Company Delivers Strong Q2 Net Sales of $10.2 Million, up 11% from Q1

Net Sales Drives Q2 Gross Profit Increase of 10.3% to $2.9 Million from Q1

Robust Q2 Gross Profit Margins of 28.6%

Surge Components, Inc. (“Surge” or the “Company”) (OTC Pink: SPRS), a leading supplier of capacitors, discrete semi-conductors, switches, and audible/sounding devices, today announced financial results for the second quarter ended May 31, 2023.

Operational Highlights

• The Company continues to successfully develop and expand the European market, utilizing its sales office in London, UK.
• Surge is benefiting from the reopening of Chinese markets, growing its presence in Asia through its key sales manager in China.
• Challenge and Surge divisions are well-positioned to capitalize on the industry’s eventual rebound as industry dynamics improve.
• The Company maintained its superior lead times, maintaining stable production to better serve customers and preserve a competitive advantage over peers.

Financial Highlights for the Second Fiscal Quarter Ended May 31, 2023

• Net income available to common shareholders of $524,261; EPS of $0.09 compared to net income available to common shareholders of $862,411; EPS of $0.16 in the prior-year-period.
• Net Sales of $10.2 million, compared to $15.9 million in the prior-year-period.
• Gross profit of $2.9 million, compared to $4.4 million in the prior-year-period.
• Gross profit margin of 28.6%, compared to 27.5% in the prior-year-period.

“We are pleased with our second quarter financial and operational performance, which again demonstrated our ability to adapt and remain agile amidst a challenging macroeconomic environment and persistent industry headwinds,” said Ira Levy, President and Chief Executive Officer of Surge. “Last year at this time, customers were scrambling to secure the components fundamental to running their businesses by ordering products from multiple suppliers leading to a one-time demand dynamic that lifted the industry. Customers have been sitting on record inventory levels, which resulted in a similarly temporary outsized contraction in demand thus far in 2023 that requires our continued hard work to overcome. The Challenge division also capitalized in 2022 on the dynamic and significantly increased sales in that period by delivering semiconductor products other suppliers could not find. Despite these challenges, our ability to tightly manage our operations led to significant gains in net sales and gross profit from Q1 2023 while gross profit margins expanded to 28.6% in Q2 2023. While there is further work ahead, we remain confident in our ability to capitalize on the industry’s eventual rebound as dynamics improve.

“More importantly, we believe that our Surge and Challenge businesses continue to benefit from best-in-class industry lead times despite supply chain constraints as semiconductor chip shortages abate. Our continued work engaging with new and existing customers across our more established European and Asian markets has directly impacted our future prospects in a positive manner, as evidenced by the Challenge division’s ability to secure significant new business.

“As we look ahead, we continue to position the Company to capitalize on the industry’s eventual rebound, and we look forward to that improvement beginning in the first half of 2024.”

Results of Operations for the Three Months Ended May 31, 2023

Net Sales for the three months ended May 31, 2023, decreased 35.9% to $10.2 million as compared to net sales of $15.9 million for the three months ended May 31, 2022. The decrease for the three-month period as compared to the same period a year ago is attributable to: a one-time demand dynamic observed last year that lifted the entire industry’s sales; current and persistent industry headwinds, including dampened customer sentiment, that led to a decrease in business with new and existing customers, and; customers expanding ordering cycles due to them over-ordering in 2022. We can also attribute some of the decrease in sales to the decrease in revenue derived from brokering certain products in the 2022 period, in the amount of approximately $3.1 million in the six months ended May 31, 2022 but only $217,000 in the six months ended May 31, 2023. In Brokering, the Company helps customers find parts that their regular suppliers can not deliver. This was the result of shortages of certain products in 2022.

Gross profit for the three months ended May 31, 2023, decreased 33.1% to $2.9 million, as compared to $4.4 million for the three months ended May 31, 2022. Gross profit margin as a percentage of net sales increased to 28.6% for the three months ended May 31, 2023, as compared to 27.5% for the three months ended May 31, 2022. The decrease in gross profit is attributable to a decrease in sales volume in the three months ended May 31, 2023. The increase in gross profit margin as a percentage of net sales is attributable to the Company shipping out orders with a higher profit margin during the three months ended May 31, 2023, as compared to the three months ended May 31, 2022.

Selling and shipping expenses for the three months ended May 31, 2023, decreased 24.3% to $739,286, as compared to $977,097 for the three months ended May 31, 2022. The decrease for the three-month period as compared to the same period a year ago is primarily attributable to a decrease in commission expenses, as well as freight out and messenger and delivery expenses. These decreases were offset by increases in salesman payroll due to the hiring of new regional sales managers, travel and auto expenses, as well as trade show expenses.

General and administrative expenses for the three months ended May 31, 2023, decreased 28% to $1.5 million as compared to $2.1 million for the three months ended May 31, 2022. The decrease for the three-month period is primarily attributable to decreases in health insurance and office expenses as well as officer salary and director fees due to stock option grants in 2022, bad debt expenses, temporary help expenses and public company expenses. These decreases were offset by increases in consulting expenses as well as salaries and general insurance expenses, professional fees, and pension expenses.

Net income for the three months ended May 31, 2023, was $524,261, compared to net income of $862,411 for the three months ended May 31, 2022.

This press release should be read in conjunction with the Company’s consolidated financial statements included in the Company’s most recent Quarterly Report on Form 10-Q, which can be found at www.surgecomponents.com and at www.sec.gov.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding global economic conditions, supply chain challenges, customer lead times, our future results of operations and financial position, expansion in the European market, growing its presence in Asia, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions and are based largely on our current expectations and projections about future events and financial trends that may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading "Risk Factors" in our Annual Report on Form 10-K. These forward-looking statements represent our estimates and assumptions only as of the date of this press release. We assume no obligation to update any forward-looking statements for events or circumstances occurring after the date of this press release, except as required by law.

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