Executive Summary

Q3 2016 revenue was $8.24M, down 1.3% year over year, while diluted EPS was $0.04; gross margin expanded to 25.9% from 24.0% on mix shift to higher-margin customers and enhanced commission revenue .
Quarter-over-quarter rebound: sales rose from $7.08M to $8.24M and gross margin improved from 23.1% to 25.9%; net income swung from a Q2 loss to $0.39M in Q3, reflecting disciplined margin focus and operational efficiencies .
Cash and equivalents were $6.96M with no debt; the board continued executing a $500,000 buyback (26,850 shares repurchased in Q3), supporting capital deployment flexibility .
No formal numerical guidance was issued; management emphasized focus on higher-margin customers, international expansion (Brazil), and strengthening relationships with top EMS distributors—key catalysts for sentiment and future execution .

What Went Well and What Went Wrong

What Went Well
- Margin expansion despite modest revenue decline: gross margin reached 25.9% (+190 bps YoY) driven by higher-margin customer focus and enhanced commission revenue; net income increased to $0.39M (+5.5% YoY) .
- Clear strategic progress: “This was a strong quarter… further focus our sales efforts on higher margin customers… pleased with the 6.6% year-over-year increase in gross profits and the 26% gross profit margin” — Ira Levy, CEO .
- Geographic and channel expansion: management highlighted growth in China/Canada/Asia and new footprint in Brazil; continued leverage of Surge Components and Challenge Electronics sales groups and EMS relationships (Avnet/Future) .
What Went Wrong
- Top-line pressure: net sales decreased 1.3% YoY to $8.24M due to adverse market conditions and a large customer’s new model excluding Surge’s product .
- Cost growth: selling & shipping (+11.1% YoY) and G&A (+5.9% YoY) increased on sales force expansion, travel, and professional fees, partially offset by reduced advertising/freight/shipping .
- Persistent pricing pressure: EMS customers demand periodic price reductions/rebates (5%), constraining commission economics and gross margin, though they enable larger account access and future growth .

Metric	Q3 2015	Q2 2016	Q3 2016
Revenue ($USD Millions)	$8.35	$7.08	$8.24
Gross Profit ($USD Millions)	$2.01	$1.64	$2.14
Gross Margin (%)	24.0%	23.1%	25.9%
Selling & Shipping ($USD Millions)	$0.59	$0.67	$0.66
G&A ($USD Millions)	$0.95	$1.09	$1.00
Operating Income ($USD Millions)	$0.46	$0.28	$0.47
Net Income ($USD Millions)	$0.37	$(0.11)	$0.39
Diluted EPS ($)	$0.04	$(0.01)	$0.04

Segment breakdown (not disclosed numerically):

Segment	Q1 2016	Q2 2016	Q3 2016
Surge Components	Not disclosed (company describes segment only)	Not disclosed	Not disclosed
Challenge Electronics	Not disclosed (company describes segment only)	Not disclosed	Not disclosed

Selected KPIs:

KPI	Q1 2016	Q2 2016	Q3 2016
Cash And Equivalents ($USD Millions)	$7.08	$7.23	$6.96
Working Capital ($USD Millions)	$11.26	$11.23	$11.66
Inventory Reserve ($USD Thousands)	$304	$313	$374
Share Repurchases (Shares)	0	2,823	26,850

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY/Q4 2016	None provided	None provided	Maintained (no formal guidance)
Gross Margin	FY/Q4 2016	None provided	None provided	Maintained (no formal guidance)
OpEx	FY/Q4 2016	None provided	None provided	Maintained (no formal guidance)
Capital Return	Ongoing	$500k buyback authorized	Program active; repurchases executed	Maintained/Executing

Note: The company did not issue quantified forward guidance in Q3 materials; management outlined strategic priorities instead .

(Company did not have a public call transcript in our dataset; themes sourced from press releases and 10-Q MD&A.)

Topic	Previous Mentions (Q1 2016)	Previous Mentions (Q2 2016)	Current Period (Q3 2016)	Trend
Macro demand	Downtrend in China/Europe; cautious outlook	Continued reduced demand; pockets of China strength	Customers seeing more favorable tailwinds; increased sales in China/Canada/Asia YTD	Improving vs H1
Pricing pressure/EMS rebates	EMS price reductions; 5% rebates can compress margins	Ongoing price reductions and 5% rebates; margin pressure	Margin improved via higher-margin mix and commissions despite EMS dynamics	Better mix offset
Sales force/engineering	Foundation set; organization focuses on growth	Hires: 2 sales + 1 engineering; costs increased	Continued global sales force build; leveraging both sales groups	Scaling
Geography	Asia presence via HK office	Asia export sales growth	International expansion beginning in Brazil	Expanding
Channel relationships	Distributors/agents detailed	Distributor relationships (Avnet/Future) noted	Strategic supplier at top EMS; continued distributed channel growth	Strengthening
Governance/activism	N/A	N/A	Board letter highlights NOL rights plan, buyback, director appointment (Novick)	Active governance

“This was a strong quarter for our business… we have begun to further focus our sales efforts on higher margin customers… we are particularly pleased with the 6.6% year-over-year increase in gross profits and the 26% gross profit margin during the quarter.” — Ira Levy, President & CEO .
“We continued to leverage operational and profitability efficiencies across our two sales groups… recently begun expanding our geographic footprint in the South American market, beginning in Brazil… customers are experiencing more favorable tailwinds, which have led to increased sales in China, Canada, and other areas of Asia.” — Ira Levy .
“Management and the board… developing strategic plans and initiatives for utilizing the cash on our balance sheet… includes our current share repurchase program.” — Ira Levy .
“Marty [Novick] brings extensive experience in the electronics industry and will be a valuable addition to our Board.” — Ira Levy on new director .

No earnings call transcript available in our dataset for Q3 2016; therefore, no Q&A highlights or clarifications to report.

Wall Street consensus estimates via S&P Global for Q3 2016 were unavailable due to data access limits; estimate comparisons are not provided. Values retrieved from S&P Global.*

Margin-driven recovery: despite a slight YoY revenue decline, Q3 delivered margin expansion and a swing to profitability vs Q2; continued mix optimization appears effective .
Cost discipline needed: elevated selling & shipping and G&A reflect growth investments; watch operating leverage as sales scale through H2/FY17 .
Channel/EMS relationships are strategic assets but can pressure pricing; management’s higher-margin focus and commission revenue are important offsets .
Strong liquidity and buyback offer downside support and optionality for selective M&A or growth investments; no debt provides resilience .
Macro tone improving vs H1 with favorable tailwinds in key regions; monitor sustainability of China/Asia demand and any customer design wins/losses .
Governance actions (rights plan to protect NOLs, board refresh) and activist context could be near-term stock narrative drivers; execution on strategic priorities matters .
Near term: trade the margin momentum and cash discipline; medium term: thesis hinges on mix shift durability, operating leverage, and channel-led growth across geographies .