Surge Components, Inc. Announces First Quarter 2025 Results

Delivered Solid Q1 Net Sales of $7.2 Million and Gross Profit of $2.0 Million

Generated Positive Net Income Available to Common Shareholders

Surge Components, Inc. (“Surge” or the “Company”) (OTC Pink: SPRS), a leading supplier of capacitors, discrete semi-conductors, switches, and audible/sounding devices, today announced financial results for the first quarter ended February 28, 2025.

Operational Highlights

• Surge continues to provide best in-class service to customers and preserve its competitive advantage over peers by maintaining superior lead times and stable production.
• Challenge and Surge divisions remain well-positioned to capitalize on the industry’s eventual rebound as industry dynamics and prospects begin to improve.
• Challenge division continues to successfully design customized new products for customers to differentiate and increase competitiveness.
• The Company continues to invest in growth assets including expanding and regionalizing sales talent to drive business through distribution channels.

Financial Highlights for the First Quarter Ended February 28, 2025

• Achieved net income available to common shareholders of $57,356; earnings per share of $0.01 compared to net loss available to common shareholders of $72,001; loss per share of $0.01 in the prior-year-period.
• Drove net sales of $7.2 million, compared to $7.1 million in the prior-year period.
• Maintained gross profit of $2.0 million, flat compared to the prior-year period.
• Gross profit margin of 28.3% compared to 29.0% in the prior-year period.

“We are proud of the results we delivered during the first quarter. We drove net sales through new customer acquisition and expansion of existing clients while sustaining gross profit and generating positive net income versus a net loss in the first quarter of last year,” said Ira Levy, President and Chief Executive Officer of Surge.

“While we expect the broad global tariffs implemented by the new administration to have an impact on our customers and industry at large, we are working to offset these headwinds through various business developments, including the expansion of distribution channels, hiring of new sales talent, and regionalizing of our sales management teams to foster our long-term success. In addition to Surge’s efforts, many of our manufacturing partners are also working to mitigate the impacts of tariffs by establishing production facilities outside of China, and we’ve reworked our terms and channels with international customers to divert shipping away from the US and eliminate our exposure to tariffs. Moreover, in the past we have been able to pass the impact of tariffs through to customers and expect to be able to continue doing so.

“We remain optimistic about Surge’s business outlook as we navigate short-term economic challenges. We continue to drive the business forward on the back of our talented team, product development, and strong network of partners.”

Results of Operations for the Three Months Ended February 28, 2025

Net sales for the three months ended February 28, 2025, increased by $178,032 or 2.5%, to $7,231,738 as compared to net sales of $7,053,706 for the three months ended February 29, 2024. The improvement is attributable 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, 2025 and February 29, 2024 reflect $173,081 and $154,486, respectively of tariff costs that the Company was able to pass on to its customers.

Our gross profit for the three months ended February 28, 2025 increased by $3,574 to $2,045,702, or less than 1%, as compared to $2,042,128 for the three months ended February 29, 2024. Gross margin as a percentage of net sales decreased to 28.3% for the three months ended February 28, 2025 compared to 29.0% for the three months ended February 29, 2024. The increase in gross profit can be attributed to the increase in sales volume and the decrease in gross profit as a percentage of sales can be attributed to certain products 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 quarter of Fiscal 2025, 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.

Selling and shipping expenses for the three months ended February 28, 2025 was $653,367, a decrease of $19,036, or 2.8%, as compared to $672,403 for three months ended February 29, 2024. We attribute the decrease to decreases in sales and the resulting selling expenses such as commission expenses and printing expenses offset by increases in salesman payroll, travel expenses and auto expenses.

General and administrative expenses for the three months ended February 28, 2025 was $1,379,262, a decrease of $57,642, or 4.0%, as compared to $1,436,904 for the three months ended February 29, 2024. The decrease is due primarily to decreases in salaries and related payroll tax expenses as well as rent expenses, directors fees, as well as computer and public company expenses, partially offset by increases in officer salaries, office expenses, professional fees and consulting expenses as well as pension expenses and bank charge expenses.

Net income for the three months ended February 28, 2025 was $57,356, compared to a net loss of $(72,001) for the three months ended February 29, 2024.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements. All statements other than statements of historical facts contained herein, including statements regarding global economic conditions, expected rebound in the market, supply chain challenges, customer lead times, our ability to pass tariff costs on to our customers and its effect on our sales, our future results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, forward-looking statements can be identified by terms such as "may," "will," "should," "expected," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of these terms or other similar words. These statements are only predictions and are based largely on our current expectations and projections about future events and financial trends that may affect our business, financial condition and results of operations. We discuss many of the risks in greater detail under the heading "Risk Factors" in our Annual Report on Form 10-K. These forward-looking statements represent our estimates and assumptions only as of the date of this press release. We assume no obligation to update any forward-looking statements for events or circumstances occurring after the date of this press release, except as required by law.

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