10-Q

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 August 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 October 8, 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 August 31, 2021 (unaudited) and November 30, 2020	1
Consolidated Statements of Operations for the nine and three months ended August 31, 2021 and August 31, 2020 (unaudited)	3
Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended August 31, 2021 and August 31, 2020 (unaudited)	4
Consolidated Statements of Cash Flows for the nine months ended August 31, 2021 and August 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	23
Item 4. Controls and Procedures	23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 1A. Risk Factors	24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3. Defaults Upon Senior Securities	24
Item 4. Mine Safety Disclosures	24
Item 5. Other Information	24
Item 6. Exhibits	25
SIGNATURES	26

i

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	August 31, 2021		November 30, 2020
	(unaudited)
ASSETS
Current assets:
Cash	$	5,486,467	$	4,387,929
Accounts receivable - net of allowance for doubtful accounts of $150,493 and $144,818		7,766,175		6,455,263
Inventory, net		4,203,463		3,410,534
Prepaid expenses and income taxes		360,949		533,862
Total current assets		17,817,054		14,787,588
Fixed assets – net of accumulated depreciation and amortization of $1,591,602 and $2,343,627		242,059		102,235
Operating lease right of use asset		1,594,356		1,636,411
Deferred income taxes		643,524		1,307,558
Other assets		22,607		22,607
Total assets	$	20,319,600	$	17,856,399

See notes to consolidated financial statements

1

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Continued)

	August 31, 2021			November 30, 2020
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,900,464		$	3,880,805
Operating lease liabilities, current maturities		298,862			233,546
Financing lease payable, current maturities		9,158			8,475
Accrued expenses and taxes		637,765			565,922
Accrued salaries		577,922			677,256
Total current liabilities		6,424,171			5,366,004
Operating lease liabilities net of current maturities		1,358,880			1,430,144
Financing lease payable, net of current maturities		1,613			8,627
Note payable to bank		-			449,700
Total liabilities		7,784,664			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		(4,494,043	)		(6,352,055	)
Total shareholders’ equity		12,534,936			10,601,924
Total liabilities and shareholders’ equity	$	20,319,600		$	17,856,399

See notes to consolidated financial statements.

2

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Nine Months Ended August 31,						Three Months Ended August 31,
	2021			2020			2021			2020
Net sales	$	28,381,036		$	22,103,444		$	10,632,274		$	8,667,255
Cost of goods sold		20,437,035			15,913,093			7,545,561			6,405,274
Gross profit		7,944,001			6,190,351			3,086,713			2,261,981
Operating expenses:
Selling and shipping expenses		1,893,729			1,814,955			618,346			583,984
General and administrative expenses		3,770,917			3,652,093			1,196,692			1,137,220
Depreciation and amortization		52,573			28,428			17,524			9,523
Total operating expenses		5,717,219			5,495,476			1,832,562			1,730,727
Income before other income (expense) and income taxes		2,226,782			694,875			1,254,151			531,254
Other income (expense):
Other income PPP		449,700			-			-			-
Other income		917			21,540			303			562
Interest expense		(1,004	)		(1,566	)		(286	)		(477	)
Other income (expense)		449,613			19,974			17			85
Income before income taxes		2,676,395			714,849			1,254,168			531,339
Income taxes (benefit)		813,383			211,836			372,928			(157,526	)
Net income		1,863,012			503,013			881,240			688,865
Dividends on preferred stock		5,000			5,000			2,500			2,500
Net income available to common shareholders	$	1,858,012		$	498,013		$	878,740		$	686,365
Net income per share available to common shareholders:
Basic	$	.34		$	.09		$	.16		$	.13
Diluted	$	.33		$	.09		$	.15		$	.12
Weighted Shares Outstanding:
Basic		5,482,269			5,355,281			5,515,342			5,405,733
Diluted		5,662,729			5,512,948			5,695,801			5,563,400

See notes to consolidated financial statements

3

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity

Nine months ended August 31, 2020 and August 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		-		-		-		-		-		(5,000	)		(5,000	)
Issuance of shares as compensation		-		-		42,500		43		216,892		-			216,935
Stock option expense						75,000		75		65,175					65,250
Net Income		-		-		-		-		-		503,013			503,013
Balance – August 31, 2020		10,000	$	10		5,437,526	$	5,437	$	16,948,532	$	(7,365,342	)	$	9,588,637

									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		-		-		-		-		-			(5,000	)		(5,000	)
Issuance of shares as compensation		-		-		26,786		27		74,973			-			75,000
Stock option exercise		-		-		51,030		51		(51	)		-			-
Net Income		-		-		-		-		-			1,863,012			1,863,012
Balance – August 31, 2021		10,000	$	10		5,515,342	$	5,515	$	17,023,454		$	(4,494,043	)	$	12,534,936

See notes to consolidated financial statements.

4

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	August 31, 2021			August 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	1,863,012		$	503,013
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		52,573			28,428
Gain on Forgiveness of debt		(449,700	)		-
Deferred income taxes		664,034			180,307
Allowance for doubtful accounts		5,675			10,713
Stock Compensation		75,000			216,935
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		(1,316,587	)		(810,996	)
Inventory		(792,929	)		(133,300	)
Prepaid expenses and income taxes		172,913			12,246
Other assets		36,107			1,228
Accounts payable		1,019,659			571,679
Accrued expenses		(32,491	)		(38	)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES		1,297,266			580,215
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets		(192,397	)		(19,387	)
NET CASH FLOWS USED IN INVESTING ACTIVITIES	$	(192,397	)	$	(19,387	)

5

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Continued)

	Nine Months Ended
	August 31,			August 31,
	2021			2020
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	$	-		$	65,250
Proceeds from notes payable to bank		-			449,700
Repayment of financing lease obligations		(6,331	)		(5,768	)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES		(6,331	)		509,182
NET CHANGE IN CASH		1,098,538			1,070,010
CASH AT BEGINNING OF PERIOD		4,387,929			2,739,305
CASH AT END OF PERIOD	$	5,486,467		$	3,809,315
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	$	156,793		$	125,478
Interest paid	$	1,004		$	1,566
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued dividends on preferred stock	$	5,000		$	5,000

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 and Basis of Presentation:

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 unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures required by U.S. GAAP for complete consolidated financial statements have been condensed or omitted herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended November 30, 2020 filed with the SEC on February 28, 2021. The unaudited interim condensed consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim consolidated financial statements included in this report. The results of operations of any interim period are not necessarily indicative of the results for the full year.

(2) Accounts Receivable:

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to accounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company’s operating history and customer base, bad debts to date have not been material.

(3) Revenue Recognition:

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 $3,677,000 and $1,330,000 for the nine months ended August 31, 2021 and August 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 $169,360 and $280,274 for the nine months ended August 31, 2021 and August 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 $5,992,000 and $4,729,000 for the nine months ended August 31, 2021 and August 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 August 31, 2021 was $1,057,094. The Company at August 31, 2021, has a reserve against slow moving and obsolete inventory of $261,565. 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 cash and accounts receivable. The Company believes that concentrations with regards to Accounts Receivable is limited to its customer base The Company maintains substantially all of its cash balances in a limited number of financial institutions. At August 31, 2021 and November 30, 2020, the Company’s uninsured cash balances totaled $4,921,971 and $3,244,820, 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, accrued payrolls 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, 2017, and state tax examinations for years before fiscal years ending November 30, 2016. 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 nine months ended August 31, 2021 and August 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 $2,977 and $2,654 for the nine months ended August 31, 2021 and August 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 August 31, 2021 and August 31, 2020 totaled 89,541 and 199,333, 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.

10

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE C – FIXED ASSETS

Fixed assets consist of the following:

	August 31,			November 30,
	2021			2020
Furniture and Fixtures	$	327,971		$	327,971
Leasehold Improvements		1,022,556			1,022,556
Computer Equipment		483,134			1,095,335
Less-Accumulated Depreciation		(1,591,602	)		(2,343,627	)
Net Fixed Assets	$	242,059		$	102,235

Depreciation and amortization expense for the nine months ended August 31, 2021 and August 31, 2020 was $52,573 and $28,428, 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 August 31, 2021 are as follows:

2021	$	9,779
2022	$	1,632
Total	$	11,411
Less: interest portion		640
Present value of net minimum lease payments	$	10,771
Less: current portion		9,158
Non-current portion	$	1,613

Financing lease obligations mature as follows:

Twelve months ended August 31, 2021:

2021	$	9,158
2022	$	1,613
Principal payments remaining	$	10,771

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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 August 31, 2021, the balance on the Credit Line was $0. As of August 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 were 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 would be 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:

	August 31,		November 30,
	2021		2020
Commissions	$	271,722	$	215,052
Preferred stock dividends		156,569		151,569
Other accrued expenses		209,474		199,301
	$	637,765	$	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 nine months ended August 31, 2021 and August 31, 2020 was $4,718 and $1,602, 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 $156,569 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 August 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 August 31, 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 August 31, 2021 is summarized as follows:

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

The intrinsic value of the exercisable options at August 31, 2021 totaled $202,300. At August 31, 2021 the weighted average remaining life of the stock options is 3.97 years. At August 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 May 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:

	August 31,		November 30,
	2021		2020
Deferred Tax Assets
Net operating loss	$	419,134	$	1,066,794
Allowance for bad debts		31,896		30,413
Inventory		61,792		60,746
Other		110,196		100,133
Depreciation		20,506		63,632
Total deferred tax assets		643,524		1,321,718
Valuation allowance		-		(14,160	)
Deferred Tax Assets	$	643,524	$	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 nine months ended August 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:

	Nine Months Ended
	August 31, 2021		August 31, 2020
Current:
Federal	$	-	$	-
States		149,349		31,529
		149,349		31,529
Deferred:
Federal		524,587		142,442
States		139,447		37,865
		664,034		180,307
Provision for income taxes	$	813,383	$	211,836

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $1,604,000 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:

	Nine months ended
	August 31,			August 31,
	2021			2020
U.S Federal Income tax statutory rate		21	%		21	%
Valuation allowance		4	%		4	%
State income taxes		5	%		5	%
Other		-			-
Effective tax rate		30	%		30	%

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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 partially owned 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 2023. Annual minimum rental payments for this space are approximately $68,580.

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 August 31, 2021 are as follows:

Twelve Months Ended August 31,

2022	$	298,862
2023		266,705
2024		201,203
2025		205,227
2026		209,331
2027 and after		898,950
	$	2,080,278

Net rental expense for the nine months ended August 31, 2021 and August 31, 2020 were $318,472 and $281,599 respectively, of which $202,949 and $200,156 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 nine months ended August 31, 2021 and two customers who accounted for 17% and 15% of net sales for the nine months ended August 31, 2020. The Company had one customer who accounted for 22% of accounts receivable at August 31, 2021 and one customer who accounted for 16% of accounts receivable at August 31, 2020.

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SURGE COMPONENTS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

NOTE M – MAJOR SUPPLIERS

During the nine months ended August 31, 2021 and August 31, 2020 there was one foreign supplier accounting for 34% and 39% of total inventory purchased.

The Company purchases substantially all of its products overseas. For the nine months ended August 31, 2021, the Company purchased 43% of its products from Taiwan, 14% from Hong Kong, 37% 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:

	Nine Months Ended
	August 31,		August 31,
	2021		2020
Canada		3,208,388		2,945,773
China		4,761,293		3,948,811
Other Asian Countries		2,674,402		1,099,040
South America		84,910		143,928
Europe		1,099,047		843,747

Revenues are attributed to countries based on location of customer.

NOTE O – 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 nine months 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 $169,360 and $280,274 for the nine months ended August 31, 2021 and August 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.

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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. Our year to date sales are strong and the Company has a strong backorder with customers due to the increased demand for products and the fact the customers are placing orders further into 2022 to cover their demand. 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. The combination of new disruptors such as increased costs and longer lead times from factories to the Company could have negative impacts on the business in the future.

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 nine months of 2021 and our customers’ outlook for their business is stronger than it was previously, we cannot guarantee 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.

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Revenue Recognition

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

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

Inventory Valuation

Inventories are recorded at the lower of cost or 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 $45,000.

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

Income Taxes

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

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Results of Operations

Consolidated net sales for the nine months ended August 31, 2021 increased by $6,277,592 or 28.4%, to $28,381,036 as compared to net sales of $22,103,444 for the nine months ended August 31, 2020. Consolidated net sales for the three months ended August 31, 2021 increased by $1,965,019 or 22.7%, to $10,632,274 as compared to net sales of $8,667,255 for the three months ended August 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 nine months ended August 31, 2020 since factories were shut and demand was reduced during that period. Since that period, factories in Asia have reopened and demand has increased. Customers are also ordering products further in advance due to issues with supply. Net sales for the nine months ended August 31, 2021 and August 31, 2020 reflect $611,252 and $840,399, respectively of tariff costs that the Company was able to pass on to its customers.

Our gross profit for the nine months ended August 31, 2021 increased by $1,753,650 to $7,944,001, or 28.3%, as compared to $6,190,351 for the nine months ended August 31, 2020. Gross margin as a percentage of net sales remained flat at 28% for the nine months ended August 31, 2021 and August 31, 2020. Gross profit for the three months ended August 31, 2021 increased by $824,732 to $3,086,713, or 36.5%, as compared to $2,261,981 for the three months ended August 31, 2020. Gross margin as a percentage of net sales increased to 29.0% for the three months ended August 31, 2021 compared to 26.1% for the three months ended August 31, 2020. We attribute the increase in gross margin to an increase in sales volume in the nine and three months ended August 31, 2021. We attribute the increase in gross margin as a percentage of sales to shipping products with higher margins in the three months ended August 31, 2021. 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%.  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 nine months ended August 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 nine months ended August 31, 2021 was $1,893,729, an increase of $78,774, or 4.3%, as compared to $1,814,955 for nine months ended August 31, 2020. Selling and shipping expenses for the three months ended August 31, 2021 was $618,346, an increase of $34,362, or 5.9%, as compared to $583,984 for three months ended August 31, 2020.We attribute the increase during the nine and three months ended August 31, 2021 to an increase in commission expenses, entertainment and freight out expenses, offset by decreases in salesman payroll and travel expenses.

General and administrative expenses for the nine months ended August 31, 2021 was $3,770,917, an increase of $118,824, or 3.3%, as compared to $3,652,093 for the nine months ended August 31, 2020. General and administrative expenses for the three months ended August 31, 2021 was $1,196,692, an increase of $59,472, or 5.2% as compared to $1,137,220 for the three months ended August 31, 2020. The increase during the nine months ended August 31, 2021 is due primarily to increases in rent, utilities, professional fees, salaries, computer expenses, consulting expenses, temporary help expenses, general maintenance expenses, and settlement expenses. The increase was offset by decreases in health insurance, general insurance expenses, director fees, fewer bad debt expenses, and public company expenses. We attribute the increase during the three months ended August 31, 2021 to increases in officer payroll, salaries, director fees, rent expenses, temporary help, computer, and maintenance expenses. This increase was offset by decreases in health, general insurance expenses, and fewer bad debt expenses.

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Depreciation expense for the nine months ended August 31, 2021 was $52,573, an increase of $24,145, or 84.9%, as compared to $28,428 for the nine months ended August 31, 2020. Depreciation expense for the three months ended August 31, 2021 was $17,524, an increase of $8,001, or 84%, as compared to $9,523 for the three months ended August 31, 2020. The increase is due to the company purchasing new equipment during the nine months ended August 31, 2021.

Other income for the nine months ended August 31, 2021 was $450,617, an increase of $429,077 compared to $21,540 for the nine months ended August 31, 2020. Other income for the three months ended August 31, 2021 was $303, a decrease of $259 compared to $562 for the three months ended August 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 nine months ended August 31, 2021.

Tax expense for the nine months ended August 31, 2021 was $813,383, an increase of $601,547 as compared to a tax expense of $211,836 for the nine months ended August 31, 2020. Tax expense for the three months ended August 31, 2021 was $372,928, an increase of $530,454 as compared to a tax benefit of $157,526 for the three months ended August 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 nine months ended August 31, 2021 was $1,863,012, compared to a net income of $503,013 for nine months ended August 31, 2020. The net income for the three months ended August 31, 2021 was $881,240, compared to a net income of $688,865 for the three months ended August 31, 2020.

Liquidity and Capital Resources

As of August 31, 2021 we had cash of $5,486,467, and working capital of $11,392,883. 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 nine months ended August 31, 2021, we had net cash flow provided by operating activities of $1,297,266, as compared to net cash flow provided by operating activities of $580,215 for the nine months ended August 31, 2020. The increase in cash flow from operating activities resulted from increases in net income, deferred income taxes, depreciation, accounts payable, and prepaid expenses, and was offset by decreases in stock compensation, accounts receivable, inventory, and forgiveness of debt.

We had net cash flow used in investing activities of $(192,397) for the nine months ended August 31, 2021, as compared to net cash flow used in investing activities of $(19,387) for the nine months ended August 31, 2020. We attribute the change to the Company purchasing more new equipment during the nine months ended August 31, 2021.

We had net cash flow used by financing activities of $(6,331) during the nine months ended August 31, 2021 as compared to $509,182 provided by financing activities for nine months ended August 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 $1,098,538 for the nine months ended August 31, 2021, as compared to a net increase in cash of $1,070,010 for the nine months ended August 31, 2020.

22

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

			Payments due
			0 – 12		13 – 36		37 – 60		More than
Contractual Obligations	Total		Months		Months		Months		60 Months
Capital Lease Obligations	$	10,771	$	9,158	$	1,613	$	-	$	-
Operating leases	$	2,080,278		298,862		467,908		414,558		898,950
Total obligations	$	2,091,049	$	308,020	$	469,521	$	414,558	$	898,950

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 August 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 August 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.

23

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.

24

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.
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.
31.1	Certification by principal executive officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification by principal executive officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

25

SIGNATURES

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

	SURGE COMPONENTS, INC.
Date: October 15, 2021	By:	/s/ Ira Levy
	Name:	Ira Levy
	Title:	Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

26

EX-31.1

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: October 15, 2021	By:	/s/ Ira Levy
		Ira Levy
		Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)

EX-32.1

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 August 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: October 15, 2021	By:	/s/ Ira Levy
		Ira Levy
		Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)

XML

Document And Entity Information - shares	9 Months Ended
	Aug. 31, 2021	Oct. 08, 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	Aug. 31, 2021
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	000-27688
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	11-2602030
Entity Address, Address Line One	95 East Jefryn Boulevard
Entity Address, City or Town	Deer Park
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	11729
City Area Code	(631)
Local Phone Number	595-1818
Entity Interactive Data Current	Yes

XML

Consolidated Balance Sheets - USD ($)	Aug. 31, 2021	Nov. 30, 2020
Current assets:
Cash	$ 5,486,467	$ 4,387,929
Accounts receivable - net of allowance for doubtful accounts of $150,493 and $144,818	7,766,175	6,455,263
Inventory, net	4,203,463	3,410,534
Prepaid expenses and income taxes	360,949	533,862
Total current assets	17,817,054	14,787,588
Fixed assets – net of accumulated depreciation and amortization of $1,591,602 and $2,343,627	242,059	102,235
Operating lease right of use asset	1,594,356	1,636,411
Deferred income taxes	643,524	1,307,558
Other assets	22,607	22,607
Total assets	20,319,600	17,856,399
Current liabilities:
Accounts payable	4,900,464	3,880,805
Operating lease liabilities, current maturities	298,862	233,546
Financing lease payable, current maturities	9,158	8,475
Accrued expenses and taxes	637,765	565,922
Accrued salaries	577,922	677,256
Total current liabilities	6,424,171	5,366,004
Operating lease liabilities net of current maturities	1,358,880	1,430,144
Financing lease payable, net of current maturities	1,613	8,627
Note payable to bank		449,700
Total liabilities	7,784,664	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	(4,494,043)	(6,352,055)
Total shareholders’ equity	12,534,936	10,601,924
Total liabilities and shareholders’ equity	$ 20,319,600	$ 17,856,399

XML

Consolidated Balance Sheets (Parentheticals) - USD ($)	Aug. 31, 2021	Nov. 30, 2020
Allowance for doubtful accounts of accounts receivable (in Dollars)	$ 150,493	$ 144,818
Accumulated depreciation and amortization on fixed assets (in Dollars)	$ 1,591,602	$ 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

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020	Aug. 31, 2021	Aug. 31, 2020
Income Statement [Abstract]
Net sales	$ 10,632,274	$ 8,667,255	$ 28,381,036	$ 22,103,444
Cost of goods sold	7,545,561	6,405,274	20,437,035	15,913,093
Gross profit	3,086,713	2,261,981	7,944,001	6,190,351
Operating expenses:
Selling and shipping expenses	618,346	583,984	1,893,729	1,814,955
General and administrative expenses	1,196,692	1,137,220	3,770,917	3,652,093
Depreciation and amortization	17,524	9,523	52,573	28,428
Total operating expenses	1,832,562	1,730,727	5,717,219	5,495,476
Income before other income (expense) and income taxes	1,254,151	531,254	2,226,782	694,875
Other income (expense):
Other income PPP			449,700
Other income	303	562	917	21,540
Interest expense	(286)	(477)	(1,004)	(1,566)
Other income (expense)	17	85	449,613	19,974
Income before income taxes	1,254,168	531,339	2,676,395	714,849
Income taxes (benefit)	372,928	(157,526)	813,383	211,836
Net income	881,240	688,865	1,863,012	503,013
Dividends on preferred stock	2,500	2,500	5,000	5,000
Net income available to common shareholders	$ 878,740	$ 686,365	$ 1,858,012	$ 498,013
Net income per share available to common shareholders:
Basic (in Dollars per share)	$ 0.16	$ 0.13	$ 0.34	$ 0.09
Diluted (in Dollars per share)	$ 0.15	$ 0.12	$ 0.33	$ 0.09
Weighted Shares Outstanding:
Basic (in Shares)	5,515,342	5,405,733	5,482,269	5,355,281
Diluted (in Shares)	5,695,801	5,563,400	5,662,729	5,512,948

XML

Consolidated Statements of Changes in Shareholders’ Equity - USD ($)	Series C Preferred	Common	Additional Paid-In Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2019	$ 10	$ 5,319	$ 16,666,465	$ (7,863,355)	$ 8,808,439
Balance (in Shares) at Dec. 31, 2019	10,000	5,320,026
Preferred stock dividends				(5,000)	(5,000)
Issuance of shares as compensation		$ 43	216,892		216,935
Issuance of shares as compensation (in Shares)		42,500
Stock option expense		$ 75	65,175		65,250
Stock option expense (in Shares)		75,000
Net Income				503,013	503,013
Balance at Aug. 31, 2020	$ 10	$ 5,437	16,948,532	(7,365,342)	9,588,637
Balance (in Shares) at Aug. 31, 2020	10,000	5,437,526
Balance at Dec. 31, 2020	$ 10	$ 5,437	16,948,532	(6,352,055)	10,601,924
Balance (in Shares) at Dec. 31, 2020	10,000	5,437,526
Preferred stock dividends				(5,000)	(5,000)
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				1,863,012	1,863,012
Balance at Aug. 31, 2021	$ 10	$ 5,515	$ 17,023,454	$ (4,494,043)	$ 12,534,936
Balance (in Shares) at Aug. 31, 2021	10,000	5,515,342

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$ 1,863,012	$ 503,013
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	52,573	28,428
Gain on Forgiveness of debt	(449,700)
Deferred income taxes	664,034	180,307
Allowance for doubtful accounts	5,675	10,713
Stock Compensation	75,000	216,935
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable	(1,316,587)	(810,996)
Inventory	(792,929)	(133,300)
Prepaid expenses and income taxes	172,913	12,246
Other assets	36,107	1,228
Accounts payable	1,019,659	571,679
Accrued expenses	(32,491)	(38)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES	1,297,266	580,215
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets	(192,397)	(19,387)
NET CASH FLOWS USED IN INVESTING ACTIVITIES	(192,397)	(19,387)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options		65,250
Proceeds from notes payable to bank		449,700
Repayment of financing lease obligations	(6,331)	(5,768)
NET CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES	(6,331)	509,182
NET CHANGE IN CASH	1,098,538	1,070,010
CASH AT BEGINNING OF PERIOD	4,387,929	2,739,305
CASH AT END OF PERIOD	5,486,467	3,809,315
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	156,793	125,478
Interest paid	1,004	1,566
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued dividends on preferred stock	$ 5,000	$ 5,000

XML

Organization, Description of Company’s Business and Basis of Presentation

9 Months Ended

Aug. 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

Summary of Significant Accounting Policies

9 Months Ended

Aug. 31, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Principles of Consolidation and Basis of Presentation:

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 unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures required by U.S. GAAP for complete consolidated financial statements have been condensed or omitted herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended November 30, 2020 filed with the SEC on February 28, 2021. The unaudited interim condensed consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim consolidated financial statements included in this report. The results of operations of any interim period are not necessarily indicative of the results for the full year.

(2) Accounts Receivable:

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to accounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company’s operating history and customer base, bad debts to date have not been material.

(3) Revenue Recognition:

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 $3,677,000 and $1,330,000 for the nine months ended August 31, 2021 and August 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 $169,360 and $280,274 for the nine months ended August 31, 2021 and August 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 $5,992,000 and $4,729,000 for the nine months ended August 31, 2021 and August 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 August 31, 2021 was $1,057,094. The Company at August 31, 2021, has a reserve against slow moving and obsolete inventory of $261,565. 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 cash and accounts receivable. The Company believes that concentrations with regards to Accounts Receivable is limited to its customer base The Company maintains substantially all of its cash balances in a limited number of financial institutions. At August 31, 2021 and November 30, 2020, the Company’s uninsured cash balances totaled $4,921,971 and $3,244,820, 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, accrued payrolls 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, 2017, and state tax examinations for years before fiscal years ending November 30, 2016. 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 nine months ended August 31, 2021 and August 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 $2,977 and $2,654 for the nine months ended August 31, 2021 and August 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 August 31, 2021 and August 31, 2020 totaled 89,541 and 199,333, 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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Fixed Assets

9 Months Ended

Aug. 31, 2021

Property, Plant and Equipment [Abstract]

FIXED ASSETS

NOTE C – FIXED ASSETS

Fixed assets consist of the following:

	August 31,			November 30,
	2021			2020
Furniture and Fixtures	$	327,971		$	327,971
Leasehold Improvements		1,022,556			1,022,556
Computer Equipment		483,134			1,095,335
Less-Accumulated Depreciation		(1,591,602	)		(2,343,627	)
Net Fixed Assets	$	242,059		$	102,235

Depreciation and amortization expense for the nine months ended August 31, 2021 and August 31, 2020 was $52,573 and $28,428, respectively.

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Financing Lease Obligations

9 Months Ended

Aug. 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 August 31, 2021 are as follows:

2021	$	9,779
2022	$	1,632
Total	$	11,411
Less: interest portion		640
Present value of net minimum lease payments	$	10,771
Less: current portion		9,158
Non-current portion	$	1,613

Financing lease obligations mature as follows:

Twelve months ended August 31, 2021:

2021	$	9,158
2022	$	1,613
Principal payments remaining	$	10,771

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Loans Payable

9 Months Ended

Aug. 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 August 31, 2021, the balance on the Credit Line was $0. As of August 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 were 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 would be 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.

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Accrued Expenses

9 Months Ended

Aug. 31, 2021

Accrued Expenses [Abstract]

ACCRUED EXPENSES

NOTE F – ACCRUED EXPENSES

Accrued expenses consist of the following:

	August 31,		November 30,
	2021		2020
Commissions	$	271,722	$	215,052
Preferred stock dividends		156,569		151,569
Other accrued expenses		209,474		199,301
	$	637,765	$	565,922

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Retirement Plan

9 Months Ended

Aug. 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 nine months ended August 31, 2021 and August 31, 2020 was $4,718 and $1,602, respectively.

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Shareholders' Equity

9 Months Ended

Aug. 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 $156,569 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 August 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 August 31, 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 August 31, 2021 is summarized as follows:

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

The intrinsic value of the exercisable options at August 31, 2021 totaled $202,300. At August 31, 2021 the weighted average remaining life of the stock options is 3.97 years. At August 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 May 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)

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Income Taxes

9 Months Ended

Aug. 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:

	August 31,		November 30,
	2021		2020
Deferred Tax Assets
Net operating loss	$	419,134	$	1,066,794
Allowance for bad debts		31,896		30,413
Inventory		61,792		60,746
Other		110,196		100,133
Depreciation		20,506		63,632
Total deferred tax assets		643,524		1,321,718
Valuation allowance		-		(14,160	)
Deferred Tax Assets	$	643,524	$	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 nine months ended August 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:

	Nine Months Ended
	August 31, 2021		August 31, 2020
Current:
Federal	$	-	$	-
States		149,349		31,529
		149,349		31,529
Deferred:
Federal		524,587		142,442
States		139,447		37,865
		664,034		180,307
Provision for income taxes	$	813,383	$	211,836

The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $1,604,000 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:

	Nine months ended
	August 31,			August 31,
	2021			2020
U.S Federal Income tax statutory rate		21	%		21	%
Valuation allowance		4	%		4	%
State income taxes		5	%		5	%
Other		-			-
Effective tax rate		30	%		30	%

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Operating Lease Commitments

9 Months Ended

Aug. 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 partially owned 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 2023. Annual minimum rental payments for this space are approximately $68,580.

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 August 31, 2021 are as follows:

Twelve Months Ended August 31,

2022	$	298,862
2023		266,705
2024		201,203
2025		205,227
2026		209,331
2027 and after		898,950
	$	2,080,278

Net rental expense for the nine months ended August 31, 2021 and August 31, 2020 were $318,472 and $281,599 respectively, of which $202,949 and $200,156 respectively, was paid to the Related Company.

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Employment and Other Agreements

9 Months Ended

Aug. 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.

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Major Customers

9 Months Ended

Aug. 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 nine months ended August 31, 2021 and two customers who accounted for 17% and 15% of net sales for the nine months ended August 31, 2020. The Company had one customer who accounted for 22% of accounts receivable at August 31, 2021 and one customer who accounted for 16% of accounts receivable at August 31, 2020.

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Major Suppliers

9 Months Ended

Aug. 31, 2021

Major Suppliers [Abstract]

MAJOR SUPPLIERS

NOTE M – MAJOR SUPPLIERS

During the nine months ended August 31, 2021 and August 31, 2020 there was one foreign supplier accounting for 34% and 39% of total inventory purchased.

The Company purchases substantially all of its products overseas. For the nine months ended August 31, 2021, the Company purchased 43% of its products from Taiwan, 14% from Hong Kong, 37% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.

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Export Sales

9 Months Ended

Aug. 31, 2021

Segment Reporting [Abstract]

EXPORT SALES

NOTE N – EXPORT SALES

The Company’s export sales were as follows:

	Nine Months Ended
	August 31,		August 31,
	2021		2020
Canada		3,208,388		2,945,773
China		4,761,293		3,948,811
Other Asian Countries		2,674,402		1,099,040
South America		84,910		143,928
Europe		1,099,047		843,747

Revenues are attributed to countries based on location of customer.

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Subsequent Events

9 Months Ended

Aug. 31, 2021

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE O – 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 nine months 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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Accounting Policies, by Policy (Policies)

9 Months Ended

Aug. 31, 2021

Accounting Policies [Abstract]

Principles of Consolidation and Basis of Presentation

(1) Principles of Consolidation and Basis of Presentation:

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 unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and disclosures required by U.S. GAAP for complete consolidated financial statements have been condensed or omitted herein. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended November 30, 2020 filed with the SEC on February 28, 2021. The unaudited interim condensed consolidated financial information presented herein reflects all normal adjustments that are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. The Company is responsible for the unaudited interim consolidated financial statements included in this report. The results of operations of any interim period are not necessarily indicative of the results for the full year.

Accounts Receivable

(2) Accounts Receivable:

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to accounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company’s operating history and customer base, bad debts to date have not been material.

Revenue Recognition

(3) Revenue Recognition:

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 $3,677,000 and $1,330,000 for the nine months ended August 31, 2021 and August 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 $169,360 and $280,274 for the nine months ended August 31, 2021 and August 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 $5,992,000 and $4,729,000 for the nine months ended August 31, 2021 and August 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 August 31, 2021 was $1,057,094. The Company at August 31, 2021, has a reserve against slow moving and obsolete inventory of $261,565. 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 cash and accounts receivable. The Company believes that concentrations with regards to Accounts Receivable is limited to its customer base The Company maintains substantially all of its cash balances in a limited number of financial institutions. At August 31, 2021 and November 30, 2020, the Company’s uninsured cash balances totaled $4,921,971 and $3,244,820, 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, accrued payrolls 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, 2017, and state tax examinations for years before fiscal years ending November 30, 2016. 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 nine months ended August 31, 2021 and August 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 $2,977 and $2,654 for the nine months ended August 31, 2021 and August 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 August 31, 2021 and August 31, 2020 totaled 89,541 and 199,333, 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.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Aug. 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

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Fixed Assets (Tables)

9 Months Ended

Aug. 31, 2021

Property, Plant and Equipment [Abstract]

Schedule of fixed assets

	August 31,			November 30,
	2021			2020
Furniture and Fixtures	$	327,971		$	327,971
Leasehold Improvements		1,022,556			1,022,556
Computer Equipment		483,134			1,095,335
Less-Accumulated Depreciation		(1,591,602	)		(2,343,627	)
Net Fixed Assets	$	242,059		$	102,235

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Financing Lease Obligations (Tables)

9 Months Ended

Aug. 31, 2021

Financing Lease Obligations [Abstract]

Schedule of future minimum lease payments under these financing lease obligations

2021	$	9,779
2022	$	1,632
Total	$	11,411
Less: interest portion		640
Present value of net minimum lease payments	$	10,771
Less: current portion		9,158
Non-current portion	$	1,613

Schedule of financing lease obligations mature

2021	$	9,158
2022	$	1,613
Principal payments remaining	$	10,771

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Accrued Expenses (Tables)

9 Months Ended

Aug. 31, 2021

Accrued Expenses [Abstract]

Schedule of accrued expenses

	August 31,		November 30,
	2021		2020
Commissions	$	271,722	$	215,052
Preferred stock dividends		156,569		151,569
Other accrued expenses		209,474		199,301
	$	637,765	$	565,922

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Shareholders' Equity (Tables)

9 Months Ended

Aug. 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 nine months ended August 31, 2021		-		$	-
Options exercised in the nine months ended August 31, 2021		(85,000	)	$	(1.20	)
Options cancelled in the nine months ended August 31, 2021		-		$	-
Options outstanding at August 31, 2021		170,000		$	1.41
Options exercisable at August 31, 2021		170,000		$	1.41

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Income Taxes (Tables)

9 Months Ended

Aug. 31, 2021

Income Tax Disclosure [Abstract]

Schedule of deferred income taxes

	August 31,		November 30,
	2021		2020
Deferred Tax Assets
Net operating loss	$	419,134	$	1,066,794
Allowance for bad debts		31,896		30,413
Inventory		61,792		60,746
Other		110,196		100,133
Depreciation		20,506		63,632
Total deferred tax assets		643,524		1,321,718
Valuation allowance		-		(14,160	)
Deferred Tax Assets	$	643,524	$	1,307,558

Schedule of income tax expense

	Nine Months Ended
	August 31, 2021		August 31, 2020
Current:
Federal	$	-	$	-
States		149,349		31,529
		149,349		31,529
Deferred:
Federal		524,587		142,442
States		139,447		37,865
		664,034		180,307
Provision for income taxes	$	813,383	$	211,836

Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate

	Nine months ended
	August 31,			August 31,
	2021			2020
U.S Federal Income tax statutory rate		21	%		21	%
Valuation allowance		4	%		4	%
State income taxes		5	%		5	%
Other		-			-
Effective tax rate		30	%		30	%

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Operating Lease Commitments (Tables)

9 Months Ended

Aug. 31, 2021

Disclosure Text Block [Abstract]

Schedule of future minimum rental commitments

2022	$	298,862
2023		266,705
2024		201,203
2025		205,227
2026		209,331
2027 and after		898,950
	$	2,080,278

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Export Sales (Tables)

9 Months Ended

Aug. 31, 2021

Segment Reporting [Abstract]

Schedule of export sales

	Nine Months Ended
	August 31,		August 31,
	2021		2020
Canada		3,208,388		2,945,773
China		4,761,293		3,948,811
Other Asian Countries		2,674,402		1,099,040
South America		84,910		143,928
Europe		1,099,047		843,747

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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

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Summary of Significant Accounting Policies (Details) - USD ($)	9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020	Nov. 30, 2020
Accounting Policies [Abstract]
Direct shipments revenue	$ 3,677,000	$ 1,330,000
Commission revenue	169,360	280,274
Revenues from distribution agreements	5,992,000	4,729,000
Inventory in transit from foreign suppliers	1,057,094
Reserve against slow moving and obsolete inventory	261,565
Amount of uninsured cash balances	4,921,971		$ 3,244,820
Shipping costs	$ 2,977	$ 2,654
Diluted weighted shares outstanding (in Shares)	89,541	199,333
Operating leases	$ 290,000

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Summary of Significant Accounting Policies (Details) - Schedule of estimated useful life of fixed assets	9 Months Ended
	Aug. 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

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Fixed Assets (Details) - USD ($)	9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020
Property, Plant and Equipment [Abstract]
Depreciation and amortization expense	$ 52,573	$ 28,428

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Fixed Assets (Details) - Schedule of fixed assets - USD ($)	Aug. 31, 2021	Nov. 30, 2020
Property, Plant and Equipment [Line Items]
Less-Accumulated Depreciation	$ (1,591,602)	$ (2,343,627)
Net Fixed Assets	242,059	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	$ 483,134	$ 1,095,335

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Financing Lease Obligations (Details)	9 Months Ended
	Aug. 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

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Financing Lease Obligations (Details) - Schedule of future minimum lease payments under these financing lease obligations	Aug. 31, 2021 USD ($)
Schedule of future minimum lease payments under these financing lease obligations [Abstract]
2021	$ 9,779
2022	1,632
Total	11,411
Less: interest portion	640
Present value of net minimum lease payments	10,771
Less: current portion	9,158
Non-current portion	$ 1,613

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Financing Lease Obligations (Details) - Schedule of financing lease obligations mature	Aug. 31, 2021 USD ($)
Schedule of financing lease obligations mature [Abstract]
2021	$ 9,158
2022	1,613
Principal payments remaining	$ 10,771

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Loans Payable (Details) - USD ($)	1 Months Ended		9 Months Ended
	Apr. 30, 2021	May 31, 2020	Aug. 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

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Accrued Expenses (Details) - Schedule of accrued expenses - USD ($)	Aug. 31, 2021	Nov. 30, 2020
Schedule of accrued expenses [Abstract]
Commissions	$ 271,722	$ 215,052
Preferred stock dividends	156,569	151,569
Other accrued expenses	209,474	199,301
Total	$ 637,765	$ 565,922

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Retirement Plan (Details) - USD ($)	1 Months Ended	9 Months Ended
	Jun. 30, 1997	Aug. 31, 2021	Aug. 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		$ 4,718	$ 1,602

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Shareholders' Equity (Details) - USD ($)			1 Months Ended						9 Months Ended
	May 01, 2021	Nov. 30, 2015	Apr. 30, 2021	Apr. 30, 2020	May 31, 2019	May 31, 2016	Mar. 31, 2010	Nov. 30, 2000	Aug. 31, 2021	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
Cumulative dividend per share per annum (in Dollars per share)								$ 50
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)									$ 202,300
Weighted average remaining life									3 years 11 months 19 days
2010 Incentive Stock Plan [Member] | Share-based Payment Arrangement, 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] | Share-based Payment Arrangement, 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]
Shareholders' Equity (Details) [Line Items]
Compensation (in Dollars)									$ 2,500
Non Employee Director [Member] | Share-based Payment Arrangement, Option [Member]
Shareholders' Equity (Details) [Line Items]
Compensation (in Dollars)	$ 3,500								$ 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
Share-based Payment Arrangement, 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
Non-Employee Director One [Member] | Share-based Payment Arrangement, Option [Member]
Shareholders' Equity (Details) [Line Items]
Compensation (in Dollars)	$ 4,000
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 $156,569 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 August 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

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Shareholders' Equity (Details) - Schedule of activity in the 2015 incentive stock plan - Equity Option [Member]	9 Months Ended
	Dec. 31, 2021 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares, Options outstanding December 1, 2020 | shares	255,000
Weighted Average Exercise Price, Options outstanding December 1, 2020 | $ / shares	$ 1.34
Shares, Options issued in the nine months ended August 31, 2021 | shares
Weighted Average Exercise Price, Options issued in the nine months ended August 31, 2021 | $ / shares
Shares, Options exercised in the nine months ended August 31, 2021 | shares	(85,000)
Weighted Average Exercise Price, Options exercised in the nine months ended August 31, 2021 | $ / shares	$ (1.20)
Shares, Options cancelled in the nine months ended August 31, 2021 | shares
Weighted Average Exercise Price, Options cancelled in the nine months ended August 31, 2021 | $ / shares
Shares, Options outstanding at August 31, 2021 | shares	170,000
Weighted Average Exercise Price, Options outstanding at August 31, 2021 | $ / shares	$ 1.41
Shares, Options exercisable at August 31, 2021 | shares	170,000
Weighted Average Exercise Price, Options exercisable at August 31, 2021 | $ / shares	$ 1.41

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Income Taxes (Details)	9 Months Ended
	Aug. 31, 2021 USD ($)
Income Tax Disclosure [Abstract]
Valuation allowance for deferred tax assets	$ 14,000
Operating loss expire term	expire through 2025
Net operating loss carryforwards	$ 1,604,000

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Income Taxes (Details) - Schedule of deferred income taxes - USD ($)	Aug. 31, 2021	Nov. 30, 2020
Deferred Tax Assets
Net operating loss	$ 419,134	$ 1,066,794
Allowance for bad debts	31,896	30,413
Inventory	61,792	60,746
Other	110,196	100,133
Depreciation	20,506	63,632
Total deferred tax assets	643,524	1,321,718
Valuation allowance		(14,160)
Deferred Tax Assets	$ 643,524	$ 1,307,558

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Income Taxes (Details) - Schedule of income tax expense - USD ($)	9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020
Current:
Federal
States	149,349	31,529
Current, total	149,349	31,529
Deferred:
Federal	524,587	142,442
States	139,447	37,865
Deferred, total	664,034	180,307
Provision for income taxes	$ 813,383	$ 211,836

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Income Taxes (Details) - Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate	9 Months Ended
	Aug. 31, 2021	Aug. 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	4.00%	4.00%
State income taxes	5.00%	5.00%
Other
Effective tax rate	30.00%	30.00%

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Operating Lease Commitments (Details) - USD ($)	9 Months Ended		12 Months Ended
	Aug. 31, 2021	Aug. 31, 2020	Nov. 30, 2020
Operating Lease Commitments (Details) [Line Items]
Net rental expense	$ 318,472	$ 281,599
Lease description	The Company has a lease to rent office space and a warehouse in Hong Kong through June 2023. Annual minimum rental payments for this space are approximately $68,580. 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.
Related Parties [Member]
Operating Lease Commitments (Details) [Line Items]
Annual minimum rental payments			$ 180,000
Net rental expense	$ 202,949	$ 200,156

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Operating Lease Commitments (Details) - Schedule of future minimum rental commitments	Aug. 31, 2021 USD ($)
Schedule of future minimum rental commitments [Abstract]
2022	$ 298,862
2023	266,705
2024	201,203
2025	205,227
2026	209,331
2027 and after	898,950
Future minimum rental commitments	$ 2,080,278

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Employment and Other Agreements (Details)	1 Months Ended		9 Months Ended
	Apr. 30, 2021 USD ($)	Feb. 29, 2016 USD ($)	Aug. 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

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Major Customers (Details)	9 Months Ended
	Aug. 31, 2021	Aug. 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	1	1
Customer One [Member] | Net sales [Member]
Major Customers (Details) [Line Items]
Percentage of concentration risk	15.00%	17.00%
Customer One [Member] | Accounts Receivable [Member]
Major Customers (Details) [Line Items]
Percentage of concentration risk	22.00%	16.00%
Customer Two [Member] | Net sales [Member]
Major Customers (Details) [Line Items]
Percentage of concentration risk	14.00%	15.00%

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Major Suppliers (Details)	9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020
Major Suppliers (Details) [Line Items]
Number of foreign supplier	1
Supplier Concentration Risk [Member] | Taiwan [Member] | Total Inventory Purchased [Member]
Major Suppliers (Details) [Line Items]
Percentage of inventory purchased of products	43.00%
Supplier Concentration Risk [Member] | HONG KONG | Total Inventory Purchased [Member]
Major Suppliers (Details) [Line Items]
Percentage of inventory purchased of products	14.00%
Supplier Concentration Risk [Member] | Elsewhere in Asia [Member] | Total Inventory Purchased [Member]
Major Suppliers (Details) [Line Items]
Percentage of inventory purchased of products	37.00%
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%
Major Suppliers [Member] | Supplier Concentration Risk [Member] | Total Inventory Purchased [Member]
Major Suppliers (Details) [Line Items]
Percentage of inventory purchased of products	34.00%	39.00%

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Export Sales (Details) - Schedule of export sales - USD ($)	9 Months Ended
	Aug. 31, 2021	Aug. 31, 2020
Canada [Member]
Revenue from External Customer [Line Items]
Export sales	$ 3,208,388	$ 2,945,773
China [Member]
Revenue from External Customer [Line Items]
Export sales	4,761,293	3,948,811
Other Asian Countries [Member]
Revenue from External Customer [Line Items]
Export sales	2,674,402	1,099,040
South America [Member]
Revenue from External Customer [Line Items]
Export sales	84,910	143,928
Europe [Member]
Revenue from External Customer [Line Items]
Export sales	$ 1,099,047	$ 843,747