Company Delivers Strong Q3 Net Sales of $8.0 Million, up 9% from Q2

Q3 Gross Profit Grows Quarter-over-Quarter and Year-over-Year

Q3 Gross Profit Margins of 31.2%; Highest Gross Profit Margins of FY2024

Net Income Available to Common Shareholders Grows 123% Quarter-over-Quarter

Surge Components, Inc. (“Surge” or the “Company”) (OTC Pink: SPRS), a leading supplier of capacitors, discrete semi-conductors, switches, and audible/sounding devices, today announced financial results for the third quarter ended August 31, 2024.

Operational Highlights

• The Company continues to maintain its superior lead times and stable production to better serve customers and preserve a competitive advantage over peers.
• Challenge and Surge divisions are well-positioned to capitalize on the industry’s eventual rebound as industry dynamics and prospects begin to improve.
• Challenge division continues to successfully design customized new products for customers to differentiate and increase competitiveness.
• The Company continues to invest in growth assets.

Financial Highlights for the Third Quarter Ended August 31, 2024

• Net income available to common shareholders of $441,852; earnings per share (fully diluted) of $0.08 compared to net income available to common shareholders of $130,780; earnings per share of $0.02 in the prior-year-period.
• Net sales of $8.0 million, compared to $8.9 million in the prior-year period.
• Gross profit of $2.5 million, compared to $2.3 million in the prior-year period.
• Gross profit margin of 31.2%, compared to 25.9% in the prior-year period.
• Profitability driven by a combination of operational and investment income.

“Surge’s third quarter financial and operational performance demonstrated how adhering to a well-crafted strategy can lead to steady improvement, even in the face of a difficult and uncertain macroeconomic environment that continues to weigh on the industry,” said Ira Levy, President and Chief Executive Officer of Surge. “While customer inventory levels remain significantly elevated compared to their pre-pandemic levels, we are beginning to see signs of some customers starting to slowly prepare to ramp up their order cycles while we also acquired new customers in the quarter, leading to a 9% quarter-over-quarter increase in revenue. Concurrently, we continue to focus on improving our operations to deliver stronger results where possible, including strong quarter-over-quarter and year-over-year improvements in quarterly gross profit and gross profit margins, as well as a 123% quarter-over-quarter growth in net income available to common shareholders. And, in the third quarter, we continued to drive strong non-operating income by re-allocating more of our cash reserves to treasury bills.”

“While we continue to focus on improving the business and positioning the Company to capitalize on the industry’s eventual turnaround, there are a number of near-term headwinds that we will need to contend with as we finish 2024 and turn to 2025. The automotive industry, one of our core markets, continues to face structural headwinds. A threatened dockworker strike across much of the US recently reached a tentative settlement until January 2025 but will likely serve as a headwind early next year. Furthermore, President Biden announced that the United States will increase tariffs from 25% to 50% on certain products, including some of Surge’s products, coming into the country from China, which could negatively impact the business.”

“Yet in the face of this challenging environment, Surge continues to work smartly and diligently in creating new business opportunities by continuing to explore new product introductions while the Challenge division seeks new accounts. While near-term headwinds will likely push out the timeline for the industry’s rebound that we initially expected to begin in late 2024 and early 2025, we remain positive on our business’ outlook and continue to position ourselves to capitalize on the eventual turnaround by focusing on executing our strategy.”

Results of Operations for the Three Months Ended August 31, 2024

Net sales for the three months ended August 31, 2024, decreased by $887,543 or 10.0%, to $7,970,316 as compared to net sales of $8,857,859 for the three months ended August 31, 2023. The decrease is attributable to a decrease in business with new customers as well as a decrease in business with existing customers. The decrease is also attributable 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 their inventory.

Gross profit for the three months ended August 31, 2024, increased by $191,569 to $2,487,570, or 8.3%, as compared to $2,296,001 for the three months ended August 31, 2023. Gross margin as a percentage of net sales increased to 31.2% for the three months ended August 31, 2024, compared to 25.9% for the three months ended August 31, 2023. The increase is attributable to can be attributed to increases in sales from customers whose sales carry a higher profit margin.

Selling and shipping expenses for the three months ended August 31, 2024, was $683,894, a decrease of $65,026, or 8.7%, as compared to $748,920 for three months ended August 31, 2023. We attribute the decrease to decreases in sales and the resulting selling expenses such as commission expenses, travel expenses, and trade show expenses, offset by increases in salesman payroll due to hiring of additional sales employees in the nine months ended August 31, 2024, as well as entertainment, freight out and auto expenses.

General and administrative expenses for the three months ended August 31, 2024, was $1,250,294, a decrease of $66,310, or 5.0% as compared to $1,316,604 for the three months ended August 31, 2023. The decrease is due primarily to decreases in officer salaries for the nine months ended August 31, 2024 as well as health and rent and general insurance expenses, as well as temporary help expenses, directors’ fees and consulting expenses as partially offset by increases in salaries and related payroll tax expenses, telephone, office expenses and professional fees and bank charges as well as public company expenses and officer salaries for the three months ended August 31, 2024.

Net income for the three months ended August 31, 2024, was $444,352, compared to a net income of $133,280 for the three months ended August 31, 2023.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding global economic conditions, expected rebound in the market, supply chain challenges, customer lead times, 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.

In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expected," "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 and are based largely on our current expectations and projections about future events and financial trends that 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 Annual Report on Form 10-K. These forward-looking statements represent our estimates and assumptions only as of the date of this press release. We assume no obligation to update any forward-looking statements for events or circumstances occurring after the date of this press release, except as required by law.

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