UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
| ¨ | 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
incorporation or organization |
(I.R.S. Employer Identification No.) |
|
|
1105 Green Grove Road
Neptune, New Jersey |
07753 |
(Address of principal executive offices) |
Zip Code) |
Registrant’s
telephone number, including area code (732) 918-8004
Securities registered under Section 12(b)
of the Act: None
Securities registered under Section 12(g)
of the Act: None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨ No x
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 x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted 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 and post such files).
Yes ¨ No x
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
Part III of this Form 10-K or any amendment to this Form 10-K.
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
(Do not check if a smaller reporting company) |
¨ |
|
Smaller reporting company |
x |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act).
Yes ¨ No
x
State the aggregate market value of the
voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last
sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently
year end December 31, 2014: $388,232.
As of April 22, 2015, the registrant had 40,715,540 shares of
its common stock, par value $0.001 per share, issued and outstanding.
Documents Incorporated by Reference: None.
TABLE OF CONTENTS
PART I
Item 1. Business.
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. We are a holding company, and all of our operations are conducted through our four subsidiaries:
Sterling Seal & Supply, Inc. (“Sterling Seal”), ADDR Properties, LLC (“ADDR”), Q5 Ventures, LLC (“Q5”),
and Integrity Cargo Freight Corporation (“Integrity”). In June 2012, these four entities became subsidiaries of the
Company through an Equity Exchange Agreement by which the shareholders of Sterling Seal, ADDR, Q5, and Integrity became shareholders
of the Company and in exchange the Company received all of the authorized and outstanding shares of Sterling Seal, ADDR, Q5, and
Integrity.
Equity Exchange Agreement
On June 8, 2012, we executed an equity
exchange agreement with Sterling Seal, ADDR, Q5 and Integrity. Under this exchange agreement, Sterling Consolidated Corp became
the holding company and obtained 100% interest in each of the four consolidating entitles: Sterling Seal and Supply, Inc., ADDR
Properties, LLC, Integrity Cargo Freight Corporation and Q5 Ventures, LLC. As consideration for the transfer of the equity interests
of Sterling, ADDR, Q5 and Integrity, we agreed to issue a total of 33,817,040 shares of our common stock to the shareholders of
Sterling, ADDR, Q5 and Integrity.
Subsidiaries
Sterling Consolidated Corp. conducts its
entire business through its four subsidiaries. Each subsidiary is responsible for a specific business function of the Company.
For clarity, an organizational chart of the Company is provided below.
![](tpg3.jpg)
Sterling Seal & Supply, Inc.
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., which was 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.
Sterling Seal is a distributor of O-rings.
O-rings are one of the simplest, yet most engineered, precise, and useful seal designs. They are one of the most common and important
elements of machine design. O-rings and the other products that Sterling Seal sells are used in a wide variety of industries, including
automotive, pump, transmissions, oil and energy, machinery, and packaging. These products are utilized primarily as seals to prevent
leakage of liquids or air. Most of the products carried by Sterling Seal are made of rubber, but some are coated and the rubber
compound can change upon customer request.
Sterling Seal sells directly to smaller
distributors and original equipment manufacturers in need of seals. It offers a catalogue of standard sizes, and will take orders
for special sizes not available in the standard catalogue. In order to satisfy the needs of our customers and stay competitive,
Sterling Seal always maintains a wide variety of products in substantial quantities at its main warehouse in Neptune, New Jersey,
as well as its other facilities in the United States. The products that we hold in inventory at our warehouse are standard products
that are most often ordered. If a customer orders a product that is not in our inventory, we order the product from one of our
suppliers in China.
We have approximately 3,300 customers that
place orders with us for the delivery of O-ring or similar products. Our largest customer is a southeastern U.S. manufacturer/distributor
of automotive/industrial products. Other automotive customers are Precision International, Fruedenberg and Sonnax Transmissions.
We stock a variety of rubber seals to service pool filter and pump manufacturers. We also distribute our products to many
resellers of replacement parts and pool stores. Bay State Pool and Horizon Pool and Spa are two of our larger accounts in
the pool industry.
A large portion of our customer base services
the plumbing and industrial industries. These accounts include, Fastenal, Kaman Industrial and Eastern Industrial.
They are localized to service a wide range of products, but they purchase O-Rings and rubber seals from Sterling.
Sterling Seal receives requests for quotations
electronically and by fax daily from its various customers. The sales force then reviews each request, and responds with a “quoted”
price for delivery and price. If such a quote is accepted, the customer responds with a purchase order for a specific price and
delivery.
After a purchase order is accepted and
we do not have the ordered product in our inventory, we then contact one of our suppliers. All of our suppliers are located in
China. In determining which suppliers to use, we look for suppliers that deliver quality products in a timely manner. We do not
have any long term contracts with any of our suppliers. The following is the list of our 10 largest principal suppliers:
| - | Progum Elastomer Technology Co., Ltd. |
| - | Rubber Best Industry Corp. |
| - | Goodway Rubber Ind Co Ltd |
O-ring and rubber seals are generally considered
commodities, meaning that such goods are fungible and there is little if any distinction between the various producers and suppliers
of the products. None of the products sold by Sterling Seal are under patent and there are no intellectual property or licensing
issues. Sterling Seal sets itself apart from other similarly situated companies though the variety and quality of its inventory,
the price point at which it sells its various products, and its ability to deliver products to customers on time. The time it takes
us to deliver the ordered product to a customer will mainly depend on whether we have it in inventory or need to order it from
a supplier in China. If we have it in inventory, we can package, ship and distribute the product within two (2) business days.
When orders arrive at Sterling Seal, we
ship the products to our customer and invoice on a 45-day basis.
Integrity Cargo Freight Corporation
Our subsidiary, Integrity Cargo Freight
Corporation (“Integrity”) is a freight forwarding business. They are primarily responsible for transporting products
we order from our suppliers back to our warehouse in Neptune, NJ. After Sterling Seal confirms from its supplier that a product
is ready to be picked up, Integrity Cargo is responsible for picking up the products and getting them to the dock and delivered
to the Sterling Seal warehouse.
Integrity shares a facility with Sterling
Seal and manages the importation of Sterling Seal’s products and its exports 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.
We incorporated Integrity in order to vertically
integrate our operations and not have to rely on third parties to deliver our products from the supplier. This has resulted in
quicker delivery and more predictable delivery times.
This provides the Company with a competitive
advantage over other importers of O-rings and seals as we can utilize our own freight company and consolidate our operations. As
a result, the Company is able to provide lower prices to its customers. This also provides us with a much greater level of control
over our shipping, which expedites lead times and deliveries to our customers.
Entering the freight forwarding market
has provided the Company with a competitive advantage as compared with other importing distributors of rubber O-Rings. By having
the ability to utilize our own freight company, we are able to consolidate shipments from various sources and ship as frequently
as needed, which has resulted in improved efficiencies and delivery times.
Integrity also performs freight forwarding
services for third party customers. Integrity currently has about twenty (20) customers for whom performs freight forwarding services.
However, roughly fifty percent (50%) of its revenues derive from freight forwarding for Sterling Seal.
Integrity shares a facility and certain
overhead costs such as information technology with Sterling Seal, so both entities have lower operational costs due to economies
of scale.
ADDR Properties, LLC.
ADDR Properties, LLC (“ADDR”)
is one of our two subsidiaries that owns real property. ADDR owns a 28,000 square foot facility in Neptune, NJ. Roughly ninety
percent (90%) of this property is used by Sterling Seal as its principal executive office and primary warehouse. The Company does
not pay rent to ADDR for the use of this facility. The remaining 3,000 square feet of this facility is rented out to the Children’s
Center of Monmouth.
Q5 Ventures, LLC
Q5 Ventures, LLC owns a 5,000 square foot
facility in Apopka, Florida, which is used by Sterling Seal for its Florida operations. This facility was specifically built for
Sterling Seal’s operations. Sterling Seal does not pay rent to Q5.
Competition and Our Competitive Strengths
Rubber is the raw material that we are
dependent on in our business. In order to compete in the US, a supplier must import from China. This is due to the fact that manufacturing
rubber is a labor intensive project and labor costs are significantly cheaper in China than they are in the United States.
There is a lot of competition in the US
for seals and products that we distribute. In order to establish competitive prices, we purchase large quantities of product at
a time. It would be too costly for smaller companies or our customers to circumvent us by buying directly from the supplier because
the prices are much higher for smaller orders. Importation costs are also high and add to the overall cost of the product.
This is a competitive advantage for us
because we are a larger company that has the cash and other resources that enables us to hold inventory at our warehouse. This
helps us maintain a competitive advantage because not only do we have the ability of reducing our costs, we can also decrease the
amount of time it takes to deliver orders to our customers, provided that we have the product in our warehouse. Stockpiling an
inventory also requires capital. Currently, we have over two million dollars in inventory to service our current customers’
demands.
For some of our customers, there is a cost
incurred as a result of switching from Sterling Seal as a supplier. Because Sterling Seal is an approved supplier for many of our
industrial and commercial customers, while other suppliers may not be approved, our customers could face increased costs as a result
of switching to another supplier's product. For certain customers, in order to switch from an approved supplier, the product must
be tested and approved. In the automotive industry the factories have to be audited and approved in addition to the distributor
and their products. Because of the potential for increasing costs, our current customers are unlikely to abandon us.
In addition, many of our customers place
small orders throughout the year. It takes a long time to build the business to cover overhead costs. For this reason, it is difficult
for a supplier to enter into our industry. Most of Sterling Seal’s accounts are repeat customers with consistent demands
for O-rings and custom-molded rubber.
Once we have the product in our warehouse,
either if it is already in inventory or if we just received the shipment of the product from China, the Company is able to cost-effectively
distribute products to local markets across the United States within two (2) business days because we have established multiple
distribution factories over the course of our years of operating. This helps to expedite deliveries and reduce costs. This also
gives us an advantage over our competitors. In addition, the vertical integration of our freight forwarding business, Integrity,
with our primary operations through Sterling Seal helps us deliver products more cost-effectively.
We currently have relationships with domestic
and international distributors. The Company intends to increase sales through acquisitions and investing in complementary corporations.
Seasonality and Cyclical Nature of Business
We do not experience much seasonality or
cyclical nature to our business. Our sales are consistent from month to month. However, we do experience a slight increase in volume
at the beginning of the year because most of our customers have a budget and cash available to purchase products for the entire
year. Also, during the summer months our sales are a little slower due to factory shutdowns and increased vacations by purchasing
agents.
Patents, Trademarks, and Licenses
We have no current plans for any registrations
such as patents, trademarks, copyrights, franchises, concessions, royalty agreements or labor contracts. We will assess the need
for any copyright, trademark or patent applications on an ongoing basis.
Research and Development Activities
and Costs
We are a supplier and distributor of products
and, therefore, do not incur any research and development and have no plans to undertake any research and development activities
during the next year of operations.
Government Regulation
We are not aware of the need for any governmental
approvals of our products. Since we utilize contract manufacturers, regulations will be the responsibility of the contract manufacturers. Before
entering into any manufacturing contract we determine that the manufacturer has met all government requirements.
Environmental Laws (federal, state and
local)
We do not believe that we will be subject
to any environmental laws either state or federal. Any laws concerning manufacturing and shipping will be the responsibility
of the contract manufacturer.
Marketing
We currently have relationships with several
companies located in the United States and overseas. The Company markets its products primarily through word of mouth and referrals
from its customers. We attend several trade shows during the course of the year specifically to market our products. We routinely
attend the SEMA show in Las Vegas, NV which is one of the largest supplier shows of its kind for the automotive market. In
addition, we supply distributors and end users with the product necessary for steering wheels and transmissions kits. Our
largest customer is Freudenberg who sells replacements kits to John Deer and Harley Davidson, amongst many other companies. Other
automotive customers are Precision International and Sonnax Transmissions.
Another trade show is the Atlantic City
Pool and Spa show. We stock a variety of rubber seals to service the pool filter and pump manufacturers. We also distribute
our products to many resellers of replacement parts and pool stores. Bay State Pool and Horizon Pool and Spa are two of our
larger accounts in the pool industry.
A large portion of our customer base services
the plumbing and industrial industries. These accounts include, Fastenal, Kaman Industrial and Eastern Industrial.
They are localized to service a wide range of products, but they purchase O-Rings and rubber seals from Sterling Seal.
The marketing for ADDR and Q5, specifically
the location of tenants, is through real estate agents. The current agent of record for both companies is Sheldon Gross Realty,
80 Main Street, West Orange, New Jersey.
Integrity Cargo markets through direct
sales and referrals only.
Employees
As of April 22, 2015, we have 31 full time
employees. Our employees consist of: (i) salespersons; (ii) management and administrative; and (iii) warehouse and shipping operators.
Item 1A. Risk Factors.
Not applicable because we are a smaller reporting company.
Item 1B. Unresolved Staff Comments.
Not applicable because we are a smaller reporting company.
Item 2. Properties.
Our principal executive office is located
at 1105 Green Grove Road, Neptune, New Jersey 07753, and our telephone number is (732) 918-8004. This facility is owned by our
subsidiary, ADDR, and also serves as the principal executive office for each of our other subsidiaries. The Company does not pay
rent to ADDR for the use of this facility.
In addition, we have a sales office located
at 48 High Street, Norwell, Massachusetts 02061. This is a home office owned by 3 of our employees. We do not have a lease agreement
or pay rent for them to use this as a home office.
ADDR also owns a property in Cliffwood
Beach, NJ but it is not currently occupied or used by us. We rent it out to 4 tenants.
Item 3. Legal Proceedings.
From time to time, we may become involved
in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent
uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial
condition or operating results.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the OTCQB and
OTCBB under the symbol “STCC”. The OTCQB and OTCBB is a quotation service that displays real-time quotes, last-sale
prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCQB and OTCBB equity security generally
is any equity that is not listed or traded on a national securities exchange.
Price Range of Common Stock
The following table shows, for the periods
indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.
| |
High | | |
Low | |
Fiscal Year 2013 | |
| | | |
| | |
First quarter ended March 31, 2013 | |
$ | - | | |
$ | - | |
Second quarter ended June 30, 2013 | |
$ | 0.29 | | |
$ | 0.15 | |
Third quarter ended September 30, 2013 | |
$ | 0.29 | | |
$ | 0.18 | |
Fourth quarter ended December 31, 2013 | |
$ | 0.30 | | |
$ | 0.09 | |
| |
| | | |
| | |
Fiscal Year 2014 | |
| | | |
| | |
First quarter ended March 31, 2014 | |
$ | 0.19 | | |
$ | 0.07 | |
Second quarter ended June 30, 2014 | |
$ | 0.14 | | |
$ | 0.06 | |
Third quarter ended September 30, 2014 | |
$ | 0.07 | | |
$ | 0.04 | |
Fourth quarter ended December 31, 2014 | |
$ | 0.07 | | |
$ | 0.04 | |
Approximate Number of Equity Security Holders
As of April 22, 2015, there were approximately
57 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number
of beneficial holders of our shares is substantially larger than the number of stockholders of record.
Dividends
Holders of our common stock are entitled
to receive dividends if, as and when declared by the Board of Directors out of funds legally available therefore. We have never
declared or paid any dividends on our common stock. We intend to retain any future earnings for use in the operation and expansion
of our business. Consequently, we do not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable
future.
Securities Authorized for Issuance under Equity Compensation
Plans
We do not have in effect any compensation plans under which
our equity securities are authorized for issuance.
Item 6. Selected Financial Data.
Not applicable because we are a smaller reporting company.
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
The information and financial data discussed
below is derived from the audited financial statements of the Company for its fiscal year ended December 31, 2014. The
audited financial statements were prepared and presented in accordance with generally accepted accounting principles in the United
States. The information and financial data discussed below is only a summary and should be read in conjunction with the historical
financial statements and related notes contained elsewhere in this 10-K. The financial statements contained elsewhere in this 10-K
fully represent the Company’s financial condition and operations; however, they are not indicative of the Company’s
future performance. 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 10-K.
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 also owns another property in Cliffwood Beach, New
Jersey, that was previously occupied by Sterling Seal and is now rented out to tenants. 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.
Results of Operations
Comparison of the year ended December
31, 2014 and 2013
Revenues
For the years ended December 31, 2014 and
2013 we generated revenues of $6,827,420 and $6,185,148, respectively. This represents an increase by approximately $642,272 or
approximately 10.4%.
The increase in revenue was primarily attributed
to improved sales and marketing efforts and the Company’s incremental sales from the business acquisition of R.G. Sales Inc.
made during the 2nd quarter of 2014.
Total Cost of Sales
For the years ended December 31, 2014 and
2013 our overall cost of sales was $4,847,714 and $4,485,216, respectively. This represents an increase of $362,498 or 7.5%.
The increase in cost of sales can be explained
by the corresponding sales increases, offset by lower freight costs and economies of scale achieved with existing personnel.
Gross profit
For the years ended December 31, 2014 and
2013 our gross profit was $1,979,706 and $1,699,932, respectively. This represents an increase of $279,774, or 16.5%.
This increase can be explained by a corresponding
increase in revenue of 10.4% coupled with a lesser increase in cost of sales of only 7.5%.
Operating Expenses
For the years ended December 31, 2014 and
2013 operating expenses were $1,673,437 and $1,734,823, respectively. This represents a decrease of $61,386 or 3.5%.
Sales and Marketing fees remained relatively
constant. The decrease in general and administrative can be explained by decreased public relations, and IT professional costs
offset by increased legal and accounting fees, software licensing fees and additional overhead from the R.G. Sales acquisition.
Net Income (Loss)
As a result of the above factors, our overall
net income was $43,180 for the year ended December 31, 2014, as compared to a net loss of $97,794 for the year ended December 31,
2013.
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 December 31, 2014, we had cash and cash
equivalents of approximately $13,458 as compared to approximately $543,945 as of December 31, 2013, representing a decrease of
$530,487. This decrease can be explained by a paydown of accounts payable. At December 31, 2014 and 2013, our working capital was
approximately $1,298,999 and $1,369,134, respectively.
The cash flows from operating activities
decreased from net cash used of $45,751 for the year ended December 31, 2013 to net cash used of $215,774 for the year ended December
31, 2014. This decrease is primarily attributed to paydown of accounts payable balances.
The cash flow from investing activities
reflects an increase of capital spending from net cash used of $80,109 for the year ended December 31, 2013 to net cash used of
$351,207 for the year ended December 31, 2014. This increase can be explained by leasehold improvements at the Company’s
headquarters of $101,702 and the net cash used to acquire R.G. Sales Inc. of $249,505.
The cash flow from financing activities
increased from net cash provided of $554,316 for the year ended December 31, 2013 to net cash provided of $36,494 for the year
ended December 31, 2014. This increase is primarily attributed to decreased borrowings and actual paydown of the Company’s
commercial debt offset by stock sold for cash, net of issuance costs in the amount of $117,136.
The Company intends to supplement its cash
position with institutional financing via an equity credit facility in the second quarter of 2015.
In 2014, the Company made capital expenditures
of $101,702 for a build out of and an upgrade to the Company headquarters. $100% of this expenditure was purchased with cash.
The Company intends to use the equity markets
via an equity credit facility, to obtain financing in the current fiscal year. Any world events or other economic occurrences that
adversely affect the equity markets, may hinder our ability to raise the additional capital desired.
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 4.25% and is for a 5 year term
expiring in October of 2018.
Critical Accounting Policies
Use of Estimates
The preparation of consolidated financial
statements in accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in
management’s estimates or assumptions could have a material impact on the Company’s financial condition and results
of operations during the period in which such changes occurred. Significant estimates include the estimated depreciable lives of
fixed assets, inventory reserves and allowance for doubtful accounts.
Actual results could differ from those
estimates. The Company’s consolidated financial statements reflect all adjustments that management believes are necessary
for the fair presentation of their financial condition and results of operations for the periods presented.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
At times, balances in a single bank account may exceed federally insured limits.
Accounts Receivable
Accounts receivable, if any, are carried
at the expected net realizable value. The allowance for doubtful accounts, when determined, will be based on management's assessment
of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of
a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability
of the amounts due to us could be overstated, which could have a negative impact on operations. The Company is subject to the
following concentration risk: as of December 31, 2014 and 2013 one (1) customer represented 12.2% and 11% of accounts receivable,
respectively. This same customer accounted for 9.4% and 10.4% of sales for the years ended December 31, 2014 and December 31,
2013, respectively.
The Company’s accounts receivable
net of allowances was $137,000 and $128,162 as of December 31, 2014 and 2013, respectively. The Company’s allowance is approximately
2% of the sales per year plus amounts that are deemed uncollectible.
Property, Plant and Equipment
Property and equipment are carried at cost.
Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life
of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in income for the period. The Company allocates 50%
of its depreciation and amortization expenses to Cost of Sales.
Depreciation is computed for financial
statement purposes on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives of depreciable
assets are:
|
|
Estimated |
|
|
Useful Lives |
Building & Leasehold Improvements |
|
10-40 years |
Machinery and Equipment |
|
5-10 years |
Furniture and Fixtures |
|
5-10 years |
Vehicles |
|
10 years |
Software |
|
3 years |
For federal income tax purposes, depreciation
is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under
the straight-line method or double declining balance method.
| |
2014 | | |
2013 | |
Land, building & leasehold improvements | |
$ | 2,488,439 | | |
$ | 2,342,747 | |
Machinery and equipment | |
| 911,249 | | |
| 785,367 | |
Vehicles | |
| 221,709 | | |
| 197,943 | |
Less: accumulated depreciation | |
| 1.039,703 | | |
| 731,060 | |
Property and equipment, net | |
$ | 2,581,874 | | |
$ | 2,684,299 | |
Depreciation expense included as a charge
to income was $141,407 and $119,531 for the year ended December 31, 2014 and 2013, respectively.
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. The Company
recorded an inventory reserve of $125,000 and $125,000 as of December 31, 2014 and 2013, respectively.
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.
The Company had total sales of $6,827,420
and $6,185,148 for the year ended December 31, 2014 and 2013, respectively. One customer accounted for 9.4% and 10.4% of sales
for the years ended December 31, 2014 and December 31, 2013, respectively.
Expenses
Cost of goods includes inventory costs,
warehousing costs, direct labor and a depreciation allocation. Cost of inbound freight of $322,150 and $388,204, for the years
ended December 31, 2014 and December 31, 2013, respectively, is included in cost of goods on the Statements of Operations.
Costs of services include direct costs
for Freight services and Rental activities. The direct costs include agent fees, trucking, air and ocean freight and customs fees
for the Freight services and repairs and maintenance and property taxes for the rental activities. Additionally, Cost of services
includes direct labor for Freight services.
Sales and marketing includes direct labor
and direct sales and marketing expenses.
General and administrative expenses include
administrative and executive personnel, depreciation and other overhead expenses.
Advertising
Advertising expenses are recorded as sales
and marketing expenses when they are incurred. The Company did not incur such expenses during the years ended December 31, 2014
and 2013.
Income Tax
Sterling and Integrity's S-Corporation
election terminated effective January 1, 2012 in connection with the expectation of the initial public offering of the Company’s
common stock in 2012. From Sterling and Integrity's inception in 1997 and 2008, respectively, it neither was not subject to
federal and state income taxes since they were operating under an S-Corporation election. As of January 1, 2012, both Sterling
and Integrity became subject to corporate federal and state income taxes. The consolidated financial statements presented
herein, are presented as if all consolidating entities were subject to C-corporation taxes for the periods being reported on.
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, 2014
and 2013, the Company had no uncertain tax positions. The Company recognizes interest and penalties, if any, related to
uncertain tax positions as general and administrative expenses. The Company currently has tax year 2012 under federal
examination. Tax years 2011, 2012, 2013 and 2014 are subject to federal and state tax examination under the current
statutes.
Fair Value Measurements
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.
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 do not have any off balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
sales or expenses, results of operations, liquidity or capital expenditures, or capital resources that are material to an investment
in our securities.
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.
Not applicable because we are a smaller reporting company.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.
None noted.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b)
under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation
of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s
disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered
by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that 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, including
the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control Over Financial
Reporting.
The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our
internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding
the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Our management assessed
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014. The framework used
by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our
CEO and CFO have determined and concluded that, as of December 31, 2014, the Company’s internal control over financial reporting
was not effective.
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 December 31, 2014:
| (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. |
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.
This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's
report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control over
Financial Reporting
No change in our system of internal control
over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended December 31,
2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance.
The following table sets forth the name
and age of officers and director as of April 22, 2015. Our Executive officers are elected annually by our Board of Directors. Our
executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
Name |
|
Age |
|
Position |
Angelo DeRosa |
|
72 |
|
Chairman of the Board |
Darren DeRosa |
|
41 |
|
Chief Executive Officer |
Scott Chichester |
|
44 |
|
Chief Financial Officer |
Set forth below is a brief description
of the background and business experience of our executive officer and director for the past five years.
Angelo DeRosa, Chairman of the Board
Angelo DeRosa founded the Company’s
predecessor entity, Sterling Plastic & Rubber Products, Inc. in 1970. Angelo currently serves as Chairman of the Board of the
Directors of the Company and is responsible for the financing and overall management of the entire organization. He also maintains
key relationships with customers, banking institutions and industrial affiliations. Angelo studied Business Administration while
attending Fairleigh Dickinson University. He is currently involved in multiple charitable organizations, including serving as treasurer
of the Holmdel First Aid.
Darren DeRosa, Chief Executive Officer
Darren DeRosa has served as the chief executive
officer of the Company since 2000. Darren runs the day-to-day operations of the Company, including managing business development
projects in information technology, logistics and human resources, and seeking out potential acquisition targets. Darren earned
a B.A. in Economics from Dickinson University and an M.B.A. from Monmouth University.
Scott Chichester, Chief Financial
Officer
Scott R. Chichester CPA is the proprietor
of Scott R. Chichester CPA, a New York City based accounting, tax and consulting firm. Mr. Chichester is experienced in taxation,
capital formation and the financial services industry. He focuses his practice in the following areas: (i) corporate taxation;
(ii) financial statement preparation and (iii) consulting. His most recent consulting engagement has been for the City of
New York.
Prior to establishing the firm in 2001,
Mr. Chichester worked in the financial services division as an auditor for Ernst & Young in New York City until 1994 when he
passed the CPA exam. Mr. Chichester then spent 5 years as an accountant in the Equities Controllers Division at Goldman Sachs
Group LP.
Within the last 5 years, Mr. Chichester
CPA (Since 2001); Founder DirectPay USA LLC (Since 2006) (payroll company); CFO of Ong Corporation (2002-2008) (technology company);
Founder Madison Park Advisors LLC (since 2010) (advisory services). None of these companies are a parent, subsidiary or other affiliate
of the registrant.
Other directorships held during the last
5 years: Global X Funds (2008-present) (ETF fund complex); 58 funds; ARK Investment Trust (ETF Fund Complex) 4 funds; None
of the funds in the fund complexes are a parent, subsidiary or other affiliate of the registrant; Bayview Acquisition Corp (2010-August
13, 2012).
Identification of Certain Significant Employees
Fred Zink, President of Sterling Seal and Supply, Inc.,
Fred Zink, 66, has served
as President of Sterling Seal and Supply, Inc. since 2008. All of the divisional Vice Presidents report directly to Mr. Zink.
He is also responsible for all activities related to human resources, accounting and productivity. Mr. Zink also manages
the sales and support staff for Sterling Seal for the southeast region. Mr. Zink graduated from Mount Wachusett Community
College in 1969 with an associate’s degree in Business Administration.
Mr. Zink has worked for Sterling Seal and
no other employers for the past five. Additionally, he has never held any other directorships.
Family Relationship
The Company’s Chairman, Angelo DeRosa, is the father of
the Company’s Chief Executive Officer, Darren DeRosa.
Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our
directors or executive officers has, during the past ten years:
| · | been convicted in a criminal proceeding
or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| · | had any bankruptcy petition filed by or
against the business or property of the person, or of any partnership, corporation or business association of which he was a general
partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time; |
| · | been subject to any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority,
permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities,
futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged
in any such activity; |
| · | been found by a court of competent jurisdiction
in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal
or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| · | been the subject of, or a party to, any
federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated
(not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or
state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies
including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity; or |
| · | been the subject of, or a party to, any
sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
Except as set forth in our discussion below
in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved
in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed
pursuant to the rules and regulations of the Commission.
Term of Office
Our directors are appointed for a one-year
term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our
bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Code of Ethics
We do not have a code of ethics that applies
to our officers, employees and directors.
Corporate Governance
The business and affairs of the company
are managed under the direction of our board. Each of our directors has attended all meetings either in person or via telephone
conference. In addition to the contact information in this annual report, each stockholder will be given specific information on
how he/she can direct communications to the officers and directors of the corporation at our annual stockholders meetings. All
communications from stockholders are relayed to the members of the board of directors.
Role in Risk Oversight
Our board of directors is primarily responsible
for overseeing our risk management processes. The board of directors receives and reviews periodic reports from management, auditors,
legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors
focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures
that risks undertaken by our company are consistent with the board’s appetite for risk. While the board oversees our company’s
risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities
is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this
approach.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company does not have a class of securities
registered under the Exchange Act and therefore its directors, executive officers, and any persons holding more than ten percent
of the Company’s common stock are not required to comply with Section 16 of the Exchange Act.
Item 11. Executive Compensation.
The following executives of the Company received compensation
in the amounts set forth in the chart below for the fiscal years ended December 31, 2014 and 2013. No other item of compensation
was paid to any officer or director of the Company other than reimbursement of expenses.
Summary Compensation Table
Name and
Principal Position | |
Year | | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards ($) | | |
Option
Awards ($) | | |
Non-Equity
Incentive Plan Compensation ($) | |
Non-Qualified
Deferred Compensation Earnings ($) | | |
All Other
Compensation ($) | |
Totals
($) | |
Darren DeRosa,
Chief Executive Officer | |
| 2014 | | |
$ | 161,091 | | |
| 0 | | |
| 0 | | |
| 0 | | |
0 | |
| 0 | | |
0 | |
$ | 161,091 | |
| |
| 2013 | | |
$ | 141,774 | | |
| 0 | | |
| 0 | | |
| 0 | | |
0 | |
| 0 | | |
0 | |
$ | 141,774 | |
Scott Chichester,
Chief Financial Officer | |
| 2014 | | |
$ | 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
0 | |
| 0 | | |
0 | |
$ | 0 | |
| |
| 2013 | | |
$ | 0 | | |
| 0 | | |
| 0 | | |
| 0 | | |
0 | |
| 0 | | |
0 | |
$ | 0 | |
Outstanding Equity Awards at Fiscal Year-End Table
There were no outstanding equity awards for the years ended
December 31, 2014 and 2013.
Compensation of Directors
The following table provides information
for 2014 regarding all compensation awarded to, earned by or paid to each person who served as a non-employee director for some
portion or all of 2014. Other than as set forth in the table, to date we have not paid any fees to or, except for reasonable expenses
for attending Board and committee meetings, reimbursed any expenses of our directors, made any equity or non-equity awards to directors,
or paid any other compensation to directors.
Name and Principal Position | |
Year | | |
Fees Earned ($) | | |
Stock Awards ($) | | |
All Other Compensation ($) | |
Totals ($) | |
Angelo DeRosa, Chairman of the Board | |
| 2014 | | |
$ | 0 | | |
| 0 | | |
0 | |
$ | 0 | |
| |
| 2013 | | |
$ | 0 | | |
| 0 | | |
0 | |
$ | 0 | |
Employment Agreements
Currently, we do not have any employment
agreement in place with any of our officers and directors.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
The following table provides the names
and addresses of each person known to us to own more than 5% of our outstanding shares of common stock as of April 22, 2015, and
by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly and the
shareholders listed possesses sole voting and investment power with respect to the shares shown.
Name | |
Number of Shares
Beneficially Owned | | |
Percent of Class
(1) | |
Angelo DeRosa (2) 1105 Green Grove Road Neptune, New Jersey 07753 | |
| 16,560,000 | (5) | |
| 40.67 | % |
| |
| | | |
| | |
Darren DeRosa (3) 1105 Green Grove Road Neptune, New Jersey 07753 | |
| 16,460,000 | (6) | |
| 40.43 | % |
| |
| | | |
| | |
Scott R. Chichester (4) 676a 9th Ave. Ste 239 New York, NY 10036 | |
| 1,027,000 | | |
| 2.52 | % |
| |
| | | |
| | |
All Executive Officers and Directors as a group (3 persons) | |
| 34,047,000 | | |
| 83.62 | % |
| (1) | Based on 40,715,540 shares
of common stock outstanding as of April 22, 2015. |
| (2) | Angelo DeRosa is the Chairman of the Board of the Company. |
| (3) | Darren DeRosa is the Chief Executive Officer of the Company. |
| (4) | Scott Chichester is the Chief Financial Officer of the Company. |
| (5) | Includes 16,290,000 shares issued to Angelo DeRosa and 270,000 shares issued to Darleen DeRosa
who is his wife. |
| (6) | Includes 16,190,000 shares issued to Darren DeRosa and 270,000 shares issued to Kaveeta
DeRosa who is his wife. |
Item 13. Certain Relationships and Related Transactions,
and Director Independence.
The following are the related party transactions in which we
have engaged since January 1, 2013:
Our principal executive office is located
at 1105 Green Grove Road, Neptune, New Jersey 07753, and our telephone number is (732) 918-8004. This facility is owned by our
subsidiary, ADDR. The Company does not pay rent to ADDR for the use of this facility.
In addition, we have a sales office located
at 48 High Street, Norwell, Massachusetts 02061. This is a home office owned by 3 of our employees. We do not have a lease agreement
or pay rent for them to use this as a home office.
Throughout the history of the Company,
the Chairman, Angelo DeRosa has periodically loaned the company money. The loan has a twenty year term maturing on December 31,
2031 and calls for principal and simple interest to be paid at various yearly intervals at the rate of three percent. For the year
ended December 31, 2014, the Company accrued $51,960 and paid $51,960 on the related party note, leaving an ending balance on the
note of $1,712,768. For the year ended December 31, 2013, the Company accrued $51,012 and borrowed additional funds, net of repayments
of $15,347 on the related party note, leaving an ending balance on the note of $1,712,768. Of these amounts, $52,702 and $50,083
have been classified as current liabilities as of December 31, 2014 and 2013, respectively.
Director Independence
We do not have any independent directors.
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence”
of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent
director” is a person other than an officer or employee of the company or any other individual having a relationship which,
in the opinion of the Company’s Board of Directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent
if:
| · | the director is, or at any time during
the past three years was, an employee of the company; |
| · | the director or a family member of the
director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the
three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation
for board or board committee service); |
| · | a family member of the director is, or
at any time during the past three years was, an executive officer of the company; |
| · | the director or a family member of the
director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which
the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated
gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions); |
| · | the director or a family member of the
director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive
officers of the company served on the compensation committee of such other entity; or |
| · | the director or a family member of the
director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner
or employee of the company’s outside auditor, and who worked on the company’s audit. |
Mr. Angelo DeRosa is not considered independent because he is
the father of the Company’s Chief Executive Officer, Darren DeRosa.
We do not currently have a separately designated audit, nominating
or compensation committee.
Item 14. Principal Accounting Fees
and Services.
Audit Fees
For the Company’s fiscal years ended
December 31, 2014 and 2013, we were billed approximately $49,500 and 25,000, respectively, for professional services rendered for
the audit and review of our financial statements.
Audit Related Fees
There were $10,500, and $9,000 in fees
billed for audit related services for the years ended December 31, 2014 and 2013, respectively.
Tax Fees
For the Company’s fiscal years ended
December 31, 2014 and 2013, we were billed $2,250 and $17,150, respectively, for services rendered for tax compliance, tax advice,
and tax planning.
All Other Fees
The Company did not incur any other fees
related to services rendered by our principal accountant for the fiscal years ended December 31, 2014 and 2013.
Pursuant to the requirements of Section
13 or 15(d) 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.
Effective May 6, 2003, the Securities and
Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit
related service, the engagement be:
| - | approved by our audit committee; or |
| - | entered into pursuant to pre-approval policies and procedures established by the audit committee,
provided the policies and procedures are detailed as to the particular service, the audit committee
is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities
to management. |
We do not have an audit committee. Our
entire board of directors pre-approves all services provided by our independent auditors. The pre-approval process has just been
implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage
of the above fees was pre-approved. However, all of the above services and fees were reviewed and approved by the entire
board of directors either before or after the respective services were rendered.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are filed as part of this report:
(1) Financial Statements and Report of Independent Registered
Public Accounting Firm, which are set forth in the index to Consolidated Financial Statements on pages F-1 through F-of
this report.
Report of Independent Registered Public Accounting Firm — |
|
|
Consolidated Balance Sheets |
|
|
Consolidated Statements of Income and Comprehensive Income |
|
|
Consolidated Statements of Shareholders’ Equity |
|
|
Consolidated Statements of Cash Flows |
|
|
Notes to Consolidated Financial Statements |
|
|
(2) Financial Statement Schedule: None.
(3) Exhibits
EXHIBIT
NUMBER |
|
DESCRIPTION |
3.1 |
|
Articles of Incorporation (1) |
3.2 |
|
By-Laws (2) |
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 Extension Schema Document |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF |
|
XBRL
Taxonomy Extension Definitions Linkbase Document |
| (1) | Incorporated by reference to the registration statement filed with the Securities and Exchange
Commission on August 10, 2012. |
| (2) | Incorporated by reference to the registration statement filed with the Securities and Exchange
Commission on January 18, 2013. |
In
accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 |
|
|
(Duly Authorized, Principal Executive |
|
|
Officer) |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Darren DeRosa |
|
Chief Executive Officer |
|
April 22, 2015 |
Darren DeRosa |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/
Scott Chichester |
|
Chief Financial Officer |
|
April 22, 2015 |
Scott Chichester |
|
(Principal Financial and Accounting Officer) |
|
|
|
|
|
|
|
/s/ Angelo DeRosa |
|
Chairman of the Board |
|
April 22, 2015 |
Angelo DeRosa |
|
|
|
|
STERLING CONSOLIDATED CORP.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
AND
CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended
December 31, 2014 and 2013
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors
Sterling Consolidated Corp.
We have audited the accompanying consolidated
balance sheets of Sterling Consolidated Corp. (“the Company”) as of December 31, 2014 and 2013, and the related consolidated
statements of operations, stockholders’ equity and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Sterling Consolidated Corp. as
of December 31, 2014 and 2013, and the results of its operations and cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
April 21, 2015
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| |
December 31, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash and cash equivalents | |
$ | 13,458 | | |
$ | 543,945 | |
Account receivable, net | |
| 979,421 | | |
| 801,861 | |
Inventory, net of reserve | |
| 2,889,107 | | |
| 2,726,016 | |
Notes receivable and other current assets | |
| 71,786 | | |
| 41,376 | |
Total current assets | |
| 3,953,772 | | |
| 4,113,198 | |
| |
| | | |
| | |
Property and equipment, net | |
| 2,581,874 | | |
| 2,594,997 | |
Goodwill and other intangibles | |
| 276,549 | | |
| 970 | |
Deferred tax asset | |
| 69,341 | | |
| 105,695 | |
| |
| | | |
| | |
Total assets | |
$ | 6,881,536 | | |
$ | 6,814,860 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 1,008,093 | | |
$ | 1,369,458 | |
Bank line of credit | |
| 1,190,272 | | |
| 1,200,605 | |
Other liabilities | |
| 269,255 | | |
| 87,624 | |
Current notes payable, related parties | |
| 52,702 | | |
| 50,083 | |
Current portion of long-term notes payable | |
| 134,451 | | |
| 36,294 | |
Total current liabilities | |
| 2,654,773 | | |
| 2,744,064 | |
| |
| | | |
| | |
Other liabilities | |
| | | |
| | |
Long-term notes payable, related parties | |
| 1,652,699 | | |
| 1,662,685 | |
Long-term notes payable | |
| 1,185,772 | | |
| 1,196,010 | |
Total other liabilities | |
| 2,838,471 | | |
| 2,858,695 | |
| |
| | | |
| | |
Total liabilities | |
| 5,493,244 | | |
| 5,602,759 | |
| |
| | | |
| | |
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, 40,517,540 and 37,824,040 shares issued and outstanding as of December 31, 2014 and December 31, 2013, respectively | |
| 40,518 | | |
| 37,824 | |
Additional paid-in capital | |
| 1,439,734 | | |
| 1,309,417 | |
Accumulated other comprehensive loss | |
| (11,800 | ) | |
| (11,800 | ) |
Accumulated deficit | |
| (80,160 | ) | |
| (123,340 | ) |
Total stockholders' equity | |
| 1,388,292 | | |
| 1,212,101 | |
| |
| | | |
| | |
Total liabilities and stockholders' equity | |
$ | 6,881,536 | | |
$ | 6,814,860 | |
See accompanying notes to consolidated financial statements
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
O-rings and rubber product sales |
|
$ |
6,709,867 |
|
|
$ |
6,045,446 |
|
Freight services |
|
|
117,553 |
|
|
|
139,702 |
|
Total revenues |
|
|
6,827,420 |
|
|
|
6,185,148 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
Cost of goods |
|
|
4,644,616 |
|
|
|
4,269,455 |
|
Cost of services |
|
|
203,098 |
|
|
|
215,761 |
|
Total cost of sales |
|
|
4,847,714 |
|
|
|
4,485,216 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,979,706 |
|
|
|
1,699,932 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
208,209 |
|
|
|
212,661 |
|
General and administrative |
|
|
1,465,228 |
|
|
|
1,522,162 |
|
Total operating expenses |
|
|
1,673,437 |
|
|
|
1,734,823 |
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
306,269 |
|
|
|
(34,891 |
) |
|
|
|
|
|
|
|
|
|
Other income and expense |
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
22,806 |
|
|
|
(7,135 |
) |
Interest expense |
|
|
(152,173 |
) |
|
|
(123,307 |
) |
Total other expense |
|
|
(129,367 |
) |
|
|
(130,442 |
) |
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes |
|
|
176,902 |
|
|
|
(165,333 |
) |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
133,722 |
|
|
|
(67,539 |
) |
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
43,180 |
|
|
|
(97,794 |
) |
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
|
|
|
|
|
|
Unrealized gain/(loss) on interest rate swap contract |
|
|
- |
|
|
|
(10,076 |
) |
Comprehensive income |
|
$ |
43,180 |
|
|
$ |
(107,870 |
) |
|
|
|
|
|
|
|
|
|
Net income per share of common stock: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.00 |
|
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
39,339,373 |
|
|
|
37,284,725 |
|
See accompanying notes to consolidated financial statements
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS'
EQUITY
| |
| | |
| | |
| | |
Accumulated | | |
Retained | | |
| |
| |
| | |
| | |
Additional | | |
Other | | |
Earning | | |
| |
| |
Common Stock | | |
Paid-in | | |
Comprehensive | | |
(Accumulated) | | |
| |
| |
Shares | | |
Amount | | |
Capital | | |
Loss | | |
Deficit) | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| |
Balance, December 31, 2012 | |
| 37,074,040 | | |
$ | 37,074 | | |
$ | 1,175,079 | | |
$ | (1,724 | ) | |
$ | (25,546 | ) | |
$ | 1,184,883 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Common stock issued for cash | |
| 425,000 | | |
| 425 | | |
| 60,225 | | |
| - | | |
| - | | |
| 60,650 | |
Stock issued for services | |
| 125,000 | | |
| 125 | | |
| 28,313 | | |
| - | | |
| - | | |
| 28,438 | |
Common stock issued for acquisition | |
| 200,000 | | |
| 200 | | |
| 45,800 | | |
| - | | |
| - | | |
| 46,000 | |
Other comprehensive loss | |
| | | |
| - | | |
| - | | |
| (10,076 | ) | |
| - | | |
| (10,076 | ) |
Net loss for the year ended December 31, 2013 | |
| - | | |
| - | | |
| | | |
| - | | |
| (97,794 | ) | |
| (97,794 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2013 | |
| 37,824,040 | | |
| 37,824 | | |
| 1,309,417 | | |
| (11,800 | ) | |
| (123,340 | ) | |
| 1,212,101 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock sold for cash - net of issuance costs | |
| 2,468,500 | | |
| 2,469 | | |
| 114,667 | | |
| - | | |
| - | | |
| 117,136 | |
Stock issued for services | |
| 225,000 | | |
| 225 | | |
| 15,650 | | |
| - | | |
| - | | |
| 15,875 | |
Net income for the year ended December 31, 2014 | |
| - | | |
| - | | |
| - | | |
| - | | |
| 43,180 | | |
| 43,180 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance, December 31, 2014 | |
| 40,517,540 | | |
$ | 40,518 | | |
$ | 1,439,734 | | |
$ | (11,800 | ) | |
$ | (80,160 | ) | |
$ | 1,388,292 | |
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
For the Years Ended | |
| |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Cash flows from operating activities | |
| | | |
| | |
| |
| | | |
| | |
Net Income | |
$ | 43,180 | | |
$ | (97,794 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 155,697 | | |
| 119,531 | |
Change in allowance for doubtful accounts | |
| 8,838 | | |
| 5,632 | |
Revaluation of contingent consideration | |
| (31,250 | ) | |
| - | |
Stock issued for services | |
| 15,875 | | |
| 28,438 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (91,272 | ) | |
| 50,820 | |
Inventory | |
| (68,177 | ) | |
| (442,516 | ) |
Prepaids and other current assets | |
| (30,240 | ) | |
| (64,384 | ) |
Deferred tax asset | |
| 36,354 | | |
| - | |
Accounts payable and accrued interest payable | |
| (431,023 | ) | |
| 343,869 | |
Other liabilities | |
| 176,244 | | |
| 10,653 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (215,774 | ) | |
| (45,751 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
| |
| | | |
| | |
Cash paid for purchases of property and equipment | |
| (101,702 | ) | |
| (27,682 | ) |
Net cash paid for acquisition of subsidiaries | |
| (249,505 | ) | |
| (52,427 | ) |
| |
| | | |
| | |
Net cash used in investing activities | |
| (351,207 | ) | |
| (80,109 | ) |
| |
| | | |
| | |
Cash flows from financing activities | |
| | | |
| | |
| |
| | | |
| | |
Net borrowings / (paydown) of bank line of credit | |
| (10,333 | ) | |
| 334,873 | |
Net borrowings / (payments) on notes payable | |
| (62,942 | ) | |
| 174,140 | |
Net borrowings / (payments) on notes payable, related parties | |
| (7,367 | ) | |
| (15,347 | ) |
Net proceeds of issuance of common stock for cash, net of issuance costs | |
| 117,136 | | |
| 60,650 | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 36,494 | | |
| 554,316 | |
| |
| | | |
| | |
Net change in cash and cash equivalent | |
$ | (530,487 | ) | |
$ | 428,456 | |
Cash and cash equivalent at the beginning of period | |
| 543,945 | | |
| 115,489 | |
| |
| | | |
| | |
Cash and cash equivalent at the end of period | |
$ | 13,458 | | |
$ | 543,945 | |
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
| |
For the Years Ended | |
| |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
| |
| | | |
| | |
Cash paid for interest | |
$ | 152,181 | | |
$ | 110,819 | |
Cash paid for taxes | |
$ | 750 | | |
$ | 750 | |
| |
| | | |
| | |
Supplemental non-cash investing and financing activities: | |
| | | |
| | |
| |
| | | |
| | |
Common stock issued for acquisition | |
$ | - | | |
$ | 46,000 | |
Notes executed and liabilities assumed in acquisition of subsidiary | |
$ | 257,154 | | |
$ | - | |
See accompanying notes to consolidated financial
statements
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 1 – ORGANIZATION AND BUSINESS DESCRIPTION
On June 8, 2012, in expectation of going
public, a share exchange was effected in which Sterling Consolidated Corp., delivered 30,697,040 shares to shareholders of Sterling
Seal and Supply, Inc. (“Sterling Seal”); 1,500,000 shares to the shareholders of Integrity Cargo Freight Corporation
(“Integrity”); 540,000 shares to the members of Q5 Ventures, LLC (“Q5”) and 1,080,000 shares to the members
of ADDR Properties, Inc. (“ADDR”). The existing shareholders of Sterling Consolidated Corp (“Sterling Consolidated”
or “the Company”) retained 2,880,000 shares resulting in a total of 36,697,040 shares outstanding post-share exchange.
The resultant structure is such that Sterling Consolidated is effectively a holding corporation with 100 percent ownership of Sterling
Seal and Supply, Inc., Integrity, Q5 and ADDR. The consolidated financial statements presented herein are presented as if the share
exchange had occurred at January 1, 2011.
Organization, Nature of Business, Stock
Split, and Principles of Consolidation
Sterling Seal and Supply, Inc.
Sterling Seal and Supply, Inc. (“Sterling
Seal”) is a New Jersey corporation founded in 1997 which distributes O-rings and other rubber products worldwide. Since 1980,
Sterling and its predecessor, Sterling Plastic and Rubber Products, Inc. (founded in 1969), has been importing products from China
for distribution. Sterling Seal focuses on quality and service by initially proving itself as a 2nd or 3rd
source vendor.
Integrity Cargo Freight Corporation
On January 4, 2008, the principals of Sterling
Seal founded Integrity Cargo Freight Corporation (“Integrity”) as a New Jersey Corporation. Integrity is a cargo and
freight company that currently manages the importing of Sterling’s products from Asia and export to various other countries.
In addition to providing freight forwarding services for the Company, Integrity has third-party customers. Integrity targets the
Company’s customer base market but is able to acquire additional customers through the use of agents. Freight forwarding
revenues and expenses are included in the operating income on the consolidated statement of operations presented herein.
ADDR Properties, LLC
ADDR Properties, LLC (“ADDR”)
is a New Jersey limited liability company (“LLC”) formed on September 17, 2010 as a real estate holding company. ADDR
owns a 28,000 square foot warehouse facility in Neptune, NJ and is occupied 90% by Sterling Seal to conduct its operations and
10% by the Children’s Center of Monmouth. The current lease agreement with the Children’s Center is for three (3) years.
The second property managed through ADDR
is an investment property in Cliffwood Beach, NJ and was previously occupied by Sterling before moving to its current location
when the Company’s operations outgrew the facility’s capacity. Four tenants currently occupy 65% of the available square
footage. The remaining 35% is unoccupied office space and currently marketed as individual office suites. Subsequent to the period
end, the remaining 35% of the office space has been leased out to new tenants. Rental revenues and expenses are included in other
income on the consolidated statements of operations presented herein.
Q5 Ventures, LLC
Q5 Ventures, LLC is a Florida LLC formed
on September 6, 2006. The LLC owns the commercial building in Florida from which the Florida division of Sterling operates. The
5,000 square foot facility was designed and built for the Company’s operations in 2008.
Stock Split
On February 1, 2012, the Sterling Seal
and Supply Inc. enacted a 150,000-for-1 forward stock split converting its 200 shares of common stock outstanding to 30 million
common shares.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
These consolidated financial statements
include the accounts of Sterling Consolidated Corp. and its four wholly-owned subsidiaries. The subsidiaries were acquired by Sterling
Consolidated Corp. through a share exchange agreement effected on June 8, 2012. The consolidated financial statements presented
herein, are presented as if the business combination via share exchange and the stock split in Sterling Seal and Supply, Inc. were
effective at the beginning of the periods being reported on. ADDR, Integrity, Q5 and Sterling Seal were under the control of Angelo
DeRosa and/or Darren DeRosa for the periods being reported on. All significant intercompany transactions have been eliminated.
Hereafter the consolidated accounts of Sterling Consolidated Corp and its subsidiaries are referred to as “the Company”.
Use of Estimates
The preparation of consolidated financial
statements in accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in
management’s estimates or assumptions could have a material impact on the Company’s financial condition and results
of operations during the period in which such changes occurred. Significant estimates include the estimated depreciable lives of
fixed assets, inventory reserves and allowance for doubtful accounts.
Actual results could differ from those
estimates. The Company’s consolidated financial statements reflect all adjustments that management believes are necessary
for the fair presentation of their financial condition and results of operations for the periods presented.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
At times, balances in a single bank account may exceed federally insured limits.
Accounts Receivable
Accounts receivable are carried at the
expected net realizable value. The allowance for doubtful accounts is based on management's assessment of the collectability of
specific customer accounts and the aging of the accounts receivables. The Company’s accounts receivable is presented net
of allowances of $137,000 and $128,162 as of December 31, 2014 and 2013, respectively.
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,
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. The Company recorded an inventory reserve of $125,000 and $125,000
as of December 31, 2014 and 2013, respectively.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Goodwill
We test goodwill balances as of July 1
for impairment on an annual basis during the third quarter, or whenever impairment indicators arise. We utilize several reporting
units in evaluating goodwill for impairment. We assess the estimated fair value of reporting units using a combination of
a market-based approach with a guideline public company method and a discounted cash flow methodology. If the carrying amount
of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized in an amount equal to the
excess of the carrying amount of the reporting unit goodwill over the implied fair value of that goodwill. At December 31, 2014,
goodwill consisted of a $970 excess of purchase price over net assets acquired in the asset acquisition from Superior Seal and
no impairment of goodwill was recorded by the Company.
Long-Lived Assets
Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purpose
of reviewing restaurant assets to be held and used for potential impairment, assets are grouped together at the market level, or
in the case of a potential relocation or closure, at the restaurant level. The Company manages its restaurants as a group with
significant common costs and promotional activities. As such, an individual restaurant’s cash flows are not generally independent
of the cash flows of others in a market. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is recognized as the amount by which the carrying amount
of the asset exceeds the fair value of the asset. There were no impairments of long-lived assets during the years ended December
31, 2014 and 2013.
Property and Equipment
Property and equipment are carried at historical
cost of construction or purchase. Expenditures for maintenance and repairs are charged to operations as incurred. Renewals and
betterments that materially extend the life of the assets are capitalized. Leasehold improvements are amortized over the lesser
of the base term of the lease or estimated life of the leasehold improvements. When assets are retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in
income for the period. The Company allocates 50% of its depreciation and amortization expenses to cost of sales.
Depreciation is computed for consolidated
financial statement purposes on a straight-line basis over estimated useful lives of the related assets. The estimated useful lives
of depreciable assets are:
Classification |
|
Estimated
Useful Lives |
Building and leasehold improvements |
|
10 – 40 years |
Machinery and equipment |
|
5 – 10 years |
Furniture and fixtures |
|
5 – 10 years |
Vehicles |
|
10 years |
Software |
|
3 years |
Segment Reporting
ASC 280-10 defines
operating segments as components of a company about which separate financial information is available that is evaluated regularly
by the chief decision maker in deciding how to allocate resources and in assessing performance. The Company has one main
segment: O-rings and rubber products. Additionally, it has activities in freight services and rental services however, these
activities are immaterial to the overall endeavor and therefore, segment information is not presented.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
Cost of Sales
Cost of goods includes inventory costs,
warehousing costs, direct labor and a depreciation allocation. Cost of inbound freight of $322,150 and $388,204, for the years
ended December 31, 2014 and 2013, respectively, is included in cost of goods on the Statements of Operations.
Costs of services include direct costs
for freight services and rental activities. The direct costs include agent fees, trucking, air and ocean freight and customs fees
for the freight services and repairs and maintenance and property taxes for the rental activities. Additionally, cost of services
includes direct labor for freight services.
Income Taxes
Sterling Seal and Integrity's S-Corporation
election terminated effective January 1, 2012 in connection with the expectation of the initial public offering of the Company’s
common stock in 2012. From Sterling Seal and Integrity's inception in 1997 and 2008, respectively, the Companies were not
subject to federal and state income taxes as they were operating under an S-Corporation election. As of January 1, 2012, the
both Sterling and Integrity became subject to corporate federal and state income taxes. The consolidated financial statements
presented herein, are presented as if all consolidating entities were subject to C-corporation federal and state income taxes for
the periods presented.
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, 2014 and 2013, the Company had no uncertain tax positions.
The Company recognizes interest and penalties, if any, related to uncertain tax positions as general and administrative expenses.
The Company currently has 2012 under federal examination. Tax years 2011, 2012, 2013 and 2014 are subject to federal and state
tax examination under the current statutes.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair Value Measurements
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
consolidated 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 material
financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods other than the interest
rate swap contract described below. Financial assets and liabilities measured on a recurring basis are those that are adjusted
to fair value each time a financial statement is prepared.
Interest Rate Swap Contract
The Company used an interest rate swap
contract to manage risks related to interest rate movements up until October 8, 2013 when the mortgage was refinanced. The Company
recognizes its interest rate swap contract as a derivative, which is recognized on the balance sheet at fair value at the end of
each period. The interest rate swap contract is designated as and has met all of the criteria for a cash flow hedge. The Company
documents its risk management strategy and hedge effectiveness at the inception of and during the term of each hedge. Changes in
the fair value of the derivative are recorded in accumulated other comprehensive loss. The total unrealized gain or (loss) recorded
in accumulated other comprehensive gain or loss amounted to $-0- and ($10,076) at December 31, 2014 and 2013, respectively.
The availability of inputs observable in
the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the
instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing
inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the
valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable
in the market and may require management judgment. As of December 31, 2014 and 2013, the Company has assets and liabilities in
cash, various receivables, investments, and various payables. Management believes that they are being presented at their fair market
value.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The following are the major categories
of assets and liabilities measured at fair value on a recurring basis as of December 31:
Year |
|
Instrument |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
2014 |
|
Interest rate swap |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2013 |
|
Interest rate swap |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
2014 |
|
Cash and equivalents |
|
$ |
13,458 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
13,458 |
|
2013 |
|
Cash and equivalents |
|
$ |
543,945 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
543,945 |
|
The fair value of the interest rate swap
is determined using observable market inputs such as current interest rates, and considers nonperformance risk of the Company and
that of its counterparts.
Concentration of Credit Risk
As of December 31, 2014 and 2013 one (1)
customer represented 12.2% and 11% of accounts receivable, respectively. This same customer accounted for 9.4% and 10.4% of sales
for the years ended December 31, 2014 and December 31, 2013, respectively.
Basic and Diluted Earnings (Loss) per
Share
Basic earnings (loss) per share are computed
by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period
using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the period
end stock price is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants.
Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the year ended December 31, 2014 and 2013,
there were no outstanding common stock equivalents, thus fully diluted earnings per share and basic earnings per share were the
same figure.
Reclassification
Certain balances in previously issued
financial statements have been reclassified to be consistent with the current period presentation.
Recently Issued Accounting Standards
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.
NOTE 3 – NOTES RECEIVABLE
In 2013, a loan was made to a non-officer
employee in the amount of $3,000. In 2012, the Company recorded two (2) loans to non-officer employees in the net amount of $28,201
and $3,000. The loan for $28,201 bears interest at 5% over 3 years. The other notes have no specific repayment terms and the borrowers
may repay these notes at any time, in whole or in part, without penalty or additional interest. The aggregate balance as of
December 31, 2014 and December 31, 2013 was $40,242 and $40,176, respectively.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 4 – PROPERTY AND EQUIPMENT
As of December 31, 2014 and 2013 the Company’s
property and equipment consisted of the following:
| |
2014 | | |
2013 | |
Land, building & leasehold improvements | |
$ | 2,488,439 | | |
$ | 2,342,747 | |
Machinery and equipment | |
| 911,429 | | |
| 785,367 | |
Vehicles | |
| 221,709 | | |
| 197,943 | |
Total property and equipment | |
| 3,621,577 | | |
| 3,326,057 | |
| |
| | | |
| | |
Less: accumulated depreciation | |
| 1,039,703 | | |
| 731,060 | |
Property and equipment, net | |
$ | 2,581,874 | | |
$ | 2,594,997 | |
Depreciation expense included as a charge
to income was $141,407 and $119,531 for the year ended December 31, 2014 and 2013, respectively.
NOTE 5 – BUSINESS ACQUISITION
On April 1, 2014, the Company acquired
RG Sales Inc., a Pennsylvania distributor of O-rings and rubber products. The transaction was valued at $400,000 with earn-out
incentives for sales targets over the two years from transaction date. The results of operations of RG Sales Inc. were included
in the Company’s 2nd quarter 2014 earnings. The transaction was structured as a stock purchase.
Pursuant to the stock purchase agreement,
the purchase price consisted of a one-time cash payment of $250,000, the execution of a promissory note of $150,000 which bears
interest of 5 percent per annum and stipulating payments according the following schedule:
| § | $75,000 of principal and $3,750 of interest due on October 1, 2014; |
| § | $75,000 of principal and $3,750 of interest due on October 1, 2015; |
The stock purchase agreement stipulates
year one earn out payments as follows:
| § | $50,000 if subsidiary revenues are between $700,000 and $800,000 within one year after the closing
date; |
| § | $75,000 if subsidiary revenues are between $800,000 and $900,000 within one year after the closing
date; |
| § | $100,000 if subsidiary revenues are greater than or equal to $900,000 within one year after the
closing date. |
The stock purchase agreement stipulates
year two earn out payments as follows:
| § | $25,000 if subsidiary revenues are between $700,000 and $800,000 between year one and year two
after the closing date; |
| § | $37,500 if subsidiary revenues are between $800,000 and $900,000 between year one and year two
after the closing date; |
| § | $50,000 if subsidiary revenues are greater than or equal to $900,000 between year one and year
two after the closing date. |
The total purchase price was allocated
as follows:
Consideration paid: | |
| | |
Cash paid | |
$ | 250,000 | |
Face value of promissory note | |
| 150,000 | |
Estimated value of contingent consideration related to earn out payments | |
| 37,500 | |
Liabilities assumed | |
| 69,654 | |
Total purchase price | |
$ | 507,154 | |
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 5 – BUSINESS ACQUISITION (CONTINUED)
Consideration received: | |
| | |
Cash | |
$ | 495 | |
Accounts receivable | |
| 95,126 | |
Inventories | |
| 94,914 | |
Other current assets | |
| 172 | |
Property and equipment, net | |
| 26,350 | |
Identifiable intangible assets | |
| | |
Customer list | |
| 290,097 | |
Total assets acquired | |
$ | 507,154 | |
NOTE 6 – ASSET PURCHASE
On September 16, 2013, the Company, through
its wholly-owned subsidiary, Sterling Seal, entered into an asset purchase agreement with Superior Seals & Service, Inc., a
North Carolina corporation (“Superior”) and its principal shareholders, Edward R. Tracy and Sue D. Tracy, pursuant
to which Sterling Seal agreed to purchase substantially all of Superior’s assets. Superior is a manufacturer and distributor
of fluid sealing products.
Pursuant to the asset purchase agreement,
the purchase price of the assets consisted of a one-time payment of $62,000 in cash, plus the issuance of 200,000 shares of the
Company’s $0.001 par value common stock, and the assumption of $57,642 of the existing liabilities of Superior.
The total purchase price was allocated
as follows:
Consideration paid: | |
| | |
Cash paid | |
$ | 62,000 | |
Value of common stock issued | |
| 46,000 | |
Liabilities assumed | |
| 57,642 | |
Total purchase price | |
$ | 165,642 | |
| |
| | |
Consideration received: | |
| | |
Cash | |
$ | 9,573 | |
Accounts receivable | |
| 56,162 | |
Inventories | |
| 91,837 | |
Other current assets | |
| 1,100 | |
Property and equipment | |
| 6,000 | |
Intangibles | |
| | |
Goodwill | |
| 970 | |
Total assets acquired | |
$ | 165,642 | |
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consist of goodwill and
of the unamortized portion of identified intangible assets (customer lists) recorded in connection with the asset acquisition.
The following table presents the detail of intangible assets for the periods presented:
| |
December 31, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Goodwill | |
$ | 970 | | |
$ | 970 | |
Identified intangible assets (customer lists) | |
| 290,097 | | |
| - | |
Accumulated amortization | |
| (14,518 | ) | |
| - | |
Intangible assets, net | |
$ | 276,549 | | |
$ | 970 | |
| |
| | | |
| | |
Weighted-average remaining life | |
| 14.25 years | | |
| - | |
Amortization expense on definite-lived
intangible assets (excluding goodwill) included as a charge to income was $14,518 and $-0- for the years ended December 31, 2014
and 2013, respectively. No impairment or other charges to income were recorded for the years ended December 31, 2014 and 2013,
respectively.
NOTE 8 – LINES OF CREDIT
During 2012 and through October 8, 2013
the Company had a line of credit from PNC Bank in the amount of $900,000 which bore interest at London Interbank Offered Rate (“LIBOR”)
plus 3.75%. The line was renewed in September 2012 at the rate of LIBOR plus 3.00% for a term of one (1) year expiring September
30, 2013. As of December 31, 2013 the Company had drawn down $-0-on the PNC line and was not in violation of any of its financial
covenants. In May of 2012, the Company went into default on the Line, but obtained a waiver until the line was renewed in September
of 2012. The PNC line of credit was secured by the assets of the Company and guaranteed by the CEO and Chairman of the Company.
The bank required that the company subordinate $1,200,000 of the loan outstanding to the Chairman, Angelo DeRosa until September
30, 2013. For the year ended December 31, 2012, the Company had accrued and paid $21,710 of interest on the line of credit until
it was retired on October 8, 2012.
On October 8, 2013, the Company obtained
a new line of credit with a New York City commercial bank. The line was for $1.25 million and carries a variable interest rate
of 1.00% above the prime rate as published in the money rate tables of the Wall Street Journal. As of December 31, 2014
and 2013 the published prime rate was 3.25%. As of December 31, 2014 and 2013, the Company had drawn down $1,190,272 and $1,200,605,
respectively, on the bank line of credit. In 2014, the Company inadvertently broke a bank covenant by obtaining a third-party lease
to finance its acquisition of ERP software. The Company has requested and expects to obtain a waiver from its bank regarding this
covenant.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 9 – NOTES PAYABLE AND DEBT
At December 31, 2014 and 2013, long-term
debt consisted of the following:
|
|
December 31,
2014 |
|
|
December 31,
2013 |
|
Mortgage payable, due in monthly installments of principal and interest through October 8, 2018. Interest is charged variably at 2.25% above the LIBOR rate. Secured by the assets of the Company and personal guarantee of the Chairman of the Board and the CEO. |
|
$ |
1,168,024 |
|
|
$ |
1,195,434 |
|
|
|
|
|
|
|
|
|
|
Vehicle loan secured by the vehicle, maturing on November 21, 2017. Interest is charged at 3.9% per annum. |
|
|
27,984 |
|
|
|
36,870 |
|
|
|
|
|
|
|
|
|
|
Financing agreement on software purchase, maturing on March 31, 2017. Interest is charged at 5.0% per annum. |
|
|
75,000 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Buyout agreement related to business acquisition, maturing on October 8, 2015. Interest is charged at 6.8% per annum. |
|
|
49,215 |
|
|
|
- |
|
Total long-term debt |
|
|
1,320,223 |
|
|
|
1,232,304 |
|
|
|
|
|
|
|
|
|
|
Less current portion of long-term debt |
|
|
(134,451 |
) |
|
|
(36,294 |
) |
Long-term debt |
|
$ |
1,185,772 |
|
|
$ |
1,196,010 |
|
Future minimum principal payments due in
each of the years subsequent to December 31, 2014 are as follows:
Years Ending December 31 | |
Future Minimum Principal Payments | |
| |
| |
2015 | |
$ | 134,451 | |
2016 | |
| 59,450 | |
2017 | |
| 40,522 | |
2018 | |
| 1,085,800 | |
Thereafter | |
| - | |
Total | |
$ | 1,320,223 | |
For the year ended December 31, 2014 and
2013, the Company accrued $53,728 and $48,084 in interest expense on long-term debt.
NOTE 10 – NOTES PAYABLE, RELATED
PARTIES
Throughout the history of the Company,
the Chairman, Angelo DeRosa has periodically loaned the company money. The loan has a twenty year term maturing on December 31,
2031 and calls for principal and simple interest to be paid at various yearly intervals at the rate of three percent. For the year
ended December 31, 2014, the Company accrued interest of $48,755 and paid $56,122 on the related party note, leaving an ending
balance on the note of $1,705,401. For the year ended December 31, 2013, the Company accrued $51,012 and borrowed additional funds,
net of repayments of $15,347 on the related party note, leaving an ending balance on the note of $1,712,768. Of these amounts,
$52,702 and $50,083 have been classified as current liabilities as of December 31, 2014 and 2013, respectively.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 11 – LEASE COMMITMENTS
The Company owns its offices and warehouse
facilities in New Jersey and Florida. The Company leased its office and warehouse space in Indiana under a non-cancelable agreement
which expired September 30, 2013. The Company's North Carolina and Pennsylvania facilities are currently under a month-to-month
lease and have no future commitments.
There are no future minimum lease payments in the years subsequent
to December 31, 2014.
NOTE 12 – RETIREMENT PLAN
The Company maintains a defined contribution
retirement plan for the benefit of eligible employees. The Company has frozen the retirement plan indefinitely. No employer contributions
will be made until the plan is reactivated. As of December 31, 2014 and 2013, $-0- and $-0- was owed under the defined contribution
retirement plan, respectively.
NOTE 13 – STOCKHOLDERS’ EQUITY
The Company has authorized 200,000,000
shares of common stock with par value of $0.001. As of December 31, 2014 and 2013 the Company had 40,517,540 and 37,824,040 shares
of common stock issued and outstanding, respectively. On May 18, 2012, the Company authorized the issuance of 10,000,000 shares
of preferred stock with a par value of $0.001. No shares of preferred stock have been issued as of the date of this filing.
The holders of the Company’s common
stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and
in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each
share held on all matters submitted to a vote of shareholders. There is no cumulative voting of the election of directors
then standing for election. The common stock is not entitled to preemptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution or winding up of the company, the assets legally available for distribution
to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any,
on any outstanding payment of other claims of creditors.
During the year ended December 31, 2014,
the Company issued 2,468,500 shares of common stock for cash for total proceeds, net of stock offering costs, of $117,136. The
Company also issued 225,000 of common stock for services valued at $15,875 or $0.07 per share. The fair value of stock issued for
cash was based on the closing price of the Company’s common stock on the date of issuance.
During the year ended December 31, 2013,
the Company issued 425,000 shares of common stock for cash at $0.14 per share for total proceeds of $60,650. The Company also issued
125,000 of common stock for services valued at $28,438 or $0.23 per share. The Company also issued 200,000 shares of common stock
valued at $46,000 or $0.23 per share to acquire an asset group. The value of the shares issued for services and the shares issued
to acquire the asset group were based on the closing price of the Company’s common stock on the date of issuance.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 14 – INCOME TAXES
The Company’s deferred tax assets
and liabilities consist of the following:
| |
December 31, | | |
December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Current Assets and Liabilities: | |
| | | |
| | |
Provision for doubtful accounts | |
$ | 52,354 | | |
$ | 52,354 | |
Vacation Accrual | |
| 7,790 | | |
| | |
Federal Net Operating Loss Deduction | |
| - | | |
| 73,722 | |
Total | |
| 60,144 | | |
| 126,076 | |
Valuation Allowance | |
| - | | |
| - | |
Current Deferred Tax Asset, net | |
| 60,144 | | |
| 126,076 | |
| |
| | | |
| | |
Noncurrent Assets and Liabilities: | |
| | | |
| | |
Depreciation | |
| 9,197 | | |
| (20,381 | ) |
Total | |
| 9,197 | | |
| (20,381 | ) |
Valuation Allowance | |
| - | | |
| - | |
Noncurrent Deferred Tax Liability, net | |
$ | 9,197 | | |
$ | (20,381 | ) |
| |
| | | |
| | |
Total Deferred Tax - Asset, net | |
$ | 69,341 | | |
$ | 105,695 | |
The provisions for income taxes for the
years ending December 31 consist of the following:
| |
December 31, | |
| |
2014 | | |
2013 | |
Deferred tax benefit | |
$ | (37,368 | ) | |
$ | (12,666 | ) |
Current provision | |
| 171,090 | | |
| (54,873 | ) |
Total Provision for Income Taxes | |
$ | 133,722 | | |
$ | (67,539 | ) |
In assessing the realization
of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax strategies in making this assessment.
The Company accounts for uncertain tax
positions based upon authoritative guidance that prescribes a recognition and measurement process for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return (ASC 740-10). The guidance also provides direction
on derecognition and classification of interest and penalties.
Management has evaluated and concluded
that there are no material uncertain tax positions requiring recognition in the financial statements for the year ended December
31, 2014. The Company’s policy is to classify assessments, if any, for tax related interest as interest expense
and penalties as selling, general and administrative expenses.
STERLING CONSOLIDATED CORP. AND SUBSIDIARIES |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
DECEMBER 31, 2014 AND 2013 |
NOTE 14 – INCOME TAXES (CONTINUED)
The items accounting for the difference
between income taxes computed at the federal statutory rate and the provision for income taxes as follows:
| |
2014 | | |
2013 | |
| |
Amount | | |
Impact on Rate | | |
Amount | | |
Impact on Rate | |
Income tax at federal rate | |
$ | 61,915 | | |
| 35.00 | % | |
$ | (57,867 | ) | |
| 35.00 | % |
State tax, net of Federal effect | |
| 8,593 | | |
| 4.86 | % | |
| (9,672 | ) | |
| 5.85 | % |
Total permanent differences | |
| 5,556 | | |
| 3.14 | % | |
| - | | |
| 0.00 | % |
beginning deferred taxes | |
| - | | |
| 0.00 | % | |
| - | | |
| 0.00 | % |
NOL deduction | |
| 57,658 | | |
| 32.59 | % | |
| - | | |
| 0.00 | % |
Total tax credits | |
| - | | |
| 0.00 | % | |
| - | | |
| 0.00 | % |
Valuation allowance | |
| - | | |
| 0.00 | % | |
| - | | |
| 0.00 | % |
Total Provision | |
$ | 133,722 | | |
| 75.59 | % | |
$ | (67,539 | ) | |
| 40.85 | % |
NOTE 15 – COMMITMENTS AND CONTINGENCIES
The Company is party to various legal actions
arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably
estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes
of such matters and its experience in contesting, litigating and settling similar matters.
As of the date of this report, except as
described below, there are no material pending legal proceedings to which the Company is a party or of which any of its property
is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.
NOTE 16 – SUBSEQUENT EVENTS
In accordance with ASC 855, management
evaluated the subsequent events through the date the consolidated financial statements were issued and reports the following:
Since December 31, 2014, the Company has
sold 198,000 shares of stock at an average price of $.0338/share for total proceeds of $6,701.
EXHIBIT 31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Darren DeRosa, certify that:
1. I have reviewed this Annual
Report on Form 10-K of Sterling Consolidated Corp.
2. Based on my knowledge, this
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the
financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other
certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
5. The registrants’ other
certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: April 22, 2015
/s/ Darren DeRosa |
|
Darren DeRosa
Chief Executive Officer
(Principal Executive Officer) |
|
EXHIBIT 31.2
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Scott Chichester, certify that:
1. I have reviewed this Annual
Report on Form 10-K of Sterling Consolidated Corp.
2. Based on my knowledge, this
report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge, the
financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other
certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures
to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant's internal control over financial reporting
that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and |
5. The registrants’ other
certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the
equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal controls
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date: April 22, 2015
/s/ Scott Chichester |
|
Scott Chichester
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
Exhibit 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
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned
officer of Sterling Consolidated Corp. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for
the year ended December 31, 2014 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a)
or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents,
in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented
in the Form 10-K.
Date: April 22, 2015
/s/ Darren DeRosa |
|
Darren DeRosa
Chief Executive Officer
(Principal Executive Officer) |
|
The foregoing certification is being furnished
as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part
of the Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference
into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language
in such filing.
Exhibit 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
Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned
officer of Sterling Consolidated Corp. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for
the year ended December 31, 2014 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a)
or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents,
in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented
in the Form 10-K.
Date: April 22, 2015
/s/ Scott Chichester |
|
Scott Chichester
Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
The foregoing certification is being furnished
as an exhibit to the Form 10-K pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part
of the Form 10-K for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference
into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language
in such filing.
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