0001213900-19-012656.txt : 20190715 0001213900-19-012656.hdr.sgml : 20190715 20190715080115 ACCESSION NUMBER: 0001213900-19-012656 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 69 CONFORMED PERIOD OF REPORT: 20190531 FILED AS OF DATE: 20190715 DATE AS OF CHANGE: 20190715 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: 19954117 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 f10q0519_surgecomponentsinc.htm QUARTERLY REPORT

 

 

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended May 31, 2019

 

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

 

For the transition period from _______ to _______

 

Commission File No. 000-27688

 

SURGE COMPONENTS, INC.

(Exact name of registrant as specified in its charter)

 

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

95 East Jefryn Boulevard

Deer Park, New York

  11729
(Address of principal executive offices)   (Zip Code)

 

(631) 595-1818
(Registrant’s telephone number, including area code)

  

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

  

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

 

Large Accelerated Filer Accelerated Filer
Non-accelerated Filer    Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

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

 

Securities registered pursuant to Section 12(b) of the Act: None

 

The registrant’s common stock outstanding as of July 12, 2019, was 5,309,335 shares of common stock.

 

 

 

 

 

  

SURGE COMPONENTS, INC

 

TABLE OF CONTENTS

 

  Page
PART I - FINANCIAL INFORMATION  
   
Item 1. Financial Statements 1
   
Consolidated Balance Sheets as of  May 31, 2019 (unaudited) and November 30, 2018 1
   
Consolidated Statements of Operations for the six and three months ended May 31, 2019 and May 31, 2018 (unaudited) 3
   
Consolidated Statements of Cash Flows for the six  months ended May 31, 2019  and May 31, 2018 unaudited) 4
   
Notes to Consolidated Financial Statements (unaudited)  6
   
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 26
   
SIGNATURES 27

 

i

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

  

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

   May 31,   November 30, 
   2019   2018 
   (unaudited)     
ASSETS        
         
Current assets:        
Cash  $2,594,927   $1,761,863 
Accounts receivable - net of allowance for doubtful accounts of $95,035 and $161,560   5,978,377    5,997,493 
Inventory, net   3,575,884    3,389,065 
Prepaid expenses and income taxes   132,653    19,589 
           
Total current assets   12,281,841    11,168,010 
           
Fixed assets – net of accumulated depreciation and amortization of $2,285,878 and $2,266,627   103,965    115,995 
           
Deferred income taxes   1,044,937    982,624 
Other assets   22,607    13,384 
           
Total assets  $13,453,350   $12,280,013 

 

See notes to consolidated financial statements

 

1

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Continued)

 

   May 31,   November 30, 
   2019   2018 
   (unaudited)     
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable  $4,464,680   $4,420,013 
Loan payable   -    - 
Capital lease payable, current maturities   7,432    7,036 
Accrued expenses and taxes   577,469    603,203 
Accrued salaries   432,845    508,873 
           
Total current liabilities   5,482,426    5,539,125 
Capital lease payable, net of current maturities   19,831    25,500 
Deferred rent   19,580    25,554 
           
Total liabilities   5,521,837    5,590,179 
           
Commitments and contingencies          
           
Shareholders’ equity:          
Preferred stock - $.001 par value, 5,000,000 shares authorized:          
Series C – 100,000 shares authorized, 10,000 and 10,000 shares issued and outstanding, redeemable,  convertible, and a liquidation preference of $5 per share   10    10 
Series D – 75,000 shares authorized, none issued or outstanding, voting, convertible, redeemable.          
Common stock - $.001 par value, 50,000,000 shares authorized, 5,309,335 and 5,262,128 shares issued and outstanding   5,309    5,262 
Additional paid-in capital   16,666,475    16,577,772 
Accumulated deficit   (8,740,281)   (9,893,210)
           
Total shareholders’ equity   7,931,513    6,689,834 
           
Total liabilities and shareholders’ equity  $13,453,350   $12,280,013 

 

See notes to consolidated financial statements.

 

2

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Operations

(Unaudited)

 

   Six Months Ended
May 31,
   Three Months Ended
May 31,
 
   2019   2018   2019   2018 
Net sales  $16,872,094   $14,244,425   $8,464,752   $7,262,098 
                     
Cost of goods sold   12,078,746    10,510,664    5,994,964    5,342,011 
                     
Gross profit   4,793,348    3,733,761    2,469,788    1,920,087 
                     
Operating expenses:                    
Selling and shipping expenses   1,294,235    1,255,839    651,339    637,418 
General and administrative expenses   2,371,387    2,193,165    1,284,350    1,095,209 
Depreciation and amortization   19,252    24,486    9,674    12,532 
                     
Total operating expenses   3,684,874    3,473,490    1,945,363    1,745,159 
                     
Income before other income (expense) and income taxes   1,108,474    260,271    524,425    174,928 
                     
Other income (expense):                    
Investment income   3    2    2    1 
Interest expense   (1,427)   (9,734)   (694)   (3,713)
                     
Other income (expense)   (1,424)   (9,732)   (692)   (3,712)
                     
Income before income taxes   1,107,050    250,539    523,733    171,216 
                     
Income taxes (benefit)   (48,379)   46,673    62,101    2,907 
                     
Net income   1,155,429    203,866    461,632    168,309 
Dividends on preferred stock   2,500    2,500    -    - 
                     
Net income available to common shareholders  $1,152,929   $201,366   $461,632   $168,309 
                     
Net income per share available to common shareholders:                    
                     
Basic  $.22   $.04   $.09   $.03 
Diluted  $.21   $.04   $.09   $.03 
                     
Weighted Shares Outstanding:                    
                     
Basic   5,266,278    5,224,431    5,270,338    5,224,431 
Diluted   5,419,892    5,358,768    5,423,952    5,358,768 

 

See notes to consolidated financial statements 

 

3

 

  

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended
May 31,
 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net income  $1,155,429   $203,866 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   19,252    24,486 
Deferred income taxes   (62,313)   19,819 
Allowance for doubtful accounts   66,525    - 
Stock Compensation   88,750    - 
           
CHANGES IN OPERATING ASSETS AND LIABILITIES:          
Accounts receivable   (47,409)   727,497 
Inventory   (186,819)   (642,362)
Prepaid expenses and income taxes   (113,064)   (19,533)
Other Assets   (9,223)   - 
Accounts payable   44,667    433,125)
Deferred rent   (5,974)   (4,184)
Accrued expenses   (104,262)   (217,264)
           
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES   845,559    525,450 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisition of fixed assets   (7,222)   (30,305)
           
NET CASH FLOWS USED IN INVESTING ACTIVITIES  $(7,222)  $(30,305)

 

4

 

   

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Unaudited)

(Continued)

 

   Six Months Ended
May 31,
 
   2019   2018 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
         
Net Borrowings on loans payable  $(5,273)  $(275,000)
           
NET CASH FLOWS (USED IN) FINANCING ACTIVITIES   (5,273)   (275,000)
           
NET CHANGE IN CASH   833,064    220,145 
           
CASH AT BEGINNING OF PERIOD   1,761,863    1,086,999 
           
CASH AT END OF PERIOD  $2,594,927   $1,307,144 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
           
Income taxes paid  $97,100   $15,079 
           
Interest paid  $1,427   $9,734 
           
NONCASH INVESTING AND FINANCING ACTIVITIES:          
Accrued dividends on preferred stock  $2,500   $2,500 

 

See notes to consolidated financial statements.

 

5

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

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

 

Surge Components, Inc. (“Surge”) was incorporated in the State of New York and commenced operations on November 24, 1981 as an importer of electronic products, primarily capacitors and discrete semi-conductors selling to customers located principally throughout North America. On June 24, 1988, Surge formed Challenge/Surge Inc. (“Challenge”), a wholly-owned subsidiary to engage in the sale of electronic component products and sounding devices from established brand manufacturers to customers located principally throughout North America.

 

In May 2002, Surge and an officer of Surge founded and became sole owners of Surge Components, Limited (“Surge Limited”), a Hong Kong corporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the outstanding common stock and the officer of Surge owns 1 share of the outstanding common stock. The officer of Surge has assigned his rights regarding his 1 share to Surge. Surge Limited started doing business in July 2002. Surge Limited operations have been consolidated with the Company.  Surge Limited is responsible for the sale of Surge’s products to customers located in Asia.

 

On August 31, 2010, the Company changed its corporate domicile by merging into a newly-formed corporation, Surge Components, Inc. (Nevada), which was formed in the State of Nevada for that purpose.  Surge Components Inc. is the surviving entity.

 

In February 2019, the Company converted into a Delaware corporation. The number of authorized shares of common stock was decreased to 50,000,000 shares.

 

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 and the rules and regulations of the Securities and Exchange Commission.

 

The results and trends in these interim consolidated financial statements for the six months ended May 31, 2019 and May 31, 2018 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 amounts 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:

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers: Topic 606.” This ASU replaces nearly all existing U.S. generally accepted accounting principles guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment by the Company. The Company adopted the standard using the modified retrospective approach in its fiscal year beginning December 1, 2017. The preponderance of the Company’s contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment. Adoption of this ASU did not have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

 

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 its suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder.  Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $702,000 and $2,266,000  for the six months ended May 31, 2019 and May 31, 2018, respectively.

 

6

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(3) Revenue Recognition (continued):

 

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 they are earned. Commission revenue totaled $211,167 and $77,288 for the six months ended May 31, 2019 and May 31, 2018, respectively, which increase was due to commission income on new and existing accounts.

 

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 $3,438,000  and $1,966,000 for the six months ended May 31, 2019 and May 31, 2018, respectively.

 

(4) Inventories:

 

Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or net realizable value.  Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2019 was $1,214,998. The Company, at May 31, 2019, has a reserve against slow moving and obsolete inventory of $250,565. 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.

 

7

 

 

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 May 31, 2019 and November 30, 2018, the Company’s uninsured cash balances totaled $2,030,432 and $1,197,367, 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 J.

 

The Company follows the provisions of the Accounting Standards Codification (“ASC”) 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 the fiscal year ended November 30, 2014, and state tax examinations for years before the fiscal year ended November 30, 2013. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

 

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2019 and May 31, 2018. 

 

8

 

 

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.

 

9

 

 

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 $3,781 and $4,013 for the six months ended May 31, 2019 and May 31, 2018, 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 May 31, 2019 and May 31, 2018 totaled 118,386 and 215,663, respectively.

 

(14) Stock Based Compensation

 

Stock Based Compensation to Employees

 

The Company accounts for its stock-based compensation for employees in accordance with ASC 718.   The Company recognizes in its consolidated statements 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.

 

(15) Recently Issued Standards

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At May 31, 2019, the Company’s undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $481,305.

 

10

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE C – FIXED ASSETS

 

Fixed assets consist of the following:

 

   May 31,   November 30, 
   2019   2018 
         
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   995,356    991,646 
Computer Equipment   1,066,516    1,063,005 
Less-Accumulated Depreciation   (2,285,878)   (2,266,627)
Net Fixed Assets  $103,965   $115,995 

 

Depreciation and amortization expense for the six months ended May 31, 2019 and May 31, 2018 was $19,252 and $24,486, respectively.

 

NOTE D – CAPITALIZED LEASE OBLIGATIONS

 

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

 

Future minimum lease payments under these capitalized lease obligations as of May 31, 2019 are as follows:

 

2020  $9,779 
2021  $9,779 
2022  $9,779 
2023  $3,983 
      
Total  $33,320 
Less: interest portion   6,057 
Present value of net minimum lease payments  $27,263 
Less: current portion   7,432 
Non-current portion  $19,831 

 

Capital lease obligations mature as follows:    
     
Twelve months ending May 31:    
2019  $7,432 
2020  $8,153 
2021  $8,948 
2022  $2,730 
      
Principal payments remaining  $27,263 

 

11

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE E – LINE OF CREDIT

 

In February 2017, the Company obtained a line of credit with a bank for up to $3,000,000 (the “Credit Line”). Borrowings under the Credit Line are due upon demand and accrue interest at the greater of the prime rate or the LIBOR rate plus two percent (and may be increased by three percent in the event the Company fails to (i) repay all amounts due on the Credit Line upon demand or (ii) comply with any terms or conditions relating to the Credit Line). As of May 31, 2019, the balance on the Credit Line was $0. As of May 31, 2019, the Company was in compliance with the debt covenants for the Credit Line.

 

NOTE F – ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

   May 31,   November 30, 
   2019   2018 
         
Commissions  $195,449   $228,199 
Preferred stock dividends   144,069    141,569 
Other accrued expenses   237,951    233,435 
           
Total  $577,469   $603,203 

 

NOTE G – 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 $1,201,000 at November 30, 2018. Pension expense for the six months ended May 31, 2019 and May 31, 2018 was $1,196 and $590, respectively.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE H – SHAREHOLDERS’ EQUITY

 

[1] Preferred Stock:

 

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

 

In November 2000, the Company authorized 100,000 shares of preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred”). Each share of Series C Preferred is automatically convertible into 10 shares of our common stock upon shareholder approval.  If the Series C Preferred were converted into common stock on or before April 15, 2001, these shares were entitled to cumulative dividends at the rate of $.50 per share per annum commencing April 15, 2001 payable on June 30 and December 31 of each year.  In November 2000, 70,000 shares of the Series C Preferred were issued in payment of financial consulting services to its investment banker and a shareholder of the Company.  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 $144,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2018.  The Company has accrued these dividends.  At May 31, 2019, there are 10,000 shares of Series C Preferred issued and outstanding.

 

In October 2016, the Company authorized 75,000 shares of preferred stock as Voting Non-Redeemable Convertible Series D Preferred Stock (“Series D Preferred”). None of the Series D Preferred Stock is outstanding as of May 31, 2019.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE H – 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 year ended May 31, 2019 is summarized as follows:

 

       Weighted 
       Average 
   Shares   Exercise
Price
 
         
Options outstanding December 1, 2018   175,000   $0.99 
Options issued in the six months ended May 31, 2019   -   $- 
Options exercised in the six months ended May 31, 2019   -   $- 
Options cancelled in the six months ended May 31, 2019   (3,000)  $(1.15)
Options outstanding at May 31, 2019   172,000   $0.99 
           
Options exercisable at May 31, 2019   172,000   $0.99 

 

[3] 2015 Incentive Stock Plan

 

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

 

In May 2016, a total of 99,151 shares were issued to the Company’s officers as part of their 2015 bonus compensation under the 2015 Stock Plan.

 

In April 2016, the Company awarded one employee director 67,901 shares of its common stock and another employee director 31,250 shares of its common stock under the 2015 Stock Plan as part of their 2015 bonus. The Company recorded a cost of $74,363 relating to the issuance of these shares.

 

In October 2016, one employee director exercised options to acquire 50,000 shares of common stock at $0.82 per share and 62,500 shares of common stock at $0.80 per share. In October 2016, one employee director exercised options to acquire 25,000 shares of common stock at $0.82 per share and 45,938 shares of common stock at $0.80 per share.

 

In May 2019, the Company awarded one employee director 29,255 shares of its common stock and another director 17,952 shares of common stock under the 2015 Stock Plan as part of their 2018 bonus. The Company recorded a cost of $88,750 relating to the issuance of these shares,

 

The intrinsic value of the exercisable options at May 31, 2019 totaled $236,120.  At May 31, 2019, the weighted average remaining life of the stock options is 1.37 years. At May 31, 2019, there was no unrecognized compensation cost related to the stock options granted under the plan.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE H – SHAREHOLDERS’ EQUITY (Continued)

 

[4] Compensation of Directors

 

Compensation for each non-employee director is $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).

 

NOTE I – SETTLEMENT AGREEMENT 

 

On December 22, 2016, the Company entered into a settlement agreement (the “Settlement Agreement”) with Michael D. Tofias and Bradley P. Rexroad (collectively, the “Stockholders”). The Settlement Agreement generally provided that:

 

  the Board and the Stockholders will identify a mutually acceptable independent director to join the Board as a Class C director by February 28, 2017 and the Board will include that new director among its director nominees for the 2017 annual meeting;

  

  the Company will take all steps to (i) change its state of incorporation from the State of Nevada to the State of Delaware and (ii) declassify the Board on a rolling basis by June 30, 2017, and the Company will convene a special meeting of stockholders of the Company for the purpose of approving such actions, at which meeting the Stockholders and the Insiders will vote all of their shares of common stock of the Company in favor of such actions, and

 

  the Company will commence an issuer tender offer to all of its stockholders to repurchase at least 5.0 million shares of its common stock at a price of $1.43 per share (the “Tender Offer”), which the Company completed in March 2017 whereby it purchased for cash 5,000,000 shares of its common stock, at a price of $1.43 per share, or $7,150,000.

 

  the Stockholders will tender all of the shares of common stock of the Company that they hold beneficially or of record in the Tender Offer, subject to limited exceptions; and

 

  the Company’s officers and directors will not participate in the Tender Offer and will not transfer or sell any of their shares until six months after the Tender Offer is completed.

 

Pursuant to the Settlement Agreement, the Company also agreed to reimburse the expenses of the Stockholders associated with their investment in the Company, including their proxy solicitation and litigation costs, in an amount not to exceed $300,000.

 

On April 6, 2017, the Board of Directors elected Peter Levy as a Class C Director. He is an independent director.

 

15

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE I – SETTLEMENT AGREEMENT (Continued)

 

On October 4, 2018, the Company held its annual meeting of shareholders, at which shareholders approved (i) the change in the Company’s state of incorporation from Nevada to Delaware and (ii) the declassification of the Company’s board of directors on a rolling basis. No shareholders exercised their dissenters’ rights in connection with the reincorporation proposal. The Company was reincorporated in Delaware on February 5, 2019.

 

  until the day after the announcement of the completion of the Tender Offer, the Board will be composed of no more than seven individuals;

 

  the Stockholders will tender all of the shares of common stock of the Company that they hold beneficially or of record in the Tender Offer, subject to limited exceptions;

 

  the Company’s officers and directors will not participate in the Tender Offer and will not transfer or sell any of their shares until six months after the Tender Offer is completed;

 

  subject to certain conditions, if the Tender Offer is not completed by March 15, 2017, the Company will (i) appoint the Stockholders to the Board as Class A directors with terms expiring at the Company’s annual meeting of stockholders for fiscal year 2018 (the “2019 Meeting”) and (ii) reduce the size of the Board to six directors, including the Stockholders;

 

  the Stockholders will withdraw with prejudice their lawsuit against the Company and the Insiders pending in the State of Nevada; and

 

  the Stockholders will be subject to customary standstill provisions until the termination of the Settlement Agreement.

 

On October 4, 2018, the Company held its annual meeting of shareholders, at which shareholders approved (i) the change in the Company’s state of incorporation from Nevada to Delaware and (ii) the declassification of the Company’s board of directors on a rolling basis. No shareholders exercised their dissenters’ rights in connection with the annual meeting.

 

The Settlement Agreement terminated on February 5, 2019, the date on which the Company completed its reincorporation from Nevada into Delaware.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE J – 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:

 

   May 31,   November 30, 
   2019   2018 
Deferred Tax Assets        
Net operating loss  $1,840,660   $2,008,906 
Allowance for bad debts   17,403    32,658 
Inventory   60,746    69,757 
Deferred rent   5,117    6,679 
Other   74,067    62,071 
Depreciation   74,141    73,140 
Total deferred tax assets   2,072,134    2,253,211 
Valuation allowance   (1,027,197)   (1,270,587)
           
Deferred Tax Assets  $1,044,937   $982,624 

 

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 $243,390 during the six months ended May 31, 2019.  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.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE J – INCOME TAXES (Continued)

 

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

 

   Six Months Ended 
   May 31,
2019
   May 31,
2018
 
         
Current:        
Federal  $-   $3,331 
States   13,934    18,111 
           
    13,934    21,442 
Deferred:          
Federal   (49,227)   21,283 
States   (13,086)   3,948 
           
    (62,313)   25,231 
           
Provision for income taxes  $(48,379)  $46,673 

 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $7,043,000 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: 

 

   Six Months ended 
   May 31,   May 31, 
   2019   2018 
U.S Federal Income tax statutory rate   21%   21%
Valuation allowance   (33)%   (9)%
State income taxes   8%   7%
Other   -    - 
Effective tax rate   (4)%   19%

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE K – 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 $180,000 for the year ended November 30, 2018, 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 2019, 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 $68,460.

 

In January 2019, the Company entered into a lease to rent additional warehouse space in Hong Kong for two years. Annual minimum rental payments for this space are approximately $36,840.

 

The Company’s future minimum rental commitments at May 31, 2019 are as follows:

 

Twelve Months Ended May 31,

 

2020  $290,268 
2021  $152,012 
2022  $5,705 
      
   $447,985 

 

Net rental expense for the six months ended May 31, 2019 and May 31, 2018 were $173,903 and $158,531, respectively, of which $131,612 and $129,822, respectively, was paid to the Related Company.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

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

 

NOTE M – MAJOR CUSTOMERS

 

The Company had two customers who accounted for 12% and 13% of net sales for the six months ended May 31, 2019 and two customers who accounted for 10% and 12% of net sales for the six months ended May 31, 2018.  The Company had two customers who accounted for 11% and 12% of accounts receivable at May 31, 2019 and two customers who accounted for 12% and 13% of accounts receivable at May 31, 2018.

 

NOTE N – MAJOR SUPPLIERS

 

During the six months ended May 31, 2019 and May 31, 2018 there was one foreign supplier accounting for 40% and 57% of total inventory purchased.

 

The Company purchases substantially all of its products overseas.  For the six months ended May 31, 2019, the Company purchased 46% of its products from Taiwan, 15% from Hong Kong, 31% from elsewhere in Asia and the remaining 8% from the United States.

 

NOTE O – EXPORT SALES

 

The Company’s export sales were as follows:

 

   Six Months Ended 
   May 31,   May 31, 
   2019   2018 
Canada   2,360,932    1,795,417 
China   2,804,193    2,038,705 
Other Asian Countries   1,055,605    730,150 
South America   247,230    231,893 
Europe   678,907    124,517 

 

Revenues are attributed to countries based on location of customer. 

 

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

 

This report contains forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

 

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 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 $211,167 and $77,288 for the six months ended May 31, 2019 and May 31, 2018, respectively, which increase was due to commission income on new and existing accounts.

 

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 an engineer on our staff who works with our suppliers on such redesigns and assists with the introduction of new product lines. We are continually looking to expand the line of products that we sell. We sell these products through independent representatives that earn a commission on the products we sell. We are also working with local, regional, and national distributors to sell these products to local accounts in every state.  

 

In September 2018, we filed a U.S. patent application with the United States Patent and Trademark Office for an improved pinpoint alarm designed to improve an individual’s ability to determine the location of an alarm versus standard single, multi-frequency, or broadband alarms. The improved alarm can be used in a wide variety of applications, including reversing vehicles, medical emergency notification, and hardware devices that use Bluetooth or other wireless communications protocols in combination with mobile software applications to locate lost items, including phones, wallets, and keys. To the best of our knowledge, the manufacturers of the products that we sell do not have patents, trademarks or copyrights registered in the United States Patent and Trademark Office or in any state. We rely on the know-how, experience and capabilities of our management personnel. Although we believe that the products do not infringe on any patents or trademarks of other parties, or violate proprietary rights of others, it is possible that infringement of existing or future patents, trademarks or proprietary rights of others may occur.

 

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 position, improving our capabilities and service to our customer base.

 

The electronic components industry continues to change, as market conditions have declined, especially due to tariffs, but also due to a downturn in the global economy. As of the date of this report, the Company has been able to maintain its current business and sustain pricing to its customers.

 

The world of business is constantly changing because of “disruptors,” which are significant changes in traditional business practices that did not previously exist, such as tariffs.    These changes also include customers moving their manufacturing operations from North America to Asia, and the trend of globalization. This trend makes business more complicated and costly for the Company. The Company must have a presence in Asia to service and further develop the business. For these reasons, we established Surge Ltd., our Asia subsidiary. Currency fluctuations also have an effect on doing business outside of North America. Customers have moved to reduce their supply chain, which could adversely affect the Company. In some market segments, demand for electronic components has decreased, and in other segments, the demand is still strong, such as in the automotive industry. Some technologies have become obsolete, while customers develop new products using different kinds of components.  Management expects the rest of 2019 to be a year of change and challenge. These challenges could affect the Company in negative ways, possibly reducing sales and or profitability. In order for the Company 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 key personnel in order to expand our marketing capabilities, our ability to secure adequate sources of products, which are in demand on commercially reasonable terms, our success in executing and managing growth,  including monitoring  an expanded level of operations  and systems, controlling costs, the availability of adequate financing, and our ability to deal successfully, with new and future disruptors. The global economic slowdown is strongly impacted by the tariffs which are negatively impacting the growth of our customers and many of the manufacturing companies in China. However, at this time the Company has not yet experienced a material adverse effect from the tariffs.

 

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 $36,000.

 

The Company does not have price protection agreements with any of its vendors and assumes the risk of changes in the prices of its products. The Company does not believe there to be a significant risk with regards to the lack of price protection agreements as many of its inventory items are purchased to fulfill purchase orders received.

 

Income Taxes

 

We have made a number of estimates and assumptions relating to the reporting of a deferred income tax asset to prepare our financial statements in accordance with generally accepted accounting principles. These estimates have a significant impact on our valuation allowance relating to deferred income taxes. Our estimates could materially impact the financial statements.

 

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Results of Operations

 

Net sales for the six months ended May 31, 2019 increased by $2,627,669 or 18.4%, to $16,872,094 as compared to net sales of $14,244,425 for the six months ended May 31, 2018. Consolidated net sales for the three months ended May 31, 2019 increased by $1,202,654 or 16.6%, to $8,464,752, as compared to net sales of $7,262,098 for the three months ended May 31, 2018. We attribute these increases to increases in business with new customers as well as additional business with existing customers. Net sales for the three and six months ended May 31, 2019 reflect $686,000 of tariff costs that the Company was able to pass on to its customers.

 

Our gross profit for the six months ended May 31, 2019 increased by $1,059,587 to $4,793,348, or 28.4% as compared to $3,733,761 for the six months ended May 31, 2018. Gross margin as a percentage of net sales increased to 28.4% for the six months ended May 31, 2019 compared to 26.2% for the six months ended May 31, 2018. Gross profit for the three months ended May 31, 2019 increased by $549,701 to $2,469,788, or 28.6% as compared to $1,920,087 for the three months ended May 31, 2018. Gross margin as a percentage of net sales increased to 29.2% for the three months ended May 31, 2019 compared to 26.4% for the three months ended May 31, 2018. The increases can be attributed to an increase in sales volume as well as certain products being sold at a higher profit margin. Our industry will continue to receive pressure from customers for price reductions. Some of them further demand periodic price reductions on a quarterly or semi-annual basis, as opposed to annual fixed pricing. We work with electronic manufacturing service subcontractor customers who manufacture products for other customers who do not have their own manufacturing operations. At times we are not able to recover these price reductions from our suppliers. The Company has agreements with these subcontractor customers to provide periodic cost reductions through rebates in the amount of 5%. These reductions only affect future shipments of our products, and do not affect existing orders. These reductions can have a negative impact on our profit margins since they reduce the amount of commissions we can earn. Even though this rebate can impact the Company’s gross profit margin, these subcontractor customers represent very significant potential growth for the Company, because they can help the Company become an approved supplier at the customers they manufacture for, and they purchase our components for these customers. We believe it would be very difficult for the Company to achieve business at these customers without the help of these subcontractor customers. During the six months ended May 31, 2019, the Company has not yet experienced a material adverse effect from tariff costs on certain products imported from China, which went into effect as of July 6, 2018. The Company has been able to pass along a portion of these costs to its customers, which resulted in increased revenues. The Company is also moving some customer deliveries directly to Hong Kong in order to mitigate some of these costs.

 

Selling and shipping expenses for the six months ended May 31, 2019 was $1,294,235, an increase of $38,396, or 3.1%, as compared to $1,255,839 for the six months ended May 31, 2018. Selling and shipping expenses for the three months ended May 31, 2019 was $651,339, an increase of $13,921, or 2.2%, as compared to $637,418 for the three months ended May 31, 2018.  We attribute the increase for the six months ended May 31, 2019 to increases in selling expenses such as salesman compensation, travel and auto expenses, offset by a decrease in commission and messenger and delivery expenses. We attribute the increase for the three months ended May 31, 2019 to increases in salesman compensation and commission expenses, as well as increases in travel and auto expenses, offset by decreases in freight our and messenger and delivery expenses.

 

General and administrative expenses for the six months ended May 31, 2019 was $2,371,387, an increase of $178,222, or 8.1%, as compared to $2,193,165 for the six months ended May 31, 2018. General and administrative expenses for the three months ended May 31, 2019 was $1,284,350, an increase of $189,141, or 17.3%, as compared to $1,095,209 for the three months ended May 31, 2018. The increase for the six months ended May 31, 2019 is due to increases in rent expense, insurance expense, as well as office, temporary help, investor relations and payroll expenses offset by decreases in computer expenses, professional fees, consulting expenses and bank charges. We attribute the increase for the three months ended May 31, 2019 to increases in payroll expense in connection with the issuance of shares of our common stock to two of our employee directors, rent expenses and insurance expenses as well as increases to temporary help expenses, professional fees, public company expenses and bad debt expenses, offset by decreases to utilities expense, office expenses, computer and consulting expenses and bank charges.

 

Depreciation expense for the six months ended May 31, 2019 was $19,252, a decrease of $5,234, or 21.4%, as compared to $24,486 for the six months ended May 31 2018. Depreciation expense for the three months ended May 31, 2019 was $9,674, a decrease of $2,858, or 22.8%, as compared to $12,532 for the three months ended May 31 2018. The decrease is due to the Company purchasing less new equipment during the six months ended May 31, 2019 as compared to the six months ended May 31, 2018.

 

Other income for the six months ended May 31, 2019 was $3, an increase of $1 compared to $2 for the six months ended May 31, 2018. Other income for the three months ended May 31, 2018 was $2, an increase of $1 compared to $1 for the three months ended May 31, 2018.

 

Interest expense for the six months ended May 31, 2019 was $1,427, a decrease of $8,307, or 85.3% compared to $9,734 for the six months ended May 31, 2018. Interest expense for the three months ended May 31, 2019 was $694, a decrease of $3,019, or 81.3% compared to $3,713 for the three months ended May 31, 2018. We attribute the decreases to the Company paying down the line of credit in 2018.

 

Tax expense for the six months ended May 31, 2019 was $(48,379), a decrease of $95,052 as compared to a tax expense of $46,673 for the six months ended May 31, 2018. Tax expense for the three months ended May 31, 2019 was $62,101, an increase of $59,194 as compared to a tax expense of $2,907 for the three months ended May 31, 2018. The changes result from our net income for such periods and management’s revised estimate of future taxable income and the related impact on the reported deferred tax. The change in the valuation allowance is based on management 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 six months ended May 31, 2019 was $1,155,429, compared to a net income of $203,866 for the six months ended May 31, 2018.  Net income for the three months ended May 31, 2019 was $461,632, compared to net income of $168,309 for the three months ended May 31, 2018. 

 

23

 

 

Liquidity and Capital Resources

 

As of May 31, 2019 we had cash of $2,594,927, and working capital of $6,799,415. We believe that our working capital levels are adequate to meet our operating requirements during the next twelve months. 

 

During the six months ended May 31, 2019, we had net cash flow provided by operating activities of $845,559, as compared to net cash flow provided by operating activities of $525,450 for the six months ended May 31, 2018. The increase in cash flow provided from operating activities resulted from increases in cash provided by net income, inventory, and accrued expenses as partially offset by decreases in accounts receivable, accounts payable and other assets.

 

We had net cash flow used in investing activities of $(7,222) for the six months ended May 31, 2019, as compared to net cash flow used in investing activities of $(30,305) for the six months ended May 31, 2018. We attribute the change to the Company purchasing less new equipment during the six months ended May 31, 2019.

 

We had net cash flow used in financing activities of $(5,273) during the six months ended May 31, 2019 as compared to $(275,000) used in financing activities for the six months ended May 31, 2018. We attribute the majority of the change to the repayments of the $275,000 of the line of credit during the six months ended May 31, 2018.

 

As a result of the foregoing, the Company had a net increase in cash of $833,064 for the six months ended May 31 2019, as compared to a net increase in cash of $220,145 for the six months ended May 31, 2018.

 

The table below sets forth our contractual obligations, including long-term debt, operating leases and other long-term obligations, as of May 31, 2019:

 

       Payments due         
       0 – 12   13 – 36   37 – 60   More than 
Contractual Obligations  Total   Months   Months   Months   60 Months 
                     
Capital Lease Obligations  $27,263   $7,432   $17,101   $2,730   $- 
Operating leases  $447,985    290,268    157,717    -    - 
                          
Total obligations  $475,248   $297,700   $174,818   $2,730   $- 

 

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 May 31, 2019 and has concluded that, as of such date, our disclosure controls and procedures were effective.

 

Changes in Internal Controls

 

During the three months ended May 31, 2019 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.

 

None. 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

25

 

 

ITEM 6. EXHIBITS.

 

Exhibit Number   Description
     
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.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

   

26

 

  

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: July 15, 2019 By: /s/ Ira Levy
  Name:   Ira Levy
  Title: Chief Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

 

 

27

 

 

EX-31.1 2 f10q0519ex31-1_surge.htm CERTIFICATION

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: July 15, 2019 By: /s/ Ira Levy
    Ira Levy
   

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

EX-32.1 3 f10q0519ex32-1_surge.htm CERTIFICATION

Exhibit 32.1

 

CERTIFICATION 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 May 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (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: July 15, 2019 By: /s/ Ira Levy
    Ira Levy
   

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

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Carrying value as of the balance sheet date of dividends not declared but unpaid on equity securities issued by the entity and outstanding. Used to reflect the current portion of the liabilities (due within one year or within the normal operating cycle if longer). A specified group of foreign countries about which segment information is provided by the entity. The entity is expected to change the standard label to identify the specified group. Represents the foreign supplier, the party from whom the goods or services were or are to be received. It indicates the information associated with 2010 incentive stock plan. Incentive stock 2015 plan. The increase (decrease) during the reporting period in the amount of outstanding money paid in advance for goods or services that bring economic benefits for future periods and income taxes.. Represents the inventory purchases for the period, when it serves as a benchmark in a concentration of risk calculation. 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Sum of the amounts paid in advance for capitalized costs that will be expensed with the passage of time or the occurrence of a triggering event, and payments made in advance for income taxes, will be charged against earnings within one year or the normal operating cycle, if longer. Represents a corporation that is controlled by officers/shareholders of the company. Represents an amount of revenue from agreements with several distributors during the period. Expenses recognized in the period that are related to the selling and transporting goods and services to customers during the reporting period. The entire disclosure for settlement agreement. Number of share options (or share units) issued during the current period. Weighted average price at which option holders issued shares when converting their stock options into shares. Description of tender offer. Represents term of lease. Represents maturity period of treasury note. The policy disclosure textblock in shipping costs. Assets, Current Assets Liabilities, Current Liabilities Stockholders' Equity Attributable to Parent Liabilities and Equity Gross Profit Operating Expenses Operating Income (Loss) Interest Expense Nonoperating Income (Expense) Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest Net Income (Loss) Available to Common Stockholders, Basic Weighted Average Number of Shares Outstanding, Basic Weighted Average Number of Shares Outstanding, Diluted Deferred Income Taxes and Tax Credits Increase (Decrease) in Accounts Receivable Increase (Decrease) in Inventories Increase Decrease In Prepaid Expense and Taxes Increase (Decrease) in Other Operating Assets Increase (Decrease) in Accounts Payable Increase (Decrease) in Deferred Liabilities Net Cash Provided by (Used in) Operating Activities Payments to Acquire Property, Plant, and Equipment Net Cash Provided by (Used in) Investing Activities Net Cash Provided by (Used in) Financing Activities Cash and Cash Equivalents, Period Increase (Decrease) Capital Leases, Future Minimum Payments Due Capital Leases, Future Minimum Payments, Present Value of Net Minimum Payments Long-term Debt and Capital Lease Obligations, Maturities, Repayments of Principal in Year Two Long-term Debt and Capital Lease Obligations, Maturities, Repayments of Principal in Year Three Long-term Debt and Capital Lease Obligations, Maturities, Repayments of Principal in Year Four Long-term Debt and Capital Lease Obligations, Including Current Maturities Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number Share-based Compensation Arrangement by Share-based Payment Award, Options, Forfeitures in Period Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price Share Based Compensation Arrangement By Share Based Payment Award Options Weighted Average Exercise Price Issued Share-based Compensation Arrangements by Share-based Payment Award, Options, Forfeitures in Period, Weighted Average Exercise Price Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price Deferred Tax Assets, Deferred Income Deferred Tax Assets, Gross Deferred Tax Assets, Valuation Allowance Deferred Tax Assets, Net of Valuation Allowance Current Income Tax Expense (Benefit) Deferred Federal Income Tax Expense (Benefit) Deferred State and Local Income Tax Expense (Benefit) Deferred Income Tax Expense (Benefit) Effective Income Tax Rate Reconciliation, Other Adjustments, Percent Operating Leases, Future Minimum Payments, Next Rolling Twelve Months Operating Leases, Future Minimum Payments, Due in Rolling Year Two Operating Leases, Future Minimum Payments, Due in Rolling Year Three Operating Leases, Future Minimum Payments Due EX-101.PRE 9 sprs-20190531_pre.xml XBRL PRESENTATION FILE XML 10 R1.htm IDEA: XBRL DOCUMENT v3.19.2
Document and Entity Information - shares
6 Months Ended
May 31, 2019
Jul. 12, 2019
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 May 31, 2019  
Document Fiscal Period Focus Q2  
Document Fiscal Year Focus 2019  
Entity Filer Category Non-accelerated Filer  
Entity Current Reporting Status Yes  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Ex Transition Period false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   5,309,335
Entity File Number 000-27688  
XML 11 R2.htm IDEA: XBRL DOCUMENT v3.19.2
Consolidated Balance Sheets - USD ($)
May 31, 2019
Nov. 30, 2018
Current assets:    
Cash $ 2,594,927 $ 1,761,863
Accounts receivable - net of allowance for doubtful accounts of $95,035 and $161,560 5,978,377 5,997,493
Inventory, net 3,575,884 3,389,065
Prepaid expenses and income taxes 132,653 19,589
Total current assets 12,281,841 11,168,010
Fixed assets - net of accumulated depreciation and amortization of $2,285,878 and $2,266,627 103,965 115,995
Deferred income taxes 1,044,937 982,624
Other assets 22,607 13,384
Total assets 13,453,350 12,280,013
Current liabilities:    
Accounts payable 4,464,680 4,420,013
Loan payable
Capital lease payable, current maturities 7,432 7,036
Accrued expenses and taxes 577,469 603,203
Accrued salaries 432,845 508,873
Total current liabilities 5,482,426 5,539,125
Capital lease payable, net of current maturities 19,831 25,500
Deferred rent 19,580 25,554
Total liabilities 5,521,837 5,590,179
Commitments and contingencies
Shareholders' equity:    
Preferred stock value
Common stock - $.001 par value, 50,000,000 shares authorized, 5,309,335 and 5,262,128 shares issued and outstanding 5,309 5,262
Additional paid-in capital 16,666,475 16,577,772
Accumulated deficit (8,740,281) (9,893,210)
Total shareholders' equity 7,931,513 6,689,834
Total liabilities and shareholders' equity 13,453,350 12,280,013
Series C Preferred Stock    
Shareholders' equity:    
Preferred stock value 10 10
Series D Preferred Stock    
Shareholders' equity:    
Preferred stock value
XML 12 R3.htm IDEA: XBRL DOCUMENT v3.19.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
May 31, 2019
Nov. 30, 2018
Allowance for doubtful accounts of accounts receivable $ 95,035 $ 161,560
Accumulated depreciation and amortization on fixed assets $ 2,285,878 $ 2,266,627
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 50,000,000 50,000,000
Common stock, shares issued 5,309,335 5,262,128
Common stock, shares outstanding 5,309,335 5,262,128
Series D Preferred Stock    
Preferred stock, shares authorized 75,000 75,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Series C Preferred Stock    
Preferred stock, shares authorized 100,000 100,000
Preferred stock, shares issued 10,000 10,000
Preferred stock, shares outstanding 10,000 10,000
Preferred stock, liquidation preference per share $ 5 $ 5
XML 13 R4.htm IDEA: XBRL DOCUMENT v3.19.2
Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
May 31, 2019
May 31, 2018
May 31, 2019
May 31, 2018
Income Statement [Abstract]        
Net sales $ 8,464,752 $ 7,262,098 $ 16,872,094 $ 14,244,425
Cost of goods sold 5,994,964 5,342,011 12,078,746 10,510,664
Gross profit 2,469,788 1,920,087 4,793,348 3,733,761
Operating expenses:        
Selling and shipping expenses 651,339 637,418 1,294,235 1,255,839
General and administrative expenses 1,284,350 1,095,209 2,371,387 2,193,165
Depreciation and amortization 9,674 12,532 19,252 24,486
Total operating expenses 1,945,363 1,745,159 3,684,874 3,473,490
Income before other income (expense) and income taxes 524,425 174,928 1,108,474 260,271
Other income (expense):        
Investment income 2 1 3 2
Interest expense (694) (3,713) (1,427) (9,734)
Other income (expense) (692) (3,712) (1,424) (9,732)
Income before income taxes 523,733 171,216 1,107,050 250,539
Income taxes (benefit) 62,101 2,907 (48,379) 46,673
Net income 461,632 168,309 1,155,429 203,866
Dividends on preferred stock 2,500 2,500
Net income available to common shareholders $ 461,632 $ 168,309 $ 1,152,929 $ 201,366
Net income per share available to common shareholders:        
Basic $ 0.09 $ 0.03 $ 0.22 $ 0.04
Diluted $ 0.09 $ 0.03 $ 0.21 $ 0.04
Weighted Shares Outstanding:        
Basic 5,270,338 5,224,431 5,266,278 5,224,431
Diluted 5,423,952 5,358,768 5,419,892 5,358,768
XML 14 R5.htm IDEA: XBRL DOCUMENT v3.19.2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
May 31, 2019
May 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $ 1,155,429 $ 203,866
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 19,252 24,486
Deferred income taxes (62,313) 19,819
Allowance for doubtful accounts 66,525
Stock Compensation 88,750
CHANGES IN OPERATING ASSETS AND LIABILITIES:    
Accounts receivable (47,409) 727,497
Inventory (186,819) (642,362)
Prepaid expenses and income taxes (113,064) (19,533)
Other Assets (9,223)
Accounts payable 44,667 433,125
Deferred rent (5,974) (4,184)
Accrued expenses (104,262) (217,264)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 845,559 525,450
CASH FLOWS FROM INVESTING ACTIVITIES:    
Acquisition of fixed assets (7,222) (30,305)
NET CASH FLOWS USED IN INVESTING ACTIVITIES (7,222) (30,305)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Net Borrowings on loans payable (5,273) (275,000)
NET CASH FLOWS (USED IN) FINANCING ACTIVITIES (5,273) (275,000)
NET CHANGE IN CASH 833,064 220,145
CASH AT BEGINNING OF PERIOD 1,761,863 1,086,999
CASH AT END OF PERIOD 2,594,927 1,307,144
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Income taxes paid 97,100 15,079
Interest paid 1,427 9,734
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Accrued dividends on preferred stock $ 2,500 $ 2,500
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.19.2
Organization, Description of Company's Business and Basis of Presentation
6 Months Ended
May 31, 2019
Organization, Consolidation and Presentation of Financial Statements [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.

 

In February 2019, the Company converted into a Delaware corporation. The number of authorized shares of common stock was decreased to 50,000,000 shares.

XML 16 R7.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies
6 Months Ended
May 31, 2019
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 and the rules and regulations of the Securities and Exchange Commission.

 

The results and trends in these interim consolidated financial statements for the six months ended May 31, 2019 and May 31, 2018 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 amounts 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:

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers: Topic 606." This ASU replaces nearly all existing U.S. generally accepted accounting principles guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment by the Company. The Company adopted the standard using the modified retrospective approach in its fiscal year beginning December 1, 2017. The preponderance of the Company's contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment. Adoption of this ASU did not have a significant impact on the Company's consolidated financial position, results of operations or cash flows.

 

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 its suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder.  Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $702,000 and $2,266,000  for the six months ended May 31, 2019 and May 31, 2018, 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 they are earned. Commission revenue totaled $211,167 and $77,288 for the six months ended May 31, 2019 and May 31, 2018, respectively, which increase was due to commission income on new and existing accounts.

 

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 $3,438,000  and $1,966,000 for the six months ended May 31, 2019 and May 31, 2018, respectively.

 

(4) Inventories:

 

Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or net realizable value.  Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2019 was $1,214,998. The Company, at May 31, 2019, has a reserve against slow moving and obsolete inventory of $250,565. 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 May 31, 2019 and November 30, 2018, the Company's uninsured cash balances totaled $2,030,432 and $1,197,367, 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 J.

 

The Company follows the provisions of the Accounting Standards Codification ("ASC") 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 the fiscal year ended November 30, 2014, and state tax examinations for years before the fiscal year ended November 30, 2013. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

 

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2019 and May 31, 2018. 

 

(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 $3,781 and $4,013 for the six months ended May 31, 2019 and May 31, 2018, 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 May 31, 2019 and May 31, 2018 totaled 118,386 and 215,663, respectively.

 

(14) Stock Based Compensation

 

Stock Based Compensation to Employees

 

The Company accounts for its stock-based compensation for employees in accordance with ASC 718.   The Company recognizes in its consolidated statements 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.

 

(15) Recently Issued Standards

 

In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At May 31, 2019, the Company's undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $481,305.

XML 17 R8.htm IDEA: XBRL DOCUMENT v3.19.2
Fixed Assets
6 Months Ended
May 31, 2019
Property, Plant and Equipment [Abstract]  
FIXED ASSETS

NOTE C – FIXED ASSETS

 

Fixed assets consist of the following:

 

   May 31,   November 30, 
   2019   2018 
         
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   995,356    991,646 
Computer Equipment   1,066,516    1,063,005 
Less-Accumulated Depreciation   (2,285,878)   (2,266,627)
Net Fixed Assets  $103,965   $115,995 

 

Depreciation and amortization expense for the six months ended May 31, 2019 and May 31, 2018 was $19,252 and $24,486, respectively.

XML 18 R9.htm IDEA: XBRL DOCUMENT v3.19.2
Capitalized Lease Obligations
6 Months Ended
May 31, 2019
Leases [Abstract]  
CAPITALIZED LEASE OBLIGATIONS

NOTE D – CAPITALIZED LEASE OBLIGATIONS

 

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

 

Future minimum lease payments under these capitalized lease obligations as of May 31, 2019 are as follows:

 

2020  $9,779 
2021  $9,779 
2022  $9,779 
2023  $3,983 
      
Total  $33,320 
Less: interest portion   6,057 
Present value of net minimum lease payments  $27,263 
Less: current portion   7,432 
Non-current portion  $19,831 

 

Capital lease obligations mature as follows:    
     
Twelve months ending May 31:    
2019  $7,432 
2020  $8,153 
2021  $8,948 
2022  $2,730 
      
Principal payments remaining  $27,263 
XML 19 R10.htm IDEA: XBRL DOCUMENT v3.19.2
Line of Credit
6 Months Ended
May 31, 2019
Line of Credit Facility [Abstract]  
LINE OF CREDIT

NOTE E – LINE OF CREDIT

 

In February 2017, the Company obtained a line of credit with a bank for up to $3,000,000 (the "Credit Line"). Borrowings under the Credit Line are due upon demand and accrue interest at the greater of the prime rate or the LIBOR rate plus two percent (and may be increased by three percent in the event the Company fails to (i) repay all amounts due on the Credit Line upon demand or (ii) comply with any terms or conditions relating to the Credit Line). As of May 31, 2019, the balance on the Credit Line was $0. As of May 31, 2019, the Company was in compliance with the debt covenants for the Credit Line.

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.19.2
Accrued Expenses
6 Months Ended
May 31, 2019
Payables and Accruals [Abstract]  
ACCRUED EXPENSES

NOTE F – ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

   May 31,   November 30, 
   2019   2018 
         
Commissions  $195,449   $228,199 
Preferred stock dividends   144,069    141,569 
Other accrued expenses   237,951    233,435 
           
Total  $577,469   $603,203 
XML 21 R12.htm IDEA: XBRL DOCUMENT v3.19.2
Retirement Plan
6 Months Ended
May 31, 2019
Retirement Benefits [Abstract]  
RETIREMENT PLAN

NOTE G – 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 $1,201,000 at November 30, 2018. Pension expense for the six months ended May 31, 2019 and May 31, 2018 was $1,196 and $590, respectively.

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.19.2
Shareholders' Equity
6 Months Ended
May 31, 2019
Equity [Abstract]  
SHAREHOLDERS' EQUITY

NOTE H – SHAREHOLDERS’ EQUITY

 

[1] Preferred Stock:

 

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

 

In November 2000, the Company authorized 100,000 shares of preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred”). Each share of Series C Preferred is automatically convertible into 10 shares of our common stock upon shareholder approval.  If the Series C Preferred were converted into common stock on or before April 15, 2001, these shares were entitled to cumulative dividends at the rate of $.50 per share per annum commencing April 15, 2001 payable on June 30 and December 31 of each year.  In November 2000, 70,000 shares of the Series C Preferred were issued in payment of financial consulting services to its investment banker and a shareholder of the Company.  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 $144,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2018.  The Company has accrued these dividends.  At May 31, 2019, there are 10,000 shares of Series C Preferred issued and outstanding.

 

In October 2016, the Company authorized 75,000 shares of preferred stock as Voting Non-Redeemable Convertible Series D Preferred Stock (“Series D Preferred”). None of the Series D Preferred Stock is outstanding as of May 31, 2019.

 

[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 year ended May 31, 2019 is summarized as follows:

 

       Weighted 
       Average 
   Shares   Exercise
Price
 
         
Options outstanding December 1, 2018   175,000   $0.99 
Options issued in the six months ended May 31, 2019   -   $- 
Options exercised in the six months ended May 31, 2019   -   $- 
Options cancelled in the six months ended May 31, 2019   (3,000)  $(1.15)
Options outstanding at May 31, 2019   172,000   $0.99 
           
Options exercisable at May 31, 2019   172,000   $0.99 

 

[3] 2015 Incentive Stock Plan

 

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

 

In May 2016, a total of 99,151 shares were issued to the Company’s officers as part of their 2015 bonus compensation under the 2015 Stock Plan.

 

In April 2016, the Company awarded one employee director 67,901 shares of its common stock and another employee director 31,250 shares of its common stock under the 2015 Stock Plan as part of their 2015 bonus. The Company recorded a cost of $74,363 relating to the issuance of these shares.

 

In October 2016, one employee director exercised options to acquire 50,000 shares of common stock at $0.82 per share and 62,500 shares of common stock at $0.80 per share. In October 2016, one employee director exercised options to acquire 25,000 shares of common stock at $0.82 per share and 45,938 shares of common stock at $0.80 per share.

 

In May 2019, the Company awarded one employee director 29,255 shares of its common stock and another director 17,952 shares of common stock under the 2015 Stock Plan as part of their 2018 bonus. The Company recorded a cost of $88,750 relating to the issuance of these shares,

 

The intrinsic value of the exercisable options at May 31, 2019 totaled $236,120.  At May 31, 2019, the weighted average remaining life of the stock options is 1.37 years. At May 31, 2019, there was no unrecognized compensation cost related to the stock options granted under the plan.

 

[4] Compensation of Directors

 

Compensation for each non-employee director is $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).

XML 23 R14.htm IDEA: XBRL DOCUMENT v3.19.2
Settlement Agreement
6 Months Ended
May 31, 2019
Settlement Agreement [Abstract]  
SETTLEMENT AGREEMENT

NOTE I – SETTLEMENT AGREEMENT 

 

On December 22, 2016, the Company entered into a settlement agreement (the “Settlement Agreement”) with Michael D. Tofias and Bradley P. Rexroad (collectively, the “Stockholders”). The Settlement Agreement generally provided that:

 

  the Board and the Stockholders will identify a mutually acceptable independent director to join the Board as a Class C director by February 28, 2017 and the Board will include that new director among its director nominees for the 2017 annual meeting;

  

  the Company will take all steps to (i) change its state of incorporation from the State of Nevada to the State of Delaware and (ii) declassify the Board on a rolling basis by June 30, 2017, and the Company will convene a special meeting of stockholders of the Company for the purpose of approving such actions, at which meeting the Stockholders and the Insiders will vote all of their shares of common stock of the Company in favor of such actions, and

 

  the Company will commence an issuer tender offer to all of its stockholders to repurchase at least 5.0 million shares of its common stock at a price of $1.43 per share (the “Tender Offer”), which the Company completed in March 2017 whereby it purchased for cash 5,000,000 shares of its common stock, at a price of $1.43 per share, or $7,150,000.

 

  the Stockholders will tender all of the shares of common stock of the Company that they hold beneficially or of record in the Tender Offer, subject to limited exceptions; and

 

  the Company’s officers and directors will not participate in the Tender Offer and will not transfer or sell any of their shares until six months after the Tender Offer is completed.

 

Pursuant to the Settlement Agreement, the Company also agreed to reimburse the expenses of the Stockholders associated with their investment in the Company, including their proxy solicitation and litigation costs, in an amount not to exceed $300,000.

 

On April 6, 2017, the Board of Directors elected Peter Levy as a Class C Director. He is an independent director.

 

On October 4, 2018, the Company held its annual meeting of shareholders, at which shareholders approved (i) the change in the Company’s state of incorporation from Nevada to Delaware and (ii) the declassification of the Company’s board of directors on a rolling basis. No shareholders exercised their dissenters’ rights in connection with the reincorporation proposal. The Company was reincorporated in Delaware on February 5, 2019.

 

  until the day after the announcement of the completion of the Tender Offer, the Board will be composed of no more than seven individuals;

 

  the Stockholders will tender all of the shares of common stock of the Company that they hold beneficially or of record in the Tender Offer, subject to limited exceptions;

 

  the Company’s officers and directors will not participate in the Tender Offer and will not transfer or sell any of their shares until six months after the Tender Offer is completed;

 

  subject to certain conditions, if the Tender Offer is not completed by March 15, 2017, the Company will (i) appoint the Stockholders to the Board as Class A directors with terms expiring at the Company’s annual meeting of stockholders for fiscal year 2018 (the “2019 Meeting”) and (ii) reduce the size of the Board to six directors, including the Stockholders;

 

  the Stockholders will withdraw with prejudice their lawsuit against the Company and the Insiders pending in the State of Nevada; and

 

  the Stockholders will be subject to customary standstill provisions until the termination of the Settlement Agreement.

 

On October 4, 2018, the Company held its annual meeting of shareholders, at which shareholders approved (i) the change in the Company’s state of incorporation from Nevada to Delaware and (ii) the declassification of the Company’s board of directors on a rolling basis. No shareholders exercised their dissenters’ rights in connection with the annual meeting.

 

The Settlement Agreement terminated on February 5, 2019, the date on which the Company completed its reincorporation from Nevada into Delaware.

XML 24 R15.htm IDEA: XBRL DOCUMENT v3.19.2
Income Taxes
6 Months Ended
May 31, 2019
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE J – 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:

 

   May 31,   November 30, 
   2019   2018 
Deferred Tax Assets        
Net operating loss  $1,840,660   $2,008,906 
Allowance for bad debts   17,403    32,658 
Inventory   60,746    69,757 
Deferred rent   5,117    6,679 
Other   74,067    62,071 
Depreciation   74,141    73,140 
Total deferred tax assets   2,072,134    2,253,211 
Valuation allowance   (1,027,197)   (1,270,587)
           
Deferred Tax Assets  $1,044,937   $982,624 

 

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 $243,390 during the six months ended May 31, 2019.  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:

 

   Six Months Ended 
   May 31,
2019
   May 31,
2018
 
         
Current:        
Federal  $-   $3,331 
States   13,934    18,111 
           
    13,934    21,442 
Deferred:          
Federal   (49,227)   21,283 
States   (13,086)   3,948 
           
    (62,313)   25,231 
           
Provision for income taxes  $(48,379)  $46,673 

 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $7,043,000 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: 

 

   Six Months ended 
   May 31,   May 31, 
   2019   2018 
U.S Federal Income tax statutory rate   21%   21%
Valuation allowance   (33)%   (9)%
State income taxes   8%   7%
Other   -    - 
Effective tax rate   (4)%   19%
XML 25 R16.htm IDEA: XBRL DOCUMENT v3.19.2
Rental Commitments
6 Months Ended
May 31, 2019
Rental Commitments [Abstract]  
RENTAL COMMITMENTS

NOTE K – 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 $180,000 for the year ended November 30, 2018, 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 2019, 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 $68,460.

 

In January 2019, the Company entered into a lease to rent additional warehouse space in Hong Kong for two years. Annual minimum rental payments for this space are approximately $36,840.

 

The Company’s future minimum rental commitments at May 31, 2019 are as follows:

 

Twelve Months Ended May 31,

 

2020  $290,268 
2021  $152,012 
2022  $5,705 
      
   $447,985 

 

Net rental expense for the six months ended May 31, 2019 and May 31, 2018 were $173,903 and $158,531, respectively, of which $131,612 and $129,822, respectively, was paid to the Related Company.

XML 26 R17.htm IDEA: XBRL DOCUMENT v3.19.2
Employment and Other Agreements
6 Months Ended
May 31, 2019
Employment and Other Agreements [Abstract]  
EMPLOYMENT AND OTHER AGREEMENTS

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

XML 27 R18.htm IDEA: XBRL DOCUMENT v3.19.2
Major Customers
6 Months Ended
May 31, 2019
Risks and Uncertainties [Abstract]  
MAJOR CUSTOMERS

NOTE M – MAJOR CUSTOMERS

 

The Company had two customers who accounted for 12% and 13% of net sales for the six months ended May 31, 2019 and two customers who accounted for 10% and 12% of net sales for the six months ended May 31, 2018.  The Company had two customers who accounted for 11% and 12% of accounts receivable at May 31, 2019 and two customers who accounted for 12% and 13% of accounts receivable at May 31, 2018.

XML 28 R19.htm IDEA: XBRL DOCUMENT v3.19.2
Major Suppliers
6 Months Ended
May 31, 2019
Major Suppliers [Abstract]  
MAJOR SUPPLIERS

NOTE N – MAJOR SUPPLIERS

 

During the six months ended May 31, 2019 and May 31, 2018 there was one foreign supplier accounting for 40% and 57% of total inventory purchased.

 

The Company purchases substantially all of its products overseas.  For the six months ended May 31, 2019, the Company purchased 46% of its products from Taiwan, 15% from Hong Kong, 31% from elsewhere in Asia and the remaining 8% from the United States.

XML 29 R20.htm IDEA: XBRL DOCUMENT v3.19.2
Export Sales
6 Months Ended
May 31, 2019
Segment Reporting [Abstract]  
EXPORT SALES

NOTE O – EXPORT SALES

 

The Company’s export sales were as follows:

 

   Six Months Ended 
   May 31,   May 31, 
   2019   2018 
Canada   2,360,932    1,795,417 
China   2,804,193    2,038,705 
Other Asian Countries   1,055,605    730,150 
South America   247,230    231,893 
Europe   678,907    124,517 

 

Revenues are attributed to countries based on location of customer. 

XML 30 R21.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Policies)
6 Months Ended
May 31, 2019
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 and the rules and regulations of the Securities and Exchange Commission.

 

The results and trends in these interim consolidated financial statements for the six months ended May 31, 2019 and May 31, 2018 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 amounts 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:

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers: Topic 606." This ASU replaces nearly all existing U.S. generally accepted accounting principles guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment by the Company. The Company adopted the standard using the modified retrospective approach in its fiscal year beginning December 1, 2017. The preponderance of the Company's contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment. Adoption of this ASU did not have a significant impact on the Company's consolidated financial position, results of operations or cash flows.

 

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 its suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder.  Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $702,000 and $2,266,000  for the six months ended May 31, 2019 and May 31, 2018, 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 they are earned. Commission revenue totaled $211,167 and $77,288 for the six months ended May 31, 2019 and May 31, 2018, respectively, which increase was due to commission income on new and existing accounts.

 

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 $3,438,000  and $1,966,000 for the six months ended May 31, 2019 and May 31, 2018, 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 net realizable value.  Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2019 was $1,214,998. The Company, at May 31, 2019, has a reserve against slow moving and obsolete inventory of $250,565. 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 May 31, 2019 and November 30, 2018, the Company's uninsured cash balances totaled $2,030,432 and $1,197,367, 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 J.

 

The Company follows the provisions of the Accounting Standards Codification ("ASC") 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 the fiscal year ended November 30, 2014, and state tax examinations for years before the fiscal year ended November 30, 2013. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

 

The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2019 and May 31, 2018.

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 $3,781 and $4,013 for the six months ended May 31, 2019 and May 31, 2018, 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 May 31, 2019 and May 31, 2018 totaled 118,386 and 215,663, 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 ASC 718.   The Company recognizes in its consolidated statements 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.

Recently Issued Standards

(15) Recently Issued Standards

 

In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At May 31, 2019, the Company's undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $481,305.

XML 31 R22.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
May 31, 2019
Accounting Policies [Abstract]  
Schedule of estimated useful life of fixed assets

Furniture, fixtures and equipment 5 - 7 years
Computer equipment 5 years
Leasehold Improvements Estimated useful life or lease term, whichever is shorter
XML 32 R23.htm IDEA: XBRL DOCUMENT v3.19.2
Fixed Assets (Tables)
6 Months Ended
May 31, 2019
Property, Plant and Equipment [Abstract]  
Schedule of fixed assets

   May 31,   November 30, 
   2019   2018 
         
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   995,356    991,646 
Computer Equipment   1,066,516    1,063,005 
Less-Accumulated Depreciation   (2,285,878)   (2,266,627)
Net Fixed Assets  $103,965   $115,995 

XML 33 R24.htm IDEA: XBRL DOCUMENT v3.19.2
Capitalized Lease Obligations (Tables)
6 Months Ended
May 31, 2019
Leases [Abstract]  
Schedule of future minimum lease payments under these capitalized lease obligations

2020  $9,779 
2021  $9,779 
2022  $9,779 
2023  $3,983 
      
Total  $33,320 
Less: interest portion   6,057 
Present value of net minimum lease payments  $27,263 
Less: current portion   7,432 
Non-current portion  $19,831 
Schedule of capital lease obligations mature

Capital lease obligations mature as follows:    
     
Twelve months ending May 31:    
2019  $7,432 
2020  $8,153 
2021  $8,948 
2022  $2,730 
      
Principal payments remaining  $27,263 
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.19.2
Accrued Expenses (Tables)
6 Months Ended
May 31, 2019
Payables and Accruals [Abstract]  
Schedule of accrued expenses

   May 31,   November 30, 
   2019   2018 
         
Commissions  $195,449   $228,199 
Preferred stock dividends   144,069    141,569 
Other accrued expenses   237,951    233,435 
           
Total  $577,469   $603,203 
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.19.2
Shareholders' Equity (Tables)
6 Months Ended
May 31, 2019
Equity [Abstract]  
Schedule of activity in the 2010 stock plan
      Weighted 
       Average 
   Shares   Exercise
Price
 
         
Options outstanding December 1, 2018   175,000   $0.99 
Options issued in the six months ended May 31, 2019   -   $- 
Options exercised in the six months ended May 31, 2019   -   $- 
Options cancelled in the six months ended May 31, 2019   (3,000)  $(1.15)
Options outstanding at May 31, 2019   172,000   $0.99 
           
Options exercisable at May 31, 2019   172,000   $0.99 
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.19.2
Income Taxes (Tables)
6 Months Ended
May 31, 2019
Income Tax Disclosure [Abstract]  
Schedule of deferred income taxes
   May 31,   November 30, 
   2019   2018 
Deferred Tax Assets        
Net operating loss  $1,840,660   $2,008,906 
Allowance for bad debts   17,403    32,658 
Inventory   60,746    69,757 
Deferred rent   5,117    6,679 
Other   74,067    62,071 
Depreciation   74,141    73,140 
Total deferred tax assets   2,072,134    2,253,211 
Valuation allowance   (1,027,197)   (1,270,587)
           
Deferred Tax Assets  $1,044,937   $982,624 
Schedule of income tax expense
   Six Months Ended 
   May 31,
2019
   May 31,
2018
 
         
Current:        
Federal  $-   $3,331 
States   13,934    18,111 
           
    13,934    21,442 
Deferred:          
Federal   (49,227)   21,283 
States   (13,086)   3,948 
           
    (62,313)   25,231 
           
Provision for income taxes  $(48,379)  $46,673 
Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate
   Six Months ended 
   May 31,   May 31, 
   2019   2018 
U.S Federal Income tax statutory rate   21%   21%
Valuation allowance   (33)%   (9)%
State income taxes   8%   7%
Other   -    - 
Effective tax rate   (4)%   19%
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.19.2
Rental Commitments (Tables)
6 Months Ended
May 31, 2019
Rental Commitments [Abstract]  
Schedule of future minimum rental commitments

2020  $290,268 
2021  $152,012 
2022  $5,705 
      
   $447,985 

XML 38 R29.htm IDEA: XBRL DOCUMENT v3.19.2
Export Sales (Tables)
6 Months Ended
May 31, 2019
Segment Reporting [Abstract]  
Schedule of export sales
  Six Months Ended 
   May 31,   May 31, 
   2019   2018 
Canada   2,360,932    1,795,417 
China   2,804,193    2,038,705 
Other Asian Countries   1,055,605    730,150 
South America   247,230    231,893 
Europe   678,907    124,517 
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.19.2
Organization, Description of Company's Business and Basis of Presentation (Details)
1 Months Ended
May 31, 2002
Shareholder
shares
Feb. 28, 2019
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  
Decrease in common stock shares authorized for issuance   50,000,000
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Details)
6 Months Ended
May 31, 2019
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
Maximum [Member] | Furniture, fixtures and equipment [Member]  
Property, Plant and Equipment [Line Items]  
Property, plant and equipment, useful life 7 years
Minimum [Member] | Furniture, fixtures and equipment [Member]  
Property, Plant and Equipment [Line Items]  
Property, plant and equipment, useful life 5 years
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.19.2
Summary of Significant Accounting Policies (Details Textual) - USD ($)
6 Months Ended
May 31, 2019
May 31, 2018
Nov. 30, 2018
Summary of Significant Accounting Policies (Textual)      
Direct shipments revenue $ 702,000 $ 2,266,000  
Commission revenue 211,167 77,288  
Revenues from distribution agreements 3,438,000 1,966,000  
Inventory in transit from foreign suppliers 1,214,998    
Reserve against slow moving and obsolete inventory 250,565    
Amount of uninsured cash balances 2,030,432   $ 1,197,367
Shipping costs $ 3,781 $ 4,013  
Diluted weighted shares outstanding 118,386 215,663  
Capital lease obligations $ 481,305    
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.19.2
Fixed Assets (Details) - USD ($)
May 31, 2019
Nov. 30, 2018
Schedule of fixed assets    
Less-Accumulated Depreciation $ (2,285,878) $ (2,266,627)
Net Fixed Assets 103,965 115,995
Furniture and Fixtures [Member]    
Schedule of fixed assets    
Fixed assets gross 327,971 327,971
Leasehold Improvements [Member]    
Schedule of fixed assets    
Fixed assets gross 995,356 991,646
Computer Equipment [Member]    
Schedule of fixed assets    
Fixed assets gross $ 1,066,516 $ 1,063,005
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.19.2
Fixed Assets (Details Textual) - USD ($)
3 Months Ended 6 Months Ended
May 31, 2019
May 31, 2018
May 31, 2019
May 31, 2018
Fixed Assets (Textual)        
Depreciation and amortization expense $ 9,674 $ 12,532 $ 19,252 $ 24,486
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.19.2
Capitalized Lease Obligations (Details) - USD ($)
May 31, 2019
Nov. 30, 2018
Leases [Abstract]    
2020 $ 9,779  
2021 9,779  
2022 9,779  
2023 3,983  
Total 33,320  
Less: interest portion 6,057  
Present value of net minimum lease payments 27,263  
Less: current portion 7,432 $ 7,036
Non-current portion $ 19,831 $ 25,500
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.19.2
Capitalized Lease Obligations (Details 1)
May 31, 2019
USD ($)
Twelve months ending May 31:  
2019 $ 7,432
2020 8,153
2021 8,948
2022 2,730
Principal payments remaining $ 27,263
XML 46 R37.htm IDEA: XBRL DOCUMENT v3.19.2
Capitalized Lease Obligations (Details Textual)
6 Months Ended
May 31, 2019
USD ($)
leasearrangements
Capitalized Lease Obligations (Textual)  
Leases equipment | leasearrangements 2
Leases payment, description The equipment can be purchased for one dollar for each lease. The terms of the leases are 60 months with a combined monthly payment of $815, respectively.
Monthly payment | $ $ 815
Interest rates 9.342%
Leases terminate term 2022
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.19.2
Line of Credit (Details) - USD ($)
6 Months Ended
May 31, 2019
Feb. 28, 2017
Line of Credit (Textual)    
Line of credit $ 0 $ 3,000,000
Line of credit, interest rate, description Borrowings under the Credit Line are due upon demand and accrue interest at the greater of the prime rate or the LIBOR rate plus two percent (and may be increased by three percent in the event the Company fails to (i) repay all amounts due on the Credit Line upon demand or (ii) comply with any terms or conditions relating to the Credit Line).  
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.19.2
Accrued Expenses (Details) - USD ($)
May 31, 2019
Nov. 30, 2018
Schedule of accrued expenses    
Commissions $ 195,449 $ 228,199
Preferred stock dividends 144,069 141,569
Other accrued expenses 237,951 233,435
Total $ 577,469 $ 603,203
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.19.2
Retirement Plan (Details) - USD ($)
1 Months Ended 6 Months Ended
Jun. 30, 1997
May 31, 2019
May 31, 2018
Nov. 30, 2018
Retirement Plan (Textual)        
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       $ 1,201,000
Pension expense   $ 1,196 $ 590  
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.19.2
Shareholders' Equity (Details) - Employee Stock Option [Member] - Incentive Stock 2010 Plan [Member]
6 Months Ended
May 31, 2019
$ / shares
shares
Shares  
Options outstanding December 1, 2018 | shares 175,000
Options issued in the six months ended May 31, 2019 | shares
Options exercised in the six months ended May 31, 2019 | shares
Options cancelled in the six months ended May 31, 2019 | shares (3,000)
Options outstanding at May 31, 2019 | shares 172,000
Options exercisable at May 31, 2019 | shares 172,000
Weighted Average Exercise Price  
Options outstanding December 1, 2018 | $ / shares $ 0.99
Options issued in the six months ended May 31, 2019 | $ / shares
Options exercised in the six months ended May 31, 2019 | $ / shares
Options cancelled in the six months ended May 31, 2019 | $ / shares (1.15)
Options outstanding at May 31, 2019 | $ / shares 0.99
Options exercisable at May 31, 2019 | $ / shares $ 0.99
XML 51 R42.htm IDEA: XBRL DOCUMENT v3.19.2
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
May 31, 2019
Nov. 30, 2018
Oct. 31, 2016
Aug. 31, 2010
Dec. 31, 2001
Feb. 29, 1996
Shareholders' Equity (Textual)                            
Preferred stock, shares authorized                 5,000,000 5,000,000        
Dividend payable                         $ 144,069  
Preferred Stock [Member]                            
Shareholders' Equity (Textual)                            
Preferred stock, shares authorized                       5,000,000   1,000,000
Series C Preferred Stock                            
Shareholders' Equity (Textual)                            
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   4,200   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              
Repurchased shares were cancelled           $ 225,000                
Repurchase of common shares, Shares         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                    
Number of shares transferred to company           252,000                
Series C Preferred Stock | Common Stock                            
Shareholders' Equity (Textual)                            
Number of shares converted into common stock upon conversion   42,000                        
Series D Preferred Stock [Member]                            
Shareholders' Equity (Textual)                            
Preferred stock, shares authorized                 75,000 75,000 75,000      
Preferred stock, shares outstanding                        
Preferred stock, shares issued                        
XML 52 R43.htm IDEA: XBRL DOCUMENT v3.19.2
Shareholders' Equity (Details Textual 1) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
May 31, 2019
Oct. 31, 2016
May 31, 2016
Apr. 30, 2016
Mar. 31, 2010
May 31, 2019
Nov. 30, 2015
Incentive Stock 2015 Plan [Member] | Another Employee Director [Member]              
Shareholders' Equity (Textual)              
Number of common shares purchased for options granted 17,952            
Options granted cost $ 88,750            
Incentive Stock 2015 Plan [Member] | Officer [Member]              
Shareholders' Equity (Textual)              
Issuance of shares as compensation, shares     99,151        
Employee Stock Option [Member]              
Shareholders' Equity (Textual)              
Intrinsic value of exercisable options $ 236,120         $ 236,120  
Weighted average remaining life           1 year 4 months 13 days  
Employee Stock Option [Member] | Another Employee Director [Member]              
Shareholders' Equity (Textual)              
Number of common shares purchased for options granted       31,250      
Options granted cost       $ 74,363      
Employee Stock Option [Member] | Employee Director [Member]              
Shareholders' Equity (Textual)              
Number of common shares purchased for options granted       67,901      
Options granted cost       $ 74,363      
Exercise of options, shares   50,000          
Options exercised shares of common stock per share   $ 0.82          
Employee Stock Option [Member] | One Employee Director Three [Member]              
Shareholders' Equity (Textual)              
Exercise of options, shares   45,938          
Options exercised shares of common stock per share   $ 0.80          
Employee Stock Option [Member] | One Employee Director Two [Member]              
Shareholders' Equity (Textual)              
Exercise of options, shares   25,000          
Options exercised shares of common stock per share   $ 0.82          
Employee Stock Option [Member] | One Employee Director One [Member]              
Shareholders' Equity (Textual)              
Exercise of options, shares   62,500          
Options exercised shares of common stock per share   $ 0.80          
Employee Stock Option [Member] | Incentive Stock 2015 Plan [Member]              
Shareholders' Equity (Textual)              
Number of common shares purchased for options granted 29,255           1,500,000
Options granted cost $ 88,750            
Employee Stock Option [Member] | Incentive Stock 2010 Plan [Member]              
Shareholders' Equity (Textual)              
Number of common shares purchased for options granted         1,500,000    
Exercise of options, shares            
Options exercised shares of common stock per share            
XML 53 R44.htm IDEA: XBRL DOCUMENT v3.19.2
Shareholders' Equity (Details Textual 2) - Employee Stock Option [Member]
6 Months Ended
May 31, 2019
USD ($)
Non Employee Director [Member]  
Shareholders' Equity (Textual)  
Compensation $ 3,500
One Non Employee Director [Member]  
Shareholders' Equity (Textual)  
Compensation $ 2,500
XML 54 R45.htm IDEA: XBRL DOCUMENT v3.19.2
Settlement Agreement (Details) - USD ($)
1 Months Ended 6 Months Ended
Mar. 15, 2017
Mar. 31, 2017
May 31, 2019
Tender Offer [Member]      
Settlement Agreement (Textual)      
Repurchase of common shares, Shares   5,000,000  
Common stock, per share   $ 1.43  
Settlement Agreement [Member]      
Settlement Agreement (Textual)      
Repurchase of common shares, Shares   5,000,000  
Common stock, per share   $ 1.43  
Tender offer, description (i) appoint the Stockholders to the Board as Class A directors with terms expiring at the Company's annual meeting of stockholders for fiscal year 2018 (the "2019 Meeting") and (ii) reduce the size of the Board to six directors, including the Stockholders;    
Litigation costs     $ 300,000
Repurchase of common shares, value   $ 7,150,000  
XML 55 R46.htm IDEA: XBRL DOCUMENT v3.19.2
Income Taxes (Details) - USD ($)
May 31, 2019
Nov. 30, 2018
Deferred Tax Assets    
Net operating loss $ 1,840,660 $ 2,008,906
Allowance for bad debts 17,403 32,658
Inventory 60,746 69,757
Deferred rent 5,117 6,679
Other 74,067 62,071
Depreciation 74,141 73,140
Total deferred tax assets 2,072,134 2,253,211
Valuation allowance (1,027,197) (1,270,587)
Deferred Tax Assets $ 1,044,937 $ 982,624
XML 56 R47.htm IDEA: XBRL DOCUMENT v3.19.2
Income Taxes (Details 1) - USD ($)
3 Months Ended 6 Months Ended
May 31, 2019
May 31, 2018
May 31, 2019
May 31, 2018
Current:        
Federal     $ 3,331
States     13,934 18,111
Current, total     13,934 21,442
Deferred:        
Federal     (49,227) 21,283
States     (13,086) 3,948
Deferred, total     (62,313) 25,231
Provision for income taxes $ 62,101 $ 2,907 $ (48,379) $ 46,673
XML 57 R48.htm IDEA: XBRL DOCUMENT v3.19.2
Income Taxes (Details 2)
6 Months Ended
May 31, 2019
May 31, 2018
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 21.00% 21.00%
Valuation allowance (33.00%) (9.00%)
State income taxes 8.00% 7.00%
Other
Effective tax rate (4.00%) 19.00%
XML 58 R49.htm IDEA: XBRL DOCUMENT v3.19.2
Income Taxes (Details Textual)
6 Months Ended
May 31, 2019
USD ($)
Income Taxes (Textual)  
Valuation allowance for deferred tax assets $ 243,390
Net operating loss carryforwards $ 7,043,000
Net operating loss carryforwards, expiration date Nov. 30, 2020
XML 59 R50.htm IDEA: XBRL DOCUMENT v3.19.2
Rental Commitments (Details)
May 31, 2019
USD ($)
Schedule of future minimum rental commitments  
2020 $ 290,268
2021 152,012
2022 5,705
Future minimum rental commitments $ 447,985
XML 60 R51.htm IDEA: XBRL DOCUMENT v3.19.2
Rental Commitments (Details Textual) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Jan. 30, 2019
May 31, 2019
May 31, 2018
Nov. 30, 2018
Rental Commitments (Textual)          
Net rental expense     $ 173,903 $ 158,531  
Hong Kong [Member]          
Rental Commitments (Textual)          
Annual minimum rental payments   $ 36,840      
Term of lease   2 years      
Related Parties [Member]          
Rental Commitments (Textual)          
Lease expiration period     Nov. 30, 2020    
Annual minimum rental payments         $ 180,000
Net rental expense     $ 131,612 $ 129,822  
Lease term, description     The rate of three per cent per annum throughout the lease term.    
Related Parties [Member] | Hong Kong [Member] | Subsequent Event [Member]          
Rental Commitments (Textual)          
Annual minimum rental payments $ 68,460        
Term of lease 2 years        
XML 61 R52.htm IDEA: XBRL DOCUMENT v3.19.2
Employment and Other Agreements (Details)
1 Months Ended
Feb. 29, 2016
USD ($)
leasearrangements
Employment and Other Agreements (Textual)  
Number of officers involved in employment agreements | leasearrangements 2
Employment agreements termination, description One year following termination.
Compensation, description 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.
Officer [Member]  
Employment and Other Agreements (Textual)  
Base salary $ 275,000
Officer One [Member]  
Employment and Other Agreements (Textual)  
Base salary $ 225,000
XML 62 R53.htm IDEA: XBRL DOCUMENT v3.19.2
Major Customers (Details) - Customers
6 Months Ended
May 31, 2019
May 31, 2018
Customer One [Member] | Net sales [Member]    
Major Customers (Textual)    
Number of customers 2 2
Percentage of concentration risk 12.00% 10.00%
Customer One [Member] | Accounts receivable [Member]    
Major Customers (Textual)    
Number of customers 2 2
Percentage of concentration risk 11.00% 12.00%
Customer Two [Member] | Net sales [Member]    
Major Customers (Textual)    
Number of customers 2 2
Percentage of concentration risk 13.00% 12.00%
Customer Two [Member] | Accounts receivable [Member]    
Major Customers (Textual)    
Number of customers 2 2
Percentage of concentration risk 12.00% 13.00%
XML 63 R54.htm IDEA: XBRL DOCUMENT v3.19.2
Major Suppliers (Details) - Supplier Concentration Risk [Member] - Inventory Purchased [Member]
6 Months Ended
May 31, 2019
May 31, 2018
Taiwan [Member]    
Major Suppliers (Textual)    
Percentage of inventory purchased of products 46.00%  
Hong Kong [Member]    
Major Suppliers (Textual)    
Percentage of inventory purchased of products 15.00%  
Overseas Outside of Asia [Member]    
Major Suppliers (Textual)    
Percentage of inventory purchased of products 31.00%  
United States [Member]    
Major Suppliers (Textual)    
Percentage of inventory purchased of products 8.00%  
Foreign Supplier [Member]    
Major Suppliers (Textual)    
Percentage of inventory purchased of products 40.00% 57.00%
XML 64 R55.htm IDEA: XBRL DOCUMENT v3.19.2
Export Sales (Details) - USD ($)
6 Months Ended
May 31, 2019
May 31, 2018
Canada [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales $ 2,360,932 $ 1,795,417
China [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales 2,804,193 2,038,705
Other Asian Countries [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales 1,055,605 730,150
South America [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales 247,230 231,893
Europe [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Export sales $ 678,907 $ 124,517
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