Surge Components, Inc. Announces Fiscal Second Quarter 2022 Results

Company Delivers Considerable Growth in Q2 Sales, up 65.8% Over Prior Year Period

Significant Sales Growth Drives Year-Over-Year Q2 Gross Profit Increase of 70.9% to $4.4 Million

Solid Q2 2022 Gross Profit Margins of 27.5%

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 second quarter ended May 31, 2022.

Financial Highlights for the Second Fiscal Quarter Ended May 31, 2022

• Net sales of $15.9 million, compared to $9.6 million in the prior-year-period
• Gross profit of $4.4 million, compared to $2.6 million in the prior-year-period
• Gross profit margin of 27.5%, compared to 26.7% in the prior-year period
• Net income available to common shareholders of $862,411; EPS of $0.15 compared to net income available to common shareholders of $704,108; EPS of $0.12 in the prior-year period

Operational Highlights

• Increasing customer demand is driving robust product demand and sales volumes for both Challenge and Surge divisions.
• The Company continues to utilize the sales office in London, UK to successfully develop the European market.
• Surge is employing a key sales manager in China growing its presence in Asia.
• Visibility into the remainder of 2022 sales volume remains strong as customers place orders much earlier in the sales cycle, due to extended factory lead times
• Surge has shorter lead times than competitors helping to sustain stable production and maintaining a competitive advantage over peers.

“The second quarter was marked by strong performance, highlighting our ability to grow and navigate the changing industry dynamics posed by supply chain challenges and the global semiconductor chip shortages,” said Ira Levy, President and Chief Executive Officer of Surge. "We are successfully handling price increases resulting from inflation and continue to contend with extended lead times, transportation challenges, and intermittent lockdowns in China due to covid.

“Despite the difficult global environment, we delivered record results for the quarter with significant growth in net sales, up 65.8% year over year. Through disciplined cost control, we drove a 70.9% increase in gross profit versus the prior year and gross margins increased to 27.5% in Q2.

“Both Surge and Challenge have excelled at delivering our products to customers with shorter lead times compared to our competitors despite supply chain challenges and the global semiconductor chip shortages that have affected our business and the industry.

“The semiconductor shortage has provided an opportunity for our Challenge sales division, greatly increasing sales. This increase is largely due to the division now handling semiconductor products in short supply. Challenge is searching out and finding products for its customers that the customer’s regular supplier cannot deliver.

“Sales in the Surge division have also increase significantly. This growth comes from Surge’s continued development of Surge’s distribution sales channel. Surge’s Europe and Asia businesses have increased significantly due to new customers the company has developed and growing business with existing customers.

“Looking forward, we remain committed to providing valuable products to our customers, enhancing our profitability, and communicating regularly with our shareholders. We are confident in our ability to identify additional opportunities to build our global sales teams and expand our global footprint during the rest of 2022 and beyond. We believe we are ideally positioned to succeed in our market and deliver long-term shareholder value.”

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

Net sales for the three months ended May 31, 2022 increased by 65.8% to $15.9 million, as compared to net sales of $9.6 million for the three months ended May 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 May 31, 2022 increased by 70.9% to $4.4 million, as compared to $2.6 million for the three months ended May 31, 2021. Gross profit margin as a percentage of net sales increased to 27.5% for the three months ended May 31, 2022, as compared to 26.7% for the three months ended May 31, 2021. We attribute the increase in gross profit to an increase in sales volume in the three months ended May 31, 2022. Our industry will continue to receive pressure from customers for price reductions.

Selling and shipping expenses for the three months ended May 31, 2022 increased 64.4% to $977,097, as compared to $594,251 for the three months ended May 31, 2021. We attribute the increase in 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 May 31, 2022 increased 55.7% to $2.1 million, as compared to $1.3 million for three months ended May 31, 2021. The increase in general and administrative expenses is primarily attributable to increases in rent, utilities, payroll and office expenses and general insurance expenses, as well as directors fees, option expense, public company expenses, bank charges and bad debt expenses, and were offset by decreases in professional fees, temporary help expenses and consulting expenses.

Net income for the three months ended May 31, 2022 was $862,411, as compared to net income of $704,108 for the three months ended May 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 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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