SURGE COMPONENTS INC

NOTE A – ORGANIZATION, DESCRIPTION OF COMPANY’S BUSINESS AND BASIS OF PRESENTATION

Surge Components, Inc. (“Surge”) was incorporated in the State of New York and commenced operations on November 24, 1981 as an importer of electronic products, primarily capacitors and discrete semi-conductors selling to customers located principally throughout North America. On June 24, 1988, Surge formed Challenge/Surge Inc. (“Challenge”), a wholly-owned subsidiary to engage in the sale of electronic component products and sounding devices from established brand manufacturers to customers located principally throughout North America.

In May 2002, Surge and an officer of Surge founded and became sole owners of Surge Components, Limited (“Surge Limited”), a Hong Kong corporation. Under current Hong Kong law, Surge Limited is required to have at least two shareholders. Surge owns 999 shares of the outstanding common stock and the officer of Surge owns 1 share of the outstanding common stock. The officer of Surge has assigned his rights regarding his 1 share to Surge. Surge Limited started doing business in July 2002. Surge Limited operations have been consolidated with the Company. Surge Limited is responsible for the sale of Surge’s products to customers located in Asia.

On August 31, 2010, the Company changed its corporate domicile by merging into a newly-formed corporation, Surge Components, Inc. (Nevada), which was formed in the State of Nevada for that purpose. Surge Components Inc. is the surviving entity.

In February 2019, the Company converted into a Delaware corporation. The number of authorized shares of common stock was decreased to 50,000,000 shares.

In December 2021, the Company changed its corporate domicile to Nevada.

NOTE B – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1)Principles of Consolidation:

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

The accompanying interim consolidated financial statements have been prepared without audit in accordance with the instructions to Form 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 six months ended May 31, 2026 and May 31, 2025 may not be representative of those for the full fiscal year or any future periods.

(2)Accounts Receivable:

Trade accounts receivables 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.

(3)Revenue Recognition:

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,Revenue from Contracts with Customers (Topic 606), which the Company adopted effective December 1, 2017 using the modified retrospective transition method with no cumulative adjustment to opening equity.

The Company recognizes revenue in accordance with the five-step model under ASC 606: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations, and (5) recognize revenue when, or as, a performance obligation is satisfied.

The Company’s contracts with customers are primarily standard purchase orders for the sale of electronic components. Each purchase order gives rise to a single performance obligation — delivery of the specified products — which is satisfied at a point in time when control of the goods transfers to the customer. For products shipped from the Company’s warehouse, control transfers upon shipment. For direct shipments, where the Company arranges for a supplier to ship product directly to the customer through a freight forwarder, control transfers when the product is received by the freight forwarder. The transaction price is the invoiced amount, which is fixed at the time of the order.

The Company also acts as a sales agent for certain customers purchasing directly from one of its suppliers. In these arrangements, the Company has determined it is acting as an agent rather than a principal because it does not control the specified goods before they are transferred to the customer. Accordingly, commission revenue is recognized on a net basis in the period earned. Commission revenue totaled $24,462 and $203,019 for the six months ended May 31, 2026 and May 31, 2025, respectively.

Direct shipment revenues were approximately $2,925,000 and $2,639,000 for the six months ended May 31, 2026 and May 31, 2025, respectively. Revenues under distribution agreements were approximately $2,030,000 and $2,797,000 for the six months ended May 31, 2026 and May 31, 2025, respectively.

The Company has entered into arrangements with certain subcontractor customers that provide for periodic cost reductions in the form of rebates of 5% of applicable sales. These rebates represent variable consideration under ASC 606. The Company estimates the amount of variable consideration using the most likely amount method and reduces the transaction price accordingly. Cooperative advertising arrangements with distributors are similarly treated as a reduction of the transaction price. These amounts have not been material to date.

The Company performs ongoing credit evaluations of its customers. Payment terms vary by customer and range from 15 to 120 days. The Company does not have significant financing components in its contracts. No contract assets or contract liabilities were recorded as of May 31, 2026 or November 30, 2025, as the Company’s performance obligations are satisfied at or near the time payment becomes due.

(4)Inventories:

Inventories, which consist solely of products held for resale, are stated at the lower of cost (first-in, first-out method) or net realizable value. Products are included in inventory when the Company obtains title and risk of loss on the products, primarily when shipped from the supplier. Inventory in transit principally from foreign suppliers at May 31, 2026 was $733,685. The Company, at May 31, 2026, has a reserve against slow moving and obsolete inventory of $440,646. From time to time the Company’s products are subject to legislation from various authorities on environmental matters.

(5)Depreciation and Amortization:

Fixed assets are recorded at cost. Depreciation is generally calculated on a straight line method and amortization of leasehold improvements is provided for on the straight-line method over the estimated useful lives of the various assets as follows:

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

(6)Concentration of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable and cash. The Company maintains substantially all of its cash balances in a limited number of financial institutions. At May 31, 2026 and November 30, 2025, the Company’s uninsured cash balances totaled $4,166,533 and $4,267,113, respectively. The increase in cash balances is due to an increase in cash generated from the Company’s operations.

(7)Income Taxes:

The Company’s 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.

The Company follows the provisions of the Accounting Standards Codification topic, ASC 740, “Income Taxes” (ASC 740). There have beenno unrecognized tax benefits and, accordingly, there has been no effect on the Company’s financial condition or results of operations as a result of ASC 740.

The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before fiscal years ending November 30, 2021, and state tax examinations for years before fiscal years ending November 30, 2020. Management does not believe there will be any material changes in our unrecognized tax positions over the next twelve months.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740, there wasno accrued interest or penalties associated with any unrecognized benefits, nor was any interest expense recognized during the six months ended May 31, 2026 and May 31, 2025.

(8)Cash Equivalents:

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

(9)Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

(10)Marketing and promotional costs:

Marketing and promotional costs are expensed as incurred and have not been material to date. The Company has contractual arrangements with several of its distributors which provide for cooperative advertising rights to the distributor as a percentage of sales. Cooperative advertising is reflected as a reduction in revenues and has not been material to date.

(11)Fair Value Measurements and Fair Value of Financial Instruments:

The estimated fair value of 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.

ASC subtopic 825-10,Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.

(11)Fair Value Measurements and Fair Value of Financial Instruments (Continued):

The Company follows ASC subtopic 820-10,Fair Value Measurements and Disclosures (“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 May 31, 2026 and November 30, 2025.

(12)Marketable securities and other investments

The Company’s investments in U.S. Treasury bills and Treasury notes are classified as available-for-sale debt securities in accordance with ASC Topic 320,Investments — Debt Securities. These securities are carried at fair value, with unrealized gains and losses reported net of tax in accumulated other comprehensive income (loss) within shareholders’ equity. Realized gains and losses are determined on an average cost basis and are reclassified from accumulated other comprehensive income into net income in the period of sale. The market value of these securities is determined using quoted prices in active markets (Level 1 inputs under ASC Topic 820).

The Company reviews its available-for-sale debt securities for impairment at each reporting date. An unrealized loss position is evaluated to determine whether the decline in fair value below amortized cost results from a credit loss or other factors. Because the Company’s securities consist entirely of obligations of the U.S. government, the risk of credit loss is considered remote, and no allowance for credit losses has been recorded as of May 31, 2026 or November 30, 2025. The Company also considers whether it intends to sell, or whether it is more likely than not that it will be required to sell, any security in an unrealized loss position before recovery of its amortized cost basis. As of May 31, 2026, no such intent or requirement exists. These securities are invested until such time as the funds are needed for operations.

The value of these marketable securities at May 31, 2026 and November 30, 2025 is as follows:

(13)Shipping Costs

The Company classifies shipping costs as a component of selling expenses. Shipping costs totaled $1,620 and $902 for six months ended May 31, 2026 and May 31, 2025 respectively.

(14)Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

Total potentially dilutive shares excluded from diluted weighted-average shares outstanding at May 31, 2026 and May 31, 2025 were 487,830 and 670,064, respectively.

(14)Earnings Per Share (continued):

The following sets forth the computation of basic and diluted earnings per share:

(15)Stock Based Compensation

Stock Based Compensation to Employees

The Company accounts for its stock-based compensation for employees in accordance with Accounting Standards Codification (“ASC”) 718. The Company recognizes in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees and non-employees over the related vesting period.

Stock Based Compensation to Other than Employees

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

(16)Leases:

In February 2016, the FASB issued Accounting Standards Update No. 2016-02,Leases (Topic 842)(“Topic 842”). Topic 842 requires the 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.

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.

The Company determines 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” as other assets in the consolidated statements of cash flows.

(16)Leases (continued):

Operating 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 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.

(17) Segment information

The Company operates through two divisions, Surge and Challenge. The Company’s Chief Operating Decision Maker (“CODM”) is the Chief Executive Officer. The CODM reviews financial information for Surge and Challenge separately in order to assess performance and allocate resources.

Each division acquires and distributes substantially similar products that are sold to similar customer types and operate within the same economic environment. The divisions share similar production processes, distribution methods, and regulatory environments. Accordingly, although financial information is reviewed separately by the CODM, the Company has determined that Surge and Challenge meet the aggregation criteria under ASC 280,Segment Reporting, and are aggregated into a single reportable segment.

Because the Company has one reportable segment, segment disclosures required under ASC 280 consist of the following entity-wide disclosures. Revenue by geographic regions is reported in Note M. Long-lived assets are primarily located within the US and Hong Kong.

NOTE C – FIXED ASSETS

Fixed assets consist of the following:

Depreciation and amortization expense for the six months ended May 31, 2026 and May 31, 2025 was $16,620 and $35,079, respectively.

NOTE D – LOANS PAYABLE

In February 2017, the Company obtained a line of credit with a bank for up to $3,000,000 (the “Credit Line”). Borrowings under the Credit Line are due upon demand and accrue interest at the greater of the prime rate or the LIBOR rate plustwo percent (and may be increased bythree 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 Credit Line is collateralized by substantially all the assets of the Company. As of May 31, 2026, the balance on the Credit Line was $0. As of May 31, 2026, the Company was in compliance with the covenant for the 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).

NOTE E – ACCRUED EXPENSES

Accrued expenses consist of the following:

NOTE F – RETIREMENT PLAN

In June 1997, the Company adopted a qualified 401(k) retirement plan for all full-time employees who are twenty-one years of age and have completed twelve months of service. The plan allows total employee contributions of up to fifteen percent (15%) of the eligible employee’s salary through salary reduction. The Company makes a matching contribution of twenty percent (20%) of each employee’s contribution for each dollar of employee deferral up to five percent (5%) of the employee’s salary. Net assets for the plan, as estimated by Axa Equitable, Inc., which maintains the plan’s records, were approximately $2,540,000 at November 30, 2025. Pension expense for the six months ended May 31, 2026 and May 31, 2025 was $30,647 and $28,935, respectively.

NOTE G – SHAREHOLDERS’ EQUITY

[1]Preferred Stock:

In February 1996, the Company amended its Certificate of Incorporation to authorize the issuance of 1,000,000 shares of preferred stock in one or more series. In August 2010, the number of preferred shares authorized for issuance was increased to 5,000,000 shares.

In November 2000, the Company authorized 100,000 shares of preferred stock as Non-Voting Redeemable Convertible Series C Preferred Stock (“Series C Preferred”). Each share of Series C Preferred is automatically convertible into 10 shares of our common stock upon shareholder approval. If the Series C Preferred were converted into common stock on or before April 15, 2001, these shares were entitled to cumulative dividends at the rate of $.50 per share per annum commencing April 15, 2001 payable on June 30 and December 31 of each year. In November 2000,70,000 shares of the Series C Preferred were issued in payment of financial consulting services to its investment banker and a shareholder of the Company.

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 May 31, 2026 there are 10,000 shares of Series C Preferred issued and outstanding.

In October 2016, the Company authorized 75,000 shares of preferred stock as Voting Non-Redeemable Convertible Series D Preferred Stock (“Series D Preferred”). None of the Series D Preferred Stock is outstanding as of May 31, 2026.

[2]Incentive Stock Plan

In November 2015, the Company adopted and the shareholders ratified, the 2015 Incentive Stock Plan (“2015 Stock Plan”). The 2015 Stock Plan provides for the grant of options to officers, employees, directors or consultants to the Company to purchase an aggregate of 1,500,000 common shares.

In 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.

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.

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.

In April 2023, a total of 28,179 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 2023.

In April 2024, a 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.

In November 2024, the Company adopted and the 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 of 1,000,000 common shares. No grants were made under the 2024 Plan in the quarter ended May 31, 2026 and 2025.

NOTE G – SHAREHOLDERS’ EQUITY (Continued)

[2]Incentive Stock Plan (continued)

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.

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 $2.42 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 $38,814 in the six months ending May 31, 2026.

In March 2026, a total of 19,130 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 $66,000 relating to the issuance of these shares in the second quarter ended May 31, 2026.

The weighted-average assumptions used in the Black-Scholes option pricing model were as follows:

The Company estimates volatility using historical volatility of its common stock.

Activity in the Company’s stock plans for the period ended May 31, 2026 is summarized as follows:

The intrinsic value of the exercisable options at May 31, 2026 totaled $314,000. At May 31, 2026, the weighted average remaining life of the stock options is 3.14 years. At May 31, 2026, unrecognized compensation costs related to the stock options granted under the plan totaled $62,475.

[3]Compensation of Directors

Compensation for each non-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).

NOTE H – INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using the enacted tax rates in effect in the years in which the differences are expected to reverse.

The Company’s deferred income taxes are comprised of the following:

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.

The Company’s income tax expense consists of the following:

The Company 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’s effective rate is as follows:

State franchise taxes include taxes not based on income and taxes based on income for entities filing separate income tax returns for state filing purposes. The effect of foreign income taxes has not been presented as the amount is not material.

NOTE I – OPERATING LEASE COMMITMENTS

The Company leases its office and warehouse space through 2030 from a corporation that is partly owned by officers/shareholders of the Company (“Related Company”). Minimum rental payments to the Related Company approximated $105,000 for the six months ended May 31, 2026, and increases at the rate oftwo per cent per annum throughout the lease term.

Pursuant to 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 basis over 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

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.

The Company has a lease to rent additional warehouse space in Hong Kong through November 30, 2027. Annual minimum rental payments for this space are approximately $79,564.

The Company’s future minimum rental commitments at May 31, 2026 are as follows:

Net rental expense for the six months ended May 31, 2026 and May 31, 2025 were $222,031 and $219,035 respectively, of which $145,182 and $143,126 respectively, were paid to the Related Company.

The remaining weighted average lease term is 3.98 years at May 31, 2026. The weighted average discount rate is 5.14 % at May 31, 2026.

NOTE J – EMPLOYMENT AND OTHER AGREEMENTS

In February 2016, the Company entered into revised employment agreements with two officers of the Company. Pursuant to these agreements, the base salary for one officer is $330,000 and the base salary for the other officer is $275,000. The agreements continue until terminated by either party. In April 2026, the employment agreements for Ira Levy and Steven Lubman were amended to increase the base salary to $363,000 and $302,500, respectively.

The Company’s compensation committee may award these officers with bonuses and will review the base salary amounts for each of the officers on an annual basis to determine if any changes to the base salary amounts need to be made and may also award these officers with annual bonuses. Pursuant to the employment agreements, the officers are prohibited from engaging in activities which are competitive with those of the Company during their employment with the Company and for one year following termination. If the agreement is terminated other than for cause, the officer would be entitled to all base salary earned through the date of termination, accrued but unused vacation, all vested equity, and bonus amounts payable to the officer through the date of termination. The officers would also be entitled to receive an additional thirty-six months of annual compensation equal to the average of his base salary and bonus for the three calendar years prior to the date of termination, payable in accordance with the Company’s regular payroll practice over a 52-week period.

NOTE K – MAJOR CUSTOMERS

The Company had two customers who respectively accounted for 18% and 12% of net sales for the six months ended May 31, 2026 and three customers who accounted for 19%,10% and 11% of net sales for the six months ended May 31, 2025. The Company had one customer who accounted for 29% of accounts receivable at May 31, 2026 and two customers who accounted for 29% and 12% of accounts receivable at November 30, 2025.

NOTE L – MAJOR SUPPLIERS

During the six months ended May 31, 2026 and May 31, 2025 there was one foreign supplier accounting for 28% and 29%, respectively of total inventory purchased.

The Company purchases substantially all of its products overseas. For the six months ended May 31, 2026, the Company purchased 30% of its products from Taiwan,17% 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.

NOTE M – EXPORT SALES

The Company’s export sales were as follows:

Revenues are attributed to countries based on location of customer.