Surge Components Inc 10-Q for FY2026 Q2
Surge Components Inc (SPRS)
About this 10-Q
Surge Components Inc filed this 10-Q on July 14, 2026, covering the quarter ended May 31, 2026 (FY2026 Q2).
Headline figures
Quarter ended May 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.36M
- up 5.0% from $8.92M a year earlier
- Net income
- $404.56K
- up 243.0% from net income of $117.96K a year earlier
- Diluted EPS
- $0.07
- up 250.0% from $0.02 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from _______ to _______
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
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.
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | 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
Securities registered pursuant to Section 12(b) of the Act:
The registrant’s common stock outstanding as of July 10, 2026, was
SURGE COMPONENTS, INC
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
| May 31, 2026 |
November 30, 2025 |
|||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Marketable Securities | ||||||||
| Accounts receivable - net of allowance for credit losses of $ | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and income taxes | ||||||||
| Total current assets | ||||||||
| Fixed assets – net of accumulated depreciation and amortization of $ | ||||||||
| Operating lease right of use asset | ||||||||
| Deferred income taxes | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
See notes to consolidated financial statements.
1
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Continued)
| May 31, 2026 |
November 30, 2025 |
|||||||
| (unaudited) | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Operating lease liabilities, current maturities | ||||||||
| Accrued expenses and taxes | ||||||||
| Accrued salaries | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities net of current maturities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Shareholders’ equity: | ||||||||
| Preferred stock - $ | ||||||||
| Series C– | ||||||||
| Series D – | ||||||||
| Common stock - $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income – unrealized gain on marketable debt securities | ||||||||
| Retained Earnings | ||||||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See notes to consolidated financial statements.
2
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
| Six Months Ended May 31, | Three Months Ended May 31, | |||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling and shipping expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Income before other income (expense) and income taxes | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Investment income | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Income taxes | ||||||||||||||||
| Net income | ||||||||||||||||
| Dividends on preferred stock | ||||||||||||||||
| Net income available to common shareholders | $ | $ | $ | $ | ||||||||||||
| Net income per share available to common shareholders: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted Shares Outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See notes to consolidated financial statements.
3
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
| Six Months Ended May 31, |
Three Months Ended May 31, |
|||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||
| Net Income | ||||||||||||||||
| Other comprehensive income: | - | - | - | - | ||||||||||||
| Unrealized (loss) gain on marketable debt securities net of tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Net comprehensive income | $ | $ | $ | $ | ||||||||||||
See notes to consolidated financial statements
4
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity-unaudited
Six months ended May 31, 2025 and May 31, 2026
| Series C Preferred |
Common | Additional Paid -In |
Other Comprehensive |
Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Equity | Total | |||||||||||||||||||||||||
| Balance – December 1, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Preferred stock dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Stock options awarded | ||||||||||||||||||||||||||||||||
| Issuance of shares as compensation | ||||||||||||||||||||||||||||||||
| Change in unrealized gain on marketable securities | ||||||||||||||||||||||||||||||||
| Stock option exercise | ||||||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance – May 31, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Series C Preferred |
Common | Additional Paid -In |
Other Comprehensive |
Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Income | Equity | Total | |||||||||||||||||||||||||
| Balance – December 1, 2025 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Preferred stock dividends | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Change in unrealized gain on marketable securities | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||||||
| Net Income | - | - | ||||||||||||||||||||||||||||||
| Balance – May 31, 2026 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
See notes to consolidated financial statements.
5
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
| Six Months Ended | ||||||||
| May 31, 2026 |
May 31, 2025 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on marketable securities | ( | ) | ||||||
| Deferred income taxes | ( | ) | ||||||
| Allowance for credit losses | ||||||||
| Stock Compensation Expense | ||||||||
| CHANGES IN OPERATING ASSETS AND LIABILITIES: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and income taxes | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Acquisition of fixed assets | $ | ( | ) | $ | ( | ) | ||
| Acquisition of marketable securities | ( | ) | ( | ) | ||||
| Proceeds from the sale of marketable securities | ||||||||
| NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES | $ | ( | ) | $ | ( | ) | ||
6
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
(Continued)
| Six Months Ended | ||||||||
| May 31, 2026 |
May 31, 2025 |
|||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from exercise of stock options | $ | $ | ||||||
| NET CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| NET CHANGE IN CASH | ( | ) | ( | ) | ||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Accrued dividends on preferred stock | $ | $ | ||||||
| Operating lease assets and liabilities | $ | $ | ||||||
See notes to consolidated financial statements.
7
SURGE COMPONENTS, INC. AND SUBSIDIARIES
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
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
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
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 “Company”). All material intercompany balances and transactions have been eliminated in consolidation.
The accompanying interim consolidated financial statements have been prepared without audit in accordance with the instructions to Form 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments are of a normal recurring nature and all disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2026 and May 31, 2025 may not be representative of those for the full fiscal year or any future periods.
(2) Accounts Receivable:
Trade accounts receivables are recorded at the net invoice value net of the allowance for credit losses in the consolidated balance sheet and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to accounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company’s operating history and customer base, bad debts to date have not been material. Payment terms vary from customer to customer and range from
8
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(3) Revenue Recognition:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which the Company adopted effective December 1, 2017 using the modified retrospective transition method with no cumulative adjustment to opening equity.
The Company recognizes revenue in accordance with the five-step model under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations, and (5) recognize revenue when, or as, a performance obligation is satisfied.
The Company’s contracts with customers are primarily standard purchase orders for the sale of electronic components. Each purchase order gives rise to a single performance obligation — delivery of the specified products — which is satisfied at a point in time when control of the goods transfers to the customer. For products shipped from the Company’s warehouse, control transfers upon shipment. For direct shipments, where the Company arranges for a supplier to ship product directly to the customer through a freight forwarder, control transfers when the product is received by the freight forwarder. The transaction price is the invoiced amount, which is fixed at the time of the order.
The Company also acts as a sales agent for certain customers purchasing directly from one of its suppliers. In these arrangements, the Company has determined it is acting as an agent rather than a principal because it does not control the specified goods before they are transferred to the customer. Accordingly, commission revenue is recognized on a net basis in the period earned. Commission revenue totaled $
Direct shipment revenues were approximately $
The Company has entered into arrangements with certain subcontractor customers that provide for periodic cost reductions in the form of rebates of 5% of applicable sales. These rebates represent variable consideration under ASC 606. The Company estimates the amount of variable consideration using the most likely amount method and reduces the transaction price accordingly. Cooperative advertising arrangements with distributors are similarly treated as a reduction of the transaction price. These amounts have not been material to date.
The Company performs ongoing credit evaluations of its customers. Payment terms vary by customer and range from 15 to 120 days. The Company does not have significant financing components in its contracts. No contract assets or contract liabilities were recorded as of May 31, 2026 or November 30, 2025, as the Company’s performance obligations are satisfied at or near the time payment becomes due.
(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 risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2026 was $
(5) Depreciation and Amortization:
Fixed assets are recorded at cost. Depreciation is generally calculated on a straight line method and amortization of leasehold improvements is provided for on the straight-line method over the estimated useful lives of the various assets as follows:
| Furniture, fixtures and equipment | ||
| Computer equipment | ||
| Leasehold Improvements |
Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.
(6) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and cash. The Company maintains substantially all of its cash balances in a limited number of financial institutions. At May 31, 2026 and November 30, 2025, the Company’s uninsured cash balances totaled $
9
SURGE COMPONENTS, INC. AND SUBSIDIARIES
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 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, 2021, and state tax examinations for years before fiscal years ending November 30, 2020. 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 accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2026 and May 31, 2025.
(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 that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
(10) Marketing and promotional costs:
Marketing and promotional costs are expensed as incurred and have not been material to date. The Company has contractual arrangements with several of its distributors which provide for cooperative advertising rights to the distributor as a percentage of sales. Cooperative advertising is reflected as a reduction in revenues and has not been material to date.
(11) Fair Value Measurements and Fair Value of Financial Instruments:
The estimated fair value of certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
10
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(11) Fair Value Measurements and Fair Value of Financial Instruments (Continued):
The Company follows ASC subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value.
| May 31, 2026 | November 30, 2025 | |||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Marketable securities | $ | $ | ||||||||||||||||||||||
(12) Marketable securities and other investments
The Company’s investments in U.S. Treasury bills and Treasury notes are classified as available-for-sale debt securities in accordance with ASC Topic 320, Investments — Debt Securities. These securities are carried at fair value, with unrealized gains and losses reported net of tax in accumulated other comprehensive income (loss) within shareholders’ equity. Realized gains and losses are determined on an average cost basis and are reclassified from accumulated other comprehensive income into net income in the period of sale. The market value of these securities is determined using quoted prices in active markets (Level 1 inputs under ASC Topic 820).
The Company reviews its available-for-sale debt securities for impairment at each reporting date. An unrealized loss position is evaluated to determine whether the decline in fair value below amortized cost results from a credit loss or other factors. Because the Company’s securities consist entirely of obligations of the U.S. government, the risk of credit loss is considered remote, and no allowance for credit losses has been recorded as of May 31, 2026 or November 30, 2025. The Company also considers whether it intends to sell, or whether it is more likely than not that it will be required to sell, any security in an unrealized loss position before recovery of its amortized cost basis. As of May 31, 2026, no such intent or requirement exists. These securities are invested until such time as the funds are needed for operations.
The value of these marketable securities at May 31, 2026 and November 30, 2025 is as follows:
| May 31, | November 30, | |||||||
| 2026 | 2025 | |||||||
| Cost | $ | $ | ||||||
| Gross unrealized gain | ||||||||
| Gross unrealized loss | ( | ) | ( | ) | ||||
| Fair value | $ | $ | ||||||
(13) Shipping Costs
The Company classifies shipping costs as a component of selling expenses. Shipping costs totaled $
(14) Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.
Total potentially dilutive shares excluded from diluted weighted-average shares outstanding at May 31, 2026 and May 31, 2025 were
11
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(14) Earnings Per Share (continued):
The following sets forth the computation of basic and diluted earnings per share:
| Six Months Ended | ||||||||
| May 31, 2026 | May 31, 2025 | |||||||
| Numerator: | ||||||||
| Net Income | $ | $ | ||||||
| Less: Preferred dividends | ||||||||
| Net income available to common shareholders | $ | $ | ||||||
| Denominator: | ||||||||
| Weighted average shares outstanding – basic | ||||||||
| Effect of convertible preferred stock | ||||||||
| Effect of stock options | ||||||||
| Weighted average shares outstanding – diluted | ||||||||
| Basic earnings per share | $ | $ | ||||||
| Diluted earnings per share | $ | $ | ||||||
(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 instrument is recognized over the term of the consulting agreement.
(16) Leases:
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“Topic 842”). Topic 842 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.
On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $
The Company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company’s leases are classified as operating leases. The Company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “current and noncurrent liabilities” in the consolidated balance sheets. Lease expenses are recorded within “General and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” as other assets in the consolidated statements of cash flows.
12
SURGE COMPONENTS, INC. AND SUBSIDIARIES
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.
(17) Segment information
Each division acquires and distributes substantially similar products that are sold to similar customer types and operate within the same economic environment. The divisions share similar production processes, distribution methods, and regulatory environments. Accordingly, although financial information is reviewed separately by the CODM, the Company has determined that Surge and Challenge meet the aggregation criteria under ASC 280, Segment Reporting, and are aggregated into a single reportable segment.
Because the Company has one reportable segment, segment disclosures required under ASC 280 consist of the following entity-wide disclosures. Revenue by geographic regions is reported in Note M. Long-lived assets are primarily located within the US and Hong Kong.
NOTE C – FIXED ASSETS
Fixed assets consist of the following:
| May 31, | November 30, | |||||||
| 2026 | 2025 | |||||||
| Furniture and Fixtures | $ | $ | ||||||
| Leasehold Improvements | ||||||||
| Computer Equipment | ||||||||
| Less-Accumulated Depreciation | ( | ) | ( | ) | ||||
| Net Fixed Assets | $ | $ | ||||||
Depreciation and amortization expense for the six months ended May 31, 2026 and May 31, 2025 was $
NOTE D – LOANS PAYABLE
In February 2017, the Company obtained a line of credit with a bank for up to $
NOTE E – ACCRUED EXPENSES
Accrued expenses consist of the following:
| May 31, | November 30, | |||||||
| 2026 | 2025 | |||||||
| Commissions | $ | $ | ||||||
| Preferred stock dividends | ||||||||
| Other accrued expenses | ||||||||
| $ | $ | |||||||
13
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 employee contributions of up to fifteen percent (
NOTE G – SHAREHOLDERS’ EQUITY
[1] Preferred Stock:
In February 1996, the Company amended its Certificate of Incorporation to authorize the issuance of
In November 2000, the Company authorized
Dividends aggregating $
In October 2016, the Company authorized
[2] Incentive Stock Plan
In November 2015, the Company adopted and the shareholders ratified, the 2015 Incentive Stock Plan (“2015 Stock Plan”). The 2015 Stock Plan provides for the grant of options to officers, employees, directors or consultants to the Company to purchase an aggregate of
In April 2021, a total of
In March 2022, a total of
In March 2022, the Company granted stock options to (a) four non-employee directors to each purchase
In April 2023, a total of
In April 2024, a total of
In November 2024, the Company adopted and the shareholders ratified, the 2024 Incentive Stock Plan (“2024 Stock Plan”). The 2024 Stock Plan provides for the grant of options and stock grants to officers, employees, directors or consultants to the Company in the aggregate of
14
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE G – SHAREHOLDERS’ EQUITY (Continued)
[2] Incentive Stock Plan (continued)
In April 2025, a total of
In May 2025, the Company granted stock options from the 2024 Incentive Stock Plan to (a) four non-employee directors to each purchase
In March 2026, a total of
The weighted-average assumptions used in the Black-Scholes option pricing model were as follows:
| Six Months Ended | ||||
| May 31, 2025 | ||||
| Expected volatility | % | |||
| Expected term | ||||
| Risk-free interest rate | % | |||
| Expected dividend yield | % | |||
The Company estimates volatility using historical volatility of its common stock.
Activity in the Company’s stock plans for the period ended May 31, 2026 is summarized as follows:
| Shares | Weighted Average Exercise Price | |||||||
| Options outstanding December 1, 2025 | $ | |||||||
| Options issued in the six months ended May 31, 2026 | $ | |||||||
| Options exercised in the six months ended May 31, 2026 | $ | |||||||
| Options cancelled in the six months ended May 31, 2026 | $ | |||||||
| Options outstanding at May 31, 2026 | $ | |||||||
| Options exercisable at May 31, 2026 | $ | |||||||
The intrinsic value of the exercisable options at May 31, 2026 totaled $
[3] Compensation of Directors
Compensation for each non-employee director is $
15
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE H – INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates in effect in the years in which the differences are expected to reverse.
The Company’s deferred income taxes are comprised of the following:
| May 31, | November 30, | |||||||
| 2026 | 2025 | |||||||
| Deferred Tax Assets | ||||||||
| Depreciation | $ | $ | ||||||
| Allowance for bad debts | ||||||||
| Inventory | ||||||||
| Facilities rental | ||||||||
| Other Accrued Accounts | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ||||||||
| Deferred Tax Assets | $ | $ | ||||||
A valuation allowance for the deferred tax assets relates principally to the uncertainty of the utilization of deferred tax assets and was calculated in accordance with the provisions of ASC 740, which requires that a valuation allowance be established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized.
The Company’s income tax expense consists of the following:
| Six Months Ended | ||||||||
| May 31, 2026 | May 31, 2025 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| States | ||||||||
| Deferred: | ||||||||
| Federal | ( | ) | ||||||
| States | ( | ) | ||||||
| ( | ) | |||||||
| Provision for income taxes | $ | $ | ||||||
The Company files a consolidated income tax return with its wholly-owned subsidiaries. A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company’s effective rate is as follows:
| Six Months Ended | ||||||||
| May 31, | May 31, | |||||||
| 2026 | 2025 | |||||||
| U.S Federal Income tax statutory rate | % | % | ||||||
| State income taxes | % | % | ||||||
| Other-primarily state franchise taxes | % | % | ||||||
| Effective tax rate | % | % | ||||||
State franchise taxes include taxes not based on income and taxes based on income for entities filing separate income tax returns for state filing purposes. The effect of foreign income taxes has not been presented as the amount is not material.
16
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE I – OPERATING LEASE COMMITMENTS
The Company leases its office and warehouse space through 2030 from a corporation that is partly owned by officers/shareholders of the Company (“Related Company”). Minimum rental payments to the Related Company approximated $
Pursuant to the lease agreement, lease expense recognized in operations differs from cash lease payments due to scheduled rent increases. Lease expense is recognized on a straight-line basis over the lease term. The difference between cash payments and lease expense is reflected in the carrying amount of the Company’s operating lease right-of-use asset
The Company has a lease to rent office space and a warehouse in Hong Kong through November 2027. Annual minimum rental payments for this space are approximately $
The Company has a lease to rent additional warehouse space in Hong Kong through November 30, 2027. Annual minimum rental payments for this space are approximately $
The Company’s future minimum rental commitments at May 31, 2026 are as follows:
| Twelve Months Ended May 31, | ||||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 and after | ||||
| $ | ||||
| Less interest portion | ||||
| Present value of lease liabilities | ||||
| Current portion | ||||
| Noncurrent portion | $ | |||
Net rental expense for the six months ended May 31, 2026 and May 31, 2025 were $
The remaining weighted average lease term is
NOTE J – EMPLOYMENT AND OTHER AGREEMENTS
In February 2016, the Company entered into revised employment agreements with two officers of the Company. Pursuant to these agreements, the base salary for one officer is $
The Company’s compensation committee may award these officers with bonuses and will review the base salary amounts for each of the officers on an annual basis to determine if any changes to the base salary amounts need to be made and may also award these officers with annual bonuses.
17
SURGE COMPONENTS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE K – MAJOR CUSTOMERS
The Company had two customers who respectively accounted for
NOTE L – MAJOR SUPPLIERS
During the six months ended May 31, 2026 and May 31, 2025 there was one foreign supplier accounting for
The Company purchases substantially all of its products overseas. For the six months ended May 31, 2026, the Company purchased
NOTE M – EXPORT SALES
The Company’s export sales were as follows:
| Six Months Ended | ||||||||
| May 31, | May 31, | |||||||
| 2026 | 2025 | |||||||
| Canada | ||||||||
| China | ||||||||
| Other Asian Countries | ||||||||
| South America | ||||||||
| Europe | ||||||||
| Mexico | ||||||||
Revenues are attributed to countries based on location of customer.
18
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This report contains forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Furthermore, we cannot at this time assess the affect that the global outbreak of the novel Coronavirus may have on the Company.
In some cases, forward-looking statements can be identified by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading “Risk Factors” in our most recent Annual Report on Form 10-K. Also, these forward-looking statements represent our estimates and assumptions only as of the date of the filing of this report. Except as required by law, we assume no obligation to update any forward-looking statements after the date of the filing of this report.
Overview
The Company operates with two sales groups, Surge Components (“Surge”) and Challenge Electronics (“Challenge”). Surge is a supplier of electronic products and components. These products include capacitors, which are electrical energy storage devices, and discrete semiconductor components, such as rectifiers, transistors and diodes, which are single function low power semiconductor products that are packaged alone as compared to integrated circuits such as microprocessors. The products sold by Surge are typically utilized in the electronic circuitry of diverse products, including, but not limited to, automobiles, audio products, temperature control products, lighting products, energy related products, computer related products, various types of consumer products, garage door openers, household appliances, power supplies and security equipment. These products are sold to both original equipment manufacturers, commonly referred to as OEMs, who incorporate them into their products, and to distributors of the lines of products we sell, who resell these products within their customer base. These products are manufactured predominantly in Asia by approximately sixteen independent manufacturers. We act as the master distribution agent utilizing independent sales representative organizations in North America to sell and market the products for one such manufacturer pursuant to a written agreement. When we act as a sales agent, our supplier who sold the product to the customer that we introduced to our supplier pays us a commission. The amount of the commission is determined on a sale by sale basis depending on the profit margin of the product. Commission revenue totaled $24,462 and $203,019 for the six months ended May 31, 2026 and May 31, 2025 respectively.
Challenge is engaged in the sale of electronic components. In 1999, Challenge began as a division to sell audible components. We have been able to increase the types of products that we sell because some of our suppliers introduced new products, and we also located other products from new suppliers. Our core products include buzzers, speakers, microphones, resonators, alarms, chimes, filters, and discriminators. We now also work with our suppliers to have our suppliers customize many of the products we sell for many customers through the customers’ own designs and those that we work with our suppliers to have our suppliers redesign for them at our suppliers’ factories. We have engineers on our staff who work with our suppliers on such redesigns and assists with the introduction of new product lines. We are continually looking to expand the line of products that we sell. We sell these products through independent representatives that earn a commission on the products we sell. We are also working with local, regional, and national distributors to sell these products to local accounts in every state. Challenge also at times handles the brokering of certain products, helping its customers find parts that regular suppliers can’t deliver.
The Company has a Hong Kong office to effectively handle the transfer business from United States customers purchasing and manufacturing in Asia after designing the products in the United States. This office has strengthened the Company’s global position, improving our capabilities and service to our customer base.
19
The world of business continues to change because of “disruptors,” which are significant changes in traditional business practices. For example, customers continue to centralize purchasing from regional purchasing and are stretching their payment terms. These changes also include customers moving their manufacturing operations from North America to Asia, and the trend of globalization. Some of our customers have been involved in mergers and acquisitions, causing consolidation. This trend makes business more complicated and costly for the Company. The Company must have a presence in Asia to service and further develop the business with customers and manufactureers in the U.S. as well as local Asian customers. The Surge sales division has a sales and marketing office and warehouse in Hong Kong and for these reasons, we established Surge Ltd., our Hong Kong subsidiary. The Surge divisions regional sales in their Europe office are growing well throughout the entire European continent and management looks forward to their continued growth. The Challenge Electronics sales division has opened up a sales and marketing office in Europe as well. Currency fluctuations may also have an effect on doing business outside of North America. Customers have moved to reduce their supply chain, which could adversely affect the Company. In some market segments, demand for electronic components has decreased, and in other segments, the demand is still strong. Some technologies have become obsolete, while customers develop new products using different kinds of components. The Challenge Electronics division in the Company has had success in designing new products for customers to better their products performance capabilities. This proactive approach separates the Company from selling commodity products to also selling more customized products. Management is cautiously optimistic about continued growth in second half 2026 but expects the remainder of 2026 to be a period of continued challenge, with regards to inflation and general economic conditions and AI demand, in maintaining consistent flow of products during shortages of certain products. These challenges could affect the Company in negative ways, possibly reducing sales and or profitability. Because of a labor shortage, our customers engineering staff has been challenged, so getting our products approved has been and will continue to take longer to achieve. Additionally, the cost of some raw materials has continued to increase, therefore our costs have increased. In some cases, the customers will accept the increase while in other cases the Company absorbs the cost increase. In order for the Company to continue to grow, we will depend on, among other things, the continued growth of the electronics and semiconductor industries, our ability to withstand intense price competition, our ability to obtain new customers, our ability to retain and attract high performing sales and other key personnel in order to expand our marketing capabilities, our ability to secure adequate sources of products, which are in demand on commercially reasonable terms, our success in executing and managing growth, including monitoring an expanded level of operations and systems, controlling costs, the availability of adequate cash flow, the continued supply of products from our factories, the ability to withstand higher transportation costs, tariffs, and longer travel times and our ability to deal successfully, with new and future disruptors. The tariffs continue to impact the Company, although less now than previously. The general supply chain challenges present both a challenge and opportunity to the Company. The Company is cautiously optimistic about its ability to meet these challenges with continued growth unless the general global or electronics industry economic conditions deteriorate. Challenging economic conditions could have a negative impact on sales into 2027. The combination of possible disruptors such as increased costs and longer lead times from factories to the Company could also have negative impacts on the business in the future. The tense relations between America and China could also impact the Company’s business. China could impose rules and laws that make it more difficult to do business in Hong Kong and China. The Company is taking steps to be well prepared in case of any actions from China or Iran that would cause us potential business disruptions, if any. For example, many of the Company’s potential factory partners have opened production facilities outside of China. The current U.S. conflict with Iran also carries challenges in the cost of products and general global supply. As there are many challenges in this complicated and competitive market, there are also many great opportunities that the Company is involved in. Therefore, the Company continues to seek and develop opportunities for growth in 2026 and beyond.
Critical Accounting Policies
Accounts Receivable
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in actual defaults from the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected and the Company would adjust the allowance accordingly.
Revenue Recognition
Revenue is recognized 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 from our suppliers to our customer, revenue is recognized when product is shipped from the Company’s supplier. The Company acts as a sales agent for certain customers buying direct from one of its suppliers. The Company reports these commissions as revenues in the period earned.
The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.
20
Inventory Valuation
Inventories are recorded at the lower of cost or net realizable value. Write-downs of inventories to net realizable value are based on stock rotation, historical sales requirements and obsolescence as well as in the changes in the backlog. Reserves required for obsolescence were not material in any of the periods in the financial statements presented. Reserves related to stock rotation and future sales requirements for specific inventory parts involve subjective estimates to be made by management based on current and expected market conditions. If market conditions are less favorable than those projected by management, additional write-downs of inventories could be required. For example, each additional 1% of obsolete inventory would reduce operating income by approximately $53,000.
The Company does not have price protection agreements with any of its vendors and assumes the risk of changes in the prices of its products. The Company does not believe there to be a significant risk with regards to the lack of price protection agreements as many of its inventory items are purchased to fulfill purchase orders received.
Income Taxes
We have made a number of estimates and assumptions relating to the reporting of a deferred income tax asset to prepare our financial statements in accordance with generally accepted accounting principles. These estimates may have a significant impact on our valuation allowance relating to deferred income taxes. Our estimates could materially impact the financial statements.
Results of Operations
Consolidated net sales for the six months ended May 31, 2026 increased by $1,407,138 or 8.7%, to $17,555,601 as compared to net sales of $16,148,463 for the six months ended May 31, 2025. Consolidated net sales for the three months ended May 31, 2026 increased by $444,969 or 5.0%, to $9,361,694 as compared to net sales of $8,916,725 for the three months ended May 31, 2025. We attribute the increase to an increase in business with new customers as well as an increase in business with existing customers Net sales for the six months ended May 31, 2026 and May 31, 2025 reflect $339,751 and $380,332, respectively of tariff costs that the Company was able to pass on to its customers.
Our gross profit for the six months ended May 31, 2026 increased by $564,627 to $5,298,732, or 11.9%, as compared to $4,734,105 for the six months ended May 31, 2025. Gross margin as a percentage of net sales increased to 30.2% for the six months ended May 31, 2026 compared to 29.3% for the six months ended May 31, 2025. Gross profit for the three months ended May 31, 2026 increased by $201,920 to $2,890,323, or 7.5%, as compared to $2,688,403 for the three months ended May 31, 2025. Gross margin as a percentage of net sales increased to 30.9% for the three months ended May 31, 2026 compared to 30.2% for the three months ended May 31, 2025. The increase in gross profit and gross profit as a percentage of sales can be attributed to the increase in sales volume and to certain products being sold at a higher profit margin. Our industry will continue to receive pressure from customers for price reductions. Some of them further demand periodic price reductions on a quarterly or semi-annual basis, as opposed to annual fixed pricing. We work with electronic manufacturing service subcontractor customers who manufacture products for other customers who do not have their own manufacturing operations. At times we are not able to recover these price reductions from our suppliers. The Company has agreements with these subcontractor customers to provide periodic cost reductions through rebates in the amount of 5%. These reductions only affect future shipments of our products and do not affect existing orders. These reductions can have a negative impact on our profit margins since they reduce the amount of commissions we can earn. Even though this rebate can impact the Company’s gross profit margin, these subcontractor customers represent very significant potential growth for the Company because they can help the Company become an approved supplier at the customers they manufacture for and they purchase our components for these customers. We believe it would be very difficult for the Company to achieve business at these customers without the help of these subcontractor customers. The Company was impacted by tariff costs on certain products imported from China, which went into effect as of July 6, 2018 as well as the new tariffs that went into effect as of February 4, 2025. The Company has been able to pass along a portion of these costs to its customers. The Company is also moving some customer deliveries directly to Hong Kong in order to mitigate some of these costs. However, there can be no assurance that we will be able to pass along the new costs or the effects if any it will have on our revenue in the future.
21
Selling and shipping expenses for the six months ended May 31, 2026 was $1,722,191, an increase of $389,972, or 29.3%, as compared to $1,332,219 for six months ended May 31, 2025. Selling and shipping expenses for the three months ended May 31, 2026 was $888,011, an increase of $209,159, or 30.8%, as compared to $678,852 for three months ended May 31, 2025. We attribute the increase to increases in the six and three months ended May 31, 2026 to increases in selling expenses such as commission expenses, sales payroll, due to the hiring of additional sales personnel and travel and entertainment expenses, as well as auto expenses, freight out and trade show expenses offset by decreases in advertising expenses.
General and administrative expenses for the six months ended May 31, 2026 was $3,259,082, a decrease of $49,621, or 1.5% as compared to $3,308,703 for the six months ended May 31, 2025. General and administrative expenses for the three months ended May 31, 2026 was $1,537,804, a decrease of $391,637, or 20.3%, as compared to $1,929,441 for the three months ended May 31, 2025. The decrease for the six months ended May 31, 2026 is due primarily to decreases in non-cash stock based compensation of $460,734 in the six and three months ending May 31, 2025, additionally, the decrease for the six months ended May 31, 2026 is due to decreases in warehouse expenses, insurance and computer expenses as well as bad debt allowance, consulting expense, directors fees and bank charges, partially offset by increases in salaries and related payroll taxes, utilities and office expenses as well as professional fees and public company expenses. The decrease for the three months ended May 31, 2026 is due to decreases in insurance expenses, professional fees and consulting expenses as well as decreases in bank charges and bad debt allowances, partially offset by increases in salaries, utilities and office expenses as well as directors fees and public company expenses.
Depreciation expense for the six months ended May 31, 2026 was $16,620, a decrease of $18,459, or 52.6%, as compared to $35,079 for the six months ended May 31, 2025. Depreciation expense for the three months ended May 31, 2026 was $5,829, a decrease of $13,633, or 70.0%, as compared to $19,462 for the three months ended May 31, 2025.
Other income for the six months ended May 31, 2026 was $212,734, an increase of $29,404 as compared to $183,330 for the six months ended May 31, 2025. Other income for the three months ended May 31, 2026 was $108,437, an increase of $50,073 as compared to $58,364 for the three months ended May 31, 2025. We attribute the increase to an increase in income from investment in bonds and notes issued by the United States Treasury.
Tax expense for the six months ended May 31, 2026 was $143,290, an increase of $77,176 as compared to a tax expense of $66,114 for the six months ended May 31, 2025. Tax expense for the three months ended May 31, 2026 was $162,558, an increase of $161,510 as compared to a tax expense of $1,048 for the three months ended May 31, 2025. The changes result from our increase in net income for the fiscal 2026 period.
As a result of the foregoing, the net income for the six months ended May 31, 2026 was $370,283, compared to a net income of $175,320 for the six months ended May 31, 2025. The net income for the three months ended May 31, 2026 was $404,558, compared to a net income of $117,964 for the three months ended May 31, 2025.
Liquidity and Capital Resources
As of May 31, 2026, we had cash of $5,231,528, marketable securities of $9,800,386, and working capital of $21,094,357. We believe that our working capital levels are adequate to meet our operating requirements during the next twelve months. The Company is exploring and evaluating opportunities for growth and expansion using the Company’s cash resources.
During the six months ended May 31, 2026, we had net cash flow provided by operating activities of $1,376,281, as compared to net cash flow provided by operating activities of $85,357 for the six months ended May 31, 2025. The increase in cash flow from operating activities was primarily the result of increased cash flows from reduced accounts receivable, lower inventory and higher accounts payable and lower accrued expenses as partially offset by an increase in net income.
We had net cash flow used in investing activities of $(1,476,362) for the six months ended May 31, 2026, as compared to net cash flow used in investing activities of $(1,804,708) for the six months ended May 31, 2025. We attribute the change to increased purchases by the Company of marketable debt securities in the form of Treasury bills and notes issued by the United States Treasury in the current period.
We had net cash flow from financing activities of $0 for the six months ended May 31, 2026, as compared to $105,750 during the six months ended May 31, 2025 due to an increase in purchase of United States Treasury bills of 1,000,000 over the previous two periods.
22
As a result of the foregoing, the Company had a decrease in cash of $(100,081) for the six months ended May 31, 2026, as compared to a net decrease in cash of $(1,613,601) for the six months ended May 31, 2025.
The table below sets forth our contractual obligations, including long-term debt, operating leases and other long-term obligations, as of May 31, 2026:
| Payments due | ||||||||||||||||||||
| 0 – 12 | 13 – 36 | 37 – 60 | More than | |||||||||||||||||
| Contractual Obligations | Total | Months | Months | Months | 60 Months | |||||||||||||||
| Financing Lease Obligations | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Operating leases | $ | 1,185,358 | 369,131 | 516,101 | 300,126 | - | ||||||||||||||
| Total obligations | $ | 1,185,358 | $ | 369,131 | $ | 516,101 | $ | 300,126 | $ | - | ||||||||||
Inflation
In the past two fiscal years, inflation has not had a significant impact on our business. The Company has been able to pass along increases in purchasing costs to its customers. Any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our future operating results.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“Commission”). Ira Levy, the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of May 31, 2026 and has concluded that, as of such date, our disclosure controls and procedures were effective.
Changes in Internal Controls
During the three months ended May 31, 2026 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no legal proceedings to which the Company or any of its property is the subject.
ITEM 1A. RISK FACTORS.
Not applicable.
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.
ITEM 5. OTHER INFORMATION.
24
ITEM 6. EXHIBITS.
| Exhibit Number |
Description | |
| 31.1 | Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
25
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.
| SURGE COMPONENTS, INC. | ||
| Date: July 14, 2026 | By: | /s/ Ira Levy |
| Name: | Ira Levy | |
| Title: | Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |
26
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Ira Levy, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Surge Components, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 14, 2026 | By: | /s/ Ira Levy |
| Ira Levy | ||
|
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Surge Components, Inc. (the “Company”) on Form 10-Q for the period ended May 31, 2026 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ira Levy, Chief Executive Officer (principal executive officer and principal financial officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: July 14, 2026 | By: | /s/ Ira Levy |
| Ira Levy | ||
|
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) |