Based on the provided financial report, the title of the article is: "Quarterly Report (Form 10-Q) for the quarterly period ended August 31, 2024

Press release · 10/15 14:12
Based on the provided financial report, the title of the article is: "Quarterly Report (Form 10-Q) for the quarterly period ended August 31, 2024

Based on the provided financial report, the title of the article is: "Quarterly Report (Form 10-Q) for the quarterly period ended August 31, 2024

Surge Components, Inc. filed its quarterly report for the period ended August 31, 2024, reporting a net loss of $1.4 million for the nine months ended August 31, 2024, compared to a net loss of $2.1 million for the same period in 2023. The company’s total revenue decreased by 12% to $4.3 million for the nine months ended August 31, 2024, compared to $4.9 million for the same period in 2023. The company’s cash and cash equivalents decreased by 21% to $1.1 million as of August 31, 2024, compared to $1.4 million as of November 30, 2023. The company’s total assets decreased by 10% to $6.3 million as of August 31, 2024, compared to $7.1 million as of November 30, 2023.

Overview

The Company operates with two sales groups, Surge Components (“Surge”) and Challenge Electronics (“Challenge”). Surge is a supplier of electronic products and components, including capacitors and discrete semiconductor components, which are used in a variety of consumer and industrial products. Challenge is engaged in the sale of electronic components, such as buzzers, speakers, and microphones. The Company has a Hong Kong office to handle business transactions between U.S. customers and Asian manufacturers.

The business environment continues to evolve, with customers centralizing purchasing, stretching payment terms, and shifting manufacturing operations to Asia. The Company has faced challenges related to inflation, product shortages, and changes in customer demand. Despite these headwinds, the Company remains cautiously optimistic about its ability to grow, though it acknowledges the potential for negative impacts on sales and profitability if economic conditions deteriorate further.

Critical Accounting Policies

The Company’s critical accounting policies include:

Accounts Receivable: The allowance for credit losses is based on the Company’s assessment of customer creditworthiness and political and economic risks, as well as the aging of accounts receivable.

Revenue Recognition: Revenue is recognized when the product is shipped from the Company’s warehouse or supplier, and the Company acts as a sales agent for certain customers, reporting commissions as revenue.

Inventory Valuation: Inventories are recorded at the lower of cost or net realizable value, with write-downs based on stock rotation, historical sales, and obsolescence.

Income Taxes: The Company has made estimates and assumptions related to the reporting of deferred income tax assets, which could have a significant impact on the financial statements.

Results of Operations

Consolidated net sales for the nine months ended August 31, 2024 decreased by 20.8% compared to the same period in 2023, primarily due to a decrease in business with new and existing customers, as well as customers delaying orders due to excess inventory. Gross profit decreased by 17%, but gross margin as a percentage of net sales increased to 29.2% for the nine-month period.

Selling and shipping expenses decreased by 10.2%, while general and administrative expenses decreased by 5.3%, primarily due to reductions in various expenses. Other income increased by $179,156, reflecting income from the Company’s investment in U.S. Treasury bonds and notes.

As a result, net income for the nine months ended August 31, 2024 was $570,290, compared to $1,052,701 for the same period in 2023.

Liquidity and Capital Resources

As of August 31, 2024, the Company had $4.4 million in cash, $7.8 million in marketable securities, and working capital of $18.7 million. The Company believes its working capital is adequate to meet its operating requirements for the next twelve months.

During the nine months ended August 31, 2024, the Company had net cash flow provided by operating activities of $954,964, a decrease from the same period in 2023. The Company used $4.4 million in net cash for investing activities, primarily for the acquisition of U.S. Treasury bills and notes.

The Company has no financing lease obligations and $1.5 million in operating lease obligations over the next five years.

Off Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.