Surge Components Posts Double-Digit Sales, Profit Growth

TL;DR

**SPRS is surging with double-digit growth, but watch their cash burn as they pile into marketable securities.**

AI Summary

SURGE COMPONENTS INC (SPRS) reported a strong financial performance for the nine months ended August 31, 2025, with net sales increasing by 18.1% to $26,422,494 from $22,369,017 in the prior year. Net income available to common shareholders rose by 13.7% to $642,525, up from $565,290. Gross profit also saw a significant increase of 16.0% to $7,578,808. The company's total assets grew to $27,173,456 as of August 31, 2025, from $25,444,525 at November 30, 2024, driven by an increase in marketable securities to $8,665,967 and accounts receivable to $6,846,874. Cash balances, however, decreased to $4,275,802 from $5,627,693, primarily due to increased investments in marketable securities and operating activities. Key business changes include a substantial increase in commission revenue to $302,681 for the nine months ended August 31, 2025, from $73,235 in the prior year, and a rise in direct shipments to $4,159,000. The company also saw an increase in stock compensation expense to $518,954, reflecting increased equity-based incentives. Despite strong growth, the company faces risks related to uninsured cash balances and marketable securities totaling $3,211,306, and potential impacts from slow-moving or obsolete inventory, for which a reserve of $415,054 has been established.

Why It Matters

This filing reveals robust growth for Surge Components, indicating strong demand for its electronic products and effective operational management. The significant increase in net sales and net income suggests the company is expanding its market share and improving profitability, which is positive for investors. The rise in commission revenue and direct shipments highlights diversified sales channels and potentially stronger supplier relationships, offering competitive advantages. However, the decrease in cash, despite increased operating cash flow, due to substantial investments in marketable securities, warrants investor attention regarding liquidity management and capital allocation strategies. This performance could signal a stronger competitive position in the electronic components market.

Risk Assessment

Risk Level: medium — The risk level is medium due to the company's uninsured cash balances and marketable securities totaling $3,211,306 as of August 31, 2025, which exposes them to potential losses if financial institutions fail. Additionally, the company maintains a reserve against slow-moving and obsolete inventory of $415,054, indicating a risk of inventory write-downs that could impact future profitability.

Analyst Insight

Investors should consider SPRS's strong revenue and net income growth as a positive indicator, but closely monitor the company's cash management and investment strategy. Evaluate the nature and liquidity of their marketable securities, and assess whether the increased stock compensation expense aligns with long-term shareholder value. A deeper dive into inventory turnover and credit risk management is also advisable.

Financial Highlights

debt To Equity

0.30

revenue

$26,422,494

operating Margin

N/A

total Assets

$27,173,456

total Debt

$6,290,531

net Income

$642,525

eps

$0.11

gross Margin

28.7%

cash Position

$4,275,802

revenue Growth

+18.1%

Revenue Breakdown

Key Numbers

• $26.4M — Net Sales (Increased by 18.1% for the nine months ended August 31, 2025, from $22.4M in prior year.)
• $647.5K — Net Income (Increased by 13.5% for the nine months ended August 31, 2025, from $570.3K in prior year.)
• $7.6M — Gross Profit (Increased by 16.0% for the nine months ended August 31, 2025, from $6.5M in prior year.)
• $8.7M — Marketable Securities (Increased from $7.1M at November 30, 2024, reflecting increased investment.)
• $4.3M — Cash (Decreased from $5.6M at November 30, 2024, due to investments and operations.)
• $302.7K — Commission Revenue (Significantly increased from $73.2K for the nine months ended August 31, 2024.)
• $518.9K — Stock Compensation Expense (Increased substantially from $15.0K in the prior year, indicating higher equity incentives.)
• $3.2M — Uninsured Cash & Marketable Securities (Represents a concentration of credit risk for the company.)
• $415.1K — Inventory Reserve (Reserve against slow-moving and obsolete inventory as of August 31, 2025.)
• $0.11 — Basic EPS (Increased from $0.10 for the nine months ended August 31, 2024.)

Key Players & Entities

• SURGE COMPONENTS INC (company) — registrant
• Challenge/Surge Inc. (company) — wholly-owned subsidiary
• Surge Components, Limited (company) — Hong Kong corporation subsidiary
• Nevada (regulator) — state of incorporation
• Hong Kong (regulator) — jurisdiction for Surge Limited
• $26,422,494 (dollar_amount) — Net sales for nine months ended August 31, 2025
• $642,525 (dollar_amount) — Net income available to common shareholders for nine months ended August 31, 2025
• $8,665,967 (dollar_amount) — Marketable securities as of August 31, 2025
• $4,275,802 (dollar_amount) — Cash balance as of August 31, 2025
• $518,954 (dollar_amount) — Stock Compensation Expense for nine months ended August 31, 2025

FAQ

Risk Factors

• Uninsured Cash and Marketable Securities [medium — financial]: The company holds $3,211,306 in uninsured cash balances and marketable securities. This concentration of uninsured funds exposes the company to significant risk in the event of a financial institution's failure.
• Inventory Obsolescence [medium — operational]: A reserve of $415,054 has been established for slow-moving and obsolete inventory as of August 31, 2025. This indicates potential issues with inventory management, demand forecasting, or product lifecycle, which could lead to write-downs and impact profitability.
• Concentration of Credit Risk [low — market]: While not explicitly detailed with numbers in the provided text, the company's accounts receivable are subject to credit risk. The allowance for credit losses was $120,915 as of August 31, 2025, up from $80,297 in the prior year, suggesting an increase in potential bad debt exposure.

Industry Context

Surge Components Inc. operates in the electronic components distribution market, a sector characterized by global supply chains, technological advancements, and demand fluctuations tied to various end-user industries like automotive, industrial, and consumer electronics. The industry is competitive, with distributors playing a crucial role in connecting manufacturers with a broad customer base. Trends include increasing demand for specialized components, a focus on supply chain resilience, and the adoption of digital sales channels.

Regulatory Implications

As a publicly traded company, Surge Components Inc. is subject to SEC regulations and accounting standards (GAAP). The company must ensure accurate financial reporting, timely disclosures, and compliance with corporate governance rules. Specific to its operations, environmental regulations concerning electronic products and materials could pose future compliance challenges, though no immediate material impact is noted in this filing.

What Investors Should Do

1. Monitor inventory levels and turnover ratios.
2. Analyze the growth drivers of commission and direct shipment revenue.
3. Assess the risk associated with uninsured cash and marketable securities.
4. Evaluate the impact of increased stock compensation expense.

Key Dates

• 2025-08-31: Nine months ended August 31, 2025 — Period for which strong revenue growth (18.1%) and net income increase (13.7%) were reported, alongside significant increases in commission revenue and direct shipments.
• 2024-11-30: Fiscal year end November 30, 2024 — Prior period balance sheet date used for comparison, showing total assets of $25,444,525 and cash of $5,627,693.
• 2024-08-31: Nine months ended August 31, 2024 — Prior year comparable period for revenue and income, showing net sales of $22,369,017 and net income of $565,290.

Glossary

Marketable Securities

Short-term, highly liquid investments that can be readily converted into cash. (Surge Components Inc. increased its holdings to $8,665,967, indicating a strategic allocation of capital beyond immediate operational needs.)

Direct Shipments

Sales where the supplier ships the product directly to the customer, bypassing the company's inventory. (This revenue stream grew to $4,159,000, showing an increasing operational model for the company.)

Commission Revenue

Revenue earned by acting as a sales agent for a supplier, receiving a commission on sales made. (A substantial increase to $302,681 highlights a growing role as an intermediary in the sales process.)

Inventory Reserve

An amount set aside to account for potential losses due to inventory becoming slow-moving or obsolete. (The $415,054 reserve indicates potential write-downs and impacts on profitability if inventory cannot be sold.)

Stock Compensation Expense

The cost recognized for equity awards granted to employees, such as stock options or restricted stock units. (The increase to $518,954 suggests increased use of equity-based incentives to attract and retain talent.)

Accumulated Other Comprehensive Income

A component of equity that includes unrealized gains and losses on certain investments and foreign currency translations. (The increase to $179,696 reflects unrealized gains on marketable debt securities, impacting equity.)

Year-Over-Year Comparison

Compared to the prior year's comparable period, Surge Components Inc. demonstrates robust top-line growth with net sales up 18.1% to $26.4 million, and net income increased by 13.7% to $642,525. Gross profit also saw a healthy 16.0% increase. Key operational shifts include a significant rise in commission revenue and direct shipments. However, cash reserves have decreased from $5.6 million to $4.3 million, offset by a substantial increase in marketable securities. New risks highlighted include a notable inventory reserve of $415,054, and the existing concern over $3.2 million in uninsured cash and marketable securities.

Filing Documents

• ea0260787-10q_surge.htm (10-Q) — 495KB
• ea026078701ex31-1_surge.htm (EX-31.1) — 10KB
• ea026078701ex32-1_surge.htm (EX-32.1) — 4KB
• 0001213900-25-098987.txt ( ) — 4089KB
• sprs-20250831.xsd (EX-101.SCH) — 36KB
• sprs-20250831_cal.xml (EX-101.CAL) — 46KB
• sprs-20250831_def.xml (EX-101.DEF) — 200KB
• sprs-20250831_lab.xml (EX-101.LAB) — 378KB
• sprs-20250831_pre.xml (EX-101.PRE) — 213KB
• ea0260787-10q_surge_htm.xml (XML) — 331KB

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION 1 Item 1.

Financial Statements

Financial Statements 1 Consolidated Balance Sheets as of August 31, 2025 (unaudited) and November 30, 2024 1 Consolidated Statements of Operations for the nine and three months ended August 31, 2025 and August 31, 2024 (unaudited) 3 Consolidated Statements of Comprehensive Income for the nine and three months ended August 31, 2025 and August 31, 2024 (unaudited) 4 Consolidated Statements of Changes in Shareholders Equity for the nine months ended August 31, 2025 and August 31, 2024 (unaudited) 5 Consolidated Statements of Cash Flows for the nine months ended August 31, 2025 and August 31, 2024 (unaudited) 6

Notes to Consolidated Financial Statements

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 18 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 22 Item 4.

Controls and Procedures

Controls and Procedures 22

- OTHER INFORMATION

PART II - OTHER INFORMATION 23 Item 1.

Legal Proceedings

Legal Proceedings 23 Item 1A.

Risk Factors

Risk Factors 23 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23 Item 3. Defaults Upon Senior Securities 23 Item 4. Mine Safety Disclosures 23 Item 5. Other Information 23 Item 6. Exhibits 23

- FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS. SURGE COMPONENTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets August 31, 2025 November 30, 2024 (unaudited) ASSETS Current assets: Cash $ 4,275,802 $ 5,627,693 Marketable Securities 8,665,967 7,108,979 Accounts receivable - net of allowance for credit losses of $ 120,915 and $ 80,297 6,846,874 5,960,418 Inventory, net 5,579,646 5,000,707 Prepaid expenses and income taxes 343,358 290,401 Total current assets 25,711,647 23,988,198 Fixed assets – net of accumulated depreciation and amortization of $ 1,881,043 and $ 1,828,156 175,544 110,727 Operating lease right of use asset 994,076 1,050,445 Deferred income taxes 257,890 260,856 Other assets 34,299 34,299 Total assets $ 27,173,456 $ 25,444,525 1 SURGE COMPONENTS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Continued) August 31, 2025 November 30, 2024 (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,036,163 $ 3,344,952 Operating lease liabilities, current maturities 388,041 330,166 Accrued expenses and taxes 555,318 688,640 Accrued salaries 546,354 714,879 Total current liabilities 5,525,876 5,078,637 Operating lease liabilities net of current maturities 764,655 876,808 Total liabilities 6,290,531 5,955,445 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, 5,706,732 and 5,582,783 shares issued and outstanding 5,705 5,581 Additional paid-in capital 18,382,350 17,725,520 Accumulated other comprehensive income – unrealized gain on mark

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 $ 4,159,000 and $ 3,844,000 for the nine months ended August 31, 2025 and August 31, 2024 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 $ 302,681 and $ 73,235 for the nine months ended August 31, 2025 and August 31, 2024 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 $ 4,671,000 and $ 3,587,000 for the nine months ended August 31, 2025 and August 31, 2024 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

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, 2022, and state tax examinations for years before fiscal years ending November 30, 2021. 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 nine months ended August 31, 2025 and August 31, 2024 (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 assum

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 $ 1,683 and $ 2,022 for nine months ended August 31, 2025 and August 31, 2024 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 August 31, 2025 and August 31, 2024 totaled 661,648 and 279,977 , 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

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements NOTE C – FIXED ASSETS Fixed assets consist of the following: August 31, November 30, 2025 2024 Furniture and Fixtures $ 329,186 $ 329,186 Leasehold Improvements 1,142,385 1,078,985 Computer Equipment 585,016 530,712 Less-Accumulated Depreciation ( 1,881,043 ) ( 1,828,156 ) Net Fixed Assets $ 175,544 $ 110,727 Depreciation and amortization expense for the nine months ended August 31, 2025 and August 31, 2024 was $ 52,887 and $ 52,788 , respectively. 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 August 31

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