DEF: Surge Components: Annual Meeting, Board, Rights Plan Vote

Surge Components, Inc. announces its Annual Meeting of Stockholders on November 25, 2025, to elect directors, ratify auditors, and extend its stockholder rights plan.

Summary

• The Annual Meeting of Stockholders will be held virtually on Tuesday, November 25, 2025, at 10:00 a.m., Eastern time.
• Stockholders will vote on the election of six directors to the Board of Directors, who will serve until the 2026 annual meeting.
• A proposal to ratify the appointment of Seligson & Giannattasio, LLP as the independent registered public accounting firm for the fiscal year ending November 30, 2025, will be presented.
• Stockholders will also vote on ratifying an amendment to the stockholder rights plan, extending its term for three years until October 7, 2028, and raising the trigger for an 'Acquiring Person' from 4.99% to 9.99% stock ownership.
• The rights plan was originally adopted in 2016 to protect Net Operating Loss (NOL) carryforwards and is now being extended to protect against potential hostile takeovers.
• As of November 30, 2024, the Company did not have a cumulative NOL.
• The Board of Directors unanimously recommends voting FOR all proposals.
• The record date for determining stockholders entitled to vote is October 20, 2025.
• There were 5,706,732 shares of common stock outstanding as of August 31, 2024.

Sentiment

Score: 4

Explanation: The filing is a routine proxy statement for an annual meeting, but the disclosed historical financial performance (declining TSR and Net Income) indicates a negative trend. The extension of the rights plan, while framed as protective, could also be viewed by some investors as a management entrenchment mechanism, especially given the absence of current NOLs.

Positives

• The Board of Directors unanimously recommends voting for all proposals, indicating strong internal alignment on key governance matters.
• The extension of the Rights Plan is intended to protect against hostile takeovers and potentially preserve future Net Operating Losses (NOLs), which could be seen as a proactive measure to safeguard long-term shareholder value.
• The increase in the Rights Plan trigger from 4.99% to 9.99% provides more flexibility for larger institutional investors to hold shares without triggering the plan, potentially broadening the investor base.
• The company maintains a robust corporate governance structure with independent directors comprising the Audit, Compensation, and Nominating and Corporate Governance Committees.
• The Audit Committee includes a designated financial expert, Gary Jacobs, enhancing financial oversight.
• Directors demonstrate strong engagement, with each attending at least 75% of Board and committee meetings during the last fiscal year.

Negatives

• The company did not have a cumulative Net Operating Loss (NOL) as of November 30, 2024, which was the original primary purpose of the rights plan, raising questions about its current relevance for that specific objective.
• The rights plan, while intended to protect against hostile takeovers, could also be perceived as a mechanism to insulate management from a change of control, potentially limiting shareholder influence.
• Executive compensation includes substantial 'All Other Compensation' for medical insurance, automobile allowance, and life/personal insurance, which may warrant scrutiny from some investors.
• Total Shareholder Return (TSR) for a $100 investment declined from $88.37 in 2022 to $65.25 in 2024, indicating a negative trend in shareholder value.
• Net Income significantly decreased from $3,736,145 in 2022 to $825,677 in 2024, reflecting a notable decline in profitability over the past two fiscal years.

Risks

• Failure to obtain stockholder ratification of the amendment to the rights plan will result in its automatic termination.
• The company cannot accurately predict the amount and timing of future taxable income or losses, making the future availability and utility of NOLs uncertain.
• The rights plan could have the effect of insulating management from a change of control, potentially limiting shareholder ability to influence corporate direction.
• Broker non-votes on non-routine matters, such as director elections and rights plan ratification, may occur if beneficial owners do not provide specific voting instructions, potentially impacting the outcome of these proposals.

Future Outlook

The company believes it is in its best interest to continue the Rights Plan to protect against potential hostile takeovers, even though it currently has no cumulative Net Operating Losses (NOLs). The company cannot accurately predict the amount and timing of future taxable income or losses. Equity awards for 2024 performance will be granted in 2025 and included in the 2025 compensation disclosures.

Management Comments

• "It is our pleasure to invite you to the Annual Meeting of Stockholders..." Ira Levy, Chief Executive Officer, President and Director
• "It is important that your shares be represented at the Annual Meeting." Ira Levy, Chief Executive Officer, President and Director
• "We believe that each of the director nominees brings these qualifications in a positive manner to our Board of Directors." Board of Directors
• "We believe the Rights Plan protects stockholder value by protecting against hostile takeover attempts at prices not fair to the Companys shareholders." Board of Directors
• "Due to our small size, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined." Board of Directors

Industry Context

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Corporate Governance

Related Party Transactions

• Surge Components, Inc. and its division, Challenge Electronics, lease their executive offices from Great American Realty of Jefryn Blvd., LLC. This entity is 50% owned by Ira Levy (CEO, President) and Steven Lubman (Vice President, Secretary, Treasurer).
• The lease for the executive offices extends through September 2030.
• Annual rent payments to this related party were approximately $452,019 for Fiscal 2024 and $278,599 for Fiscal 2023.
• All future related party transactions will be reviewed and approved by the Audit Committee or a majority of independent directors who do not have an interest in the transaction.

Stakeholder Impact

• **Shareholders**: Will vote on key governance matters including director elections, auditor ratification, and the extension of the stockholder rights plan. The rights plan aims to protect shareholder value from hostile takeovers but could limit their influence on corporate control. Historical financial performance (declining TSR and Net Income) may negatively impact shareholder returns.
• **Management/Executives**: Compensation details, including salary increases and bonuses, are disclosed. Employment agreements provide severance benefits under certain termination scenarios. The extension of the rights plan could provide job security by deterring hostile takeovers.
• **Employees**: The company has a code of ethics applicable to all employees and established procedures for confidential, anonymous submissions to the Audit Committee regarding accounting matters, promoting a transparent and ethical work environment.
• **Auditors**: Seligson & Giannattasio, LLP's appointment as independent registered public accounting firm is up for ratification, and their fees for audit and tax services are disclosed, ensuring transparency in their engagement.

Next Steps

• Stockholders are encouraged to vote on the proposals for the Annual Meeting by mail, email, or online at the virtual meeting.
• The company will publish final voting results in a Current Report on Form 8-K within four business days from the date of the Annual Meeting.
• Equity awards for 2024 performance will be granted in 2025 and included in the 2025 compensation disclosures.
• Stockholder proposals for the 2026 Annual Meeting must be submitted by August 28, 2026.

Key Dates

Recommendation

This filing is a routine proxy statement for an annual meeting, not a financial results announcement. While the disclosed historical financial performance (declining Total Shareholder Return and Net Income) indicates a negative trend, the proposals themselves are standard corporate governance matters. The extension of the rights plan, while potentially viewed as management entrenchment, is presented as a protective measure. Without new operational or financial data, a 'hold' recommendation is appropriate, advising investors to maintain their current position while monitoring future performance and strategic developments.

Keywords

Surge Components, Proxy Statement, Annual Meeting, Director Election, Corporate Governance, Stockholder Rights Plan, NOLs, Net Operating Loss, Hostile Takeover, Executive Compensation, Audit Committee, Independent Auditors, Shareholder Vote, DEF 14A