0001013762-16-001480.txt : 20160414 0001013762-16-001480.hdr.sgml : 20160414 20160414160114 ACCESSION NUMBER: 0001013762-16-001480 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 62 CONFORMED PERIOD OF REPORT: 20160229 FILED AS OF DATE: 20160414 DATE AS OF CHANGE: 20160414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SURGE COMPONENTS INC CENTRAL INDEX KEY: 0000747540 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-ELECTRONIC PARTS & EQUIPMENT, NEC [5065] IRS NUMBER: 112602030 STATE OF INCORPORATION: NY FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27688 FILM NUMBER: 161571751 BUSINESS ADDRESS: STREET 1: 95 EAST JEFRYN BLVD CITY: DEER PARK STATE: NY ZIP: 11729 BUSINESS PHONE: 5165951818 MAIL ADDRESS: STREET 1: SURGE COMPONENTS INC STREET 2: 95 EAST JEFRYN BLVD CITY: DEER PARK STATE: NY ZIP: 11729 10-Q 1 f10q022916_surgecomp.htm QUARTERLY REPORT

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

 

  WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For The Quarterly Period Ended February 29, 2016

 

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

 

COMMISSION FILE NUMBER 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 Blvd., Deer Park, New York   11729
(Address of principal executive offices)   (Zip code)

 

Issuer's telephone number: (631) 595-1818

 

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 x   No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 Large accelerated filer o Accelerated filer o
   
Non-accelerated filer   o Smaller reporting company   x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o No x

 

As of April 14, 2016, there were 9,999,125 outstanding shares of the Registrant's Common Stock, $.001 par value.

 

 

  

SURGE COMPONENTS, INC

 

TABLE OF CONTENTS

 

    Page  
PART I - FINANCIAL INFORMATION      
       
Item 1. Financial Statements     3  
         
Consolidated Balance Sheets as of February 29, 2016 (unaudited) and November 30, 2015      3  
         
Consolidated Statements of Operations for the three months ended February 29, 2016 and  February 28, 2015  (unaudited)     5  
         
Consolidated Statements of Cash Flows for the three months ended February 29, 2016 and February  28, 2015  (unaudited)     6  
         
Notes to Consolidated Financial Statements (unaudited)      8  
         
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations     21  
         
Item 3. Quantitative and Qualitative Disclosures About Market Risk     24  
         
Item 4. Controls and Procedures      24  
         
PART II - OTHER INFORMATION        
         
Item 1. Legal Proceedings     25  
         
Item 1A. Risk Factors     25  
         
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds     25  
         
Item 3. Defaults Upon Senior Securities     25  
         
Item 4. Mine Safety Disclosures     25  
         
Item 5. Other Information     25  
         
Item 6. Exhibits     25  
         
SIGNATURES     26  

 

2 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

   February 29, 2016 (unaudited)   November 30,
2015
 
ASSETS          
           
Current assets:          
Cash  $7,083,622   $7,169,118 
Accounts receivable - net of allowance for          
  doubtful accounts of $135,971 and $127,531   4,005,883    4,693,749 
Inventory, net   2,979,411    3,199,463 
Prepaid expenses and income taxes   139,567    131,522 
Deferred income taxes   333,522    249,533 
           
Total current assets   14,542,005    15,443,385 
           
Fixed assets – net of accumulated depreciation and amortization of $2,161,998 and $2,154,182   98,443    104,738 
           
Deferred income taxes   667,044    748,597 
Other assets   13,384    13,384 
           
Total assets  $15,320,876   $16,310,104 

 

See notes to consolidated financial statements

 

3 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Continued)

 

  February 29, 2016 (unaudited)   November 30,
2015
 
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current liabilities:          
Accounts payable  $2,392,421   $3,261,763 
           
Accrued expenses and taxes   513,858    572,487 
Accrued salaries   373,585    528,957 
           
Total current liabilities   3,279,864    4,363,207 
           
Deferred rent   41,600    41,955 
           
Total liabilities   3,321,464    4,405,162 
           
Commitments and contingencies          
           
Shareholders' equity          
Preferred stock - $.001 par value stock, 5,000,000 shares authorized:          
Series A – 260,000 shares authorized, none outstanding, non-voting, convertible, redeemable.          
Series B – 200,000 shares authorized, none outstanding, voting, convertible, redeemable.          
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 
Common stock - $.001 par value stock, 75,000,000 shares authorized, 9,999,125 and 9,999,125 shares issued and outstanding   9,999    9,999 
Additional paid-in capital   23,529,728    23,529,729 
Accumulated deficit   (11,540,325)   (11,634,796)
           
Total shareholders' equity   11,999,412    11,904,942 
           
Total liabilities and shareholders' equity  $15,320,876   $16,310,104 

 

See notes to consolidated financial statements.

 

4 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Operations

  (unaudited)

 

   Three Months Ended 
   February 29, 2016   February 28,
2015
 
Net sales  $6,316,011   $6,959,625 
           
Cost of goods sold   4,659,999    5,114,665 
           
Gross profit   1,656,012    1,844,960 
           
Operating expenses:          
Selling and shipping expenses   525,846    549,562 
General and administrative expenses   998,902    1,004,730 
Depreciation and amortization   7,816    8,523 
           
Total operating expenses   1,532,564    1,562,815 
           
Income before other income and income taxes   123,448    282,145 
           
Other income:          
           
Investment income   1,325    1,997 
           
Other income   1,325    1,997 
           
Income before income taxes   124,773    284,142 
           
Income taxes   30,302    83,825 
           
Net income  $94,471   $200,317 
Dividends on preferred stock   2,500    5,425 
           
Net income available to common shareholders  $91,971   $194,892 
           
Net income per share available to common shareholders:          
           
Basic  $.01   $.02 
Diluted  $.01   $.02 
           
Weighted Shares Outstanding:          
Basic   9,999,125    9,218,815 
Diluted   10,115,350    9,744,341 

 

See notes to consolidated financial statements.

 

5 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(unaudited)

 

   Three Months Ended 
   February 29, 2016   February 28,
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $94,471   $200,317 
Adjustments to reconcile net income          
to net cash provided by operating          
activities:          
Depreciation and amortization   7,816    8,523 
Stock compensation expense   -      -   
Deferred income taxes   (2,436)   74,847 
    Allowance for doubtful accounts   8,440    8,442 
           
CHANGES IN OPERATING ASSETS AND LIABILITIES:          
Accounts receivable   679,426    208,787 
Inventory   220,052    286,153 
Prepaid expenses and income taxes   (8,045)   59,151 
Other assets   -      (590)
Accounts payable   (869,343)   (485,571)
Deferred rent   (355)   488 
Accrued expenses   (214,002)   (202,247)
           
           
NET CASH FLOWS USED IN OPERATING ACTIVITIES   (83,976)   158,300 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisition of fixed assets   (1,520)   (32,847)
           
NET CASH FLOWS USED IN INVESTING ACTIVITIES   (1,520)   (32,847)

 

See notes to consolidated financial statements

 

6 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements Of Cash Flows

(unaudited)

(Continued)

 

   Three Months Ended 
   February 29, 2016   February 28, 2015 
CASH FLOWS FROM FINANCING ACTIVITIES:          
           
Proceeds from exercising stock options  $-     $6,250 
           
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   -      6,250 
           
NET CHANGE IN CASH   (85,496)   131,703 
           
CASH AT BEGINNING OF PERIOD   7,169,118    6,174,561 
           
CASH AT END OF PERIOD  $7,083,622   $6,306,264 
           
           
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
           
           
Income taxes paid  $3,355   $8,978 
           
Interest paid  $-     $-   
           
           
NONCASH INVESTING AND FINANCING ACTIVITIES:          
Accrued dividends on preferred stock  $2,500   $5,425 
Payment of accrued interest through issuance of common stock  $-     $102,399 

 

See notes to consolidated financial statements.

 

7 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE A – ORGANIZATION, DESCRIPTION OF COMPANY'S BUSINESS AND BASIS OF PRESENTATION

 

Surge Components, Inc. (“Surge”) was incorporated in the State of New York and commenced operations on 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. The number of common stock shares authorized for issuance was increased to 75,000,000 shares.

 

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 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission.

 

The results and trends in these interim consolidated financial statements for the three months ended February 29, 2016 and February 28, 2015 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 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.

 

(3) Revenue Recognition:

 

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 the customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $771,000 and $535,000 for the three months ended February 29, 2016 and February 28, 2015 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 $67,554 and $60,814 for the three months ended February 29, 2016 and February 28, 2015 respectively.

 

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

 

8 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(3) Revenue Recognition (continued):

 

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 $2,080,000 and $2,442,000 for the three months ended February 29, 2016 and February 28, 2015 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 market.  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 February 29, 2016 approximated $1,060,000. The Company, at February 29, 2016, has a reserve against slow moving and obsolete inventory of $304,000. 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.

 

9 

 

  

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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 February 29, 2016 and November 30, 2015, the Company's uninsured cash balances totaled approximately $3,853,000 and $3,989,000, respectively.

 

(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 and depreciation expense 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 G.

 

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, 2011, and state tax examinations for years before fiscal years ending November 30, 2010. 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 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 three months ended February 29, 2016 and February 28, 2015.

 

10 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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.

 

11 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(12) Shipping Costs

 

The Company classifies shipping costs as a component of selling expenses.  Shipping costs totaled $1,037 and $2,293 for the three months ended February 29, 2016 and February 28, 2015 respectively.

 

(13) 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 February 29, 2016 and February 28, 2015 totaled 519,213 and 524,875, respectively.

 

(14) 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.

 

12 

 

  

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE C - FIXED ASSETS

 

Fixed assets consist of the following:

 

   February 29,   November 30, 
   2016   2015 
           
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   956,637    956,637 
Computer Equipment   975,833    974,312 
Less-Accumulated Depreciation   (2,161,998)   (2,154,182)
Net Fixed Assets  $98,443   $104,738 

 

Depreciation and amortization expense for the three months ended February 29, 2016 and February 28, 2015 was $7,816 and $8,523, respectively.

 

NOTE D -  ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

   February 29,   November 30, 
   2016   2015 
           
Commissions  $214,151   $276,724 
Preferred Stock Dividends   126,569    124,069 
Other accrued expenses   173,138    171,694 
   $513,858   $572,487 

 

In March 2000, the Company completed a $7,000,000 private placement of convertible notes.  The face value of the notes was converted into common stock in July 2001 pursuant to the automatic conversion provisions of the notes.   However, approval by holders of the notes was required to convert the interest accrued on the notes to common stock. The accrued interest set forth in the Company’s financial statements relates to the portion of the accrued interest for which note holder approval was not obtained and therefore not converted into common stock.  No additional interest accrues on these amounts and none of the accrued interest was repaid during any of the periods presented. In February 2015, the Company issued 113,803 shares of common stock to the holders of the notes in payment of the accrued interest at a conversion rate of $0.90 per share.

 

NOTE E – 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 Union Central, Inc., which maintains the plan’s records, were approximately $1,092,000 at November 30, 2015. Pension expense for the three months ended February 29, 2016 and February 28, 2015 was $1,030 and $1,330, respectively.

 

13 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

 

NOTE F – 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 January 2000, the Company authorized 260,000 shares of preferred stock as Non-Voting Redeemable Convertible Series A Preferred Stock (“Series A Preferred”). As of November 30, 2015, none of the Series A preferred stock was outstanding.

 

In November 2000, the Company authorized 200,000 shares of preferred stock as Voting Redeemable Convertible Series B Preferred Stock (“Series B Preferred”). As of November 30, 2015, none of the Series B Preferred Stock was outstanding.

 

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.  In April 2001, 8,000 shares of the Series C Preferred were repurchased and cancelled.  

 

In April 2002, in connection with a Mutual Release, Settlement, Standstill and Non-Disparagement Agreement among other provisions, certain investors transferred back to the Company 252,000 shares of common stock, 19,300 shares of Series C preferred stock, and certain warrants, in exchange for $225,000. These repurchased shares were cancelled.

 

In February 2006, the Company settled with a shareholder to repurchase 10,000 shares of Series C Preferred plus accrued dividends for $50,000.

 

Pursuant to exchange agreements dated as of March 14, 2011, 9,000 shares of Series C Preferred were returned to the Company for cancellation in exchange for 112,500 shares of common stock.

 

In October 2014, 2,000 shares of Series C Preferred were converted into 20,000 shares of common stock.

 

In April 2015, the Company entered into a settlement agreement with a shareholder pursuant to which 7,500 shares of Series C Preferred were returned to the Company for cancellation in exchange for 110,000 shares of common stock plus $65,000 for accrued dividends and legal fees and expenses.

 

In July 2015, 4,200 shares of Series C Preferred were exchanged for 42,000 shares of common stock and $29,838 in accrued dividends.

 

Dividends aggregating $126,569 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2015.  The Company has accrued these dividends.  At February 29, 2016, there are 10,000 shares of Series C Preferred issued and outstanding. 

14 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

 

NOTE F – SHAREHOLDERS’ EQUITY (Continued)

 

[2] 2010 Incentive Stock Plan

 

In March 2010, the Company adopted, and in April 2010 the shareholders ratified, the 2010 Incentive Stock Plan (“2010 Stock Plan”).  The 2010 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.

 

Activity in the 2010 Stock Plan for the quarter ended February 29, 2016 is summarized as follows:

 

          Weighted  
          Average  
    Shares     Exercise
Price
 
             
Options outstanding December 1, 2015     535,438     $ 0.85  
Options issued in the three months ended February 29, 2016     -     $ -  
Options exercised in the three months ended February 29, 2016     -     $ -  
Options cancelled in the three months ended February 29, 2016     -     $ -  
Options outstanding at February 29, 2016     535,438     $ 0.85  
                 
Options exercisable at February 29, 2016     535,438     $ .085  

 

[3] 2015 Incentive Stock Plan

 

In November 2015, the Company adopted, and its shareholders ratified, the 2015 Incentive Stock Plan (“2015 Stock Plan”). The 2015 Stock Plan provides for the grant of awards to officers, employees, directors or consultants to the Company to purchase up to an aggregate of 1,500,000 shares of common stock.

 

There was no activity in the 2015 Stock Plan for the three months ended February 29, 2016.

 

Stock Compensation

 

On February 25, 2011, the Company granted stock options to employees to purchase 85,000 shares of the Company’s common stock at an exercise price of $1.15 per share, the value of the common stock on the date of the grant.  These options vest over a three year period and expires ten years from the grant date.  The fair values of these stock options are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 60% (based on stock volatility of public company industry peers); average risk-free interest rate of 3.42% (the ten year treasury note rate on the date of the grant); initial expected life of 10 years (based on the term of the options); no expected dividend yield; and amortized over the vesting period.

 

In July 2012, the Company granted a stock option to one non-employee director to purchase 50,000 shares of common stock at an exercise price of $0.51 per share, the market price of the common stock on the date of the grant.  This option vested immediately and expires five years from the grant date.  The fair value of this stock option is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 35% (based on stock volatility of public company industry peers); average risk-free interest rate of 0.67% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

In November 2013, the Company granted a stock option to one employee-director and all non-employee directors to purchase 25,000 shares of common stock, and one employee-director to purchase 50,000 shares of common stock at an exercise price of $0.82 per share, the market price of the common stock on the date of the grant.  This option vested immediately and expires five years from the grant date.  The fair value of these stock options is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 18% (based on the Company’s historical stock volatility); average risk-free interest rate of 1.36% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

15 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE F – SHAREHOLDERS’ EQUITY (Continued)

 

Stock Compensation (Continued)

 

In April 2014, the Company granted a stock option to (a) one employee-director to purchase 62,500 shares of common stock, and (b) one employee-director to purchase 45,938 shares of common stock, at an exercise price of $0.80 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 fair value of these stock options are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 20% (based on the Company’s historical stock volatility); average risk-free interest rate of 1.65% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

In March 2015, the Company awarded one employee director 48,530 shares of its common stock and another employee director 29,780 shares of its common stock as part of their 2014 bonus. The Company recorded a cost of $57,166 relating to the issuance of these shares. In February 2015, one non-employee director exercised an option to acquire 25,000 shares of common stock for $0.25 per share. In April 2015, two employee directors each exercised options to acquire 250,000shares for $0.25 per share. Also in April 2015, two non-employee directors each exercised options to acquire 25,000 shares of common stock for $0.25 per share.

 

In July 2015, the Company granted stock options to (a) three non-employee directors to each purchase 25,000 shares of common stock, and (b) one non-employee-director to purchase 50,000 shares of common stock, at an exercise price of $.87 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 $19,913 related to the granting of these options. The fair value of these stock options are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 17% (based on the Company’s historical stock volatility); average risk-free interest rate of 1.55% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

The intrinsic value of the exercisable options at February 29, 2016 totaled $14,500.  At February 29, 2016, the weighted average remaining life of the stock options is 2.38 years.  At February 29, 2016, there was no unrecognized compensation cost related to the stock options granted under the Company’s incentive plans.

 

16 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE F – SHAREHOLDERS’ EQUITY (Continued)

 

[4] Authorized Repurchase:

 

In November 2015, the Board of Directors authorized the Company to purchase up to $500,000 of common stock in the open market or in privately negotiated transactions. The Company has not repurchased any shares to date pursuant to such authority.

 

[5] Compensation of Directors

 

In May 2010, the Company issued 12,000 shares of its common stock to each non-employee director as compensation for services on the Board of Directors. These shares were valued at $0.18 per share, the closing price of the common stock on the over-the-counter market. Starting April 1, 2012, the amount directors each receive for their services on the Board of Directors was increased from $200 a month to $2,000 a month. In May 2010, options were granted to each non-employee director to purchase 25,000 shares of common stock at an exercise price of $0.25 per share. In July 2012, a stock option was granted to one non-employee director to purchase 50,000 shares of common stock at an exercise price of $0.51 per share.  (See Note F[2] for disclosure on the valuation and terms of these options). In May 2012, one non-employee director exercised an option and acquired 25,000 shares of common stock for $0.25 per share. In November 2013, each non-employee director was granted an option to purchase 25,000 shares of common stock at an exercise price of $0.82 per share. Starting December 1, 2013 the compensation for each non-employee director was increased to $2,500 per month (and $3,500 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors). In February 2015, one non-employee director exercised an option and acquired 25,000 shares of common stock for $0.25 per share. In April 2015, two non-employee directors exercised options and acquired 25,000 shares each of common stock for $0.25 per share. In July 2015, options were granted to three non-employee directors each to purchase 25,000 shares of common stock and one non-employee director to purchase 50,000 shares of common stock at an exercise price of $0.87 per share.

 

NOTE G – 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:

 

   February 29,   November 30, 
   2016   2015 
Deferred Tax Assets          
    Net operating loss  $4,080,950   $4,095,388 
    Allowance for bad debts   41,791    39,296 
    Inventory   62,409    100,017 
    Deferred Rent   16,695    16,756 
    Depreciation   155,758    156,272 
    Total deferred tax assets   4,357,603    4,407,729 
    Valuation allowance   (3,357,037)   (3,409,599)
           
        Deferred Tax Assets  $1,000,566   $998,130 

 

The 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 valuation allowance decreased by approximately $53,000 during the three months ended February 29, 2016.  This valuation is based on management estimates of future taxable income. Although the degree of variability inherent in the estimates of future taxable income is significant and subject to change in the near term, management believes, that the estimate is adequate. The estimated valuation allowance is continually reviewed and as adjustments to the allowance become necessary, such adjustments are reflected in the current operations.

 

17 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE G – INCOME TAXES (CONTINUED)

 

The Company's income tax expense consists of the following:

 

   Years Ended 
   February 29,
2016
   February 28,
2015
 
         
Current:          
Federal  $5,436   $4,627 
States   27,302    4,351 
           
    32,738    8,978 
Deferred:          
Federal   (1,934)   59,129 
States   (512)   15,718 
           
    (2,436)   74,847 
           
Provision for income taxes  $30,302   $83,825 

 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $10,202,000 for federal and state purposes, which expire through 2020. 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:

 

   Three Months Ended 
   February 29,   February 28, 
   2016   2015 
         
U.S Federal Income tax statutory rate   34%   34%
Valuation allowance   (18)%   (10)%
State income taxes   8%   6%
Other   -      -   
Effective tax rate   24%   30%

 

 

18 

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE H– RENTAL COMMITMENTS

 

The Company leases its office and warehouse space through 2020 from a corporation that is controlled by officers/shareholders of the Company (“Related Company”).  Annual minimum rental payments to the Related Company approximated $169,000 for the year ended November 30, 2015, and increase at the rate of three 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.

 

In June 2015, the Company renewed its lease to rent office space and a warehouse in Hong Kong for two years. Annual minimum rental payments for this space are approximately $58,500.

 

The Company’s future minimum rental commitments at February 29, 2016 are as follows:

 

Twelve Months Ended     
February 28,     
 2017   $191,226 
 2018   $180,446 
 2019   $184,055 
 2020   $93,092 
        
     $648,819 

 

Net rental expense for the three months ended February 29, 2016 and February 28, 2015 were $77,435 and $75,627, respectively, of which $63,174 and $62,331, respectively, were paid to the Related Company.

 

19 

 

  

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE I – 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.

 

The Company’s compensation committee 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 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 any and all base salary, accrued but unused vacation, all vested equity, and bonus amounts payable to the officer through the date of termination. The officer 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.

 

NOTE J– MAJOR CUSTOMERS

 

The Company had two customers who accounted for 12% and 13% of net sales for the three months ended February 29, 2016 and one customer who accounted for 23% of net sales for the three months ended February 28, 2015.  The Company had no customers who accounted for 10% of accounts receivable at February 29, 2016 and one customer who accounted for 10% of accounts receivable at November 30, 2015.

 

NOTE K- MAJOR SUPPLIERS

 

During the three months ended February 29, 2016 and February 28, 2015 there was one foreign supplier accounting for 54% and 50% of total inventory purchased.

 

The Company purchases substantially all of its products overseas.  For the three months ended February 29, 2016, the Company purchased 56% of its products from Taiwan, 14% from Hong Kong, 30% 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 L - EXPORT SALES

 

The Company’s export sales were as follows:

 

   Three Months Ended 
   February 29,   February 28, 
   2016   2015 
         
Canada   1,099,473    613,790 
China   1,176,748    1,099,755 
Other Asian Countries   174,096    227,727 
South America   84,059    83,096 
Europe   78,250    273,779 

 

Revenues are attributed to countries based on location of customer. 

 

20 

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion 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. 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 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 for events or circumstances occurring 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 $67,554 and $60,814 for the three months ended February 29, 2016 and February 28, 2015 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 a design engineer on our staff with more than thirty years of experience with these types of products, who works with our suppliers on such redesigns. We are continually looking to expand the line of products that we sell. In 2015, we hired a junior engineer to assist with the introduction of a new micro controller product line. We sell these products through independent representatives that earn a commission on the products we sell. We are also working with local, regional, and national distributors to sell these products to local accounts in every state.  

 

21 

 

 

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 capabilities and services to its customer base.

 

The electronic components industry has changed from one of strong demand to one of reduced demand. This reduced demand can be attributed to a slowdown in global growth as well as a slowdown in the forecast of retail sales in North America. Management expects 2016 to continue with the reduced demand for components that the Company experienced in 2015. Due to this worldwide reduction in demand, the Company expects to feel the effects of potentially reduced demand for its products. 

 

In order for us 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 sales and other 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 managing growth, including monitoring an expanded level of operations and controlling costs.

 

Critical Accounting Policies

 

Accounts Receivable

 

The allowance for doubtful accounts is based on the Company’s assessment of the collectability of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in actual defaults from the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected and the Company would adjust the allowance accordingly.

 

Revenue Recognition

 

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This occurs when product is shipped from the Company's warehouse. For direct shipments from our suppliers to our customer, revenue is recognized when product is shipped from the Company’s supplier. The Company acts as a sales agent for certain customers buying direct from one of its suppliers. The Company reports these commissions as revenues in the period earned.

 

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

 

Inventory Valuation

 

Inventories are recorded at the lower of cost or market. Write-downs of inventories to market 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. 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 $30,000.

 

Because of the experience of the Company’s management, including Ira Levy and Steven Lubman, the Company believes that it knows the best prices to buy the products it sells and as a result the Company generally waives rights to manufacturers' inventory protection agreements (including price protection and inventory return rights), and thereby bears the risk of increases in the prices charged by manufacturers and decreases in the prices of products held in the Company’s inventory or covered by purchase commitments. If prices of components which the Company holds in inventory decline, or if new technology is developed that displaces products that the Company sells, the business could be materially adversely affected. While the Company has experienced little impact from customer design changes and slowdown, this can potentially increase due to general economic conditions and customer-specific business conditions. If the Company’s customers experience these changes, the business could be adversely affected.

 

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 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 three months ended February 29, 2016 decreased by $643,614 or 9.3%, to $6,316,011 as compared to net sales of $6,959,625 for the three months ended February 28, 2015.  We attribute the decrease in net sales to the market demand being in a downward trend due to adverse market conditions in China and Europe. We also attribute the decrease to certain of the Company’s customers having a weak quarter. The Company expects this market condition to continue through the second quarter.

 

22 

 

 

Our gross profit for the three months ended February 29, 2016 decreased by $188,948 to $1,656,012, or 10.2%, as compared to $1,844,960 for the three months ended February 28, 2015.  Gross margin as a percentage of net sales decreased to 26.2% for the three months ended February 29, 2016 compared to 26.5% for the three months ended February 28, 2015. The Company attributes the decrease in gross profit to the decrease in sales volume as well as the mix of products sold to certain customers in the three months ended February 29, 2016. Profit margins have decreased as a result of certain of our customers, who are some of the biggest buyers of components, demanding the lowest prices for our products. 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. 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 does not affect such customers’ existing orders. This obligation can have a negative impact on our profit margins since it reduces 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 help the Company become an approved supplier at the customers they manufacture for, and they purchase our components for these customers. It would be very difficult for the Company to achieve business at these customers without the help of the subcontractor customers.

 

Selling and shipping expenses for the three months ended February 29, 2016 was $525,846, a decrease of $23,716, or 4.3%, as compared to $549,562 for the three months ended February 28, 2015. We attribute the decrease to decreases in commission expenses, advertising, and freight expenses and partially offset by increases in salaries for our salespersons, travel and entertainment expenses and auto expenses.

 

General and administrative expenses for the three months ended February 29, 2016 was $998,902, a decrease of $5,828, or less than 1%, as compared to $1,004,730 for the three months ended February 28, 2015. We attribute the decrease to decreases in salaries, utilities, professional fee expenses and consulting expenses and partially offset by the hiring of additional employees and increased costs of both health and general insurance, promotional expenses, temporary help expenses and public company expenses.

 

Depreciation expense for the three months ended February 29, 2016 was $7,816, a decrease of $707 or 8.3%, as compared to $8,523 for the three months ended February 28, 2015.  We attribute the decrease to certain assets becoming fully depreciated during the fiscal year ended November 30, 2015.

 

Investment income for the three months ended February 29, 2016 was $1,325, compared to $1,997 for the three months ended February 29, 2015. We attribute the decrease of $672, or 33.7%, to lower interest rates in the Company’s money market accounts during the fiscal year ended November 30, 2015.

 

Income taxes for the three months ended February 29, 2016 was $30,302, a decrease of $53,523 or 63.9% as compared to income taxes of $83,825 for the three months ended February 28, 2015. The decrease is a result of management’s revised estimate of future taxable income and the related impact on the reported deferred tax. This change in the valuation allowance is based on management’s estimates of future taxable income. The degree of variability inherent in the estimates of future taxable income is significant and subject to change in the near term. The Company reviews its estimates of future taxable income in each reporting period and adjustments to the valuation allowance are reflected in the current operations.

 

As a result of the foregoing, net income for the three months ended February 29, 2016 was $94,471, compared to net income of $200,317 for the three months ended February 28, 2015.

 

Liquidity and Capital Resources

 

As of February 29, 2016 we had cash of $7,083,622, and working capital of $11,262,141. We believe that our working capital levels are adequate to meet our operating requirements during the next twelve months.

 

During the three months ended February 29, 2016, we had net cash flow used in operating activities of $(83,975), as compared to net cash flow from operating activities of $158,300 for the three months ended February 28, 2015. We attribute the decrease in cash flow from operating activities to decreases in net income, accounts payable and accrued expenses and partially offset by decreases in accounts receivable and inventory.

 

We had net cash flow used in investing activities of $(1,520) for the three months ended February 29, 2016, as compared to net cash flow used in investing activities of $(32,847) for the three months ended February 28, 2015. We attribute the decrease to the Company purchasing less new equipment during the three months ended February 29, 2016.

 

23 

 

 

We had net cash flow provided by financing activities of $0 for the three months ended February 29, 2016, as compared to net cash flow provided by financing activities of $6,250 for the three months ended February 28, 2015. We attribute the decrease to a non-executive board member exercising an option and acquiring 25,000 shares of common stock in the three months ended February 28, 2015.

 

As a result of the foregoing, the Company had a net decrease in cash of $85,496 for the three months ended February 29, 2016, as compared to a net increase in cash of $131,703 for the three months ended February 28, 2015.

 

We will continue to evaluate opportunities to use any excess cash generated by our operations, including investing in acquisitions, expanding our business and repurchasing our common stock if permitted by our governing documents and existing contracts while maintaining sufficient liquidity to support our operational needs and fund future strategic growth opportunities. In November 2015, our board of directors authorized a program to repurchase up to $500,000 of our common stock. We have not repurchased any shares to date pursuant to such authority.

 

The table below sets forth our contractual obligations, including long-term debt, operating leases and other long-term obligations, as of February 29, 2016:

 

         Payments due           
         0 – 12    13 – 36    37 – 60    More than 
Contractual Obligations   Total    Months    Months    Months    60 Months 
                          
Long-term debt  $-     $-     $-     $-     $-   
Operating leases  $648,819    191,226    364,501    93,092    -   
                          
Total obligations  $648,819   $191,226   $364,501   $93,092   $-   

 

Inflation

 

In the past two fiscal years, inflation has not had a significant impact on our business. However, any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our future operating results.

 

Off Balance Sheet Arrangements

 

We do not have any off balance sheet arrangements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“Commission”). Ira Levy, the Company’s principal executive officer and principal financial officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of February 29, 2016 and has concluded that, as of such date, our disclosure controls and procedures were effective.

 

Changes in Internal Controls

 

During the three months ended February 29, 2016, 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.

 

24 

 

 

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.

 

Share Repurchases

 

Share repurchase activity during the three months ended February 29, 2016 was as follows:

 

Periods   Total Number
of Shares
Purchased
   Average
Price
Paid Per
Share
     Total Number
of Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
    Approximate
Dollar Value of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs(1)
 
                  
December 1, 2015 to December 31, 2015:    -      -      -     $500,000 
January 1, 2016 to January 31, 2016:    -      -      -     $500,000 
February 1, 2016 to February 29, 2016:    -      -      -     $500,000 
                       
 Total                  $500,000 

 

(1)  In November 2015, the Company’s Board of Directors authorized a program to repurchase up to $500,000 of the Company’s common stock. The Company’s share repurchase program does not obligate it to acquire any specific number of shares. Under the program, shares may be repurchased in privately negotiated and/or open market transactions, including under plans complying with Rule 10b5-1 under the Exchange Act.

 

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  

Amended and Restated By-Laws of Surge Components, Inc. (filed as exhibit 3.1 to Form 8-K filed on February 24, 2016 and incorporated herein by reference)

     
10.1  

Employment Agreement between Surge Components, Inc. and Ira Levy (filed as exhibit 10.1 to Form 8-K filed on February 24, 2016 and incorporated herein by reference)

     
10.2  

Employment Agreement between Surge Components Inc. and Steven Lubman (filed as exhibit 10.2 to Form 8-K filed on February 24, 2016 and incorporated herein by reference)

     
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   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

25 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  SURGE COMPONENTS, INC.  
       
Date: April 14, 2016 By: /s/ Ira Levy  
    Name: Ira Levy  
   

Title: Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

 
       

 

 

26

 

 

 

 

 

 

 

 

 

 

EX-31.1 2 f10q022916ex31i_surgecomp.htm CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Ira Levy, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Surge Components, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: April 14, 2016 By: /s/ Ira Levy  
    Ira Levy  
   

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

EX-32.1 3 f10q022916ex32i_surgecomp.htm CERTIFICATION BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND

PRINCIPAL FINANCIAL OFFICER PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Surge Components, Inc. (the "Company") on Form 10-Q for the period ended February 29, 2016 as filed with the Securities and Exchange Commission (the "Report"), I, Ira Levy, Chief Executive Officer (principal executive officer and principal financial officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

       
Date: April 14, 2016 By: /s/ Ira Levy  
    Ira Levy  
   

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

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Document and Entity Information - shares
3 Months Ended
Feb. 29, 2016
Apr. 14, 2016
Document and Entity Information [Abstract]    
Entity Registrant Name SURGE COMPONENTS INC  
Entity Central Index Key 0000747540  
Amendment Flag false  
Current Fiscal Year End Date --11-30  
Document Type 10-Q  
Document Period End Date Feb. 29, 2016  
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q1  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   9,999,125
Trading Symbol SPRS  
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Consolidated Balance Sheets - USD ($)
Feb. 29, 2016
Nov. 30, 2015
Current assets:    
Cash $ 7,083,622 $ 7,169,118
Accounts receivable - net of allowance for doubtful accounts of $135,971 and $127,531 4,005,883 4,693,749
Inventory, net 2,979,411 3,199,463
Prepaid expenses and income taxes 139,567 131,522
Deferred income taxes 333,522 249,533
Total current assets 14,542,005 15,443,385
Fixed assets - net of accumulated depreciation and amortization of $2,161,998 and $2,154,182 98,443 104,738
Deferred income taxes 667,044 748,597
Other assets 13,384 13,384
Total assets 15,320,876 16,310,104
Current liabilities:    
Accounts payable 2,392,421 3,261,763
Accrued expenses and taxes 513,858 572,487
Accrued salaries 373,585 528,957
Total current liabilities 3,279,864 4,363,207
Deferred rent 41,600 41,955
Total liabilities $ 3,321,464 $ 4,405,162
Commitments and contingencies
Shareholders' equity    
Preferred stock - $.001 par value stock, 5,000,000 shares authorized:
Common stock - $.001 par value stock, 75,000,000 shares authorized, 9,999,125 and 9,999,125 shares issued and outstanding $ 9,999 $ 9,999
Additional paid-in capital 23,529,728 23,529,729
Accumulated deficit (11,540,325) (11,634,796)
Total shareholders' equity 11,999,412 11,904,942
Total liabilities and shareholders' equity $ 15,320,876 $ 16,310,104
Series A Preferred stock    
Shareholders' equity    
Preferred stock - $.001 par value stock, 5,000,000 shares authorized:
Series B Preferred stock    
Shareholders' equity    
Preferred stock - $.001 par value stock, 5,000,000 shares authorized:
Series C Preferred    
Shareholders' equity    
Preferred stock - $.001 par value stock, 5,000,000 shares authorized: $ 10 $ 10
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Consolidated Balance Sheets (Parentheticals) - USD ($)
Feb. 29, 2016
Nov. 30, 2015
Allowance for doubtful accounts of accounts receivable (in dollars) $ 135,971 $ 127,531
Accumulated depreciation and amortization on fixed assets (in dollars) $ 2,161,998 $ 2,154,182
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 75,000,000 75,000,000
Common stock, shares issued 9,999,125 9,999,125
Common stock, shares outstanding 9,999,125 9,999,125
Series A Preferred stock    
Preferred stock, shares authorized 260,000 260,000
Preferred stock, shares outstanding
Series B Preferred stock    
Preferred stock, shares authorized 200,000 200,000
Preferred stock, shares outstanding
Series C Preferred    
Preferred stock, shares authorized 100,000 100,000
Preferred stock, shares outstanding 10,000 10,000
Preferred stock, shares issued 10,000 10,000
Preferred stock, liquidation preference per share $ 5 $ 5
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Consolidated Statements of Operations (unaudited) - USD ($)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Income Statement [Abstract]    
Net sales $ 6,316,011 $ 6,959,625
Cost of goods sold 4,659,999 5,114,665
Gross profit 1,656,012 1,844,960
Operating expenses:    
Selling and shipping expenses 525,846 549,562
General and administrative expenses 998,902 1,004,730
Depreciation and amortization 7,816 8,523
Total operating expenses 1,532,564 1,562,815
Income before other income and income taxes 123,448 282,145
Other income:    
Investment income 1,325 1,997
Other income 1,325 1,997
Income before income taxes 124,773 284,142
Income taxes 30,302 83,825
Net income 94,471 200,317
Dividends on preferred stock 2,500 5,425
Net income available to common shareholders $ 91,971 $ 194,892
Net income per share available to common shareholders:    
Basic $ 0.01 $ 0.02
Diluted $ 0.01 $ 0.02
Weighted Shares Outstanding:    
Basic 9,999,125 9,218,815
Diluted 10,115,350 9,744,341
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Consolidated Statements of Cash Flows (unaudited) - USD ($)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 94,471 $ 200,317
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization $ 7,816 $ 8,523
Stock compensation expense
Deferred income taxes $ (2,436) $ 74,847
Allowance for doubtful accounts 8,440 8,442
CHANGES IN OPERATING ASSETS AND LIABILITIES:    
Accounts receivable 679,426 208,787
Inventory 220,052 286,153
Prepaid expenses and income taxes $ (8,045) 59,151
Other assets (590)
Accounts payable $ (869,343) (485,571)
Deferred rent (355) 488
Accrued expenses (214,002) (202,247)
NET CASH FLOWS USED IN OPERATING ACTIVITIES (83,976) 158,300
CASH FLOWS FROM INVESTING ACTIVITIES:    
Acquisition of fixed assets (1,520) (32,847)
NET CASH FLOWS USED IN INVESTING ACTIVITIES $ (1,520) (32,847)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Proceeds from exercising stock options 6,250
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 6,250
NET CHANGE IN CASH $ (85,496) 131,703
CASH AT BEGINNING OF PERIOD 7,169,118 6,174,561
CASH AT END OF PERIOD 7,083,622 6,306,264
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Income taxes paid $ 3,355 $ 8,978
Interest paid
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Accrued dividends on preferred stock $ 2,500 $ 5,425
Payment of accrued interest through issuance of common stock $ 102,399
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.3.1.900
Organization, Description of Company's Business and Basis of Presentation
3 Months Ended
Feb. 29, 2016
Organization, Description of Company's Business and Basis of Presentation [Abstract]  
ORGANIZATION, DESCRIPTION OF COMPANY'S BUSINESS AND BASIS OF PRESENTATION

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. The number of common stock shares authorized for issuance was increased to 75,000,000 shares.

XML 16 R7.htm IDEA: XBRL DOCUMENT v3.3.1.900
Summary of Significant Accounting Policies
3 Months Ended
Feb. 29, 2016
Summary of Significant Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission.

 

The results and trends in these interim consolidated financial statements for the three months ended February 29, 2016 and February 28, 2015 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 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.

 

(3) Revenue Recognition:

 

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 the customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $771,000 and $535,000 for the three months ended February 29, 2016 and February 28, 2015 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 $67,554 and $60,814 for the three months ended February 29, 2016 and February 28, 2015 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 $2,080,000 and $2,442,000 for the three months ended February 29, 2016 and February 28, 2015 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 market.  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 February 29, 2016 approximated $1,060,000. The Company, at February 29, 2016, has a reserve against slow moving and obsolete inventory of $304,000. 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 February 29, 2016 and November 30, 2015, the Company's uninsured cash balances totaled approximately $3,853,000 and $3,989,000, respectively.

 

(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 and depreciation expense 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 G.

 

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, 2011, and state tax examinations for years before fiscal years ending November 30, 2010. 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 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 three months ended February 29, 2016 and February 28, 2015.

 

(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) Shipping Costs

 

The Company classifies shipping costs as a component of selling expenses.  Shipping costs totaled $1,037 and $2,293 for the three months ended February 29, 2016 and February 28, 2015 respectively.

 

(13) 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 February 29, 2016 and February 28, 2015 totaled 519,213 and 524,875, respectively.

 

(14) 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.

XML 17 R8.htm IDEA: XBRL DOCUMENT v3.3.1.900
Fixed Assets
3 Months Ended
Feb. 29, 2016
Fixed Assets [Abstract]  
FIXED ASSETS

NOTE C - FIXED ASSETS

 

Fixed assets consist of the following:

 

    February 29,     November 30,  
    2016     2015  
                 
Furniture and Fixtures   $ 327,971     $ 327,971  
Leasehold Improvements     956,637       956,637  
Computer Equipment     975,833       974,312  
Less-Accumulated Depreciation     (2,161,998 )     (2,154,182 )
Net Fixed Assets   $ 98,443     $ 104,738  

 

Depreciation and amortization expense for the three months ended February 29, 2016 and February 28, 2015 was $7,816 and $8,523, respectively.

XML 18 R9.htm IDEA: XBRL DOCUMENT v3.3.1.900
Accrued Expenses
3 Months Ended
Feb. 29, 2016
Accrued Expenses [Abstract]  
ACCRUED EXPENSES

NOTE D -  ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

    February 29,     November 30,  
    2016     2015  
                 
Commissions   $ 214,151     $ 276,724  
Preferred Stock Dividends     126,569       124,069  
Other accrued expenses     173,138       171,694  
    $ 513,858     $ 572,487  

 

In March 2000, the Company completed a $7,000,000 private placement of convertible notes.  The face value of the notes was converted into common stock in July 2001 pursuant to the automatic conversion provisions of the notes.   However, approval by holders of the notes was required to convert the interest accrued on the notes to common stock. The accrued interest set forth in the Company’s financial statements relates to the portion of the accrued interest for which note holder approval was not obtained and therefore not converted into common stock.  No additional interest accrues on these amounts and none of the accrued interest was repaid during any of the periods presented. In February 2015, the Company issued 113,803 shares of common stock to the holders of the notes in payment of the accrued interest at a conversion rate of $0.90 per share.

XML 19 R10.htm IDEA: XBRL DOCUMENT v3.3.1.900
Retirement Plan
3 Months Ended
Feb. 29, 2016
Retirement Plan [Abstract]  
RETIREMENT PLAN

NOTE E – 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 Union Central, Inc., which maintains the plan’s records, were approximately $1,092,000 at November 30, 2015. Pension expense for the three months ended February 29, 2016 and February 28, 2015 was $1,030 and $1,330, respectively.

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity
3 Months Ended
Feb. 29, 2016
Shareholders' Equity [Abstract]  
SHAREHOLDERS' EQUITY

NOTE F – 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 January 2000, the Company authorized 260,000 shares of preferred stock as Non-Voting Redeemable Convertible Series A Preferred Stock (“Series A Preferred”). As of November 30, 2015, none of the Series A preferred stock was outstanding.

 

In November 2000, the Company authorized 200,000 shares of preferred stock as Voting Redeemable Convertible Series B Preferred Stock (“Series B Preferred”). As of November 30, 2015, none of the Series B Preferred Stock was outstanding.

 

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.  In April 2001, 8,000 shares of the Series C Preferred were repurchased and cancelled.  

 

In April 2002, in connection with a Mutual Release, Settlement, Standstill and Non-Disparagement Agreement among other provisions, certain investors transferred back to the Company 252,000 shares of common stock, 19,300 shares of Series C preferred stock, and certain warrants, in exchange for $225,000. These repurchased shares were cancelled.

 

In February 2006, the Company settled with a shareholder to repurchase 10,000 shares of Series C Preferred plus accrued dividends for $50,000.

 

Pursuant to exchange agreements dated as of March 14, 2011, 9,000 shares of Series C Preferred were returned to the Company for cancellation in exchange for 112,500 shares of common stock.

 

In October 2014, 2,000 shares of Series C Preferred were converted into 20,000 shares of common stock.

 

In April 2015, the Company entered into a settlement agreement with a shareholder pursuant to which 7,500 shares of Series C Preferred were returned to the Company for cancellation in exchange for 110,000 shares of common stock plus $65,000 for accrued dividends and legal fees and expenses.

 

In July 2015, 4,200 shares of Series C Preferred were exchanged for 42,000 shares of common stock and $29,838 in accrued dividends.

 

Dividends aggregating $126,569 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2015.  The Company has accrued these dividends.  At February 29, 2016, there are 10,000 shares of Series C Preferred issued and outstanding. 

 

[2] 2010 Incentive Stock Plan

 

In March 2010, the Company adopted, and in April 2010 the shareholders ratified, the 2010 Incentive Stock Plan (“2010 Stock Plan”).  The 2010 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.

 

Activity in the 2010 Stock Plan for the quarter ended February 29, 2016 is summarized as follows:

 

          Weighted  
          Average  
    Shares     Exercise
Price
 
             
Options outstanding December 1, 2015     535,438     $ 0.85  
Options issued in the three months ended February 29, 2016     -     $ -  
Options exercised in the three months ended February 29, 2016     -     $ -  
Options cancelled in the three months ended February 29, 2016     -     $ -  
Options outstanding at February 29, 2016     535,438     $ 0.85  
                 
Options exercisable at February 29, 2016     535,438     $ .085  

 

[3] 2015 Incentive Stock Plan

 

In November 2015, the Company adopted, and its shareholders ratified, the 2015 Incentive Stock Plan (“2015 Stock Plan”). The 2015 Stock Plan provides for the grant of awards to officers, employees, directors or consultants to the Company to purchase up to an aggregate of 1,500,000 shares of common stock.

 

There was no activity in the 2015 Stock Plan for the three months ended February 29, 2016.

 

Stock Compensation

 

On February 25, 2011, the Company granted stock options to employees to purchase 85,000 shares of the Company’s common stock at an exercise price of $1.15 per share, the value of the common stock on the date of the grant.  These options vest over a three year period and expires ten years from the grant date.  The fair values of these stock options are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 60% (based on stock volatility of public company industry peers); average risk-free interest rate of 3.42% (the ten year treasury note rate on the date of the grant); initial expected life of 10 years (based on the term of the options); no expected dividend yield; and amortized over the vesting period.

 

In July 2012, the Company granted a stock option to one non-employee director to purchase 50,000 shares of common stock at an exercise price of $0.51 per share, the market price of the common stock on the date of the grant.  This option vested immediately and expires five years from the grant date.  The fair value of this stock option is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 35% (based on stock volatility of public company industry peers); average risk-free interest rate of 0.67% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

In November 2013, the Company granted a stock option to one employee-director and all non-employee directors to purchase 25,000 shares of common stock, and one employee-director to purchase 50,000 shares of common stock at an exercise price of $0.82 per share, the market price of the common stock on the date of the grant.  This option vested immediately and expires five years from the grant date.  The fair value of these stock options is estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 18% (based on the Company’s historical stock volatility); average risk-free interest rate of 1.36% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

In April 2014, the Company granted a stock option to (a) one employee-director to purchase 62,500 shares of common stock, and (b) one employee-director to purchase 45,938 shares of common stock, at an exercise price of $0.80 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 fair value of these stock options are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 20% (based on the Company’s historical stock volatility); average risk-free interest rate of 1.65% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

In March 2015, the Company awarded one employee director 48,530 shares of its common stock and another employee director 29,780 shares of its common stock as part of their 2014 bonus. The Company recorded a cost of $57,166 relating to the issuance of these shares. In February 2015, one non-employee director exercised an option to acquire 25,000 shares of common stock for $0.25 per share. In April 2015, two employee directors each exercised options to acquire 250,000shares for $0.25 per share. Also in April 2015, two non-employee directors each exercised options to acquire 25,000 shares of common stock for $0.25 per share.

 

In July 2015, the Company granted stock options to (a) three non-employee directors to each purchase 25,000 shares of common stock, and (b) one non-employee-director to purchase 50,000 shares of common stock, at an exercise price of $.87 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 $19,913 related to the granting of these options. The fair value of these stock options are estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions: expected volatility of 17% (based on the Company’s historical stock volatility); average risk-free interest rate of 1.55% (the five year treasury note rate on the date of the grant); initial expected life of 5 years (based on the term of the options) and no expected dividend yield.

 

The intrinsic value of the exercisable options at February 29, 2016 totaled $14,500.  At February 29, 2016, the weighted average remaining life of the stock options is 2.38 years.  At February 29, 2016, there was no unrecognized compensation cost related to the stock options granted under the Company’s incentive plans.

 

[4] Authorized Repurchase:

 

In November 2015, the Board of Directors authorized the Company to purchase up to $500,000 of common stock in the open market or in privately negotiated transactions. The Company has not repurchased any shares to date pursuant to such authority.

 

[5] Compensation of Directors

 

In May 2010, the Company issued 12,000 shares of its common stock to each non-employee director as compensation for services on the Board of Directors. These shares were valued at $0.18 per share, the closing price of the common stock on the over-the-counter market. Starting April 1, 2012, the amount directors each receive for their services on the Board of Directors was increased from $200 a month to $2,000 a month. In May 2010, options were granted to each non-employee director to purchase 25,000 shares of common stock at an exercise price of $0.25 per share. In July 2012, a stock option was granted to one non-employee director to purchase 50,000 shares of common stock at an exercise price of $0.51 per share.  (See Note F[2] for disclosure on the valuation and terms of these options). In May 2012, one non-employee director exercised an option and acquired 25,000 shares of common stock for $0.25 per share. In November 2013, each non-employee director was granted an option to purchase 25,000 shares of common stock at an exercise price of $0.82 per share. Starting December 1, 2013 the compensation for each non-employee director was increased to $2,500 per month (and $3,500 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors). In February 2015, one non-employee director exercised an option and acquired 25,000 shares of common stock for $0.25 per share. In April 2015, two non-employee directors exercised options and acquired 25,000 shares each of common stock for $0.25 per share. In July 2015, options were granted to three non-employee directors each to purchase 25,000 shares of common stock and one non-employee director to purchase 50,000 shares of common stock at an exercise price of $0.87 per share.

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Income Taxes
3 Months Ended
Feb. 29, 2016
Income Taxes [Abstract]  
INCOME TAXES

NOTE G – 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:

 

    February 29,     November 30,  
    2016     2015  
Deferred Tax Assets                
    Net operating loss   $ 4,080,950     $ 4,095,388  
    Allowance for bad debts     41,791       39,296  
    Inventory     62,409       100,017  
    Deferred Rent     16,695       16,756  
    Depreciation     155,758       156,272  
    Total deferred tax assets     4,357,603       4,407,729  
    Valuation allowance     (3,357,037 )     (3,409,599 )
                 
        Deferred Tax Assets   $ 1,000,566     $ 998,130  

 

The 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 valuation allowance decreased by approximately $53,000 during the three months ended February 29, 2016.  This valuation is based on management estimates of future taxable income. Although the degree of variability inherent in the estimates of future taxable income is significant and subject to change in the near term, management believes, that the estimate is adequate. The estimated valuation allowance is continually reviewed and as adjustments to the allowance become necessary, such adjustments are reflected in the current operations.

 

The Company's income tax expense consists of the following:

 

    Years Ended  
    February 29, 
2016
    February 28, 
2015
 
             
Current:                
Federal   $ 5,436     $ 4,627  
States     27,302       4,351  
                 
      32,738       8,978  
Deferred:                
Federal     (1,934 )     59,129  
States     (512 )     15,718  
                 
      (2,436 )     74,847  
                 
Provision for income taxes   $ 30,302     $ 83,825  

 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $10,202,000 for federal and state purposes, which expire through 2020. 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:

 

    Three Months Ended  
    February 29,     February 28,  
    2016     2015  
             
U.S Federal Income tax statutory rate     34 %     34 %
Valuation allowance     (18 )%     (10 )%
State income taxes     8 %     6 %
Other     -         -    
 Effective tax rate     24 %     30 %
XML 22 R13.htm IDEA: XBRL DOCUMENT v3.3.1.900
Rental Commitments
3 Months Ended
Feb. 29, 2016
Rental Commitments [Abstract]  
RENTAL COMMITMENTS

NOTE H– RENTAL COMMITMENTS

 

The Company leases its office and warehouse space through 2020 from a corporation that is controlled by officers/shareholders of the Company (“Related Company”).  Annual minimum rental payments to the Related Company approximated $169,000 for the year ended November 30, 2015, and increase at the rate of three 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.

 

In June 2015, the Company renewed its lease to rent office space and a warehouse in Hong Kong for two years. Annual minimum rental payments for this space are approximately $58,500.

 

The Company’s future minimum rental commitments at February 29, 2016 are as follows:

 

Twelve Months Ended        
February 28,        
  2017     $ 191,226  
  2018     $ 180,446  
  2019     $ 184,055  
  2020     $ 93,092  
             
        $ 648,819  

 

Net rental expense for the three months ended February 29, 2016 and February 28, 2015 were $77,435 and $75,627, respectively, of which $63,174 and $62,331, respectively, were paid to the Related Company.

XML 23 R14.htm IDEA: XBRL DOCUMENT v3.3.1.900
Employment and Other Agreements
3 Months Ended
Feb. 29, 2016
Employment and Other Agreements [Abstract]  
EMPLOYMENT AND OTHER AGREEMENTS

NOTE I – 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.

 

The Company’s compensation committee 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 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 any and all base salary, accrued but unused vacation, all vested equity, and bonus amounts payable to the officer through the date of termination. The officer 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.

XML 24 R15.htm IDEA: XBRL DOCUMENT v3.3.1.900
Major Customers
3 Months Ended
Feb. 29, 2016
Major Customers [Abstract]  
MAJOR CUSTOMERS

NOTE J– MAJOR CUSTOMERS

 

The Company had two customers who accounted for 12% and 13% of net sales for the three months ended February 29, 2016 and one customer who accounted for 23% of net sales for the three months ended February 28, 2015.  The Company had no customers who accounted for 10% of accounts receivable at February 29, 2016 and one customer who accounted for 10% of accounts receivable at November 30, 2015.

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.3.1.900
Major Suppliers
3 Months Ended
Feb. 29, 2016
Major Suppliers [Abstract]  
MAJOR SUPPLIERS

NOTE K- MAJOR SUPPLIERS

 

During the three months ended February 29, 2016 and February 28, 2015 there was one foreign supplier accounting for 54% and 50% of total inventory purchased.

 

The Company purchases substantially all of its products overseas.  For the three months ended February 29, 2016, the Company purchased 56% of its products from Taiwan, 14% from Hong Kong, 30% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.

XML 26 R17.htm IDEA: XBRL DOCUMENT v3.3.1.900
Export Sales
3 Months Ended
Feb. 29, 2016
Export Sales [Abstract]  
EXPORT SALES

NOTE L - EXPORT SALES

 

The Company’s export sales were as follows:

 

    Three Months Ended  
    February 29,     February 28,  
    2016     2015  
             
Canada     1,099,473       613,790  
China     1,176,748       1,099,755  
Other Asian Countries     174,096       227,727  
South America     84,059       83,096  
Europe     78,250       273,779  

 

Revenues are attributed to countries based on location of customer.

XML 27 R18.htm IDEA: XBRL DOCUMENT v3.3.1.900
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Feb. 29, 2016
Summary of Significant Accounting Policies [Abstract]  
Principles of Consolidation

(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 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission.

 

The results and trends in these interim consolidated financial statements for the three months ended February 29, 2016 and February 28, 2015 may not be representative of those for the full fiscal year or any future periods.

Accounts Receivable

(2) Accounts Receivable:

 

Trade accounts receivable are recorded at the net invoice value 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.

Revenue Recognition

(3) Revenue Recognition:

 

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 the customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $771,000 and $535,000 for the three months ended February 29, 2016 and February 28, 2015 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 $67,554 and $60,814 for the three months ended February 29, 2016 and February 28, 2015 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 $2,080,000 and $2,442,000 for the three months ended February 29, 2016 and February 28, 2015 respectively.

Inventories

(4) Inventories:

 

Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or market.  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 February 29, 2016 approximated $1,060,000. The Company, at February 29, 2016, has a reserve against slow moving and obsolete inventory of $304,000. From time to time the Company’s products are subject to legislation from various authorities on environmental matters.

Depreciation and Amortization

(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.

Concentration of Credit Risk

(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 February 29, 2016 and November 30, 2015, the Company's uninsured cash balances totaled approximately $3,853,000 and $3,989,000, respectively.

Income Taxes

(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 and depreciation expense 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 G.

 

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, 2011, and state tax examinations for years before fiscal years ending November 30, 2010. 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 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 three months ended February 29, 2016 and February 28, 2015. 

Cash Equivalents

(8) Cash Equivalents:

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Use of Estimates

(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.

Marketing and promotional costs

(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.

Fair Value of Financial Instruments

(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.

Shipping Costs

(12) Shipping Costs

 

The Company classifies shipping costs as a component of selling expenses.  Shipping costs totaled $1,037 and $2,293 for the three months ended February 29, 2016 and February 28, 2015 respectively.

Earnings Per Share

(13) 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 February 29, 2016 and February 28, 2015 totaled 519,213 and 524,875, respectively.

Stock Based Compensation

(14) 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.

XML 28 R19.htm IDEA: XBRL DOCUMENT v3.3.1.900
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Feb. 29, 2016
Summary of Significant Accounting Policies [Abstract]  
Schedule of estimated useful life of fixed assets

Furniture, fixtures and equipment5 - 7 years
Computer equipment5 years
Leasehold ImprovementsEstimated useful life or lease term, whichever is shorter

 

XML 29 R20.htm IDEA: XBRL DOCUMENT v3.3.1.900
Fixed Assets (Tables)
3 Months Ended
Feb. 29, 2016
Fixed Assets [Abstract]  
Schedule of fixed assets
  February 29,  November 30, 
  2016  2015 
         
Furniture and Fixtures $327,971  $327,971 
Leasehold Improvements  956,637   956,637 
Computer Equipment  975,833   974,312 
Less-Accumulated Depreciation  (2,161,998)  (2,154,182)
Net Fixed Assets $98,443  $104,738 
XML 30 R21.htm IDEA: XBRL DOCUMENT v3.3.1.900
Accrued Expenses (Tables)
3 Months Ended
Feb. 29, 2016
Accrued Expenses [Abstract]  
Schedule of accrued expenses

 

    February 29,     November 30,  
    2016     2015  
                 
Commissions   $ 214,151     $ 276,724  
Preferred Stock Dividends     126,569       124,069  
Other accrued expenses     173,138       171,694  
    $ 513,858     $ 572,487
XML 31 R22.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity (Tables)
3 Months Ended
Feb. 29, 2016
Shareholders' Equity [Abstract]  
Schedule of stock option incentive plan activity
     Weighted 
     Average 
  Shares  Exercise
Price
 
       
Options outstanding December 1, 2015  535,438  $0.85 
Options issued in the three months ended February 29, 2016  -  $- 
Options exercised in the three months ended February 29, 2016  -  $- 
Options cancelled in the three months ended February 29, 2016  -  $- 
Options outstanding at February 29, 2016  535,438  $0.85 
         
Options exercisable at February 29, 2016  535,438  $.085
XML 32 R23.htm IDEA: XBRL DOCUMENT v3.3.1.900
Income Taxes (Tables)
3 Months Ended
Feb. 29, 2016
Income Taxes [Abstract]  
Schedule of deferred income taxes
    February 29,     November 30,  
    2016     2015  
Deferred Tax Assets                
    Net operating loss   $ 4,080,950     $ 4,095,388  
    Allowance for bad debts     41,791       39,296  
    Inventory     62,409       100,017  
    Deferred Rent     16,695       16,756  
    Depreciation     155,758       156,272  
    Total deferred tax assets     4,357,603       4,407,729  
    Valuation allowance     (3,357,037 )     (3,409,599 )
                 
        Deferred Tax Assets   $ 1,000,566     $ 998,130
Schedule of income tax expense
    Years Ended  
    February 29, 
2016
    February 28, 
2015
 
             
Current:                
Federal   $ 5,436     $ 4,627  
States     27,302       4,351  
                 
      32,738       8,978  
Deferred:                
Federal     (1,934 )     59,129  
States     (512 )     15,718  
                 
      (2,436 )     74,847  
                 
Provision for income taxes   $ 30,302     $ 83,825
Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate
    Three Months Ended  
    February 29,     February 28,  
    2016     2015  
             
U.S Federal Income tax statutory rate     34 %     34 %
Valuation allowance     (18 )%     (10 )%
State income taxes     8 %     6 %
Other     -         -    
 Effective tax rate     24 %     30 %
XML 33 R24.htm IDEA: XBRL DOCUMENT v3.3.1.900
Rental Commitments (Tables)
3 Months Ended
Feb. 29, 2016
Rental Commitments [Abstract]  
Schedule of future minimum rental commitments
Twelve Months Ended        
February 28,        
  2017     $ 191,226  
  2018     $ 180,446  
  2019     $ 184,055  
  2020     $ 93,092  
             
        $ 648,819
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.3.1.900
Export Sales (Tables)
3 Months Ended
Feb. 29, 2016
Export Sales [Abstract]  
Schedule of export sales
    Three Months Ended  
    February 29,     February 28,  
    2016     2015  
             
Canada     1,099,473       613,790  
China     1,176,748       1,099,755  
Other Asian Countries     174,096       227,727  
South America     84,059       83,096  
Europe     78,250       273,779
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.3.1.900
Organization, Description of Company's Business and Basis of Presentation (Details)
1 Months Ended
May. 31, 2002
Shareholder
shares
Feb. 29, 2016
shares
Nov. 30, 2015
shares
Organization, Description of Company's Business and Basis of Presentation (Textual)      
Minimum number of shareholders to hold equity | Shareholder 2    
Number of shares outstanding - held by surge 999    
Number of shares outstanding - held by officers of surge 1    
Ownership rights transferred to parent company 1    
Common stock, shares authorized   75,000,000 75,000,000
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.3.1.900
Summary of Significant Accounting Policies (Details)
3 Months Ended
Feb. 29, 2016
Furniture, fixtures and equipment [Member] | Maximum [Member]  
Property, Plant and Equipment [Line Items]  
Property, Plant and Equipment, useful life 7 years
Furniture, fixtures and equipment [Member] | Minimum [Member]  
Property, Plant and Equipment [Line Items]  
Property, Plant and Equipment, useful life 5 years
Computer equipment [Member]  
Property, Plant and Equipment [Line Items]  
Property, Plant and Equipment, useful life 5 years
Leasehold Improvements [Member]  
Property, Plant and Equipment [Line Items]  
Property, plant and equipment, estimated useful lives Estimated useful life or lease term, whichever is shorter
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.3.1.900
Summary of Significant Accounting Policies (Details Textual) - USD ($)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Nov. 30, 2015
Summary of Significant Accounting Policies [Abstract]      
Direct shipments revenue $ 771,000 $ 535,000  
Commission revenue 67,554 60,814  
Revenues from distribution agreements 2,080,000 2,442,000  
Reserve against slow moving and obsolete inventory 1,060,000   $ 304,000
Amount of uninsured cash balances 3,853,000   $ 3,989,000
Shipping costs $ 1,037 $ 2,293  
Potentially dilutive shares excluded from diluted weighted shares outstanding (in shares) 519,213 524,875  
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.3.1.900
Fixed Assets (Details) - USD ($)
Feb. 29, 2016
Nov. 30, 2015
Property, Plant and Equipment [Line Items]    
Less-Accumulated Depreciation $ (2,161,998) $ (2,154,182)
Net Fixed Assets 98,443 104,738
Furniture and Fixtures    
Property, Plant and Equipment [Line Items]    
Fixed assets gross 327,971 327,971
Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Fixed assets gross 956,637 956,637
Computer Equipment    
Property, Plant and Equipment [Line Items]    
Fixed assets gross $ 975,833 $ 974,312
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.3.1.900
Fixed Assets (Details Textual) - USD ($)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Fixed Assets [Abstract]    
Depreciation and amortization expense $ 7,816 $ 8,523
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.3.1.900
Accrued Expenses (Details) - USD ($)
Feb. 29, 2016
Nov. 30, 2015
Accrued Expenses [Abstract]    
Commissions $ 214,151 $ 276,724
Preferred Stock Dividends 126,569 124,069
Other accrued expenses 173,138 171,694
Accrued expenses, Total $ 513,858 $ 572,487
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.3.1.900
Accrued Expenses (Details Textual) - USD ($)
1 Months Ended
Feb. 28, 2015
Mar. 31, 2000
Accrued Expenses (Textual)    
Proceeds from of private placement   $ 7,000,000
Number of common stock issued 113,803  
Conversion price per share $ 0.90  
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.3.1.900
Retirement Plan (Details) - USD ($)
1 Months Ended 3 Months Ended
Jun. 30, 1997
Feb. 29, 2016
Feb. 28, 2015
Nov. 30, 2015
Retirement Plan (Textual)        
Number of completed age for qualification of retirement plan 21 years      
Number of completed years of service for qualification of retirement plan 12 months      
Description for retirement plan 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.      
Total employee contributions 15.00%      
Employer matching contribution percentage 20.00%      
Employee deferral percentage 5.00%      
Net assets for plan       $ 1,092,000
Pension expense   $ 1,030 $ 1,330  
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity (Details) - 2010 Incentive Stock Plan [Member] - Stock options [Member]
3 Months Ended
Feb. 29, 2016
$ / shares
shares
Shares  
Options outstanding December 1, 2015 | shares 535,438
Options issued in the three months ended February 29, 2016 | shares
Options exercised in the three months ended February 29, 2016 | shares
Options cancelled in the three months ended February 29, 2016 | shares
Options outstanding at February 29, 2016 | shares 535,438
Options exercisable at February 29, 2016 | shares 535,438
Weighted Average Exercise Price  
Options outstanding December 1, 2015 | $ / shares $ 0.85
Options issued in the three months ended February 29, 2016 | $ / shares
Options exercised in the three months ended February 29, 2016 | $ / shares
Options cancelled in the three months ended February 29, 2016 | $ / shares
Options outstanding at February 29, 2016 | $ / shares $ 0.85
Options exercisable at February 29, 2016 | $ / shares $ 0.85
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity (Details Textual) - USD ($)
1 Months Ended
Mar. 14, 2011
Jul. 31, 2015
Apr. 30, 2015
Oct. 31, 2014
Feb. 28, 2006
Apr. 30, 2002
Apr. 30, 2001
Nov. 30, 2000
Feb. 29, 2016
Nov. 30, 2015
Aug. 31, 2010
Dec. 31, 2001
Jan. 31, 2000
Feb. 29, 1996
Class of Stock [Line Items]                            
Preferred stock, shares authorized                 5,000,000 5,000,000 5,000,000     1,000,000
Dividend payable                       $ 126,569    
Amount paid for repurchase under standstill and non disparagement agreement           $ 225,000                
Common Stock                            
Class of Stock [Line Items]                            
Stock repurchased and cancelled           252,000                
Non-Voting Redeemable Convertible Series A Preferred Stock ("Series A Preferred") [Member]                            
Class of Stock [Line Items]                            
Preferred stock, shares authorized                 260,000 260,000     260,000  
Preferred stock, shares outstanding                        
Voting Redeemable Convertible Series B Preferred Stock ("Series B Preferred") [Member]                            
Class of Stock [Line Items]                            
Preferred stock, shares authorized               200,000 200,000 200,000        
Preferred stock, shares outstanding                        
Non-Voting Redeemable Convertible Series C Preferred Stock ("Series C Preferred") [Member]                            
Class of Stock [Line Items]                            
Preferred stock, shares authorized               100,000 100,000 100,000        
Preferred stock, shares outstanding                 10,000 10,000        
Preferred stock, shares issued                 10,000 10,000        
Number of shares converted into common stock upon conversion   42,000   2,000       10            
Cumulative dividend per share per annum               $ 0.50            
Preferred stock issued in payment of financial consulting services               70,000            
Stock repurchased and cancelled           19,300 8,000              
Number of shares repurchased during the period         10,000                  
Accrued dividends   $ 29,838 $ 65,000   $ 50,000                  
Number of preferred stock returned for cancellation in exchange for shares of common stock 9,000   7,500                      
Number of common shares issued in conversion of preferred stock 112,500   110,000 20,000                    
Non-Voting Redeemable Convertible Series C Preferred Stock ("Series C Preferred") [Member] | Common Stock                            
Class of Stock [Line Items]                            
Number of shares converted into common stock upon conversion   4,200                        
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity (Details Textual 1) - Stock options [Member] - USD ($)
1 Months Ended 3 Months Ended 12 Months Ended
Apr. 30, 2015
Mar. 31, 2015
Jul. 31, 2015
Feb. 28, 2015
Apr. 30, 2014
Nov. 30, 2013
Jul. 31, 2012
Feb. 25, 2011
May. 31, 2010
Mar. 31, 2010
Feb. 29, 2016
Nov. 30, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Intrinsic value of the exercisable options                     $ 14,500  
Weighted average remaining life                     2 years 4 months 17 days  
Non Employee Director [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted 25,000                      
Number of options granted for common stock       25,000   25,000     25,000      
Number of options granted for common stock, exercise price per share $ 0.25     $ 0.25         $ 0.25      
Intrinsic value of the exercisable options   $ 57,166                    
Employees [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of options granted for common stock               85,000        
Number of options granted for common stock, exercise price per share               $ 1.15        
Vesting period               3 years        
Expiration period               10 years        
Fair values of stock options assumption method used               Black-Scholes option pricing model        
Expected volatility rate               60.00%        
Average risk-free interest rate               3.42%        
Treasury note, maturity               10 years        
Initial expected life               10 years        
Employee-director and non-employee directors [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of options granted for common stock           25,000            
Employee-director One [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted 25,000                      
Number of options granted for common stock     50,000   62,500              
Number of options granted for common stock, exercise price per share $ 0.25   $ 0.87                  
Vesting period     5 years                  
Fair values of stock options assumption method used     Black-Scholes option pricing model                  
Expected volatility rate     17.00%                  
Average risk-free interest rate     1.55%                  
Treasury note, maturity     5 years                  
Initial expected life     5 years                  
Options granted cost     $ 19,913                  
Employee-director [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted   48,530                    
Number of options granted for common stock         45,938 50,000            
Number of options granted for common stock, exercise price per share         $ 0.80 $ 0.82            
Vesting period         5 years 5 years            
Fair values of stock options assumption method used         Black-Scholes option pricing model Black-Scholes option pricing model            
Expected volatility rate         20.00% 18.00%            
Average risk-free interest rate         1.65% 1.36%            
Treasury note, maturity         5 years 5 years            
Initial expected life         5 years 5 years            
Another Employee Director [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted   29,780                    
Employee Director Two [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted 250,000                      
Number of options granted for common stock, exercise price per share $ 0.25                      
Three non-employee directors [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of options granted for common stock     25,000                  
Non Officer Director [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of options granted for common stock             50,000          
Number of options granted for common stock, exercise price per share             $ 0.51          
Expiration period             5 years          
Fair values of stock options assumption method used             Black-Scholes option pricing model          
Expected volatility rate             35.00%          
Average risk-free interest rate             0.67%          
Treasury note, maturity             5 years          
Initial expected life             5 years          
2010 Incentive Stock Plan [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted                   1,500,000    
2015 Incentive Stock Plan [Member]                        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                        
Number of common shares purchased for options granted                       1,500,000
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity (Details Textual 2)
12 Months Ended
Nov. 30, 2015
USD ($)
Shareholders' Equity [Abstract]  
Stock repurchased during period, Value $ 500,000
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.3.1.900
Shareholders' Equity (Details Textual 3) - USD ($)
1 Months Ended 12 Months Ended
Apr. 01, 2012
Jul. 31, 2015
Apr. 30, 2015
Feb. 28, 2015
Nov. 30, 2013
Jul. 31, 2012
May. 31, 2012
May. 31, 2010
Nov. 30, 2013
Chairman [Member] | Minimum [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Officers' compensation per month $ 200                
Chairman [Member] | Maximum [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Officers' compensation per month $ 2,000                
Non-employee directors [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of common stock issued for services               12,000  
Number of common stock issued for services, closing price per share               $ 0.18  
Officers' compensation per month                 $ 2,500
Non-employee directors [Member] | Stock options [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of options granted for common stock   50,000 25,000 25,000 25,000 50,000 25,000 25,000  
Number of options granted for common stock, exercise price per share   $ 0.87 $ 0.25 $ 0.25 $ 0.82 $ 0.51 $ 0.25 $ 0.25  
Non-employee directors [Member] | Chairman [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Officers' compensation per month                 $ 3,500
Three non-employee directors [Member] | Stock options [Member]                  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]                  
Number of options granted for common stock   25,000              
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.3.1.900
Income Taxes (Details) - USD ($)
Feb. 29, 2016
Nov. 30, 2015
Deferred Tax Assets    
Net operating loss $ 4,080,950 $ 4,095,388
Allowance for bad debts 41,791 39,296
Inventory 62,409 100,017
Deferred Rent 16,695 16,756
Depreciation 155,758 156,272
Total deferred tax assets 4,357,603 4,407,729
Valuation allowance (3,357,037) (3,409,599)
Deferred Tax Assets $ 1,000,566 $ 998,130
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.3.1.900
Income Taxes (Details 1) - USD ($)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Current:    
Federal $ 5,436 $ 4,627
States 27,302 4,351
Current, total 32,738 8,978
Deferred:    
Federal (1,934) 59,129
States (512) 15,718
Deferred, total (2,436) 74,847
Provision for income taxes $ 30,302 $ 83,825
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.3.1.900
Income Taxes (Details 2)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate    
U.S Federal Income tax statutory rate 34.00% 34.00%
Valuation allowance (18.00%) (10.00%)
State income taxes 8.00% 6.00%
Other
Effective tax rate 24.00% 30.00%
XML 51 R42.htm IDEA: XBRL DOCUMENT v3.3.1.900
Income Taxes (Details Textual)
3 Months Ended
Feb. 29, 2016
USD ($)
Income Taxes (Textual)  
Decrease in valuation allowance for deferred tax asset $ 53,000
Net operating loss carryforwards $ 10,202,000
Net operating loss carryforwards, expiration date Nov. 30, 2020
XML 52 R43.htm IDEA: XBRL DOCUMENT v3.3.1.900
Rental Commitments (Details)
Feb. 29, 2016
USD ($)
Schedule of future minimum rental commitments  
2017 $ 191,226
2018 180,446
2019 184,055
2020 93,092
Future minimum rental commitments $ 648,819
XML 53 R44.htm IDEA: XBRL DOCUMENT v3.3.1.900
Rental Commitments (Details Textual) - USD ($)
1 Months Ended 3 Months Ended 12 Months Ended
Jun. 30, 2015
Feb. 29, 2016
Feb. 28, 2015
Nov. 30, 2015
Rental Commitments (Textual)        
Lease expiration period   Nov. 30, 2020    
Net rental expense   $ 77,435 $ 75,627  
Related Company        
Rental Commitments (Textual)        
Annual minimum rental payments       $ 169,000
Percentage of increase in rental payment       3.00%
Net rental expense   $ 63,174 $ 62,331  
Related Company | Hong Kong        
Rental Commitments (Textual)        
Annual minimum rental payments $ 58,500      
Term of lease 2 years      
XML 54 R45.htm IDEA: XBRL DOCUMENT v3.3.1.900
Employment and Other Agreements (Details)
1 Months Ended
Feb. 29, 2016
USD ($)
Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]  
Number of officers involved in employment agreements | Officer 2
Period officer prohibited involving in competitive activities during employment one year following termination
Compensation description 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.
Officer [Member]  
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]  
Base salary of each officer $ 275,000
Officer One [Member]  
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]  
Base salary of each officer $ 225,000
XML 55 R46.htm IDEA: XBRL DOCUMENT v3.3.1.900
Major Customers (Details) - Customers
1 Months Ended 3 Months Ended
Nov. 30, 2015
Feb. 29, 2016
Feb. 28, 2015
Sales revenue      
Major Customers (Textual)      
Number of customers     1
Percentage of concentration     23.00%
Sales revenue | Customer One [Member]      
Major Customers (Textual)      
Number of customers   2  
Percentage of concentration   12.00%  
Sales revenue | Customer Two [Member]      
Major Customers (Textual)      
Number of customers   2  
Percentage of concentration   13.00%  
Accounts receivable      
Major Customers (Textual)      
Number of customers 1  
Percentage of concentration 10.00% 10.00%  
XML 56 R47.htm IDEA: XBRL DOCUMENT v3.3.1.900
Major Suppliers (Details) - Supplier concentration risk - Total Inventory Purchased - Supplier
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Foreign supplier    
Concentration Risk [Line Items]    
Portion of overseas products 54.00% 50.00%
Number of supplier 1 1
Taiwan    
Concentration Risk [Line Items]    
Portion of overseas products 56.00%  
Hong Kong    
Concentration Risk [Line Items]    
Portion of overseas products 14.00%  
Elsewhere in Asia    
Concentration Risk [Line Items]    
Portion of overseas products 30.00%  
Overseas outside of Asia    
Concentration Risk [Line Items]    
Portion of overseas products Less than 1  
XML 57 R48.htm IDEA: XBRL DOCUMENT v3.3.1.900
Export Sales (Details) - USD ($)
3 Months Ended
Feb. 29, 2016
Feb. 28, 2015
Canada    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales $ 1,099,473 $ 613,790
China    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales 1,176,748 1,099,755
Other Asian Countries    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales 174,096 227,727
South America    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales 84,059 83,096
Europe    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales $ 78,250 $ 273,779
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