STERLING CONSOLIDATED CORP. The information and financial data discussed below is derived from the audited
financial statements of the Company for its fiscal year ended
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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
Our largest subsidiary is
We also own real property through our subsidiaries ADDR and Q5. ADDR owns a
28,000 square foot facility in
In addition, our subsidiary Integrity is a freight forwarding business.
Integrity shares a facility with
Results of Operations
Comparison of the year ended
Revenues
For the years ended
Total Cost of Sales
For the years ended
Gross profit
For the years ended
Operating Expenses
For the years ended
Other Income/(expense)
For the years ended
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Net Income/(Loss)
As a result of the above factors, our net income was
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
The cash flows from operating activities decreased from net cash provided by
The cash flows from investing activities reflects a zero balance in net cash
used of
The cash flow from financing activities decreased from net cash used in of
Bank Loans
In the 4th quarter 2019, the Company obtained a mortgage with a
In 2021 the Company utilized an asset-based line of credit from a
In December of 2021, the Company established a traditional line of credit with a
commercial bank at a market rate of interest. As of
Critical Accounting Policies Use of Estimates
The preparation of consolidated financial statements in accounting principles
generally accepted in
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.
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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.
Property, Plant and Equipment
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:
Estimated
Classification 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 Inventories
Inventories, which are comprised of finished goods, are stated at the lower of cost or market using the average cost method. Cost does not include shipping and handling fees, which are charged directly to income. The Company provides for estimated losses from obsolete or slow-moving inventories, which is approximately 4% of the total inventory, and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based upon inventory on hand, historical sales activity, industry trends, the business environment, and the expected net realizable value. The net realizable value is determined based upon current awareness of market prices.
Revenue Recognition
The Company recognizes revenue based on Account Standards Codification ("ASC") 606, Revenue from Contracts with Customers, and all of the related amendments ("new revenue standard"). In the case of Sterling, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, shipment of the product has occurred, price is fixed or determinable and collectability of the resulting receivable is reasonably assured. For provision of third-party freight services provided by Integrity, revenue is recognized on a gross basis in accordance with ASC 606. Revenue is generally recognized when the contracted goods arrive at their destination point. When revenues and expenses straddle a period end due to the time between shipment and delivery, Integrity allocates revenue between reporting periods based on relative transit time in each period with expenses recognized as incurred. Cost of goods is comprised of sale of o-rings and related rubber products. Freight services is comprised of freight forwarding and related services earned by Integrity and rental services is comprised of revenue from rental of commercial space to third parties.
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Expenses
Cost of goods includes inventory costs, warehousing costs, direct labor and a depreciation allocation. Cost of inbound freight 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.
Income Tax
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
Fair Value Measurements
In
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.).
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? 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.
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.
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