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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~August~~February 3128, ~~2025~~2026

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File No. 000-27688

SURGE COMPONENTS, INC.

(Exact name of registrant as specified in its charter)

Nevada		11-2602030
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

95 East Jefryn Boulevard Deer Park, New York		11729
(Address of principal executive offices)		(Zip Code)

(631) 595-1818

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act: None

The registrant’s common stock outstanding as of ~~October~~April 11, ~~2025~~2026, was 5,~~706~~716,~~732~~792 shares of common stock. The registrant’s common stock trades on the OTC Markets under the stock symbol “SPRS.”

SURGE COMPONENTS, INC

TABLE OF CONTENTS

		~~Page~~	Page
PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1	1
	Consolidated Balance Sheets as of August 31, 2025 (unaudited) and November 30, 2024	1
Consolidated Balance Sheets as of February 28, 2026 (unaudited) and November 30, 2025			1
	Consolidated Statements of Operations for the nine and three months ended August 31, 2025 and August 31, 2024 (unaudited)	3
Consolidated Statements of Operations for the three months ended February 28, 2026 and February 28, 2025 (unaudited)			3
	Consolidated Statements of Comprehensive Income for the nine and three months ended August 31, 2025 and August 31, 2024 (unaudited)	4
Consolidated Statements of Comprehensive Income(loss) for the three months ended February 28, 2026 and February 28, 2025 (unaudited)			4
	Consolidated Statements of Changes in Shareholders Equity for the nine months ended August 31, 2025 and August 31, 2024 (unaudited)	5
Consolidated Statements of Changes in Shareholders Equity for the three months ended February 28, 2026 and February 28, 2025 (unaudited)			5
	Consolidated Statements of Cash Flows for the nine months ended August 31, 2025 and August 31, 2024 (unaudited)	6
Consolidated Statements of Cash Flows for the three months ended February 28, 2026 and February 28, 2025 (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)	~~Notes to Consolidated Financial Statements (unaudited)~~	8	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22	23
Item 4.	Controls and Procedures	22	23
PART II - OTHER INFORMATION		23
Item 1.	Legal Proceedings	23	24
Item 1A.	Risk Factors	23	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23	24
Item 3.	Defaults Upon Senior Securities	23	24
Item 4.	Mine Safety Disclosures	23	24
Item 5.	Other Information	23	24
Item 6.	Exhibits	23	25
SIGNATURES		24	26

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

SURGE COMPONENTS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	August 31, 2025		November 30, 2024
	February 28, 2026		November 30, 2025
	(unaudited)
ASSETS
Current assets:
Cash	$	46,~~275~~448,~~802~~930	$	5,~~627~~331,~~693~~609
Marketable Securities		8,~~665~~363,~~967~~700		78,~~108~~438,~~979~~017
Accounts receivable - net of allowance for credit losses of $120,915 and $80,297		6,846,874		5,960,418
Accounts receivable - net of allowance for credit losses of $120,915 and $120,915		5,807,866		6,460,109
Inventory, net		54,~~579~~969,~~646~~387		5,~~000~~086,~~707~~298
Prepaid expenses and income taxes		~~343~~214,~~358~~378		~~290~~460,~~401~~289
Total current assets		25,~~711~~804,~~647~~261		2325,~~988~~776,~~198~~322
Fixed assets – net of accumulated depreciation and amortization of $1,881,043 and $1,828,156		175,544		110,727
Fixed assets – net of accumulated depreciation and amortization of $1,909,591 and $1,898,800		151,242		162,033
Operating lease right of use asset		~~994~~988,~~076~~582		1918,~~050,445~~387
Deferred income taxes		~~257~~303,~~890~~701		~~260~~229,~~856~~212
Other assets		34,299		34,299
Total assets	$	27,~~173~~282,~~456~~085	$	2527,~~444~~120,~~525~~253

1See notes to consolidated financial statements.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~1

~~Consolidated~~SURGE ~~Balance~~COMPONENTS, ~~Sheets~~INC. AND SUBSIDIARIES

~~(Continued)~~Consolidated Balance Sheets

	August 31, 2025		November 30, 2024
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,036,163	$	3,344,952
Operating lease liabilities, current maturities		388,041		330,166
Accrued expenses and taxes		555,318		688,640
Accrued salaries		546,354		714,879
Total current liabilities		5,525,876		5,078,637
Operating lease liabilities net of current maturities		764,655		876,808
Total liabilities		6,290,531		5,955,445
Commitments and contingencies
Shareholders’ equity:
Preferred stock - $.001 par value, 5,000,000 shares authorized:
Series C–100,000 shares authorized, 10,000 and 10,000 shares issued and outstanding, redeemable, convertible, and a liquidation preference of $5 per share		10		10
Series D – 75,000 shares authorized, none issued or outstanding, voting, convertible, redeemable.
Common stock - $.001 par value, 50,000,000 shares authorized, 5,706,732 and 5,582,783 shares issued and outstanding		5,705		5,581
Additional paid-in capital		18,382,350		17,725,520
Accumulated other comprehensive income – unrealized gain on marketable debt securities		179,696		85,330
Accumulated equity		2,315,164		1,672,639
Total shareholders’ equity		20,882,925		19,489,080
Total liabilities and shareholders’ equity	$	27,173,456	$	25,444,525

(Continued)

See notes to consolidated financial statements.

	February 28, 2026		November 30, 2025
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,476,282	$	3,225,926
Operating lease liabilities, current maturities		368,083		367,033
Accrued expenses and taxes		661,337		647,439
Accrued salaries		663,623		772,350
Total current liabilities		5,169,325		5,012,748
Operating lease liabilities net of current maturities		780,353		709,942
Total liabilities		5,949,678		5,722,690

Commitments and contingencies

Shareholders’ equity:
Preferred stock - $.001 par value, 5,000,000 shares authorized:
Series C–100,000 shares authorized, 10,000 and 10,000 shares issued and outstanding, redeemable, convertible, and a liquidation preference of $5 per share		10		10
Series D – 75,000 shares authorized, none issued or outstanding, voting, convertible, redeemable.
Common stock - $.001 par value, 50,000,000 shares authorized, 5,716,792 and 5,716,792 shares issued and outstanding		5,715		5,715
Additional paid-in capital		18,421,154		18,401,747
Accumulated other comprehensive income – unrealized gain on marketable debt securities		137,951		185,739
Accumulated equity		2,767,577		2,804,352
Total shareholders’ equity		21,332,407		21,397,563

Total liabilities and shareholders’ equity	$	27,282,085	$	27,120,253

2See notes to consolidated financial statements.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~2

~~Consolidated~~SURGE ~~Statements~~COMPONENTS, ofINC. ~~Operations~~AND SUBSIDIARIES

~~(Unaudited)~~Consolidated Statements of Operations

	Nine Months Ended August 31,				Three Months Ended August 31,
	2025		2024		2025		2024
Net sales	$	26,422,494	$	22,369,017	$	10,274,031	$	7,970,316
Cost of goods sold		18,843,686		15,836,754		7,429,328		5,482,746
Gross profit		7,578,808		6,532,263		2,844,703		2,487,570
Operating expenses:
Selling and shipping expenses		2,053,493		2,028,864		721,274		683,894
General and administrative expenses		4,755,491		3,887,238		1,446,788		1,250,294
Depreciation and amortization		52,887		52,788		17,808		18,020
Total operating expenses		6,861,871		5,968,890		2,185,870		1,952,208
Income before other income (expense) and income taxes		716,937		563,373		658,833		535,362
Other income (expense):
Investment income		284,181		241,300		100,851		88,120
Interest expense		-		-		-		-
Other income (expense)		284,181		241,300		100,851		88,120
Income before income taxes		1,001,118		804,673		759,684		623,482
Income taxes		353,593		234,383		287,479		179,130
Net income		647,525		570,290		472,205		444,352
Dividends on preferred stock		5,000		5,000		2,500		2,500
Net income available to common shareholders	$	642,525	$	565,290	$	469,705	$	441,852
Net income per share available to common shareholders:
Basic	$	.11	$	.10	$	.08	$	.08
Diluted	$	.11	$	.10	$	.08	$	.08
Weighted Shares Outstanding:
Basic		5,646,723		5,580,342		5,706,732		5,582,783
Diluted		5,760,074		5,760,365		5,820,084		5,762,806

(Unaudited)

See notes to consolidated financial statements.

	Three Months Ended
	February 28, 2026			February 28, 2025
Net sales	$	8,193,907		$	7,231,738

Cost of goods sold		5,785,498			5,186,036

Gross profit		2,408,409			2,045,702

Operating expenses:
Selling and shipping expenses		834,180			653,367
General and administrative expenses		1,721,278			1,379,262
Depreciation and amortization		10,791			15,617
Total operating expenses		2,566,249			2,048,246

Loss before other income and income taxes		(157,840	)		(2,544	)

Other income (expense):
Interest expense		-			-
Investment income		104,297			124,966

Other income (expense):		104,297			124,966

Income (loss) before income taxes		(53,543	)		122,422

Income taxes (benefit)		(19,268	)		65,066

Net (loss) income	$	(34,275	)	$	57,356
Dividends on preferred stock		2,500			2,500

Net (loss) income available to common shareholders	$	(36,775	)	$	54,856

Net (loss) income per share available to common shareholders:

Basic	$	(.01	)	$	.01
Diluted	$	(.01	)	$	.01

Weighted Shares Outstanding:
Basic		5,716,792			5,582,783
Diluted		5,716,792			5,747,420

3See notes to consolidated financial statements.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~3

~~Consolidated~~SURGE ~~Statements~~COMPONENTS, ofINC. ~~Comprehensive~~AND ~~Income~~SUBSIDIARIES

Consolidated Statements of Comprehensive Income (~~Unaudited~~loss)

	Nine Months Ended August 31,					Three Months Ended August 31,
	2025		2024			2025		2024
Net Income		647,525		570,290			472,205		444,352
Reclassification of realized gain on investment securities:		-		(200	)		-		(200	)
Unrealized gain (loss) on marketable debt securities net of tax		94,366		186,159			51,982		148,511
Net comprehensive income	$	741,891	$	756,249		$	524,187	$	592,663

(Unaudited)

See notes to Consolidated financial statements

	Three Months Ended
	February 28, 2026			February 28, 2025
Net (loss) income	$	(34,275	)	$	57,356
Other comprehensive income:
Reclassification of realized gain on investment securities		-			-
Unrealized (loss) gain on marketable debt securities,net of tax		(47,788	)		44,812
Net comprehensive (loss) income	$	(82,063	)	$	102,168

4See notes to consolidated financial statements

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~4

~~Consolidated~~SURGE ~~Statements~~COMPONENTS, ofINC. ~~Changes~~AND ~~in Shareholders’ Equity-unaudited~~SUBSIDIARIES

~~Nine~~Consolidated ~~months~~Statements ~~ended~~of ~~August~~Changes ~~31,~~in ~~2024~~Shareholders’ ~~and August 31, 2025~~Equity-unaudited

	Series C Preferred				Common				Additional Paid-In		Other Comprehensive		Accumulated
	Shares		Amount		Shares		Amount		Capital		Income		Equity			Total
Balance – December 1, 2023		10,000	$	10		5,577,698	$	5,576	$	17,710,525	$	828	$	851,962		$	18,568,901
Preferred stock dividends		-		-		-		-		-		-		(5,000	)		(5,000	)
Issuance of shares as compensation		-		-		5,085		5		14,995		-		-			15,000
Change in unrealized gain on marketable securities												185,331					185,331
Stock option exercise		-		-		-		-		-		-		-			-
Net income		-		-		-		-		-		-		570,290			570,290
Balance – August 31, 2024		10,000	$	10		5,582,783	$	5,581	$	17,725,520	$	186,159	$	1,417,252		$	19,334,522

Three months ended February 28, 2025 and February 28, 2026

	Series C Preferred				Common				Additional Paid -In		Other Comprehensive		Accumulated Equity
	Shares		Amount		Shares		Amount		Capital		Income		~~Equity~~(Deficit)			Total
Balance – December 1, 2024		10,000	$	10		5,582,783	$	5,581	$	17,725,520	$	85,330	$	1,672,639		$	19,489,080
Preferred stock dividends		-		-		-		-		-		-		(52,~~000~~500	)		(52,~~000~~500	)
Stock options awarded										518,954							518,954
Change in unrealized gain on marketable securities		-		-		-		-		-		44,812		-			44,812
Issuance of shares as compensation		-		-		14,659		15		32,235		-		-			32,250
Stock option exercise		-		-		-		-		-		-		-			-
Change in unrealized gain on marketable securities												94,366					94,366
Net (loss) income		-		-		-		-		-		-		57,356			57,356
Stock option exercise		-		-		109,290		109		105,641		-		-			105,750
Balance – February 28, 2025		10,000	$	10		5,582,783	$	5,581	$	17,725,520	$	130,142	$	1,727,495		$	19,588,748
Net Income		-		-		-		-		-		-		647,525			647,525
Balance – August 31, 2025		10,000	$	10		5,706,732	$	5,705	$	18,382,350	$	179,696	$	2,315,164		$	20,882,925

See notes to consolidated financial statements.

	Series C Preferred				Common				Additional Paid -In		Other Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		Capital		Income			Equity			Total
Balance – December 1, 2025		10,000	$	10		5,716,792	$	5,715	$	18,401,747	$	185,739		$	2,804,352		$	21,397,563
Preferred stock dividends		-		-		-		-		-		-			(2,500	)		(2,500	)
Issuance of shares as compensation		-		-		-		-		-		-			-			-
Change in unrealized gain on marketable securities												(47,788	)					(47,788	)
Stock option compensation		-		-		-		-		19,407		-			-			19,407
Net loss		-		-		-		-		-		-			(34,275	)		(34,275	)
Balance – February 28, 2026		10,000	$	10		5,716,792	$	5,715	$	18,421,154	$	137,951		$	2,767,577		$	21,332,407

5See notes to consolidated financial statements.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~5

~~Consolidated~~SURGE ~~Statements~~COMPONENTS, ofINC. ~~Cash~~AND ~~Flows~~SUBSIDIARIES

~~(Unaudited)~~Consolidated Statements of Cash Flows

	Nine Months Ended
	August 31, 2025			August 31, 2024
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	647,525		$	570,290
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		52,887			52,788
Gain on marketable securities		94,366			(200	)
Deferred income taxes		2,966			2,304
Allowance for credit losses		40,618			956
Stock Compensation Expense		518,954			15,000
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		(927,074	)		495,539
Inventory		(578,939	)		(287,470	)
Prepaid expenses and income taxes		(52,957	)		57,677
Other assets		2,091			16,282
Accounts payable		691,211			332,812
Accrued expenses		(306,847	)		(301,014	)
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES		184,801			954,964
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets	$	(117,704	)	$	(10,991	)
Acquisition of marketable securities		(2,411,238	)		(6,052,055	)
Proceeds from the sale of marketable securities		960,000			1,620,000
NET CASH FLOWS USED IN INVESTING ACTIVITIES	$	(1,568,942	)	$	(4,443,046	)

(Unaudited)

	Three Months Ended
	February 28, 2026			February 28, 2025
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(34,275	)	$	57,356
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		10,791			15,617
Gain on marketable securities		(230	)
Deferred income taxes		(74,489	)		(19,519	)
Allowance for credit losses		-			735
Stock Compensation Expense		19,407			-

CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable		652,243			516,846
Inventory		116,911			(261,137	)
Prepaid expenses and income taxes		245,911			89,366
Other assets		1,266			(3,054	)
Accounts payable		250,356			(189,869	)
Accrued expenses		(97,329	)		(330,619	)
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES		1,090,562			(124,278	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets	$	-		$	(6,135	)
Acquisition of marketable securities		(656,241	)		(2,075,440	)
Proceeds from the sale of marketable securities		683,000			450,000
NET CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES	$	26,759		$	(1,631,575	)

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~6

~~Consolidated~~SURGE ~~Statements~~COMPONENTS, ofINC. ~~Cash~~AND ~~Flows~~SUBSIDIARIES

~~(Unaudited)~~Consolidated Statements of Cash Flows

(~~Continued~~Unaudited)

	Nine Months Ended
	August 31, 2025			August 31, 2024
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	$	32,250		$	-
NET CASH FLOWS FROM FINANCING ACTIVITIES	$	32,250			-
NET CHANGE IN CASH		(1,351,891	)		(3,488,082	)
CASH AT BEGINNING OF PERIOD		5,627,693			7,634,799
CASH AT END OF PERIOD	$	4,275,802		$	4,146,717
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	$	318,472		$	257,295
Interest paid	$	-		$	-
NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued dividends on preferred stock	$	5,000		$	5,000

(Continued)

See notes to consolidated financial statements.

	Three Months Ended
	February 28, 2026		February 28, 2025
CASH FLOWS FROM FINANCING ACTIVITIES:
	$	-	$	-

NET CASH FLOWS FROM FINANCING ACTIVITIES		-		-

NET CHANGE IN CASH		1,117,321		(1,755,853	)

CASH AT BEGINNING OF PERIOD		5,331,609		5,627,693

CASH AT END OF PERIOD	$	6,448,930	$	3,871,840

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Income taxes paid	$	11,170	$	23,490

Interest paid	$	-	$	-

NONCASH INVESTING AND FINANCING ACTIVITIES:
Accrued dividends on preferred stock	$	2,500	$	2,500
Operating lease assets and liabilities	$	146,601	$	-

7See notes to consolidated financial statements.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~7

~~Notes~~SURGE toCOMPONENTS, ~~Consolidated~~INC. ~~Financial~~AND ~~Statements~~SUBSIDIARIES

~~NOTE~~Notes Ato –Consolidated ~~ORGANIZATION,~~Financial ~~DESCRIPTION OF COMPANY’S BUSINESS AND BASIS OF PRESENTATION~~Statements

~~Surge~~NOTE ~~Components,~~A ~~Inc.~~– ~~(“Surge”) was incorporated in the State of New York and commenced operations on November 24~~ORGANIZATION, ~~1981~~DESCRIPTION asOF anCOMPANY’S ~~importer~~BUSINESS ofAND ~~electronic~~BASIS ~~products,~~OF 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.PRESENTATION

In ~~May 2002,~~ Surge ~~and an officer of Surge founded and became sole owners of Surge~~ Components, ~~Limited~~Inc. (“Surge ~~Limited~~”), awas ~~Hong~~incorporated ~~Kong~~in ~~corporation.~~the ~~Under~~State ~~current~~of ~~Hong~~New ~~Kong~~York ~~law, Surge~~and ~~Limited~~commenced isoperations ~~required~~on toNovember ~~have~~24, at1981 ~~least~~as ~~two~~an ~~shareholders.~~importer ~~Surge owns 999 shares~~ of ~~the~~electronic ~~outstanding~~products, ~~common~~primarily ~~stock~~capacitors and ~~the~~discrete ~~officer~~semi-conductors ~~of Surge~~selling ~~owns~~to 1customers ~~share~~located ofprincipally ~~the~~throughout ~~outstanding~~North ~~common stock~~America. ~~The~~On ~~officer~~June of24, 1988, Surge ~~has~~formed ~~assigned~~Challenge/Surge ~~his~~Inc. ~~rights~~(“Challenge”), ~~regarding~~a ~~his~~wholly-owned 1subsidiary ~~share~~ to ~~Surge.~~engage ~~Surge Limited started doing business~~ in ~~July~~the ~~2002.~~sale ~~Surge~~of ~~Limited~~electronic ~~operations~~component ~~have~~products ~~been~~and ~~consolidated~~sounding ~~with~~devices ~~the~~from ~~Company.~~established ~~Surge~~brand ~~Limited~~manufacturers ~~is responsible for the sale of Surge’s products~~ to customers located inprincipally ~~Asia~~throughout North America.

On ~~August~~In ~~31,~~May ~~2010~~2002, ~~the~~Surge ~~Company~~and ~~changed~~an ~~its~~officer ~~corporate domicile~~of bySurge ~~merging~~founded ~~into~~and abecame ~~newly-formed~~sole ~~corporation,~~owners of Surge Components, ~~Inc.~~Limited (~~Nevada~~“Surge Limited”), ~~which~~a ~~was~~Hong ~~formed~~Kong incorporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the ~~State~~outstanding common stock and the officer of ~~Nevada~~Surge ~~for~~owns ~~that purpose~~1 share of the outstanding common stock. The officer of Surge ~~Components~~has ~~Inc~~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 ~~surviving~~sale ~~entity~~of Surge’s products to customers located in Asia.

InOn ~~February~~August ~~2019~~31, 2010, the Company ~~converted~~changed its corporate domicile by merging into a ~~Delaware~~ newly-formed corporation, Surge Components, Inc. ~~The~~(Nevada), ~~number~~which ofwas ~~authorized~~formed ~~shares~~in the State of ~~common~~Nevada ~~stock~~for ~~was~~that ~~decreased~~purpose. toSurge ~~50,000,000~~Components ~~shares~~Inc. is the surviving entity.

In ~~December~~February ~~2021~~2019, the Company ~~changed~~converted ~~its~~into ~~corporate domicile~~a Delaware corporation. The number of authorized shares of common stock was decreased to ~~Nevada~~50,000,000 shares.

~~NOTE~~In BDecember –2021, ~~SUMMARY~~the OFCompany ~~SIGNIFICANT~~changed ~~ACCOUNTING POLICIES~~its corporate domicile to Nevada.

~~(1)~~NOTE ~~Principles~~B of– ~~Consolidation:~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~The consolidated financial statements include the accounts of Surge, Challenge, and Surge Limited~~ (~~collectively the “Company”~~1). ~~All~~Principles ~~material~~of ~~intercompany balances and transactions have been eliminated in consolidation.~~Consolidation:

The ~~accompanying interim~~ consolidated financial statements ~~have~~include ~~been prepared without audit in accordance with~~ the ~~instructions~~accounts toof ~~Form~~Surge, ~~10Q~~Challenge, ~~for interim financial reporting~~ and ~~the~~Surge ~~rules and~~Limited ~~regulations~~(collectively of the ~~Securities and Exchange Commissions~~“Company”). InAll ~~the~~material ~~opinion~~intercompany ofbalances ~~management, all adjustments are of a normal recurring nature~~ and ~~all~~transactions ~~disclosures necessary for a fair presentation of these financial statements~~ have been ~~included.~~eliminated ~~The results and trends~~ in ~~these interim consolidated financial statements for the nine months ended August 31, 2025 and August 31, 2024 may not be representative of those for the full fiscal year or any future periods~~consolidation.

~~(2)~~The ~~Accounts~~accompanying ~~Receivable:~~interim consolidated financial statements have been prepared without audit in accordance with the instructions to Form 10Q for interim financial reporting and the rules and regulations of the Securities and Exchange Commissions. In the opinion of management, all adjustments are of a normal recurring nature and all disclosures necessary for a fair presentation of these financial statements have been included. The results and trends in these interim consolidated financial statements for the three months ended February 28, 2026 and February 28, 2025 may not be representative of those for the full fiscal year or any future periods.

~~Trade~~(2) ~~accounts~~Accounts receivable are recorded at the net invoice value net of the allowance for credit losses in the consolidated balance sheet and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to accounts 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. Payment terms vary from customer to customer and range from 15 days to 120 days.Receivable:

~~(3)~~ ~~Revenue~~Trade ~~Recognition:~~accounts receivable are recorded at the net invoice value net of the allowance for credit losses in the consolidated balance sheet and are not interest bearing. The Company considers receivables past due based on the payment terms. The Company reviews its exposure to accounts 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. Payment terms vary from customer to customer and range from 15 days to 120 days.

~~In May 2014, the Financial Accounting Standards Board~~ (~~“FASB”~~3) ~~issued Accounting Standard Update (“ASU”) No. 2014-09, “~~Revenue ~~from Contracts with Customers~~Recognition: 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.

8In 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.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~8

~~Notes~~SURGE toCOMPONENTS, ~~Consolidated~~INC. ~~Financial~~AND ~~Statements~~SUBSIDIARIES

~~NOTE~~Notes Bto –Consolidated ~~SUMMARY~~Financial ~~OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~Statements

~~(3)~~NOTE ~~Revenue~~B ~~Recognition~~– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (~~continued~~Continued):

(3) Revenue isRecognition 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.(continued):

~~For~~Revenue ~~direct shipments, revenue~~ is recognized ~~when product~~for isproducts ~~shipped~~sold ~~from~~by the Company’s ~~supplier.~~when ~~The~~persuasive ~~Company~~evidence ~~has~~of aan ~~long~~arrangement ~~term~~exists, ~~supply~~delivery ~~agreement~~has ~~with~~occurred, ~~one of our suppliers. The Company purchases~~ the ~~merchandise~~price ~~from~~is ~~the~~fixed ~~supplier~~ and ~~has~~determinable, ~~the~~collectability ~~supplier~~is ~~directly~~reasonably ~~ship~~assured toand ~~the~~title ~~customer~~and ~~through~~risk aof ~~freight~~loss ~~forwarder.~~have ~~Title~~been ~~passes~~ transferred to ~~customer upon~~ the ~~merchandise being received by a freight forwarder~~customer. ~~Direct~~This ~~shipments~~occurs ~~were~~when ~~approximately~~product ~~$4,159,000~~is ~~and~~shipped ~~$3,844,000 for~~from the ~~nine~~Company’s ~~months ended August 31, 2025 and August 31, 2024 respectively~~warehouse.

~~The~~ ~~Company~~For ~~also~~direct ~~acts~~shipments, asrevenue ais ~~sales~~recognized ~~agent~~when toproduct ~~certain customers~~is inshipped ~~North~~from ~~America~~the ~~for~~Company’s supplier. The Company has a long term supply agreement with one of ~~its~~our suppliers. The Company ~~reports~~purchases ~~these~~the ~~commissions~~merchandise asfrom ~~revenues~~the insupplier and has the ~~period~~supplier ~~earned~~directly ship to the customer through a freight forwarder. ~~Commission revenue~~Title ~~totaled~~passes to customer upon the merchandise being received by a freight forwarder. Direct shipments were approximately $~~302~~1,~~681~~094,000 and $731,~~235~~116,000 for the ~~nine~~three months ended ~~August~~February 3128, ~~2025~~2026 and ~~August~~February 3128, ~~2024~~2025 respectively.

The Company ~~performs~~also ~~ongoing~~acts ~~credit~~as ~~evaluations~~ a sales agent to certain customers in North America for one of its ~~customers~~suppliers. ~~and~~The ~~maintains~~Company ~~reserves~~reports these commissions as revenues in the period earned. Commission revenue totaled $5,129 and $84,198 for ~~potential~~the ~~credit~~three ~~losses~~months ended February 28, 2026 and February 28, 2025 respectively.

The Company ~~and~~performs ~~its~~ongoing ~~subsidiaries~~credit ~~currently~~evaluations ~~have agreements with several distributors. There are no provisions for the granting~~ of ~~price~~its ~~concessions~~customers ~~in any of the agreements. Revenues under these distribution agreements were approximately $4,671,000~~ and ~~$3,587,000~~maintains reserves for ~~the~~potential ~~nine~~credit ~~months ended August 31, 2025 and August 31, 2024 respectively~~losses.

~~(4)~~ ~~Inventories:~~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 $1,006,000 and $1,200,000 for the three months ended February 28, 2026 and February 28, 2025 respectively.

~~Inventories, which consist solely of products held for resale, are stated at the lower of cost~~ (~~first-in, first-out method~~4) 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 August 31, 2025 was $1,131,757. The Company, at August 31, 2025 has a reserve against slow moving and obsolete inventory of $415,054. From time to time the Company’s products are subject to legislation from various authorities on environmental matters.Inventories:

Inventories, which consist solely of products held for resale, are stated at the lower of cost (5first-in, first-out method) ~~Depreciation~~or net realizable value. Products are included in inventory when the Company obtains title and ~~Amortization:~~risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at February 28, 2026 was $398,808. The Company, at February 28, 2026, has a reserve against slow moving and obsolete inventory of $415,054. From time to time the Company’s products are subject to legislation from various authorities on environmental matters.

~~Fixed~~(5) ~~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~~Amortization:

Furniture, fixtures and equipment		5 - 7 years
Computer equipment		5 years
Leasehold Improvements		Estimated useful life or lease term, whichever is shorter

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:

Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.

Furniture, fixtures and equipment		5 - 7 years
Computer equipment		5 years
Leasehold Improvements		Estimated useful life or lease term, whichever is shorter

~~(6)~~Maintenance ~~Concentration~~and ofrepairs ~~Credit~~are ~~Risk:~~expensed as incurred while renewals and betterments are capitalized.

~~Financial~~(6) ~~instruments~~Concentration ~~that potentially subject the Company to concentrations~~ of ~~credit~~Credit risk consist principally of accounts receivable. The Company maintains substantially all of its cash balances in a limited number of financial institutions. At August 31, 2025 and November 30, 2024, the Company’s uninsured cash balances and marketable securities totaled $3,211,306 and $4,563,198, respectively. The decrease in cash balances is due to a increase in cash generated from the Company’s operations and the purchase of additional marketable securities.Risk:

9 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 February 28, 2026 and November 30, 2025, the Company’s uninsured cash balances and marketable securities totaled $5,384,434 and $4,267,113, respectively. The increase in cash balances is due to an increase in cash generated from the Company’s operations.

~~SURGE COMPONENTS, INC. AND SUBSIDIARIES~~9

~~Notes~~SURGE toCOMPONENTS, ~~Consolidated~~INC. ~~Financial~~AND ~~Statements~~SUBSIDIARIES

~~NOTE~~Notes Bto –Consolidated ~~SUMMARY~~Financial ~~OF SIGNIFICANT ACCOUNTING POLICIES (Continued)~~Statements

~~(7)~~NOTE ~~Income~~B ~~Taxes:~~– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~The~~(7) ~~Company’s~~Income deferred income taxes arise primarily from the differences in the recording of allowances for bad debts, inventory reserves, depreciation and other expenses 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 H.Taxes:

The Company’s ~~follows~~deferred income taxes arise primarily from the ~~provisions~~differences ofin the ~~Accounting Standards~~recording ~~Codification~~of ~~topic~~allowances for bad debts, ~~ASC~~inventory ~~740~~reserves, ~~“Income~~depreciation ~~Taxes”~~and ~~(ASC~~other ~~740).~~expenses ~~There~~for ~~have~~financial ~~been~~reporting noand ~~unrecognized~~income tax ~~benefits~~purposes. ~~and,~~A ~~accordingly, there~~valuation allowance is provided when it has been nodetermined ~~effect~~to onbe ~~the~~more ~~Company’s~~likely ~~financial~~than ~~condition~~not orthat ~~results~~the likelihood of ~~operations~~the asrealization aof ~~result~~deferred oftax ~~ASC~~assets ~~740~~will not be realized. See Note H.

The Company ~~files~~follows ~~income~~the ~~tax~~provisions ~~returns~~of in the ~~U.S. federal~~Accounting ~~jurisdiction~~Standards ~~and~~Codification ~~various~~topic, ~~state~~ASC ~~and~~740, ~~foreign~~“Income ~~jurisdictions~~Taxes” (ASC 740). ~~The~~There ~~Company~~have isbeen no ~~longer~~unrecognized ~~subject to U.S. federal~~ tax ~~examinations~~benefits ~~for years before fiscal years ending November 30~~and, ~~2022~~accordingly, ~~and~~there ~~state~~has ~~tax~~been ~~examinations~~no ~~for~~effect ~~years~~on ~~before~~the ~~fiscal~~Company’s ~~years~~financial ~~ending~~condition ~~November 30, 2021.~~or ~~Management~~results ~~does~~of ~~not~~operations ~~believe~~as ~~there~~a ~~will~~result beof ~~any~~ASC ~~material changes in our unrecognized tax positions over the next twelve months~~740.

The Company’s ~~policy~~files isincome totax ~~recognize~~returns ~~interest~~ in the U.S. federal jurisdiction and ~~penalties~~various ~~accrued~~state onand ~~any~~foreign ~~unrecognized~~jurisdictions. ~~tax~~The ~~benefits~~Company asis ano ~~component~~longer ofsubject ~~income~~to U.S. federal tax ~~expense.~~examinations Asfor ofyears ~~the~~before ~~date~~fiscal ofyears ~~adoption~~ending ofNovember ~~ASC~~30, ~~740~~2020, ~~there was~~and nostate ~~accrued~~tax ~~interest~~examinations orfor ~~penalties~~years ~~associated~~before ~~with~~fiscal ~~any~~years ~~unrecognized~~ending ~~benefits~~November 30, ~~nor~~2019. ~~was~~Management ~~any~~does ~~interest~~not ~~expense~~believe ~~recognized~~there ~~during~~will ~~the~~be ~~nine months~~any ~~ended~~material ~~August~~changes ~~31,~~in ~~2025~~our ~~and~~unrecognized ~~August~~tax ~~31,~~positions ~~2024~~over the next twelve months.

~~(8)~~ ~~Cash~~The ~~Equivalents:~~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 three months ended February 28, 2026 and February 28, 2025.

~~The~~(8) ~~Company~~Cash ~~considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.~~Equivalents:

~~(9)~~The ~~Use~~Company considers all highly liquid investments with an original maturity of ~~Estimates:~~three months or less to be cash equivalents.

~~The~~(9) ~~preparation~~Use 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.Estimates:

~~(10)~~The ~~Marketing~~preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and ~~promotional~~assumptions ~~costs:~~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 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)~~Marketing ~~Fair~~and ~~Value~~promotional costs are expensed as incurred and have not been material to date. The Company has contractual arrangements with several of ~~Financial~~its ~~Instruments:~~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.

~~The~~(11) ~~carrying~~Fair ~~amount~~Value ofMeasurements ~~cash balances, accounts receivable, accounts payable~~ and ~~accrued~~Fair ~~expenses~~Value ~~approximate their fair value based on the nature~~ of ~~those~~Financial 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.Instruments:

~~(12)~~The ~~Marketable~~estimated ~~securities~~fair ~~and~~value ~~other~~of ~~investments~~certain financial instruments, including all current liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

~~Our~~ASC ~~marketable~~subtopic ~~securities~~825-10, ~~are~~Financial ~~stated~~Instruments at(“ASC 825-10”) requires disclosure of the fair value in ~~accordance~~of ~~with~~certain ~~ASC~~financial ~~Topic~~instruments. ~~321~~The carrying value of cash and cash equivalents, ~~Investments-~~accounts ~~Equity~~payable ~~Securities.~~and ~~Any~~accrued ~~changes~~liabilities as reflected in the balance sheets, approximate fair value because of the ~~Company’s~~short-term ~~marketable debt~~maturity ~~securities~~of ~~are~~these ~~included~~instruments. inAll ~~the~~other ~~statement~~significant offinancial ~~other~~assets, ~~comprehensive~~financial ~~income. The~~liabilities ~~market~~and ~~value~~equity instruments of the ~~securities~~Company isare ~~determined~~either ~~using prices~~recognized asor ~~reflected~~disclosed onin anthe ~~established~~financial ~~market.~~statements ~~Realized~~together ~~and~~with ~~unrealized~~other ~~gains~~information ~~and~~relevant ~~losses~~for ~~are~~making ~~determined~~a onreasonable anassessment ~~average~~of ~~cost~~future ~~basis.~~cash ~~The~~flows, ~~marketable securities~~interest ~~are~~rate ~~investments~~risk ~~predominately~~and incredit ~~Treasury~~risk. ~~bills~~Where ~~and~~practicable ~~treasury~~the ~~notes~~fair ~~which~~values ~~are~~of ~~being~~financial ~~invested~~assets ~~until~~and ~~such~~financial ~~time~~liabilities ~~the~~have ~~funds~~been ~~are~~determined ~~needed for operations~~ and ~~reflected~~disclosed; asotherwise only available ~~for~~information ~~sale~~pertinent ~~debt~~to ~~securities~~fair value has been disclosed.

~~The value of these marketable securities at August 31, 2025 and November 30, 2024 is as follows:~~10

	August 31,			November 30,
	2025			2024
Cost	$	8,486,271		$	7,023,649
Gross unrealized gain		181,548			89,701
Gross unrealized loss		(1,852	)		(4,371	)
Fair value	$	8,665,967		$	7,108,979

SURGE COMPONENTS, INC. AND SUBSIDIARIES

10Notes to Consolidated Financial Statements

~~SURGE~~NOTE ~~COMPONENTS,~~B ~~INC.~~– ~~AND~~SUMMARY ~~SUBSIDIARIES~~OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~Notes~~(11) toFair ~~Consolidated~~Value Measurements and Fair Value of Financial ~~Statements~~Instruments (Continued):

~~NOTE~~ BThe –Company ~~SUMMARY~~follows OFASC ~~SIGNIFICANT~~subtopic ~~ACCOUNTING POLICIES~~820-10, Fair Value Measurements and Disclosures (~~Continued~~“ASC 820-10”) and ASC 825-10, which permits entities to choose to measure many financial instruments and certain other items at fair value. The following table represents the Company’s assets and liabilities by level measured at fair value on a recurring basis at February 28, 2026 and November 30, 2025.

(13) Shipping Costs

	February 28, 2026						November 30, 2025
Description	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Assets
Marketable securities	$	8,363,700		—		—	$	8,438,017		—		—

~~The~~(12) ~~Company~~Marketable ~~classifies~~securities ~~shipping costs as a component of selling expenses. Shipping costs totaled $1,683~~ and ~~$2,022 for~~other ~~nine months ended August 31, 2025 and August 31, 2024 respectively.~~investments

~~(14)~~Our ~~Earnings~~marketable ~~Per~~securities ~~Share~~are stated at fair value in accordance with ASC Topic 321, Investments- Equity Securities. Any changes in the fair value of the Company’s marketable debt securities are included in the statement of other comprehensive income. The market value of the securities is determined using prices as reflected on an established market. Realized and unrealized gains and losses are determined on an average cost basis. The marketable securities are investments predominately in Treasury bills and treasury notes which are being invested until such time the funds are needed for operations and reflected as available for sale debt securities.

~~Basic~~The ~~earnings~~value ~~per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number~~ of ~~common~~these ~~shares~~marketable ~~outstanding~~securities 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 ~~August~~February 3128, ~~2025~~2026 and ~~August~~November 3130, ~~2024~~2025 ~~totaled~~is ~~661,648~~as ~~and 279,977, respectively.~~follows:

(15) Stock Based Compensation

	February 28,			November 30,
	2026			2025
Cost	$	8,225,749		$	8,252,278
Gross unrealized gain		151,464			187,669
Gross unrealized loss		(13,513	)		(1,930	)
Fair value	$	8,363,700		$	8,438,017

~~Stock~~(13) ~~Based~~Shipping ~~Compensation to Employees~~Costs

The Company ~~accounts~~classifies ~~for~~shipping ~~its~~costs ~~stock-based~~as ~~compensation for~~a ~~employees~~component inof ~~accordance~~selling ~~with Accounting Standards Codification (“ASC”) 718~~expenses. ~~The~~Shipping ~~Company~~costs ~~recognizes~~totaled in$1,110 ~~the~~and ~~statement~~$902 ~~of operations~~for ~~the~~three ~~grant-date~~months ~~fair~~ended ~~value~~February of28, ~~stock~~2026 ~~options~~ and ~~other~~February ~~equity-based~~28, ~~compensation~~2025 ~~issued to employees and non-employees over the related vesting period~~respectively.

~~Stock~~(14) ~~Based~~Earnings ~~Compensation~~Per ~~to Other than Employees~~Share

~~The~~Basic ~~Company~~earnings ~~accounts~~per ~~for~~share ~~equity~~is ~~instruments~~computed ~~issued in~~by ~~exchange~~dividing ~~for~~net ~~the~~income ~~receipt~~(loss) ofavailable ~~goods~~to orcommon ~~services~~stockholders ~~from~~by ~~other than employees in accordance with ASC 718. Costs are measured at~~ the ~~estimated fair~~weighted-average ~~market~~number ~~value~~ of ~~the~~common ~~consideration~~shares ~~received~~outstanding orfor the ~~estimated fair value of the equity instruments issued, whichever is more reliably determinable~~period. ~~The~~Diluted ~~value~~earnings ofper ~~equity~~share ~~instruments~~reflects ~~issued for consideration other than employee services is determined on~~ the ~~earlier~~potential ofdilution ~~a performance~~that ~~commitment~~could oroccur ~~completion~~if ofsecurities ~~performance by the provider of goods~~ or ~~services.~~other Incontracts ~~the case of equity instruments issued~~ to ~~consultants,~~ ~~the~~issue ~~fair~~common ~~value~~stock ofwere ~~the~~exercised ~~equity~~or ~~instrument~~converted isinto ~~recognized~~common ~~over the term of the consulting agreement~~stock.

~~(16)~~For ~~Leases:~~the periods presented in which the Company incurred a net loss, all potentially dilutive securities, including stock options and convertible preferred stock, were excluded from the computation of diluted net loss per share because their effect would be anti-dilutive. Accordingly, basic and diluted net loss per share are the same for those periods.

InTotal ~~February~~potentially ~~2016,~~dilutive ~~the~~shares ~~FASB~~excluded ~~issued~~from ~~Accounting~~diluted ~~Standards Update No. 2016~~weighted-~~02, Leases~~average ~~(Topic~~shares ~~842) (“Topic~~outstanding ~~842”).~~at ~~Topic~~February ~~842~~28, ~~requires~~2026 ~~the entity to recognize the assets~~ and ~~liabilities~~February ~~for~~28, ~~the~~2025 ~~rights~~were 745,000 and ~~obligations created by leased assets. Leases will be classified as either finance or operating~~295,363, ~~with classification affecting expense recognition in the income statement~~respectively.

On December 1, 2019, the Company adopted Topic 842 applying the optional transition method, which allows an entity to apply the new standard at the adoption date with a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. As a result of adopting Topic 842, the Company recognized assets and liabilities for the rights and obligations created by operating leases totaling approximately $290,000.11

~~The~~SURGE ~~Company~~COMPONENTS, ~~determines if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset~~INC. ~~Substantially~~AND all of the Company’s leases are classified as operating leases. The Company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “current and noncurrent liabilities” in the consolidated balance sheets. Lease expenses are recorded within “General and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” in the consolidated statements of cash flows.SUBSIDIARIES

~~Operating~~Notes lease right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to ~~determine~~Consolidated ~~the~~Financial rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.Statements

11NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~SURGE~~(14) ~~COMPONENTS,~~Earnings ~~INC.~~Per ~~AND~~Share ~~SUBSIDIARIES~~(continued):

~~Notes~~The tofollowing ~~Consolidated~~sets ~~Financial~~forth ~~Statements~~the computation of basic and diluted earnings per share:

NOTE C – FIXED ASSETS

	Three Months Ended
	February 28, 2026			February 28, 2025
Numerator:

Net (loss) Gain	$	(34,275	)	$	57,356
Less: Preferred dividends		2,500			2,500
Net (Loss) income available to common shareholders	$	(36,775	)	$	54,856

Denominator:

Weighted average shares outstanding – basic		5,716,792			5,582,783
Effect of convertible preferred stock		-			100,000
Effect of stock options		-			64,637

Weighted average shares outstanding – diluted		5,716,792			5,747,420

Basic earnings per share	$	(.01	)	$	.01
Diluted earnings per share	$	(.01	)	$	.01

~~Fixed~~(15) ~~assets~~Stock ~~consist~~Based ~~of the following:~~Compensation

	August 31,			November 30,
	2025			2024
Furniture and Fixtures	$	329,186		$	329,186
Leasehold Improvements		1,142,385			1,078,985
Computer Equipment		585,016			530,712
Less-Accumulated Depreciation		(1,881,043	)		(1,828,156	)
Net Fixed Assets	$	175,544		$	110,727

Stock Based Compensation to Employees

~~Depreciation~~The ~~and~~Company ~~amortization~~accounts ~~expense~~for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the ~~nine~~ ~~months~~statement ~~ended~~of ~~August~~operations ~~31,~~the ~~2025~~grant-date fair value of stock options and ~~August~~other ~~31,~~equity-based ~~2024~~compensation ~~was~~issued ~~$52,887~~to employees and ~~$52,788,~~non-employees ~~respectively~~over the related vesting period.

~~NOTE~~Stock DBased –Compensation ~~LOANS~~to ~~PAYABLE~~Other than Employees

InThe ~~February 2017, the~~ Company ~~obtained~~accounts afor ~~line of~~equity ~~credit~~instruments ~~with~~issued ain ~~bank~~exchange for ~~up to $3,000,000 (~~the ~~“Credit~~receipt ~~Line”). Borrowings under the Credit Line are due upon demand and accrue interest at the greater~~ of ~~the~~goods ~~prime rate~~ or ~~the~~services ~~LIBOR~~from ~~rate~~other ~~plus~~than ~~two~~employees ~~percent~~in ~~(and~~accordance ~~may~~with beASC ~~increased~~718. byCosts ~~three~~are ~~percent~~measured inat the ~~event~~estimated ~~the~~fair ~~Company fails~~market tovalue ~~(i)~~of ~~repay all amounts due on~~ the ~~Credit~~consideration ~~Line~~received ~~upon demand~~ or ~~(ii)~~the ~~comply~~estimated ~~with~~fair ~~any~~value ~~terms~~of ~~or conditions relating to~~ the ~~Credit~~equity ~~Line). The~~instruments ~~Credit~~issued, ~~Line~~whichever is ~~collateralized~~more byreliably ~~substantially~~determinable. ~~all~~The ~~the~~value ~~assets~~ of ~~the~~equity ~~Company.~~instruments Asissued offor ~~August~~consideration ~~31,~~other ~~2025,~~than ~~the~~employee ~~balance~~services is determined on the ~~Credit~~earlier ~~Line was $0. As~~ of ~~August~~a ~~31,~~performance ~~2025,~~commitment ~~the~~or ~~Company~~completion ~~was~~of inperformance ~~compliance~~by ~~with~~ the ~~covenant~~provider ~~for~~of ~~the~~goods ~~debt~~or ~~service~~services. ~~coverage~~In ~~ratio~~the ~~for~~case ~~the~~of ~~Credit~~equity ~~Line. Effective~~instruments ~~July~~issued 1,to ~~2023~~consultants, the ~~use~~fair value of the ~~LIBOR~~equity ~~rate~~instrument ~~was~~is ~~discontinued~~recognized ~~and~~over ~~replaced with~~ the ~~secured~~term ~~overnight~~of ~~financing~~the ~~rate~~consulting ~~(SOFR)~~agreement.

~~NOTE~~(16) ~~E – ACCRUED EXPENSES~~Leases:

~~Accrued~~In ~~expenses~~February ~~consist~~2016, ofthe FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“Topic 842”). Topic 842 requires the ~~following:~~entity to recognize the assets and liabilities for the rights and obligations created by leased assets. Leases will be classified as either finance or operating, with classification affecting expense recognition in the income statement.

	August 31,		November 30,
	2025		2024
Commissions	$	182,815	$	242,515
Preferred stock dividends		176,569		171,569
Other accrued expenses		195,934		274,556
	$	555,318	$	688,640

~~NOTE~~The FCompany ~~– RETIREMENT~~determines ~~PLAN~~if a contract contains a lease at inception based on whether it conveys the right to control the use of an identified asset. Substantially all of the Company’s leases are classified as operating leases. The Company records operating lease right-of-use assets within “Other assets” and lease liabilities are recorded within “current and noncurrent liabilities” in the consolidated balance sheets. Lease expenses are recorded within “General and administrative expenses” in the consolidated statements of operations. Operating lease payments are presented within “Operating cash flows” in the consolidated statements of cash flows.

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 Axa Equitable, Inc., which maintains the plan’s records, were approximately $2,147,000 at November 30, 2024. Pension expense for the nine months ended August 31, 2025 and August 31, 2024 was $43,354 and $32,645, respectively.12

12SURGE COMPONENTS, INC. AND SUBSIDIARIES

~~SURGE~~Notes ~~COMPONENTS,~~to ~~INC.~~Consolidated ~~AND~~Financial ~~SUBSIDIARIES~~Statements

~~Notes~~NOTE toB ~~Consolidated~~– ~~Financial~~SUMMARY ~~Statements~~OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

~~NOTE~~(16) GLeases ~~– SHAREHOLDERS’ EQUITY~~(continued):

~~[1]~~Operating ~~Preferred~~lease ~~Stock:~~right-of-use assets and lease liabilities are recognized based on the net present value of future minimum lease payments over the lease term starting on the commencement date. The Company generally is not able to determine the rate implicit in its leases and, as such, applies an incremental borrowing rate based on the Company’s cost of borrowing for the relevant terms of each lease. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Lease terms may include an option to extend or terminate a lease if it is reasonably certain that the Company will exercise such options. The Company has elected the practical expedient to not separate lease components from non-lease components, and also has elected not to record a right-of-use asset or lease liability for leases which, at inception, have a term of twelve months or less. Variable lease payments are recognized in the period in which the obligation for those payments is incurred.

In(17) ~~February~~Segment 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.information

In ~~November~~The ~~2000,~~Company ~~the~~operates ~~Company~~through ~~authorized~~two ~~100~~divisions,~~000 shares~~ ofSurge ~~preferred~~and ~~stock~~Challenge. asThe ~~Non-Voting~~Company’s ~~Redeemable~~Chief ~~Convertible~~Operating ~~Series~~Decision CMaker ~~Preferred Stock~~ (“~~Series C Preferred~~CODM”). ~~Each share of Series C Preferred~~ is ~~automatically convertible into 10 shares of our common stock upon shareholder approval. If~~ the ~~Series~~Chief CExecutive ~~Preferred were converted into common stock on or before April 15, 2001, these shares were entitled to cumulative dividends at the rate of $~~Officer.50 ~~per share~~The ~~per~~CODM ~~annum~~reviews ~~commencing~~financial ~~April~~information ~~15,~~for ~~2001~~Surge ~~payable on June 30~~ and ~~December~~Challenge 31separately ~~of each year. In November 2000, 70,000 shares of the Series C Preferred were issued~~ in ~~payment~~order ~~of financial consulting services~~ to ~~its~~assess ~~investment~~performance ~~banker~~ and aallocate ~~shareholder of the Company~~resources.

~~Dividends~~Each ~~aggregating~~division ~~$176,569~~acquires ~~have~~and ~~not~~distributes ~~been~~substantially ~~paid for~~similar ~~the~~products ~~semi-annual~~that ~~periods~~are ~~ended~~sold ~~December~~to ~~31,~~similar ~~2001~~customer ~~through~~types and operate within the ~~semi-annual~~same ~~payment~~economic ~~due~~environment. ~~June~~The 30divisions share similar production processes, ~~2024~~distribution methods, and regulatory environments. ~~The~~Accordingly, although financial information is reviewed separately by the CODM, the Company has ~~accrued~~determined ~~these~~that ~~dividends. At~~Surge ~~August~~and ~~31,~~Challenge ~~2025~~meet ~~there~~the ~~are~~aggregation 10criteria under ASC 280,~~000~~ ~~shares~~Segment ofReporting, ~~Series~~and Care ~~Preferred~~aggregated ~~issued~~into ~~and~~a ~~outstanding~~single reportable segment.

InBecause ~~October 2016,~~ the Company ~~authorized~~has 75one reportable segment,~~000 shares~~ ofsegment ~~preferred~~disclosures ~~stock~~required asunder ~~Voting~~ASC ~~Non~~280 consist of the following entity-~~Redeemable~~wide ~~Convertible~~disclosures. ~~Series~~Revenue Dby ~~Preferred~~geographic ~~Stock~~regions ~~(“Series~~is Dreported ~~Preferred”).~~in ~~None~~Note ofM. ~~the Series~~Long-lived Dassets ~~Preferred~~are ~~Stock~~primarily islocated ~~outstanding~~within asthe ofUS ~~August~~and ~~31,~~Hong ~~2024~~Kong.

~~[2]~~NOTE ~~Incentive~~C ~~Stock~~– ~~Plans~~FIXED ASSETS

InFixed ~~November~~assets ~~2015,~~consist ~~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.~~following:

In April 2021, a total of 26,786 shares were issued to the Company’s officers as a part of their 2021 bonus compensation under the 2015 stock plan. The Company recorded a cost of $75,000 relating to the issuance of these shares in the second quarter of 2021.

	February 28,			November 30,
	2026			2025
Furniture and Fixtures	$	329,186		$	329,186
Leasehold Improvements		1,142,385			1,142,385
Computer Equipment		589,262			589,262
Less-Accumulated Depreciation		(1,909,591	)		(1,898,800	)
Net Fixed Assets	$	151,242		$	162,033

In ~~March~~Depreciation ~~2022,~~and aamortization ~~total~~expense offor ~~26,000 shares were issued to~~ the ~~Company’s~~three ~~officers~~months asended ~~part~~February of28, ~~their~~2026 ~~bonus~~and ~~compensation~~February ~~under~~28, ~~the~~2025 ~~2015~~was ~~stock~~$10,791 ~~plan.~~and ~~The Company recorded a cost of~~ $9715,~~500 relating~~617, ~~to the issuance of these shares in the second quarter of 2022~~respectively.

InNOTE ~~March~~D ~~2022,~~– ~~the~~LOANS Company granted stock options to (a) four non-employee directors to each purchase 20,000 shares of common stock, (b) one non-employee-director to purchase 30,000 shares of common stock, and (c) two Company officers to each purchase 40,000 shares of common stock at an exercise price of $3.55 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $492,132 related to the granting of these options.PAYABLE

In ~~April~~February ~~2023~~2017, the Company obtained a ~~total~~line of ~~28,179~~credit ~~shares~~with ~~were~~a ~~issued~~ bank for up to $3,000,000 (the ~~Company’s~~“Credit ~~officers~~Line”). asBorrowings ~~part~~under the Credit Line are due upon demand and accrue interest at the greater of ~~their~~the ~~bonus~~prime ~~compensation~~rate ~~under~~or the ~~2015~~LIBOR ~~stock~~rate ~~plan~~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). The ~~Company~~Credit ~~recorded~~Line ais ~~cost~~collateralized by substantially all the assets of ~~$97~~the Company. As of February 28,~~500 relating~~ to2026, the ~~issuance~~balance on the Credit Line was $0. As of ~~these~~February ~~shares~~28, 2026, the Company was in compliance with the ~~second~~covenant ~~quarter~~for ofthe debt service coverage ratio for the Credit Line. Effective July 1, 2023, the use of the LIBOR rate was discontinued and replaced with the secured overnight financing rate (SOFR).

InNOTE ~~April~~E ~~2024,~~– aACCRUED total of 5,085 shares were issued to one of the Company’s officers as part of their bonus compensation under the 2015 stock plan. The Company recorded a cost of $15,000 relating to the issuance of these shares in the second quarter of 2024.EXPENSES

InAccrued ~~November~~expenses ~~2024,~~consist ~~the Company adopted and its shareholders ratified, the 2024 Incentive Stock Plan (“2024 Stock Plan”). The 2024 Stock Plan provides for the grant~~ of ~~options and stock grants to officers, employees, directors or consultants to~~ the ~~Company in the aggregate amount of up to 1,000,000 common shares. No grants were made under the 2024 Plan in 2024 or in the first quarter ended February 28, 2025.~~following:

In April 2025, a total of 14,659 shares were issued to one of the Company’s officers as part of his bonus compensation under the 2015 stock plan. The Company recorded a cost of $32,250 relating to the issuance of these shares in the second quarter ended May 31, 2025.

	February 28,		November 30,
	2026		2025
Commissions	$	259,641	$	253,898
Preferred stock dividends		179,069		176,569
Other accrued expenses		222,627		216,972
	$	661,337	$	647,439

In May 2025, the Company granted stock options from the 2024 Incentive Stock Plan to (a) four non-employee directors to each purchase 30,000 shares of common stock, at an exercise price of $2.20 per share, the closing market price of the common stock on the date of the grant which vest immediately and expire five years from the grant date; (b) two Company officers to each purchase 50,000 shares of common stock, at an exercise price of $2.41 per share, one hundred and ten percent of the market price of the common stock on the date of the grant: (c) seventeen employees to purchase 285,000 shares of the Company’s common stock at an exercise price of $2.20, the closing market price of the common stock on the date of the grant A total of 160,000 of these options vest immediately, 115,000 options will vest over a two year period and 10,000 options vest over a three year period and all options discussed herein will expire in five years from the date of grant. The Company recorded a cost of $518,954 related to the granting of these options in 2025.13

13SURGE COMPONENTS, INC. AND SUBSIDIARIES

~~SURGE~~Notes ~~COMPONENTS,~~to ~~INC.~~Consolidated ~~AND~~Financial ~~SUBSIDIARIES~~Statements

~~Notes~~NOTE toF ~~Consolidated~~– RETIREMENT ~~Financial Statements~~PLAN

~~NOTE~~ GIn –June ~~SHAREHOLDERS~~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 ~~EQUITY~~salary through salary reduction. The Company makes a matching contribution of twenty percent (~~Continued~~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 Axa Equitable, Inc., which maintains the plan’s records, were approximately $2,540,000 at November 30, 2025. Pension expense for the three months ended February 28, 2026 and February 28, 2025 was $15,133 and $16,239, respectively.

~~[2]~~NOTE ~~Incentive~~G ~~Stock~~– ~~Plans~~SHAREHOLDERS’ ~~(continued)~~EQUITY

~~Activity~~[1] inPreferred ~~the Company’s stock plans for the period ended August 31, 2025 is summarized as follows~~Stock:

	Shares			Weighted Average Exercise Price
Options outstanding December 1, 2024		340,000		$	2.59
Options issued in the nine months ended August 31, 2025		505,000		$	2.24
Options exercised in the nine months ended August 31, 2025		(155,000	)	$	1.41
Options cancelled in the nine months ended August 31, 2025		(15,000	)	$	1.41
Options outstanding at August 31, 2025		675,000		$	2.57
Options exercisable at August 31, 2025		550,000		$	2.66

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.

~~The~~ ~~intrinsic~~In ~~value~~November of2000, the ~~exercisable~~Company ~~options at~~authorized ~~August 31~~100,000 ~~2025~~shares ~~totaled~~of ~~$76,800~~preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred”). AtEach ~~August~~share ~~31,~~of ~~2025~~Series ~~the~~C ~~weighted~~Preferred ~~average~~is ~~remaining~~automatically ~~life~~convertible into 10 shares of ~~the~~our common stock ~~options~~upon isshareholder 3approval.92 ~~years.~~If Atthe ~~August 31~~Series C Preferred were converted into common stock on or before April 15, ~~2025~~2001, ~~there~~these ~~was~~shares were entitled to cumulative dividends at the rate of $~~120~~.50 per share per annum commencing April 15,~~695~~ 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 ~~unrecognized~~payment ~~compensation~~of ~~cost~~financial ~~related~~consulting services to ~~the~~its ~~stock~~investment ~~options~~banker ~~granted~~and ~~under~~a shareholder of the ~~plan~~Company.

~~[3]~~ ~~Compensation~~Dividends aggregating $179,069 have not been paid for the semi-annual periods ended December 31, 2001 through the semi-annual payment due December 31, 2025. The Company has accrued these dividends. At February 28, 2026 there are 10,000 shares of ~~Directors~~Series C Preferred issued and outstanding.

~~Compensation~~ ~~for~~In ~~each~~October ~~non-employee director is $3~~2016,~~000~~ ~~per~~the ~~month~~Company ~~(and~~authorized $475,000 ~~per~~shares ~~month~~of ~~for~~preferred astock ~~non-employee~~as ~~director~~Voting ~~that~~Non-Redeemable ~~serves~~Convertible asSeries ~~the~~D ~~chairman~~Preferred ofStock ~~more~~(“Series ~~than~~D ~~two~~Preferred”). ~~committees~~None of the ~~Board~~ Series D Preferred Stock is outstanding as of ~~Directors)~~February 28, 2026.

~~NOTE~~[2] HIncentive –Stock ~~INCOME TAXES~~Plan

~~Deferred~~ ~~income~~In ~~taxes~~November ~~reflect~~2015, the ~~net~~Company ~~tax~~adopted ~~effects of~~and ~~temporary~~the ~~differences~~shareholders ~~between~~ratified, the ~~carrying~~2015 ~~amount~~Incentive ofStock ~~assets~~Plan ~~and~~(“2015 ~~liabilities~~Stock ~~for~~Plan”). ~~financial~~The ~~reporting~~2015 ~~purposes~~Stock ~~and~~Plan ~~the~~provides ~~amounts used~~ for ~~income~~ ~~tax~~the ~~purposes~~grant ~~using~~of ~~the~~options ~~enacted~~to ~~tax~~officers, ~~rates~~employees, indirectors ~~effect~~or inconsultants to the ~~years~~Company into ~~which~~purchase ~~the~~an ~~differences~~aggregate ~~are~~of ~~expected~~1,500,000 tocommon ~~reverse~~shares.

~~The~~ In April 2021, a total of 26,786 shares were issued to the Company’s ~~deferred~~officers ~~income~~as ~~taxes~~a ~~are comprised~~part of their 2021 bonus compensation under the ~~following:~~2015 stock plan. The Company recorded a cost of $75,000 relating to the issuance of these shares in the second quarter of 2021.

	August 31,		November 30,
	2025		2024
Deferred Tax Assets
Depreciation	$	48,760	$	43,847
Allowance for bad debts		27,264		17,493
Inventory		84,450		84,450
Facilities rental		40,885		39,668
Other		56,531		75,398
Total deferred tax assets		257,890		260,856
Valuation allowance		-		-
Deferred Tax Assets	$	257,890	$	260,856

In March 2022, a total of 26,000 shares were issued to the Company’s officers as part of their bonus compensation under the 2015 stock plan. The Company recorded a cost of $97,500 relating to the issuance of these shares in the second quarter of 2022.

14 In March 2022, the Company granted stock options to (a) four non-employee directors to each purchase 20,000 shares of common stock, (b) one non-employee-director to purchase 30,000 shares of common stock, and (c) two Company officers to each purchase 40,000 shares of common stock at an exercise price of $3.55 per share, the market price of the common stock on the date of the grant. These options vest immediately and expire five years from the grant date. The Company recorded a cost of $492,132 related to the granting of these options.

~~SURGE~~ ~~COMPONENTS~~In April 2023, ~~INC~~a total of 28,179 shares were issued to the Company’s officers as part of their bonus compensation under the 2015 stock plan. ~~AND~~The ~~SUBSIDIARIES~~Company recorded a cost of $97,500 relating to the issuance of these shares in the second quarter of 2023.

~~Notes~~ In April 2024, a total of 5,085 shares were issued to ~~Consolidated~~one ~~Financial~~of ~~Statements~~the Company’s officers as part of their bonus compensation under the 2015 stock plan. The Company recorded a cost of $15,000 relating to the issuance of these shares in the second quarter of 2024.

~~NOTE~~ HIn –November ~~INCOME~~2024, ~~TAXES~~the Company adopted and the shareholders ratified, the 2024 Incentive Stock Plan (~~Continued~~“2024 Stock Plan”). The 2024 Stock Plan provides for the grant of options and stock grants to officers, employees, directors or consultants to the Company in the aggregate of 1,000,000 common shares. No grants were made under the 2024 Plan in the quarter ended February 28, 2026 and 2025.

A 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.14

~~The~~SURGE ~~Company’s~~COMPONENTS, ~~income~~INC. ~~tax~~AND ~~expense consists of the following:~~SUBSIDIARIES

	Nine Months Ended
	August 31, 2025			August 31, 2024
Current:
Federal	$	330,816		$	166,746
States		25,743			69,941
		356,559			236,687
Deferred:
Federal		(2,135	)		(1,659	)
States		(831	)		(645	)
		(2,966	)		(2,304	)
Provision for income taxes	$	353,593		$	234,383

Notes to Consolidated Financial Statements

~~The~~NOTE ~~Company~~G ~~files~~– ~~a consolidated income tax return with its wholly-owned subsidiaries. A reconciliation of the difference between the expected income tax rate using the statutory federal tax rate and the Company~~SHAREHOLDERS’s ~~effective~~EQUITY ~~rate is as follows:~~(Continued)

	Nine Months Ended
	August 31,			August 31,
	2025			2024
U.S Federal Income tax statutory rate		21	%		21	%
State income taxes		5	%		5	%
Other-primarily state franchise taxes		9	%		3	%
Effective tax rate		35	%		29	%

[2] Incentive Stock Plan (continued)

15 In April 2025, a total of 14,659 shares were issued to one of the Company’s officers as part of his bonus compensation under the 2015 stock plan. The Company recorded a cost of $32,250 relating to the issuance of these shares in the second quarter ended May 31, 2025.

~~SURGE~~ ~~COMPONENTS~~In May 2025, ~~INC~~the Company granted stock options from the 2024 Incentive Stock Plan to (a) four non-employee directors to each purchase 30,000 shares of common stock, at an exercise price of $2.20 ~~AND~~per ~~SUBSIDIARIES~~share, the closing market price of the common stock on the date of the grant which vest immediately and expire five years from the grant date; (b) two Company officers to each purchase 50,000 shares of common stock, at an exercise price of $2.42 per share, one hundred and ten percent of the market price of the common stock on the date of the grant: (c) seventeen employees to purchase 285,000 shares of the Company’s common stock at an exercise price of $2.20, the closing market price of the common stock on the date of the grant A total of 160,000 of these options vest immediately, 115,000 options will vest over a two year period and 10,000 options vest over a three year period and all options discussed herein will expire in five years from the date of grant. The Company recorded a cost of $538,361 related to the granting of these options in 2025, and a cost of $19,407 in the first quarter of 2026.

~~Notes~~The toweighted-average ~~Consolidated~~assumptions ~~Financial~~used ~~Statements~~in the Black-Scholes option pricing model were as follows:

NOTE I – OPERATING LEASE COMMITMENTS

	Three Months Ended
	February 28, 2026

Expected volatility		65	%
Expected term		5 years
Risk-free interest rate		4.11	%
Expected dividend yield		0.00	%

The Company ~~leases~~estimates ~~its~~volatility ~~office~~using ~~and~~historical ~~warehouse~~volatility ~~space through 2030 from a corporation that is partly owned by officers/shareholders~~ of ~~the~~its ~~Company~~common ~~(“Related Company”)~~stock. ~~Annual minimum rental payments to the Related Company approximated $215,000 for the nine months ended August 31, 2025, and increase at the rate of two per cent per annum throughout the lease term.~~

~~Pursuant~~Activity toin the ~~lease,~~Company’s ~~rent~~stock ~~expense~~plans ~~charged~~for ~~to operations~~the ~~differs~~period ~~from~~ended ~~rent~~February ~~paid because of scheduled rent increases. Accordingly~~28, ~~the~~2026 ~~Company has recorded deferred rent. Rent expense~~ is ~~calculated~~summarized byas ~~allocating to rental payments, including those attributable to scheduled rent increases, on a straight line basis, over the lease term.~~follows:

The Company has a lease to rent office space and a warehouse in Hong Kong through November 2027. Annual minimum rental payments for this space are approximately $77,097.

	Shares		Weighted Average Exercise Price
Options outstanding December 1, 2025		645,000	$	2.68
Options issued in the three months ended February 28, 2026		-	$	-
Options exercised in the three months ended February 28, 2026		-	$	-
Options cancelled in the three months ended February 28, 2026		-	$	-
Options outstanding at February 28, 2026		645,000	$	2.68
Options exercisable at February 28, 2026		645,000	$	2.68

The ~~Company~~intrinsic ~~has~~value aof ~~lease~~the toexercisable ~~rent~~options ~~additional~~at ~~warehouse space~~February in28, ~~Hong~~2026 ~~Kong~~totaled ~~through~~$314,000. ~~November~~At 30February 28, ~~2027~~2026, the weighted average remaining life of the stock options is 3.39 ~~Annual~~years. ~~minimum~~At ~~rental~~February ~~payments~~28, ~~for~~2026, ~~this~~unrecognized ~~space~~compensation ~~are~~costs ~~approximately~~related to the stock options granted under the plan totaled $7981,~~564~~881.

~~The~~[3] ~~Company’s~~Compensation ~~future~~of ~~minimum rental commitments at August 31, 2025 are as follows:~~Directors

~~Twelve~~ ~~Months~~Compensation ~~Ended~~for ~~August~~each 31non-employee director is $3,000 per month (and $4,000 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors). In April 2026, the Board approved an increase in the compensation for each non-employee director to $3,300 per month (and $4,400 per month for a non-employee director that serves as the chairman of more than two committees of the Board of Directors).

2026	$	388,041
2027		374,449
2028		222,144
2029		26,586
2030		18,914
2031 and after		-
	$	1,030,134

~~Net~~SURGE ~~rental expense for the nine months ended August 31~~COMPONENTS, ~~2025~~INC. ~~and~~AND ~~August 31, 2024 were $326,917 and $340,563 respectively, of which $214,689 and $211,667 respectively, was paid to the Related Company.~~SUBSIDIARIES

~~The~~Notes ~~remaining~~to ~~weighted~~Consolidated ~~average~~Financial ~~lease term is 4.70 years at August 31, 2025. The weighted average discount rate is 5.14 % at August 31, 2025.~~Statements

NOTE JH – ~~EMPLOYMENT~~INCOME ~~AND OTHER AGREEMENTS~~TAXES

InDeferred ~~February~~income ~~2016,~~taxes reflect the ~~Company~~net ~~entered~~tax ~~into~~effects ~~revised employment agreements with two officers~~ of ~~the~~temporary ~~Company.~~differences ~~Pursuant~~between ~~to these agreements,~~ the ~~base~~carrying ~~salary~~amount ~~for~~of ~~one~~assets ~~officer is $275,000~~ and ~~the~~ ~~base~~liabilities ~~salary~~ for ~~the~~financial ~~other~~reporting ~~officer~~purposes isand ~~$225,000. The agreements remain effective until terminated by either party. In April 2021,~~ the ~~Company~~amounts ~~amended~~used ~~the base salaries under the employment agreements to $300,000~~ for ~~one~~income ~~officer~~tax ~~and~~purposes ~~$250,000~~using ~~for~~ the ~~other~~enacted ~~officer. In~~tax ~~April~~rates ~~2024,~~in ~~the~~effect ~~Company~~in ~~further amended~~ the ~~employment~~years ~~agreements~~in ~~for~~which ~~Ira~~the ~~Levy~~differences ~~and~~are ~~Steven~~expected ~~Lubman~~ to ~~increase the base salary to $330,000 and $275,000, respectively~~reverse.

The Company’s ~~compensation~~deferred ~~committee~~income ~~may award~~taxes 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~~comprised ~~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.:

	February 28,		November 30,
	2026		2025
Deferred Tax Assets
Depreciation	$	36,107	$	35,837
Allowance for bad debts		27,264		27,264
Inventory		68,696		68,696
Facilities rental		40,651		40,876
Other Accrued Accounts		130,983		56,539

Total deferred tax assets		303,701		229,212
Valuation allowance		-		-
Deferred Tax Assets	$	303,701	$	229,212

~~SURGE~~A ~~COMPONENTS~~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, ~~INC.~~which ~~AND~~requires ~~SUBSIDIARIES~~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.

~~Notes~~The toCompany’s ~~Consolidated~~income ~~Financial~~tax ~~Statements~~expense consists of the following:

NOTE K – MAJOR CUSTOMERS

	Three Months Ended
	February 28, 2026			February 28, 2025
Current:
Federal	$	25,328		$	66,822
States		29,893			17,763
		55,221			84,585

Deferred:
Federal		(53,622	)		(15,420	)
States		(20,857	)		(4,099	)
		(74,489	)		(19,519	)
Provision for income taxes	$	(19,268	)	$	65,066

The Company ~~had~~files ~~three~~a ~~customers~~consolidated ~~who~~income ~~respectively accounted~~tax ~~for~~return ~~17%,~~with ~~14%~~its ~~and~~wholly-owned ~~10%~~subsidiaries. A reconciliation of ~~net~~the ~~sales~~difference ~~for~~between the ~~nine~~expected ~~months~~income ~~ended~~tax ~~August~~rate ~~31,~~using ~~2025~~the ~~and~~statutory ~~three~~federal ~~customers~~tax ~~who~~rate ~~accounted for 18%~~ and ~~15% and 10% of net sales for~~ the ~~nine months ended August 31, 2024. The~~ Company’s ~~had~~effective ~~two~~rate ~~customers~~is ~~who~~as ~~accounted for 24% and 10% of accounts receivable at August 31, 2025 and one customer who accounted for 33% of accounts receivable at August 31, 2024.~~follows:

NOTE L – MAJOR SUPPLIERS

	Three Months Ended
	February 28,			February 28,
	2026			2025
U.S Federal Income tax statutory rate		(21	)%		21	%
State income taxes		(5	)%		5	%
Other-primarily state franchise taxes		(10	)%		27	%
Effective tax rate		(36	)%		53	%

~~During~~State ~~the~~franchise ~~nine~~taxes ~~months~~include ~~ended~~taxes ~~August~~not ~~31,~~based ~~2025~~on income and ~~August~~ ~~31,~~taxes ~~2024~~based ~~there~~on ~~was~~income ~~one~~for ~~foreign~~entities ~~supplier~~filing ~~accounting~~separate income tax returns for ~~29%~~state ~~and~~filing ~~28%~~purposes. The effect of ~~total~~foreign ~~inventory~~income ~~purchased~~taxes has not been presented as the amount is not material.

The Company purchases substantially all of its products overseas. For the nine months ended August 31, 2025, the Company purchased 31% of its products from Taiwan, 19% from Hong Kong, 46% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.16

~~NOTE~~SURGE MCOMPONENTS, –INC. ~~EXPORT~~AND ~~SALES~~SUBSIDIARIES

~~The~~Notes ~~Company’s~~to ~~export~~Consolidated ~~sales~~Financial ~~were as follows:~~Statements

	Nine Months Ended
	August 31,		August 31,
	2025		2024
Canada		3,146,184		2,423,130
China		7,530,738		4,068,618
Other Asian Countries		241,256		596,791
South America		51,520		73,741
Europe		1,875,808		716,294

NOTE I – OPERATING LEASE COMMITMENTS

~~Revenues~~ ~~are~~The ~~attributed~~Company leases its office and warehouse space through 2030 from a corporation that is partly owned by officers/shareholders of the Company (“Related Company”). Annual minimum rental payments to ~~countries~~the ~~based~~Related ~~on location~~Company approximated $194,000 for the three months ended February 28, 2026, and increase at the rate of ~~customer~~two per cent per annum throughout the lease term.

~~NOTE~~Pursuant Nto the lease agreement, lease expense recognized in operations differs from cash lease payments due to scheduled rent increases. Lease expense is recognized on a straight-line ~~RECENT~~basis ~~TAX~~over ~~LEGISLATION~~the lease term. The difference between cash payments and lease expense is reflected in the carrying amount of the Company’s operating lease right-of-use asset

On ~~July~~The 4,Company ~~2025,~~has ~~the~~a ~~President~~lease ~~signed~~to ~~into~~rent ~~law the~~office ~~“One~~space ~~Big~~and ~~Beautiful~~a ~~Bill”~~warehouse ~~(OBBB),~~in ~~which~~Hong ~~makes~~Kong ~~significant~~through ~~changes~~November ~~to U~~2027.S. ~~federal~~Annual ~~corporate~~minimum ~~income~~rental ~~tax~~payments ~~laws. The legislation is generally effective~~ for ~~tax~~this ~~years~~space ~~beginning~~are ~~after~~approximately ~~December 31~~$77, ~~2024~~097. Because the Company’s fiscal year ends November 30, 2025, the enactment date falls within the current fiscal year, certain provisions may be subject to blended rules or may be effective at various dates within the current or future fiscal years.

~~Key~~ ~~provisions~~The ofCompany ~~the~~has ~~OBBB~~a ~~impacting~~lease ~~the~~to ~~Company include:~~rent additional warehouse space in Hong Kong through November 30, 2027. Annual minimum rental payments for this space are approximately $79,564.

●The ~~Expensing~~Company’s ~~and~~future ~~Bonus~~minimum ~~Depreciation~~rental –commitments ~~Permanently~~at ~~extends~~February ~~the~~28, ~~full~~2026 ~~expensing~~are ofas ~~the cost of qualified property acquired after January 19, 2025.~~follows:

● Net Operating Losses and Credits: Net operating loss carryforward/carryback rules and certain business credit provisions were revised under the OBBB. These changes will apply prospectively to losses and credits generated after January 1, 2025.

Twelve Months Ended February 28,
2026	$	368,083
2027		372,311
2028		219,962
2029		224,362
2030		132,392
2031 and after		-
	$	1,317,110
Less interest portion		168,674
Present value of lease liabilities		1,148,436
Current portion		368,083
Noncurrent portion	$	780,353

In ~~accordance~~Net ~~with~~rental ~~ASC~~expense ~~740,~~for the ~~Company~~three ~~remeasured its~~months ~~deferred~~ended ~~tax~~February ~~assets~~28, 2026 and ~~liabilities~~February ~~as of July 4~~28, 2025, ~~the~~were ~~date of enactment~~$112,933 ~~to reflect the new tax rates~~ and ~~provisions.~~$106,048 ~~The~~respectively, ~~effect~~ of ~~this~~which ~~remeasurement~~$72,591 ~~has~~and ~~been~~$73,509 ~~recorded~~respectively, inwas ~~the~~paid ~~income~~to ~~tax expense for~~ the ~~quarter~~Related ~~ended August 31, 2025~~Company.

17 The remaining weighted average lease term is 4.24 years at February 28, 2026. The weighted average discount rate is 5.14 % at February 28, 2026.

~~ITEM~~NOTE 2.J ~~MANAGEMENT’S~~– ~~DISCUSSION~~EMPLOYMENT AND ~~ANALYSIS~~OTHER ~~OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~AGREEMENTS

~~This~~ ~~report~~In ~~contains~~February ~~forward-looking statements. All statements other than statements of historical facts contained herein~~2016, ~~including~~the ~~statements~~Company ~~regarding~~entered ~~our~~into ~~future~~revised ~~results of~~employment ~~operations~~agreements ~~and~~with ~~financial~~two ~~position,~~officers ~~business strategy and plans and objectives~~ of ~~management~~the ~~for future operations, are forward-looking statements~~Company. ~~These~~Pursuant ~~statements~~to ~~involve~~these ~~known and unknown risks~~agreements, ~~uncertainties~~the ~~and~~base ~~other~~salary ~~factors~~for ~~that~~one ~~may~~officer ~~cause~~is ~~our actual results~~$330,000 ~~performance or~~and ~~achievements~~the tobase besalary ~~materially~~for ~~different~~the ~~from~~other ~~any~~officer ~~future~~is ~~results~~$275,000. ~~performance~~The oragreements ~~achievements~~continue ~~expressed~~until orterminated ~~implied~~ by ~~the~~either ~~forward-looking statements~~party. In ~~Furthermore~~April 2026, wethe ~~cannot~~employment atagreements ~~this~~for ~~time~~Ira ~~assess~~Levy ~~the~~and ~~affect~~Steven ~~that~~Lubman ~~the~~were ~~global~~amended ~~outbreak~~to ofincrease the ~~novel~~base ~~Coronavirus~~salary ~~may~~to ~~have~~$363,000 onand ~~the~~$302,500, ~~Company~~respectively.

In ~~some~~The ~~cases,~~Company’s ~~forward-looking statements~~compensation ~~can~~committee bemay ~~identified~~award bythese ~~terms~~officers ~~such~~with asbonuses ~~“may,”~~and “will,” ~~“should,”~~review ~~“expects,”~~the ~~“plans,” “anticipates,”~~base ~~“could,”~~salary ~~“intends,”~~amounts ~~“target,”~~for ~~“projects,”~~each ~~“contemplates,” “believes,”~~of ~~“estimates,”~~the ~~“predicts,”~~officers ~~“potential”~~on oran ~~“continue”~~annual orbasis to determine if any changes to the ~~negative of~~base ~~these~~salary ~~terms~~amounts orneed ~~other~~to ~~similar~~be ~~words.~~made ~~These~~and ~~statements~~may ~~are~~also ~~only~~award ~~predictions~~these officers with annual bonuses. WePursuant ~~have~~to ~~based~~the ~~these~~employment ~~forward-looking~~agreements, ~~statements~~the ~~largely~~officers ~~on our~~are ~~current~~prohibited ~~expectations~~from ~~and~~engaging ~~projections~~in ~~about~~activities ~~future~~which ~~events~~are ~~and~~competitive ~~financial~~with ~~trends~~those ~~that~~of wethe ~~believe~~Company ~~may~~during ~~affect~~their ~~our~~employment ~~business,~~with ~~financial~~the ~~condition~~ Company and ~~results~~for ofone ~~operations.~~year Wefollowing ~~discuss~~termination. ~~many~~If of the ~~risks~~agreement inis ~~greater~~terminated ~~detail~~other ~~under~~than for cause, the ~~heading~~officer ~~“Risk~~would ~~Factors”~~be inentitled ~~our~~to ~~most~~all ~~recent Annual~~base ~~Report~~salary onearned ~~Form~~through ~~10-K.~~the ~~Also~~date of termination, ~~these~~accrued ~~forward-looking~~but ~~statements~~unused ~~represent~~vacation, ~~our~~all ~~estimates~~vested equity, and ~~assumptions~~bonus ~~only~~amounts aspayable ofto the ~~date~~officer ofthrough the ~~filing~~ date of ~~this report~~termination. ~~Except~~The asofficers ~~required~~would byalso ~~law,~~be weentitled ~~assume~~to noreceive ~~obligation~~an additional thirty-six months of annual compensation equal to ~~update~~the ~~any~~average ~~forward-looking~~of ~~statements~~his ~~after~~base salary and bonus for the three calendar years prior to the date of termination, payable in accordance with the ~~filing~~ ofCompany’s ~~this~~regular ~~report~~payroll practice over a 52-week period.

~~Overview~~17

~~The~~SURGE ~~Company operates with two sales groups~~COMPONENTS, ~~Surge Components (“Surge”) and Challenge Electronics (“Challenge”)~~INC. ~~Surge~~AND is a supplier of electronic products and components. These products include capacitors, which are electrical energy storage devices, and discrete semiconductor components, such as rectifiers, transistors and diodes, which are single function low power semiconductor products that are packaged alone as compared to integrated circuits such as microprocessors. The products sold by Surge are typically utilized in the electronic circuitry of diverse products, including, but not limited to, automobiles, audio products, temperature control products, lighting products, energy related products, computer related products, various types of consumer products, garage door openers, household appliances, power supplies and security equipment. These products are sold to both original equipment manufacturers, commonly referred to as OEMs, who incorporate them into their products, and to distributors of the lines of products we sell, who resell these products within their customer base. These products are manufactured predominantly in Asia by approximately sixteen independent manufacturers. We act as the master distribution agent utilizing independent sales representative organizations in North America to sell and market the products for one such manufacturer pursuant to a written agreement. When we act as a sales agent, our supplier who sold the product to the customer that we introduced to our supplier pays us a commission. The amount of the commission is determined on a sale by sale basis depending on the profit margin of the product. Commission revenue totaled $302,681 and $73,235 for the nine months ended August 31, 2025 and August 31, 2024 respectively.SUBSIDIARIES

~~Challenge~~Notes ~~is engaged in the sale of electronic components. In 1999, Challenge began as a division~~ to ~~sell~~Consolidated ~~audible~~Financial components. We have been able to increase the types of products that we sell because some of our suppliers introduced new products, and we also located other products from new suppliers. Our core products include buzzers, speakers, microphones, resonators, alarms, chimes, filters, and discriminators. We now also work with our suppliers to have our suppliers customize many of the products we sell for many customers through the customers’ own designs and those that we work with our suppliers to have our suppliers redesign for them at our suppliers’ factories. We have engineers on our staff who work with our suppliers on such redesigns and assists with the introduction of new product lines. We are continually looking to expand the line of products that we sell. We sell these products through independent representatives that earn a commission on the products we sell. We are also working with local, regional, and national distributors to sell these products to local accounts in every state. Challenge also at times handles the brokering of certain products, helping its customers find parts that regular suppliers can’t deliver.Statements

~~The~~NOTE ~~Company~~K ~~has~~– aMAJOR Hong Kong office to effectively handle the transfer business from United States customers purchasing and manufacturing in Asia after designing the products in the United States. This office has strengthened the Company’s global position, improving our capabilities and service to our customer base.CUSTOMERS

The Company had two customers who respectively accounted for 20% and 12% of net sales for the three months ended February 28, 2026 and two customers who accounted for 18% and 17% of net sales for the three months ended February 28, 2025. The Company had one customer who accounted for 36% of accounts receivable at February 28, 2026 and one customer who accounted for 34% of accounts receivable at February 28, 2025.

~~The~~NOTE ~~world~~L of– ~~business~~MAJOR continues to change. Customers continue to centralize purchasing from regional purchasing and are stretching their payment terms. These changes also include customers moving their manufacturing operations from North America to Asia, and the trend of globalization. Some of our customers have been involved in mergers and acquisitions, causing consolidation. This trend makes business more complicated and costly for the Company. The Company must have a presence in Asia to service and further develop the business. For these reasons, we established Surge Ltd., our Hong Kong subsidiary. Currency fluctuations may also have an effect on doing business outside of North America. Customers have moved to reduce their supply chain, which could adversely affect the Company. In some market segments, demand for electronic components has decreased, and in other segments, the demand is still strong. Some technologies have become obsolete, while customers develop new products using different kinds of components. One division in the Company has had success in designing new products for customers to better their products performance capabilities. The Company continues to introduce new in-house developed products to existing customers. This proactive approach separates the Company from selling commodity products to also selling more customized products. Management expects 2025 to continue to be a period of continued challenge, in regard to inflation and general economic conditions, in maintaining consistent flow of products during shortages of certain products, and growth, as we see our customers change their manufacturing and buying practices. These challenges could affect the Company in negative ways, possibly reducing sales and or profitability. Because of a labor shortage, our customers, engineering staff has been challenged, so getting our products approved has been and will continue to take longer to achieve. Additionally, as costs of raw materials continues to increase, our costs have increased. In order for the Company to continue to grow, we will depend on, among other things, the continued growth of the electronics and semiconductor industries, our ability to withstand intense price competition, our ability to obtain new customers, our ability to retain and attract good sales and other key personnel in order to expand our marketing capabilities, our ability to secure adequate sources of products, which are in demand on commercially reasonable terms, our success in executing and managing growth, including monitoring an expanded level of operations and systems, controlling costs, the availability of adequate cash flow, the continued supply of products from our factories, the ability to withstand higher transportation costs and longer travel times. The ongoing imposition of tariffs by the United States on goods continue to impact the Company and could continue to impact the Company more significantly in the future. The Company’s cost of goods could be increased which could impact the Company’s manufacturing costs and subsequently the price of goods sold to customers. The Company continues to pass on the costs of tariffs to customers manufacturing in America. The Company does not expect any impact from tariffs on availability of products or the supply chain for the Company’s products. The imposition of tariffs could also cause inflationary pressures on some of the Company’s customers which could cause such customers to scale back on the purchases of the Company’s products. To mitigate the impacts from tariffs, the Company has taken two measures. First, for many of the Company’s customers that the Company sells directly to manufacturing in Mexico, the Company has changed such incoterms to FCA Hong Kong. As such, the customer assumes full responsibility for transportation to North America and duty drawback in Mexico. Second, for the Company’s distribution channel partners and for many of their customers in Mexico, the Company will import the goods to the United States and deliver them to the distributor’s bonded warehouse which would likely avoid potential tariffs. Supply chain challenges can present both a challenge and opportunity to the Company. The Company is cautiously optimistic about its ability to meet the challenges with continued growth unless the general global or electronics industry economic conditions deteriorate. The potential opportunities that supply chain problems present is that the Company’s lead time for customers delivery is frequently shorter than our competitors lead time. This could attract customers to the Company to help keep their production lines up and running. The financial media recently had emphasized a reduction of overall consumer demand which could negatively impact the demand for the Company’s products because our customers, for example in the home appliance and automotive market segments, are also producing less of their products. As such, these economic conditions and perceptions of a slowing economy could have a negative impact on sales into 2026. The combination of possible increased costs and longer lead times from factories to the Company could also have negative impacts on the business in the future. The tense relations between America and China could also impact the Company’s business. China could impose rules and laws that make it more difficult to do business in Hong Kong and China. The Company is taking steps to be well prepared in case of any actions from China that would cause us business disruption. For example, many of the Company’s factory partners have opened additional production facilities outside of China. Although dealing with various challenges to business, the Company continues to work diligently to involve customers in new design projects, in regional expansion, and increasing its sales though its distribution sales channel.SUPPLIERS

~~Critical~~ ~~Accounting~~During ~~Policies~~the three months ended February 28, 2026 and February 28, 2025 there was one foreign supplier accounting for 25% and 27% of total inventory purchased.

~~Accounts~~ ~~Receivable~~The Company purchases substantially all of its products overseas. For the three months ended February 28, 2026, the Company purchased 29% of its products from Taiwan, 18% from Hong Kong, 45% from elsewhere in Asia and less than 1% overseas outside of Asia. The Company purchases the balance of its products in the United States.

~~The~~NOTE ~~allowance~~M ~~for~~– ~~credit~~EXPORT losses is based on the Company’s assessment of the collectability of specific customer accounts and an assessment of international, political and economic risk as well as the aging of the accounts receivable. If there is a change in actual defaults from the Company’s historical experience, the Company’s estimates of recoverability of amounts due could be affected and the Company would adjust the allowance accordingly.SALES

~~Revenue~~The ~~Recognition~~Company’s export sales were as follows:

Revenue is recognized 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 from our suppliers to our customer, revenue is recognized when product is shipped from the Company’s supplier. The Company acts as a sales agent for certain customers buying direct from one of its suppliers. The Company reports these commissions as revenues in the period earned.

	Three Months Ended
	February 28,		February 28,
	2026		2025
Canada		713,360		747,641
China		2,565,533		2,078,411
Other Asian Countries		291,937		137,011
South America		2,085		35,011
Europe		612,237		398,869

~~The~~Revenues ~~Company~~are ~~performs~~attributed ~~ongoing credit~~to ~~evaluations~~countries ofbased ~~its~~on ~~customers~~location ~~and~~of ~~maintains reserves for potential credit losses~~customer.

1918

~~Inventory~~ITEM ~~Valuation~~2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

~~Inventories~~This ~~are~~report ~~recorded~~contains atforward-looking ~~the~~statements. ~~lower~~All ofstatements ~~cost~~other orthan ~~net~~statements ~~realizable value. Write-downs~~ of ~~inventories~~historical tofacts ~~net~~contained ~~realizable~~herein, ~~value~~including ~~are~~statements ~~based~~regarding onour ~~stock~~future ~~rotation, historical~~results ~~sales~~of ~~requirements~~operations and ~~obsolescence~~financial asposition, ~~well~~business asstrategy inand ~~the~~plans ~~changes~~and inobjectives ~~the~~of ~~backlog.~~management ~~Reserves required~~ for ~~obsolescence~~future ~~were~~operations, ~~not~~are ~~material in~~forward-looking ~~any~~statements. ofThese ~~the periods in the financial~~ statements ~~presented.~~involve ~~Reserves~~known ~~related~~and tounknown ~~stock~~risks, ~~rotation~~uncertainties and ~~future~~other ~~sales~~factors ~~requirements~~that ~~for~~may ~~specific inventory~~cause ~~parts~~our ~~involve~~actual ~~subjective~~results, ~~estimates~~performance or achievements to be ~~made~~materially bydifferent ~~management~~from ~~based~~any onfuture ~~current~~results, ~~and~~performance ~~expected~~or ~~market~~achievements ~~conditions.~~expressed Ifor ~~market~~implied ~~conditions are~~by ~~less~~the ~~favorable~~forward-looking statements. ~~than those projected by management~~Furthermore, ~~additional~~we ~~write-downs~~cannot ofat ~~inventories~~this ~~could~~time beassess ~~required.~~the ~~For~~affect ~~example,~~that ~~each~~the ~~additional 1%~~global outbreak of ~~obsolete~~the ~~inventory~~novel ~~would~~Coronavirus ~~reduce~~may ~~operating~~have ~~income~~on bythe ~~approximately $60,000~~Company.

~~The~~In ~~Company~~some ~~does~~cases, ~~not~~forward-looking statements ~~have~~can be identified by terms such as “may,” “will,” “should,” “expects,” “plans,” ~~price~~“anticipates,” ~~protection~~“could,” ~~agreements~~“intends,” ~~with~~“target,” ~~any~~“projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of ~~its~~these ~~vendors~~terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and ~~assumes~~projections ~~the~~about ~~risk~~future events and financial trends that we believe may affect our business, financial condition and results of ~~changes~~operations. We discuss many of the risks in greater detail under the ~~prices~~heading of“Risk ~~its~~Factors” ~~products~~in our most recent Annual Report on Form 10-K. ~~The~~Also, ~~Company~~these ~~does~~forward-looking ~~not believe~~statements ~~there~~represent toour beestimates aand ~~significant~~assumptions ~~risk~~only ~~with~~as ~~regards~~of tothe date of the ~~lack~~filing of ~~price~~this ~~protection~~report. ~~agreements~~Except as ~~many~~required ofby ~~its~~law, ~~inventory~~we ~~items~~assume ~~are~~no ~~purchased~~ obligation to ~~fulfill~~update ~~purchase~~any ~~orders~~forward-looking ~~received~~statements after the date of the filing of this report.

~~Income Taxes~~Overview

WeThe ~~have~~Company ~~made~~operates with two sales groups, Surge Components (“Surge”) and Challenge Electronics (“Challenge”). Surge is a ~~number~~supplier of electronic ~~estimates~~products and components. These products include capacitors, which are electrical energy storage devices, and discrete semiconductor components, such as rectifiers, transistors and ~~assumptions~~diodes, ~~relating~~which are single function low power semiconductor products that are packaged alone as compared to integrated circuits such as microprocessors. The products sold by Surge are typically utilized in the ~~reporting~~electronic circuitry of adiverse ~~deferred~~products, ~~income~~including, ~~tax~~but ~~asset~~not limited to, ~~prepare~~automobiles, ~~our~~audio ~~financial~~products, ~~statements~~temperature incontrol ~~accordance~~products, ~~with~~lighting ~~generally~~products, ~~accepted~~energy ~~accounting~~related ~~principles~~products, computer related products, various types of consumer products, garage door openers, household appliances, power supplies and security equipment. These ~~estimates~~products ~~may~~are ~~have~~sold to both original equipment manufacturers, commonly referred to as OEMs, who incorporate them into their products, and to distributors of the lines of products we sell, who resell these products within their customer base. These products are manufactured predominantly in Asia by approximately sixteen independent manufacturers. We act as the master distribution agent utilizing independent sales representative organizations in North America to sell and market the products for one such manufacturer pursuant to a ~~significant~~written ~~impact~~agreement. onWhen we act as a sales agent, our ~~valuation~~supplier ~~allowance~~who ~~relating~~sold the product to ~~deferred~~the ~~income~~customer ~~taxes~~that we introduced to our supplier pays us a commission. The amount of the commission is determined on a sale by sale basis depending on the ~~Our~~profit ~~estimates~~margin ~~could~~of ~~materially~~the ~~impact~~product. Commission revenue totaled $5,129 and $84,198 for the ~~financial~~three ~~statements~~months ended February 28, 2026 and February 28, 2025 respectively.

~~Results~~Challenge is engaged in the sale of ~~Operations~~electronic components. In 1999, Challenge began as a division to sell audible components. We have been able to increase the types of products that we sell because some of our suppliers introduced new products, and we also located other products from new suppliers. Our core products include buzzers, speakers, microphones, resonators, alarms, chimes, filters, and discriminators. We now also work with our suppliers to have our suppliers customize many of the products we sell for many customers through the customers’ own designs and those that we work with our suppliers to have our suppliers redesign for them at our suppliers’ factories. We have engineers on our staff who work with our suppliers on such redesigns and assists with the introduction of new product lines. We are continually looking to expand the line of products that we sell. We sell these products through independent representatives that earn a commission on the products we sell. We are also working with local, regional, and national distributors to sell these products to local accounts in every state. Challenge also at times handles the brokering of certain products, helping its customers find parts that regular suppliers can’t deliver.

~~Consolidated~~The ~~net~~Company ~~sales~~has ~~for the~~a ~~nine~~Hong ~~months~~Kong office ~~ended August 31, 2025 increased by $4,053,477 or 18.1%,~~ to ~~$26,422,494~~effectively ashandle ~~compared to net sales of $22,369,017 for~~ the ~~nine~~ ~~months~~transfer ~~ended~~business ~~August~~from ~~31,~~United ~~2024.~~States ~~Consolidated~~customers ~~net~~purchasing ~~sales~~and ~~for~~manufacturing ~~the~~in ~~three~~Asia ~~months~~after ~~ended August 31, 2025 increased by $2,303,715 or 28.9%,~~designing tothe ~~$10,274,031~~products asin ~~compared to net sales of $7,970,316 for~~ the ~~three~~United ~~months ended August 31, 2024~~States. WeThis ~~attribute~~office ~~the~~has ~~increase~~strengthened ~~to an increase in business with new customers as well as an increase in business with existing customers,as well as increases in business from~~ the Company’s ~~distribution~~ ~~sales~~global ~~channels. Net sales for the nine months ended August 31~~position, ~~2025~~improving ~~and~~our ~~August~~capabilities ~~31, 2024 reflect $700,253~~ and ~~$386,343, respectively,~~service ~~due~~ to ~~tariff~~our ~~costs~~customer ~~that the Company was able to pass on to its customers~~base.

Our gross profit for the nine months ended August 31, 2025 increased by $1,046,545 to $7,578,808, or 16.0%, as compared to $6,532,263 for the nine months ended August 31, 2024. Gross margin as a percentage of net sales decreased to 28.7% for the nine months ended August 31, 2025 compared to 29.2% for the nine months ended August 31, 2024. Gross profit for the three months ended August 31, 2025 increased by $357,133 to $2,844,703, or 14.4%, as compared to $2,487,570 for the three months ended August 31, 2024. Gross margin as a percentage of net sales decreased to 27.7% for the three months ended August 31, 2025 compared to 31.2% for the three months ended August 31, 2024. The increase in gross profit for the nine months ended August 31, 2025 can be attributed to the increase in sales volume. The decrease in gross profit as a percentage of sales for the nine months ended August 31, 2025 can be attributed to sales for the period being sold at a lower profit margin. Our industry will continue to receive pressure from customers for price reductions. Some of them further demand periodic price reductions on a quarterly or semi-annual basis, as opposed to annual fixed pricing. We work with electronic manufacturing service subcontractor customers who manufacture products for other customers who do not have their own manufacturing operations. At times we are not able to recover these price reductions from our suppliers. The Company has agreements with these subcontractor customers to provide periodic cost reductions through rebates in the amount of 5%. These reductions only affect future shipments of our products, and do not affect existing orders. These reductions can have a negative impact on our profit margins since they reduce the amount of commissions we can earn. Even though this rebate can impact the Company’s gross profit margin, these subcontractor customers represent very significant potential growth for the Company, because they can help the Company become an approved supplier at the customers they manufacture for, and they purchase our components for these customers. We believe it would be very difficult for the Company to achieve business at these customers without the help of these subcontractor customers. During the first half of fiscal year of 2025, the Company was impacted by tariff costs on certain products imported from China as well as new tariffs that went into effect as of February 4, 2025 in addition to pre-existing tariffs that went into effect as of July 6, 2018. The Company has been able to pass along a portion of these costs to its customers. The Company is also moving some customer deliveries directly to Hong Kong in order to mitigate some of these costs. However, there can be no assurance that we will be able to pass along the new costs or the effects if any it will have on our revenue in the future.19

20The world of business continues to change because of “disruptors,” which are significant changes in traditional business practices. For example, customers continue to centralize purchasing from regional purchasing and are stretching their payment terms. These changes also include customers moving their manufacturing operations from North America to Asia, and the trend of globalization. Some of our customers have been involved in mergers and acquisitions, causing consolidation. This trend makes business more complicated and costly for the Company. The Company must have a presence in Asia to service and further develop the business. The Surge sales division has a sales and marketing office and warehouse in Hong Kong and for these reasons, we established Surge Ltd., our Hong Kong subsidiary. The Surge divisions regional sales in their Europe office are growing well throughout the entire European continent and management looks forward to their continued growth. The Challenge Electronics sales division is in the process of opening up a sales and marketing office in Europe as well. Currency fluctuations may also have an effect on doing business outside of North America. Customers have moved to reduce their supply chain, which could adversely affect the Company. In some market segments, demand for electronic components has decreased, and in other segments, the demand is still strong. Some technologies have become obsolete, while customers develop new products using different kinds of components. The Challenge Electronics division in the Company has had success in designing new products for customers to better their products performance capabilities. This proactive approach separates the Company from selling only commodity products to also selling more customized products. Management is cautiously optimistic about continued growth in 2026 but expects 2026 to be a period of continued challenge, in regard to inflation and general economic conditions, in maintaining consistent flow of products during shortages of certain products. These challenges could affect the Company in negative ways, possibly reducing sales and or profitability. Because of a labor shortage, our customers engineering staff has been challenged, so getting our products approved has been and will continue to take longer to achieve. Additionally, the cost of some raw materials has continued to increase, therefore our costs have increased. In some cases the customers will accept the increase while in others, the Company absorbs the cost increase. In order for the Company to continue to grow, we will depend on, among other things, the continued growth of the electronics and semiconductor industries, our ability to withstand intense price competition, our ability to obtain new customers, our ability to retain and attract high performing sales and other key personnel in order to expand our marketing capabilities, our ability to secure adequate sources of products, which are in demand on commercially reasonable terms, our success in executing and managing growth, including monitoring an expanded level of operations and systems, controlling costs, the availability of adequate cash flow, the continued supply of products from our factories, the ability to withstand higher transportation costs, tariffs, and longer travel times and our ability to deal successfully, with new and future disruptors. The tariffs continue to impact the Company, although less now than previously. The general supply chain challenges present both a challenge and opportunity to the Company. The Company is cautiously optimistic about its ability to meet these challenges with continued growth unless the general global or electronics industry economic conditions deteriorate. Challenging economic conditions could have a negative impact on sales into 2027. The combination of possible disruptors such as increased costs and longer lead times from factories to the Company could also have negative impacts on the business in the future. The tense relations between America and China could also impact the Company’s business. China could impose rules and laws that make it more difficult to do business in Hong Kong and China. The Company is taking steps to be well prepared in case of any actions from China or Iran that would cause us business disruption. For example, many of the Company’s factory partners have opened production facilities outside of China. The current U.S. conflict with Iran also carries challenges in the cost of products and general global supply. As there are many challenges in this complicated and competitive market, there are also many great opportunities that the Company is involved in. Therefore continues to seek opportunities for growth in 2026 and beyond.

~~Selling~~Critical ~~and~~Accounting shipping expenses for the nine months ended August 31, 2025 was $2,053,493, an increase of $24,629, or 1.2%, as compared to $2,028,864 for nine months ended August 31, 2024. Selling and shipping expenses for the three months ended August 31, 2025 was $721,274, an increase of $37,380, or 5.5%, as compared to $683,894 for three months ended August 31, 2024. We attribute the increase for the nine months ended August 31, 2025 to increases in selling expenses such as commission expenses, travel and entertainment expenses offset by decreases in sales payroll expenses and freight out expenses. We attribute the increase for the three months ended August 31, 2025 to increases in commission expenses, sales payroll expenses, travel and entertainment expenses offset by decreases in freight out expenses.Policies

~~General~~Accounts and administrative expenses for the nine months ended August 31, 2025 was $4,755,491, an increase of $868,253, or 22.3%, as compared to $3,887,238 for the nine months ended August 31, 2024. General and administrative expenses for the three months ended August 31, 2025 was $1,446,788, an increase of $196,494, or 15.7% as compared to $1,250,294 for the three months ended August 31, 2024. The increase is due primarily to non cash stock based compensation of $518,954 in the nine months ending August 31, 2025 as well as increases in the nine months ended August 31, 2025 in officer salaries and related payroll tax expenses as well as pension, bank charges and bad debt expenses as well as professional fees, office and consulting expenses, utilities and general insurance expenses and computer expenses but partially offset by decreases in other rent expenses, directors fees and public company expenses. The increase for the three months ended August 31, 2025 can also be attributed to increases in salaries and related payroll tax expenses as well as bad debt expenses, general insurance, office and computer expenses and professional fees and public company expenses but partially offset by decreases consulting expensesReceivable

~~Depreciation~~The ~~expense~~allowance for ~~the~~doubtful ~~nine~~accounts ~~months~~is ~~ended~~based ~~August~~on ~~31,~~the ~~2025~~Company’s ~~was~~assessment ~~$52,887,~~of anthe ~~increase~~collectability of ~~$99,~~specific orcustomer ~~less~~accounts ~~than~~and 1%an assessment of international, political asand ~~compared~~economic torisk ~~$52,788~~as ~~for~~well as the ~~nine~~aging ~~months~~of ~~ended~~the ~~August 31,~~accounts ~~2024~~receivable. ~~Depreciation~~If ~~expense~~there ~~for~~is ~~the~~a ~~three~~change ~~months~~in ~~ended~~actual ~~August~~defaults ~~31,~~from ~~2025~~the ~~was~~Company’s historical ~~$17~~experience,~~808,~~ athe ~~decrease~~Company’s estimates of ~~$212,~~recoverability orof ~~1.2%,~~amounts asdue ~~compared~~could tobe ~~$18,020 for~~affected and the ~~three~~Company ~~months~~would ~~ended~~adjust the ~~August~~allowance ~~31, 2024~~accordingly.

~~Other~~Revenue income for the nine months ended August 31, 2025 was $284,181, an increase of $42,881 as compared to $241,300 for the nine months ended August 31, 2024. Other income for the three months ended August 31, 2025 was $100,851, an increase of $12,731 as compared to $88,120 for the three months ended August 31, 2024. We attribute the change to income from investment in the acquisition of treasury bonds and notes issued by the United States Treasury.Recognition

~~Tax~~Revenue ~~expense~~is ~~for~~recognized ~~the~~when persuasive ~~nine~~evidence ~~months ended~~of ~~August~~an 31arrangement exists, ~~2025~~delivery ~~was~~has ~~$353~~occurred,~~593,~~ anthe ~~increase~~price ofis ~~$119~~fixed and determinable,~~210~~ ascollectability ~~compared~~is toreasonably assured aand ~~tax~~title ~~expense~~and risk of ~~$234,383~~loss ~~for~~have been transferred to the ~~nine~~customer. ~~months~~This ~~ended~~occurs ~~August 31,~~when ~~2024.~~product ~~Tax~~is ~~expense~~shipped ~~for~~from the ~~three~~Company’s warehouse. ~~months~~For ~~ended~~direct ~~August~~shipments ~~31,~~from ~~2025~~our ~~was~~suppliers ~~$287,479,~~to aour ~~decrease~~customer, ofrevenue ~~$108,349~~is asrecognized ~~compared~~when toproduct ais ~~tax~~shipped ~~expense~~from ofthe Company’s ~~$179,130~~supplier. ~~for~~The ~~the~~Company ~~three~~acts ~~months~~as ~~ended~~a ~~August~~sales ~~31,~~agent ~~2024.~~for ~~The~~certain ~~changes~~customers ~~result~~buying direct from ~~our~~one ~~increase~~of inits ~~net~~suppliers. ~~income~~The ~~for~~Company ~~the~~reports ~~nine~~these commissions ~~months~~as ~~ended~~revenues ~~August 31,~~in ~~2025~~the period earned.

As a result of the foregoing, net income for the nine months ended August 31, 2025 was $647,525, compared to a net income of $570,290 for the nine months ended August 31, 2024. The net income for the three months ended August 31, 2025 was $472,205, compared to a net income of $444,352 for the three months ended August 31, 2024.20

~~Liquidity~~The Company performs ongoing credit evaluations of its customers and ~~Capital~~maintains ~~Resources~~reserves for potential credit losses.

AsInventory of August 31, 2025 we had cash of $4,275,802, marketable securities of $8,665,967, and working capital of $20,185,771. We believe that our working capital levels are adequate to meet our operating requirements during the next twelve months. The Company is exploring and evaluating opportunities for growth and expansion using the Company’s cash resources.Valuation

~~During~~Inventories are recorded at the ~~nine~~lower ~~months~~of ~~ended August~~cost ~~31,~~or ~~2025,~~net werealizable ~~had~~value. ~~net~~Write-downs ~~cash~~of ~~flow~~inventories ~~provided~~to bynet ~~operating~~realizable ~~activities~~value ofare ~~$184~~based on stock rotation,~~801,~~ historical sales requirements and obsolescence as ~~compared~~well toas ~~net~~in ~~cash~~the ~~flow~~changes ~~provided~~in bythe ~~operating activities~~backlog. ofReserves ~~$954,964~~required for obsolescence were not material in any of the ~~nine~~periods ~~months~~in ~~ended~~the ~~August~~financial ~~31,~~statements ~~2024~~presented. ~~The~~Reserves ~~decrease~~related into ~~cash~~stock ~~flow~~rotation ~~from~~and ~~operating~~future ~~activities~~sales ~~was~~requirements ~~primarily~~for ~~the~~specific ~~result~~inventory ofparts ~~decreased~~involve ~~cash~~subjective ~~flows~~estimates ~~from~~to ~~accounts~~be ~~receivable,~~made ~~inventory~~by management based on current and ~~prepaid~~ ~~expenses~~expected asmarket ~~partially~~conditions. ~~offset~~If market conditions are less favorable than those projected by anmanagement, ~~increase~~additional inwrite-downs ~~net income~~of inventories could be required. For example, ~~accounts~~each ~~payable~~additional 1% ~~and~~of ~~non~~obsolete ~~cash~~inventory ~~expenses~~would ~~including~~reduce ~~stock~~operating ~~based~~income ~~compensation~~by approximately $54,000.

WeThe ~~had~~Company ~~net~~does ~~cash~~not ~~flow used~~have inprice ~~investing~~protection ~~activities~~agreements ofwith ~~$(1,568,942)~~any ~~from~~of ~~financing~~its ~~activities~~vendors ~~for~~and assumes the ~~nine~~risk ~~months~~of ~~ended~~changes ~~August 31, 2025, as compared to net cash flow used~~ in ~~investing~~the ~~activities~~prices of ~~$(4,443,046)~~its ~~for~~products. ~~the~~The ~~nine~~Company ~~months~~does ~~ended~~not believe ~~August~~there ~~31,~~to ~~2024. We~~be ~~attribute~~a ~~the~~significant ~~change~~risk towith ~~purchases~~regards byto the ~~Company~~ lack of ~~marketable~~price ~~debt~~protection ~~securities~~agreements inas ~~the~~many ~~form~~ of ~~Treasury~~its ~~bills~~inventory ~~and~~items ~~notes~~are ~~issued~~purchased to byfulfill ~~the~~purchase ~~United~~orders ~~States Treasury~~received.

WeIncome had net cash flow from financing activities of $32,250 during the nine months ended August 31, 2025 as compared to $0 for the nine months ended August 31, 2024. The increase in financing activities is related to the proceeds from the exercise of stock options.Taxes

21We have made a number of estimates and assumptions relating to the reporting of a deferred income tax asset to prepare our financial statements in accordance with generally accepted accounting principles. These estimates may have a significant impact on our valuation allowance relating to deferred income taxes. Our estimates could materially impact the financial statements.

AsResults ~~a result~~ of the foregoing, the Company had a decrease in cash of $(1,351,891) for the nine months ended August 31, 2025, as compared to a net decrease in cash of $(3,488,082) for the nine months ended August 31, 2024 which is attributable to the purchase of marketable securities.Operations

~~The~~Consolidated ~~table~~net ~~below~~sales ~~sets forth~~for ~~our~~the ~~contractual~~three ~~obligations,~~months ~~including~~ended ~~long-term~~February ~~debt~~28, ~~operating~~2026 ~~leases~~increased ~~and~~by ~~other~~$962,169 ~~long-term~~or ~~obligations~~13.3%, to $8,193,907 as compared to net sales of ~~August~~$7,231,738 31for the three months ended February 28, 2025:. We attribute the increase to an increase in business with new customers as well as an increase in business with existing customers. Net sales for the three months ended February 28, 2026 and February 28, 2025 reflect $165,574 and $173,081, respectively of tariff costs that the Company was able to pass on to its customers.

			Payments due
			0 – 12		13 – 36		37 – 60		More than
Contractual Obligations	Total		Months		Months		Months		60 Months
Financing Lease Obligations	$	-	$	-	$	-	$	-	$	-
Operating leases	$	1,030,134		388,041		596,593		45,500		-
Total obligations	$	1,030,134	$	388,041	$	596,593	$	45,500	$	-

Our gross profit for the three months ended February 28, 2026 increased by $362,707 to $2,408,409, or 17.7%, as compared to $2,045,702 for the three months ended February 28, 2025. Gross margin as a percentage of net sales increased to 29.4% for the three months ended February 28, 2026 compared to 28.3% for the three months ended February 28, 2025. The increase in gross profit and gross profit as a percentage of sales can be attributed to the increase in sales volume and to certain products being sold at a higher profit margin. Our industry will continue to receive pressure from customers for price reductions. Some of them further demand periodic price reductions on a quarterly or semi-annual basis, as opposed to annual fixed pricing. We work with electronic manufacturing service subcontractor customers who manufacture products for other customers who do not have their own manufacturing operations. At times we are not able to recover these price reductions from our suppliers. The Company has agreements with these subcontractor customers to provide periodic cost reductions through rebates in the amount of 5%. These reductions only affect future shipments of our products, and do not affect existing orders. These reductions can have a negative impact on our profit margins since they reduce the amount of commissions we can earn. Even though this rebate can impact the Company’s gross profit margin, these subcontractor customers represent very significant potential growth for the Company, because they can help the Company become an approved supplier at the customers they manufacture for, and they purchase our components for these customers. We believe it would be very difficult for the Company to achieve business at these customers without the help of these subcontractor customers. The Company was impacted by tariff costs on certain products imported from China, which went into effect as of July 6, 2018 as well as new tariffs that went into effect as of February 4, 2025. The Company has been able to pass along a portion of these costs to its customers. The Company is also moving some customer deliveries directly to Hong Kong in order to mitigate some of these costs. However, there can be no assurance that we will be able to pass along the new costs or the effects if any it will have on our revenue in the future.

~~Off Balance Sheet Arrangements~~21

Selling and shipping expenses for the three months ended February 28, 2026 was $834,180, an increase of $180,813, or 27.7%, as compared to $653,367 for three months ended February 28, 2025. We doattribute ~~not~~the increase ~~have~~to ~~any~~increases ~~off-balance~~in selling expenses such as commission expenses and sales ~~sheet~~payroll, ~~arrangements~~due to the hiring of additional sales personnel and travel and entertainment expenses offset by decreases in advertising expenses..

~~ITEM~~General 3and administrative expenses for the three months ended February 28, 2026 was $1,721,278, an increase of $342,016, or 24.8%, ~~QUANTITATIVE~~as ~~AND~~compared ~~QUALITATIVE~~to ~~DISCLOSURES~~$1,379,262 ~~ABOUT~~for the ~~MARKET~~three ~~RISK~~months ended February 28, 2025. The increase is due primarily to increases in salaries and related payroll tax due to the hiring of additional staff.as well as rent, professional fees expenses, as well as office and public company expenses, partially offset by decreases in bank charge expenses.

~~Not~~Depreciation ~~applicable~~expense for the three months ended February 28, 2026 was $10,791, a decrease of $4,826, or 30.9%, as compared to $15,617 for the three months ended February 28, 2025.

~~ITEM~~Other 4income for the three months ended February 28, 2026 was $104,297, a decrease of $20,669 as compared to $124,966 for the three months ended February 28, 2025. We ~~CONTROLS~~attribute ~~AND~~the ~~PROCEDURES~~decrease to a reduction in income from investment in bonds and notes issued by the United States Treasury.

~~Evaluation~~Tax expense for the three months ended February 28, 2026 was $(19,268), a decrease of ~~Disclosure~~$84,334 ~~Controls~~as ~~and~~compared ~~Procedures~~to a tax expense of $65,066 for the three months ended February 28, 2025. The changes result from our decrease in net income for the fiscal 2026 period.

~~The~~As ~~Company~~a ~~maintains~~result ~~controls and~~of ~~procedures designed to ensure that information required to be disclosed in~~ the ~~reports that it files or submits under the Securities Exchange Act of 1934~~foregoing, ~~as amended (“Exchange Act”), is recorded, processed, summarized and reported within~~ the ~~time~~net ~~periods specified~~loss infor the ~~rules~~three ~~and~~months ~~forms~~ended ofFebruary ~~the~~28, ~~Securities~~2026 ~~and~~was ~~Exchange Commission~~ $(~~“Commission”~~34,275)~~. Ira Levy~~, ~~the~~compared ~~Company’s~~to ~~principal executive~~a ~~officer~~net ~~and~~income ~~principal~~of ~~financial officer~~$57,356 ~~has~~for ~~evaluated~~ the ~~effectiveness~~three ofmonths ~~the Company’s disclosure controls and procedures~~ended ~~(as~~February ~~defined in Exchange Act Rule 13a-15(e)) as of August 31~~28, 2025 ~~and has concluded that, as of such date, our disclosure controls and procedures were effective~~.

~~Changes~~Liquidity inand ~~Internal~~Capital ~~Controls~~Resources

~~During~~As ~~the~~of ~~three~~February ~~months~~28, ~~ended~~2026 we ~~August~~had ~~31,~~cash ~~2025~~of ~~there~~$6,448,930, ~~were~~marketable nosecurities ~~changes~~of in$8,363,700, ~~our~~and ~~internal~~working ~~control~~capital ~~over~~of ~~financial~~$20,634,936. ~~reporting~~We believe that ~~have~~our ~~materially~~working ~~affected,~~capital levels or are ~~reasonably likely~~adequate to ~~materially~~meet ~~affect,~~ our ~~internal~~operating ~~control~~requirements ~~over~~during ~~financial~~the ~~reporting~~next twelve months. The Company is exploring and evaluating opportunities for growth and expansion using the Company’s cash resources.

22During the three months ended February 28, 2026, we had net cash flow provided by operating activities of $1,090,562, as compared to net cash flow used in operating activities of $(124,278) for the three months ended February 28, 2025. The increase in cash flow from operating activities was primarily the result of increased cash flows from reduced accounts receivable, accounts payable, inventory and prepaid expenses as partially offset by net loss and a smaller decrease in cash flows from accrued expenses in 2026.

~~PART~~We IIhad -net ~~OTHER~~cash ~~INFORMATION~~flow provided by investing activities of $26,759 for the three months ended February 28, 2026, as compared to net cash flow used in investing activities of $(1,631,575) for the three months ended February 28, 2025. We attribute the change to reduced purchases by the Company of marketable debt securities in the form of Treasury bills and notes issued by the United States Treasury in the current period..

~~ITEM~~We 1.had ~~LEGAL~~no ~~PROCEEDINGS~~net cash flow from financing activities during each of the three months ended February 28, 2026 and 2025.

~~There are no legal proceedings to which the Company or any of its property is the subject.~~22

~~ITEM~~As ~~1A.~~a ~~RISK~~result ~~FACTORS~~of the foregoing, the Company had an increase in cash of $1,117,321 for the three months ended February 28, 2026, as compared to a net decrease in cash of $1,755,853 for the three months ended February 28, 2025.

~~Not~~The ~~applicable.~~table below sets forth our contractual obligations, including long-term debt, operating leases and other long-term obligations, as of February 28, 2026:

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

			Payments due
			0 – 12		13 – 36		37 – 60		More than
Contractual Obligations	Total		Months		Months		Months		60 Months
Financing Lease Obligations	$	-	$	-	$	-	$	-	$	-
Operating leases	$	1,317,110		368,083		592,273		356,754		-

Total obligations	$	1,317,110	$	368,083	$	592,273	$	356,754	$	-

~~None.~~Inflation

~~ITEM~~In 3the past two fiscal years, inflation has not had a significant impact on our business. ~~DEFAULTS~~The ~~UPON~~Company ~~SENIOR~~has ~~SECURITIES~~been able to pass along increases in purchasing costs to its customers. Any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our future operating results.

~~None.~~Off Balance Sheet Arrangements

~~ITEM~~We 4.do ~~MINE~~not ~~SAFETY~~have ~~DISCLOSURES~~any off balance sheet arrangements.

~~Not~~ITEM ~~applicable~~3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~ITEM~~Not 5applicable. ~~OTHER INFORMATION.~~

~~None~~ITEM 4. CONTROLS AND PROCEDURES.

~~ITEM~~Evaluation 6.of ~~EXHIBITS.~~Disclosure Controls and Procedures

Exhibit Number		Description
31.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“Commission”). Ira Levy, the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of February 28, 2026 and has concluded that, as of such date, our disclosure controls and procedures were effective.

23Changes in Internal Controls

~~SIGNATURES~~During the three months ended February 28, 2026 there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~23

	SURGE COMPONENTS, INC.
Date: October 15, 2025	By:	/s/ Ira Levy
	Name:	Ira Levy
	Title:	Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

PART II - OTHER INFORMATION

24ITEM 1. LEGAL PROCEEDINGS.

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xbrli:shares xbrli:pure

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit Number		Description

31.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification by Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SURGE COMPONENTS, INC.

Date: April 14, 2026	By:	/s/ Ira Levy
	Name:	Ira Levy
	Title:	Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

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