Company Quick10K Filing
Quick10K
Sterling Consolidated
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-04-12 Accountant, Exhibits
8-K 2019-01-17 Enter Agreement, Regulation FD, Exhibits
8-K 2019-01-03 Enter Agreement, Regulation FD, Exhibits
8-K 2018-12-26 Enter Agreement, Regulation FD, Exhibits
8-K 2018-10-12 Regulation FD, Exhibits
8-K 2018-09-17 Enter Agreement, Regulation FD, Exhibits
8-K 2018-02-14 Regulation FD, Exhibits
8-K 2017-01-29 Other Events, Exhibits
CTSH Cognizant 33,640
HUBS Hubspot 7,660
UNM Unum Group 7,590
AAWW Atlas Air Worldwide Holdings 1,090
LPI Laredo Petroleum 852
MAGS Magal Security Systems 116
AQB Aquabounty Technologies 49
BWEN Broadwind Energy 28
QPRC Quest Patent Research 0
KLMN Kalmin 0
STCC 2019-03-31
Part I - Financial Information
Item 1. Financial Statements.
Note 1 - Basis of Presentation
Note 2 - Significant Accounting Policies
Note 3 - Stock Transactions
Note 4 - Business Acquisition
Note 5 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 tv522118_ex31-1.htm
EX-31.2 tv522118_ex31-2.htm
EX-32.1 tv522118_ex32-1.htm
EX-32.2 tv522118_ex32-2.htm

Sterling Consolidated Earnings 2019-03-31

STCC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv522118_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)  
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended March 31, 2019
   
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.

 

Commission File Number: 333-183246

 

STERLING CONSOLIDATED CORP.

(Exact name of registrant as specified in its charter)

 

Nevada 45-1840913
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

1105 Green Grove Road

Neptune, New Jersey 07753

(Address of principal executive offices)

 

(732) 918-8004

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year,

if changed since last report)

 

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 ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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.

 

Large accelerated filer ¨ Accelerated filer ¨
   
Non-accelerated filer ¨  Smaller reporting company x
   
  Emerging growth company ¨

   

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 13(a) of the Exchange 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

 

As of May 29, 2019 there were 47,284,689 shares of common stock, $0.001 par value issued and outstanding.

 

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

 

Title of each class Trading symbol(s) Name of each exchange on which registered
Common STCC OTCQB

 

 

 

 

 

 

STERLING CONSOLIDATED CORP.

TABLE OF CONTENTS

FORM 10-Q REPORT

March 31, 2019

 

  Page 
Number
PART I - FINANCIAL INFORMATION F-2
Item 1. Financial Statements. F-2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 3
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 6
Item 4. Controls and Procedures. 6
     
PART II - OTHER INFORMATION 8
Item 1. Legal Proceedings. 8
Item 1A. Risk Factors. 8
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 8
Item 3. Defaults Upon Senior Securities. 8
Item 4. Mine Safety Disclosures 8
Item 5. Other Information. 9
Item 6. Exhibits. 9
     
SIGNATURES 10

 

2

 

 

PART I - FINANCIAL INFORMATION

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

 

F-2

 

 

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

 

F-3

 

 

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 

 

F-4

 

 

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

 

F-5

 

 

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. 

 

F-6

 

 

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.

 

F-7

 

 

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

 

 3 

 

 

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.

 

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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).

 

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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, 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a Smaller Reporting Company and are not required to provide the information under this item.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that due to material weaknesses the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions regarding required disclosure.

 

As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or combination of deficiencies that result in a more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of March 31, 2019:

 

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(1)Lack of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee it has no independent directors These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management.

 

(2)We do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience that is necessary for adequate controls and procedures.

 

(3)Need for greater integration, oversight, communication and financial reporting of the books and records of our satellite offices.

 

Our management determined that these deficiencies constituted material weaknesses.

 

Due to our small size, we were not able to immediately take any action to remediate these material weaknesses. Notwithstanding the assessment that our Internal Controls over Financial Reporting was not effective and that there were material weaknesses identified herein, we believe that our consolidated financial statements contained in this Annual Report fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects.

 

Changes in Internal Control

 

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

We are a Smaller Reporting Company and are not required to provide the information under this item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

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Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit
Number  
  Exhibit Title
     
31.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1**   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2**   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS *   XBRL Instance Document
     
101.SCH *   XBRL Taxonomy Schema
     
101.CAL *   XBRL Taxonomy Calculation Linkbase
     
101.DEF *   XBRL Taxonomy Definition Linkbase
     
101.LAB *   XBRL Taxonomy Label Linkbase
     
101.PRE *   XBRL Taxonomy Presentation Linkbase

 

* Filed herewith.

 

** In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed. 

 

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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.

 

  STERLING CONSOLIDATED CORP.
   
  By: /s/ Darren DeRosa
    Darren DeRosa,
    Chief Executive Officer
    (Principal Executive Officer)
     
    Dated: May 29, 2019
     
  By: /s/ Scott Chichester
    Scott Chichester,
    Chief Financial Officer
    (Principal Financial and Accounting Officer)
     
    Dated: May 29, 2019

  

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