UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number: 333-183246
STERLING CONSOLIDATED CORP.
(Exact name of registrant as specified in its charter)
Nevada | 45-1840913 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
1105 Green Grove Road
Neptune, New Jersey07753
(Address of principal executive offices)
(732) (732) 918-8004
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨☒ No x
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No x
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer |
Non-accelerated filer | Smaller reporting company |
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x
☒
As of June 6,November 22, 2021 there were 47,284,689 shares of common stock, $0.001 par value issued and outstanding.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which |
Common | STCC | OTCMarkets.com |
STERLING CONSOLIDATED CORP.
TABLE OF CONTENTS
FORM 10-Q REPORT
September 30, 2020
2021
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 3 | |
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Unregistered Sales of Equity Securities and Use of Proceeds. | 9 | |
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2
PART I - FINANCIAL INFORMATION Item 1. Financial Statements. STERLING CONSOLIDATED CORP AND SUBSIDIARIES September 30, December 31, 2021 2020 (unaudited) ASSETS Current assets Cash and cash equivalents $ 354,710 $ 171,818 Account receivable, net 1,837,102 1,177,928 Inventory, net 2,901,187 3,045,718 Notes receivable and other current assets 78,675 20,847 Total current assets 5,171,674 4,416,311 Property and equipment, net 902,154 1,448,071 Intangible assets, net 84,284 91,284 Deferred tax asset 230,042 325,807 Total assets $ 6,388,154 $ 6,281,473 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 719,822 $ 1,042,828 Asset-based line of credit 1,065,653 896,913 Other liabilities 4,325 5,330 Current portion of long-term notes payable, rel. party 52,702 52,702 Current portion of long-term notes payable 41,953 257,610 Total current liabilities 1,884,455 2,255,383 Other liabilities Long-term notes payable, related party 512,431 749,074 Long-term notes payable 1,704,387 1,839,488 Total other liabilities 2,216,818 2,588,562 Total liabilities 4,101,273 4,843,945 Stockholders' equity Preferred stock, $0.001 par value; 10,000,000 shares authorized, 0 shares issued — — Common stock, $0.001 par value; 200,000,000 shares authorized, 47,284,689 shares issued and outstanding as of September 30, 2021 and December 31, 2020. 47,285 47,285 Additional paid-in capital 2,569,249 2,569,249 Accumulated deficit (329,653) (1,179,006) Total stockholders' equity 2,286,881 1,437,528 Total liabilities and stockholders' equity $ 6,388,154 $ 6,281,473 See accompanying notes to condensed consolidated financial statements F-1 STERLING CONSOLIDATED CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenues O-rings and rubber product sales $ 2,508,935 2,133,405 $ 7,269,029 $ 6,609,935 Freight services 132,041 56,993 370,186 133,590 Total revenues 2,640,976 $ 2,190,398 7,639,215 6,743,525 Cost of sales Cost of goods 1,670,126 1,337,028 5,199,353 4,778,274 Cost of services 163,088 54,789 460,913 185,733 Total cost of sales 1,833,214 1,391,817 5,660,266 4,964,007 Gross profit 807,762 798,581 1,978,949 1,779,518 Operating expenses Sales and marketing 43,858 137,270 205,898 228,527 General and administrative 535,887 335,426 1,297,051 1,161,303 Total operating expenses 579,745 472,696 1,502,949 1,389,830 Operating income 228,017 325,885 476,000 389,688 Other income (expense) Other 7,502 2,982 13,464 8,945 Loss on theft — — — (10,000) Interest expense (21,706) (41,588) (95,776) (134,923) Gain on sale of real estate — — 225,330 — Gain on PPP loan forgiveness — — 326,100 — Total other income (expense) (14,204) (38,606) 469,118 (135,978) Income before provision for income taxes 213,813 287,279 945,118 253,710 Provision (benefit) for income taxes (17,693) 88,384 95,765 78,129 Net income $ 231,506 $ 198,895 $ 849,353 $ 175,581 Net income (loss) per share of common stock: Basic $ 0.00 $ 0.00 $ 0.02 $ 0.00 Fully diluted $ 0.00 $ 0.00 $ 0.01 $ 0.00 Weighted average number of shares outstanding Basic 47,284,689 47,284,689 47,284,689 47,284,689 Fully diluted 57,584,689 57,584,689 57,584,689 57,584,689 See accompanying notes to condensed consolidated financial statements F-2 STERLING CONSOLIDATED CORP CONDENSED CONSOLIDATED STATEMENT OF Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total Balance, December 31, 2019 47,284,689 $ 47,285 $ 2,569,249 $ (1,103,727) $ 1,512,807 Net income for the nine months ended September 30, 2020 175,581 175,581 Balance, September 30, 2020 47,284,689 $ 47,285 $ 2,569,249 $ (928,146) $ 1,688,388 Balance, December 31, 2020 47,284,689 $ 47,285 $ 2,569,249 $ (1,179,006) $ 1,437,528 Net income for the nine months ended September 30, 2021 849,353 849,353 Balance, September 30, 2021 47,284,689 $ 47,285 $ 2,569,249 $ (329,653) $ 2,286,881 See accompanying notes to condensed consolidated financial statements F-3 STERLING CONSOLIDATED CORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) For the Nine Months Ended September 30, 2021 2020 Cash flows from operating activities Net income $ 849,353 $ 175,581 Adjustments to reconcile net income (loss) income to net cash provided by operating activities: Depreciation and amortization 65,747 88,871 Gain on sale of real estate (225,330) — Changes in operating assets and liabilities: Accounts receivable (659,174) 93,042 Inventory 144,531 280,472 Prepaids and other current assets (57,828) (63,925) Deferred tax asset 95,765 73,576 Accounts payable and accrued interest payable (323,006) (780,084) Other liabilities (1,005) — Net cash provided by operating activities (110,947) (132,467) Cash flows from investing activities Proceeds from sale of real estate 712,500 — Net cash used in investing activities 712,500 — Cash flows from financing activities Net borrowing (paydown) on asset-based line of credit (46,917) 92,765 Net borrowing (paydown) on notes payable (135,101) 349,383 Net paydown on related party notes payable (236,643) (295,720) Net cash provided by financing activities (418,661) 146,428 Net change in cash and cash equivalents 182,892 13,961 Cash and cash equivalents at the beginning of period 171,818 106,348 Cash and cash equivalents at the end of period $ 354,710 $ 120,309 Supplemental disclosures of cash flow information: Cash paid for interest $ 95,776 $ 134,923 Cash paid for taxes $ — $ 1,338 See accompanying notes to condensed consolidated financial statements F-4 STERLING CONSOLIDATED CORP AND AFFILIATES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2021 NOTE 1 – BASIS OF PRESENTATION The accompanying interim financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of and for the period ended, and for all periods presented herein, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2020 audited financial statements. The results of operations for the periods ended September 30, COVID-19 In the first quarter of 2020 the Company was affected by COVID-19. The COVID-19 pandemic has caused us to modify our business practices (including employee travel, employee work locations, and reduction of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. We reiterate that COVID 19 has affected our results of operations and the first quarter 2020 financial results are not necessarily indicative of the annual 2021 results. COVID-19 continues to affect the world economy in 2021. The extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future. NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended December 31, 2020. ASU 2016-13, This pronouncement, along with subsequent ASUs issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the accounts receivable and sales allowances, fair values of financial instruments, useful lives of intangible assets and property and equipment, inventory valuations, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. 5 Inventories Inventories, which are comprised of finished goods, are stated at the lower of cost (based on weighted average method) Inventory Type September 30, 2021 December 31, 2020 Finished goods $ 3,632,379 $ 3,776,910 Raw materials 0 0 Work-in-progress 0 Inventory Reserve (731,192) (731,192) Net Inventory $ 2,901,187 $ 3,045,718 Revenue Recognition The Company recognizes revenue based on Account Standards Codification Basic and Diluted Earnings per Share The computation of basic earnings (loss) per share of common stock is based on the weighted average number of shares outstanding during the periods presented. The computation of fully diluted earnings (loss) per share includes common stock equivalents outstanding at the balance sheet date. The Company had 10,800,000 and NOTE $225,330. NOTE 4 – LOSS ON THEFT In the first quarter of 2020, the Company was NOTE 5 – Management reviewed transactions from September 30, 2021 through November 22, 2021 for material subsequent events. None were noted. F-6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Cautionary Notice Regarding Forward Looking Statements The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report. This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances. Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Overview We were incorporated in the State of Nevada as Oceanview Acquisition Corp. on January 31, 2011. On May 18, 2012, we amended our Articles of Incorporation to change our name to Sterling Consolidated Corp. Our largest subsidiary is Sterling Seal & Supply, Inc. (“Sterling Seal”), a New Jersey corporation which was incorporated in 1997. Its predecessor was Sterling Plastic & Rubber Products, Inc., incorporated in New Jersey and was founded in 1970. Sterling Seal engages primarily in the distribution and sale of O-rings, rubber seals, oil seals, custom molded rubber parts, custom Teflon parts, Teflon rods, O-ring cord, bonded seals, O-ring kits, and stuffing box sealant. We also own real property through our subsidiaries ADDR Properties, LLC (“ADDR”) and Q5 Ventures, LLC (“Q5”). ADDR owns a 28,000 square foot facility in Neptune, New Jersey, that is primarily used by Sterling Seal for its operations. In addition, our subsidiary Integrity Cargo Freight Corporation (“Integrity”) is a freight forwarding business. Integrity shares a facility with Sterling Seal and manages the importation of Sterling Seal’s products and exports products on behalf of Sterling Seal to various countries. Currently eighty percent (80%) of Sterling Seal’s imports come from Asia, and ten percent (10%) of the Company’s sales are exported to various countries. However, all payables are billed and collected in USD, so Sterling does not bear any foreign exchange risk on open payables. 3 Results of Operations Comparison for the three months ended September 30, 2020 Net Revenue Net revenue Total Cost of Sales Cost of sales increased by $441,397 or 20.2%, from $1,391,817 for the three months ended September 30, Gross profit Gross profit increased by $9,181 or 1.1 %, from $798,581 for the three months ended September 30, Operating income Operating income decreased by $97,868, from $ 325,885 for the three months ended September 30, 2020 to $228,017 for the three months ended September 30, 2021. This decrease can be explained by the above explained increases in net revenue and gross profit, offset by an increase of $107,049 in operating expenses. The increase in operating expenses is explained by increased payroll and related costs due to increased headcount. Other income (expense) Other expense increased from a loss of $38,606 for the three months ended September 30, 2020 to a loss of $14,204 for the three months ended September 30, 2021. This increase was primarily due credit. Net Income As a result of the above factors, the Company showed a net income of $198,895 for the three months ended September 30, Comparison for the nine months ended September 30, 2020 Net Revenue Net revenue Total Cost of Sales Cost of sales increased by $696,259 or 14.0%, from $4,964,007 for the nine months ended September 30, 4 Gross profit Gross profit increased by $199,431 or 11.2 %, from $1,779,518 for the nine months ended September 30, Operating income Operating income increased by $86,312, from $ 389,688 for the nine months ended September 30, 2020 to $476,000 for the nine months ended September 30, 2021. This increase can be explained by the above explained increases in net revenue and gross profit, offset by an increase of $113,119 in operating expenses. The increase in operating expenses is explained by increased payroll and related costs due to increased headcount. Other income (expense) Other income (expense) increased from a loss of $135,978 for the nine months ended September 30, 2020 to income of $469,118 for the nine months ended September 30, 2021. This increase was due credit. Net Income As a result of the above factors, the Company showed a net income of $175,581 for the nine months ended September 30, 2020, as compared to a net 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, CARES ACT loans and cash generated from operations. On September 30, $46,917. On September 30, 2021, our working capital was approximately $3,287,219. The cash flow payable. The cash flow from investing activities increased from cash 2021. The cash flow from financing activities decreased from net cash provided of Bank Loans In the 5 Critical Accounting Policies and Estimates The preparation of our Consolidated Financial Statements, in accordance with accounting principles generally accepted in the United States, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures pertaining to contingent assets and liabilities. Note 2, “Significant Accounting Policies,” to the Consolidated Financial Statements describes the significant accounting policies used to prepare the Consolidated Financial Statements. On an ongoing basis we evaluate our estimates, including, but not limited to, those related to bad debts, inventories, income taxes, and contingencies. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from our estimates. We believe the following accounting policies and estimates are the most critical. Some of them involve significant judgments and uncertainties and could potentially result in materially different results under different assumptions and conditions. Revenue recognition The Company recognizes revenue based on Account Standards Codification (“ASC”)606, Revenue from Contracts with Customers, and all of the related amendments (“new revenue standard”). In the case of Sterling, revenue is recognized only when Income taxes Under the asset and liability method prescribed under ASC 740, Income Taxes, the Company uses the liability method of accounting for income taxes. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the financial statements. The resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. The Company recognizes the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in the financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of December 31, Fair values of financial instruments In January 2010, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports. For the Company, this statement applies to certain investments and long-term debt. Also, the FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. 6 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. The Company’s adoption of FASB ASC Topic 825, effectively at the beginning of the second quarter in FY 2010, did not have a material impact on the company’s financial statements. The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. Stock-based compensation The Company records stock-based compensation at fair value of the stock provided for services. The 10,300,000 of the stock options outstanding as of September 30, Recent Accounting Pronouncements ASU 2016-13, “Financial Instruments - Credit Losses” (Topic 326) This pronouncement, along with subsequent ASUs issued to clarify provisions of ASU 2016-13, changes the impairment model for most financial assets and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected The Off-Balance Sheet Arrangements Item 3. Quantitative and Qualitative Disclosures About Market Risk. We are a Smaller Reporting Company and are not required to provide the information under this item. 7 Item 4. Controls and Procedures. Disclosure Controls and Procedures The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the Securities and Exchange Commission. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Principal Executive Officer and Principal Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that due to material weaknesses the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, as appropriate, to allow timely decisions regarding required disclosure. As defined by Auditing Standard No. 5, “An Audit of Internal Control Over Financial Reporting that is Integrated with an Audit of Financial Statements and Related Independence Rule and Conforming Amendments,” established by the Public Company Accounting Oversight Board ("PCAOB"), a material weakness is a deficiency or combination of deficiencies that result in a more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses as of September 30, 2021: Our management determined that these deficiencies constituted material weaknesses. Due to our small size, we were not able to immediately take any action to remediate these material weaknesses. Notwithstanding the assessment that our Internal Controls over Financial Reporting was not effective and that there were material weaknesses identified herein, we believe that our consolidated financial statements contained in this Annual Report fairly present our financial position, results of operations and cash flows for the years covered thereby in all material respects. Changes in Internal Control There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal quarter ended September 30, 8 We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. We are a Smaller Reporting Company and are not required to provide the information under this item. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4.Mine Safety Disclosures. Not applicable. None. 9 Item 6. Exhibits. Exhibit Exhibit Title 31.1* 31.2* 32.1** 32.2** 101.INS * XBRL Instance Document 101.SCH * XBRL Taxonomy Schema 101.CAL * XBRL Taxonomy Calculation Linkbase 101.DEF * XBRL Taxonomy Definition Linkbase 101.LAB * XBRL Taxonomy Label Linkbase 101.PRE * XBRL Taxonomy Presentation Linkbase * Filed herewith. ** In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed. 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STERLING CONSOLIDATED CORP. By: /s/ Darren DeRosa Darren DeRosa, Chief Executive Officer (Principal Executive Officer) Dated: By: /s/ Scott Chichester Scott Chichester, Chief Financial Officer (Principal Financial and Accounting Officer) Dated: F-2
CONDENSED CONSOLIDATED BALANCE SHEETS(UNAUDITED) September 30, December 31, 2020 2019 ASSETS Current assets Cash and cash equivalents $ 120,309 $ 106,348 Account receivable, net 1,291,397 1,384,439 Inventory, net 3,057,371 3,337,843 Notes receivable and other current assets 127,507 63,582 Total current assets 4,596,584 4,892,212 Property and equipment, net 1,451,148 1,536,519 Intangible assets, net 101,784 105,284 Deferred tax asset 300,617 374,193 Total assets $ 6,450,133 $ 6,908,208 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable and accrued expenses $ 561,781 $ 1,341,865 Asset-based line of credit 1,137,151 1,044,386 Other liabilities 5,330 5,330 Current portion of long-term notes payable, rel. party 52,702 52,702 Current portion of long-term notes payable 258,519 138,257 Total current liabilities 2,015,483 2,582,540 Other liabilities Long-term notes payable, related parties 897,966 1,193,686 Long-term notes payable 1,848,296 1,619,175 Total other liabilities 2,746,262 2,812,861 Total liabilities 4,761,745 5,395,401 Stockholders' equity Preferred stock, $0.001 par value; 10,000,000 shares authorized, no shares issued - - Common stock, $0.001 par value; 200,000,000 shares authorized, 47,284,689 shares issued and outstanding as of September 30, 2020 and December 31, 2019. 47,285 47,285 Additional paid-in capital 2,569,249 2,569,249 Accumulated deficit (928,146 ) (1,103,727 ) Total stockholders' equity 1,688,388 1,512,807 Total liabilities and stockholders' equity $ 6,450,133 $ 6,908,208 F-3(UNAUDITED)(unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 Revenues O-rings and rubber product sales $ 2,133,405 2,529,152 $ 6,609,935 $ 6,768,967 Freight services 56,993 71,622 133,590 145,708 Total revenues 2,190,398 $ 2,600,774 6,743,525 6,914,675 Cost of sales Cost of goods 1,337,028 1,886,817 4,778,274 5,106,936 Cost of services 54,789 115,691 185,733 260,499 Total cost of sales 1,391,817 2,002,508 4,964,007 5,367,435 Gross profit 798,581 598,266 1,779,518 1,547,240 Operating expenses Sales and marketing 137,270 24,500 228,527 109,250 General and administrative 335,426 451,985 1,161,303 1,290,772 Research and development - - - 30,000 Total operating expenses 472,696 476,485 1,389,830 1,430,022 Operating income 325,885 121,781 389,688 117,218 Other income (expense) Other 2,982 - 8,945 1,206 Loss on theft - - (10,000 ) - Interest expense (41,588 ) (56,288 ) (134,923 ) (136,827 ) Total other expense (38,606 ) (56,288 ) (135,978 ) (135,621 ) Income (loss) before provision for income taxes 287,279 65,493 253,710 (18,403 ) Provision (benefit) for income taxes 88,384 17,837 78,129 (5,337 ) Net income (loss) $ 198,895 $ 47,656 $ 175,581 $ (13,066 ) Net income (loss) per share of common stock: Basic and diluted $ 0.00 $ 0.00 $ 0.00 $ (0.00 ) Weighted average number of shares outstanding Basic and diluted 47,284,689 47,284,689 47,284,689 46,274,051 F-4STOCKHOLDERS'STOCKHOLDERS’ EQUITY(UNAUDITED)(unaudited) Common Stock Additional Paid- Shares Amount in Capital Accumulated Deficit Total Balance, December 31, 2019 47,284,689 $ 47,285 $ 2,569,249 $ (1,103,727 ) $ 1,512,807 Net income for the 9 months ended September 30, 2020 175,581 175,581 Balance, September 30, 2020 47,284,689 $ 47,285 $ 2,569,249 $ (928,146 ) $ 1,688,388 Balance, December 31, 2018 41,965,540 $ 41,966 $ 2,074,568 $ (1,315,907 ) $ 800,627 Shares issued to acquire F&S Distributors, Inc. 5,319,149 5,319 494,681 500,000 Net loss for the 9 months ended September 30, 2019 (13,066 ) (13,066 ) Balance, September 30, 2019 47,284,689 $ 47,285 $ 2,569,249 $ (1,328,973 ) $ 1,287,561 F-5STERLING CONSOLIDATED CORP AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED) For the Nine Months Ended
September 30 2020 2019 Cash flows from operating activities Net income (loss) $ 175,581 $ (13,066 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 88,871 104,252 Changes in operating assets and liabilities: Accounts receivable 93,042 (378,024 ) Inventory 280,472 67,521 Prepaids and other current assets (63,925 ) (17,165 ) Deferred tax asset 73,576 (41,019 ) Accounts payable and accrued interest payable (780,084 ) 379,501 Other liabilities - 999 Net cash (used in) provided by operating activities (132,467 ) 102,999 Cash flows from investing activities Net cash paid for acquisition of business - (280,000 ) Net cash used in investing activities - (280,000 ) Cash flows from financing activities Borrowing on asset-based line of credit 92,765 419,919 Net borrowing on notes payable 349,383 - Net paydown on related party note (295,720 ) (157,348 ) Net cash provided by financing activities 146,428 262,571 Net change in cash and cash equivalents 13,961 85,570 Cash and cash equivalents at the beginning of period 106,348 32,034 Cash and cash equivalents at the end of period $ 120,309 $ 117,604 Supplemental disclosures of cash flow information: Cash paid for interest $ 134,923 $ 136,827 Cash paid for taxes $ 1,338 $ 2,191 Supplemental non-cash investing and financing activities: Common stock issued for business acquisition $ - $ 500,000 Note payable issued for business acquisition $ - $ 100,000 F-62020(unaudited)20202021 and September 30, 20192020 are not necessarily indicative of the operating results for the full years.“Financial"Financial Instruments - Credit Losses”Losses" (Topic 326)“expected loss”"expected loss" model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected.expected The standard was effective for fiscal years beginning after December 15, 2019. Management has evaluated the impact in 20202021 and has concluded the effect is not material to the Consolidated Financial Statements as a whole. or market. Cost does not include shipping and handling fees, which are charged directly to income. The Company provides for estimated losses from obsolete or slow-moving inventories, which is approximately 20% of the total inventory, and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon inventory on hand, historical sales activity, industry trends, the business environment, and the expected net realizable value. The net realizable value is determined based upon current awareness of market prices.F-7STERLING CONSOLIDATED CORP AND AFFILIATESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)SEPTEMBER 30, 2020(unaudited)Inventory Type September 30, 2020 December 31, 2019 Finished goods $ 3,786,865 $ 4,069,035 Raw materials - - Work-in-progress 1,698 - Inventory Reserve (731,192 ) (731,192 ) Net Inventory $ 3,057,371 $ 3,337,843 (“ASC”("ASC")606, Revenue from Contracts with Customers, and all of the related amendments (“("new revenue standard”standard"). In the case of Sterling, revenue is recognized only when controlthe price is fixed or determinable, persuasive evidence of an arrangement exists, shipment of the product passes tohas occurred, price is fixed or determinable and collectability of the customer or the serviceresulting receivable is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.reasonably assured. For provision of third-party freight services provided by Integrity, revenue is recognized on a gross basis in accordance with ASC 606. Revenue is generally recognized when the contracted goods arrive at their destination point. When revenues and expenses straddle a period end due to the time between shipment and delivery, Integrity allocates revenue between reporting periods based on relative transit time in each period with expenses recognized as incurred. Cost of goods is comprised of sale of o-rings and related rubber products. Freight services is comprised of freight forwarding and related services earned by Integrity and rental services is comprised of revenue from rental of commercial space to third parties.10,800,0000 stock options and warrants that would have been included in the fully diluted earnings per share for the threethree- and nine month periods ended September 30, 20202021 and 2019,2020, respectively.3 – STOCK TRANSACTIONS3- CLOSURE OF FLORIDA OFFICE AND SALE OF REAL ESTATEIn the first quarter of 2019,On March 30, 2021 the Company issued 5,319,149 sharessold its building and land in Apopka, Florida. The proceeds on the sale were $712,500 and the company recorded a gain on the sale of common stock as part of the acquisition of F&S Distributors, Inc. that were valued at $500,000.F-8STERLING CONSOLIDATED CORP AND AFFILIATESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)SEPTEMBER 30, 2020(unaudited)BUSINESS ACQUISITIONOn February 12, 2019 the Company acquired F & S Distributors, Inc., a New Jersey, distributor of o-rings and rubber products. The consideration paid consisted of $300,000 cash and 5,319,149 shares of common stock that were valued at $500,000 on the date of acquisition and a note payable carried by the seller, for $100,000 payable in two equal installments of $50,000 paid 12 months after closing and another $50,000 paid 18 months after closing. The acquisition was accounted for under the purchase method of accounting.The following assets and liabilities were acquired as part of the transaction:Assets Acquired Cash $ 20,000 Accounts receivable 312,418 Inventory 763,822 Inventory reserve (145,428 ) Security deposit 9,961 Client list 50,000 Equipment 2,000 Total assets acquired 1,012,773 Liabilities Acquired Accounts payable 112,773 Net Assets Acquired $ 900,000 F-9STERLING CONSOLIDATED CORP AND AFFILIATESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)SEPTEMBER 30, 2020(unaudited)NOTE 5 – DEBT TRANSACTIONSCOVID-19affected by COVID-19.subjected to a fraudulent request for refund from an individual posing as a customer. The COVID-19 pandemic has caused us to modify our business practices (including employee travel, employee work locations,Company honored the refund request, but soon discovered the request was fraudulent. The Company had an initial loss of $92,435 and reduction of physical participationreceived $82,435 in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. We reiterate that COVID 19 has affected our results of operations and the second quarter of 2020 financial results are not necessarily indicativefrom a claim with its insurance company. The net loss of $10,000 was recorded in other expense in the annual 2020 results.The extent to which COVID-19 impacts our business, resultsconsolidated statement of operations and financial condition will depend on future developments, which are uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the coronavirus outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.COVID-19 related financingPPP NoteOn April 21, 2020, Sterling Seal & Supply, Inc. (“Sterling Seal”), a wholly owned subsidiary of Sterling Consolidated Corp. (the “Company”), received loan proceeds in the amount of approximately $326,100 under the Paycheck Protection Program (the “PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act���) and administered by the U.S. Small Business Administration (the “SBA”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The unsecured loan (the “PPP Loan”) is evidenced by a promissory note (the “PPP Note”) issued by Sterling Seal, dated April 21, 2020, in the principal amount of $326,100 with TrustBank (the “Lender”),Under the terms of the PPP Note and the PPP, interest accrues on the outstanding principal at the rate of 1.0% per annum with a deferral of payments for the first nine months. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. To the extent the amount of the PPP Loan is not forgiven under the PPP, Sterling Seal will be obligated to make equal monthly payments of principal and interest beginning after a six-month deferral period provided in the PPP Note and through April 21, 2022.9 months ended September 30, 2020.The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, Sterling Seal may apply for forgiveness for all or a part of the PPP Loan. The amount of PPP Loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including: (i) the amount of PPP Loan proceeds that are used by Sterling Seal during the eight-week period after the PPP Loan origination date for certain specified purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the PPP Loan amount is used for eligible payroll costs; (ii) Sterling Seal maintaining or rehiring employees, and maintaining salaries at certain levels; and (iii) other factors established by the SBA. Subject to the other requirements and limitations on PPP Loan forgiveness, only that portion of the PPP Loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness. Although Sterling Seal currently intends to use the entire amount of the PPP Loan for qualifying expenses, no assurance is provided that the Company will obtain forgiveness of the PPP Loan in whole or in part.F-10STERLING CONSOLIDATED CORP AND AFFILIATESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)SEPTEMBER 30, 2020(unaudited)DEBT TRANSACTIONS, continuedCOVID-19 related financing, continuedPPP Note, continuedThe PPP Note may be prepaid in part or in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including Sterling Seal’s: (i) failure to make a payment when due under the PPP Note; (ii) breach of the terms of the PPP Note; (iii) default on any other loan with the Lender; (iv) filing of a bankruptcy petition by or against Sterling Seal; (v) reorganization merger, consolidation or other change in ownership or business structure without the Lender’s prior written consent; (vi) adverse change in financial condition or business operation that the Lender believes may affect Sterling Seal’s ability to pay the PPP Note; and (vii) default on any loan or agreement with another creditor, if the Lender believes the default may materially affect Sterling Seal’s ability to pay the PPP Note. Upon the occurrence of an event of default, the Lender has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from Sterling Seal, and file suit and obtain judgment against Sterling Seal. The foregoing description of the PPP Note does not purport to be complete is qualified in its entirety by reference to the full text of the PPP Note, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K.EIDL NoteSUBSEQUENT EVENTSAdditionally, on May 28, 2020, the Company received $150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated May 28, 2020 (the “EIDL Note”) in the original principal amount of $150,000 with the SBA, the lender.Under the terms of the EIDL Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL Note is 30 years, though it may be payable sooner upon an event of default under the EIDL Note. Under the EIDL Note, the Company will be obligated to make equal monthly payments of principal and interest beginning on May 28, 2022 through the maturity date of May 28, 2050. The EIDL Note may be prepaid in part or in full, at any time, without penalty.The EIDL Note provides for certain customary events of default, including: (i) a failure to comply with any provision of the EIDL Note, the related Loan Authorization and Agreement, or other EIDL loan documents; (ii) a default on any other SBA loan; (iii) a sale or transfer of, or failure to preserve or account to SBA’s satisfaction for, any of the collateral or its proceeds; (iv) a failure of the Company or anyone acting on its behalf to disclose any material fact to SBA; (v) the making of a materially false or misleading representation to SBA by the Company or anyone acting on their behalf; (vi) a default on any loan or agreement with another creditor, if SBA believes the default may materially affect the Company’s ability to pay the EIDL Note; (vii) a failure to pay any taxes when due; (viii) if the Company becomes the subject of a proceeding under any bankruptcy or insolvency law; (ix) if a receiver or liquidator is appointed for any part of the Company’s business or property; (x) the making of an assignment for the benefit of creditors; (xi) has any adverse change in financial condition or business operation that SBA believes may materially affect the Company’s ability to pay the EIDL Note; (xii) effects any reorganization, merger, consolidation, or other transaction changing ownership or business structure without SBA’s prior written consent; or (xiii) becomes the subject of a civil or criminal action that SBA believes may materially affect the Company’s ability to pay the EIDL Note.F-11STERLING CONSOLIDATED CORP AND AFFILIATESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)SEPTEMBER 30, 2020(unaudited)NOTE 6 – SUBSEQUENT EVENTSClosureTable of Florida Operations and Sale of PropertyIn the first quarter of 2020, the Company closed down its Florida operations and consolidated the sales accounts with its New Jersey based sales force based out of the Company’s headquarters in Neptune, New Jersey. The Company owned the Florida property unencumbered and sold the property for $712,500 on March 30, 2021. The closure was an effort to reduce costs and consolidate operations and was not related to COVID-19.F-12Contents20202021 and 2019decreasedincreased by approximately $410,376$450,578, or approximately 16%20.6%, from $2,600,774 for the three months ended September 30, 2019 to $2,190,398 for the three months ended September 30, 2020. This decrease was due primarily2020 to reduced sales activity related to an economic slowdown across the industrial sector related to COVID 19.3Total Cost of SalesCost of sales decreased by approximately $610,690 or approximately 30%, from $2,002,507$2,640,976 for the three months ended September 30, 20192021. This increase was due primarily to satisfaction of pent up demand post the inventory shortages created by the COVID-19 pandemic coupled with higher sales prices due to this demand. We expect this worldwide inventory shortage, and attendant strong demand, to continue through 2021.2020. This decrease was a combination of the above mentioned decreased sales activity and reduced warehouse headcount.Gross ProfitGross profit increased by $200,315 or approximately 33%, from $598,2662020 to $1,833,214 for the three months ended September 30, 20192021. This increase was due primarily to a commensurate increase in sales.2020.2020 to $807,762 for the three months ended September 30, 2021. This modest increase can be explained by increased shipping costs and a deficit in its due to the worldwide inventory shortage.primarilyto reduced interest expense attributed to the above described cost reductions in costreduced balance on the company’s asset based line of sales.2020,2021, as compared to a net income of $47,656$231,506 for the three months ended September 30, 2019. This increased income of $151,239 or approximately 317% is primarily attributed to the aforementioned factors that affected cost of sales.2020.20202021 and 2019decreasedincreased by approximately $171,150$895,690, or approximately 2%13.3%, from $6,914,675 for the nine months ended September 30, 2019 to $6,743,525 for the nine months ended September 30, 2020. This decrease was due2020 to a reduction of sales in 2020 due to COVID 19 offset by the fact that for the 9 months ended September 30, 2019, revenues included only 6.5 months of activity from the Company’s February 2019 acquisition of F&S Distributors, Inc.Total Cost of SalesCost of sales decreased by approximately $403,428 or approximately 8%, from $5,367,435$7,639,215 for the nine months ended September 30, 20192021. This increase was due primarily to satisfaction of pent up demand post the inventory shortages created by the COVID-19 pandemic coupled with higher sales prices due to this demand. We expect this worldwide inventory shortage, and attendant strong demand, to continue through 2021.2020. This decrease is primarily attributed2020 to a decrease in warehouse headcount.Gross profitGross profit increased by $232,278 or approximately 15%, from $1,547,240$5,660,266 for the nine months ended September 30, 20192021. This increase was due primarily to a commensurate increase in sales.2020.2020 to $1,978,949 for the nine months ended September 30, 2021. This increase can be explained by a commensurate increase in sales and cost of goods sales.primarilyto $326,100 in PPP loan forgiveness, $225,330 in gain on sale of real estate and reduced interest expense of $39,147 attributed to the above described cost reductions in costreduced balance on the company’s asset based line of sales.lossincome of $13,066$849,353 for the nine months ended September 30, 2019. This increase of $188,647 or approximately 1,444% is primarily attributed to 2020 reductions in cost of sales related to COVID 19 due to reduced warehouse headcount, while simultaneously maintaining sales revenues in 2020 relatively close to 2019 levels.2021.42020,2021, we had cash and cash equivalents of approximately $120,309$354,710 as compared to approximately $106,348$171,818 as of December 31, 2019,2020, representing an increase of $13,961.$182,892. This increase can be explained by net cash used in operating activities of $132,468$110,947 primarily attributed to an increase in accounts receivable of $659,174 and a decrease of $323,006 in accounts payable and accrued interest payable, of $780,084 offset by a decrease in inventory of $280,472 and net income of $175,581.$849,353. This was offset by net cash provided by financing activities of $146,828$712,500 attributed to net borrowingsthe Company’s sale of its Florida reals estate; further offset by cash used in financing activities of $418,661 which was primarily due to a paydown on notes payable of $349,383$135,101, a paydown of $236,643 on related party notes payable, and paydown on the asset-based line of credit of $92,765, offset by a decrease in notes payable related party of $295,720.used infrom operating activities decreasedincreased from net cash provided by $102,999 for the nine months ended September 30, 2019 to net cash used inof $132,467 for the nine months ended September 30, 2020.2020 to net cash used of $110,947 for the nine months ended September 30, 2021. This decreaseincrease of $235,467$21,520 is primarily attributed to an increased net income coupled with a reduction in paydown of payables offset by a lesser increase in collection of accounts receivable.usedprovided of $280,000$0 for the nine months ended September 30, 2020 to $712,500 for the quarter ended September 30, 20192021. This increase is attributed to net cash usedthe sale of $0 for the quarter ended SeptemberFlorida property on March 30, 2020. This decrease is explained by the Company’s February 2019 business acquisition compared to no 2020 business acquisition activity.$262,571$146,428 for the quarternine months ended September 30, 20192020 to net cash providedused of $146,428$418,661 for the quarternine months ended September 30, 2020.2021. This decrease is primarily attributed to a increased paydown ofborrowing on the related party note payable.Debt TransactionsAsset Based LoanThe Company refinanced its debt in 2018 with a New York asset based lender and there is currently an outstanding balance of $1,137,151. Theasset-based line of credit calls for a variable interest rate at market rates forcoupled with increased paydowns on notes payable and related party notes payable.ABL industry.Mortgage NoteThe4th quarter 2019, the Company obtained a mortgage on its Neptune, NJ headquarters in the 4th quarter of 2019.with a New Jersey commercial bank. The mortgage payable is due in monthly installments of principalwas for $1,650,000 and interest. Interest is charged atcarries a fixed interest rate of 5.00%. The mortgage is secured by the assets amortized over 25 years with a re-financing required after 5 years. As of September 30, 2021 the Company and personal guaranteehad a balance of $1,604,532 outstanding on the Chairman of the Board and the CEO. The note is amortized over a 20-year period but has a 5-year maturity, which will require refinancing in November of 2024. As ofnote.COVID-19 related financing:PPP NoteOn April 21, 2020, Sterling Seal & Supply, Inc. (“Sterling Seal”),The Company currently also utilizes an asset-based line of credit from a wholly owned subsidiaryNew York-based asset-based lender. The Company was authorized for a line of Sterling Consolidated Corp. (the “Company”), received loan proceeds$2,500,000 and currently pays 7% per annum in interest. As of September 30, 2021 the amountCompany had a balance of approximately $326,100 under the Paycheck Protection Program (the “PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES Act”) and administered by the U.S. Small Business Administration (the “SBA”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The unsecured loan (the “PPP Loan”) is evidenced by a promissory note (the “PPP Note”) issued by Sterling Seal, dated April 21, 2020, in the principal amount of $326,100 with TrustBank (the “Lender”),Under the terms of the PPP Note and the PPP, interest accrues$1,065,653 outstanding on the outstanding principal at the rate of 1.0% per annum with a deferral of payments for the first nine months. The term of the PPP Note is two years, though it may be payable sooner in connection with an event of default under the PPP Note. To the extent the amount of the PPP Loan is not forgiven under the PPP, Sterling Seal will be obligated to make equal monthly payments of principal and interest beginning after a six-month deferral period provided in the PPP Note and through April 21, 2022.asset-based line.The CARES Act and the PPP provide a mechanism for forgiveness of up to the full amount borrowed. Under the PPP, Sterling Seal may apply for forgiveness for all or a part of the PPP Loan. The amount of PPP Loan proceeds eligible for forgiveness is based on a formula that takes into account a number of factors, including: (i) the amount of PPP Loan proceeds that are used by Sterling Seal during the eight-week period after the PPP Loan origination date for certain specified purposes including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, provided that at least 75% of the PPP Loan amount is used for eligible payroll costs; (ii) Sterling Seal maintaining or rehiring employees, and maintaining salaries at certain levels; and (iii) other factors established by the SBA. Subject to the other requirements and limitations on PPP Loan forgiveness, only that portion of the PPP Loan proceeds spent on payroll and other eligible costs during the covered eight-week period will qualify for forgiveness. The PPP loan was forgiven in full in the second quarter of 2021.The PPP Note may be prepaid in part or in full, at any time, without penalty. The PPP Note provides for certain customary events of default, including Sterling Seal’s: (i) failure to make a payment when due under the PPP Note; (ii) breach of the terms of the PPP Note; (iii) default on any other loan with the Lender; (iv) filing of a bankruptcy petition by or against Sterling Seal; (v) reorganization merger, consolidation or other change in ownership or business structure without the Lender’s prior written consent; (vi) adverse change in financial condition or business operation that the Lender believes may affect Sterling Seal’s ability to pay the PPP Note; and (vii) default on any loan or agreement with another creditor, if the Lender believes the default may materially affect Sterling Seal’s ability to pay the PPP Note. Upon the occurrence of an event of default, the Lender has customary remedies and may, among other things, require immediate payment of all amounts owed under the PPP Note, collect all amounts owing from Sterling Seal, and file suit and obtain judgment against Sterling Seal. The foregoing description of the PPP Note does not purport to be complete is qualified in its entirety by reference to the full text of the PPP Note, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K.EIDL NoteAdditionally, on May 28, 2020, the Company received $150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (“EIDL”) program administered by the SBA, which program was expanded pursuant to the CARES Act. The EIDL is evidenced by a promissory note, dated May 28, 2020 (the “EIDL Note”) in the original principal amount of $150,000 with the SBA, the lender.Under the terms of the EIDL Note, interest accrues on the outstanding principal at the rate of 3.75% per annum. The term of the EIDL Note is 30 years, though it may be payable sooner upon an event of default under the EIDL Note. Under the EIDL Note, the Company will be obligated to make equal monthly payments of principal and interest beginning on May 28, 2022 through the maturity date of May 28, 2050. The EIDL Note may be prepaid in part or in full, at any time, without penalty.The EIDL Note provides for certain customary events of default, including: (i) a failure to comply with any provision of the EIDL Note, the related Loan Authorization and Agreement, or other EIDL loan documents; (ii) a default on any other SBA loan; (iii) a sale or transfer of, or failure to preserve or account to SBA’s satisfaction for, any of the collateral or its proceeds; (iv) a failure of the Company or anyone acting on its behalf to disclose any material fact to SBA; (v) the making of a materially false or misleading representation to SBA by the Company or anyone acting on their behalf; (vi) a default on any loan or agreement with another creditor, if SBA believes the default may materially affect the Company’s ability to pay the EIDL Note; (vii) a failure to pay any taxes when due; (viii) if the Company becomes the subject of a proceeding under any bankruptcy or insolvency law; (ix) if a receiver or liquidator is appointed for any part of the Company’s business or property; (x) the making of an assignment for the benefit of creditors; (xi) has any adverse change in financial condition or business operation that SBA believes may materially affect the Company’s ability to pay the EIDL Note; (xii) effects any reorganization, merger, consolidation, or other transaction changing ownership or business structure without SBA’s prior written consent; or (xiii) becomes the subject of a civil or criminal action that SBA believes may materially affect the Company’s ability to pay the EIDL Note.6controlthe price is fixed or determinable, persuasive evidence of an arrangement exists, shipment of the product passes tohas occurred, price is fixed or determinable and collectability of the customer or the serviceresulting receivable is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.reasonably assured. The new revenue standard does not materially change this calculation method. For provision of third-party freight services provided by Integrity, revenue is recognized on a gross basis in accordance with ASC 606. Revenue is generally recognized when the contracted goods arrive at their destination point. When revenues and expenses straddle a period end due to the time between shipment and delivery, Integrity allocates revenue between reporting periods based on relative transit time in each period with expenses recognized as incurred. Cost of goods is comprised of sale of o-rings and related rubber products. Freight services is comprised of freight forwarding and related services earned by Integrity and rental services is comprised of revenue from rental of commercial space to third parties.2019,2020, the Company had no uncertain tax positions.7·●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…etc .…).·●Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments). 20202021 were fully vested and therefore, no compensation expense was recorded in the quarterquarters ended September 30, 2021 or 2020.Company’s managementstandard was effective for fiscal years beginning after December 15, 2019. Management has considered all recent accounting pronouncements. Management believes that these recent pronouncements willevaluated the impact in 2021 and has concluded the effect is not havematerial to the Consolidated Financial Statements as a material effect on the Company’s financial statements.whole.The Company has declared a dividend of its proprietary cryptocurrency, DIMO, that is yet to be distributed. As there is currentlyWe have no market for the cryptocurrency, the Company has valued the dividend at $0.off-balance sheet arrangements.82020:(1) Lack of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee it has no independent directors These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management. (2) We do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience that is necessary for adequate controls and procedures. (3) Need for greater integration, oversight, communication and financial reporting of the books and records of our satellite offices. 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.910
Number * Filed herewith.** In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.11 June 14,November 22, 2021June 14,November 22, 202112 11