0001213900-21-036961.txt : 20210715 0001213900-21-036961.hdr.sgml : 20210715 20210715090103 ACCESSION NUMBER: 0001213900-21-036961 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 67 CONFORMED PERIOD OF REPORT: 20210531 FILED AS OF DATE: 20210715 DATE AS OF CHANGE: 20210715 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: 211091801 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 f10q0521_surgecomponents.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, 2021

 

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 15, 2021, was 5,515,342 shares of common stock. The registrant’s common stock trades on the OTC Markets under the stock symbol “SPRS.”

 

 

 

 

 

 

SURGE COMPONENTS, INC

 

TABLE OF CONTENTS

 

    Page
PART I - FINANCIAL INFORMATION    
     
Item 1. Financial Statements   1
     
Consolidated Balance Sheets as of May 31, 2021 (unaudited) and November 30, 2020   1
     
Consolidated Statements of Operations for the six and three months ended May 31, 2021 and May 31, 2020 (unaudited)   3
     
Consolidated Statements of Changes in Shareholders’ Equity for the six months ended May 31, 2021 and May 31, 2020 (unaudited)   4
     
Consolidated Statements of Cash Flows for the six months ended May 31, 2021 and May 31, 2020 (unaudited)   5
     
Notes to Consolidated Financial Statements (unaudited)   7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   18
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk   22
     
Item 4. Controls and Procedures   22
     
PART II - OTHER INFORMATION    
     
Item 1. Legal Proceedings   23
     
Item 1A. Risk Factors   23
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   23
     
Item 3. Defaults Upon Senior Securities   23
     
Item 4. Mine Safety Disclosures   23
     
Item 5. Other Information   23
     
Item 6. Exhibits   24
     
SIGNATURES   25

 

i 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS.

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

 

   May 31,
2021
   November 30,
2020
 
   (unaudited)     
ASSETS        
Current assets:        
Cash  $5,558,010   $4,387,929 
Accounts receivable - net of allowance for doubtful accounts of $145,207 and $144,818   6,561,277    6,455,263 
Inventory, net   3,782,575    3,410,534 
Prepaid expenses and income taxes   362,915    533,862 
Total current assets   16,264,777    14,787,588 
           
Fixed assets – net of accumulated depreciation and amortization of $2,378,676 and $2,343,627   259,583    102,235 
Operating Lease Right of Use Asset   1,575,024    1,636,411 
Deferred income taxes   977,106    1,307,558 
Other assets   22,607    22,607 
           
Total assets  $19,099,097   $17,856,399 

 

See notes to consolidated financial statements

 

1

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Balance Sheets

(Continued)

 

   May 31,
2021
  

November 30,

2020

 
   (unaudited)     
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts payable  $4,583,267   $3,880,805 
Operating lease liabilities, current maturities   134,705    233,546 
Financing lease payable, current maturities   8,948    8,475 
Accrued expenses and taxes   674,431    565,922 
Accrued salaries   546,119    677,256 
Total current liabilities   5,947,470    5,366,004 
Operating lease liabilities net of current maturities   1,491,448    1,430,144 
Financing lease payable, net of current maturities   3,983    8,627 
Note payable to bank   -    449,700 
           
Total liabilities   7,442,901    7,254,475 
           
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, 5,515,342 and 5,437,526 shares issued and outstanding   5,515    5,437 
Additional paid-in capital   17,023,454    16,948,532 
Accumulated deficit   (5,372,783)   (6,352,055)
Total shareholders’ equity   11,656,196    10,601,924 
           
Total liabilities and shareholders’ equity  $19,099,097   $17,856,399 

 

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,
 
   2021   2020   2021   2020 
Net sales  $17,748,762   $13,436,189   $9,592,460   $6,647,051 
                     
Cost of goods sold   12,891,474    9,507,819    7,035,452    4,604,457 
                     
Gross profit   4,857,288    3,928,370    2,557,008    2,042,594 
                     
Operating expenses:                    
Selling and shipping expenses   1,275,383    1,230,971    594,251    574,133 
General and administrative expenses   2,574,225    2,514,873    1,328,244    1,325,633 
Depreciation and amortization   35,049    18,905    17,918    9,541 
                     
Total operating expenses   3,884,657    3,764,749    1,940,413    1,909,307 
                     
Income before other income (expense) and income taxes   972,631    163,621    616,595    133,287 
                     
Other income (expense):                    
Other income PPP   449,700    -    449,700    - 
Other income   614    20,978    304    20,460 
Interest expense   (718)   (1,089)   (335)   (522)
                     
Other income (expense)   449,596    19,889    449,669    19,938 
                     
Income before income taxes   1,422,227    183,510    1,066,264    153,225 
                     
Income taxes   440,455    369,362    362,156    75,275 
                     
Net income (loss)   981,772    (185,852)   704,108    77,950 
Dividends on preferred stock   2,500    2,500    -    - 
                     
Net income (loss) available to common shareholders  $979,272   $(188,352)  $704,108   $77,950 
                     
Net (loss)income per share available to common shareholders:                    
                     
Basic  $.18   $(.04)  $.13   $.02 
Diluted  $.17   $(.04)  $.12   $.01 
                     
Weighted Shares Outstanding:                    
                     
Basic   5,465,551    5,329,917    5,490,617    5,337,608 
Diluted   5,644,805    5,329,917    5,669,871    5,484,573 

 

See notes to consolidated financial statements

 

3

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Changes in Shareholders’ Equity

Six months ended May 31, 2020 and May 31, 2021

 

               Additional         
   Series C Preferred   Common   Paid-In   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance – December 1, 2019   10,000   $10    5,320,026   $5,319   $16,666,465   $(7,863,355)  $8,808,439 
Preferred stock dividends   -    -    -    -    -    (2,500)   (2,500)
Issuance of shares as compensation   -    -    42,500    43    62,358    -    62,401 
Stock option expense                       154,534         154,534 
Net Income   -    -    -    -    -    (185,852)   (185,852)
Balance – May 31, 2020   10,000   $10    5,362,526   $5,362   $16,883,357   $(8,051,707)  $8,837,022 

 

               Additional         
   Series C Preferred   Common   Paid-In   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance – December 1, 2020   10,000   $10    5,437,526   $5,437   $16,948,532   $(6,352,055)  $10,601,924 
Preferred stock dividends   -    -    -    -    -    (2,500)   (2,500)
Issuance of shares as compensation   -    -    26,786    27    74,973    -    75,000 
Stock option exercise   -    -    51,030    51    (51)   -    - 
Net Income   -    -    -    -    -    981,772    981,772 
Balance – May 31, 2021   10,000   $10    5,515,342   $5,515   $17,023,454   $(5,372,783)  $11,656,196 

 

See notes to consolidated financial statements.

 

4

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended 
  

May 31,

2021

  

May 31,

2020

 
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net Income (loss)  $981,772   $(185,852)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization   35,049    18,905 
Gain on Forgiveness of debt   (449,700)   - 
Deferred income taxes   330,452    277,846 
Allowance for doubtful accounts   (389)   - 
Stock Compensation   75,000    213,527 
           
CHANGES IN OPERATING ASSETS AND LIABILITIES:          
Accounts receivable   (105,625)   523,628 
Inventory   (372,041)   (280,739)
Prepaid expenses and income taxes   170,947    28,835 
Other assets   23,850    (2,581)
Accounts payable   702,462    477,700 
Accrued expenses   (25,128)   (155,725)
           
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES   1,366,649    915,544 
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Acquisition of fixed assets   (192,397)   (17,996)
           
NET CASH FLOWS USED IN INVESTING ACTIVITIES  $(192,397)  $(17,996)

  

5

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Consolidated Statements of Cash Flows

(Continued)

 

   Six Months Ended 
  

May 31,

2021

  

May 31,

2020

 
CASH FLOWS FROM FINANCING ACTIVITIES:        
Repayment of financing lease obligations  $(4,171)  $(3,800)
Proceeds from note payable to bank        449,700 
           
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES   (4,171)   445,900 
           
NET CHANGE IN CASH   1,170,081    1,343,448 
           
CASH AT BEGINNING OF PERIOD   4,387,929    2,739,305 
           
CASH AT END OF PERIOD  $5,558,010   $4,082,753 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
           
Income taxes paid  $81,930   $125,376 
           
Interest paid  $718   $1,089 
           
NONCASH INVESTING AND FINANCING ACTIVITIES:          
Accrued dividends on preferred stock  $2,500   $2,500 

 

See notes to consolidated financial statements.

 

6

 

 

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 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2021 and May 31, 2020 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.

 

7

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(3) Revenue Recognition (continued):

 

Revenue is recognized for products sold by the Company when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This occurs when product is shipped from the Company’s warehouse.

 

For direct shipments, revenue is recognized when product is shipped from the Company’s supplier. The Company has a long term supply agreement with one of our suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder. Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $1,769,000 and $993,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.

 

The Company also acts as a sales agent to certain customers in North America for one of its suppliers. The Company reports these commissions as revenues in the period earned. Commission revenue totaled $88,181 and $199,054 for the six months ended May 31, 2021 and May 31, 2020 respectively.

 

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

 

The Company and its subsidiaries currently have agreements with several distributors. There are no provisions for the granting of price concessions in any of the agreements. Revenues under these distribution agreements were approximately $3,870,000 and $2,773,000 for the six months ended May 31, 2021 and May 31, 2020 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, 2021 was $820,382. The Company at May 31, 2021, has a reserve against slow moving and obsolete inventory of $252,565. 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, 2021 and November 30, 2020, the Company’s uninsured cash balances totaled $4,993,514 and $3,823,433, respectively.

 

8

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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 I.

 

The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, “Income Taxes” (ASC 740). There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company’s financial condition or results of operations as a result of ASC 740.

 

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November 30, 2016, and state tax examinations for years before fiscal years ending November 30, 2015 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, 2021 and May 31, 2020.

 

(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 $2,164 and $1,564 for the six months ended May 31, 2021 and May 31, 2020 respectively.

 

9

 

 

SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

(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, 2021 and May 31, 2020 totaled 90,746 and 432,000, respectively.

 

(14) Stock Based Compensation

 

Stock Based Compensation to Employees

 

The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.

 

Stock Based Compensation to Other than Employees

 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

(15) Leases:

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“Topic 842”). Topic 842 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.

 

On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $290,000.

 

The Company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company’s leases are classified as operating leases. The Company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “current and noncurrent liabilities” in the consolidated balance sheets. Lease expenses are recorded within “General and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” in the consolidated statements of cash flows.

 

Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

 

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE C – FIXED ASSETS

 

Fixed assets consist of the following:

 

   May 31,   November 30, 
   2021   2020 
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   1,022,556    1,022,556 
Computer Equipment   1,287,732    1,095,335 
Less-Accumulated Depreciation   (2,378,676)   (2,343,627)
Net Fixed Assets  $259,583   $102,235 

 

Depreciation and amortization expense for the six months ended May 31, 2021 and May 31, 2020 was $35,049 and $18,905, respectively.

 

NOTE D – FINANCING LEASE OBLIGATIONS

 

The Company is obligated under financing 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%. The leases terminate in 2022.

 

Future minimum lease payments under these financing lease obligations as of May 31, 2021 are as follows:

 

2021  $9,779 
2022  $4,077 
Total  $13,856 
Less: interest portion   925 
Present value of net minimum lease payments  $12,931 
Less: current portion   8,948 
Non-current portion  $3,983 

 

Financing lease obligations mature as follows:    
     
Six months ended May 31, 2021:    
     
2021  $8,948 
2022  $3,983 
Principal payments remaining  $12,931 

  

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE E – LOANS PAYABLE

 

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). The Credit Line is collateralized by substantially all the assets of the Company. As of May 31, 2021, the balance on the Credit Line was $0. As of May 31, 2021, the Company was in compliance with the covenant for the debt service coverage ratio for the Credit Line.

 

The Company in May 2020 received loan proceeds in the amount of approximately $449,700 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period.

 

The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first twelve months. During April 2021, the Company was notified that the full $449,700 of the PPP loans received by the Company have been forgiven by the SBA.

 

NOTE F – ACCRUED EXPENSES

 

Accrued expenses consist of the following:

 

    May 31,     November 30,  
    2021     2020  
Commissions   $ 267,046     $ 215,052  
Preferred stock dividends     154,069       151,569  
Other accrued expenses     253,316       199,301  
    $ 674,431     $ 565,922  

 

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 $1,776,000 at November 30, 2020. Pension expense for the six months ended May 31, 2021 and May 31, 2020 was $1,425 and $558, 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.

 

Dividends aggregating $154,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2020. The Company has accrued these dividends. At May 31, 2021, 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 February 28, 2021.

 

[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.

  

[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 May 2019, a total of 47,207 shares were issued to the Company’s officers as part of their 2018 bonus compensation under the 2015 Stock Plan.

 

In April 2020, the Company awarded one non-employee director 15,000 shares of its common stock under the 2015 Stock Plan. The Company recorded a cost of $21,150 related to the issuance of these shares.

 

In April 2020, a total of 27,500 shares were issued to one of the Company’s officers as part of their 2019 bonus compensation under the 2015 Stock Plan. The Company recorded a cost of $41,250 relating to the issuance of these shares.

 

In April 2020, the Company granted stock options to (a) four non-employee directors to each purchase 15,000 shares of common stock, (b) one non-employee-director to purchase 25,000 shares of common stock, and (c) two Company officers to each purchase 50,000 shares of common stock at an exercise price of $1.41 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $154,534 related to the granting of these options.

 

In April 2021, a total of 26,786 shares were issued to the Company’s officers as part of their 2020 bonus compensation under the 2015 Stock Plan. The Company recorded a cost of $75,000 relating to the issuance of these shares in this quarter.

  

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE H – SHAREHOLDERS’ EQUITY (Continued)

 

[3] 2015 Incentive Stock Plan (continued)

 

Activity in the Company’s stock plans for the period ended May 31, 2021 is summarized as follows:

 

   Shares   Weighted
Average
Exercise
Price
 
Options outstanding December 1, 2020   255,000   $1.34 
Options issued in the six months ended May 31, 2021   -   $- 
Options exercised in the six months ended May 31, 2021   (85,000)  $(1.20)
Options cancelled in the six months ended May 31, 2021   -   $- 
Options outstanding at May 31, 2021   170,000   $1.41 
Options exercisable at May 31, 2021   170,000   $1.41 

 

The intrinsic value of the exercisable options at May 31, 2021 totaled $221,000. At May 31, 2021 the weighted average remaining life of the stock options is 3.90 years. At May 31, 2021, 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). In Mayl of 2021, this was increased to $3,500 per month for each non-employee director (and $4,000 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors)

 

NOTE I – 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, 
   2021   2020 
Deferred Tax Assets        
Net operating loss  $731,098   $1,066,794 
Allowance for bad debts   30,515    30,413 
Inventory   61,269    60,746 
Deferred rent   -    - 
Other   109,957    100,133 
Depreciation   44,267    63,632 
Total deferred tax assets   977,106    1,321,718 
Valuation allowance   -    (14,160)
Deferred Tax Assets  $977,106   $1,307,558 

  

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE I – INCOME TAXES (Continued)

 

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 $14,000 for the six months ended May 31, 2021. 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,
2021
   May 31,
2020
 
Current:        
Federal  $-   $- 
States   110,003    91,516 
    110,003    91,516 
           
Deferred:          
Federal   269,945    219,498 
States   60,507    58,348 
    330,452    277,846 
Provision for income taxes  $440,455   $369,362 

 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $2,800,000 for federal and state purposes, which expire through 2025. 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, 
   2021   2020 
U.S Federal Income tax statutory rate   21%   21%
Valuation allowance   5%   175%
State income taxes   5%   5%
Other               -    - 
Effective tax rate   31%   201%

  

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE J – OPERATING LEASE COMMITMENTS

 

The Company leases its office and warehouse space through 2030 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, 2020, and increase at the rate of two per cent per annum throughout the lease term.

 

The Company has a lease to rent office space and a warehouse in Hong Kong through June 2021. Annual minimum rental payments for this space are approximately $68,460.

 

The Company has a lease to rent warehouse space in Hong Kong through December 31, 2022. Annual minimum rental payments for this space are approximately $36,840.

 

The Company’s future minimum rental commitments at May 31, 2021 are as follows:

 

Twelve Months Ended May 31,

 

2022  $235,038 
2023   217,810 
2024   200,215 
2025   204,219 
2026   208,303 
2027 and after   951,369 
   $2,016,954 

 

Net rental expense for the six months ended May 31, 2021 and May 31, 2020 were $211,918 and $181,325 respectively, of which $135,299 and $133,437 respectively, was paid to the Related Company.

 

NOTE K – 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.  In April 2021, the base salaries for the two officers were amended to $300,000 for one officer and $250,000 for the other officer.

 

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 L – MAJOR CUSTOMERS

 

The Company had two customers who each accounted for 15% and 14% of net sales for the six months ended May 31, 2021 and two customers who accounted for 16% and 12% of net sales for the six months ended May 31, 2020. The Company had two customers who accounted for 22% and 10% of accounts receivable May 31, 2021 and two customers who accounted for 18% and 11% of accounts receivable at May 31, 2020.

  

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

 

Notes to Consolidated Financial Statements

 

NOTE M – MAJOR SUPPLIERS

 

During the six months ended May 31, 2021 and May 31, 2020 there was one foreign supplier accounting for 33% and 40% of total inventory purchased.

 

The Company purchases substantially all of its products overseas. For the six months ended May, 2021, the Company purchased 42% of its products from Taiwan, 15% from Hong Kong, 38% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.

 

NOTE N – EXPORT SALES

 

The Company’s export sales were as follows:

 

   Six Months Ended 
   May 31,   May 31, 
   2021   2020 
Canada   2,028,979    1,529,736 
China   3,004,843    2,472,615 
Other Asian Countries   1,328,639    448,001 
South America   59,931    138,110 
Europe   831,769    563,369 

 

Revenues are attributed to countries based on location of customer.

 

NOTE P – SUBSEQUENT EVENTS

 

In early January 2020, an outbreak of a respiratory illness caused by the coronavirus was identified in Wuhan, China. In response to the resulting pandemic, governments around the world took various preventative steps up to and including full or partial shutdowns. As a result of the drop in production in our suppliers and customers, the Company experienced order cancellations and order hold notices from customers. Although business has improved in the first half of 2021, the effects of the pandemic will have an ongoing impact on the Company’s business. The duration of this crisis and its impact on both the Company’s customers and supply chain is expected to have an impact on the consolidated results of operations, cash flows and financial condition, but cannot be reasonably estimated at this time. Additionally, the spread of COVID-19 and the related actions implemented by governments of the United States and elsewhere across the globe, may worsen again over time. Thus, the pandemic may have an impact on the Company’s operations, the future effect of which will largely depend on future developments which are highly uncertain and cannot be predicted at this time. The Company continues to monitor its operations and applicable government recommendations and requirements.

  

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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. Furthermore, we cannot at this time assess the affect that the global outbreak of the novel Coronavirus may have on the Company.

 

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 most recent 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 $88,181 and $199,054 for the six months ended May 31, 2021 and May 31, 2020 respectively.

 

Challenge is engaged in the sale of electronic components. In 1999, Challenge began as a division to sell audible components. We have been able to increase the types of products that we sell because some of our suppliers introduced new products, and we also located other products from new suppliers. Our core products include buzzers, speakers, microphones, resonators, alarms, chimes, filters, and discriminators. We now also work with our suppliers to have our suppliers customize many of the products we sell for many customers through the customers’ own designs and those that we work with our suppliers to have our suppliers redesign for them at our suppliers’ factories. We have 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.

 

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.

  

18

 

 

The world of business continues to change because of “disruptors,” which are significant changes in traditional business practices that did not previously exist. For example, customers continue to centralize purchasing from regional purchasing and are stretching their payment terms. These changes also include customers moving their manufacturing operations from North America to Asia, and the trend of globalization. Some of our customers have been involved in mergers and acquisitions, causing consolidation. 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 Hong Kong subsidiary. Currency fluctuations may 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 have decreased, and in other segments, the demand is still strong. Some technologies have become obsolete, while customers develop new products using different kinds of components. Management expects 2021 to be a year of change, in regards to pandemic healing, challenge, in regards to maintaining consistent flow of products during shortages of certain products, and growth as we see our customers return to full production pace. These challenges could affect the Company in negative ways, possibly reducing sales and or profitability. Because of a labor shortage, our customers engineering staff has been challenged, so getting our products approved has been and will continue to be impacted.. The cost of raw materials have increased, and due to that fact, factories have increased our costs. While we are able to pass on some of those costs to our customers this could impact profitability for the remainder of 2021. 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, the continued supply of products from our factories, and our ability to deal successfully, with new and future disruptors. The tariffs continue to impact the Company. At this time there is a shortage of electronics components which could impact the Company’s growth. Due to the radical increase of demand as the pandemic has eased, our lead times have stretched which could impact sales.

 

In March 2020, The World Health Organization categorized COVID-19 as a pandemic and it continues to negatively impact the global economy. During the pandemic we did everything we could do to keep customers production running and to keep things as smooth and stable as possible, and we will continue to do so. The Company has experienced order cancellations and order hold notices from customers and we expect this could continue. While the worst effects of the pandemic may be behind us in the United States, the virus situation is still serious globally, and business with customers in different regions is impacted more or less based on the Covid status in that region. Although the Company’s business has improved in the first half of 2021 and our customers’ outlook for their business is stronger than it was previously, we cannot guaranty that the increase in subsequent quarters will continue as the coronavirus conditions may change. Additionally, the spread of COVID-19 and the related actions implemented by governments of the United States and elsewhere across the globe, may worsen again over time. Thus, the pandemic may have an impact on the Company’s operations, the future effect of which will largely depend on future developments which are highly uncertain and cannot be predicted at this time. The Company continues to monitor its operations and applicable government recommendations and requirements.

 

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.

  

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Inventory Valuation

 

Inventories are recorded at the lower of cost or net realizable value. Write-downs of inventories to net realizable 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 $40,000.

 

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.

 

Results of Operations

 

Consolidated net sales for the six months ended May 31, 2021 increased by $4,312,573 or 32.1%, to $17,748,762 as compared to net sales of $13,436,189 for the six months ended May 31, 2020. Consolidated net sales for the three months ended May 31, 2021 increased by $2,945,409 or 44.3%, to $9,592,460 as compared to net sales of $6,647,051 for the six months ended May 31, 2020. We attribute the increase to an increase in business with new customers as well as an increase in business with existing customers. We can also attribute the increase in 2021 to the impact of the coronavirus in Asia in the six months ended May 31, 2020 since factories were shut and demand was reduced during that period. Net sales for the six months ended May 31, 2021 and May 31, 2020 reflect $459,629 and $595,733, respectively of tariff costs that the Company was able to pass on to its customers.

 

Our gross profit for the six months ended May 31, 2021 increased by $928,918 to $4,857,288, or 23.6%, as compared to $3,928,370 for the six months ended May 31, 2020. Gross margin as a percentage of net sales decreased to 27.4% for the six months ended May 31, 2021 compared to 29.2% for the six months ended May 31, 2020. Gross profit for the three months ended May 31, 2021 increased by $514,414 to $2,557,008, or 25.2%, as compared to $2,042,594 for the three months ended May 31, 2020. Gross margin as a percentage of net sales decreased to 26.7% for the three months ended May 31, 2021 compared to 30.7% for the three months ended May 31, 2020. We attribute the increase in gross margin to an increase in sales volume in the six and three months ended May 31, 2021. We attribute the decrease in gross margin as a percentage of sales to the fact that in our industry we 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%. The costs of material from our suppliers have also increased which resulted in the decrease in gross margin percentages. 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, 2021, the Company was impacted by 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. 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, 2021 was $1,275,383, an increase of $44,412, or 3.6%, as compared to $1,230,971 for six months ended May 31, 2020. Selling and shipping expenses for the three months ended May 31, 2021 was $594,251, an increase of $20,118, or 3.5%, as compared to $574,133 for three months ended May 31, 2020.We attribute the increase to an increase in commission expenses, entertainment and freight out expenses, offset by decreases in salesman payroll and travel expenses.

  

20

 

 

General and administrative expenses for the six months ended May 31, 2021 was $2,574,225, an increase of $59,352, or 2.4%, as compared to $2,514,873 for the six months ended May 31, 2020. General and administrative expenses for the three months ended May 31, 2021 was $1,328,244, an increase of $2,611, or less than 1% as compared to $1,325,633 for the three months ended May 31, 2020. The increase is due primarily to increases in rent, utilities, professional fees and salaries, computer expenses as well as consulting, temporary help expenses and settlement expenses, offset by decreases in health insurance, directors fees and public company expenses.

 

Depreciation expense for the six months ended May 31, 2021 was $35,049, an increase of $16,144, or 85.4%, as compared to $18,905 for the six months ended May 31, 2020. Depreciation expense for the three months ended May 31, 2021 was $17,918, an increase of $8,377, or 87.8%, as compared to $9,541 for the three months ended May 31, 2020. The increase is due to the company purchasing new equipment during the six months ended May 31, 2021.

 

Other income for the six months ended May 31, 2021 was $450,314, an increase of $429,336 compared to $20,978 for the six months ended May 31, 2020. Other income for the three months ended May 31, 2021 was $450,004, an increase of $429,544 compared to $20,460 for the three months ended May 31, 2020. We attribute the increase to Company receiving forgiveness for the Paycheck Protection Program (“PPP”)loan in the amount of $449,700 during the six months ended May 31, 2021, We can also attribute some of the increase to the increase in the cash balances for the six months ended May 31, 2021.

 

Tax expense for the six months ended May 31, 2021 was $440,455, an increase of $71,093 as compared to a tax expense of $369,362 for the six months ended May 31, 2020. Tax expense for the three months ended May 31, 2021 was $362,156, an increase of $286,881 as compared to a tax expense of $75,275 for the three months ended May 31, 2020. 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, 2021 was $981,772, compared to a net loss of $(185,852) for the six months ended May 31, 2020. The net income for the three months ended May 31, 2021 was $704,108, compared to a net income of $77,950 for the three months ended May 31, 2020.

 

Liquidity and Capital Resources

 

As of May 31, 2021 we had cash of $5,558,010, and working capital of $10,317,307. We believe that our working capital levels are adequate to meet our operating requirements during the next twelve months. The Company is exploring and evaluating opportunities for growth and expansion using the Company’s cash resources.

 

During the six months ended May 31, 2021, we had net cash flow provided by operating activities of $1,366,649, as compared to net cash flow provided by operating activities of $915,544 for the six months ended May 31, 2020. The increase in cash flow from operating activities resulted from increases net income, depreciation expenses, deferred income taxes, accounts payable, prepaid expenses and accrued expenses offset by decreases in stock compensation, accounts receivable and inventory and the gain on forgiveness of the Paycheck Protection Plan Loan.

 

We had net cash flow used in investing activities of $(192,397) for the six months ended May 31, 2021, as compared to net cash flow used in investing activities of $(17,996) for the six months ended May 31, 2020. We attribute the change to the Company purchasing more new equipment during the six months ended May 31, 2021.

 

We had net cash flow used by financing activities of $(4,171) during the six months ended May 31, 2021 as compared to $445,900 provided by financing activities for six months ended May 31, 2020. We attribute this to the Company’s loan related to the Paycheck Protection Program loan in the amount of $449,700 in the 2020 period.

 

As a result of the foregoing, the Company had a net increase in cash of $1,170,081 for the six months ended May 31, 2021, as compared to a net increase in cash of $1,343,448 for the six months ended May 31, 2020.

 

21

 

 

The table below sets forth our contractual obligations, including long-term debt, operating leases and other long-term obligations, as of May 31, 2021:

 

       Payments due         
       0 – 12   13 – 36   37 – 60   More than 
Contractual Obligations  Total   Months   Months   Months   60 Months 
Capital Lease Obligations  $12,931   $8,948   $3,983   $-   $- 
Operating leases  $2,016,954    235,038    418,025    412,522    951,369 
Total obligations  $2,029,885   $243,986   $422,008   $412,522   $951,369 

 

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, 2021 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, 2021 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.

  

22

 

 

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.

  

23

 

 

ITEM 6. EXHIBITS.

 

Exhibit
Number
  Description
4.1   Rights Agreement dated as of October 7, 2016 between Surge Components, Inc., as the Company, and Continental Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on October 7, 2016.
     
4.2   Amendment to the Rights Agreement dated as of October 6, 2019 between Surge Components, Inc., as the Company, and Continental Stock Transfer & Trust Company, as Rights Agent filed with Form 10-Q on October 15, 2019.
     
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
     
10.1   Rental Agreement between Great American Realty and Surge Components dated July 28, 2020 as filed with the Form 10Q on October 15, 2020.
     
10.2   Rental Agreement between Great American Realty and Challenge Electronics dated July 28, 2020 as filed with the Form 10Q on October 15, 2020.
     
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

  

24

 

 

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, 2021 By: /s/ Ira Levy
  Name: Ira Levy
  Title: Chief Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

 

 

25

 

 

EX-31.1 2 f10q0521ex31-1_surgecomp.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, 2021 By: /s/ Ira Levy
    Ira Levy
   

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

EX-32.1 3 f10q0521ex32-1_surgecomp.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, 2021 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, 2021 By: /s/ Ira Levy
    Ira Levy
   

Chief Executive Officer

(Principal Executive Officer and

Principal Financial Officer)

 

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981772 981772 10000 10 5515342 5515 17023454 -5372783 11656196 449700 330452 277846 -389 75000 213527 105625 -523628 372041 280739 -170947 -28835 -23850 2581 702462 477700 -25128 -155725 1366649 915544 192397 17996 -192397 -17996 4171 3800 449700 -4171 445900 1170081 1343448 4387929 2739305 5558010 4082753 81930 125376 718 1089 2500 2500 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif"><font style="text-decoration:underline">NOTE A &#x2013; ORGANIZATION, DESCRIPTION OF COMPANY&#x2019;S BUSINESS AND BASIS OF PRESENTATION</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">Surge Components, Inc. (&#x201c;Surge&#x201d;) 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. (&#x201c;Challenge&#x201d;), 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.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">In May 2002, Surge and an officer of Surge founded and became sole owners of Surge Components, Limited (&#x201c;Surge Limited&#x201d;), 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&#x2019;s products to customers located in Asia.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p><br/> 2 999 1 1 50000000 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif"><font style="text-decoration:underline">NOTE B &#x2013; SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(1) <font style="text-decoration:underline">Principles of Consolidation</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited (collectively the &#x201c;Company&#x201d;). All material intercompany balances and transactions have been eliminated in consolidation.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The accompanying interim consolidated financial statements have been prepared without audit in accordance with the instructions to Form 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2021 and May 31, 2020 may not be representative of those for the full fiscal year or any future periods.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(2) <font style="text-decoration:underline">Accounts Receivable</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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&#x2019;s operating history and customer base, bad debts to date have not been material.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(3) <font style="text-decoration:underline">Revenue Recognition</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">In May 2014, the Financial Accounting Standards Board (&#x201c;FASB&#x201d;) issued Accounting Standard Update (&#x201c;ASU&#x201d;) No. 2014-09, &#x201c;Revenue from Contracts with Customers: Topic 606.&#x201d; 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&#x2019;s contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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&#x2019;s warehouse.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">For direct shipments, revenue is recognized when product is shipped from the Company&#x2019;s supplier. The Company has a long term supply agreement with one of our suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder. Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $1,769,000 and $993,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company also acts as a sales agent to certain customers in North America for one of its suppliers. The Company reports these commissions as revenues in the period earned. Commission revenue totaled $88,181 and $199,054 for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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 $3,870,000 and $2,773,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(4) <font style="text-decoration:underline">Inventories</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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, 2021 was $820,382. The Company at May 31, 2021, has a reserve against slow moving and obsolete inventory of $252,565. From time to time the Company&#x2019;s products are subject to legislation from various authorities on environmental matters.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(5) <font style="text-decoration:underline">Depreciation and Amortization</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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:</font></p><br/><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font-family: Times New Roman, Times, Serif; width: 50%; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Furniture, fixtures and equipment</font></td> <td style="font-family: Times New Roman, Times, Serif; width: 1%"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif; width: 49%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5 - 7 years</font></td></tr> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; "> <td style="font-family: Times New Roman, Times, Serif; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Computer equipment</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5 years</font></td></tr> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font-family: Times New Roman, Times, Serif; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leasehold Improvements</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Estimated useful life or lease term, whichever is shorter</font></td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(6) <font style="text-decoration:underline">Concentration of Credit Risk</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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, 2021 and November 30, 2020, the Company&#x2019;s uninsured cash balances totaled $4,993,514 and $3,823,433, respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(7) <font style="text-decoration:underline">Income Taxes</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company&#x2019;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 I.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, &#x201c;Income Taxes&#x201d; (ASC 740). There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company&#x2019;s financial condition or results of operations as a result of ASC 740.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November&#xa0;30, 2016, and state tax examinations for years before fiscal years ending November&#xa0;30, 2015 Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company&#x2019;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, 2021 and May 31, 2020.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(8) <font style="text-decoration:underline">Cash Equivalents</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(9) <font style="text-decoration:underline">Use of Estimates</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(10) <font style="text-decoration:underline">Marketing and promotional costs</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(11) <font style="text-decoration:underline">Fair Value of Financial Instruments</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(12) <font style="text-decoration:underline">Shipping Costs</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company classifies shipping costs as a component of selling expenses. Shipping costs totaled $2,164 and $1,564&#xa0;for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(13) <font style="text-decoration:underline">Earnings Per Share</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.&#xa0;Total potentially dilutive shares excluded from diluted weighted shares outstanding at May 31, 2021 and May 31, 2020 totaled 90,746 and 432,000, respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(14) <font style="text-decoration:underline">Stock Based Compensation</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif"><i>Stock Based Compensation to Employees</i></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (&#x201c;ASC&#x201d;) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif"><i>Stock Based Compensation to Other than Employees</i></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(15) <font style="text-decoration:underline">Leases</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">In February 2016, the FASB issued Accounting Standards Update No. 2016-02,&#xa0;<i>Leases (Topic 842)&#xa0;</i>(&#x201c;Topic 842&#x201d;). Topic 842 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $290,000.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company&#x2019;s leases are classified as operating leases. The Company records operating lease right-of-use assets within &#x201c;Other assets&#x201d; and lease liabilities are recorded within &#x201c;current and noncurrent liabilities&#x201d; in the consolidated balance sheets. Lease expenses are recorded within &#x201c;General and administrative expenses&#x201d; in the consolidated statements of operations. Operating lease payments are presented within &#x201c;Operating cash flows&#x201d; in the consolidated statements of cash flows.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company&#x2019;s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.</font></p><br/> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(1) <font style="text-decoration:underline">Principles of Consolidation</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited (collectively the &#x201c;Company&#x201d;). All material intercompany balances and transactions have been eliminated in consolidation.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The accompanying interim consolidated financial statements have been prepared without audit in accordance with the instructions to Form 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2021 and May 31, 2020 may not be representative of those for the full fiscal year or any future periods.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(2) <font style="text-decoration:underline">Accounts Receivable</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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&#x2019;s operating history and customer base, bad debts to date have not been material.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(3) <font style="text-decoration:underline">Revenue Recognition</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">In May 2014, the Financial Accounting Standards Board (&#x201c;FASB&#x201d;) issued Accounting Standard Update (&#x201c;ASU&#x201d;) No. 2014-09, &#x201c;Revenue from Contracts with Customers: Topic 606.&#x201d; 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&#x2019;s contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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&#x2019;s warehouse.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">For direct shipments, revenue is recognized when product is shipped from the Company&#x2019;s supplier. The Company has a long term supply agreement with one of our suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder. Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $1,769,000 and $993,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company also acts as a sales agent to certain customers in North America for one of its suppliers. The Company reports these commissions as revenues in the period earned. Commission revenue totaled $88,181 and $199,054 for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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 $3,870,000 and $2,773,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p> 1769000 993000 88181 199054 3870000 2773000 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(4) <font style="text-decoration:underline">Inventories</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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, 2021 was $820,382. The Company at May 31, 2021, has a reserve against slow moving and obsolete inventory of $252,565. From time to time the Company&#x2019;s products are subject to legislation from various authorities on environmental matters.</font></p> 820382 252565 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(5) <font style="text-decoration:underline">Depreciation and Amortization</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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:</font></p><br/><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font-family: Times New Roman, Times, Serif; width: 50%; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Furniture, fixtures and equipment</font></td> <td style="font-family: Times New Roman, Times, Serif; width: 1%"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif; width: 49%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5 - 7 years</font></td></tr> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; "> <td style="font-family: Times New Roman, Times, Serif; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Computer equipment</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5 years</font></td></tr> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font-family: Times New Roman, Times, Serif; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leasehold Improvements</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Estimated useful life or lease term, whichever is shorter</font></td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(6) <font style="text-decoration:underline">Concentration of Credit Risk</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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, 2021 and November 30, 2020, the Company&#x2019;s uninsured cash balances totaled $4,993,514 and $3,823,433, respectively.</font></p> 4993514 3823433 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(7) <font style="text-decoration:underline">Income Taxes</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company&#x2019;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 I.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, &#x201c;Income Taxes&#x201d; (ASC 740). There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company&#x2019;s financial condition or results of operations as a result of ASC 740.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November&#xa0;30, 2016, and state tax examinations for years before fiscal years ending November&#xa0;30, 2015 Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company&#x2019;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, 2021 and May 31, 2020.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(8) <font style="text-decoration:underline">Cash Equivalents</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(9) <font style="text-decoration:underline">Use of Estimates</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(10) <font style="text-decoration:underline">Marketing and promotional costs</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(11) <font style="text-decoration:underline">Fair Value of Financial Instruments</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(12) <font style="text-decoration:underline">Shipping Costs</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company classifies shipping costs as a component of selling expenses. Shipping costs totaled $2,164 and $1,564&#xa0;for the six months ended May 31, 2021 and May 31, 2020 respectively.</font></p> 2164 1564 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(13) <font style="text-decoration:underline">Earnings Per Share</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.&#xa0;Total potentially dilutive shares excluded from diluted weighted shares outstanding at May 31, 2021 and May 31, 2020 totaled 90,746 and 432,000, respectively.</font></p> 90746 432000 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(14) <font style="text-decoration:underline">Stock Based Compensation</font></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif"><i>Stock Based Compensation to Employees</i></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (&#x201c;ASC&#x201d;) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif"><i>Stock Based Compensation to Other than Employees</i></font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">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.</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">(15) <font style="text-decoration:underline">Leases</font>:</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">In February 2016, the FASB issued Accounting Standards Update No. 2016-02,&#xa0;<i>Leases (Topic 842)&#xa0;</i>(&#x201c;Topic 842&#x201d;). Topic 842 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $290,000.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">The Company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company&#x2019;s leases are classified as operating leases. The Company records operating lease right-of-use assets within &#x201c;Other assets&#x201d; and lease liabilities are recorded within &#x201c;current and noncurrent liabilities&#x201d; in the consolidated balance sheets. Lease expenses are recorded within &#x201c;General and administrative expenses&#x201d; in the consolidated statements of operations. Operating lease payments are presented within &#x201c;Operating cash flows&#x201d; in the consolidated statements of cash flows.</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company&#x2019;s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.</font></p> 290000 <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font-family: Times New Roman, Times, Serif; width: 50%; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Furniture, fixtures and equipment</font></td> <td style="font-family: Times New Roman, Times, Serif; width: 1%"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif; width: 49%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5 - 7 years</font></td></tr> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; "> <td style="font-family: Times New Roman, Times, Serif; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Computer equipment</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">5 years</font></td></tr> <tr style="font-family: Times New Roman, Times, Serif; vertical-align: top; background-color: rgb(204,238,255)"> <td style="font-family: Times New Roman, Times, Serif; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Leasehold Improvements</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif">&#xa0;</font></td> <td style="font-family: Times New Roman, Times, Serif"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Estimated useful life or lease term, whichever is shorter</font></td></tr> </table> P5Y P7Y P5Y Estimated useful life or lease term, whichever is shorter <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE C &#x2013; FIXED ASSETS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Fixed assets consist of the following:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">November&#xa0;30,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-align: left; text-indent: -9pt; padding-left: 9pt">Furniture and Fixtures</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">327,971</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">327,971</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Leasehold Improvements</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,022,556</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,022,556</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Computer Equipment</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,287,732</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,095,335</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less-Accumulated Depreciation</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(2,378,676</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(2,343,627</td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Net Fixed Assets</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">259,583</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">102,235</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Depreciation and amortization expense for the six months ended May 31, 2021 and May 31, 2020 was $35,049 and $18,905, respectively.</p><br/> 35049 18905 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">November&#xa0;30,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-align: left; text-indent: -9pt; padding-left: 9pt">Furniture and Fixtures</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">327,971</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">327,971</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Leasehold Improvements</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,022,556</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,022,556</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Computer Equipment</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,287,732</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,095,335</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less-Accumulated Depreciation</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(2,378,676</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(2,343,627</td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Net Fixed Assets</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">259,583</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">102,235</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 327971 327971 1022556 1022556 1287732 1095335 2378676 2343627 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE D &#x2013; FINANCING LEASE OBLIGATIONS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company is obligated under financing 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 $815, respectively. The assumed interest rates on the leases are 9.342%. The leases terminate in 2022.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Future minimum lease payments under these financing lease obligations as of May 31, 2021 are as follows:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 88%; text-align: left; text-indent: -9pt; padding-left: 9pt">2021</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">9,779</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">2022</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">4,077</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Total</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">13,856</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less: interest portion</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">925</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Present value of net minimum lease payments</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">12,931</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less: current portion</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">8,948</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Non-current portion</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">3,983</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td>Financing lease obligations mature as follows:</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>Six months ended May 31, 2021:</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 88%; text-align: left; text-indent: -9pt; padding-left: 9pt">2021</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">8,948</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">2022</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">3,983</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Principal payments remaining</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">12,931</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/> 2 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 $815, respectively. 815 0.09342 2022 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 88%; text-align: left; text-indent: -9pt; padding-left: 9pt">2021</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">9,779</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">2022</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">4,077</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Total</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">13,856</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less: interest portion</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">925</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Present value of net minimum lease payments</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">12,931</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Less: current portion</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">8,948</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Non-current portion</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">3,983</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 9779 4077 13856 925 12931 -8948 3983 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td>Financing lease obligations mature as follows:</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>Six months ended May 31, 2021:</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 88%; text-align: left; text-indent: -9pt; padding-left: 9pt">2021</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">8,948</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">2022</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">3,983</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Principal payments remaining</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">12,931</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 8948 3983 12931 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE E &#x2013; LOANS PAYABLE</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In February 2017, the Company obtained a line of credit with a bank for up to $3,000,000 (the &#x201c;Credit Line&#x201d;). 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). The Credit Line is collateralized by substantially all the assets of the Company. As of May 31, 2021, the balance on the Credit Line was $0. As of May 31, 2021, the Company was in compliance with the covenant for the debt service coverage ratio for the Credit Line.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company in May 2020 received loan proceeds in the amount of approximately $449,700 under the Paycheck Protection Program (&#x201c;PPP&#x201d;). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (&#x201c;CARES Act&#x201d;), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first twelve months. During April 2021, the Company was notified that the full $449,700 of the PPP loans received by the Company have been forgiven by the SBA.</p><br/> 3000000 0 449700 The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (&#x201c;CARES Act&#x201d;), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. 0.01 449700 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE F &#x2013; ACCRUED EXPENSES</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Accrued expenses consist of the following:</p><br/><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>May 31,</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>November&#xa0;30,</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td></tr> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2021</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2020</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td></tr> <tr style="background-color: #CCEEFF"> <td style="vertical-align: top; width: 78%; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Commissions</font></td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td> <td style="vertical-align: bottom; width: 1%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; width: 8%; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">267,046</font></td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td> <td style="vertical-align: bottom; width: 1%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; width: 8%; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">215,052</font></td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td></tr> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Preferred stock dividends</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">154,069</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">151,569</font></td> <td style="vertical-align: bottom">&#xa0;</td></tr> <tr style="background-color: #CCEEFF"> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Other accrued expenses</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">253,316</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">199,301</font></td> <td style="vertical-align: bottom">&#xa0;</td></tr> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">674,431</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">565,922</font></td> <td style="vertical-align: bottom">&#xa0;</td></tr> </table><br/> <table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>May 31,</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>November&#xa0;30,</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td></tr> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2021</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td> <td colspan="2" style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: center"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>2020</b></font></td> <td style="vertical-align: bottom; text-align: center">&#xa0;</td></tr> <tr style="background-color: #CCEEFF"> <td style="vertical-align: top; width: 78%; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Commissions</font></td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td> <td style="vertical-align: bottom; width: 1%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; width: 8%; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">267,046</font></td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td> <td style="vertical-align: bottom; width: 1%"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; width: 8%; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">215,052</font></td> <td style="vertical-align: bottom; width: 1%">&#xa0;</td></tr> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Preferred stock dividends</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">154,069</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">151,569</font></td> <td style="vertical-align: bottom">&#xa0;</td></tr> <tr style="background-color: #CCEEFF"> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Other accrued expenses</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">253,316</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 1.5pt solid; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">199,301</font></td> <td style="vertical-align: bottom">&#xa0;</td></tr> <tr> <td style="vertical-align: top; padding-left: 9pt; text-indent: -9pt">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">674,431</font></td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom">&#xa0;</td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">$</font></td> <td style="vertical-align: bottom; border-bottom: black 4.5pt double; text-align: right"><font style="font-family: Times New Roman, Times, Serif; font-size: 10pt">565,922</font></td> <td style="vertical-align: bottom">&#xa0;</td></tr> </table> 267046 215052 154069 151569 253316 199301 674431 565922 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE G &#x2013;&#xa0;RETIREMENT PLAN</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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&#x2019;s salary through salary reduction. The Company makes a matching contribution of twenty percent (20%) of each employee&#x2019;s contribution for each dollar of employee deferral up to five percent (5%) of the employee&#x2019;s salary. Net assets for the plan, as estimated by Union Central, Inc., which maintains the plan&#x2019;s records, were approximately $1,776,000 at November 30, 2020. Pension expense for the six months ended May 31, 2021 and May 31, 2020 was $1,425 and $558, respectively.</p><br/> 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. 0.15 0.20 0.05 1776000 1425 558 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE H &#x2013; SHAREHOLDERS&#x2019; EQUITY</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">[1] <font style="text-decoration:underline">Preferred Stock</font>:</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In November 2000, the Company authorized 100,000 shares of preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (&#x201c;Series C Preferred&#x201d;). 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.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Dividends aggregating $154,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2020. The Company has accrued these dividends. At May 31, 2021, there are 10,000 shares of Series C Preferred issued and outstanding.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In October 2016, the Company authorized 75,000 shares of preferred stock as Voting Non-Redeemable Convertible Series D Preferred Stock (&#x201c;Series D Preferred&#x201d;). None of the Series D Preferred Stock is outstanding as of February 28, 2021.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">[2] <font style="text-decoration:underline">2010 Incentive Stock Plan</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In March 2010, the Company adopted, and in April 2010 the shareholders ratified, the 2010 Incentive Stock Plan (&#x201c;2010 Stock Plan&#x201d;). 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.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">[3] <font style="text-decoration:underline">2015 Incentive Stock Plan</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In November 2015, the Company adopted and the shareholders ratified, the 2015 Incentive Stock Plan (&#x201c;2015 Stock Plan&#x201d;). 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.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In May 2016 a total of 99,151 shares were issued to the Company&#x2019;s officers as part of their 2015 bonus compensation under the 2015 Stock Plan.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In May 2019, a total of 47,207 shares were issued to the Company&#x2019;s officers as part of their 2018 bonus compensation under the 2015 Stock Plan.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April 2020, the Company awarded one non-employee director 15,000 shares of its common stock under the 2015 Stock Plan. The Company recorded a cost of $21,150 related to the issuance of these shares.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April 2020, a total of 27,500 shares were issued to one of the Company&#x2019;s officers as part of their 2019 bonus compensation under the 2015 Stock Plan. The Company recorded a cost of $41,250 relating to the issuance of these shares.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April 2020, the Company granted stock options to (a) four non-employee directors to each purchase 15,000 shares of common stock, (b) one non-employee-director to purchase 25,000 shares of common stock, and (c) two Company officers to each purchase 50,000 shares of common stock at an exercise price of $1.41 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $154,534 related to the granting of these options.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In April 2021, a total of 26,786 shares were issued to the Company&#x2019;s officers as part of their 2020 bonus compensation under the 2015 Stock Plan. The Company recorded a cost of $75,000 relating to the issuance of these shares in this quarter.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Activity in the Company&#x2019;s stock plans for the period ended May 31, 2021 is summarized as follows:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Shares</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Weighted<br/> Average<br/> Exercise<br/> Price</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-indent: -9pt; padding-left: 9pt">Options outstanding December 1, 2020</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">255,000</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">1.34</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">Options issued in the six months ended May 31, 2021</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Options exercised in the six months ended May 31, 2021</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">(85,000</td><td style="text-align: left">)</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">(1.20</td><td style="text-align: left">)</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Options cancelled in the six months ended May 31, 2021</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Options outstanding at May 31, 2021</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">170,000</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">1.41</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Options exercisable at May 31, 2021</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">&#xa0;</td><td style="border-bottom: Black 4pt double; text-align: right">170,000</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">1.41</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The intrinsic value of the exercisable options at May 31, 2021 totaled $221,000. At May 31, 2021 the weighted average remaining life of the stock options is 3.90 years. At May 31, 2021, there was no unrecognized compensation cost related to the stock options granted under the plan.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">[4] <font style="text-decoration:underline">Compensation of Directors</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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). In Mayl of 2021, this was increased to $3,500 per month for each non-employee director (and $4,000 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors)</p><br/> 1000000 5000000 100000 10 70000 Dividends aggregating $154,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2020. The Company has accrued these dividends. At May 31, 2021, there are 10,000 shares of Series C Preferred issued and outstanding. 75000 1500000 1500000 99151 47207 15000 21150 27500 41250 the Company granted stock options to (a) four non-employee directors to each purchase 15,000 shares of common stock, (b) one non-employee-director to purchase 25,000 shares of common stock, and (c) two Company officers to each purchase 50,000 shares of common stock at an exercise price of $1.41 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $154,534 related to the granting of these options. 26786 75000 221000 P3Y328D 2500 3500 3500 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Shares</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Weighted<br/> Average<br/> Exercise<br/> Price</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-indent: -9pt; padding-left: 9pt">Options outstanding December 1, 2020</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">255,000</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">1.34</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">Options issued in the six months ended May 31, 2021</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Options exercised in the six months ended May 31, 2021</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">(85,000</td><td style="text-align: left">)</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">(1.20</td><td style="text-align: left">)</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Options cancelled in the six months ended May 31, 2021</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Options outstanding at May 31, 2021</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">170,000</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">$</td><td style="border-bottom: Black 1.5pt solid; text-align: right">1.41</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Options exercisable at May 31, 2021</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">&#xa0;</td><td style="border-bottom: Black 4pt double; text-align: right">170,000</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">1.41</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 255000 1.34 85000 1.20 170000 1.41 170000 1.41 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE I &#x2013; INCOME TAXES</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#x2019;s deferred income taxes are comprised of the following:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">November&#xa0;30,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>Deferred Tax Assets</td><td>&#xa0;</td> <td colspan="2" style="text-align: right">&#xa0;</td><td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: right">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-align: left; text-indent: -9pt; padding-left: 0.25in">Net operating loss</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">731,098</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">1,066,794</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Allowance for bad debts</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">30,515</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">30,413</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 0.25in">Inventory</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">61,269</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">60,746</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Deferred rent</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 0.25in">Other</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">109,957</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">100,133</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 0.25in">Depreciation</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">44,267</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">63,632</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Total deferred tax assets</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">977,106</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,321,718</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 0.25in">Valuation allowance</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(14,160</td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 27pt">Deferred Tax Assets</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">977,106</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">1,307,558</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 &#x201c;more likely than not&#x201d; that all or a portion of deferred tax assets will not be realized. The valuation allowance decreased by approximately $14,000 for the six months ended May 31, 2021. 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.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#x2019;s income tax expense consists of the following:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Six Months Ended</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">May 31,<br/> 2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">May 31,<br/> 2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>Current:</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Federal</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="width: 76%; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">States</td><td style="width: 1%; padding-bottom: 1.5pt">&#xa0;</td> <td style="width: 1%; border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="width: 9%; border-bottom: Black 1.5pt solid; text-align: right">110,003</td><td style="width: 1%; padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="width: 1%; padding-bottom: 1.5pt">&#xa0;</td> <td style="width: 1%; border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="width: 9%; border-bottom: Black 1.5pt solid; text-align: right">91,516</td><td style="width: 1%; padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">110,003</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">91,516</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Deferred:</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">Federal</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">269,945</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">219,498</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">States</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">60,507</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">58,348</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">330,452</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">277,846</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Provision for income taxes</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">440,455</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">369,362</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $2,800,000 for federal and state purposes, which expire through 2025.&#xa0;A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company&#x2019;s effective rate is as follows:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Six months ended</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-align: left; text-indent: -9pt; padding-left: 9pt">U.S Federal Income tax statutory rate</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">21</td><td style="width: 1%; text-align: left">%</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">21</td><td style="width: 1%; text-align: left">%</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Valuation allowance</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">5</td><td style="text-align: left">%</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">175</td><td style="text-align: left">%</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">State income taxes</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">5</td><td style="text-align: left">%</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">5</td><td style="text-align: left">%</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Other</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 0.25in">Effective tax rate</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">&#xa0;</td><td style="border-bottom: Black 4pt double; text-align: right">31</td><td style="padding-bottom: 4pt; text-align: left">%</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">&#xa0;</td><td style="border-bottom: Black 4pt double; text-align: right">201</td><td style="padding-bottom: 4pt; text-align: left">%</td></tr> </table><br/> 14000 2800000 expire through 2025 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">November&#xa0;30,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>Deferred Tax Assets</td><td>&#xa0;</td> <td colspan="2" style="text-align: right">&#xa0;</td><td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: right">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-align: left; text-indent: -9pt; padding-left: 0.25in">Net operating loss</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">731,098</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">1,066,794</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Allowance for bad debts</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">30,515</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">30,413</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 0.25in">Inventory</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">61,269</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">60,746</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Deferred rent</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 0.25in">Other</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">109,957</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">100,133</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 0.25in">Depreciation</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">44,267</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">63,632</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 0.25in">Total deferred tax assets</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">977,106</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,321,718</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 0.25in">Valuation allowance</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(14,160</td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 27pt">Deferred Tax Assets</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">977,106</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">1,307,558</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 731098 1066794 30515 30413 61269 60746 109957 100133 44267 63632 977106 1321718 14160 977106 1307558 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Six Months Ended</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">May 31,<br/> 2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">May 31,<br/> 2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td>Current:</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td><td>&#xa0;</td> <td colspan="2" style="text-align: center">&#xa0;</td><td>&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Federal</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">$</td><td style="text-align: right">-</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="width: 76%; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">States</td><td style="width: 1%; padding-bottom: 1.5pt">&#xa0;</td> <td style="width: 1%; border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="width: 9%; border-bottom: Black 1.5pt solid; text-align: right">110,003</td><td style="width: 1%; padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="width: 1%; padding-bottom: 1.5pt">&#xa0;</td> <td style="width: 1%; border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="width: 9%; border-bottom: Black 1.5pt solid; text-align: right">91,516</td><td style="width: 1%; padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">110,003</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">91,516</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Deferred:</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">&#xa0;</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">Federal</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">269,945</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">219,498</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">States</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">60,507</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">58,348</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">330,452</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">277,846</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">Provision for income taxes</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">440,455</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">369,362</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 110003 91516 110003 91516 269945 219498 60507 58348 330452 277846 440455 369362 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Six months ended</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-align: left; text-indent: -9pt; padding-left: 9pt">U.S Federal Income tax statutory rate</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">21</td><td style="width: 1%; text-align: left">%</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">21</td><td style="width: 1%; text-align: left">%</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Valuation allowance</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">5</td><td style="text-align: left">%</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">175</td><td style="text-align: left">%</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">State income taxes</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">5</td><td style="text-align: left">%</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">5</td><td style="text-align: left">%</td></tr> <tr style="vertical-align: bottom; "> <td style="padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">Other</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;&#xa0;-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">-</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 0.25in">Effective tax rate</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">&#xa0;</td><td style="border-bottom: Black 4pt double; text-align: right">31</td><td style="padding-bottom: 4pt; text-align: left">%</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">&#xa0;</td><td style="border-bottom: Black 4pt double; text-align: right">201</td><td style="padding-bottom: 4pt; text-align: left">%</td></tr> </table> 0.21 0.21 0.05 1.75 0.05 0.05 0.31 2.01 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE J &#x2013; OPERATING LEASE COMMITMENTS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company leases its office and warehouse space through 2030 from a corporation that is controlled by officers/shareholders of the Company (&#x201c;Related Company&#x201d;). Annual minimum rental payments to the Related Company approximated $180,000 for the year ended November 30, 2020, and increase at the rate of two per cent per annum throughout the lease term.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has a lease to rent office space and a warehouse in Hong Kong through June 2021. Annual minimum rental payments for this space are approximately $68,460.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company has a lease to rent warehouse space in Hong Kong through December 31, 2022. Annual minimum rental payments for this space are approximately $36,840.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#x2019;s future minimum rental commitments at May 31, 2021 are as follows:</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Twelve Months Ended May 31,</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 88%; text-align: left; text-indent: -9pt; padding-left: 9pt">2022</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">235,038</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2023</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">217,810</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2024</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">200,215</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2025</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">204,219</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2026</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">208,303</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">2027 and after</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">951,369</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">2,016,954</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Net rental expense for the six months ended May 31, 2021 and May 31, 2020 were $211,918 and $181,325 respectively, of which $135,299 and $133,437 respectively, was paid to the Related Company.</p><br/> 180000 68460 36840 211918 181325 135299 133437 <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 88%; text-align: left; text-indent: -9pt; padding-left: 9pt">2022</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">$</td><td style="width: 9%; text-align: right">235,038</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2023</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">217,810</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2024</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">200,215</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2025</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">204,219</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">2026</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">208,303</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -9pt; padding-left: 9pt">2027 and after</td><td style="padding-bottom: 1.5pt">&#xa0;</td> <td style="border-bottom: Black 1.5pt solid; text-align: left">&#xa0;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">951,369</td><td style="padding-bottom: 1.5pt; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; padding-bottom: 4pt; text-indent: -9pt; padding-left: 9pt">&#xa0;</td><td style="padding-bottom: 4pt">&#xa0;</td> <td style="border-bottom: Black 4pt double; text-align: left">$</td><td style="border-bottom: Black 4pt double; text-align: right">2,016,954</td><td style="padding-bottom: 4pt; text-align: left">&#xa0;</td></tr> </table> 235038 217810 200215 204219 208303 951369 2016954 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE K &#x2013; EMPLOYMENT AND OTHER AGREEMENTS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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.&#xa0; In April 2021, the base salaries for the two officers were amended to $300,000 for one officer and $250,000 for the other officer.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#x2019;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&#x2019;s regular payroll practice over a 52-week period.</p><br/> 2 275000 225000 2 300000 250000 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. 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&#x2019;s regular payroll practice over a 52-week period. <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE L &#x2013; MAJOR CUSTOMERS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company had two customers who each accounted for 15% and 14% of net sales for the six months ended May 31, 2021 and two customers who accounted for 16% and 12% of net sales for the six months ended May 31, 2020. The Company had two customers who accounted for 22% and 10% of accounts receivable May 31, 2021 and two customers who accounted for 18% and 11% of accounts receivable at May 31, 2020.</p><br/> 2 0.15 0.14 2 0.16 0.12 2 0.22 0.10 2 0.18 0.11 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE M &#x2013; MAJOR SUPPLIERS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">During the six months ended May 31, 2021 and May 31, 2020 there was one foreign supplier accounting for 33% and 40% of total inventory purchased.</p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company purchases substantially all of its products overseas. For the six months ended May, 2021, the Company purchased&#xa0;42% of its products from Taiwan, 15% from Hong Kong, 38% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.</p><br/> 1 1 0.33 0.40 0.42 0.15 0.38 0.01 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE N &#x2013; EXPORT SALES</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The Company&#x2019;s export sales were as follows:</p><br/><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif"> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="6" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Six Months Ended</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td><td style="font-weight: bold">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center">May 31,</td><td style="font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom"> <td style="text-align: center">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#xa0;</td> <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2020</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="width: 76%; text-indent: -9pt; padding-left: 9pt">Canada</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">2,028,979</td><td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 1%">&#xa0;</td> <td style="width: 1%; text-align: left">&#xa0;</td><td style="width: 9%; text-align: right">1,529,736</td><td style="width: 1%; text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-indent: -9pt; padding-left: 9pt">China</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">3,004,843</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">2,472,615</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Other Asian Countries</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,328,639</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">448,001</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">South America</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">59,931</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">138,110</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Europe</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">831,769</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">563,369</td><td style="text-align: left">&#xa0;</td></tr> </table><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Revenues are attributed to countries based on location of customer.</p><br/> <table cellpadding="0" cellspacing="0" style="border-collapse: collapse; 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background-color: rgb(204,238,255)"> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">Other Asian Countries</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">1,328,639</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">448,001</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; "> <td style="text-align: left; text-indent: -9pt; padding-left: 9pt">South America</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">59,931</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">138,110</td><td style="text-align: left">&#xa0;</td></tr> <tr style="vertical-align: bottom; background-color: rgb(204,238,255)"> <td style="text-indent: -9pt; padding-left: 9pt">Europe</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">831,769</td><td style="text-align: left">&#xa0;</td><td>&#xa0;</td> <td style="text-align: left">&#xa0;</td><td style="text-align: right">563,369</td><td style="text-align: left">&#xa0;</td></tr> </table> 2028979 1529736 3004843 2472615 1328639 448001 59931 138110 831769 563369 <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="text-decoration:underline">NOTE P &#x2013; SUBSEQUENT EVENTS</font></p><br/><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><font style="font-family: Times New Roman, Times, Serif">In early January 2020, an outbreak of a respiratory illness caused by the coronavirus was identified in Wuhan, China. In response to the resulting pandemic, governments around the world took various preventative steps up to and including full or partial shutdowns. As a result of the drop in production in our suppliers and customers, the Company experienced order cancellations and order hold notices from customers. Although business has improved in the first half of 2021, the effects of the pandemic will have an ongoing impact on the Company&#x2019;s business. The duration of this crisis and its impact on both the Company&#x2019;s customers and supply chain is expected to have an impact on the consolidated results of operations, cash flows and financial condition, but cannot be reasonably estimated at this time. Additionally, the spread of COVID-19 and the related actions implemented by governments of the United States and elsewhere across the globe, may worsen again over time. 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Document And Entity Information - shares
6 Months Ended
May 31, 2021
Jul. 15, 2021
Document Information Line Items    
Entity Registrant Name SURGE COMPONENTS INC  
Document Type 10-Q  
Current Fiscal Year End Date --11-30  
Entity Common Stock, Shares Outstanding   5,515,342
Amendment Flag false  
Entity Central Index Key 0000747540  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Document Period End Date May 31, 2021  
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q2  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity File Number 000-27688  
Entity Incorporation, State or Country Code NY  
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Consolidated Balance Sheets - USD ($)
May 31, 2021
Nov. 30, 2020
Current assets:    
Cash $ 5,558,010 $ 4,387,929
Accounts receivable - net of allowance for doubtful accounts of $145,207 and $144,818 6,561,277 6,455,263
Inventory, net 3,782,575 3,410,534
Prepaid expenses and income taxes 362,915 533,862
Total current assets 16,264,777 14,787,588
Fixed assets – net of accumulated depreciation and amortization of $2,378,676 and $2,343,627 259,583 102,235
Operating Lease Right of Use Asset 1,575,024 1,636,411
Deferred income taxes 977,106 1,307,558
Other assets 22,607 22,607
Total assets 19,099,097 17,856,399
Current liabilities:    
Accounts payable 4,583,267 3,880,805
Operating lease liabilities, current maturities 134,705 233,546
Financing lease payable, current maturities 8,948 8,475
Accrued expenses and taxes 674,431 565,922
Accrued salaries 546,119 677,256
Total current liabilities 5,947,470 5,366,004
Operating lease liabilities net of current maturities 1,491,448 1,430,144
Financing lease payable, net of current maturities 3,983 8,627
Note payable to bank   449,700
Total liabilities 7,442,901 7,254,475
Commitments and contingencies
Shareholders’ equity:    
Preferred stock, value
Common stock - $.001 par value, 50,000,000 shares authorized, 5,515,342 and 5,437,526 shares issued and outstanding 5,515 5,437
Additional paid-in capital 17,023,454 16,948,532
Accumulated deficit (5,372,783) (6,352,055)
Total shareholders’ equity 11,656,196 10,601,924
Total liabilities and shareholders’ equity 19,099,097 17,856,399
Series C Preferred Stock    
Shareholders’ equity:    
Preferred stock, value 10 10
Series D Preferred Stock    
Shareholders’ equity:    
Preferred stock, value
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Consolidated Balance Sheets (Parentheticals) - USD ($)
May 31, 2021
Nov. 30, 2020
Allowance for doubtful accounts of accounts receivable (in Dollars) $ 145,207 $ 144,818
Accumulated depreciation and amortization on fixed assets (in Dollars) $ 2,378,676 $ 2,343,627
Preferred stock, par value (in Dollars per share) $ 0.001 $ 0.001
Preferred stock, shares authorized 5,000,000 5,000,000
Common stock, par value (in Dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 5,515,342 5,437,526
Common stock, shares outstanding 5,515,342 5,437,526
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 (in Dollars per share) $ 5 $ 5
Series D Preferred Stock    
Preferred stock, shares authorized 75,000 75,000
Preferred stock, shares issued
Preferred stock, shares outstanding
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Consolidated Statements of Operations (Unaudited) - USD ($)
3 Months Ended 6 Months Ended
May 31, 2021
May 31, 2020
May 31, 2021
May 31, 2020
Income Statement [Abstract]        
Net sales $ 9,592,460 $ 6,647,051 $ 17,748,762 $ 13,436,189
Cost of goods sold 7,035,452 4,604,457 12,891,474 9,507,819
Gross profit 2,557,008 2,042,594 4,857,288 3,928,370
Operating expenses:        
Selling and shipping expenses 594,251 574,133 1,275,383 1,230,971
General and administrative expenses 1,328,244 1,325,633 2,574,225 2,514,873
Depreciation and amortization 17,918 9,541 35,049 18,905
Total operating expenses 1,940,413 1,909,307 3,884,657 3,764,749
Income before other income (expense) and income taxes 616,595 133,287 972,631 163,621
Other income (expense):        
Other income PPP 449,700   449,700  
Other income 304 20,460 614 20,978
Interest expense (335) (522) (718) (1,089)
Other income (expense) 449,669 19,938 449,596 19,889
Income before income taxes 1,066,264 153,225 1,422,227 183,510
Income taxes 362,156 75,275 440,455 369,362
Net income (loss) 704,108 77,950 981,772 (185,852)
Dividends on preferred stock     2,500 2,500
Net income (loss) available to common shareholders $ 704,108 $ 77,950 $ 979,272 $ (188,352)
Net (loss)income per share available to common shareholders:        
Basic (in Dollars per share) $ 0.13 $ 0.02 $ 0.18 $ (0.04)
Diluted (in Dollars per share) $ 0.12 $ 0.01 $ 0.17 $ (0.04)
Weighted Shares Outstanding:        
Basic (in Shares) 5,490,617 5,337,608 5,465,551 5,329,917
Diluted (in Shares) 5,669,871 5,484,573 5,644,805 5,329,917
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Consolidated Statements of Changes in Shareholders’ Equity - USD ($)
Series C
Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Deficit
Total
Balance at beginning at Dec. 31, 2019 $ 10 $ 5,319 $ 16,666,465 $ (7,863,355) $ 8,808,439
Balance at ending (in Shares) at Dec. 31, 2019 10,000 5,320,026      
Preferred stock dividends (2,500) (2,500)
Issuance of shares as compensation $ 43 62,358 62,401
Issuance of shares as compensation (in Shares) 42,500      
Stock option expense     154,534   154,534
Net Income (185,852) (185,852)
Balance at beginning at May. 31, 2020 $ 10 $ 5,362 16,883,357 (8,051,707) 8,837,022
Balance at ending (in Shares) at May. 31, 2020 10,000 5,362,526      
Balance at beginning at Dec. 31, 2020 $ 10 $ 5,437 16,948,532 (6,352,055) 10,601,924
Balance at ending (in Shares) at Dec. 31, 2020 10,000 5,437,526      
Preferred stock dividends (2,500) (2,500)
Issuance of shares as compensation $ 27 74,973 75,000
Issuance of shares as compensation (in Shares) 26,786      
Stock option exercise   $ 51 (51)
Stock option exercise (in Shares)   51,030      
Net Income 981,772 981,772
Balance at beginning at May. 31, 2021 $ 10 $ 5,515 $ 17,023,454 $ (5,372,783) $ 11,656,196
Balance at ending (in Shares) at May. 31, 2021 10,000 5,515,342      
XML 15 R6.htm IDEA: XBRL DOCUMENT v3.21.2
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
6 Months Ended
May 31, 2021
May 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net Income (loss) $ 981,772 $ (185,852)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization 35,049 18,905
Gain on Forgiveness of debt (449,700)
Deferred income taxes 330,452 277,846
Allowance for doubtful accounts (389)
Stock Compensation 75,000 213,527
CHANGES IN OPERATING ASSETS AND LIABILITIES:    
Accounts receivable (105,625) 523,628
Inventory (372,041) (280,739)
Prepaid expenses and income taxes 170,947 28,835
Other assets 23,850 (2,581)
Accounts payable 702,462 477,700
Accrued expenses (25,128) (155,725)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,366,649 915,544
CASH FLOWS FROM INVESTING ACTIVITIES:    
Acquisition of fixed assets (192,397) (17,996)
NET CASH FLOWS USED IN INVESTING ACTIVITIES (192,397) (17,996)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Repayment of financing lease obligations (4,171) (3,800)
Proceeds from note payable to bank   449,700
NET CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,171) 445,900
NET CHANGE IN CASH 1,170,081 1,343,448
CASH AT BEGINNING OF PERIOD 4,387,929 2,739,305
CASH AT END OF PERIOD 5,558,010 4,082,753
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Income taxes paid 81,930 125,376
Interest paid 718 1,089
NONCASH INVESTING AND FINANCING ACTIVITIES:    
Accrued dividends on preferred stock $ 2,500 $ 2,500
XML 16 R7.htm IDEA: XBRL DOCUMENT v3.21.2
Organization, Description of Company’s Business and Basis of Presentation
6 Months Ended
May 31, 2021
Accounting Policies [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 17 R8.htm IDEA: XBRL DOCUMENT v3.21.2
Summary of Significant Accounting Policies
6 Months Ended
May 31, 2021
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 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2021 and May 31, 2020 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.


Revenue is recognized for products sold by the Company when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This occurs when product is shipped from the Company’s warehouse.


For direct shipments, revenue is recognized when product is shipped from the Company’s supplier. The Company has a long term supply agreement with one of our suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder. Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $1,769,000 and $993,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.


The Company also acts as a sales agent to certain customers in North America for one of its suppliers. The Company reports these commissions as revenues in the period earned. Commission revenue totaled $88,181 and $199,054 for the six months ended May 31, 2021 and May 31, 2020 respectively.


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


The Company and its subsidiaries currently have agreements with several distributors. There are no provisions for the granting of price concessions in any of the agreements. Revenues under these distribution agreements were approximately $3,870,000 and $2,773,000 for the six months ended May 31, 2021 and May 31, 2020 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, 2021 was $820,382. The Company at May 31, 2021, has a reserve against slow moving and obsolete inventory of $252,565. 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, 2021 and November 30, 2020, the Company’s uninsured cash balances totaled $4,993,514 and $3,823,433, 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 I.


The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, “Income Taxes” (ASC 740). There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company’s financial condition or results of operations as a result of ASC 740.


The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November 30, 2016, and state tax examinations for years before fiscal years ending November 30, 2015 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, 2021 and May 31, 2020.


(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 $2,164 and $1,564 for the six months ended May 31, 2021 and May 31, 2020 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, 2021 and May 31, 2020 totaled 90,746 and 432,000, respectively.


(14) Stock Based Compensation


Stock Based Compensation to Employees


The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.


Stock Based Compensation to Other than Employees


The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.


(15) Leases:


In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“Topic 842”). Topic 842 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.


On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $290,000.


The Company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company’s leases are classified as operating leases. The Company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “current and noncurrent liabilities” in the consolidated balance sheets. Lease expenses are recorded within “General and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” in the consolidated statements of cash flows.


Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.


XML 18 R9.htm IDEA: XBRL DOCUMENT v3.21.2
Fixed Assets
6 Months Ended
May 31, 2021
Property, Plant and Equipment [Abstract]  
FIXED ASSETS

NOTE C – FIXED ASSETS


Fixed assets consist of the following:


   May 31,   November 30, 
   2021   2020 
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   1,022,556    1,022,556 
Computer Equipment   1,287,732    1,095,335 
Less-Accumulated Depreciation   (2,378,676)   (2,343,627)
Net Fixed Assets  $259,583   $102,235 

Depreciation and amortization expense for the six months ended May 31, 2021 and May 31, 2020 was $35,049 and $18,905, respectively.


XML 19 R10.htm IDEA: XBRL DOCUMENT v3.21.2
Financing Lease Obligations
6 Months Ended
May 31, 2021
Financing Lease Obligations [Abstract]  
FINANCING LEASE OBLIGATIONS

NOTE D – FINANCING LEASE OBLIGATIONS


The Company is obligated under financing 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%. The leases terminate in 2022.


Future minimum lease payments under these financing lease obligations as of May 31, 2021 are as follows:


2021  $9,779 
2022  $4,077 
Total  $13,856 
Less: interest portion   925 
Present value of net minimum lease payments  $12,931 
Less: current portion   8,948 
Non-current portion  $3,983 

Financing lease obligations mature as follows:    
     
Six months ended May 31, 2021:    
     
2021  $8,948 
2022  $3,983 
Principal payments remaining  $12,931 

XML 20 R11.htm IDEA: XBRL DOCUMENT v3.21.2
Loans Payable
6 Months Ended
May 31, 2021
Payables and Accruals [Abstract]  
LOANS PAYABLE

NOTE E – LOANS PAYABLE


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). The Credit Line is collateralized by substantially all the assets of the Company. As of May 31, 2021, the balance on the Credit Line was $0. As of May 31, 2021, the Company was in compliance with the covenant for the debt service coverage ratio for the Credit Line.


The Company in May 2020 received loan proceeds in the amount of approximately $449,700 under the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after twenty-four weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the period.


The unforgiven portion of the PPP loan is payable over five years at an interest rate of 1%, with a deferral of payments for the first twelve months. During April 2021, the Company was notified that the full $449,700 of the PPP loans received by the Company have been forgiven by the SBA.


XML 21 R12.htm IDEA: XBRL DOCUMENT v3.21.2
Accrued Expenses
6 Months Ended
May 31, 2021
Accrued Expenses [Abstract]  
ACCRUED EXPENSES

NOTE F – ACCRUED EXPENSES


Accrued expenses consist of the following:


    May 31,     November 30,  
    2021     2020  
Commissions   $ 267,046     $ 215,052  
Preferred stock dividends     154,069       151,569  
Other accrued expenses     253,316       199,301  
    $ 674,431     $ 565,922  

XML 22 R13.htm IDEA: XBRL DOCUMENT v3.21.2
Retirement Plan
6 Months Ended
May 31, 2021
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 $1,776,000 at November 30, 2020. Pension expense for the six months ended May 31, 2021 and May 31, 2020 was $1,425 and $558, respectively.


XML 23 R14.htm IDEA: XBRL DOCUMENT v3.21.2
Shareholders' Equity
6 Months Ended
May 31, 2021
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.


Dividends aggregating $154,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2020. The Company has accrued these dividends. At May 31, 2021, 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 February 28, 2021.


[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.


[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 May 2019, a total of 47,207 shares were issued to the Company’s officers as part of their 2018 bonus compensation under the 2015 Stock Plan.


In April 2020, the Company awarded one non-employee director 15,000 shares of its common stock under the 2015 Stock Plan. The Company recorded a cost of $21,150 related to the issuance of these shares.


In April 2020, a total of 27,500 shares were issued to one of the Company’s officers as part of their 2019 bonus compensation under the 2015 Stock Plan. The Company recorded a cost of $41,250 relating to the issuance of these shares.


In April 2020, the Company granted stock options to (a) four non-employee directors to each purchase 15,000 shares of common stock, (b) one non-employee-director to purchase 25,000 shares of common stock, and (c) two Company officers to each purchase 50,000 shares of common stock at an exercise price of $1.41 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $154,534 related to the granting of these options.


In April 2021, a total of 26,786 shares were issued to the Company’s officers as part of their 2020 bonus compensation under the 2015 Stock Plan. The Company recorded a cost of $75,000 relating to the issuance of these shares in this quarter.


Activity in the Company’s stock plans for the period ended May 31, 2021 is summarized as follows:


   Shares   Weighted
Average
Exercise
Price
 
Options outstanding December 1, 2020   255,000   $1.34 
Options issued in the six months ended May 31, 2021   -   $- 
Options exercised in the six months ended May 31, 2021   (85,000)  $(1.20)
Options cancelled in the six months ended May 31, 2021   -   $- 
Options outstanding at May 31, 2021   170,000   $1.41 
Options exercisable at May 31, 2021   170,000   $1.41 

The intrinsic value of the exercisable options at May 31, 2021 totaled $221,000. At May 31, 2021 the weighted average remaining life of the stock options is 3.90 years. At May 31, 2021, 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). In Mayl of 2021, this was increased to $3,500 per month for each non-employee director (and $4,000 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors)


XML 24 R15.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes
6 Months Ended
May 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES

NOTE I – 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, 
   2021   2020 
Deferred Tax Assets        
Net operating loss  $731,098   $1,066,794 
Allowance for bad debts   30,515    30,413 
Inventory   61,269    60,746 
Deferred rent   -    - 
Other   109,957    100,133 
Depreciation   44,267    63,632 
Total deferred tax assets   977,106    1,321,718 
Valuation allowance   -    (14,160)
Deferred Tax Assets  $977,106   $1,307,558 

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 $14,000 for the six months ended May 31, 2021. 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,
2021
   May 31,
2020
 
Current:        
Federal  $-   $- 
States   110,003    91,516 
    110,003    91,516 
           
Deferred:          
Federal   269,945    219,498 
States   60,507    58,348 
    330,452    277,846 
Provision for income taxes  $440,455   $369,362 

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $2,800,000 for federal and state purposes, which expire through 2025. 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, 
   2021   2020 
U.S Federal Income tax statutory rate   21%   21%
Valuation allowance   5%   175%
State income taxes   5%   5%
Other               -    - 
Effective tax rate   31%   201%

XML 25 R16.htm IDEA: XBRL DOCUMENT v3.21.2
Operating Lease Commitments
6 Months Ended
May 31, 2021
Disclosure Text Block [Abstract]  
OPERATING LEASE COMMITMENTS

NOTE J – OPERATING LEASE COMMITMENTS


The Company leases its office and warehouse space through 2030 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, 2020, and increase at the rate of two per cent per annum throughout the lease term.


The Company has a lease to rent office space and a warehouse in Hong Kong through June 2021. Annual minimum rental payments for this space are approximately $68,460.


The Company has a lease to rent warehouse space in Hong Kong through December 31, 2022. Annual minimum rental payments for this space are approximately $36,840.


The Company’s future minimum rental commitments at May 31, 2021 are as follows:


Twelve Months Ended May 31,


2022  $235,038 
2023   217,810 
2024   200,215 
2025   204,219 
2026   208,303 
2027 and after   951,369 
   $2,016,954 

Net rental expense for the six months ended May 31, 2021 and May 31, 2020 were $211,918 and $181,325 respectively, of which $135,299 and $133,437 respectively, was paid to the Related Company.


XML 26 R17.htm IDEA: XBRL DOCUMENT v3.21.2
Employment and Other Agreements
6 Months Ended
May 31, 2021
Disclosure Text Block Supplement [Abstract]  
EMPLOYMENT AND OTHER AGREEMENTS

NOTE K – 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.  In April 2021, the base salaries for the two officers were amended to $300,000 for one officer and $250,000 for the other officer.


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 v3.21.2
Major Customers
6 Months Ended
May 31, 2021
Debt Disclosure [Abstract]  
MAJOR CUSTOMERS

NOTE L – MAJOR CUSTOMERS


The Company had two customers who each accounted for 15% and 14% of net sales for the six months ended May 31, 2021 and two customers who accounted for 16% and 12% of net sales for the six months ended May 31, 2020. The Company had two customers who accounted for 22% and 10% of accounts receivable May 31, 2021 and two customers who accounted for 18% and 11% of accounts receivable at May 31, 2020.


XML 28 R19.htm IDEA: XBRL DOCUMENT v3.21.2
Major Suppliers
6 Months Ended
May 31, 2021
Major Suppliers [Abstract]  
MAJOR SUPPLIERS

NOTE M – MAJOR SUPPLIERS


During the six months ended May 31, 2021 and May 31, 2020 there was one foreign supplier accounting for 33% and 40% of total inventory purchased.


The Company purchases substantially all of its products overseas. For the six months ended May, 2021, the Company purchased 42% of its products from Taiwan, 15% from Hong Kong, 38% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.


XML 29 R20.htm IDEA: XBRL DOCUMENT v3.21.2
Export Sales
6 Months Ended
May 31, 2021
Segment Reporting [Abstract]  
EXPORT SALES

NOTE N – EXPORT SALES


The Company’s export sales were as follows:


   Six Months Ended 
   May 31,   May 31, 
   2021   2020 
Canada   2,028,979    1,529,736 
China   3,004,843    2,472,615 
Other Asian Countries   1,328,639    448,001 
South America   59,931    138,110 
Europe   831,769    563,369 

Revenues are attributed to countries based on location of customer.


XML 30 R21.htm IDEA: XBRL DOCUMENT v3.21.2
Subsequent Events
6 Months Ended
May 31, 2021
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

NOTE P – SUBSEQUENT EVENTS


In early January 2020, an outbreak of a respiratory illness caused by the coronavirus was identified in Wuhan, China. In response to the resulting pandemic, governments around the world took various preventative steps up to and including full or partial shutdowns. As a result of the drop in production in our suppliers and customers, the Company experienced order cancellations and order hold notices from customers. Although business has improved in the first half of 2021, the effects of the pandemic will have an ongoing impact on the Company’s business. The duration of this crisis and its impact on both the Company’s customers and supply chain is expected to have an impact on the consolidated results of operations, cash flows and financial condition, but cannot be reasonably estimated at this time. Additionally, the spread of COVID-19 and the related actions implemented by governments of the United States and elsewhere across the globe, may worsen again over time. Thus, the pandemic may have an impact on the Company’s operations, the future effect of which will largely depend on future developments which are highly uncertain and cannot be predicted at this time. The Company continues to monitor its operations and applicable government recommendations and requirements.


XML 31 R22.htm IDEA: XBRL DOCUMENT v3.21.2
Accounting Policies, by Policy (Policies)
6 Months Ended
May 31, 2021
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 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2021 and May 31, 2020 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.


Revenue is recognized for products sold by the Company when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed and determinable, collectability is reasonably assured and title and risk of loss have been transferred to the customer. This occurs when product is shipped from the Company’s warehouse.


For direct shipments, revenue is recognized when product is shipped from the Company’s supplier. The Company has a long term supply agreement with one of our suppliers. The Company purchases the merchandise from the supplier and has the supplier directly ship to the customer through a freight forwarder. Title passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $1,769,000 and $993,000 for the six months ended May 31, 2021 and May 31, 2020 respectively.


The Company also acts as a sales agent to certain customers in North America for one of its suppliers. The Company reports these commissions as revenues in the period earned. Commission revenue totaled $88,181 and $199,054 for the six months ended May 31, 2021 and May 31, 2020 respectively.


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


The Company and its subsidiaries currently have agreements with several distributors. There are no provisions for the granting of price concessions in any of the agreements. Revenues under these distribution agreements were approximately $3,870,000 and $2,773,000 for the six months ended May 31, 2021 and May 31, 2020 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, 2021 was $820,382. The Company at May 31, 2021, has a reserve against slow moving and obsolete inventory of $252,565. 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, 2021 and November 30, 2020, the Company’s uninsured cash balances totaled $4,993,514 and $3,823,433, 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 I.


The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, “Income Taxes” (ASC 740). There have been no unrecognized tax benefits and, accordingly, there has been no effect on the Company’s financial condition or results of operations as a result of ASC 740.


The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November 30, 2016, and state tax examinations for years before fiscal years ending November 30, 2015 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, 2021 and May 31, 2020.

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 $2,164 and $1,564 for the six months ended May 31, 2021 and May 31, 2020 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, 2021 and May 31, 2020 totaled 90,746 and 432,000, respectively.

Stock Based Compensation

(14) Stock Based Compensation


Stock Based Compensation to Employees


The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.


Stock Based Compensation to Other than Employees


The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Leases

(15) Leases:


In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“Topic 842”). Topic 842 requires the entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.


On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $290,000.


The Company determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company’s leases are classified as operating leases. The Company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “current and noncurrent liabilities” in the consolidated balance sheets. Lease expenses are recorded within “General and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” in the consolidated statements of cash flows.


Operating lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

XML 32 R23.htm IDEA: XBRL DOCUMENT v3.21.2
Summary of Significant Accounting Policies (Tables)
6 Months Ended
May 31, 2021
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 33 R24.htm IDEA: XBRL DOCUMENT v3.21.2
Fixed Assets (Tables)
6 Months Ended
May 31, 2021
Property, Plant and Equipment [Abstract]  
Schedule of fixed assets
   May 31,   November 30, 
   2021   2020 
Furniture and Fixtures  $327,971   $327,971 
Leasehold Improvements   1,022,556    1,022,556 
Computer Equipment   1,287,732    1,095,335 
Less-Accumulated Depreciation   (2,378,676)   (2,343,627)
Net Fixed Assets  $259,583   $102,235 
XML 34 R25.htm IDEA: XBRL DOCUMENT v3.21.2
Financing Lease Obligations (Tables)
6 Months Ended
May 31, 2021
Financing Lease Obligations [Abstract]  
Schedule of future minimum lease payments under these financing lease obligations
2021  $9,779 
2022  $4,077 
Total  $13,856 
Less: interest portion   925 
Present value of net minimum lease payments  $12,931 
Less: current portion   8,948 
Non-current portion  $3,983 
Schedule of financing lease obligations mature
Financing lease obligations mature as follows:    
     
Six months ended May 31, 2021:    
     
2021  $8,948 
2022  $3,983 
Principal payments remaining  $12,931 
XML 35 R26.htm IDEA: XBRL DOCUMENT v3.21.2
Accrued Expenses (Tables)
6 Months Ended
May 31, 2021
Accrued Expenses [Abstract]  
Schedule of accrued expenses
    May 31,     November 30,  
    2021     2020  
Commissions   $ 267,046     $ 215,052  
Preferred stock dividends     154,069       151,569  
Other accrued expenses     253,316       199,301  
    $ 674,431     $ 565,922  
XML 36 R27.htm IDEA: XBRL DOCUMENT v3.21.2
Shareholders' Equity (Tables)
6 Months Ended
May 31, 2021
Equity [Abstract]  
Schedule of activity in the 2015 incentive stock plan
   Shares   Weighted
Average
Exercise
Price
 
Options outstanding December 1, 2020   255,000   $1.34 
Options issued in the six months ended May 31, 2021   -   $- 
Options exercised in the six months ended May 31, 2021   (85,000)  $(1.20)
Options cancelled in the six months ended May 31, 2021   -   $- 
Options outstanding at May 31, 2021   170,000   $1.41 
Options exercisable at May 31, 2021   170,000   $1.41 
XML 37 R28.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes (Tables)
6 Months Ended
May 31, 2021
Income Tax Disclosure [Abstract]  
Schedule of deferred income taxes
   May 31,   November 30, 
   2021   2020 
Deferred Tax Assets        
Net operating loss  $731,098   $1,066,794 
Allowance for bad debts   30,515    30,413 
Inventory   61,269    60,746 
Deferred rent   -    - 
Other   109,957    100,133 
Depreciation   44,267    63,632 
Total deferred tax assets   977,106    1,321,718 
Valuation allowance   -    (14,160)
Deferred Tax Assets  $977,106   $1,307,558 
Schedule of income tax expense
   Six Months Ended 
   May 31,
2021
   May 31,
2020
 
Current:        
Federal  $-   $- 
States   110,003    91,516 
    110,003    91,516 
           
Deferred:          
Federal   269,945    219,498 
States   60,507    58,348 
    330,452    277,846 
Provision for income taxes  $440,455   $369,362 
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, 
   2021   2020 
U.S Federal Income tax statutory rate   21%   21%
Valuation allowance   5%   175%
State income taxes   5%   5%
Other               -    - 
Effective tax rate   31%   201%
XML 38 R29.htm IDEA: XBRL DOCUMENT v3.21.2
Operating Lease Commitments (Tables)
6 Months Ended
May 31, 2021
Disclosure Text Block [Abstract]  
Schedule of future minimum rental commitments
2022  $235,038 
2023   217,810 
2024   200,215 
2025   204,219 
2026   208,303 
2027 and after   951,369 
   $2,016,954 
XML 39 R30.htm IDEA: XBRL DOCUMENT v3.21.2
Export Sales (Tables)
6 Months Ended
May 31, 2021
Segment Reporting [Abstract]  
Schedule of export sales
   Six Months Ended 
   May 31,   May 31, 
   2021   2020 
Canada   2,028,979    1,529,736 
China   3,004,843    2,472,615 
Other Asian Countries   1,328,639    448,001 
South America   59,931    138,110 
Europe   831,769    563,369 
XML 40 R31.htm IDEA: XBRL DOCUMENT v3.21.2
Organization, Description of Company’s Business and Basis of Presentation (Details)
1 Months Ended
Feb. 28, 2019
shares
May 31, 2002
shares
Accounting Policies [Abstract]    
Minimum number of shareholders to hold equity   2
Number of shares outstanding - held by surge   999
Number of shares outstanding - held by officers of surge   1
Ownership rights transferred to parent company   1
Decrease in common stock shares authorized for issuance 50,000,000  
XML 41 R32.htm IDEA: XBRL DOCUMENT v3.21.2
Summary of Significant Accounting Policies (Details) - USD ($)
6 Months Ended
May 31, 2021
May 31, 2020
Nov. 30, 2020
Accounting Policies [Abstract]      
Direct shipments revenue $ 1,769,000 $ 993,000  
Commission revenue 88,181 199,054  
Revenues from distribution agreements 3,870,000 2,773,000  
Inventory in transit from foreign suppliers 820,382    
Reserve against slow moving and obsolete inventory 252,565    
Amount of uninsured cash balances 4,993,514   $ 3,823,433
Shipping costs $ 2,164 $ 1,564  
Diluted weighted shares outstanding (in Shares) 90,746 432,000  
Operating leases $ 290,000    
XML 42 R33.htm IDEA: XBRL DOCUMENT v3.21.2
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of fixed assets
6 Months Ended
May 31, 2021
Computer Equipment [Member]  
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of fixed assets [Line Items]  
Property, plant and equipment, useful life 5 years
Leasehold Improvements [Member]  
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of fixed assets [Line Items]  
Property, plant and equipment, estimated useful lives Estimated useful life or lease term, whichever is shorter
Minimum [Member] | Furniture, Fixtures and Equipment [Member]  
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of fixed assets [Line Items]  
Property, plant and equipment, useful life 5 years
Maximum [Member] | Furniture, Fixtures and Equipment [Member]  
Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of fixed assets [Line Items]  
Property, plant and equipment, useful life 7 years
XML 43 R34.htm IDEA: XBRL DOCUMENT v3.21.2
Fixed Assets (Details) - USD ($)
6 Months Ended
May 31, 2021
May 31, 2020
Property, Plant and Equipment [Abstract]    
Depreciation and amortization expense $ 35,049 $ 18,905
XML 44 R35.htm IDEA: XBRL DOCUMENT v3.21.2
Fixed Assets (Details) - Schedule of fixed assets - USD ($)
May 31, 2021
Nov. 30, 2020
Property, Plant and Equipment [Line Items]    
Less-Accumulated Depreciation $ (2,378,676) $ (2,343,627)
Net Fixed Assets 259,583 102,235
Furniture and Fixtures [Member]    
Property, Plant and Equipment [Line Items]    
Fixed assets gross 327,971 327,971
Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Fixed assets gross 1,022,556 1,022,556
Computer Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Fixed assets gross $ 1,287,732 $ 1,095,335
XML 45 R36.htm IDEA: XBRL DOCUMENT v3.21.2
Financing Lease Obligations (Details)
6 Months Ended
May 31, 2021
USD ($)
Financing Lease Obligations [Abstract]  
Leases equipment 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 46 R37.htm IDEA: XBRL DOCUMENT v3.21.2
Financing Lease Obligations (Details) - Schedule of future minimum lease payments under these financing lease obligations
May 31, 2021
USD ($)
Schedule of future minimum lease payments under these financing lease obligations [Abstract]  
2021 $ 9,779
2022 4,077
Total 13,856
Less: interest portion 925
Present value of net minimum lease payments 12,931
Less: current portion 8,948
Non-current portion $ 3,983
XML 47 R38.htm IDEA: XBRL DOCUMENT v3.21.2
Financing Lease Obligations (Details) - Schedule of financing lease obligations mature
May 31, 2021
USD ($)
Schedule of financing lease obligations mature [Abstract]  
2021 $ 8,948
2022 3,983
Principal payments remaining $ 12,931
XML 48 R39.htm IDEA: XBRL DOCUMENT v3.21.2
Loans Payable (Details) - USD ($)
1 Months Ended 6 Months Ended
Apr. 30, 2021
May 31, 2020
May 31, 2021
Feb. 28, 2017
Loans Payable (Details) [Line Items]        
Line of credit     $ 0 $ 3,000,000
Loans payable interest rate     1.00%  
Paycheck Protection Program [Member]        
Loans Payable (Details) [Line Items]        
Proceeds from loans   $ 449,700    
Line of credit, interest rate, description     The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.  
Proceeds from loans received $ 449,700      
XML 49 R40.htm IDEA: XBRL DOCUMENT v3.21.2
Accrued Expenses (Details) - Schedule of accrued expenses - USD ($)
May 31, 2021
Nov. 30, 2020
Schedule of accrued expenses [Abstract]    
Commissions $ 267,046 $ 215,052
Preferred stock dividends 154,069 151,569
Other accrued expenses 253,316 199,301
Total $ 674,431 $ 565,922
XML 50 R41.htm IDEA: XBRL DOCUMENT v3.21.2
Retirement Plan (Details) - USD ($)
1 Months Ended 6 Months Ended
Jun. 30, 1997
May 31, 2021
May 31, 2020
Nov. 30, 2020
Retirement Benefits [Abstract]        
Defined Contribution Plan, Description 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.      
Total employee contributions 15.00%      
Employer matching contribution percentage 20.00%      
Employee deferral percentage 5.00%      
Net assets for plan       $ 1,776,000
Pension expense   $ 1,425 $ 558  
XML 51 R42.htm IDEA: XBRL DOCUMENT v3.21.2
Shareholders' Equity (Details) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
May 01, 2021
Apr. 30, 2021
Apr. 30, 2020
May 31, 2019
May 31, 2016
Mar. 31, 2010
Nov. 30, 2000
May 31, 2021
Nov. 30, 2015
Nov. 30, 2020
Oct. 31, 2016
Aug. 31, 2010
Feb. 29, 1996
Shareholders' Equity (Details) [Line Items]                          
Preferred stock, shares authorized               5,000,000   5,000,000      
Number of common shares purchased for options granted   26,786                      
Cost issuance shares amount (in Dollars)   $ 75,000                      
Stock option, description     the Company granted stock options to (a) four non-employee directors to each purchase 15,000 shares of common stock, (b) one non-employee-director to purchase 25,000 shares of common stock, and (c) two Company officers to each purchase 50,000 shares of common stock at an exercise price of $1.41 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $154,534 related to the granting of these options.                    
Intrinsic value of exercisable options (in Dollars)               $ 221,000          
Weighted average remaining life               3 years 328 days          
Compensation (in Dollars) $ 3,500                        
2010 Incentive Stock Plan [Member] | Employee Stock Option [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Number of common shares purchased for options granted           1,500,000              
Incentive Stock 2015 Plan [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Number of common shares purchased for options granted       47,207                  
Incentive Stock 2015 Plan [Member] | Employee Stock Option [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Number of common shares purchased for options granted                 1,500,000        
Officer [Member] | Incentive Stock 2015 Plan [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Issuance of shares as compensation, shares         99,151                
Non-Employee Director [Member] | Employee Stock Option [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Compensation (in Dollars)               $ 3,500          
Non-Employee Director [Member] | Incentive Stock 2015 Plan [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Number of common shares purchased for options granted     15,000                    
Cost issuance shares amount (in Dollars)     $ 21,150                    
Employee Stock Option [Member] | Incentive Stock 2015 Plan [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Number of common shares purchased for options granted     27,500                    
Cost issuance shares amount (in Dollars)     $ 41,250                    
One Employee Director One [Member] | Employee Stock Option [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Compensation (in Dollars)               $ 2,500          
Preferred Stock [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Preferred stock, shares authorized                       5,000,000 1,000,000
Series C Preferred Stock [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Preferred stock, shares authorized             100,000 100,000   100,000      
Number of shares converted into common stock upon conversion             10            
Preferred stock issued in payment of financial consulting services             70,000            
Converted into common stock, description               Dividends aggregating $154,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2020. The Company has accrued these dividends. At May 31, 2021, there are 10,000 shares of Series C Preferred issued and outstanding.          
Series D Preferred Stock [Member]                          
Shareholders' Equity (Details) [Line Items]                          
Preferred stock, shares authorized               75,000   75,000 75,000    
XML 52 R43.htm IDEA: XBRL DOCUMENT v3.21.2
Shareholders' Equity (Details) - Schedule of activity in the 2015 incentive stock plan - Equity Option [Member] - $ / shares
6 Months Ended
May 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Shares, Options outstanding December 1, 2020 255,000
Weighted Average Exercise Price, Options outstanding December 1, 2020 $ 1.34
Shares, Options issued in the six months ended May 31, 2021
Weighted Average Exercise Price, Options issued in the six months ended May 31, 2021
Shares, Options exercised in the six months ended May 31, 2021 (85,000)
Weighted Average Exercise Price, Options exercised in the six months ended May 31, 2021 $ (1.20)
Shares, Options cancelled in the six months ended May 31, 2021
Weighted Average Exercise Price, Options cancelled in the six months ended May 31, 2021
Shares, Options outstanding at May 31, 2021 170,000
Weighted Average Exercise Price, Options outstanding at May 31, 2021 $ 1.41
Shares, Options exercisable at May 31, 2021 170,000
Weighted Average Exercise Price, Options exercisable at May 31, 2021 $ 1.41
XML 53 R44.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes (Details)
6 Months Ended
May 31, 2021
USD ($)
Income Tax Disclosure [Abstract]  
Valuation allowance for deferred tax assets $ 14,000
Net operating loss carryforwards $ 2,800,000
Operating loss expire term expire through 2025
XML 54 R45.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes (Details) - Schedule of deferred income taxes - USD ($)
May 31, 2021
Nov. 30, 2020
Deferred Tax Assets    
Net operating loss $ 731,098 $ 1,066,794
Allowance for bad debts 30,515 30,413
Inventory 61,269 60,746
Deferred rent
Other 109,957 100,133
Depreciation 44,267 63,632
Total deferred tax assets 977,106 1,321,718
Valuation allowance (14,160)
Deferred Tax Assets $ 977,106 $ 1,307,558
XML 55 R46.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes (Details) - Schedule of income tax expense - USD ($)
6 Months Ended
May 31, 2021
May 31, 2020
Current:    
Federal
States 110,003 91,516
Current, total 110,003 91,516
Deferred:    
Federal 269,945 219,498
States 60,507 58,348
Deferred, total 330,452 277,846
Provision for income taxes $ 440,455 $ 369,362
XML 56 R47.htm IDEA: XBRL DOCUMENT v3.21.2
Income Taxes (Details) - Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate
6 Months Ended
May 31, 2021
May 31, 2020
Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate [Abstract]    
U.S Federal Income tax statutory rate 21.00% 21.00%
Valuation allowance 5.00% 175.00%
State income taxes 5.00% 5.00%
Other
Effective tax rate 31.00% 201.00%
XML 57 R48.htm IDEA: XBRL DOCUMENT v3.21.2
Operating Lease Commitments (Details) - USD ($)
1 Months Ended 6 Months Ended 12 Months Ended
Dec. 31, 2022
Jun. 30, 2021
May 31, 2021
May 31, 2020
Nov. 30, 2020
Operating Lease Commitments (Details) [Line Items]          
Net rental expense     $ 211,918 $ 181,325  
Related Parties [Member]          
Operating Lease Commitments (Details) [Line Items]          
Annual minimum rental payments         $ 180,000
Net rental expense     $ 135,299 $ 133,437  
Hong Kong [Member] | Subsequent Event [Member]          
Operating Lease Commitments (Details) [Line Items]          
Annual minimum rental payments   $ 68,460      
Hong Kong [Member] | Forecast [Member]          
Operating Lease Commitments (Details) [Line Items]          
Annual minimum rental payments $ 36,840        
XML 58 R49.htm IDEA: XBRL DOCUMENT v3.21.2
Operating Lease Commitments (Details) - Schedule of future minimum rental commitments
May 31, 2021
USD ($)
Schedule of future minimum rental commitments [Abstract]  
2022 $ 235,038
2023 217,810
2024 200,215
2025 204,219
2026 208,303
2027 and after 951,369
Future minimum rental commitments $ 2,016,954
XML 59 R50.htm IDEA: XBRL DOCUMENT v3.21.2
Employment and Other Agreements (Details)
1 Months Ended 6 Months Ended
Apr. 30, 2021
USD ($)
Feb. 29, 2016
USD ($)
May 31, 2021
Employment and Other Agreements (Details) [Line Items]      
Number of officers involved in employment agreements 2 2  
Employment agreements termination, description     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.
Compensation, description     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.
One Officer [Member]      
Employment and Other Agreements (Details) [Line Items]      
Base salary $ 300,000 $ 275,000  
Other Officer [Member]      
Employment and Other Agreements (Details) [Line Items]      
Base salary $ 250,000 $ 225,000  
XML 60 R51.htm IDEA: XBRL DOCUMENT v3.21.2
Major Customers (Details)
6 Months Ended
May 31, 2021
May 31, 2020
Net sales [Member]    
Major Customers (Details) [Line Items]    
Number of Customers 2 2
Accounts Receivable [Member]    
Major Customers (Details) [Line Items]    
Number of Customers 2 2
Customer One [Member] | Net sales [Member]    
Major Customers (Details) [Line Items]    
Percentage of concentration risk 15.00% 16.00%
Customer One [Member] | Accounts Receivable [Member]    
Major Customers (Details) [Line Items]    
Percentage of concentration risk 22.00% 18.00%
Customer Two [Member] | Net sales [Member]    
Major Customers (Details) [Line Items]    
Percentage of concentration risk 14.00% 12.00%
Customer Two [Member] | Accounts Receivable [Member]    
Major Customers (Details) [Line Items]    
Percentage of concentration risk 10.00% 11.00%
XML 61 R52.htm IDEA: XBRL DOCUMENT v3.21.2
Major Suppliers (Details)
6 Months Ended
May 31, 2021
May 31, 2020
Major Suppliers (Details) [Line Items]    
Number of foreign supplier 1 1
Supplier Concentration Risk [Member] | Total Inventory Purchased [Member] | Major Suppliers [Member]    
Major Suppliers (Details) [Line Items]    
Percentage of inventory purchased of products 33.00% 40.00%
Supplier Concentration Risk [Member] | Taiwan [Member] | Total Inventory Purchased [Member]    
Major Suppliers (Details) [Line Items]    
Percentage of inventory purchased of products 42.00%  
Supplier Concentration Risk [Member] | Hong Kong [Member] | Total Inventory Purchased [Member]    
Major Suppliers (Details) [Line Items]    
Percentage of inventory purchased of products 15.00%  
Supplier Concentration Risk [Member] | Elsewhere In Asia [Member] | Total Inventory Purchased [Member]    
Major Suppliers (Details) [Line Items]    
Percentage of inventory purchased of products 38.00%  
Supplier Concentration Risk [Member] | Overseas Outside of Asia [Member] | Total Inventory Purchased [Member]    
Major Suppliers (Details) [Line Items]    
Percentage of inventory purchased of products 1.00%  
XML 62 R53.htm IDEA: XBRL DOCUMENT v3.21.2
Export Sales (Details) - Schedule of export sales - USD ($)
6 Months Ended
May 31, 2021
May 31, 2020
Canada [Member]    
Revenue from External Customer [Line Items]    
Export sales $ 2,028,979 $ 1,529,736
China [Member]    
Revenue from External Customer [Line Items]    
Export sales 3,004,843 2,472,615
Other Asian Countries [Member]    
Revenue from External Customer [Line Items]    
Export sales 1,328,639 448,001
South America [Member]    
Revenue from External Customer [Line Items]    
Export sales 59,931 138,110
Europe [Member]    
Revenue from External Customer [Line Items]    
Export sales $ 831,769 $ 563,369
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