2008/05/15

Minnetonka, Minn. May 15 -- Communications Systems, Inc. (NASDAQ:JCS) today reported financial results for its first quarter ended March 31, 2008.

The Company's revenues for the three months ended March 31, 2008 increased 15% to $30,321,000 compared to $26,445,000 in the comparable 2007 period. Cost of sales and selling, general and administrative expenses increased approximately 4% in the 2008 first quarter to $26,900,000 compared to $25,829,000 for the same 2007 period. However, recognition of an impairment loss related to the operations of the Company's JDL Technologies Inc. subsidiary (JDL) in the US Virgin Islands discussed below resulted in a non-cash charge of $3,221,000 for the 2008 first quarter, as a result of which operating income from continuing operations declined to $198,000 for the three months ended March 31, 2008 compared to $615,000 in the comparable 2007 quarter. The Company's net income was $186,000, or $.02 per diluted share, for the three months ended March 31, 2008, compared to $536,000, or $.06 per diluted share, in the comparable 2007 first quarter.

Both of the Company's primary business units, Suttle and Transition Networks, performed well in the quarter. Suttle's sales increased 6% to $12,448,000 compared to $11,785,000 in the comparable 2007 quarter due to improved sales to major telephone companies, as well as sales to distributors OEMs and electrical contractors. Suttle's operating income increased 15% to $1,814,000 in the 2008 quarter compared to $1,577,000 in the comparable 2007 quarter. Transition Network sales increased 12% to $13,049,000 in the first quarter of 2008 compared to $11,603,000 in the comparable 2007 quarter, and its operating income more than doubled from $685,000 in the 2007 first quarter to $1,421,000 in the three months ended March 31, 2008. JDL's revenues of $3,160,000 in the 2008 first quarter compared to $1,398,000 in the comparable 2007 quarter, and included $1,300,000 of revenue related to work performed in 2007, but not recognized as revenue in 2007 under the Company's revenue recognition policy for work performed under contracts funded by the federal government's E-Rate program.

The non-cash impairment charge reported today stems from the determination by the Virgin Islands Department of Education ("VIDE"), a JDL customer since 1998, to select another vendor to provide wireless network services to VIDE for the contract year beginning July 1, 2008, rather than JDL. Since receiving this notification in January 2008, JDL has vigorously pursued all available measures to reverse VIDE's decision and obtain the network services contract with VIDE for another year. However, these efforts have been unsuccessful, and the Company has made the decision to wind up its operations in the Virgin Islands effective June 30, 2008. In addition, in accordance with applicable accounting principles, the Company is recognizing impairment of the entire value of network infrastructure assets JDL installed and maintained on the Virgin Islands to support contracts with VIDE since 2002, as well as related goodwill (respectively $2,517,000 and $704,000 at March 31, 2008). While the entire value of such assets and related goodwill is being recognized as an impairment charge as of March 31, 2008, the Company will actively explore all options for selling the network infrastructure, and this may enable the Company to recover part of such value in a future period.

Further information regarding the Company's results and related matters discussed above is provided in the Company's Form 10-Q report that is being filed today.

Jeffrey K. Berg, President and CEO of Communications Systems, Inc.: "We are pleased with the performance of our two primary business units, Transition Networks and Suttle, for the quarter. Both delivered strong results which enabled us to achieve a modest level of profitability despite the $3,221,000 impairment charge related to JDL's operations in the Virgin Islands. Having delivered superior service to VIDE since 1998, we were, of course, disappointed not to be awarded the contract for the one year beginning July 1, 2008. At the same time, we believe that winding up our VIDE related business will allow us to devote additional management time and Company resources to our core Suttle and Transition Networks businesses, as well as to pursue other initiatives that will build shareholder value."

About Communications Systems
Communications Systems, Inc. provides physical connectivity infrastructure and services for cost-effective broadband solutions and is a leading supplier of voice-grade connecting devices and wiring systems. CSI serves the broadband network market as the world's leading supplier of media conversion technology that permits networks to deploy fiber optic technology while retaining the copper-based infrastructure already embedded in the network. In addition, CSI supplies copper wire and fiber optic structured wiring systems for broadband networks, as well as line filters for digital subscriber line service. CSI also provides network design, training and management services.

Cautionary Statement
From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Communications Systems Inc. may make forward-looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words "believes," "expects," "anticipates," "intends" or similar expressions. For these forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans after the date the statements are made to differ significantly from those indicated in the forward-looking statements when made.

CSI CONSOLIDATED SUMMARY OF EARNINGS

Selected Income Statement Data
	Three Months Ended March 31, 2008	Three Months Ended March 31, 2007
Sales	$30,321,235	$26,445,168
Gross margin	11,450,554	8,843,804
Operating income	198,642	615,713
Income before income taxes	356,492	821,293
Income taxes	170,000	285,000
Net income	$186,492	$536,293
Basic net income per share	$0.02	$0.06
Diluted net income per share	$0.02	$0.06
Cash dividends per share	$0.12	$0.10
Average basic shares outstanding	8,572,040	8,808,881
Average dilutive shares outstanding	8,613,618	8,884,563
Selected Balance Sheet Data
	March 31, 2008	March 31, 2007
Total assets	$99,710,239	$93,487,373
Cash & Investments	25,451,877	29,427,879
Property, plant and equipment, net	12,276,726	13,944,597
Long-term liabilities	3,874,734	4,044,905
Stockholders' equity	84,645,185	84,930,582

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