Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
May 31, 2019 | Jul. 12, 2019 | |
Document and Entity Information [Abstract] | ||
Entity Registrant Name | SURGE COMPONENTS INC | |
Entity Central Index Key | 0000747540 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --11-30 | |
Document Type | 10-Q | |
Document Period End Date | May 31, 2019 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2019 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Current Reporting Status | Yes | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Ex Transition Period | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 5,309,335 | |
Entity File Number | 000-27688 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | May 31, 2019 | Nov. 30, 2018 |
Current assets: | ||
Cash | $ 2,594,927 | $ 1,761,863 |
Accounts receivable - net of allowance for doubtful accounts of $95,035 and $161,560 | 5,978,377 | 5,997,493 |
Inventory, net | 3,575,884 | 3,389,065 |
Prepaid expenses and income taxes | 132,653 | 19,589 |
Total current assets | 12,281,841 | 11,168,010 |
Fixed assets - net of accumulated depreciation and amortization of $2,285,878 and $2,266,627 | 103,965 | 115,995 |
Deferred income taxes | 1,044,937 | 982,624 |
Other assets | 22,607 | 13,384 |
Total assets | 13,453,350 | 12,280,013 |
Current liabilities: | ||
Accounts payable | 4,464,680 | 4,420,013 |
Loan payable | ||
Capital lease payable, current maturities | 7,432 | 7,036 |
Accrued expenses and taxes | 577,469 | 603,203 |
Accrued salaries | 432,845 | 508,873 |
Total current liabilities | 5,482,426 | 5,539,125 |
Capital lease payable, net of current maturities | 19,831 | 25,500 |
Deferred rent | 19,580 | 25,554 |
Total liabilities | 5,521,837 | 5,590,179 |
Commitments and contingencies | ||
Shareholders' equity: | ||
Preferred stock value | ||
Common stock - $.001 par value, 50,000,000 shares authorized, 5,309,335 and 5,262,128 shares issued and outstanding | 5,309 | 5,262 |
Additional paid-in capital | 16,666,475 | 16,577,772 |
Accumulated deficit | (8,740,281) | (9,893,210) |
Total shareholders' equity | 7,931,513 | 6,689,834 |
Total liabilities and shareholders' equity | 13,453,350 | 12,280,013 |
Series C Preferred Stock | ||
Shareholders' equity: | ||
Preferred stock value | 10 | 10 |
Series D Preferred Stock | ||
Shareholders' equity: | ||
Preferred stock value |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) | May 31, 2019 | Nov. 30, 2018 |
Allowance for doubtful accounts of accounts receivable | $ 95,035 | $ 161,560 |
Accumulated depreciation and amortization on fixed assets | $ 2,285,878 | $ 2,266,627 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 5,309,335 | 5,262,128 |
Common stock, shares outstanding | 5,309,335 | 5,262,128 |
Series D Preferred Stock | ||
Preferred stock, shares authorized | 75,000 | 75,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
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 | $ 5 | $ 5 |
Consolidated Statements of Oper
Consolidated Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | 6 Months Ended | ||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |
Income Statement [Abstract] | ||||
Net sales | $ 8,464,752 | $ 7,262,098 | $ 16,872,094 | $ 14,244,425 |
Cost of goods sold | 5,994,964 | 5,342,011 | 12,078,746 | 10,510,664 |
Gross profit | 2,469,788 | 1,920,087 | 4,793,348 | 3,733,761 |
Operating expenses: | ||||
Selling and shipping expenses | 651,339 | 637,418 | 1,294,235 | 1,255,839 |
General and administrative expenses | 1,284,350 | 1,095,209 | 2,371,387 | 2,193,165 |
Depreciation and amortization | 9,674 | 12,532 | 19,252 | 24,486 |
Total operating expenses | 1,945,363 | 1,745,159 | 3,684,874 | 3,473,490 |
Income before other income (expense) and income taxes | 524,425 | 174,928 | 1,108,474 | 260,271 |
Other income (expense): | ||||
Investment income | 2 | 1 | 3 | 2 |
Interest expense | (694) | (3,713) | (1,427) | (9,734) |
Other income (expense) | (692) | (3,712) | (1,424) | (9,732) |
Income before income taxes | 523,733 | 171,216 | 1,107,050 | 250,539 |
Income taxes (benefit) | 62,101 | 2,907 | (48,379) | 46,673 |
Net income | 461,632 | 168,309 | 1,155,429 | 203,866 |
Dividends on preferred stock | 2,500 | 2,500 | ||
Net income available to common shareholders | $ 461,632 | $ 168,309 | $ 1,152,929 | $ 201,366 |
Net income per share available to common shareholders: | ||||
Basic | $ 0.09 | $ 0.03 | $ 0.22 | $ 0.04 |
Diluted | $ 0.09 | $ 0.03 | $ 0.21 | $ 0.04 |
Weighted Shares Outstanding: | ||||
Basic | 5,270,338 | 5,224,431 | 5,266,278 | 5,224,431 |
Diluted | 5,423,952 | 5,358,768 | 5,419,892 | 5,358,768 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 6 Months Ended | |
May 31, 2019 | May 31, 2018 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net income | $ 1,155,429 | $ 203,866 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 19,252 | 24,486 |
Deferred income taxes | (62,313) | 19,819 |
Allowance for doubtful accounts | 66,525 | |
Stock Compensation | 88,750 | |
CHANGES IN OPERATING ASSETS AND LIABILITIES: | ||
Accounts receivable | (47,409) | 727,497 |
Inventory | (186,819) | (642,362) |
Prepaid expenses and income taxes | (113,064) | (19,533) |
Other Assets | (9,223) | |
Accounts payable | 44,667 | 433,125 |
Deferred rent | (5,974) | (4,184) |
Accrued expenses | (104,262) | (217,264) |
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES | 845,559 | 525,450 |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Acquisition of fixed assets | (7,222) | (30,305) |
NET CASH FLOWS USED IN INVESTING ACTIVITIES | (7,222) | (30,305) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Net Borrowings on loans payable | (5,273) | (275,000) |
NET CASH FLOWS (USED IN) FINANCING ACTIVITIES | (5,273) | (275,000) |
NET CHANGE IN CASH | 833,064 | 220,145 |
CASH AT BEGINNING OF PERIOD | 1,761,863 | 1,086,999 |
CASH AT END OF PERIOD | 2,594,927 | 1,307,144 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||
Income taxes paid | 97,100 | 15,079 |
Interest paid | 1,427 | 9,734 |
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||
Accrued dividends on preferred stock | $ 2,500 | $ 2,500 |
Organization, Description of Co
Organization, Description of Company's Business and Basis of Presentation | 6 Months Ended |
May 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [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. |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 6 Months Ended |
May 31, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (1) Principles of Consolidation The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited (collectively the "Company"). All material intercompany balances and transactions have been eliminated in consolidation. The accompanying interim consolidated financial statements have been prepared without audit, in accordance with the instructions to Form 10-Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commission. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2019 and May 31, 2018 may not be representative of those for the full fiscal year or any future periods. (2) Accounts Receivable: Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to amounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company's operating history and customer base, bad debts to date have not been material. (3) Revenue Recognition In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers: Topic 606." This ASU replaces nearly all existing U.S. generally accepted accounting principles guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment by the Company. The Company adopted the standard using the modified retrospective approach in its fiscal year beginning December 1, 2017. The preponderance of the Company's contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment. Adoption of this ASU did not have a significant impact on the Company's consolidated financial position, results of operations or cash flows. 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 its 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 $702,000 and $2,266,000 for the six months ended May 31, 2019 and May 31, 2018, 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 they are earned. Commission revenue totaled $211,167 and $77,288 for the six months ended May 31, 2019 and May 31, 2018, respectively, which increase was due to commission income on new and existing accounts. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. The Company and its subsidiaries currently have agreements with several distributors. There are no provisions for the granting of price concessions in any of the agreements. Revenues under these distribution agreements were approximately $3,438,000 and $1,966,000 for the six months ended May 31, 2019 and May 31, 2018, respectively. (4) Inventories Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or net realizable value. Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2019 was $1,214,998. The Company, at May 31, 2019, has a reserve against slow moving and obsolete inventory of $250,565. From time to time the Company's products are subject to legislation from various authorities on environmental matters. (5) Depreciation and Amortization Fixed assets are recorded at cost. Depreciation is generally calculated on a straight line method and amortization of leasehold improvements is provided for on the straight-line method over the estimated useful lives of the various assets as follows: Furniture, fixtures and equipment 5 - 7 years Computer equipment 5 years Leasehold Improvements Estimated useful life or lease term, whichever is shorter Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. (6) Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company maintains substantially all of its cash balances in a limited number of financial institutions. At May 31, 2019 and November 30, 2018, the Company's uninsured cash balances totaled $2,030,432 and $1,197,367, respectively. (7) Income Taxes The Company's deferred income taxes arise primarily from the differences in the recording of net operating losses, allowances for bad debts, inventory reserves and depreciation expense for financial reporting and income tax purposes. A valuation allowance is provided when it has been determined to be more likely than not that the likelihood of the realization of deferred tax assets will not be realized. See Note J. The Company follows the provisions of the Accounting Standards Codification ("ASC") 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 the fiscal year ended November 30, 2014, and state tax examinations for years before the fiscal year ended November 30, 2013. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2019 and May 31, 2018. (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 $3,781 and $4,013 for the six months ended May 31, 2019 and May 31, 2018, respectively. (13) Earnings Per Share Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and convertible preferred stock exercised into common stock. Total potentially dilutive shares excluded from diluted weighted shares outstanding at May 31, 2019 and May 31, 2018 totaled 118,386 and 215,663, respectively. (14) Stock Based Compensation Stock Based Compensation to Employees The Company accounts for its stock-based compensation for employees in accordance with ASC 718. The Company recognizes in its consolidated statements 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) Recently Issued Standards In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At May 31, 2019, the Company's undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $481,305 |
Fixed Assets
Fixed Assets | 6 Months Ended |
May 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
FIXED ASSETS | NOTE C – FIXED ASSETS Fixed assets consist of the following: May 31, November 30, 2019 2018 Furniture and Fixtures $ 327,971 $ 327,971 Leasehold Improvements 995,356 991,646 Computer Equipment 1,066,516 1,063,005 Less-Accumulated Depreciation (2,285,878 ) (2,266,627 ) Net Fixed Assets $ 103,965 $ 115,995 Depreciation and amortization expense for the six months ended May 31, 2019 and May 31, 2018 was $19,252 and $24,486, respectively. |
Capitalized Lease Obligations
Capitalized Lease Obligations | 6 Months Ended |
May 31, 2019 | |
Leases [Abstract] | |
CAPITALIZED LEASE OBLIGATIONS | NOTE D – CAPITALIZED LEASE OBLIGATIONS The Company is obligated under capitalized 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% per annum. The leases terminate in 2022. Future minimum lease payments under these capitalized lease obligations as of May 31, 2019 are as follows: 2020 $ 9,779 2021 $ 9,779 2022 $ 9,779 2023 $ 3,983 Total $ 33,320 Less: interest portion 6,057 Present value of net minimum lease payments $ 27,263 Less: current portion 7,432 Non-current portion $ 19,831 Capital lease obligations mature as follows: Twelve months ending May 31: 2019 $ 7,432 2020 $ 8,153 2021 $ 8,948 2022 $ 2,730 Principal payments remaining $ 27,263 |
Line of Credit
Line of Credit | 6 Months Ended |
May 31, 2019 | |
Line of Credit Facility [Abstract] | |
LINE OF CREDIT | NOTE E – LINE OF CREDIT 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). As of May 31, 2019, the balance on the Credit Line was $0. As of May 31, 2019, the Company was in compliance with the debt covenants for the Credit Line. |
Accrued Expenses
Accrued Expenses | 6 Months Ended |
May 31, 2019 | |
Payables and Accruals [Abstract] | |
ACCRUED EXPENSES | NOTE F – ACCRUED EXPENSES Accrued expenses consist of the following: May 31, November 30, 2019 2018 Commissions $ 195,449 $ 228,199 Preferred stock dividends 144,069 141,569 Other accrued expenses 237,951 233,435 Total $ 577,469 $ 603,203 |
Retirement Plan
Retirement Plan | 6 Months Ended |
May 31, 2019 | |
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 $1,201,000 at November 30, 2018. Pension expense for the six months ended May 31, 2019 and May 31, 2018 was $1,196 and $590, respectively. |
Shareholders' Equity
Shareholders' Equity | 6 Months Ended |
May 31, 2019 | |
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. In April 2001, 8,000 shares of the Series C Preferred were repurchased and cancelled. In April 2002, in connection with a Mutual Release, Settlement, Standstill and Non-Disparagement Agreement among other provisions, certain investors transferred back to the Company 252,000 shares of common stock, 19,300 shares of Series C preferred stock, and certain warrants, in exchange for $225,000. These repurchased shares were cancelled. In February 2006, the Company settled with a shareholder to repurchase 10,000 shares of Series C Preferred plus accrued dividends for $50,000. Pursuant to exchange agreements dated as of March 14, 2011, 9,000 shares of Series C Preferred were returned to the Company for cancellation in exchange for 112,500 shares of common stock. In October 2014, 2,000 shares of Series C Preferred were converted into 20,000 shares of common stock. In April 2015, the Company entered into a settlement agreement with a shareholder pursuant to which 7,500 shares of Series C Preferred were returned to the Company for cancellation in exchange for 110,000 shares of common stock plus $65,000 for accrued dividends and legal fees and expenses. In July 2015, 4,200 shares of Series C Preferred were exchanged for 42,000 shares of common stock and $29,838 in accrued dividends. Dividends aggregating $144,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2018. The Company has accrued these dividends. At May 31, 2019, 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 May 31, 2019. [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. Activity in the 2010 Stock Plan for the year ended May 31, 2019 is summarized as follows: Weighted Average Shares Exercise Options outstanding December 1, 2018 175,000 $ 0.99 Options issued in the six months ended May 31, 2019 - $ - Options exercised in the six months ended May 31, 2019 - $ - Options cancelled in the six months ended May 31, 2019 (3,000 ) $ (1.15 ) Options outstanding at May 31, 2019 172,000 $ 0.99 Options exercisable at May 31, 2019 172,000 $ 0.99 [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 April 2016, the Company awarded one employee director 67,901 shares of its common stock and another employee director 31,250 shares of its common stock under the 2015 Stock Plan as part of their 2015 bonus. The Company recorded a cost of $74,363 relating to the issuance of these shares. In October 2016, one employee director exercised options to acquire 50,000 shares of common stock at $0.82 per share and 62,500 shares of common stock at $0.80 per share. In October 2016, one employee director exercised options to acquire 25,000 shares of common stock at $0.82 per share and 45,938 shares of common stock at $0.80 per share. In May 2019, the Company awarded one employee director 29,255 shares of its common stock and another director 17,952 shares of common stock under the 2015 Stock Plan as part of their 2018 bonus. The Company recorded a cost of $88,750 relating to the issuance of these shares, The intrinsic value of the exercisable options at May 31, 2019 totaled $236,120. At May 31, 2019, the weighted average remaining life of the stock options is 1.37 years. At May 31, 2019, 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). |
Settlement Agreement
Settlement Agreement | 6 Months Ended |
May 31, 2019 | |
Settlement Agreement [Abstract] | |
SETTLEMENT AGREEMENT | NOTE I – SETTLEMENT AGREEMENT On December 22, 2016, the Company entered into a settlement agreement (the “Settlement Agreement”) with Michael D. Tofias and Bradley P. Rexroad (collectively, the “Stockholders”). The Settlement Agreement generally provided that: ● the Board and the Stockholders will identify a mutually acceptable independent director to join the Board as a Class C director by February 28, 2017 and the Board will include that new director among its director nominees for the 2017 annual meeting; ● the Company will take all steps to (i) change its state of incorporation from the State of Nevada to the State of Delaware and (ii) declassify the Board on a rolling basis by June 30, 2017, and the Company will convene a special meeting of stockholders of the Company for the purpose of approving such actions, at which meeting the Stockholders and the Insiders will vote all of their shares of common stock of the Company in favor of such actions, and ● the Company will commence an issuer tender offer to all of its stockholders to repurchase at least 5.0 million shares of its common stock at a price of $1.43 per share (the “Tender Offer”), which the Company completed in March 2017 whereby it purchased for cash 5,000,000 shares of its common stock, at a price of $1.43 per share, or $7,150,000. ● the Stockholders will tender all of the shares of common stock of the Company that they hold beneficially or of record in the Tender Offer, subject to limited exceptions; and ● the Company’s officers and directors will not participate in the Tender Offer and will not transfer or sell any of their shares until six months after the Tender Offer is completed. Pursuant to the Settlement Agreement, the Company also agreed to reimburse the expenses of the Stockholders associated with their investment in the Company, including their proxy solicitation and litigation costs, in an amount not to exceed $300,000. On April 6, 2017, the Board of Directors elected Peter Levy as a Class C Director. He is an independent director. On October 4, 2018, the Company held its annual meeting of shareholders, at which shareholders approved (i) the change in the Company’s state of incorporation from Nevada to Delaware and (ii) the declassification of the Company’s board of directors on a rolling basis. No shareholders exercised their dissenters’ rights in connection with the reincorporation proposal. The Company was reincorporated in Delaware on February 5, 2019. ● until the day after the announcement of the completion of the Tender Offer, the Board will be composed of no more than seven individuals; ● the Stockholders will tender all of the shares of common stock of the Company that they hold beneficially or of record in the Tender Offer, subject to limited exceptions; ● the Company’s officers and directors will not participate in the Tender Offer and will not transfer or sell any of their shares until six months after the Tender Offer is completed; ● subject to certain conditions, if the Tender Offer is not completed by March 15, 2017, the Company will (i) appoint the Stockholders to the Board as Class A directors with terms expiring at the Company’s annual meeting of stockholders for fiscal year 2018 (the “2019 Meeting”) and (ii) reduce the size of the Board to six directors, including the Stockholders; ● the Stockholders will withdraw with prejudice their lawsuit against the Company and the Insiders pending in the State of Nevada; and ● the Stockholders will be subject to customary standstill provisions until the termination of the Settlement Agreement. On October 4, 2018, the Company held its annual meeting of shareholders, at which shareholders approved (i) the change in the Company’s state of incorporation from Nevada to Delaware and (ii) the declassification of the Company’s board of directors on a rolling basis. No shareholders exercised their dissenters’ rights in connection with the annual meeting. The Settlement Agreement terminated on February 5, 2019, the date on which the Company completed its reincorporation from Nevada into Delaware. |
Income Taxes
Income Taxes | 6 Months Ended |
May 31, 2019 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | NOTE J – INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates in effect in the years in which the differences are expected to reverse. The Company’s deferred income taxes are comprised of the following: May 31, November 30, 2019 2018 Deferred Tax Assets Net operating loss $ 1,840,660 $ 2,008,906 Allowance for bad debts 17,403 32,658 Inventory 60,746 69,757 Deferred rent 5,117 6,679 Other 74,067 62,071 Depreciation 74,141 73,140 Total deferred tax assets 2,072,134 2,253,211 Valuation allowance (1,027,197 ) (1,270,587 ) Deferred Tax Assets $ 1,044,937 $ 982,624 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 $243,390 during the six months ended May 31, 2019. This valuation is based on management estimates of future taxable income. Although the degree of variability inherent in the estimates of future taxable income is significant and subject to change in the near term, management believes, that the estimate is adequate. The estimated valuation allowance is continually reviewed and as adjustments to the allowance become necessary, such adjustments are reflected in the current operations. The Company’s income tax expense consists of the following: Six Months Ended May 31, May 31, Current: Federal $ - $ 3,331 States 13,934 18,111 13,934 21,442 Deferred: Federal (49,227 ) 21,283 States (13,086 ) 3,948 (62,313 ) 25,231 Provision for income taxes $ (48,379 ) $ 46,673 The Company files a consolidated income tax return with its wholly-owned subsidiaries and has net operating loss carryforwards of approximately $7,043,000 for federal and state purposes, which expire through 2020. A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company’s effective rate is as follows: Six Months ended May 31, May 31, 2019 2018 U.S Federal Income tax statutory rate 21 % 21 % Valuation allowance (33 )% (9 )% State income taxes 8 % 7 % Other - - Effective tax rate (4 )% 19 % |
Rental Commitments
Rental Commitments | 6 Months Ended |
May 31, 2019 | |
Rental Commitments [Abstract] | |
RENTAL COMMITMENTS | NOTE K – RENTAL COMMITMENTS The Company leases its office and warehouse space through 2020 from a corporation that is controlled by officers/shareholders of the Company (“Related Company”). Annual minimum rental payments to the Related Company approximated $180,000 for the year ended November 30, 2018, and increase at the rate of three per cent per annum throughout the lease term. Pursuant to the lease, rent expense charged to operations differs from rent paid because of scheduled rent increases. Accordingly, the Company has recorded deferred rent. Rent expense is calculated by allocating to rental payments, including those attributable to scheduled rent increases, on a straight line basis, over the lease term. In June 2019, the Company renewed its lease to rent office space and a warehouse in Hong Kong for two years. Annual minimum rental payments for this space are approximately $68,460. In January 2019, the Company entered into a lease to rent additional warehouse space in Hong Kong for two years. Annual minimum rental payments for this space are approximately $36,840. The Company’s future minimum rental commitments at May 31, 2019 are as follows: Twelve Months Ended May 31, 2020 $ 290,268 2021 $ 152,012 2022 $ 5,705 $ 447,985 Net rental expense for the six months ended May 31, 2019 and May 31, 2018 were $173,903 and $158,531, respectively, of which $131,612 and $129,822, respectively, was paid to the Related Company. |
Employment and Other Agreements
Employment and Other Agreements | 6 Months Ended |
May 31, 2019 | |
Employment and Other Agreements [Abstract] | |
EMPLOYMENT AND OTHER AGREEMENTS | NOTE L – 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. 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. |
Major Customers
Major Customers | 6 Months Ended |
May 31, 2019 | |
Risks and Uncertainties [Abstract] | |
MAJOR CUSTOMERS | NOTE M – MAJOR CUSTOMERS The Company had two customers who accounted for 12% and 13% of net sales for the six months ended May 31, 2019 and two customers who accounted for 10% and 12% of net sales for the six months ended May 31, 2018. The Company had two customers who accounted for 11% and 12% of accounts receivable at May 31, 2019 and two customers who accounted for 12% and 13% of accounts receivable at May 31, 2018. |
Major Suppliers
Major Suppliers | 6 Months Ended |
May 31, 2019 | |
Major Suppliers [Abstract] | |
MAJOR SUPPLIERS | NOTE N – MAJOR SUPPLIERS During the six months ended May 31, 2019 and May 31, 2018 there was one foreign supplier accounting for 40% and 57% of total inventory purchased. The Company purchases substantially all of its products overseas. For the six months ended May 31, 2019, the Company purchased 46% of its products from Taiwan, 15% from Hong Kong, 31% from elsewhere in Asia and the remaining 8% from the United States. |
Export Sales
Export Sales | 6 Months Ended |
May 31, 2019 | |
Segment Reporting [Abstract] | |
EXPORT SALES | NOTE O – EXPORT SALES The Company’s export sales were as follows: Six Months Ended May 31, May 31, 2019 2018 Canada 2,360,932 1,795,417 China 2,804,193 2,038,705 Other Asian Countries 1,055,605 730,150 South America 247,230 231,893 Europe 678,907 124,517 Revenues are attributed to countries based on location of customer. |
Summary of Significant Accoun_2
Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
May 31, 2019 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | (1) Principles of Consolidation The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited (collectively the "Company"). All material intercompany balances and transactions have been eliminated in consolidation. The accompanying interim consolidated financial statements have been prepared without audit, in accordance with the instructions to Form 10-Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commission. The results and trends in these interim consolidated financial statements for the six months ended May 31, 2019 and May 31, 2018 may not be representative of those for the full fiscal year or any future periods. |
Accounts Receivable | (2) Accounts Receivable: Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to amounts receivable and reserves specific amounts if collectability is no longer reasonably assured. The Company also reserves a percentage of its trade receivable balance based on collection history and current economic trends that might impact the level of future credit losses. The Company re-evaluates such reserves on a regular basis and adjusts its reserves as needed. Based on the Company's operating history and customer base, bad debts to date have not been material. |
Revenue Recognition | (3) Revenue Recognition In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers: Topic 606." This ASU replaces nearly all existing U.S. generally accepted accounting principles guidance on revenue recognition. The standard prescribes a five-step model for recognizing revenue, the application of which will require significant judgment by the Company. The Company adopted the standard using the modified retrospective approach in its fiscal year beginning December 1, 2017. The preponderance of the Company's contracts with customers are standard ship and bill arrangements where revenue is recognized at the time of shipment. Adoption of this ASU did not have a significant impact on the Company's consolidated financial position, results of operations or cash flows. 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 its 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 $702,000 and $2,266,000 for the six months ended May 31, 2019 and May 31, 2018, 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 they are earned. Commission revenue totaled $211,167 and $77,288 for the six months ended May 31, 2019 and May 31, 2018, respectively, which increase was due to commission income on new and existing accounts. The Company performs ongoing credit evaluations of its customers and maintains reserves for potential credit losses. The Company and its subsidiaries currently have agreements with several distributors. There are no provisions for the granting of price concessions in any of the agreements. Revenues under these distribution agreements were approximately $3,438,000 and $1,966,000 for the six months ended May 31, 2019 and May 31, 2018, respectively. |
Inventories | (4) Inventories Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or net realizable value. Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2019 was $1,214,998. The Company, at May 31, 2019, has a reserve against slow moving and obsolete inventory of $250,565. From time to time the Company's products are subject to legislation from various authorities on environmental matters. |
Depreciation and Amortization | (5) Depreciation and Amortization Fixed assets are recorded at cost. Depreciation is generally calculated on a straight line method and amortization of leasehold improvements is provided for on the straight-line method over the estimated useful lives of the various assets as follows: Furniture, fixtures and equipment 5 - 7 years Computer equipment 5 years Leasehold Improvements Estimated useful life or lease term, whichever is shorter Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized. |
Concentration of Credit Risk | (6) Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company maintains substantially all of its cash balances in a limited number of financial institutions. At May 31, 2019 and November 30, 2018, the Company's uninsured cash balances totaled $2,030,432 and $1,197,367, respectively. |
Income Taxes | (7) Income Taxes The Company's deferred income taxes arise primarily from the differences in the recording of net operating losses, allowances for bad debts, inventory reserves and depreciation expense for financial reporting and income tax purposes. A valuation allowance is provided when it has been determined to be more likely than not that the likelihood of the realization of deferred tax assets will not be realized. See Note J. The Company follows the provisions of the Accounting Standards Codification ("ASC") 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 the fiscal year ended November 30, 2014, and state tax examinations for years before the fiscal year ended November 30, 2013. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months. The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there was no accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2019 and May 31, 2018. |
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 $3,781 and $4,013 for the six months ended May 31, 2019 and May 31, 2018, respectively. |
Earnings Per Share | (13) Earnings Per Share Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. The difference between reported basic and diluted weighted-average common shares results from the assumption that all dilutive stock options and convertible preferred stock exercised into common stock. Total potentially dilutive shares excluded from diluted weighted shares outstanding at May 31, 2019 and May 31, 2018 totaled 118,386 and 215,663, 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 ASC 718. The Company recognizes in its consolidated statements 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. |
Recently Issued Standards | (15) Recently Issued Standards In February 2016, the FASB issued ASU No. 2016-02, "Leases." This ASU requires all lessees to be recognized on the balance sheet as right to use assets and lease liabilities for the rights and obligations created by lease arrangements with terms greater than 12 months. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and for interim periods therein. The Company is in the process of assessing the impact the adoption this ASU will have on its consolidated financial position, results of operations and cash flows. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. Early adoption of this ASU is permitted. At May 31, 2019, the Company's undiscounted future minimum payments outstanding for lease obligations (including those currently included as capital lease obligations) were approximately $481,305 |
Summary of Significant Accoun_3
Summary of Significant Accounting Policies (Tables) | 6 Months Ended |
May 31, 2019 | |
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 |
Fixed Assets (Tables)
Fixed Assets (Tables) | 6 Months Ended |
May 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Schedule of fixed assets | May 31, November 30, 2019 2018 Furniture and Fixtures $ 327,971 $ 327,971 Leasehold Improvements 995,356 991,646 Computer Equipment 1,066,516 1,063,005 Less-Accumulated Depreciation (2,285,878 ) (2,266,627 ) Net Fixed Assets $ 103,965 $ 115,995 |
Capitalized Lease Obligations (
Capitalized Lease Obligations (Tables) | 6 Months Ended |
May 31, 2019 | |
Leases [Abstract] | |
Schedule of future minimum lease payments under these capitalized lease obligations | 2020 $ 9,779 2021 $ 9,779 2022 $ 9,779 2023 $ 3,983 Total $ 33,320 Less: interest portion 6,057 Present value of net minimum lease payments $ 27,263 Less: current portion 7,432 Non-current portion $ 19,831 |
Schedule of capital lease obligations mature | Capital lease obligations mature as follows: Twelve months ending May 31: 2019 $ 7,432 2020 $ 8,153 2021 $ 8,948 2022 $ 2,730 Principal payments remaining $ 27,263 |
Accrued Expenses (Tables)
Accrued Expenses (Tables) | 6 Months Ended |
May 31, 2019 | |
Payables and Accruals [Abstract] | |
Schedule of accrued expenses | May 31, November 30, 2019 2018 Commissions $ 195,449 $ 228,199 Preferred stock dividends 144,069 141,569 Other accrued expenses 237,951 233,435 Total $ 577,469 $ 603,203 |
Shareholders' Equity (Tables)
Shareholders' Equity (Tables) | 6 Months Ended |
May 31, 2019 | |
Equity [Abstract] | |
Schedule of activity in the 2010 stock plan | Weighted Average Shares Exercise Options outstanding December 1, 2018 175,000 $ 0.99 Options issued in the six months ended May 31, 2019 - $ - Options exercised in the six months ended May 31, 2019 - $ - Options cancelled in the six months ended May 31, 2019 (3,000 ) $ (1.15 ) Options outstanding at May 31, 2019 172,000 $ 0.99 Options exercisable at May 31, 2019 172,000 $ 0.99 |
Income Taxes (Tables)
Income Taxes (Tables) | 6 Months Ended |
May 31, 2019 | |
Income Tax Disclosure [Abstract] | |
Schedule of deferred income taxes | May 31, November 30, 2019 2018 Deferred Tax Assets Net operating loss $ 1,840,660 $ 2,008,906 Allowance for bad debts 17,403 32,658 Inventory 60,746 69,757 Deferred rent 5,117 6,679 Other 74,067 62,071 Depreciation 74,141 73,140 Total deferred tax assets 2,072,134 2,253,211 Valuation allowance (1,027,197 ) (1,270,587 ) Deferred Tax Assets $ 1,044,937 $ 982,624 |
Schedule of income tax expense | Six Months Ended May 31, May 31, Current: Federal $ - $ 3,331 States 13,934 18,111 13,934 21,442 Deferred: Federal (49,227 ) 21,283 States (13,086 ) 3,948 (62,313 ) 25,231 Provision for income taxes $ (48,379 ) $ 46,673 |
Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate | Six Months ended May 31, May 31, 2019 2018 U.S Federal Income tax statutory rate 21 % 21 % Valuation allowance (33 )% (9 )% State income taxes 8 % 7 % Other - - Effective tax rate (4 )% 19 % |
Rental Commitments (Tables)
Rental Commitments (Tables) | 6 Months Ended |
May 31, 2019 | |
Rental Commitments [Abstract] | |
Schedule of future minimum rental commitments | 2020 $ 290,268 2021 $ 152,012 2022 $ 5,705 $ 447,985 |
Export Sales (Tables)
Export Sales (Tables) | 6 Months Ended |
May 31, 2019 | |
Segment Reporting [Abstract] | |
Schedule of export sales | Six Months Ended May 31, May 31, 2019 2018 Canada 2,360,932 1,795,417 China 2,804,193 2,038,705 Other Asian Countries 1,055,605 730,150 South America 247,230 231,893 Europe 678,907 124,517 |
Organization, Description of _2
Organization, Description of Company's Business and Basis of Presentation (Details) | May 31, 2002Shareholdershares | Feb. 28, 2019shares |
Organization, Description of Company's Business and Basis of Presentation (Textual) | ||
Minimum number of shareholders to hold equity | Shareholder | 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 |
Summary of Significant Accoun_4
Summary of Significant Accounting Policies (Details) | 6 Months Ended |
May 31, 2019 | |
Computer equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 5 years |
Leasehold Improvements [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, estimated useful lives | Estimated useful life or lease term, whichever is shorter |
Maximum [Member] | Furniture, fixtures and equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 7 years |
Minimum [Member] | Furniture, fixtures and equipment [Member] | |
Property, Plant and Equipment [Line Items] | |
Property, plant and equipment, useful life | 5 years |
Summary of Significant Accoun_5
Summary of Significant Accounting Policies (Details Textual) - USD ($) | 6 Months Ended | ||
May 31, 2019 | May 31, 2018 | Nov. 30, 2018 | |
Summary of Significant Accounting Policies (Textual) | |||
Direct shipments revenue | $ 702,000 | $ 2,266,000 | |
Commission revenue | 211,167 | 77,288 | |
Revenues from distribution agreements | 3,438,000 | 1,966,000 | |
Inventory in transit from foreign suppliers | 1,214,998 | ||
Reserve against slow moving and obsolete inventory | 250,565 | ||
Amount of uninsured cash balances | 2,030,432 | $ 1,197,367 | |
Shipping costs | $ 3,781 | $ 4,013 | |
Diluted weighted shares outstanding | 118,386 | 215,663 | |
Capital lease obligations | $ 481,305 |
Fixed Assets (Details)
Fixed Assets (Details) - USD ($) | May 31, 2019 | Nov. 30, 2018 |
Schedule of fixed assets | ||
Less-Accumulated Depreciation | $ (2,285,878) | $ (2,266,627) |
Net Fixed Assets | 103,965 | 115,995 |
Furniture and Fixtures [Member] | ||
Schedule of fixed assets | ||
Fixed assets gross | 327,971 | 327,971 |
Leasehold Improvements [Member] | ||
Schedule of fixed assets | ||
Fixed assets gross | 995,356 | 991,646 |
Computer Equipment [Member] | ||
Schedule of fixed assets | ||
Fixed assets gross | $ 1,066,516 | $ 1,063,005 |
Fixed Assets (Details Textual)
Fixed Assets (Details Textual) - USD ($) | 3 Months Ended | 6 Months Ended | ||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |
Fixed Assets (Textual) | ||||
Depreciation and amortization expense | $ 9,674 | $ 12,532 | $ 19,252 | $ 24,486 |
Capitalized Lease Obligations_2
Capitalized Lease Obligations (Details) - USD ($) | May 31, 2019 | Nov. 30, 2018 |
Leases [Abstract] | ||
2020 | $ 9,779 | |
2021 | 9,779 | |
2022 | 9,779 | |
2023 | 3,983 | |
Total | 33,320 | |
Less: interest portion | 6,057 | |
Present value of net minimum lease payments | 27,263 | |
Less: current portion | 7,432 | $ 7,036 |
Non-current portion | $ 19,831 | $ 25,500 |
Capitalized Lease Obligations_3
Capitalized Lease Obligations (Details 1) | May 31, 2019USD ($) |
Twelve months ending May 31: | |
2019 | $ 7,432 |
2020 | 8,153 |
2021 | 8,948 |
2022 | 2,730 |
Principal payments remaining | $ 27,263 |
Capitalized Lease Obligations_4
Capitalized Lease Obligations (Details Textual) | 6 Months Ended |
May 31, 2019USD ($)leasearrangements | |
Capitalized Lease Obligations (Textual) | |
Leases equipment | leasearrangements | 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 |
Line of Credit (Details)
Line of Credit (Details) - USD ($) | 6 Months Ended | |
May 31, 2019 | Feb. 28, 2017 | |
Line of Credit (Textual) | ||
Line of credit | $ 0 | $ 3,000,000 |
Line of credit, interest rate, description | 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). |
Accrued Expenses (Details)
Accrued Expenses (Details) - USD ($) | May 31, 2019 | Nov. 30, 2018 |
Schedule of accrued expenses | ||
Commissions | $ 195,449 | $ 228,199 |
Preferred stock dividends | 144,069 | 141,569 |
Other accrued expenses | 237,951 | 233,435 |
Total | $ 577,469 | $ 603,203 |
Retirement Plan (Details)
Retirement Plan (Details) - USD ($) | 1 Months Ended | 6 Months Ended | ||
Jun. 30, 1997 | May 31, 2019 | May 31, 2018 | Nov. 30, 2018 | |
Retirement Plan (Textual) | ||||
Description for retirement plan | 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 | $ 1,201,000 | |||
Pension expense | $ 1,196 | $ 590 |
Shareholders' Equity (Details)
Shareholders' Equity (Details) - Employee Stock Option [Member] - Incentive Stock 2010 Plan [Member] | 6 Months Ended |
May 31, 2019$ / sharesshares | |
Shares | |
Options outstanding December 1, 2018 | shares | 175,000 |
Options issued in the six months ended May 31, 2019 | shares | |
Options exercised in the six months ended May 31, 2019 | shares | |
Options cancelled in the six months ended May 31, 2019 | shares | (3,000) |
Options outstanding at May 31, 2019 | shares | 172,000 |
Options exercisable at May 31, 2019 | shares | 172,000 |
Weighted Average Exercise Price | |
Options outstanding December 1, 2018 | $ / shares | $ 0.99 |
Options issued in the six months ended May 31, 2019 | $ / shares | |
Options exercised in the six months ended May 31, 2019 | $ / shares | |
Options cancelled in the six months ended May 31, 2019 | $ / shares | (1.15) |
Options outstanding at May 31, 2019 | $ / shares | 0.99 |
Options exercisable at May 31, 2019 | $ / shares | $ 0.99 |
Shareholders' Equity (Details T
Shareholders' Equity (Details Textual) - USD ($) | Mar. 14, 2011 | Jul. 31, 2015 | Apr. 30, 2015 | Oct. 31, 2014 | Feb. 28, 2006 | Apr. 30, 2002 | Apr. 30, 2001 | Nov. 30, 2000 | May 31, 2019 | Nov. 30, 2018 | Oct. 31, 2016 | Aug. 31, 2010 | Dec. 31, 2001 | Feb. 29, 1996 |
Shareholders' Equity (Textual) | ||||||||||||||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 | ||||||||||||
Dividend payable | $ 144,069 | |||||||||||||
Preferred Stock [Member] | ||||||||||||||
Shareholders' Equity (Textual) | ||||||||||||||
Preferred stock, shares authorized | 5,000,000 | 1,000,000 | ||||||||||||
Series C Preferred Stock | ||||||||||||||
Shareholders' Equity (Textual) | ||||||||||||||
Preferred stock, shares authorized | 100,000 | 100,000 | 100,000 | |||||||||||
Preferred stock, shares outstanding | 10,000 | 10,000 | ||||||||||||
Preferred stock, shares issued | 10,000 | 10,000 | ||||||||||||
Number of shares converted into common stock upon conversion | 4,200 | 2,000 | 10 | |||||||||||
Cumulative dividend per share per annum | $ 0.50 | |||||||||||||
Preferred stock issued in payment of financial consulting services | 70,000 | |||||||||||||
Stock repurchased and cancelled | 19,300 | 8,000 | ||||||||||||
Repurchased shares were cancelled | $ 225,000 | |||||||||||||
Repurchase of common shares, Shares | 10,000 | |||||||||||||
Accrued dividends | $ 29,838 | $ 65,000 | $ 50,000 | |||||||||||
Number of preferred stock returned for cancellation in exchange for shares of common stock | 9,000 | 7,500 | ||||||||||||
Number of common shares issued in conversion of preferred stock | 112,500 | 110,000 | 20,000 | |||||||||||
Number of shares transferred to company | 252,000 | |||||||||||||
Series C Preferred Stock | Common Stock | ||||||||||||||
Shareholders' Equity (Textual) | ||||||||||||||
Number of shares converted into common stock upon conversion | 42,000 | |||||||||||||
Series D Preferred Stock [Member] | ||||||||||||||
Shareholders' Equity (Textual) | ||||||||||||||
Preferred stock, shares authorized | 75,000 | 75,000 | 75,000 | |||||||||||
Preferred stock, shares outstanding | ||||||||||||||
Preferred stock, shares issued |
Shareholders' Equity (Details_2
Shareholders' Equity (Details Textual 1) - USD ($) | 1 Months Ended | 6 Months Ended | 12 Months Ended | ||||
May 31, 2019 | Oct. 31, 2016 | May 31, 2016 | Apr. 30, 2016 | Mar. 31, 2010 | May 31, 2019 | Nov. 30, 2015 | |
Incentive Stock 2015 Plan [Member] | Another Employee Director [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Number of common shares purchased for options granted | 17,952 | ||||||
Options granted cost | $ 88,750 | ||||||
Incentive Stock 2015 Plan [Member] | Officer [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Issuance of shares as compensation, shares | 99,151 | ||||||
Employee Stock Option [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Intrinsic value of exercisable options | $ 236,120 | $ 236,120 | |||||
Weighted average remaining life | 1 year 4 months 13 days | ||||||
Employee Stock Option [Member] | Another Employee Director [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Number of common shares purchased for options granted | 31,250 | ||||||
Options granted cost | $ 74,363 | ||||||
Employee Stock Option [Member] | Employee Director [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Number of common shares purchased for options granted | 67,901 | ||||||
Options granted cost | $ 74,363 | ||||||
Exercise of options, shares | 50,000 | ||||||
Options exercised shares of common stock per share | $ 0.82 | ||||||
Employee Stock Option [Member] | One Employee Director Three [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Exercise of options, shares | 45,938 | ||||||
Options exercised shares of common stock per share | $ 0.80 | ||||||
Employee Stock Option [Member] | One Employee Director Two [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Exercise of options, shares | 25,000 | ||||||
Options exercised shares of common stock per share | $ 0.82 | ||||||
Employee Stock Option [Member] | One Employee Director One [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Exercise of options, shares | 62,500 | ||||||
Options exercised shares of common stock per share | $ 0.80 | ||||||
Employee Stock Option [Member] | Incentive Stock 2015 Plan [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Number of common shares purchased for options granted | 29,255 | 1,500,000 | |||||
Options granted cost | $ 88,750 | ||||||
Employee Stock Option [Member] | Incentive Stock 2010 Plan [Member] | |||||||
Shareholders' Equity (Textual) | |||||||
Number of common shares purchased for options granted | 1,500,000 | ||||||
Exercise of options, shares | |||||||
Options exercised shares of common stock per share |
Shareholders' Equity (Details_3
Shareholders' Equity (Details Textual 2) - Employee Stock Option [Member] | 6 Months Ended |
May 31, 2019USD ($) | |
Non Employee Director [Member] | |
Shareholders' Equity (Textual) | |
Compensation | $ 3,500 |
One Non Employee Director [Member] | |
Shareholders' Equity (Textual) | |
Compensation | $ 2,500 |
Settlement Agreement (Details)
Settlement Agreement (Details) - USD ($) | Mar. 15, 2017 | Mar. 31, 2017 | May 31, 2019 |
Tender Offer [Member] | |||
Settlement Agreement (Textual) | |||
Repurchase of common shares, Shares | 5,000,000 | ||
Common stock, per share | $ 1.43 | ||
Settlement Agreement [Member] | |||
Settlement Agreement (Textual) | |||
Repurchase of common shares, Shares | 5,000,000 | ||
Common stock, per share | $ 1.43 | ||
Tender offer, description | (i) appoint the Stockholders to the Board as Class A directors with terms expiring at the Company's annual meeting of stockholders for fiscal year 2018 (the "2019 Meeting") and (ii) reduce the size of the Board to six directors, including the Stockholders; | ||
Litigation costs | $ 300,000 | ||
Repurchase of common shares, value | $ 7,150,000 |
Income Taxes (Details)
Income Taxes (Details) - USD ($) | May 31, 2019 | Nov. 30, 2018 |
Deferred Tax Assets | ||
Net operating loss | $ 1,840,660 | $ 2,008,906 |
Allowance for bad debts | 17,403 | 32,658 |
Inventory | 60,746 | 69,757 |
Deferred rent | 5,117 | 6,679 |
Other | 74,067 | 62,071 |
Depreciation | 74,141 | 73,140 |
Total deferred tax assets | 2,072,134 | 2,253,211 |
Valuation allowance | (1,027,197) | (1,270,587) |
Deferred Tax Assets | $ 1,044,937 | $ 982,624 |
Income Taxes (Details 1)
Income Taxes (Details 1) - USD ($) | 3 Months Ended | 6 Months Ended | ||
May 31, 2019 | May 31, 2018 | May 31, 2019 | May 31, 2018 | |
Current: | ||||
Federal | $ 3,331 | |||
States | 13,934 | 18,111 | ||
Current, total | 13,934 | 21,442 | ||
Deferred: | ||||
Federal | (49,227) | 21,283 | ||
States | (13,086) | 3,948 | ||
Deferred, total | (62,313) | 25,231 | ||
Provision for income taxes | $ 62,101 | $ 2,907 | $ (48,379) | $ 46,673 |
Income Taxes (Details 2)
Income Taxes (Details 2) | 6 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Schedule of difference between expected income tax rate using statutory federal tax rate and company's effective rate | ||
U.S Federal Income tax statutory rate | 21.00% | 21.00% |
Valuation allowance | (33.00%) | (9.00%) |
State income taxes | 8.00% | 7.00% |
Other | ||
Effective tax rate | (4.00%) | 19.00% |
Income Taxes (Details Textual)
Income Taxes (Details Textual) | 6 Months Ended |
May 31, 2019USD ($) | |
Income Taxes (Textual) | |
Valuation allowance for deferred tax assets | $ 243,390 |
Net operating loss carryforwards | $ 7,043,000 |
Net operating loss carryforwards, expiration date | Nov. 30, 2020 |
Rental Commitments (Details)
Rental Commitments (Details) | May 31, 2019USD ($) |
Schedule of future minimum rental commitments | |
2020 | $ 290,268 |
2021 | 152,012 |
2022 | 5,705 |
Future minimum rental commitments | $ 447,985 |
Rental Commitments (Details Tex
Rental Commitments (Details Textual) - USD ($) | 1 Months Ended | 6 Months Ended | 12 Months Ended | ||
Jun. 30, 2019 | Jan. 30, 2019 | May 31, 2019 | May 31, 2018 | Nov. 30, 2018 | |
Rental Commitments (Textual) | |||||
Net rental expense | $ 173,903 | $ 158,531 | |||
Hong Kong [Member] | |||||
Rental Commitments (Textual) | |||||
Annual minimum rental payments | $ 36,840 | ||||
Term of lease | 2 years | ||||
Related Parties [Member] | |||||
Rental Commitments (Textual) | |||||
Lease expiration period | Nov. 30, 2020 | ||||
Annual minimum rental payments | $ 180,000 | ||||
Net rental expense | $ 131,612 | $ 129,822 | |||
Lease term, description | The rate of three per cent per annum throughout the lease term. | ||||
Related Parties [Member] | Hong Kong [Member] | Subsequent Event [Member] | |||||
Rental Commitments (Textual) | |||||
Annual minimum rental payments | $ 68,460 | ||||
Term of lease | 2 years |
Employment and Other Agreemen_2
Employment and Other Agreements (Details) | 1 Months Ended |
Feb. 29, 2016USD ($)leasearrangements | |
Employment and Other Agreements (Textual) | |
Number of officers involved in employment agreements | leasearrangements | 2 |
Employment agreements termination, description | One year following termination. |
Compensation, description | 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. |
Officer [Member] | |
Employment and Other Agreements (Textual) | |
Base salary | $ 275,000 |
Officer One [Member] | |
Employment and Other Agreements (Textual) | |
Base salary | $ 225,000 |
Major Customers (Details)
Major Customers (Details) - Customers | 6 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Customer One [Member] | Net sales [Member] | ||
Major Customers (Textual) | ||
Number of customers | 2 | 2 |
Percentage of concentration risk | 12.00% | 10.00% |
Customer One [Member] | Accounts receivable [Member] | ||
Major Customers (Textual) | ||
Number of customers | 2 | 2 |
Percentage of concentration risk | 11.00% | 12.00% |
Customer Two [Member] | Net sales [Member] | ||
Major Customers (Textual) | ||
Number of customers | 2 | 2 |
Percentage of concentration risk | 13.00% | 12.00% |
Customer Two [Member] | Accounts receivable [Member] | ||
Major Customers (Textual) | ||
Number of customers | 2 | 2 |
Percentage of concentration risk | 12.00% | 13.00% |
Major Suppliers (Details)
Major Suppliers (Details) - Supplier Concentration Risk [Member] - Inventory Purchased [Member] | 6 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Taiwan [Member] | ||
Major Suppliers (Textual) | ||
Percentage of inventory purchased of products | 46.00% | |
Hong Kong [Member] | ||
Major Suppliers (Textual) | ||
Percentage of inventory purchased of products | 15.00% | |
Overseas Outside of Asia [Member] | ||
Major Suppliers (Textual) | ||
Percentage of inventory purchased of products | 31.00% | |
United States [Member] | ||
Major Suppliers (Textual) | ||
Percentage of inventory purchased of products | 8.00% | |
Foreign Supplier [Member] | ||
Major Suppliers (Textual) | ||
Percentage of inventory purchased of products | 40.00% | 57.00% |
Export Sales (Details)
Export Sales (Details) - USD ($) | 6 Months Ended | |
May 31, 2019 | May 31, 2018 | |
Canada [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Export sales | $ 2,360,932 | $ 1,795,417 |
China [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Export sales | 2,804,193 | 2,038,705 |
Other Asian Countries [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Export sales | 1,055,605 | 730,150 |
South America [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Export sales | 247,230 | 231,893 |
Europe [Member] | ||
Revenues from External Customers and Long-Lived Assets [Line Items] | ||
Export sales | $ 678,907 | $ 124,517 |