Item 1. Financial Statements.
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
20,769
|
|
|
$
|
31,429
|
|
|
Account receivable, net
|
|
|
573,559
|
|
|
|
732,972
|
|
|
Inventory, net
|
|
|
2,827,309
|
|
|
|
2,796,796
|
|
|
Notes receivable and other current assets
|
|
|
70,315
|
|
|
|
20,525
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
3,491,951
|
|
|
|
3,581,722
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,784,825
|
|
|
|
2,527,227
|
|
|
Goodwill and other intangibles, net
|
|
|
120,466
|
|
|
|
120,466
|
|
|
Deferred tax asset
|
|
|
211,875
|
|
|
|
162,439
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
5,609,118
|
|
|
$
|
6,391,854
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,118,337
|
|
|
$
|
1,291,227
|
|
|
Bank line of credit
|
|
|
808,858
|
|
|
|
1,245,316
|
|
|
Other liabilities
|
|
|
52,464
|
|
|
|
66,665
|
|
|
Derivative liability
|
|
|
26,386
|
|
|
|
24,560
|
|
|
Current portion of long-term notes payable
|
|
|
48,442
|
|
|
|
61,416
|
|
|
Total current liabilities
|
|
|
2,054,487
|
|
|
|
2,689,184
|
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
Long-term notes payable, related parties
|
|
|
1,692,951
|
|
|
|
1,720,949
|
|
|
Long-term notes payable, net of current portion
|
|
|
1,094,340
|
|
|
|
1,127,261
|
|
|
Total other liabilities
|
|
|
2,787,291
|
|
|
|
2,848,210
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,841,778
|
|
|
|
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 September 30, 2016 and December 31, 2015, respectively
|
|
|
40,716
|
|
|
|
40,716
|
|
|
Additional paid-in capital
|
|
|
1,446,278
|
|
|
|
1,446,278
|
|
|
Accumulated deficit
|
|
|
(719,654
|
)
|
|
|
(632,534
|
)
|
|
Total stockholders' equity
|
|
|
767,340
|
|
|
|
854,460
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
5,609,118
|
|
|
$
|
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
September 30,
|
|
|
For the nine months ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O-rings and rubber product sales
|
|
$
|
1,366,162
|
|
|
$
|
1,466,942
|
|
|
$
|
4,333,853
|
|
|
$
|
4,794,529
|
|
|
Freight services
|
|
|
18,086
|
|
|
|
39,479
|
|
|
|
88,864
|
|
|
|
135,421
|
|
|
Total revenues
|
|
|
1,384,248
|
|
|
$
|
1,506,421
|
|
|
|
4,422,717
|
|
|
$
|
4,929,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods
|
|
|
870,203
|
|
|
|
1,214,668
|
|
|
|
2,988,691
|
|
|
|
3,554,433
|
|
|
Cost of services
|
|
|
50,111
|
|
|
|
53,667
|
|
|
|
148,141
|
|
|
|
176,813
|
|
|
Total cost of sales
|
|
|
920,314
|
|
|
|
1,268,335
|
|
|
|
3,136,832
|
|
|
|
3,731,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
463,934
|
|
|
|
238,086
|
|
|
|
1,285,885
|
|
|
|
1,198,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
59,553
|
|
|
|
49,316
|
|
|
|
154,048
|
|
|
|
160,860
|
|
|
General and administrative
|
|
|
398,596
|
|
|
|
449,871
|
|
|
|
1,139,030
|
|
|
|
1,365,990
|
|
|
Total operating expenses
|
|
|
458,149
|
|
|
|
499,187
|
|
|
|
1,293,078
|
|
|
|
1,526,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
5,785
|
|
|
|
(261,101
|
)
|
|
|
(7,193
|
)
|
|
|
(328,146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
2,558
|
|
|
|
(10,897
|
)
|
|
|
(1,437
|
)
|
|
|
2,804
|
|
|
Loss on sale of real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
(39,910
|
)
|
|
|
-
|
|
|
Gain/(loss) on swap
|
|
|
8,156
|
|
|
|
(7,903
|
)
|
|
|
(1,826
|
)
|
|
|
(11,386
|
)
|
|
Interest expense
|
|
|
(39,649
|
)
|
|
|
(50,544
|
)
|
|
|
(111,501
|
)
|
|
|
(113,223
|
)
|
|
Total other expense
|
|
|
(28,935
|
)
|
|
|
(69,344
|
)
|
|
|
(154,674
|
)
|
|
|
(121,805
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes
|
|
|
(23,150
|
)
|
|
|
(330,445
|
)
|
|
|
(161,867
|
)
|
|
|
(449,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit for income taxes
|
|
|
(9,262
|
)
|
|
|
(74,453
|
)
|
|
|
(74,747
|
)
|
|
|
(120,862
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(13,888
|
)
|
|
$
|
(255,992
|
)
|
|
$
|
(87,120
|
)
|
|
$
|
(329,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
40,715,540
|
|
|
|
40,715,540
|
|
|
|
40,715,540
|
|
|
|
40,650,991
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(87,120
|
)
|
|
$
|
(329,089
|
)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
112,780
|
|
|
|
104,353
|
|
|
Bad debt expense
|
|
|
14,144
|
|
|
|
37,121
|
|
|
Loss on sale of building
|
|
|
39,910
|
|
|
|
-
|
|
|
Accrued interest
|
|
|
-
|
|
|
|
37,211
|
|
|
Loss on swap
|
|
|
1,826
|
|
|
|
11,386
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued Interest
|
|
|
(27,998
|
)
|
|
|
-
|
|
|
Accounts receivable
|
|
|
145,269
|
|
|
|
256,003
|
|
|
Inventory
|
|
|
(30,512
|
)
|
|
|
167,661
|
|
|
Deferred tax asset
|
|
|
(49,436
|
)
|
|
|
-
|
|
|
Other assets
|
|
|
(49,790
|
)
|
|
|
(7,104
|
)
|
|
Accounts payable and accrued interest payable
|
|
|
(172,890
|
)
|
|
|
64,975
|
|
|
Other liabilities
|
|
|
(14,202
|
)
|
|
|
(231,691
|
)
|
|
Net cash provided by (used in) operating activities
|
|
|
(118,019
|
)
|
|
|
110,826
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase of fixed and intangible assets
|
|
|
-
|
|
|
|
(43,199
|
)
|
|
Sale of building
|
|
|
589,712
|
|
|
|
-
|
|
|
Net cash provided by (used in) investing activities
|
|
|
589,712
|
|
|
|
(43,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Net paydown of bank line of credit
|
|
|
(436,458
|
)
|
|
|
56,276
|
|
|
Payments on notes payable
|
|
|
(45,895
|
)
|
|
|
(116,670
|
)
|
|
Net loan (paid) - related party
|
|
|
-
|
|
|
|
(4,471
|
)
|
|
Net proceeds(cost) of common stock after issuance costs
|
|
|
-
|
|
|
|
6,701
|
|
|
Net cash (used in) financing activities
|
|
|
(482,353
|
)
|
|
|
(58,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(10,660
|
)
|
|
|
9,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
31,429
|
|
|
|
13,458
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
20,769
|
|
|
$
|
22,921
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow Information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
111,501
|
|
|
$
|
76,016
|
|
|
Cash paid for taxes
|
|
$
|
750
|
|
|
$
|
750
|
|
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP AND
AFFILIATES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 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 September
30, 2016, 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 September 30, 2016 and September 30, 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 September 30, 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
SEPTEMBER 30, 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 nine month periods
ended September 30, 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, June 30, 2015, and September
30, 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 financial statements can be noted as follows:
|
|
|
3 months ended September 30, 2015
|
|
|
9 months ended September 30 2015
|
|
|
Income Statement
|
|
Original
|
|
|
As Restated
|
|
|
Original
|
|
|
As Restated
|
|
|
Gain/(loss) on swap
|
|
$
|
-
|
|
|
$
|
(7,903
|
)
|
|
$
|
-
|
|
|
$
|
(11,386
|
)
|
|
Net income (loss)
|
|
$
|
(248,089
|
)
|
|
$
|
(255,992
|
)
|
|
$
|
(317,703
|
)
|
|
$
|
(329,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
$
|
(317,703
|
)
|
|
$
|
(329,089
|
)
|
|
Loss/(gain) on swap/derivative
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
(11,386
|
)
|
NOTE 5 – SUBSEQUENT EVENTS
The Company reviewed any significant transactions that would qualify
for subsequent event reporting up through January 20, 2017. 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 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, 2016 and 2015
Revenue
Revenue decreased by approximately $122,173
or approximately 8%, from $1,506,421 for the three months ended September 30, 2015 to $1,384,248 for the three months ended September
30, 2016. This decrease is due primarily to a general decline in the mining and manufacturing sector.
Total Cost of Sales
Cost of sales decreased by approximately
$348,021 or approximately 27%, from $1,268,335 for the three months ended September 30, 2015 to $920,314 for the three months
ended September 30, 2016. The decrease in cost of sales was attributed primarily to a commensurate decrease in sales.
Gross profit
Gross profit increased approximately $225,848,
or approximately 95%, from $238,086 for the three months ended September 30, 2015 to $463,934 for the three months ended September
30, 2016. This increase in gross profit is primarily explained by an inventory adjustment of $163,000 charged to operations in
the 3
rd
quarter of
2015 coupled with a reduction in warehouse headcount.
Net Loss
As a result of the factors described above,
our net loss was $13,888 for the three months ended September 30, 2016, as compared to a net loss of $255,992 for the three months
ended September 30, 2015. This was an decrease of $242,104 or approximately 95%.
Comparison for the nine months ended
September 30, 2016 and 2015
Revenue
Revenue decreased by approximately $507,233
or approximately 10%, from $4,929,950 for the nine months ended September 30, 2015 to $4,422,717 for the nine months ended September
30, 2016. This decrease is due to a general economic slowdown in the mining and manufacturing sector.
Total Cost of Sales
Cost of sales decreased by $594,414 or approximately
16%, from $3,731,246 for the nine months ended September 30, 2015 to $3,136,832 for the nine months ended September 30, 2016. The
decrease in cost of sales was attributed to an overall decrease in sales of approximately 10% coupled with decreased labor costs
due to headcount reductions.
Gross profit
Gross profit increased approximately $87,181,
or approximately 7%, from $1,198,704 for the nine months ended September 30, 2015 to $1,285,558 for the nine months ended September
30, 2016. This increase can be attributed to the above described changes in revenues and cost of sales.
Net Loss
As a result of the factors described above,
our net loss was $87,120 for the nine months ended September 30, 2016, as compared to a net loss of $329,089 for the nine months
ended September 30, 2015. This was a decrease of $241,969 or approximately 74%.
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 September 30, 2016, we had cash and
cash equivalents of approximately $20,769 as compared to approximately $31,429 as of December 31, 2015, representing a decrease
of $10,660. This decrease can be explained by net cash used in operating activities of $118,019 primarily attributed to an increase
in accounts payable offset by collections in accounts receivables; net cash provided by investing activities of $589,792 due to
the sale of the Company’s Cliffwood Beach building in March 2016; and net cash used in financing activities of $483,353 primarily
attributed to paying down the Company’s line of credit. At September 30, 2016, our working capital was approximately $1,437,464.
The cash flow from operating activities
decreased from net cash provided of $110,826 for the nine months ended September 30, 2015 to net cash used of $118,019 for the
nine months ended September 30, 2016. This decrease of $228,845 is primarily attributed to an increase in accounts payable.
The cash flow from investing activities
increased from net cash used of $43,199 for the nine months ended September 30, 2015 to net cash provided of $589,792 for the nine
months ended September 30, 2016. This increase of $632,991 is due to the sale of the Company’s Cliffwood Beach building in
March 2016.
The cash flow from financing activities
decreased from net cash used of $58,164 for the nine months ended September 30, 2015 to net cash used of $482,353 for the nine
months ended September 30, 2016. This decrease of $424,189 is primarily attributed to paying down the Company’s line of
credit in the amount of $436,458.
Bank Loans
The Company refinanced its debt in 2013 with
a New York commercial bank and there are currently a $1.25 million 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 4.50% and is for a 5-year term expiring in October of 2018. The Company is currently
out of compliance with one of its covenants and has requested a waiver from the bank.
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, 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.
