Item 1. Financial Statements.
STERLING CONSOLIDATED CORP AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,218
|
|
|
$
|
31,429
|
|
|
Account receivable, net
|
|
|
794,307
|
|
|
|
732,972
|
|
|
Inventory, net
|
|
|
2,806,983
|
|
|
|
2,796,796
|
|
|
Notes receivable and other current assets
|
|
|
35,326
|
|
|
|
20,525
|
|
|
Total current assets
|
|
|
3,644,834
|
|
|
|
3,581,722
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,875,409
|
|
|
|
2,527,227
|
|
|
Goodwill and other intangibles, net
|
|
|
120,466
|
|
|
|
120,466
|
|
|
Deferred tax asset
|
|
|
162,439
|
|
|
|
162,439
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,803,148
|
|
|
$
|
6,391,854
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,206,188
|
|
|
$
|
1,291,227
|
|
|
Bank line of credit
|
|
|
849,316
|
|
|
|
1,245,316
|
|
|
Other liabilities
|
|
|
22,697
|
|
|
|
66,665
|
|
|
Derivative liability
|
|
|
33,992
|
|
|
|
24,560
|
|
|
Current portion of long-term notes payable
|
|
|
66,421
|
|
|
|
61,416
|
|
|
Total current liabilities
|
|
|
2,178,614
|
|
|
|
2,689,184
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
Long-term notes payable, related parties
|
|
|
1,730,954
|
|
|
|
1,720,949
|
|
|
Long-term notes payable, net of current portion
|
|
|
1,113,037
|
|
|
|
1,127,261
|
|
|
Total other liabilities
|
|
|
2,843,991
|
|
|
|
2,848,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,022,605
|
|
|
|
5,537,394
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 40,715,540 and 40,715,540 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
|
|
|
40,716
|
|
|
|
40,716
|
|
|
Additional paid-in capital
|
|
|
1,446,278
|
|
|
|
1,446,278
|
|
|
Accumulated deficit
|
|
|
(706,451
|
)
|
|
|
(632,534
|
)
|
|
Total stockholders' equity
|
|
|
780,543
|
|
|
|
854,460
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
5,803,148
|
|
|
$
|
6,391,854
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
|
|
For the three months ended
March 31,
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
O-rings and rubber product sales
|
|
$
|
1,453,188
|
|
|
$
|
1,701,938
|
|
|
Freight services
|
|
|
28,923
|
|
|
|
35,728
|
|
|
Total revenues
|
|
|
1,482,111
|
|
|
$
|
1,737,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
Cost of goods
|
|
|
1,049,694
|
|
|
|
1,215,395
|
|
|
Cost of services
|
|
|
51,962
|
|
|
|
47,650
|
|
|
Total cost of sales
|
|
|
1,101,656
|
|
|
|
1,263,045
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
380,455
|
|
|
|
474,621
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
47,231
|
|
|
|
64,999
|
|
|
General and administrative
|
|
|
385,132
|
|
|
|
438,061
|
|
|
Total operating expenses
|
|
|
432,363
|
|
|
|
503,060
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(51,908
|
)
|
|
|
(28,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(223
|
)
|
|
|
(18,928
|
)
|
|
Loss on sale of real estate
|
|
|
(39,910
|
)
|
|
|
-
|
|
|
Gain/(loss) on swap
|
|
|
(9,432
|
)
|
|
|
(9,044
|
)
|
|
Interest expense
|
|
|
(38,389
|
)
|
|
|
(37,932
|
)
|
|
Total other expense
|
|
|
(87,954
|
)
|
|
|
(65,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(139,862
|
)
|
|
|
(94,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
(65,945
|
)
|
|
|
(37,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(73,917
|
)
|
|
$
|
(56,855
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
40,715,540
|
|
|
|
40,519,740
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For the Three Months Ended
March 31,
|
|
|
|
|
|
|
|
Restated
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(73,917
|
)
|
|
$
|
(56,855
|
)
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
34,754
|
|
|
|
38,578
|
|
|
Loss on sale of building
|
|
|
39,910
|
|
|
|
-
|
|
|
Bad debt expense
|
|
|
12,911
|
|
|
|
-
|
|
|
Loss on swap
|
|
|
9,432
|
|
|
|
9,044
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued interest related party
|
|
|
10,005
|
|
|
|
-
|
|
|
Accounts receivable
|
|
|
(74,246
|
)
|
|
|
4,101
|
|
|
Inventory
|
|
|
(10,187
|
)
|
|
|
94,558
|
|
|
Other assets
|
|
|
25
|
|
|
|
(45,820
|
)
|
|
Accounts payable and accrued interest payable
|
|
|
(85,038
|
)
|
|
|
104,353
|
|
|
Other liabilities
|
|
|
(43,968
|
)
|
|
|
(145,852
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
(180,319
|
)
|
|
|
2,107
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Sale of building
|
|
|
562,327
|
|
|
|
-
|
|
|
Net cash provided by investing activities
|
|
|
562,327
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net paydown of bank line of credit
|
|
|
(396,000
|
)
|
|
|
-
|
|
|
Payments on notes payable
|
|
|
(9,219
|
)
|
|
|
(9,989
|
)
|
|
Net loan (paid) - related party
|
|
|
-
|
|
|
|
(1,690
|
)
|
|
Net proceeds of common stock after issuance costs
|
|
|
-
|
|
|
|
6,701
|
|
|
Net cash used in financing activities
|
|
|
(405,219
|
)
|
|
|
(4,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalent
|
|
|
(23,211
|
)
|
|
|
(2,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
31,429
|
|
|
|
13,458
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
8,218
|
|
|
$
|
10,587
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow Information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
38,389
|
|
|
$
|
22,125
|
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
750
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP AND
AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2016
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, 2015 audited financial statements. The results of operations for the periods ended March 31, 2016 and March 31, 2015
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, 2015.
There
have been no changes in the Company's significant accounting policies for the periods ended March 31, 2016 as compared to those
disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
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 4% 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.
Revenue
Recognition
The Company recognizes
revenue based on Account Standards Codification
(“ASC”) 605 “Revenue Recognition”
which
contains Securities and Exchange Commission Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’
and No. 104, “Revenue Recognition”. 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 605-45 " Revenue Recognition: Principal Agent
Considerations " since Integrity is the primary obligor in its shipping arrangements. 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.
STERLING CONSOLIDATED CORP AND
AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2016
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 no stock options and warrants that would have been included in the fully diluted earnings
per share for the three month periods ended March 31, 2016 and 2015, respectively.
NOTE
3 – SALE OF REAL ESTATE
In
March of 2016, the Company sold its commercial building in Cliffwood Beach, New Jersey. The sale price was $625,000 and the Company
recognized a loss on the sale of $39,910. The Company received $562,327 in cash at closing with $20,000 held in escrow for repairs.
$14,826 of the $20,000 in escrow was returned to the Company on August 1, 2016.
NOTE
4 – RESTATEMENT
The
Company restated its March 31, 2015 Income Statement and Statement of Cash Flows to reflect the unrealized gain or loss on its
swap used to fix its floating rate mortgage instrument. The effects of the changes on the March 31, 2015 financial statements
can be noted as follows:
Income Statement
|
|
|
Original
|
|
|
As Restated
|
|
|
Gain/(loss) on swap
|
|
$
|
-
|
|
|
$
|
(9,044
|
)
|
|
Net Income (Loss)
|
|
$
|
(47,811
|
)
|
|
$
|
(56,855
|
)
|
Statement of Cash Flows
|
Net Income (Loss)
|
|
$
|
(47,811
|
)
|
|
$
|
(56,855
|
)
|
|
Loss on swap/derivative
|
|
$
|
-
|
|
|
$
|
(9,044
|
)
|
NOTE 5 – SUBSEQUENT EVENTS
The Company reviewed any significant transactions
that would qualify for subsequent event reporting up through December 2, 2016. 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. ADDR used to own another property in Cliffwood Beach, New
Jersey, that was previously occupied by Sterling Seal and is now rented out to tenants. In March of 2016, the Company sold its
commercial building in Cliffwood Beach. The sale price was $625,000 and the Company recognized a loss on the sale of $39,910. Q5
owns a 5,000 square foot facility that is used by Sterling Seal in Florida.
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, 2016 and 2015
Net Revenue
Net revenue decreased by approximately $255,555
or approximately 14.7%, from $1,737,666 for the three months ended March 31, 2015 to $1,482,111 for the three months ended March
31, 2016. This decrease was due primarily to an overall slowdown in the industrial sector that resulted in reduced demand for o-rings.
Total Cost of Sales
Cost of sales decreased by approximately $161,389
or approximately 12.8%, from $1,263,045 for the three months ended March 31, 2015 to $1,101,656 for the three months ended March
31, 2016. This decrease was due primarily to a corresponding decrease in sales.
Gross profit
Gross profit decreased by approximately $94,166
or approximately 19.8%, from $474,621 for the three months ended March 31, 2015 to $380,455 for the three months ended March 31,
2016. This decrease was due primarily to a corresponding decrease in sales of approximately 14.7%.
Net Income
As a result of the above factors, the Company
showed a net loss of $73,917 for the three months ended March 31, 2016, as compared to a net loss of $56,855 for the three months
ended March 31, 2015. This increase of $17,062 or approximately 30% is attributed to an operating loss of $51,908 coupled with
a one-time loss on the sale of the Company’s Cliffwood Beach building in the amount of $39,910.
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.
At March 31, 2016, we had cash and cash equivalents
of approximately $8,218 as compared to approximately $31,429 as of December 31, 2015, representing a decrease of $23,211. This
decrease can be explained by net cash used in operating activities of $180,319 primarily attributed to a paydown of accounts payable
in the amount of $85,038 coupled by an increase in accounts receivable of $74,246; net cash flows from investing activities of
$562,327 from the sale of the Company’s commercial building in Cliffwood Beach; and net cash used in financing activities
of $405,219 primarily attributed to a net paydown of a bank line of credit in the amount of $396,000. At March 31, 2016, our working
capital was approximately $1,466,220.
The cash flow from operating activities decreased
from net cash provided of $2,107 for the quarter ended March 31, 2015 to net cash used of $180,319 for the quarter ended March
31, 2016. This decrease of $182,426 is primarily attributed to a paydown of payable and a reduction in receivables collected.
The cash flow from investing activities increased
from $0 for the quarter ended March 31, 2015 to net cash provided of $562,237.
The cash flow from financing activities increased
from net cash used of $4,978 for the quarter ended March 31, 2015 to net cash used of $405,219 for the quarter ended March 31,
2016. This increase is net cash used is primarily attributed to the paydown of the Company’s line of credit in the amount
of $396,000.
Bank Loans
The Company refinanced its debt in 2013 with
a New York commercial bank and there are currently a $849,000 line of credit and a $1,200,000 mortgage outstanding. The line of
credit calls for a variable interest rate of the Wall St. Journal published prime rate plus 1% and requires an annual review. The
mortgage has a variable rate of LIBOR plus 4.25% and is for a 5-year term expiring in October of 2018. The Company is currently
in violation of one of its financial covenants with the bank and is seeking a waiver.
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”) 605 “Revenue Recognition” which contains Securities and Exchange Commission
Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements’ and No. 104, “Revenue Recognition”.
In the case of Sterling Seal, 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 605-45 " Revenue Recognition: Principal Agent Considerations " since Integrity is the primary
obligor in its shipping arrangements. 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, 2015, 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 Company currently does not have any issued and outstanding stock options
or other derivatives.
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.
