UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~February 3129, ~~2023~~ 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File No. 000-27688

SURGE COMPONENTS, INC.

(Exact name of registrant as specified in its charter)

Nevada		11-2602030
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

95 East Jefryn Boulevard Deer Park, New York		11729
(Address of principal executive offices)		(Zip Code)

(631) 595-1818

(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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐
Non-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: None

The registrant’s common stock outstanding as of ~~October~~April 1611, ~~2023~~2024, was 5,~~569~~577,~~521~~698 shares of common stock. The registrant’s common stock trades on the OTC Markets ~~under~~ under the stock symbol “SPRS.”

SURGE COMPONENTS, INC

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Consolidated Balance Sheets as of August 31, 2023 (unaudited) and November 30, 2022		1
Consolidated Balance Sheets as of February 29, 2024 (unaudited) and November 30, 2023		1
Consolidated Statements of Operations for the nine and three months ended August 31, 2023 and August 31, 2022 (unaudited)		3
Consolidated Statements of Operations for the three months ended February 29, 2024 and February 28, 2023 (unaudited)		3
Consolidated Statements of Comprehenive Income for the nine and three months ended August 31, 2023 and August 31, 2022 (unaudited)		4
Consolidated Statements of Comprehenive Income for the three months ended February 29, 2024 and February 28, 2023 (unaudited)		4
Consolidated Statements of Changes in Shareholders Equity for the nine months ended August 31, 2023 and August 31, 2022 (unaudited)		5
Consolidated Statements of Changes in Shareholders Equity for the three months ended February 29, 2024 and February 28, 2023 (unaudited)		5
Consolidated Statements of Cash Flows for the nine months ended August 31, 2023 and August 31, 2022 (unaudited)		6
Consolidated Statements of Cash Flows for the three months ended February 29, 2024 and February 28, 2023 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	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
SIGNATURES		26

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	August 31, 2023		November 30, 2022
	February 29, 2024		November 30, 2023
	(unaudited)
ASSETS
Current assets:
Cash	$	59,~~957~~091,~~085~~787	$	87,~~690~~634,~~040~~799
Marketable Securities		3,974,283		-
Marketable securities		2,928,008		3,204,772
Accounts receivable - net of allowance for doubtful accounts of $173,565 and $173,565		7,288,225		7,230,635
Accounts receivable - net of allowance for doubtful accounts of $79,341 and $79,341		5,295,778		6,097,411
Inventory, net		53,~~642~~869,~~745~~738		65,~~408~~422,~~551~~824
Prepaid expenses and income taxes		~~335~~170,~~038~~877		~~470~~520,~~847~~104
Total current assets		2321,~~197~~356,~~376~~188		22,~~800~~879,~~073~~910
Fixed assets – net of accumulated depreciation and amortization of $1,740,041 and $1,687,525		176,334		196,999
Fixed assets – net of accumulated depreciation and amortization of $1,775,156 and $1,757,772		152,736		170,120
Operating Lease Right of Use Asset		1,284,526		1,362,305
Operating lease right of use asset		1,275,785		1,350,998
Deferred income taxes		~~238~~259,~~289~~974		~~229~~241,~~098~~328
Other assets		34,299		34,299
Total assets	$	2423,~~930~~078,~~824~~982	$	24,~~622~~676,~~774~~655

See notes to consolidated financial statements

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Continued)

	August 31, 2023		November 30, 2022
	February 29, 2024		November 30, 2023
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	32,~~636~~058,~~254~~179	$	43,~~147~~216,~~595~~590
Operating lease liabilities, current maturities		~~292~~307,~~509~~976		~~309~~351,~~216~~957
Accrued expenses and taxes		~~699~~601,~~811~~595		~~899~~735,~~259~~383
Accrued salaries		~~525~~460,~~930~~013		~~598~~667,~~519~~058
Total current liabilities		53,~~154~~427,~~504~~763		54,~~954~~970,~~589~~988
Operating lease liabilities net of current maturities		1,~~124~~112,~~060~~109		1,~~164~~136,~~722~~766
Total liabilities		64,~~278~~539,~~564~~872		76,~~119~~107,~~311~~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, 5,569,521 and 5,541,342 shares issued and outstanding		5,569		5,541
Common stock - $.001 par value, 50,000,000 shares authorized, 5,577,698 and 5,577,698 shares issued and outstanding		5,576		5,576
Additional paid-in capital		17,710,~~532~~525		17,~~613~~710,~~060~~525
Accumulated other comprehensive income – unrealized gain on marketable debt securities		345,~~596~~538		-828
Accumulated equity (deficit)		932,553		(115,148	)
Accumulated equity		777,461		851,962
Total shareholders’ equity		18,~~652~~539,~~260~~110		1718,~~503~~568,~~463~~901
Total liabilities and shareholders’ equity	$	2423,~~930~~078,~~824~~982	$	24,~~622~~676,~~774~~655

See notes to consolidated financial statements.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Nine Months Ended August 31,						Three Months Ended August 31,
	Three Months Ended
	2023			2022			2023		2022
	February 29, 2024			February 28, 2023
Net sales	$	287,~~248~~053,~~853~~706		$	409,~~375~~191,~~448~~773		$	~~8,857,859~~	$	~~13,955,954~~
Cost of goods sold		205,~~382~~011,~~092~~578			296,~~412~~542,~~362~~705			~~6,561,858~~		~~10,327,025~~
Gross profit		72,~~866~~042,~~761~~128			102,~~963~~649,~~086~~068			~~2,296,001~~		~~3,628,929~~
Operating expenses:
Selling and shipping expenses		2672,~~259,745~~403			2771,~~501,208~~539			~~748,920~~		~~823,133~~
General and administrative expenses		41,~~106~~436,~~287~~904			41,~~767~~300,~~820~~463			~~1,316,604~~		~~1,395,580~~
Depreciation and amortization		5217,~~516~~384			5817,~~799~~207			~~17,505~~		~~20,728~~
Total operating expenses		62,~~418~~126,~~548~~691			72,~~327~~089,~~827~~209			~~2,083,029~~		~~2,239,441~~
Income before other income (expense) and income taxes		1,448,213			3,635,259			212,972		1,389,488
(Loss) income before other income and income taxes		(84,563	)		559,859
Other income (expense):
Other income		62,144			28,925			32,878		27,401
Interest expense		-			-
Interest expense		-			(386	)		-		(74	)
Interest and dividend income		24,473			12,456
Other income (expense)		62,144			28,539			32,878		27,327
Other income (expense):		24,473			12,456
Income before income taxes		1,510,357			3,663,798			245,850		1,416,815
(Loss) income before income taxes		(60,090	)		572,315
Income taxes		~~457~~11,~~656~~911			~~894~~177,~~212~~155			~~112,570~~		~~181,392~~
Net income		1,052,701			2,769,586			133,280		1,235,423
Net (loss) income	$	(72,001	)	$	395,160
Dividends on preferred stock		52,~~000~~500			52,~~000~~500			~~2,500~~		~~2,500~~
Net income available to common shareholders	$	1,047,701		$	2,764,586		$	130,780	$	1,232,923
Net (loss) income available to common shareholders	$	(74,501	)	$	392,660
Net income per share available to common shareholders:
Net (loss) income per share available to common shareholders:
Basic	$	(.1901	)	$	.5007		$	~~.02~~	$	~~.22~~
Diluted	$	(.1801	)	$	.4807		$	~~.02~~	$	~~.21~~
Weighted Shares Outstanding:
Basic		5,~~556~~577,~~049~~698			5,~~532~~541,~~043~~342			~~5,569,521~~		~~5,541,342~~
Diluted		5,~~752~~577,~~611~~698			5,~~733~~736,~~616~~901			~~5,766,084~~		~~5,742,915~~

See notes to consolidated financial statements.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

	Nine Months Ended August 31,					Three Months Ended August 31,
	Three Months Ended
	2023			2022		2023		2022
	February 29, 2024			February 28, 2023
Net income	$	1,052,701		$	2,769,586	$	133,280	$	1,235,423
Net (loss) income	$	(72,001	)	$	395,160
Other comprehensive income:
Unrealized gain on marketable debt securities		3,596			-		3,596		-
Unrealized gain on marketable debt securities,net of tax		44,710			-
Net comprehensive income	$	1,056,297		$	2,769,586	$	136,876	$	1,235,423
Net comprehensive (loss) income	$	(27,291	)	$	395,160

See notes to Consolidated financial statements

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity-unaudited

~~Nine~~Three months ended ~~August~~February 3128, ~~2022~~2023 and ~~August 31,~~February ~~2023~~29, 2024

	Shares C Shares		Preferred Amount		Common Shares		Amount		Additional Paid in Capital		Other Comprehensive Income		Accumulated Deficit			Total
	Series C Preferred				Common				Additional Paid-In		Other Comprehensive		Accumulated Equity
Balance – December 1,2021		10,000	$	10		5,515,342	$	5,515	$	17,023,454	$	-	$	(3,846,294	)	$	13,182,685
	Shares		Amount		Shares		Amount		Capital		Income		(Deficit)			Total
Preferred Stock Dividends		-		-		-		-		-		-		(5,000	)		(5,000	)
Balance – December 1, 2022		10,000	$	10		5,541,342	$	5,541	$	17,613,060	$	-	$	(115,148	)	$	17,503,463
Issuance of shares as Compensation		-		-		26,000		26		97,474		-		-			97,500
Preferred stock dividends		-		-		-		-		-		-		(2,500	)		(2,500	)
Stock Option Exercise		-		-		-		-		492,132		-		-			492,132
Issuance of shares as compensation		-		-		-		-		-		-		-			-
Net Income		-		-		-		-		-		-		2,769,586			2,769,586
Stock option exercise		-		-		-		-		-		-		-			-
Balance – August 31, 2022		10,000	$	10		5,541,342	$	5,541	$	17,613,060	$		$	(1,081,708	)	$	16,536,903
Net Income		-		-		-		-		-		-		395,160			395,160
Balance – February 28, 2023		10,000	$	10		5,515,342	$	5,541	$	17,613,060	$	-	$	277,512		$	17,896,123

	Shares C Shares		Preferred Amount		Common Shares		Amount		Additional Paid in Capital		Other Comprehensive Income		Accumulated Deficit			Total
	Series C Preferred				Common				Additional Paid -In		Other Comprehensive		Accumulated
Balance – December 1, 2022		10,000	$	10		5,541,342	$	5,541	$	17,613,060	$	-	$	(115,148	)	$	17,503,463
	Shares		Amount		Shares		Amount		Capital		Income		Equity			Total
Preferred Stock Dividends		-		-		-		-		-		-		(5,000	)		(5,000	)
Balance – December 1, 2023		10,000	$	10		5,577,698	$	5,576	$	17,710,525	$	828	$	851,962		$	18,568,901
Issuance of shares as Compensation		-		-		28,179		28		97,472		-		-			97,500
Preferred stock dividends		-		-		-		-		-		-		(2,500	)		(2,500	)
Stock Option Issuance		-		-		-		-		-		3,596		-			3,596
Issuance of shares as compensation		-		-		-		-		-		-		-			-
Net Income		-		-		-		-		-		-		1 052 701			1,052 701
Change in unrealized gain on marketable securities												44,710					44,710
Balance – August 31, 2023		10,000	$	10		5,541,342	$	5,569	$	17,710,532	$	3,596	$	932,553		$	18,652,260
Stock option exercise		-		-		-		-		-		-		-			-
Net Loss (income)		-		-		-		-		-		-		(72,001	)		(72,001	)
Balance – February 29, 2024		10,000	$	10		5,577,698	$	5,576	$	17,710,525	$	45,538	$	777,461		$	18,539,110

See notes to consolidated financial statements.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	Three Months Ended
	August 31, 2023			August 31, 2022
	February 29, 2024			February 28, 2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,052,701		$	2,769,586
Net (loss) Income	$	(72,001	)	$	395,160
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		5217,~~516~~384			5817,~~799~~207
Deferred income taxes		(918,~~191~~646	)		~~201~~6,~~597~~390
Allowance for doubtful accounts		-			~~23,072~~-
Stock Compensation		97,500			589,632
Stock Compensation Expense		-			-
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		~~(57~~801,~~590~~633	)		~~(941~~890,~~871~~630	)
Inventory		~~765~~1,~~806~~553,086			(1455,~~692,057~~108	)
Prepaid expenses and income taxes		~~135~~349,~~809~~227			75164,~~713~~981
Other assets		206,~~410~~575			296,~~872~~867
Accounts payable		(~~511~~1,~~341~~158,411	)		~~268~~(97,~~448~~948	)
Accrued expenses		(~~277~~343,~~037~~333	)		(~~144~~312,~~996~~662	)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES		1,~~269~~135,~~583~~514			1,~~237~~525,~~795~~733
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets	$	~~(31,851~~-	)	$	(4822,~~351~~699	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES	$	(31,851	)	$	(48,351	)
Proceeds from marketable securities		321,474			-
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES	$	321,474		$	(22,699	)

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

(Continued)

	Nine Months Ended
	Three Months Ended
	August 31, 2023			August 31, 2022
	February 29, 2024			February 28, 2023
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of marketable securities	$	(3,970,687	)	$	-
	$	-		$	-
Repayment of financing lease obligations		-			(6,948	)
NET CASH FLOWS FROM FINANCING ACTIVITIES		-			-
NET CASH FLOWS USED IN FINANCING ACTIVITIES		(3,970,687	)		(6,948	)
NET CHANGE IN CASH		1,456,988			1,503,034
NET CHANGE IN CASH		(2,732,955	)		1,182,496
CASH AT BEGINNING OF PERIOD		7,634,799			8,690,040
CASH AT BEGINNING OF PERIOD		8,690,040			6,511,588
CASH AT END OF PERIOD	$	9,091,787		$	10,193,074
CASH AT END OF PERIOD	$	5,957,085		$	7,694,084
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	$	~~672~~46,~~248~~863		$	~~617,291~~235
Interest paid	$	-		$	~~386~~-
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued dividends on preferred stock	$	52,~~000~~500		$	52,~~000~~500

See notes to consolidated financial statements.

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 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 “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 ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~2023 may not be representative of those for the full fiscal year or any future periods.

(2) Accounts Receivable:

Trade accounts receivable 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. Repayment terms vary from customer to customer and range from 15 days to 120 days.

(3) Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. generally accepted accounting principles guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment by the Company. The Company adopted the standard using the modified retrospective approach in its fiscal year beginning December 1, 2017. The preponderance of the Company’s contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

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 $1912,~~972,~~000 and $2407,~~787,~~000 ~~for~~ for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~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 $~~135~~19,~~130~~190 and $~~159~~83,~~796~~982 for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~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 $61,~~358~~082,000 and $102,~~592~~857,000 for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~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 risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at ~~August~~February 3129, ~~2023~~2024 was $~~781~~330,~~564~~863. The Company, at ~~August~~November 3130, 2023, has a reserve against slow moving and obsolete inventory of $~~341~~440,~~063~~646. From time to time the Company’s products are subject to legislation from various authorities on environmental matters.

(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		5 - 7 years
Computer equipment		5 years
Leasehold Improvements		Estimated useful life or lease term, whichever is shorter

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. The Company maintains substantially all of its cash balances in a limited number of financial institutions. At ~~August~~February 3129, ~~2023~~2024 and November 30, ~~2022~~2023, the Company’s uninsured ~~cash~~ cash balances totaled $58,~~343~~027,~~944~~273 and $76,~~375~~569,~~544~~806, respectively. The increase in cash balances is due to an increase in cash from the Company’s operations.

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 ~~net operating losses,~~ allowances for bad debts, inventory reserves, depreciation and ~~depreciation expense~~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 IH.

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, 2019, and state tax examinations for years before fiscal years ending November 30, 2018. 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~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~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 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 of Financial Instruments:

The carrying amount of cash balances, accounts receivable, accounts payable and accrued expenses approximate their fair value based on the nature of those items. Estimated fair values of financial instruments are determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret the market data used to develop the estimates of fair value, and accordingly, the estimates are not necessarily indicative of the amounts that could be realized in a current market exchange.

(12) Marketable securities and other investments

Our marketable securities are stated at fair value in accordance with ASC Topic 321, Investments- Equity Securities. Any changes in the fair value of the Company’s marketable debt securities are included in the statement of other comprehensive income. The market value of the securities is determined using prices as reflected on an established market. Realized and unrealized gains and losses are determined on an average cost basis. The marketable securities are investments predominately in Treasury bills treasury notes which are being invested until such time the funds are needed for operations and reflected as available for sale debt securities.

The value of these marketable securities at ~~August 31~~February 29, ~~2023~~2024 and November 30, ~~2022~~2023 is as follows:

	August 31,		November 30,
	February 29,		November 30,
	2023		2022
	2024		2023
Cost	$	32,~~970~~882,~~687~~470	$	-3,203,944
Gross unrealized gain		345,~~596~~538		-828
Gross unrealized loss		-		-
Fair value	$	32,~~974~~928,~~283~~008	$	-3,204,772

SURGE COMPONENTS, INC. AND SUBSIDIARIES

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 $~~1,572~~40 and $~~2,719~~119 for ~~the~~three ~~nine~~ months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~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 ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~2023 totaled ~~263~~445,~~438~~000 and ~~258~~264,~~427~~441, 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 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 $290,000.

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” in the consolidated statements of cash flows.

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.

NOTE C – FIXED ASSETS

Fixed assets consist of the following:

	August 31,			November 30,
	February 29,			November 30,
	2023			2022
	2024			2023
Furniture and Fixtures	$	~~327~~329,~~971~~186		$	~~327~~329,~~971~~186
Leasehold Improvements		1,070,044			1,~~062~~070,~~449~~044
Computer Equipment		~~518~~528,~~360~~662			~~494~~528,~~104~~662
Less-Accumulated Depreciation		(1,~~740~~775,~~041~~156	)		(1,~~687~~757,~~525~~772	)
Net Fixed Assets	$	~~176~~152,~~334~~736		$	~~196~~170,~~999~~120

Depreciation and amortization expense for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~2023 ~~were~~was $5217,~~516~~384 and $5817,~~799~~207, respectively.

NOTE D – FINANCING LEASE OBLIGATIONS

The Company is obligated under financing leases for telephone equipment. The Company leases equipment under two capital lease arrangements with NEC Financial Services. Pursuant to the leases, the lessor retains actual title to the leased property until the termination of the lease, at which time the equipment can be purchased for one dollar for each lease. The terms of the leases are 60 months with a combined monthly payment of $815, respectively. The assumed interest rates on the leases are 9.342%. The leases terminated in 2022.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE ED – 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~~February 3129, ~~2023~~2024, the balance on the Credit Line was $0. As of ~~August~~February 3129, ~~2023~~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 FE – ACCRUED EXPENSES

Accrued expenses consist of the following:

	August 31,		November 30,
	February 29,		November 30,
	2023		2022
	2024		2023
Commissions	$	~~265~~231,~~976~~850	$	~~366~~229,~~766~~882
Preferred stock dividends		~~166~~169,~~569~~069		~~161~~166,569
Other accrued expenses		~~267~~200,~~266~~676		~~370~~338,~~924~~932
	$	~~699~~601,~~811~~595	$	~~899~~735,~~259~~383

NOTE GF – 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 (15%) of the eligible employee’s salary through salary reduction. The Company makes a matching contribution of twenty percent (20%) of each employee’s contribution for each dollar of employee deferral up to five percent (5%) of the employee’s salary. Net assets for the plan, as estimated by Axa Equitable, Inc., which maintains the plan’s records, were approximately $12,~~752~~069,000 at November 30, ~~2022~~2023. Pension expense for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~ 2024 and ~~August~~February 3128, ~~2022~~2023 was $269,~~751~~443 and $~~898~~7,827, respectively.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE HG – SHAREHOLDERS’ EQUITY

[1] Preferred Stock:

In February 1996, the Company amended its Certificate of Incorporation to authorize the issuance of 1,000,000 shares of preferred stock in one or more series. In August 2010, the number of preferred shares authorized for issuance was increased to 5,000,000 shares.

In November 2000, the Company authorized 100,000 shares of preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred”). Each share of Series C Preferred is automatically convertible into 10 shares of our common stock upon shareholder approval. If the Series C Preferred were converted into common stock on or before April 15, 2001, these shares were entitled to cumulative dividends at the rate of $.50 per share per annum commencing April 15, 2001 payable on June 30 and December 31 of each year. In November 2000, 70,000 shares of the Series C Preferred were issued in payment of financial consulting services to its investment banker and a shareholder of the Company.

Dividends aggregating $~~166~~169,~~569~~069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, ~~2022~~2023. The Company has accrued these dividends. At ~~August~~February 3129, ~~2023,~~2024 there are 10,000 shares of Series C Preferred issued and outstanding.

In October 2016, the Company authorized 75,000 shares of preferred stock as Voting Non-Redeemable Convertible Series D Preferred Stock (“Series D Preferred”). None of the Series D Preferred Stock is outstanding as of ~~August~~February 3129, ~~2023~~2024.

[2] 2015 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 1,500,000 common shares.

In April 2021, a total of 26,786 shares were issued to the Company’s officers as a part of their 2021 bonus compensation under the 2015 stock plan. The Company recorded a cost of $75,000 relating to the issuance of these shares in the second quarter of 2021.

In March 2022, a total of 26,000 shares were issued to the Company’s officers as part of their bonus compensation under the 2015 stock plan. The Company recorded a cost of $97,500 relating to the issuance of these shares in the second quarter of 2022.

In March 2022, the Company granted stock options to (a) four non-employee directors to each purchase 20,000 shares of common stock, (b) one non-employee-director to purchase 30,000 shares of common stock, and (c) two Company officers to each purchase 40,000 shares of common stock at an exercise price of $3.55 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $492,132 related to the granting of these options.

In April 2023, a total of 28,179 shares were issued to the Company’s officers as part of their bonus compensation under the 2015 stock plan. The Company recorded a cost of $97,500 relating to the issuance of these shares in the second quarter of 2023.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE HG – SHAREHOLDERS’ EQUITY (Continued)

[2] 2015 Incentive Stock Plan (continued)

Activity in the Company’s stock plans for the period ended ~~August~~February 3129, ~~2023~~2024 is summarized as follows:

	Shares		Weighted Average Exercise Price
Options outstanding December 1, 2022		360,000	$	2.54
Options outstanding December 1, 2023		345,000	$	2.59
Options issued in the nine months ended August 31, 2023		-	$	-
Options issued in the three months ended February 29, 2024		-	$	-
Options exercised in the nine months ended August 31, 2023		-	$	-
Options exercised in the three months ended February 29, 2024		-	$	-
Options cancelled in the nine months ended August 31, 2023		-	$	-
Options cancelled in the three months ended February 29, 2024		-	$	-
Options outstanding at August 31, 2023		360,000	$	2.54
Options outstanding at February 29, 2024		345,000	$	2.59
Options exercisable at August 31, 2023		360,000	$	2.54
Options exercisable at February 29, 2024		345,000	$	2.59

The intrinsic value of the exercisable options at ~~August~~February 3129, ~~2023~~2024 totaled $~~304~~215,~~300~~450. At ~~August~~February 3129, ~~2023~~2024 the weighted average remaining life of the stock options is 2.7124 years. At ~~August~~ ~~31,~~February ~~2023~~29, 2024 there was no unrecognized compensation cost related to the stock options granted under the plan.

[3] Compensation of Directors

Compensation for each non-employee director is $3,000 per month (and $4,000 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors).

NOTE IH – 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:

	August 31,		November 30,
	February 29,		November 30,
	2023		2022
	2024		2023
Deferred Tax Assets
Depreciation	$	3135,~~317~~843	$	35,~~771~~684
Allowance for bad debts		3617,~~651~~309		3617,~~651~~309
Inventory		8384,~~875~~450		8184,~~523~~450
Deferred rent		34,022		28,523
Facilities rental		36,780		35,473
Other		5285,~~424~~592		4668,~~630~~412
Total deferred tax assets		~~238~~259,~~289~~974		~~229~~241,~~098~~328
Valuation allowance		-		-
Deferred Tax Assets	$	~~238~~259,~~289~~974	$	~~229~~241,~~098~~328

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE IH – INCOME TAXES (Continued)

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:

	Nine Months Ended
	Three Months Ended
	August 31, 2023			August 31, 2022
	February 29, 2024			February 28, 2023
Current:
Federal	$	~~322~~6,~~894~~544		$	~~520~~133,~~869~~776
States		~~125~~24,~~571~~013			~~171~~36,~~746~~989
		448,465			692,615
		30,557			170,765
Deferred:
Federal		6(13,~~618~~425	)		~~159~~5,~~266~~048
States		2(5,~~573~~221	)		421,~~331~~342
		9,191			201,597
		(18,646	)		6,390
Provision for income taxes	$	~~457~~11,~~656~~911		$	~~894~~177,~~212~~155

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:

	Nine months ended
	Three Months Ended
	August 31,			August 31,
	February 29,			February 28,
	2023			2022
	2024			2023
U.S Federal Income tax statutory rate		(21	)%		21	%
State income taxes		(5	)%		5	%
Other		4	%		(2	)%
Other-primarily state franchise taxes		46	%		5	%
Effective tax rate		3020	%		2431	%

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE JI – 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”). Annual minimum rental payments to the Related Company approximated $194,000 for the year ended November 30, ~~2022~~2023, and increase at the rate of two per cent per annum throughout the lease term.

Pursuant to the lease, rent expense charged to operations differs from rent paid because of scheduled rent increases. Accordingly, the Company has recorded deferred rent. Rent expense is calculated by allocating to rental payments, including those attributable to scheduled rent increases, on a straight line basis, over the lease term.

The Company has a lease to rent office space and a warehouse in Hong Kong through June 2025. Annual minimum rental payments for this space are approximately $73,580.

The Company has a lease to rent additional warehouse space in Hong Kong through November 30, ~~2023~~2025. Annual minimum rental payments for this space are approximately $7076,~~908~~170.

The Company’s future minimum rental commitments at ~~August~~February 3129, ~~2023~~2024 are as follows:

Twelve Months Ended ~~August~~February 3129,

2024	$	292,509
2025	$	353,025
2025		266,543
2026		276,695
2026		209,332
2027		211,421
2027		213,518
2028		215,650
2028		217,788
2029		219,965
2029 and after		467,644
2030 and after		356,751
	$	1,~~667~~633,~~334~~507

Net rental expense for the ~~nine~~three months ended ~~August~~ 31February 29, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~2023 were $~~342~~114,~~702~~669 and $~~334~~111,~~512~~280 respectively, of which $~~208~~70,~~703~~556 and $~~205~~69,~~797~~566 respectively, was paid to the Related Company.

~~NOTE~~The Kremaining –weighted ~~EMPLOYMENT~~average ~~AND~~lease ~~OTHER~~term ~~AGREEMENTS~~is 5.75 years at February 29, 2024. The weighted average discount rate is 5.25 % at February 29, 2024.

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 $275,000 and the base salary for the other officer is $225,000. The agreements continue until terminated by either party. In April 2021, the base salaries for the two officers were amended to $300,000 for one officer and $250,000 for the other officer.

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. Pursuant to the employment agreements, the officers are prohibited from engaging in activities which are competitive with those of the Company during their employment with the Company and for one year following termination. If the agreement is terminated other than for cause, the officer would be entitled to all base salary earned through the date of termination, accrued but unused vacation, all vested equity, and bonus amounts payable to the officer through the date of termination. The officers would also be entitled to receive an additional thirty-six months of annual compensation equal to the average of his base salary and bonus for the three calendar years prior to the date of termination, payable in accordance with the Company’s regular payroll practice over a 52-week period.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE LK – MAJOR CUSTOMERS

The Company had two customers who respectively accounted for 20 22% and 1716% of net sales for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and two customers who accounted for 1114% and 2019% of net sales for the ~~nine~~ three months ended ~~August~~February 3128, ~~2022~~2023. The Company had one customer who accounted for 3034% of accounts receivable ~~August~~at 31February 29, ~~2023~~2024 and 23one customer who accounted for 25% of accounts receivable at ~~August~~February 3128, ~~2022~~2023.

NOTE ML – MAJOR SUPPLIERS

During the ~~nine~~three months ended ~~August~~February 3129, ~~2023 and~~2024 ~~August~~and 31February 28, ~~2022~~2023 there was one foreign supplier accounting for 3132% and 3338% of total inventory purchased.

The Company purchases substantially all of its products overseas. For the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024, the Company purchased 34% of its products from Taiwan, 2022% from ~~Hong~~ Hong Kong, 2827% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.

NOTE NM – EXPORT SALES

The Company’s export sales were as follows:

	Nine Months Ended
	Three Months Ended
	August 31,		August 31,
	February 29,		February 28,
	2023		2022
	2024		2023
Canada		4818,~~566,475~~585		71,~~022~~936,~~916~~612
China		41,~~368~~158,~~805~~221		61,~~894~~172,~~691~~946
Other Asian Countries		1215,~~088,886~~370		1297,~~674,555~~711
South America		~~145~~35,~~240~~429		~~108~~43,~~496~~149
Europe		~~843~~276,~~719~~872		1292,~~803,648~~139

Revenues are attributed to countries based on location of customer.

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 $~~135~~19,~~130~~190 and $~~159~~83,~~796~~982 for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 and ~~August~~February 3128, ~~2022~~2023 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 anengineers ~~engineer~~ on our staff who ~~works~~work with our suppliers on such redesigns and assists with the introduction of new product lines. We are ~~continually~~ 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~~ accounts in every state. Challenge also at times handles the brokering of certain products, helping ~~their~~its customers find parts that regular ~~suppliers~~ suppliers can’t deliver.

19The 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.

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 that did not previously exist~~. ~~For~~Customers ~~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. For these reasons, we established Surge Ltd., our Hong Kong subsidiary. 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. One division in the Company has had success in designing new products for customers to ~~help~~ ~~these~~better ~~customers~~their products ~~have better~~ performance capabilities. This proactive approach separates the Company from selling commodity products to also selling more customized products. Management expects ~~the~~2024 ~~remainder~~to ofcontinue ~~2023, continuing into 2024,~~ to be a period of continued ~~change~~challenge, in regard to ~~pandemic healing,~~ inflation and general economic conditions, ~~challenge,~~ in ~~regard to~~ maintaining consistent flow of products during shortages of certain products, and growth , as we see our customers ~~return~~change totheir ~~full~~manufacturing ~~production~~and ~~pace~~buying practices. 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~~if ~~cost~~costs of raw materials ~~has~~continues ~~continued~~ to increase, ~~and due to that fact,~~ our costs have increased. The Company in the first half of the year has been able to handle the brokering of certain semiconductor products, helping their customers to keep product lines up and running by locating products that their regular suppliers can’t deliver. 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 good 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 ~~financing~~cash flow, the continued supply of products from our factories, the ability to withstand higher transportation costs and longer travel times ~~due to the backup at the ports and our ability to deal successfully, with new and future disruptors~~. The tariffs continue to impact the Company, although less now then previously. ~~The~~Supply ~~general supply~~ chain challenges can 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. Financial news has been talking about the decreases in consumer demand which ~~impacts~~could ~~negatively~~impact ~~the~~negatively the demand for ~~The~~the Company’s products, as the customers are producing less of their products. These economic conditions could have a negative impact on sales into ~~2024~~2025. The combination of ~~disruptors~~possible ~~such as~~ increased costs and longer lead times from factories to the ~~Company~~ 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 that would cause us business disruption. For example, ~~most~~ many of the Company’s factory partners have opened production facilities outside of China. As economic conditions have deteriorated, it has impacted the Company’s business. Customers ~~have~~at the end of 2022 had pushed back delivery dates, and in some cases required cancellations because they over ordered ~~in 2022~~ , creating a significant excess inventory. We are watching closely as customers ~~adjust~~slowly consume their excess inventory levels to ~~reflect~~that reflect this new business demand, and the Company will respond accordingly. WeThis ~~expect~~consumption ~~that~~of itinventory ~~could~~by ~~take~~the ~~four~~customers tois ~~six~~taking ~~quarters~~longer ~~for~~than ~~these~~expected. ~~customers~~As toof ~~consume~~the ~~this~~end ~~excess~~of ~~inventory~~the ~~and~~first quarter we have seen some customers begin to start ordering products again. ~~which~~We ~~will~~expect ~~reflect~~to insee customers getting back to normal ordering levels by the ~~Company’s~~second ~~sales~~half of 2025.

20Critical Accounting Policies

~~Critical~~Accounts ~~Accounting Estimates~~Receivable

~~Accounts~~The ~~Receivable~~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.

~~The~~Revenue 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.Recognition

Revenue ~~Recognition~~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.

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.20

The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.

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. IfReserves 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 $6042,000.

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 ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 decreased by $122,~~126~~138,~~595~~067 or 3023.03%, to $287,~~248~~053,~~853~~706 as compared to net sales of $409,~~375~~191,~~448~~773 for the ~~nine months ended August 31, 2022. Consolidated net sales for the~~ three months ended ~~August~~February 3128, 2023 ~~decreased by $5,098,095 or 36~~.~~5%, to~~ ~~$8,857,859 as compared to net sales of $13,955,954 for the three months ended August 31, 2022.~~ We attribute the decrease to a decrease in business with new customers as well as a decrease in business with existing customers. We can also attribute the decrease to customers pushing out orders due to them over ordering in 2022. The customers have excess inventory that they need to consume before re-ordering those products. Additionally, many customers, because of having this excess inventory have not launched new product development as their cash is tied up in the inventory. WeNet ~~can also attribute some of the decrease in~~ sales tofor the ~~decrease in revenue derived from brokering certain~~ ~~products~~three ~~in the nine~~ months ended ~~August~~February 3129, ~~2022~~2024 inand ~~the~~February ~~amount of approximately $3.6 million in the nine months ended August 31~~28, ~~2022 but only $217,000 in the nine months ended August 31,~~ 2023. In Brokering, the Company helps customers find parts that their regular suppliers can not deliver. This was the result of shortages of certain products in 2022. Net sales for the nine months ended August 31, 2023 and August 31, 2022 reflect $~~872~~154,~~224~~486 and $1394,~~035~~793,~~423,~~ respectively of tariff costs that the Company was able to pass on to its customers.

21Our gross profit for the three months ended February 29, 2024 decreased by $606,940 to $2,042,128, or 22.9%, as compared to $2,649,068 for the three months ended February 28, 2023. Gross margin as a percentage of net sales increased to 29.0% for the three months ended February 29, 2024 compared to 28.8% for the three months ended February 28, 2023. The increase can be attributed 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. During the first quarters of Fiscal 2024, the Company was impacted by tariff costs on certain products imported from China, which went into effect as of July 6, 2018. 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.

Our gross profit for the nine months ended August 31, 2023 decreased by $3,096,325 to $7,866,761, or 28.2%, as compared to $10,963,086 for the nine months ended August 31, 2022. Gross margin as a percentage of net sales increased to 27.8% for the nine months ended August 31, 2023 compared to 27.2% for the nine months ended August 31, 2022. Gross profit for the three months ended August 31, 2023 decreased by $1,332,928 to $2,296,001, or 36.7%, as compared to $3,628,929 for the three months ended August 31, 2022. Gross margin as a percentage of net sales decreased slightly to 25.9% for the three months ended August 31, 2023 compared to 26% for the three months ended August 31, 2022. We attribute the decrease in gross profit to a decrease in sales volume in the nine and three months ended August 31, 2023. We attribute the increase in gross margin as a percentage of net sales to the Company shipping out orders with a higher profit margin during the nine months ended August 31, 2023.We attribute the decrease in gross profit as a percentage of sales for the three months ended August 31, 2023 to the Company’s decrease in sales volume for some of its customers with higher profit margins and increase in sales volume for customers with a lower gross 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 commission 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. During the nine months ended August 31, 2023, the Company was impacted by tariff costs on certain products imported from China, which went into effect as of July 6, 2018. The Company has been able to pass along a portion of these costs to its customers. The Company also moved some customer deliveries directly to Hong Kong in order to mitigate some of these costs. In the balance of 2023, the Company expects the effects of the tariffs to be similar to 2022.21

Selling and shipping expenses for the ~~nine~~three months ended February ~~August 31~~29, ~~2023~~2024 was $2672,~~259~~403,~~745,~~ a decrease of $~~241~~99,~~463~~136, or 912.78%, as compared to $2771,~~501,208~~539 for ~~nine months ended August 31, 2022. Selling and shipping expenses for the~~ three months ended ~~August~~February 3128, 2023 ~~was $748,920, a decrease of $74,213, or 9~~.~~0%, as~~ ~~compared to $823,133 for three months ended August 31, 2022.~~ We attribute the decrease ~~for the nine months ended August 31, 2023~~ to adecreases ~~decrease~~ in ~~commission~~sales ~~expenses, as well as freight out~~ and ~~messenger~~the ~~and~~resulting ~~delivery~~selling expenses. ~~These~~such ~~decreases~~as ~~were~~commission ~~offset by increases~~expenses, intravel ~~salesman payroll due to the hiring of new regional sales managers~~expenses, ~~trade~~and ~~show~~auto ~~expenses~~ and ~~travel~~freight ~~expenses.~~out ~~We attribute the decrease for the three months ended August 31~~expenses, ~~2023 to decreases in commission expense~~ offset by ~~increases~~entertainment ~~in Salesman payroll, travel~~ and ~~trade show~~printing expenses ~~as well as freight out expenses~~.

General and administrative expenses for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 was $41,~~106~~436,~~287~~904, aan ~~decrease~~increase of $~~661~~136,~~533~~441, or 1310.95%, as compared to $41,~~767~~300,~~820~~463 for ~~the~~ ~~nine months ended August 31, 2022. General and administrative expenses for~~ the three months ended ~~August~~February 3128, 2023 ~~was $1,316,604, a decrease of $78,976 or 5~~.7% ~~as compared to $1,395,580 for the three months ended August 31, 2022.~~ The ~~decrease~~increase ~~for the nine months ended August 31 2023~~ is due primarily to ~~decreases~~increases in ~~health~~salaries ~~insurance~~ and ~~office~~related payroll tax expenses as well as ~~officer~~rent ~~salary and directors fees due to stock option grants in 2022~~expenses, ~~professional~~general ~~fees~~insurance ~~and temporary help~~ expenses~~. These decreases were offset by increases in salaries~~, ~~rent expenses~~ as well as computer ~~expenses~~ and ~~pension~~maintenance expenses, ~~as well as general insurance~~ and consulting ~~expenses. The decreases for the three months ended August 31~~, ~~2023~~professional ~~can~~fees ~~be attributed to decreases in officers salary, health insurance~~ and ~~general insurance as well as decreases in~~public ~~temporary~~company ~~help~~ expenses, ~~office expenses and bad debt expenses as~~ partially offset by ~~increases~~decreases in officer salaries, ~~rent~~and ~~expenses,~~health ~~computer~~insurance ~~expenses~~ as well as ~~professional~~temporary ~~fees~~help ~~and consulting~~ expenses.

Depreciation expense for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 was $5217,~~516~~384, aan ~~decrease~~increase of $6177,~~283,~~ or 101.70%, as compared to $~~58,799 for the nine months ended August 31, 2022. Depreciation expense for the three months ended August 31, 2023 was $~~17,~~505,~~207 ~~a decrease of $3,223, or 15.5%, as compared to $20,728~~ for the three months ended ~~August 31, 2022. The decrease is due to lower company purchasing of new equipment during the nine months~~February ~~ended August 31~~28, 2023.

Tax expense for the ~~nine months~~three months ended ~~August~~February 3129, ~~2023~~2024 was $~~457~~11,~~656~~911, a decrease of $~~436~~165,~~556~~244 as compared to a tax expense of $~~894~~177,~~212~~155 for the ~~nine months ended August 31, 2022. Tax expense for the~~ three months ended ~~August 31, 2023 was $112,570, a decrease of $68,822 as compared to a tax expense of $181,392~~ ~~for~~February ~~the three months ended August 31~~28, ~~2022~~2023. The changes result from our decrease in net income for ~~such~~the ~~periods~~2024 period.

As a result of the foregoing, net ~~income~~loss for the ~~nine~~three months ended ~~August~~February 3129, ~~2023~~2024 was $1(72,~~052~~001),~~701,~~ compared to a net income of $2395,~~769,586~~160 for the ~~nine months ended August 31, 2022. The net income for the~~ three months ended ~~August 31, 2023 was $133,280, compared to a net income of $1,235,423 for the~~February ~~three months ended August 31~~28, ~~2022~~2023.

22Liquidity and Capital Resources

~~Liquidity~~As of February 29, 2024 we had cash of $9,091,787, marketable securities of $2,928,008, and ~~Capital~~working ~~Resources~~capital of $17,928,425. 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.

AsDuring ofthe ~~August~~three 31months ended February 29, ~~2023~~2024, we had net cash offlow ~~$5,957,085,~~provided ~~and~~by ~~working~~operating ~~capital~~activities of $181,~~042~~135,~~872.~~514, Weas ~~believe~~compared ~~that~~to ~~our~~net ~~working~~cash ~~capital~~flow ~~levels~~provided ~~are~~by ~~adequate to meet our~~ operating ~~requirements~~activities ~~during~~of ~~the~~$1,525,733 ~~next twelve months and beyond. The Company is exploring and evaluating opportunities~~ for ~~growth~~the ~~and~~three ~~expansion using~~months ~~the~~ended ~~Company’s~~February ~~cash~~28, ~~resources~~2023. The ~~Company~~decrease ~~has~~in ~~historically held its~~ cash inflow afrom ~~limited~~operating ~~number~~activities ofwas ~~financial institutions. In~~primarily ~~light of~~ the ~~collapse~~result of ~~the~~lower ~~Silicon~~net ~~Valley~~income ~~Bank~~as ~~and~~well ~~Signature~~as ~~Bank,~~accounts ~~the~~receivable ~~Company~~and accounts ispayable inand ~~the~~accrued ~~process~~expenses ofas ~~reevaluating~~partially ~~alternative~~offset ~~cash~~by ~~management~~lower ~~strategies.~~inventory Inlevels ~~June~~in ~~2023, the Company moved approximately $4,000,000 of its cash to Treasury Bills~~2024.

~~During~~We ~~the nine months ended August 31, 2023, we~~ had net cash flow provided by ~~operating~~investing activities of $1321,~~269~~474 from financing activities for the three months ended February 29,~~583~~ 2024, as compared to net cash flow used ~~provided~~in byinvesting ~~operating~~ activities of $1(22,~~237,795~~699) for the ~~nine~~three months ended ~~August~~February 3128, ~~2022~~2023. We ~~The~~attribute ~~increase~~the inchange ~~cash~~to ~~flow~~proceeds ~~from~~of ~~operating activities totalling~~ approximately $32321,000 ~~was~~from ~~primarily~~marketable ~~the~~debt ~~result~~securities ofin ~~lower~~the ~~net~~form ~~income~~of ~~and~~Treasury ~~accounts~~bills ~~payable~~ and ~~accrued~~notes ~~expenses~~issued ~~as offset~~ by ~~lower~~the ~~inventory~~United ~~levels~~States Treasury.

We had net cash flow ~~used in investing activities~~ of $~~(31,851)~~0 during ~~for~~ the ~~nine~~three months ended ~~August~~February 3129, ~~2023,~~2024 as compared to ~~net cash flow used in investing activities of~~ $~~(48,351)~~0 for the ~~nine~~three months ended ~~August~~February 3128, ~~2022. We attribute the change to the Company purchasing less new equipment during the nine months ended August 31,~~ 2023 ~~than in 2022~~.

We had net cash flow used by financing activities of $(3,970,687) during the nine months ended August 31, 2023 as compared to $(6,948) provided by financing activities for nine months ended August 31, 2022. The increase in cash used for financing activities in the nine months ended August 31, 2023 was the result of the acquisition of marketable debt securities in the form of Treasury bills and notes issued by the United States Treasury.22

As a result of the foregoing, the Company had a net ~~decrease~~increase in cash of $21,~~732~~456,~~955~~988 for ~~the~~three ~~nine~~ months ended ~~August~~February 3129, ~~2023~~2024, as compared to a net increase in cash of of $1,~~182~~503,~~496~~034 for the ~~nine~~three months ended ~~August~~February 3128, ~~2022~~2023.

The table below sets forth our contractual obligations, including long-term debt, operating leases and other long-term obligations, as of ~~August~~February 3129, ~~2023~~2024:

Payments due

0 – 12

13 – 36

37 – 60

More than

Contractual Obligations

Total

Months

60 Months

Financing Lease Obligations

Operating leases

1,~~667~~633,~~334~~507

~~292~~353,~~509~~025

~~475~~488,~~875~~116

~~431~~435,~~306~~615

~~467~~356,~~644~~751

Total obligations

1,~~667~~633,~~334~~507

~~292~~353,~~509~~025

~~475~~488,~~875~~116

~~431~~435,~~306~~615

~~467~~356,~~644~~751

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 ~~August~~February 3129, ~~2023~~2024 and has concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Controls

During the three months ended ~~August~~February 3129, ~~2023~~2024 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.

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.

None.

ITEM 6. EXHIBITS.

Exhibit Number		Description
3.1		Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K (File No. 000-27688) filed with the Securities and Exchange Commission on January 24, 2022).
31.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
3.2		Bylaws of Registrant (Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K (File No. 000-27688) filed with the Securities and Exchange Commission on January 24, 2022).
32.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
4.1		Rights Agreement dated as of October 7, 2016 between Surge Components, Inc., as the Company, and Continental Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 7, 2016.
4.2		Amendment to the Rights Agreement dated as of October 6, 2019 between Surge Components, Inc., as the Company, and Continental Stock Transfer & Trust Company, as Rights Agent filed with Form 10-Q on October 15, 2019.
10.1		Rental Agreement between Great American Realty and Surge Components dated July 28, 2020 as filed with the Form 10Q on October 15, 2020.
10.2		Rental Agreement between Great American Realty and Challenge Electronics dated July 28, 2020 as filed with the Form 10Q on October 15, 2020.
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).

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: October 16, 2023	By:	/s/ Ira Levy
Date: April 15, 2024	By:	/s/ Ira Levy
	Name:	Ira Levy
	Title:	Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

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