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"While we continue to focus on improving the business and positioning the Company to capitalize on the industry’s eventual turnaround, there are a number of near-term headwinds that we will need to contend with as we finish 2024 and turn to 2025. The automotive industry, one of our core markets, continues to face structural headwinds. A threatened dockworker strike across much of the US recently reached a tentative settlement until January 2025 but will likely serve as a headwind early next year. Furthermore, President Biden announced that the United States will increase tariffs from 25% to 50% on certain products, including some of Surge’s products, coming into the country from China, which could negatively impact the business."

"Yet in the face of this challenging environment, Surge continues to work smartly and diligently in creating new business opportunities by continuing to explore new product introductions while the Challenge division seeks new accounts. While near-term headwinds will likely push out the timeline for the industry’s rebound that we initially expected to begin in late 2024 and early 2025, we remain positive on our business’ outlook and continue to position ourselves to capitalize on the eventual turnaround by focusing on executing our strategy."

Results of Operations for the Three Months Ended August 31, 2024

Net sales for the three months ended August 31, 2024, decreased by $887,543 or 10.0%, to $7,970,316 as compared to net sales of $8,857,859 for the three months ended August 31, 2023. The decrease is attributable to a decrease in business with new customers as well as a decrease in business with existing customers. The decrease is also attributable to customers pushing out orders due to them over ordering in 2022. The customers have excess inventory that they need to consume before re-ordering those products. Additionally, many customers, because of having this excess inventory have not launched new product development as their cash is tied up in their inventory.

Gross profit for the three months ended August 31, 2024, increased by $191,569 to $2,487,570, or 8.3%, as compared to $2,296,001 for the three months ended August 31, 2023. Gross margin as a percentage of net sales increased to 31.2% for the three months ended August 31, 2024, compared to 25.9% for the three months ended August 31, 2023. The increase is attributable to can be attributed to increases in sales from customers whose sales carry a higher profit margin.

Selling and shipping expenses for the three months ended August 31, 2024, was $683,894, a decrease of $65,026, or 8.7%, as compared to $748,920 for three months ended August 31, 2023. We attribute the decrease to decreases in sales and the resulting selling expenses such as commission expenses, travel expenses, and trade show expenses, offset by increases in salesman payroll due to hiring of additional sales employees in the nine months ended August 31, 2024, as well as entertainment, freight out and auto expenses.

General and administrative expenses for the three months ended August 31, 2024, was $1,250,294, a decrease of $66,310, or 5.0% as compared to $1,316,604 for the three months ended August 31, 2023. The decrease is due primarily to decreases in officer salaries for the nine months ended August 31, 2024 as well as health and rent and general insurance expenses, as well as temporary help expenses, directors’ fees and consulting expenses as partially offset by increases in salaries and related payroll tax expenses, telephone, office expenses and professional fees and bank charges as well as public company expenses and officer salaries for the three months ended August 31, 2024.

Net income for the three months ended August 31, 2024, was $444,352, compared to a net income of $133,280 for the three months ended August 31, 2023.

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, expected rebound in the market, supply chain challenges, customer lead times, 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," "expected," "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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Contacts

Investor Contacts:
Sloane & Company
Neal Nagarajan, nnagarajan@sloanepr.com