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.





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We also own real property through our subsidiaries ADDR Properties, LLC ("ADDR") and Q5 Ventures, LLC ("Q5"). ADDR owns a 28,000 square foot facility in Neptune, New Jersey, that is primarily used by Sterling Seal for its operations.

In addition, our subsidiary Integrity Cargo Freight Corporation ("Integrity") is a freight forwarding business. Integrity shares a facility with Sterling Seal and manages the importation of Sterling Seal's products and exports products on behalf of Sterling Seal to various countries. Currently eighty percent (80%) of Sterling Seal's imports come from Asia, and ten percent (10%) of the Company's sales are exported to various countries. However, all payables are billed and collected in USD, so Sterling does not bear any foreign exchange risk on open payables.





Results of Operations

Comparison for the three months ended March 31, 2021 and 2020





Net Revenue

Net revenue decreased by $49,300, or 2.1%, from $2,395,654 for the three months ended March 31, 2020 to $2,395,654 for the three months ended March 31, 2021. This decrease was due primarily to inventory shortages created by the COVID-19 pandemic. We expect this worldwide inventory shortage to continue through 2021.





Total Cost of Sales

Cost of sales increased by $200,735 or 12.7%, from $1,574,519 for the three months ended March 31, 2020 to $1,775,254 for the three months ended March 31, 2021. This increase was due primarily to price increases attributed to the worldwide o-ring inventory shortage.





Gross profit

Gross profit decreased by $250,035 or 30.4 %, from $ 821,135 for the three months ended March 31, 2020 to $571,100 for the three months ended March 31, 2021. This decrease was due primarily to the above mentioned decrease in sales and increase in cost of sales.





Operating income

Operating income decreased by $349,510, from $ 377,775 for the three months ended March 31, 2020 to $28,625 for the three months ended March 31, 2021. This decrease can be explained by the above explained decreases in net revenue and gross profit, coupled with an increase of $99,75 in operating expenses. The increase in operating expenses is explained by a $43,984 increase in general and administrative costs related to the closing of the Florida real estate sale coupled with increased payroll and related costs due to increased administrative headcount.





Other income (expense)

Other expense increased from a loss of $59,022 for the three months ended March 31, 2020 to income of $191,307 for the three months ended March 31, 2021. This increase was primarily due to a gain on sale of real estate of $225,330 offset by a reduction in interest expense related to reduced debt.





Net Income

As a result of the above factors, the Company showed a net income of $158,092 for the three months ended March 31, 2021, as compared to a net income of $222,504 for the three months ended March 31, 2020.





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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 March 31, 2021, we had cash and cash equivalents of $746,354 as compared to approximately $171,818 as of December 31, 2020, representing an increase of $574,536. This increase can be explained by net cash used in operating activities of $196,996 primarily attributed to net income of $158,092, a decrease in inventory of $334,832 offset by a decrease in accounts payable and accrued interest payable of $405,064. This was offset by net cash used in financing activities of $136,571 attributed to the Company's business acquisition and net cash provided by financing activities which was primarily due to a paydown on notes payable of $147,119, a paydown of $68,248 on related party notes payable, offset by increased borrowing on the asset-based line of credit of $78,796. On March 31, 2021, our working capital was approximately $2,843,360.

The cash flow from operating activities increased from net cash used of $32,930 for the quarter ended March 31, 2020 to net cash used of $196,996 for the quarter ended March 31, 2021. This increase of $229,926 is primarily attributed to reduced net income coupled with an increase in paydown of accounts payable.

The cash flow from investing activities decreased from cash provided of $0 for the quarter ended March 31, 2020 to $712,500 for the quarter ended March 31, 2021. This increase is attributed to the sale of the Florida property on March 30, 2021.

The cash flow from financing activities increased from net cash used of $136,571 for the quarter ended March 31, 2020 to net cash provided of $59,032 for the quarter ended March 31, 2021. This increase is primarily attributed to a increased borrowing on the asset-based line of credit coupled with decreased paydowns on notes payable and related party notes payable.





Bank Loans

In the 4th quarter 2019, the Company obtained a mortgage with a New Jersey commercial bank. The mortgage was for $1,650,000 and carries a fixed interest rate of 5.00% amortized over 25 years with a re-financing required after 5 years. As of March 31, 2021 the Company had a balance of $1,604,532 outstanding on the note.

The Company currently also utilizes an asset-based line of credit from a New York-based asset-based lender. The Company was authorized for a line of $2,500,000 and currently pays 7% per annum in interest. As of March 31, 2021 the Company had a balance of $1,004,885 outstanding on the asset-based line.

The Company being in arrears on its public company reporting requirements may be considered a covenant breach by the lender.

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.





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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. 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.





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, 2020, the Company had no uncertain tax positions.

Fair values of financial instruments

In January 2010, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports. For the Company, this statement applies to certain investments and long-term debt. Also, the FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.

Various inputs are considered when determining the value of the Company's investments and long-term debt. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. These inputs are summarized in the three broad levels listed below.





    ·   Level 1 - observable market inputs that are unadjusted quoted prices for
        identical assets or liabilities in active markets.




    ·   Level 2 - other significant observable inputs (including quoted prices for
        similar securities, interest rates, credit risk, etc.…).




    ·   Level 3 - significant unobservable inputs (including the Company's own
        assumptions in determining the fair value of investments).




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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 March 31, 2021 were fully vested and therefore, no compensation expense was recorded in the quarters ended March 31, 2021 or 2020.

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 standard was effective for fiscal years beginning after December 15, 2019. Management has evaluated the impact in 2021 and has concluded the effect is not material to the Consolidated Financial Statements as a whole.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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