Company Quick10K Filing
Sterling Consolidated
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 47 $5
10-Q 2020-01-10 Quarter: 2019-09-30
10-Q 2020-01-08 Quarter: 2019-06-30
10-Q 2019-05-29 Quarter: 2019-03-31
10-K 2019-04-16 Annual: 2018-12-31
10-Q 2018-11-19 Quarter: 2018-09-30
10-Q 2018-08-20 Quarter: 2018-06-30
10-Q 2018-05-21 Quarter: 2018-03-31
10-K 2018-04-17 Annual: 2017-12-31
10-Q 2017-11-20 Quarter: 2017-09-30
10-Q 2017-08-18 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-04-17 Annual: 2016-12-31
10-Q 2017-01-20 Quarter: 2016-09-30
10-Q 2016-12-16 Quarter: 2016-06-30
10-Q 2016-12-02 Quarter: 2016-03-31
10-K 2016-08-12 Annual: 2015-12-31
10-Q 2015-11-16 Quarter: 2015-09-30
10-Q 2015-08-19 Quarter: 2015-06-30
10-Q 2015-05-21 Quarter: 2015-03-31
10-K 2015-04-22 Annual: 2014-12-31
10-Q 2014-11-19 Quarter: 2014-09-30
10-Q 2014-08-15 Quarter: 2014-06-30
10-Q 2014-05-20 Quarter: 2014-03-31
10-K 2014-04-15 Annual: 2013-12-31
10-Q 2013-11-19 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-15 Quarter: 2013-03-31
10-K 2013-04-16 Annual: 2012-12-31
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
STCC 2019-09-30
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 tm1927359d1_ex31-1.htm
EX-31.2 tm1927359d1_ex31-2.htm
EX-32.1 tm1927359d1_ex32-1.htm
EX-32.2 tm1927359d1_ex32-2.htm

Sterling Consolidated Earnings 2019-09-30

STCC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
NEPH 62 12 5 9 5 -4 -4 59 58% -14.8 -38%
INND 2 4 8 1 0 -5 -5 3 57% -0.7 -118%
RSPI 5 0 7 0 0 -1 -1 5 -3.8 -1,393%
EQUR 5 0 0 0 0 -0 -0 5 -10.5 -1,247%
STCC 5 7 6 5 2 0 0 5 28% 17.3 0%
BSPK 5 0 0 0 -0 3 3 5 -17% 1.6 3,249%
BLGI 5 0 1 0 0 -4 -4 5 -1.2 -1,386%
DWOG 5 23 1 0 0 -0 -0 5 -21.7 -1%
ADGO 5 1 5 0 0 -2 -1 4 11% -5.2 -272%
BRTX 5 1 14 0 0 -13 -13 6 0% -0.4 -898%

10-Q 1 tm1927359d1_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 September 30, 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 ¨     No x

 

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

 

Large accelerated filer ¨ 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 January 9, 2020 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

September 30, 2019

 

 

2

 

 

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements.

 

STERLING CONSOLIDATED CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

   September 30,   December 31, 
   2019   2018 
   (Unaudited)     
ASSETS          
Current assets          
Cash and cash equivalents  $117,604   $32,034 
Account receivable, net   1,633,125    942,683 
Inventory, net   3,111,009    2,560,136 
Notes receivable and other current assets   69,609    42,483 
           
Total current assets   4,931,347    3,577,336 
           
Property and equipment, net   1,535,833    1,631,614 
Intangible assets, net   112,434    68,905 
Deferred tax asset   350,539    309,520 
           
Total assets  $6,930,153   $5,587,375 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current liabilities          
Accounts payable and accrued expenses  $1,770,753   $1,278,479 
Asset-based line of credit   2,195,371    1,775,452 
Other liabilities   1,338    339 
Current portion of long-term notes payable, rel. party   52,702    52,702 
Current portion of long-term notes payable   53,016    3,929 
Total current liabilities   4,073,180    3,110,901 
           
Other liabilities          
Long-term notes payable, related parties   1,506,851    1,664,199 
Long-term notes payable   62,561    11,648 
Total other liabilities   1,569,412    1,675,847 
           
Total liabilities   5,642,592    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 June 30, 2019 and December 31, 2018, respectively   47,285    41,966 
Additional paid-in capital   2,569,249    2,074,568 
Accumulated deficit   (1,328,973)   (1,315,907)
Total stockholders' equity   1,287,561    800,627 
           
Total liabilities and stockholders' equity  $6,930,153   $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
September 30,
   For the Nine Months Ended
September 30,
 
    2019    2018    2019    2018 
Revenues                    
O-rings and rubber product sales  $2,529,152    1,678,243   $6,768,967   $4,913,040 
Freight services   71,622    35,483    145,708    119,505 
Total revenues   2,600,774   $1,713,726    6,914,675    5,032,545 
                     
Cost of sales                    
Cost of goods   1,886,816    1,143,139    5,106,935    3,518,303 
Cost of services   115,691    58,840    260,499    169,831 
Total cost of sales   2,002,508    1,201,979    5,367,435    3,688,134 
                     
Gross profit   598,266    511,747    1,547,240    1,344,411 
                     
Operating expenses                    
Sales and marketing   24,500    81,898    109,250    232,535 
General and administrative   451,985    343,424    1,290,772    1,007,286 
Research and development   -    -    30,000    112,500 
Total operating expenses   476,485    425,322    1,430,022    1,352,321 
                     
Operating income   121,781    86,425    117,218    (7,910)
                     
Other income (expense)                    
Other   -    (5,553)   1,206    (1,037)
Gain/(loss) on interest rate swap   -    (460)   -    2,349 
Loss on disposal of software   -    -    -    (20,498)
Interest expense   (56,288)   (33,376)   (136,827)   (98,514)
Total other expense   (56,288)   (39,389)   (135,621)   (117,700)
                     
Income (loss) before provision for income taxes   65,493    47,036    (18,403)   (125,610)
                     
Provision (benefit) for income taxes   17,837    14,111    (5,337)   (37,683)
                     
Net income (loss)  $47,656   $32,925   $(13,066)  $(87,927)
                     
                     
Net income (loss) per share of common stock:                    
Basic and diluted  $0.00   $0.00   $0.00   $(0.00)
                     
Weighted average number of shares outstanding                    
Basic and diluted   47,284,689    41,465,540    46,274,051    41,308,947 

 

See accompanying notes to consolidated financial statements

 

F-3

 

 

STERLING CONSOLIDATED CORP

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(UNAUDITED)

 

    Common Stock     Additional     Accumulated        
    Shares     Amount      Paid-in Capital     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 loss for the 9 months ended September 30, 2019                             (13,066 )     (13,066 )
                                         
Balance, September 30, 2019     47,284,689     $ 5,319     $ 2,569,249     $ (1,328,973 )   $ 1,287,561  
                                         
Balance, December 31, 2017     40,715,540     $ 40,716     $ 1,963,318     $ (1,249,181 )   $ 754,853  
                                         
Stock issued for services             750        96,750               97,500  
Net loss for the 9 months ended September 30, 2018                             (87,926 )     (87,926 )
                                         
Balance, September 30, 2018     40,715,540     $ 44,466     $ 2,060,068     $ (1,337,107 )   $ 764,427  

   

F-4

 

 

STERLING CONSOLIDATED CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Nine Months Ended
September 30
 
    2019     2018  
Cash flows from operating activities                
Net income (loss)   $ (13,066 )   $ (87,927 )
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     104,252       103,448  
Loss on disposal of software     -       20,498  
Gain on swap     -       (2,349 )
Stock for services     -       97,500  
Changes in operating assets and liabilities:                
Accounts receivable     (378,024 )     (256,024 )
Inventory     67,521       368,539  
Prepaids and other current assets     (17,165 )     12,845  
Deferred tax asset     (41,019 )     (37,683 )
Accounts payable and accrued interest payable     379,501       (13,153 )
Other liabilities     999       (32,570 )
Net cash provided by (used in) operating activities     102,999       173,124  
                 
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     419,919       -  
Payments on notes payable     -       (23,374 )
Net loan (paydown) on related party note     (69,394 )     (122,561 )
Net cash provided by (used in) financing activities     262,571       (145,935 )
                 
Net change in cash and cash equivalents     85,570       27,189  
                 
Cash and cash equivalents at the beginning of period     32,034       36,888  
                 
Cash and cash equivalents at the end of period   $ 117,604     $ 64,077  
                 
Supplemental disclosures of cash flow information:                
Cash paid for interest   $ 136,827     $ 98,514  
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 AFFILIATES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 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 September 30, 2019 and September 30, 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.

 

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.

 

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   September 30, 2019     December 31, 2018  
Finished goods   $ 3,842,201     $ 3,145,900  
Raw materials     -       -  
Work-in-progress     -       -  
Inventory Reserve     (731,192 )     (585,764 )
Net Inventory   $ 3,111,009     $ 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.

 

F-6

 

 

STERLING CONSOLIDATED CORP AND AFFILIATES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 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 10,800,000 and zero stock options and warrants that would have been included in the fully diluted earnings per share for the three and nine month periods ended September 30, 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’s record date for its DIMO cryptocurrency dividend was met on November 22, 2019. It has not been distributed yet, though its stated distribution date was December 13, 2019. It is expected the Company will begin distributing the DIMO tokens by January 31, 2019. As the Company has not yet built out the DIMO platform, the dividend is being valued at $0.

  

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 September 30, 2019 and 2018

 

Net Revenue

 

Net revenue increased by $887,048 or approximately 52%, from $1,713,726 for the three months ended September 30, 2018 to $2,600,774 for the three months ended September 30, 2019. This increase was due primarily to the incremental sales from the Company’s business acquisition made in the first quarter of 2019.

 

3

 

 

Total Cost of Sales

 

Cost of sales increased by approximately $800,529 or approximately 67%, from $1,201,979 for the three months ended September 30, 2018 to $2,002,508 for the three months ended September 30, 2019. This increase was due primarily to increased sales and increased headcount related to the Company’s 2019 acquisition, coupled with, increased inbound freight costs due to tariffs.

 

Gross profit

 

Gross profit increased by $86,519 or approximately 17%, from $511,747 for the three months ended September 30, 2018 to $598,266 for the three months ended September 30, 2019. This increase was due primarily to the aforementioned increase in sales.

 

Net Income

 

As a result of the above factors, the Company showed a net income of $47,656 for the three months ended September 30, 2019, as compared to a net income of $32,925 for the three months ended September 30, 2018. This increase of $14,731 or approximately 45% is primarily attributed to the significant increase in sales.

 

Comparison for the nine months ended September 30, 2019 and 2018

 

Net Revenue

 

Net revenue increased by approximately $1,882,130 or approximately 37%, from $5,032,545 for the nine months ended September 30, 2018 to $6,914,675 for the nine months ended September 30, 2019. This increase was due primarily to the incremental sales from the Company’s business acquisition made in the first quarter of 2019.

 

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Total Cost of Sales

 

Cost of sales increased by approximately $1,679,301 or approximately 46%, from $3,668,134 for the nine months ended September 30, 2018 to $5,367,435 for the nine months ended September 30, 2019. This increase was due primarily to increased sales and increased headcount related to the Company’s 2019 acquisition, coupled with increased inbound freight due to tariffs.

 

Gross profit

 

Gross profit increased by $202,829 or approximately 15%, from $1,344,411 for the nine months ended September 30, 2018 to $1,547,240 for the nine months ended September 30, 2019. This increase was due primarily to the aforementioned increase in sales offset by increased cost of goods sold due to increased cost of inbound freight and increased warehouse personnel headcount.

 

Net Income

 

As a result of the above factors, the Company showed a net loss of $13,066 for the nine months ended September 30, 2019, as compared to a net loss of $87,927 for the nine months ended September 30, 2018. This decreased loss of $74,861 or approximately 85 % is primarily attributed to the aforementioned factors that affected cost of sales as well as the fact that in 2018 the Company had higher spending on research and development by $82,500.

  

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 September 30, 2019, we had cash and cash equivalents of approximately $117,604 as compared to approximately $32,034 as of December 31, 2018, representing an increase of $85,570. This increase can be explained by net cash provided by operating activities of $102,999 primarily attributed to an increase in accounts receivable of $378,024, an increase in accounts payable and accrued expenses of $379,501 and a decrease in inventory of $67,521. 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 of $262,571 which was primarily due to borrowing on the asset-based line of credit of $419,919. On September 30, 2019, our working capital was approximately $858,167.

 

The cash flow provided by operating activities decreased from $173,124 for the nine months ended September 30, 2018 to net cash provided of $102,999 for the nine months ended September 30, 2019. This decrease of $70,125 is primarily attributed to increased sales of inventory in stock.

 

The cash flow from investing activities decreased from cash used of $0 for the nine months ended September 30, 2018 to net cash used of $280,000 for the nine months ended September 30, 2019. This decrease is attributed to the fact that the Company made a business acquisition in February of 2019.

 

The cash flow from financing activities increased from net cash used of $145,935 for the nine months ended September 30, 2018 to net cash provided of $262,571 for the nine months ended September 30, 2019. This increase is primarily attributed to a borrowing on asset-based line of credit in the amount of $419,919.

  

Bank Loans

 

The Company refinanced its debt in 2018 with a New York asset based lender. As of September 30, 2019 there was outstanding balance of $2,195,371. 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 September 30, 2019 were fully vested and therefore, no compensation expense was recorded in the quarter ended September 30, 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

 

The Company has declared a dividend of its proprietary cryptocurrency, DIMO, that is slated for distribution in the 4th quarter of 2019. As there is currently no market for the cryptocurrency, the Company has valued the dividend at $0.

 

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 September 30, 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 September 30, 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: January 9, 2020
     
  By: /s/ Scott Chichester
    Scott Chichester,
    Chief Financial Officer
    (Principal Financial and Accounting Officer)
     
    Dated: January 9, 2020

 

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