Surge Components, Inc. Announces Fiscal Third Quarter 2022 Results

Company Delivers Strong Growth in Q3 Sales, up 31.3% Over Prior Year Period

Continued Sales Growth Drives Year-Over-Year Q3 Gross Profit Increase of 17.6% to $3.6 Million

Q3 2022 Gross Profit Margins of 26%

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 fiscal third quarter ended August 31, 2022.

Financial Highlights for the Third Fiscal Quarter Ended August 31, 2022

• Net sales of $14.0 million, compared to $10.6 million in the prior-year-period
• Gross profit of $3.6 million, compared to $3.1 million in the prior-year-period
• Gross profit margin of 26%, compared to 29% in the prior-year period
• Net income available to common shareholders of $1,232,923; EPS of $0.22 compared to net income available to common shareholders of $878,740; EPS of $0.15 in the prior-year period

Operational Highlights

• Growing customer demand continues to drive substantial product demand and sales volumes for both Challenge and Surge divisions.
• The Company continues to successfully develop the European market, utilizing their sales office in London, UK.
• Surge continues to grow its presence in Asia, employing a key sales manager in China.
• Sales volume visibility remains positive through year end 2022.
• Surge has shorter lead times compared to competitors, helping to maintain stable production and preserve a competitive advantage over peers.

Surge produced another solid quarter, continuing to display its capacity to thrive and adjust to industry challenges caused by global semiconductor chip shortages and supply chain issues,” said Ira Levy, President and Chief Executive Officer of Surge. "We continue to effectively manage covid related issues with intermittent lockdowns in China, transportation obstacles, lengthened lead times and price increases due to rising inflation.

The Company is excited about the third quarter, generating solid results with 31.3% year over year growth in net sales. We produced a 17.6% gain in gross profit year over year and attained gross margins of 26% in Q3 through conscious cost controls and an intense focus on sales. However, there currently exists a global economic slowdown. The Company is prudently operating the business as the slowdown could have negative impacts going forward.

Despite supply chain challenges that have impacted our business and the industry, we continue to outperform our competitors. Both Surge and Challenge provide our products to customers with shorter lead times than peers.

The Challenge sales division continues to bring value and maximize on opportunities presented by the semiconductor shortage, greatly increasing sales. These sales are a result of the division now managing semiconductor products in limited supply. In instances where customer’s suppliers lack inventory, Challenge has been aiding its customers by stepping in to obtain desired products.

Surge division sales are also increasing as they continue to devote resources to further the development of its distribution sales channel. They have made distinct progress in developing the automotive market, which represents very significant potential volume for the company. Surge is actively broadening its new customer base and increasing business with current customers, expanding the Europe and Asia businesses considerably.

We are dedicated to all our stakeholders, continuously delivering high quality products and focusing on profitability for our shareholders. We are committed to growing our sales team and expanding our global reach as we maximize our opportunities through the future. We continue to believe that we are built for success in the industry and will remain committed to delivering long-term shareholder value.”

Results of Operations for the Three Months Ended August 31, 2022

Net sales for the three months ended August 31, 2022 increased by 31.3% to $14.0 million, as compared to net sales of $10.6 million for the three months ended August 31, 2021. The increase in net sales for the three-month period can be attributable to an increase in business with new customers as well as an increase in business with existing customers. Additionally, some of the increase in sales can be attributable to one of the Company’s divisions brokering certain products.

Gross profit for the three months ended August 31, 2022 increased by 17.6% to $3.6 million, as compared to $3.1 million for the three months ended August 31, 2021. Gross profit margin as a percentage of net sales decreased to 26% for the three months ended August 31, 2022, as compared to 29% for the three months ended August 31, 2021. We attribute the increase in gross profit to an increase in sales volume in the three months ended August 31, 2022. Our industry will continue to receive pressure from customers for price reductions. The company also provides rebates to subcontractors that can impact the gross profit margin, however these subcontractors represent significant growth potential.

Selling and shipping expenses for the three months ended August 31, 2022 increased 33.1% to $823,133, as compared to $618,346 for the three months ended August 31, 2021. We attribute the increase to salesman payroll and commission expenses, as well as auto, travel and entertainment expenses and messenger and delivery expenses. These increases were offset by a decrease in freight out costs.

General and administrative expenses for the three months ended August 31, 2022 increased 16.6% to $1.4 million, as compared to $1.2 million for three months ended August 31, 2021. The increase in general and administrative expenses is primarily attributable to increases in rent, utilities, health insurance and general insurance expenses, professional fees, office expenses as well as salaries and related payroll taxes, directors fees, bad debt expenses, consulting expenses, option expenses and public company expenses, and were offset by decreases in computer expenses.

Net income for the three months ended August 31, 2022 was $1,235,423, as compared to net income of $881,240 for the three months ended August 31, 2021.

This press release should be read in conjunction with the Company’s consolidated financial statements included in the Company’s most recent Quarterly Report on Form 10-Q, which can be found at www.surgecomponents.com and at www.sec.gov.

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, 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," "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 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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