of increased total revenue
and decreased total operating expenses.
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 and cash generated from operations.
On March 31, 2019, we had cash and
cash equivalents of approximately $89,564 as compared to approximately $32,034 as of December 31, 2018, representing an
increase of $57,530. This increase can be explained by net cash used in operating activities of $202,319 primarily attributed
to an increase in accounts receivable of $470,023 , increase in inventory of $5,087, a decrease in accounts payable and
accrued expenses of $176,268. This was offset by net cash used in financing activities of $280,000 attributed to the
Company’s business acquisition and net cash provided by financing activities which was primarily due to borrowing on
the asset-based line of credit of $487,381. On March 31, 2019, our working capital was approximately $1,112,045.
The cash flow provided by operating activities
decreased from $32,187 for the quarter ended March 31, 2018 to net cash used of $202,319 for the quarter ended March 31, 2019.
This decrease of $234,506 is primarily attributed to an increase in receivables partially offset by a lesser increase in accounts
payable.
The cash flow from investing activities
decreased from cash used of $0 for the quarter ended March 31, 2018 to net cash used of $280,000 for the quarter ended March 31,
2019. This decrease is attributed to the Company made a business acquisition in February of 2019.
The cash flow from financing activities
increased from net cash used of $43,601 for the quarter ended March 31, 2018 to net cash provided of $539,849 for the quarter ended
March 31, 2019. This increase is primarily attributed to a borrowing on asset-based line of credit in the amount of $487,381.
Bank Loans
The Company refinanced its debt in 2018
with a New York asset based lender and there is currently an outstanding balance of $2,262,833. The line of credit calls for a
variable interest rate at market rates for the ABL industry.
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, 2018, 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.
|
|
·
|
Level
1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
|
|
|
·
|
Level
2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc…).
|
|
|
·
|
Level
3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).
|
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, 2019 were fully
vested and therefore, no compensation expense was recorded in the quarter ended March 31, 2019.
Recent Accounting Pronouncements
The Company’s management has considered
all recent accounting pronouncements. Management believes that these recent pronouncements will not have a material effect on the
Company’s financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.