10-K: Surge Components Reports Strong 2025 Growth

Sentiment:

Annual Report 27 February 2026 9:23 AM

Surge Components, Inc. reported a 16.4% increase in net sales and a 37.7% rise in net income for fiscal year 2025, driven by new and existing customer business and distribution channels, despite ongoing economic and supply chain challenges.

Delay expectedCustomer engineering staff labor shortages are causing longer approval times for products.General supply chain challenges are leading to longer lead times from factories to the company.

Better than expectedNet sales increased by 16.4% year-over-year.Net income increased by 37.7% year-over-year.Gross profit increased by 17.4% and gross margin slightly improved.Backlog increased by 27.3%, indicating strong future demand.Commission revenue from sales agent activities more than tripled.

Summary

Net sales increased by 16.4% to $36,320,105 in Fiscal 2025 from $31,211,139 in Fiscal 2024.
Gross profit increased by 17.4% to $10,455,171 in Fiscal 2025 from $8,903,694 in Fiscal 2024, with gross margin slightly improving to 28.8% from 28.5%.
Net income for Fiscal 2025 was $1,136,713, a 37.7% increase from $825,677 in Fiscal 2024.
Net income available to common shareholders was $1,131,713 ($.20 per basic share) in Fiscal 2025, compared to $820,677 ($.15 per basic share) in Fiscal 2024.
Backlog increased by 27.3% to approximately $12,012,000 as of November 30, 2025, from $9,433,000 at November 30, 2024.
Commission revenue from sales agent activities more than tripled, totaling $312,389 in Fiscal 2025, up from $95,584 in Fiscal 2024.
The company successfully passed on $941,564 in tariff costs to customers in Fiscal 2025, compared to $549,564 in Fiscal 2024.
Cash at the end of Fiscal 2025 was $5,331,609, a decrease from $5,627,693 in Fiscal 2024, but marketable securities increased by over $1.3 million to $8,438,017.
Working capital stood at $20,763,574 as of November 30, 2025.
Net cash flow provided by operating activities decreased to $916,147 in Fiscal 2025 from $1,823,390 in Fiscal 2024.
General and administrative expenses increased by 19.9%, primarily due to a non-cash stock-based compensation charge of $538,361 in Fiscal 2025.
Executive base salaries were increased in April 2024: Ira Levy to $330,000 and Steven Lubman to $275,000.
Two customers accounted for 18% and 14% of net sales in Fiscal 2025, and one foreign supplier (Lelon Electronics) accounted for 28% of consolidated purchases.
The company has 46 employees as of November 30, 2025, and maintains a cybersecurity risk management program.
New tax legislation, the 'One Big Beautiful Bill' (OBBB), effective after December 31, 2024, impacted the company's fiscal 2025 federal income tax provision due to blended rules, but the effect of remeasurement was not material.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report given the strong financial performance and growth in sales and profitability, despite acknowledging ongoing industry challenges and risks.

Positives

Net sales increased significantly by 16.4% in Fiscal 2025, indicating strong market demand and effective sales strategies.
Net income grew substantially by 37.7% in Fiscal 2025, demonstrating improved profitability.
Gross profit increased by 17.4%, with a slight improvement in gross margin to 28.8%, reflecting efficient cost management or a favorable sales mix.
Backlog increased by 27.3% to $12,012,000, suggesting robust future revenue potential.
Commission revenue from sales agent activities more than tripled, highlighting successful expansion of this business segment.
The company successfully passed on tariff costs to U.S. and Canadian customers and mitigated costs for Mexico customers, demonstrating pricing power and adaptability.
Marketable securities increased by over $1.3 million, indicating strong investment activity and a healthy cash position.
The Challenge Electronics division has successfully designed new customized products for customers, differentiating the company from commodity sellers.
Expansion of the sales team with a Europe manager based in London and one based in China strengthens global market reach.
The Hong Kong office has enhanced the company's global position and improved customer service in Asia.
Management expresses cautious optimism for continued growth in 2026 and beyond, despite anticipated challenges.
Disclosure controls and procedures and internal control over financial reporting were deemed effective as of November 30, 2025.

Negatives

Net cash flow provided by operating activities decreased significantly from $1,823,390 in Fiscal 2024 to $916,147 in Fiscal 2025, primarily due to decreased cash flows from accounts receivable, inventory, and prepaid expenses.
High dependence on a single major supplier, Lelon Electronics, which accounted for 28% of consolidated purchases, and only one binding long-term supply agreement, posing a concentration risk.
Significant reliance on two major customers, which accounted for 18% and 14% of net sales in Fiscal 2025, making the company vulnerable to their loss or reduced business.
The electronics industry is characterized by intense price competition, with customers demanding periodic price reductions, which can pressure profit margins.
Strategic inventory purchasing policies involve waiving price protection and inventory return rights, exposing the company to risks of price declines or product obsolescence.
General and administrative expenses increased by 19.9%, largely due to a non-cash stock-based compensation charge of $538,361.
Management anticipates continued challenges in 2026 due to inflation, general economic conditions, maintaining consistent product flow during shortages, and slower customer production pace.
Labor shortages at customer engineering staff are causing longer approval times for products, potentially delaying revenue recognition.
Increased costs of some raw materials are leading to higher company costs.
Tense relations between America and China could negatively impact business, including potential new rules and laws making operations in Hong Kong and China more difficult.
Increased competition from Asian manufacturers due to globalization and easier customer access via the internet could adversely affect business.
The company has never declared or paid cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

Risks

Dependence on a limited number of suppliers, particularly Lelon Electronics (28% of purchases), with only one terminable long-term agreement, could materially adversely affect business if relationships are disrupted.
Maintaining large inventories makes the company susceptible to price and technology changes, bearing the risk of price increases from manufacturers and decreases in inventory value due to waived inventory protection agreements.
Customer design changes and slowdowns, potentially increasing due to economic conditions and specific customer business conditions, could adversely affect business.
Loss of certain major customers (two customers accounted for 18% and 14% of net sales in Fiscal 2025) would have a materially adverse effect on operations until replacement business is generated.
Inability to compete effectively against larger competitors with greater assets, financial, marketing, personnel, and other resources could lead to increased competition, customer loss, or pressure on profit margins.
System failure or cybersecurity breaches of network security could subject the company to increased operating costs, litigation, and other potential losses, as evidenced by a ransomware attack in April 2021.
Shortages of components in the industry could have an adverse effect on business if the company cannot maintain sufficient inventory levels or secure preferential supply.
Success depends on key personnel, particularly Ira Levy and Steven Lubman, and the loss of their services or inability to attract/retain highly qualified personnel could adversely affect business and relationships.
Risks from trade regulation and foreign economic conditions, including economic disruptions, transportation delays, foreign exchange rate fluctuations, imposition of tariffs, import/export controls, and changes in governmental policies (e.g., US-China relations), could materially adversely affect business.
Electronics industry cyclicality and general economic downturns have historically had an adverse economic effect upon manufacturers and end-users, which could adversely affect the company's business and results of operations.
Most products are not protected by patents, trademarks, or proprietary information, leading to potential alleged infringement of others' rights, requiring costly modifications or redesigns, or liability for damages.
The common stock is quoted on the OTC Market, which may limit liquidity and price, and the application of penny stock rules could adversely affect the market price and increase investor transaction costs.
Anti-takeover provisions in organizational documents and the shareholder rights plan may discourage or prevent a change of control, even if an acquisition would be beneficial to stockholders, potentially affecting stock price adversely.

Future Outlook

Management is cautiously optimistic about continued growth in 2026 and beyond, despite expecting 2026 to be a period of continued challenge regarding inflation, general economic conditions, maintaining consistent product flow during shortages, and slower customer production pace. The company is exploring opportunities for growth and expansion using its cash resources and is taking steps to prepare for potential business disruption from US-China relations.

Management Comments

"Management is encouraged by the results of 2025 providing strong growth in sales and profitability."
"Exclusive of the one time charge of the employee stock options the Company has doubled its profitability in 2025."
"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, and growth as we see our customers slowly return to full production pace."
"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."
"Therefore management looks forward to continued growth in 2026 an beyond."

Industry Context

StockSavvy.ai notes that Surge Components operates in a highly competitive electronics distribution industry characterized by intense price cutting and rapid technological changes. The industry has historically been affected by periodic economic downturns and shifts in product life cycles. The trend of U.S. manufacturers moving facilities to Mexico due to rising Asian costs, though not yet impacting Surge's customers, indicates a potential shift in global supply chains. Increased globalization and direct access to Asian suppliers via the internet are intensifying competition for distributors like Surge.

Comparison to Industry Standards

The company's gross margin of 28.8% in Fiscal 2025 is a slight improvement, but the industry faces pressure for price reductions, which could impact future margins compared to competitors like Nichicon, Panasonic, or Vishay who may have greater scale or diversified product lines.
The dependence on a single major supplier (Lelon Electronics, 28% of purchases) and two major customers (18% and 14% of sales) is higher than typical industry diversification benchmarks, potentially increasing risk compared to larger, more diversified distributors like Arrow Electronics or Avnet.
The company's proactive approach in designing customized products through its Challenge Electronics division helps differentiate it from commodity product sellers, a strategy often employed by specialized component providers to maintain margins against broader market competition.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Executive Officer, Chief Financial Officer, President and Director	N/A	Ira Levy	1981-11-01	N/A (founding role, CFO since March 2010)
Vice President, Secretary, Treasurer and Director	N/A	Steven J. Lubman	1981-11-01	N/A (founding role)
Director	N/A	Alan Plafker	2001-06-01	N/A (appointment)
Director	N/A	Lawrence Chariton	2001-01-01	N/A (appointment)
Director	N/A	Gary Jacobs	2003-07-01	N/A (appointment)
Director	N/A	Peter Levy	2017-04-01	N/A (appointment)

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Bylaws Adoption	New bylaws adopted, effective December 30, 2021, providing for advance notice of director nominations and specific information requirements for stockholder nominations.	2021-12-30	Increases transparency and formalizes the director nomination process, potentially making it more challenging for unsolicited nominations.
Board Leadership Structure	The Chairman and Chief Executive Officer positions are combined (Ira Levy holds both), a traditional approach for the company due to its small size.	N/A	Centralizes leadership, which can streamline decision-making but may reduce independent oversight compared to a split role.
Risk Oversight	Board of directors is primarily responsible for overseeing risk management processes, receiving periodic reports from management, auditors, and legal counsel. Management is responsible for day-to-day risk management.	N/A	Establishes clear lines of responsibility for risk management, aiming to ensure risks are consistent with the board's risk appetite.
Code of Ethics	A code of ethics applies to officers, directors, and employees, accessible on the company website.	N/A	Promotes ethical conduct and compliance with legal and regulatory requirements across the organization.
Stockholder Communications	Formal process established for stockholders to communicate directly with the Board or individual directors via the Corporate Secretary, with specific guidelines for forwarding communications.	N/A	Enhances transparency and accessibility for stockholder engagement with the Board, excluding irrelevant or inappropriate communications.
Audit Committee Procedures	Audit Committee established procedures for confidential, anonymous submissions by employees regarding accounting, internal accounting controls, or auditing matters.	N/A	Strengthens internal controls and encourages reporting of financial irregularities, enhancing corporate accountability.

Legal Proceedings

None.

Related Party Transactions

Surge and Challenge lease their executive offices and warehouse facilities from Great American Realty of Jefryn Blvd., LLC, an entity 50% owned by Ira Levy (CEO) and Steven Lubman (VP).
Annual rent payments to Great American Realty were approximately $287,000 for Fiscal 2025 and $282,000 for Fiscal 2024.

Stakeholder Impact

Shareholders: Positive financial results (increased sales, net income, EPS, backlog) could lead to increased shareholder value. However, the stock trades on the OTC Market, which limits liquidity, and anti-takeover provisions may reduce shareholder influence on control changes. No cash dividends are anticipated.
Employees: The company employs 46 persons, offers competitive pay and benefits, and has a 401(k) retirement plan. Stock options were granted to employees in May 2025.
Customers: The company is expanding product lines, customizing products, and strengthening global presence (Hong Kong office, Europe sales manager) to better service customers. However, potential product shortages and longer approval times due to labor shortages at customer engineering staff could impact customer satisfaction.
Suppliers: The company maintains long-standing relationships with approximately sixteen independent manufacturers, predominantly in Asia. Dependence on Lelon Electronics (28% of purchases) poses a risk if the relationship is disrupted.
Creditors: Strong working capital ($20,763,574) and no outstanding balance on the $3,000,000 line of credit indicate a healthy liquidity position, which is favorable for creditors.

Next Steps

Continue to expand the line of products sold.
Work with local, regional, and national distributors to sell Challenge products to local accounts.
Continue commitment and focus on the distribution segment of the industry by visibility at the Electronic Distributor Trade Show.
Management looks forward to continued growth in 2026 and beyond.
Challenge Electronics sales division is in the process of opening a sales and marketing office in Europe.
Exploring and evaluating opportunities for growth and expansion using cash resources.
Taking steps to be well prepared in case of any actions from China that would cause business disruption.

Key Dates

Date	Description
1976-01-01	Ira Levy employed by Capar Components Corp.
1976-01-01	Steven J. Lubman served as inside and outside salesperson for Capar Components Corp.
1980-01-01	Steven J. Lubman served as sales manager for NIC Components Corp.
1981-11-24	Surge Components, Inc. incorporated in New York.
1983-01-01	Commencement of import operations.
1984-01-01	Initial public offering of securities completed.
1988-06-24	Challenge/Surge Inc. (Challenge) formed as a wholly-owned subsidiary.
1988-01-01	Relationships with certain sales organizations established.
1993-01-01	Alan Plafker served as a member of the credit union's board of directors and supervisory committee.
1996-02-01	Company amended Certificate of Incorporation to authorize 1,000,000 shares of preferred stock.
1996-08-01	Second offering of securities completed.
1997-06-01	Company adopted a qualified 401(k) retirement plan.
1998-01-01	Lawrence Chariton served as a member of the Board of Directors of New Island Hospital.
1998-09-01	Gary Jacobs served as Executive Vice President of Finance, CFO, and Treasurer of The Hain Celestial Group, Inc.
1999-01-01	Challenge began as a division to sell audible components.
2000-11-01	Company authorized 100,000 shares of Series C Preferred Stock.
2001-04-15	Date for cumulative dividends on Series C Preferred Stock to commence.
2001-06-01	Alan Plafker served as a director.
2001-07-01	Alan Plafker served as President and CEO of Member Brokerage Service LLC.
2001-10-01	Gary Jacobs served as Executive Vice President of Operations and Corporate Secretary of The Hain Celestial Group, Inc.
2001-01-01	Lawrence Chariton served as a director.
2002-05-01	Surge and an officer founded Surge Components, Limited (Hong Kong corporation).
2002-07-01	Surge Limited operations commenced.
2002-01-01	Ira Levy served on the board of trustees of the Bellmore Jewish Center.
2003-07-01	Gary M. Jacobs served as a director.
2003-07-01	Gary Jacobs served as President of The Innovative Companies, LLC.
2005-05-01	Gary Jacobs was CFO and COO of Gold Force International, Ltd. and Karat Platinum LLC.
2006-01-01	Ira Levy served as president of the Bellmore Jewish Center.
2008-06-01	Gary Jacobs served as CFO of Chem Rx.
2010-03-01	Ira Levy served as CFO.
2010-08-26	Company re-incorporated in Nevada.
2010-08-31	Company changed corporate domicile by merging into a newly-formed Nevada corporation.
2010-08-01	Number of preferred shares authorized for issuance increased to 5,000,000 shares.
2011-03-01	Gary Jacobs served as a consultant to several companies.
2012-01-01	Tsunami and earthquake in Japan.
2015-09-01	Peter Levy joined Mandelbaum Barrett law firm.
2015-11-01	Company adopted and shareholders ratified the 2015 Incentive Stock Plan.
2016-02-01	Company entered into revised employment agreements with Ira Levy and Steven Lubman.
2016-10-01	Company authorized 75,000 shares of Series D Preferred Stock.
2016-11-01	Alan Plafker served as Vice President of Garber Atlas Fries & Associates, Inc.
2017-04-01	Peter A. Levy became a director.
2017-12-01	Company adopted ASC 606 using the modified retrospective approach.
2018-02-01	Lawrence Chariton served as a member of the Board of Trustees of the State University of Old Westbury.
2018-07-06	Tariffs on certain products imported from China went into effect.
2018-09-01	U.S. patent application for an improved pinpoint alarm issued.
2019-02-01	Company converted into a Delaware corporation.
2019-12-31	U.S. Patent No. 10,522,008 issued for an improved pinpoint alarm.
2021-04-01	Employment agreements for Ira Levy and Steven Lubman amended to increase base salaries.
2021-04-01	Company launched an investigation into a ransomware attack on its systems.
2021-04-01	26,786 shares issued to the company's officers as part of their 2021 bonus compensation under the 2015 stock plan.
2021-12-01	Company changed its corporate domicile to Nevada.
2021-12-30	Company began to be governed by newly adopted bylaws.
2022-03-01	26,000 shares issued to the company's officers as part of their bonus compensation under the 2015 stock plan.
2022-03-01	Stock options granted to non-employee directors and officers under the 2015 stock plan.
2023-04-01	28,179 shares issued to the company's officers as part of their bonus compensation under the 2015 stock plan.
2023-07-01	Use of LIBOR rate discontinued and replaced with the secured overnight financing rate (SOFR).
2024-04-01	Employment agreements for Ira Levy and Steven Lubman amended to increase base salaries.
2024-04-01	5,085 shares issued to one of the company's officers as part of their bonus compensation under the 2015 stock plan.
2024-05-02	Gary Jacobs became Chief Commercial Officer of AOG, LLC d/b/a Tandem Foods.
2024-11-01	Company adopted and shareholders ratified the 2024 Incentive Stock Plan.
2024-11-30	Fiscal year ended.
2025-04-01	14,659 shares issued to one of the company's officers as part of his bonus compensation under the 2015 stock plan.
2025-05-01	Stock options granted from the 2024 Incentive Stock Plan to non-employee directors, officers, and employees.
2025-07-04	The President signed the 'One Big Beautiful Bill' (OBBB) into law, impacting federal corporate income tax laws.
2025-11-25	Last annual meeting of stockholders.
2025-11-30	Fiscal year ended.
2026-02-24	Common stock outstanding was 5,716,792 shares.
2026-02-27	Annual Report on Form 10-K dated and filed.
2027-11-30	Lease for Hong Kong office space and warehouse expires.
2030-09-30	Lease for executive offices and warehouse facilities in Deer Park, New York expires.

Recommendation

buy

The company demonstrated strong financial performance in Fiscal 2025 with significant increases in net sales, gross profit, and net income, alongside a growing backlog. While facing industry-wide challenges like inflation, supply chain disruptions, and intense competition, management has shown an ability to mitigate some risks (e.g., passing on tariffs) and is actively pursuing growth opportunities, including product customization and market expansion. The healthy working capital and investment in marketable securities provide a solid financial foundation. The stock's trading on the OTC market and reliance on key customers/suppliers present risks, but the overall positive trajectory and strategic initiatives suggest potential for continued growth, making it an attractive opportunity for investors willing to accept the associated risks of a smaller company.

Keywords

electronic components, capacitors, discrete components, semiconductors, audible components, supply chain, OEM, distributors, Asia manufacturing, SEC filing, 10-K, Surge Components, Challenge Electronics, Lelon Electronics, cybersecurity, tariffs, inventory management, corporate governance, financial performance, Nevada corporation

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