Surge Components, Inc. Announces Fiscal First Quarter 2022 Results

Company Delivers Substantial Growth in Q1 Sales, up 28.9% Over Prior Year Period

Solid Sales Growth Drives Year-Over-Year Q1 Gross Profit Increase of 28.8% to $3.0 Million

Strong Q1 2022 Gross Profit Margins of 28.2%

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 fiscal first quarter ended February 28, 2022.

Financial Highlights for the First Fiscal Quarter Ended February 28, 2022

• Net sales of $10.5 million, compared to $8.2 million in the prior-year-period
• Gross profit of $3.0 million, compared to $2.3 million in the prior-year-period
• Gross profit margin of 28.2%, same as the prior-year period
• Net income available to common shareholders of $669,253; EPS of $0.12 compared to net income available to common shareholders of $275,164; EPS of $0.05 in the prior-year period

Operational Highlights

• The Company continues to successfully develop the European market, utilizing the sales office in London, UK
• Surge is growing its presence in Asia employing a key sales manager in China
• Growing customer demand is driving strong product demand and sales volumes for both Challenge and Surge divisions
• Visibility into the remainder of 2022 sales volume remains strong as customers place orders much earlier in the sales cycle, due to extended factory lead times
• Surge has shorter lead times helping to sustain client supply chains and maintaining a competitive advantage over peers

“We are pleased with our solid performance in the first quarter, highlighting our ability to evolve and remain agile to shifting industry dynamics posed by supply chain challenges and the global semiconductor chip shortages,” said Ira Levy, President and Chief Executive Officer of Surge. “We continue to contend with extended lead times, transportation challenges, intermittent lockdowns in China due to covid, and are successfully handling price increases due to inflation. Despite the challenging global environment, we delivered strong growth in net sales, up 28.9% year over year. Through disciplined cost control, we drove a 28.8% increase in gross profit versus the prior year and gross margins remained flat at 28.2% in Q1.

“While supply chain challenges and the global semiconductor chip shortages have affected our business and the industry, both Surge and Challenge have excelled at delivering our products to clients with shorter lead times compared to our competitors. This continued success is driving increased demand across our business as customers are looking to place orders much earlier than prior years, providing us with enhanced visibility into future sales volumes.

“We continue to closely monitor the global situation and the lingering effects of the pandemic. The health and safety of our people and clients are of the utmost importance, and we remain committed to implementing appropriate COVID safety protocols across our global footprint. We are also continuing to grow our reach worldwide as markets reopen, utilizing our sales office in London and increasing our presence in Asia by tapping into our talent in China. We remain opportunistic in recognizing additional opportunities to build our global sales teams and expanding our global footprint during the rest of 2022 and beyond.

“Looking ahead, we remain committed to enhancing our profitability, continuing to provide valuable products to our customers, and communicating regularly with our shareholders. We believe we are ideally positioned to succeed in our market and deliver long-term shareholder value.”

Results of Operations for the Three Months Ended February 28, 2022

Net sales for the three months ended February 28, 2022 increased by 28.9% to $10.5 million, as compared to net sales of $8.2 million for the three months ended February 28, 2021. The increase in net sales for the three-month period is primarily attributable to an increase in business with new customers as well as an increase in business with existing customers.

Gross profit for the three months ended February 28, 2022 increased by 28.8% to $3.0 million, as compared to $2.3 million for the three months ended February 28, 2021. Gross profit margin as a percentage of net sales remained flat at 28.2% for the three months ended February 28, 2022, as compared to the three months ended February 28, 2021. We attribute the increase in gross profit to an increase in sales volume in the three months ended February 28, 2022. Our industry will continue to receive pressure from customers for price reductions.

Selling and shipping expenses for the three months ended February 28, 2022 increased 2.9% to $700,978, as compared to $681,132 for the three months ended February 28, 2021. We attribute the increase to an increase in commissions, auto and entertainment expenses, and offset by a decrease in salesman payroll and freight out costs.

General and administrative expenses for the three months ended February 28, 2022 increased 4.6% to $1.3 million, as compared to $1.2 million for three months ended February 28, 2021. The increase in general and administrative expenses is primarily attributable to increases in rent, temporary help and general insurance expenses, professional fees as well as salaries and related payroll taxes, directors fees and public company expenses, offset by decreases in settlement expenses due to a settlement with a customer in the three months ended February 28, 2021.

Net income for the three months ended February 28, 2022 was $671,753, as compared to net income of $277,664 for the three months ended February 28, 2021.

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

In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions 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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