Surge Components Files Q1 2024 10-Q

TL;DR

SURGE COMPONENTS INC filed their 10-Q for Q1 2024. All good.

AI Summary

Surge Components, Inc. filed its quarterly report on Form 10-Q for the period ended May 31, 2024. The company, incorporated in Nevada with its principal executive offices in Deer Park, New York, operates in the wholesale of electronic parts and equipment. The filing indicates it has met its reporting obligations under the Securities Exchange Act of 1934.

Why It Matters

This filing provides investors with an update on Surge Components' financial performance and operational status for the first quarter of fiscal year 2024.

Risk Assessment

Risk Level: low — This is a routine quarterly filing and does not contain any immediately apparent negative or high-risk information.

Key Players & Entities

• SURGE COMPONENTS INC (company) — Registrant
• May 31, 2024 (date) — Quarterly period end date
• 000-27688 (other) — Commission File Number
• 95 East Jefryn Blvd, Deer Park, New York 11729 (location) — Principal executive offices address

FAQ

Filing Documents

• ea0209208-10q_surge.htm (10-Q) — 466KB
• ea020920801ex31-1_surge.htm (EX-31.1) — 8KB
• ea020920801ex32-1_surge.htm (EX-32.1) — 4KB
• 0001213900-24-061181.txt ( ) — 3796KB
• sprs-20240531.xsd (EX-101.SCH) — 44KB
• sprs-20240531_cal.xml (EX-101.CAL) — 43KB
• sprs-20240531_def.xml (EX-101.DEF) — 202KB
• sprs-20240531_lab.xml (EX-101.LAB) — 377KB
• sprs-20240531_pre.xml (EX-101.PRE) — 199KB
• ea0209208-10q_surge_htm.xml (XML) — 310KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION Item 1.

Financial Statements

Financial Statements 1 Consolidated Balance Sheets as of May 31, 2024 (unaudited) and November 30, 2023 1 Consolidated Statements of Operations for the six and three months ended May 31, 2024 and May 31, 2023 (unaudited) 3 Consolidated Statements of Comprehenive Income for the six and three months ended May 31, 2024 and May 31, 2023 (unaudited) 4 Consolidated Statements of Changes in Shareholders Equity for the six months ended May 31, 2024 and May 31, 2023 (unaudited) 5 Consolidated Statements of Cash Flows for the six months ended May 31, 2024 and May 31, 2023 (unaudited) 6

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) 8 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 19 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 23 Item 4.

Controls and Procedures

Controls and Procedures 23

- OTHER INFORMATION

PART II - OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 24 Item 1A.

Risk Factors

Risk Factors 24 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24 Item 3. Defaults Upon Senior Securities 24 Item 4. Mine Safety Disclosures 24 Item 5. Other Information 24 Item 6. Exhibits 25

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS. SURGE COMPONENTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets May 31, 2024 November 30, 2023 (unaudited) ASSETS Current assets: Cash $ 5,702,682 $ 7,634,799 Marketable securities 6,768,049 3,204,772 Accounts receivable - net of allowance for doubtful accounts of $ 80,297 and $ 79,341 5,561,854 6,097,411 Inventory, net 5,043,824 5,422,824 Prepaid expenses and income taxes 471,061 520,104 Total current assets 23,547,470 22,879,910 Fixed assets – net of accumulated depreciation and amortization of $ 1,792,540 and $ 1,757,772 135,352 170,120 Operating lease right of use asset 1,200,671 1,350,998 Deferred income taxes 222,304 241,328 Other assets 34,299 34,299 Total assets $ 25,140,096 $ 24,676,655 1 SURGE COMPONENTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Continued) May 31, 2024 November 30, 2023 (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,109,054 $ 3,216,590 Operating lease liabilities, current maturities 354,027 351,957 Accrued expenses and taxes 544,703 735,383 Accrued salaries 390,981 667,058 Total current liabilities 5,398,765 4,970,988 Operating lease liabilities net of current maturities 996,344 1,136,766 Total liabilities 6,395,109 6,107,754 Commitments and contingencies Shareholders' equity: Preferred stock - $ .001 par value, 5,000,000 shares authorized: Series C– 100,000 shares authorized, 10,000 and 10,000 shares issued and outstanding, redeemable, convertible, and a liquidation preference of $ 5 per share 10 10 Series D – 75,000 shares authorized, none issued or outstanding, voting, convertible, redeemable. Common stock - $ .001 par value, 50,000,000 shares authorized, 5,582,783 and 5,577,698 shares issued and outstanding 5,581 5,576 Additional paid-in capital 17,725,520 17,710,525 Accumulated other comprehensive income – unrealized gain on ma

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE A – ORGANIZATION, DESCRIPTION OF COMPANY'S BUSINESS AND BASIS OF PRESENTATION Surge Components, Inc. ("Surge") was incorporated in the State of New York and commenced operations on November 24, 1981 as an importer of electronic products, primarily capacitors and discrete semi-conductors selling to customers located principally throughout North America. On June 24, 1988, Surge formed Challenge/Surge Inc. ("Challenge"), a wholly-owned subsidiary to engage in the sale of electronic component products and sounding devices from established brand manufacturers to customers located principally throughout North America. In May 2002, Surge and an officer of Surge founded and became sole owners of Surge Components, Limited ("Surge Limited"), a Hong Kong corporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the outstanding common stock and the officer of Surge owns 1 share of the outstanding common stock. The officer of Surge has assigned his rights regarding his 1 share to Surge. Surge Limited started doing business in July 2002. Surge Limited operations have been consolidated with the Company. Surge Limited is responsible for the sale of Surge's products to customers located in Asia. On August 31, 2010, the Company changed its corporate domicile by merging into a newly-formed corporation, Surge Components, Inc. (Nevada), which was formed in the State of Nevada for that purpose. Surge Components Inc. is the surviving entity. In February 2019, the Company converted into a Delaware corporation. The number of authorized shares of common stock was decreased to 50,000,000 shares. In December 2021, the Company changed its corporate domicile to Nevada. NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Principles of Consolidation : The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited (collectively the "

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (3) Revenue Recognition (continued) : Revenue is recognized for products sold by the Company when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This occurs when product is shipped from the Company's warehouse. For direct shipments, revenue is recognized when product is shipped from the Company's supplier. The Company has a long term supply agreement with one of our suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder. Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $ 2,934,000 and $ 1,268,000 for the six months ended May 31, 2024 and May 31, 2023 respectively. The Company also acts as a sales agent to certain customers in North America for one of its suppliers. The Company reports these commissions as revenues in the period earned. Commission revenue totaled $ 37,683 and $ 157,221 for the six months ended May 31, 2024 and May 31, 2023 respectively. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. The Company and its subsidiaries currently have agreements with several distributors. There are no provisions for the granting of price concessions in any of the agreements. Revenues under these distribution agreements were approximately $ 2,457,000 and $ 5,121,000 for the six months ended May 31, 2024 and May 31, 2023 respectively. (4) Inventories : Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or net realizable value. Products are included in inventory when the Company obtains title and ris

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (7) Income Taxes : The Company's deferred income taxes arise primarily from the differences in the recording of allowances for bad debts, inventory reserves, depreciation and other expenses for financial reporting and income tax purposes. A valuation allowance is provided when it has been determined to be more likely than not that the likelihood of the realization of deferred tax assets will not be realized. See Note H. The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, "Income Taxes" (ASC 740). There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company's financial condition or results of operations as a result of ASC 740. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November 30, 2020, and state tax examinations for years before fiscal years ending November 30, 2019. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2024 and May 31, 2023. (8) Cash Equivalents : The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. (9) Use of Estimates : The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (13) Shipping Costs The Company classifies shipping costs as a component of selling expenses. Shipping costs totaled $ 898 and $ 798 for six months ended May 31, 2024 and May 31, 2023 respectively. (14) Earnings Per Share Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and convertible preferred stock exercised into common stock. Total potentially dilutive shares excluded from diluted weighted shares outstanding at May 31, 2024 and May 31, 2023 totaled 276,445 and 262,826 , respectively. (15) Stock Based Compensation Stock Based Compensation to Employees The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification ("ASC") 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period. Stock Based Compensation to Other than Employees The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. In the case of equity instruments issued to consultants, the fair value of the equity instru

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (16) Leases (continued): Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company's cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred. NOTE C – FIXED ASSETS Fixed assets consist of the following: May 31, November 30, 2024 2023 Furniture and Fixtures $ 329,186 $ 329,186 Leasehold Improvements 1,070,044 1,070,044 Computer Equipment 528,662 528,662 Less-Accumulated Depreciation ( 1,792,540 ) ( 1,757,772 ) Net Fixed Assets $ 135,352 $ 170,120 Depreciation and amortization expense for the six months ended May 31, 2024 and May 31, 2023 was $ 34,768 and $ 35,011 , respectively. 12 SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE D – LOANS PAYABLE In February 2017, the Company obtained a line of credit with a bank for up to $ 3,000,000 (the "Credit Line"). Borrowings under the Credit Line are due upon demand and accrue interest at the greater of the prime rate or the LIBOR rate plus two percent (and may be increased by three percent in the event the Company fails to (i) repay all amounts due on the Credit Line upon demand or (ii) comply with any terms or conditions relating to the Credit Line). The Credit Line is collateralized by substantially all the assets of the Company. As of May 31, 2024, the balance on the Credit Line was $ 0 . As of May 31, 2024, the Company was in compliance with the covenant for the debt service coverage ratio for the Credit Line. Effective July 1, 2023, the use of the LIBOR rate was discontinued and replaced with the secured overnight financing rate (SOFR). NOTE E – ACCRUED EXPENSES Accrued expenses consist of the following: May 31, November 30, 2024 2023 Commissions $ 218,397 $ 229,882 Preferred stock dividends 169,069 166,569 Other accrued expenses 157,237 338,932 $ 544,703 $ 735,383 NOTE F – RETIREMENT PLAN In June 1997, the Company adopted a qualified 401(k) retirement plan for all full-time employees who are twenty-one years of age and have completed twelve months of service. The plan allows total employ

View Full Filing

View this 10-Q filing on SEC EDGAR