Surge Components inc.. (SPRS)

[10 bagger]

SPRG.. Surge Components, Inc. $0.55

Headquarters: 95 East Jefryn Boulevard
Deer Park, NY 11729
Web Address:
http://www.surgecomponents.com

Is a supplier of electronic products and components. These products include capacitors, which are electrical energy storage devices, and discrete components, such as semiconductor rectifiers, transistors and diodes, which are single-function, low-power semiconductor products that are packaged alone, as compared to integrated circuits (ICs) such as microprocessors. Surge's products are typically utilized in the electronic circuitry of diverse products, including, but not limited to, automobiles, cellular telephones, computers, consumer electronics, garage door openers, household appliances, power supplies and security equipment. Surge's products are sold to both original equipment manufacturers (OEMs) that incorporate them into their products and to distributors of Surge's product lines that resell these products within their customer baseResults of Operations

Comparison of six months ended May 31, 2010 and May 31, 2009

Consolidated net sales for the six months ended May 31, 2010 increased by $4,310,216 or 82%, to $9,553,204 as compared to net sales of $5,242,988 for the six months May 31, 2009. We attribute the increase to additional business with existing customers. The electronic components industry is currently experiencing a high demand in products and the Company is benefiting from that with an increase in volume.

Our gross profit for the six months ended May 31, 2010 increased by $1,358,611, or 91%, as compared the six months ended May 31, 2009. Gross margin as a percentage of net sales increased to 29.8% the six months ended May 31, 2010 compared to 28.4% for the six months ended May 31,2009. We attribute the increase to new more profitable business and cutting costs, including an increase in the amount of purchase rebates earned from certain vendors.

Selling and shipping expenses for the six months ended May 31, 2010 was $797,656, an increase of $321,707, or 68%, as compared to $475,949 for the six months ended May 31, 2009.The increase is directly related to the increase in sales for the Company. Specifically the increase is due to additional sales commissions, selling expenses, such as travel and freight out expense.

General and administrative expenses for the six months ended May 31, 2010 was $1,201,731, an increase of $186,625, or 18%, as compared to $1,015,106 for the six months ended May 31, 2009. The increase is due to increased professional fees associated with the Company becoming a reporting company with the SEC and additional compensation approved by the Board for the officers and directors of the Company.

Investment income for the six months ended May 31, 2010 was $2,446, compared to $4,685 for the six months ended May 31, 2009. We attribute the decrease of $2,239, or 48%, to lower interest rates in our money market accounts in 2010.

Interest expense for the six months ended May 31, 2010 was $60,150, compared to $60,454 for the six months ended May 31, 2009. Interest expense remained relatively unchanged between the two periods. Interest rates have been comparable for the last year.

Income taxes for the six months ended May 31, 2010 were $9,868, compared to $4,480 for the six months ended May 31, 2009. The difference is a result of state income taxes.

As a result of the foregoing, net income for the six months ended May 31, 2010 was $712,367, compared to net loss of $136,117 for the six months ended May 31, 2009.

Comparison Fiscal 2009 and Fiscal 2008

Consolidated net sales for Fiscal 2009 decreased by $1,915,624, or 13.5%, to $12,325,812 as compared to net sales of $14,241,436 for Fiscal 2002. The decrease in revenue is primarily due to the significant decrease in purchasing as a result of the global recession.

Our gross profit for Fiscal 2009 decreased by $418,930, or 10.2%, as compared to Fiscal 2008. Gross margin as a percentage of net sales increased to 29.9% in Fiscal 2009 compared to 28.8% for Fiscal 2008. We attribute the increase to new more profitable business and cutting costs, including an increase in the amount of purchase rebates earned from certain vendors.

Selling and shipping expenses for Fiscal 2009 was $1,090,196, a decrease of $399,236, or 26.8%, as compared to $1,489,392 for Fiscal 2008. We attribute the decrease to the lower sales volume resulting in fewer sales commissions and shipping costs.

General and administrative expenses for Fiscal 2009 was $2,012,639, a decrease of $226,827, or 10.1%, as compared to $2,239,466 for Fiscal 2008. We attribute the decrease to cutting costs, primarily payroll and payroll related costs

Investment income for fiscal 2009 was $7,405, compared to $24,245 for fiscal 2008. We attribute the decrease of $16,840, or 69.5%, lower interest rates in 2009.

Income taxes for Fiscal 2009 were $5,364, compared to $7,426 for fiscal 2008.

As a result of the foregoing, net income for Fiscal 2009 was $316,555, compared to $132,156 for Fiscal 2008.

Liquidity and Capital Resources

As of May 31, 2010 we had cash of $1,486,406, and working capital of $3,402,977. We believe that our working capital levels and available financing are adequate to meet our operating requirements during the next twelve months.

During the six months ended May 31, 2010, we had net cash flow from operating activities of $140,504, as compared to net cash from operating activities of $244,193 for the six months ended May 31, 2009. During Fiscal 2009, we had net cash flow from operating activities of $364,294, as compared to net cash used in operating activities of $404,330 in Fiscal 2008. The increase in cash flow from operating activities resulted from increase in the 2010 profit, increase in accounts receivable and inventory offset by increase in accounts payable. The significant increase in accounts receivable in the current quarter was a direct result in the increase in revenues. As a result of these increased revenues, the Company made a significant investment in additional inventory. The Company adjusts its inventory levels based upon the industry outlook and near term expectations of demand for the Company’s products.

We had net cash used in investing activities of $(4,866) for the six months ended May 31, 2010, as compared to net cash used in investing activities of $146,949 for the six months ended May 31, 2009. We had net cash used in investing activities of $158,512 for Fiscal 2009, as compared to net cash used in investing activities of $44,067 in Fiscal 2008. This decrease was the result of the Company purchasing additional computer hardware in 2009.

We had net cash from financing activities of 210,430 for the six months ended May 31, 2010, as compared to net cash used in financing activities of $(76,872) for the six months ended May 31, 2009. We had net cash from financing activities of $29,393 for Fiscal 2009, as compared to net cash from financing activities of $496,966 for Fiscal 2008. The increase was the result of increased borrowings in 2010 from our lender.

As a result of the foregoing, the Company had a net increase in cash of $346,068 during the six months ended May 31, 2010 , as compared to a net increase in cash of $20,372 for the six months ended May 31, 2009 .

In July 2002, the Company obtained a financing commitment with an asset-based lender totaling $1,000,000 (the “Credit Line”). Borrowings under the Credit Line accrue interest at the greater of the prime rate plus two percent (2.0%) or 6.75%. The Company is required to make monthly interest only payments. The Company may repay all or a portion of the line of credit at any time. In addition, the Company is obligated to pay one-quarter of one percent (1/4 of 1%) annually as an unused line fee for the difference between $1,000,000 and the average daily balance of the Credit Line. The Credit Line is collateralized by substantially all the Company’s assets and contains various financial covenants pertaining to the maintenance of working capital and tangible net worth. At May 31, 2010, the Company was in compliance with the financial covenants.