PRINCIPAL ACCOUNTING FEES AND SERVICES

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YESo NOx

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YESo NOx

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESx NOo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YESx NOo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.xo

~~Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.~~

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.
Large Accelerated Filero
Accelerated Filerx
Non-Accelerated Filero
Smaller Reporting Companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YESo NOx

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $74,909,000 based upon the closing sale price of the Company’s common stock on the NASDAQ on June 30, ~~2012.~~2013.

As of March 1, ~~2013~~2014 there were outstanding ~~8,479,121~~8,556,473 shares of the Registrant’s common stock.


Documents Incorporated by Reference:	Portions of the Company’s Proxy Statement for its Annual Meeting of Shareholders to be held on ~~May 21, 2013~~June 4, 2014 are incorporated by reference into Part III of this Form 10-K.

PART I


ITEM 1.	BUSINESS

(a) GENERAL DEVELOPMENT OF BUSINESS

Communications Systems, Inc. (herein collectively referred to as “CSI,” “our,” “we” or the “Company”) is a Minnesota corporation organized in 1969 that operates directly and through its subsidiaries located in the United States ~~(U.S.~~(“U.S.”), Costa Rica, the United Kingdom ~~(U.K.~~(“U.K.”) and China. CSI is principally engaged through its Suttle business unit in the manufacture and sale of modular connecting and wiring devices for voice and data communications, digital subscriber line filters, and structured wiring systems and through its Transition Networks business unit in the manufacture and sale of media ~~and rate~~ conversion products, ~~for telecommunications networks.~~Ethernet switches, and other connectivity and data transmission products. Through its JDL Technologies business unit, CSI also provides IT solutions including network design, computer infrastructure installations, IT service management, change management, network security, and network operation services.

The Company maintains a website at www.commsystems.com. Our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our periodic reports on Form 8-K (and any amendments to these reports) are available free of charge by linking from our website to the Securities and Exchange Commission website.

(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The Company classifies its businesses into three segments:Suttle, which manufactures U.S. standard modular connecting and wiring devices for voice and data communications;Transition Networks,which designs and markets media conversion products, Ethernet switches, and other connectivity and data transmission products; andJDL Technologies ~~(JDL~~), which provides IT solutions. Non-allocated general and administrative expenses are separately accounted for as “Other” in the Company’s segment reporting. There are no material intersegment revenues. Further information regarding these segments, including customer and industry concentration, is set forth in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Note 12 of the Notes to Consolidated Financial Statements under Item 8.

(1)Information Regarding Business Segments

(i)Suttle

Suttle manufactures and markets a variety of telecommunication products for outside plant ~~connectivity~~ and premise distribution under the Suttle brand name in the United States and internationally. Suttle’s new ~~FutureLink~~^TMFutureLink™ brand includes solutions for higher speeds, ~~tool-less~~toolless connectivity and lower cost of ownership, such as copper and fiber connectivity systems, ~~enclosure systems,~~scalable terminals and enclosures, network interface devices ~~(NIDs)~~(“NIDs”), splitters, and active technologies for voice, data and video communications. Suttle also manufactures and markets a line of residential structured wiring products under the SOHO (Small Office, Home Office) Access^TM ™ brand name, and passive premise distribution, such as xDSL filters, under the ~~SpeedStar~~^TMSpeedStar™ brand. Suttle manufactures ~~55%~~66% of its products at its plants in Hector, Minnesota (Suttle Apparatus Minnesota Division) and San Jose, Costa Rica (Suttle Costa Rica, S.A.). The other ~~45%~~34% are purchased from offshore contract manufacturers. Segment sales were $54,346,000 (41% of consolidated revenues) in 2013 and $45,030,000 (43% of consolidated revenues) in ~~2012 and $39,924,000 (28% of consolidated revenues) in 2011.~~2012.

Products

Suttle offers a broad range of critical components for premise ~~connectivity~~ and outside plant networking. The Company’s customer-oriented approach provides right-sized solutions that leverage existing infrastructure and protect investments as markets and technologies grow and change. With over 100 years of knowledge and experience, Suttle is a reliable partner, delivering innovative, flexible, easy-to-use solutions, lower cost of ownership, and solid customer support.

~~Outside Plant:~~

~~Suttle’s outside plant products (OSP) are designed to operate in challenging environments yet be easily accessible, extend the life of the existing network, enhance data speeds, and prevent loss.~~

~~Suttle OSP systems are designed for flexibility and scalability in real world applications for both copper and fiber networks. Suttle’s FutureLink~~^TM ~~OSP Fiber solutions offer a range of products including enclosure systems, patch and splice enclosures and splitters, and outdoor NIDs. For copper networks, Suttle’s FutureLink~~^TM ~~OSP Copper solutions include building entrance terminal and outdoor NIDs.~~

~~Connectivity:~~

In the face of changing technology, the right connectivity equipment can accommodate upgrades in technology, reducing future as well as current costs. With over a century of connectivity experience, Suttle designs components for a lower total cost at installation and over the life of the product.

Suttle is expanding operational capabilities within its U.S. manufacturing to maximize flexibility and ~~minimize lead times.~~improve speed to market capacity. We are committed to maintaining both internal and external quality standards as well as industry product specifications. ~~We were~~The company’s quality management systems are ISO 9001 and TL9001 certified. Additionally, Suttle was one of the first companies to pass the new Telcordia GR-3167 standard for ~~the~~ energizing very high-rate digital subscriber lines (VDSL2) along with the TR-127 for ring trip mitigation allowing our splitters to leverage existing infrastructure for next generation IPTV services. Our focus on quality, product performance and customer support enables us to continue to develop new innovative product solutions.

~~Our fiber connectivity solutions help providers in the deployment of fiber to the premise (FTTP) service under the FutureLink~~^TM brand. These products feature higher speed connections, tool-less connectivity and lower cost of ownership. Our copper connectivity solutions work with existing wiring to transition the service from theOutside Plant:

Suttle’s outside plant products (“OSP”) are designed to operate in challenging environments yet be easily accessible, extend the ~~premise. Our popular SOHO Access~~^TM ~~enclosures~~life of the existing network, enhance data speeds, and ~~modules provide~~prevent loss.

Suttle OSP systems are designed for flexibility and ~~versatility~~scalability in real world applications for ~~the termination~~both copper and ~~management~~fiber networks. Suttle’s FutureLink™ OSP Fiber solutions offer a range of ~~voice, data,~~products including terminals, patch and ~~video connections.~~splice and splitter enclosures. For copper networks, Suttle’s FutureLink™ OSP Copper solutions include building entrance terminal and enclosures.

Premise Distribution:

Suttle provides service distribution products for cost-effective solutions using existing wiring. These products reduce installation time and labor costs, and increase the provider’s return on investment. In addition to reducing a service provider’s up-front costs, Suttle’s high throughput solutions help eliminate potential bottlenecks to “future-proof” the installation, reducing future costs.

Our FutureLink™ fiber solutions help providers deploy fiber-to-the-premise (“FTTP”) service. These products feature higher speed connections, tool-less connectivity and lower cost of ownership. Our popular SOHO Access™ enclosures and modules provide flexibility and versatility for the termination and management of voice, data, and video connections.

Active solutions distribute service inside the premise through electronic devices. Suttle’s active service solutions allow the distribution of service at higher speeds regardless of media, using technologies under ~~FutureLink~~^TMFutureLink™ brand ~~products—HomePNA~~^TM ~~and HomePlug~~^TM.products. Passive solutions provide traditional telephony and broadband technology deployments. Through our highly recognized brands — ~~SpeedStar~~^TMSpeedStar™ and Corroshield® as well as our new brand for higher speeds ~~FutureLink~~^TMFutureLink™ — Suttle provides the right solution for wired distribution.

Markets and Marketing

Suttle markets its outside plant ~~connectivity~~ and premise distribution products globally to telecommunications companies. Suttle has a solid history of offering long-term solutions to some of the largest global providers, ~~and it does so~~ by understanding the customer’s needs and providing innovative solutions coupled with strong customer support. Suttle also markets its products to service providers, residential builders, and low-voltage installers through distributors and the Company’s sales staff. Suttle reaches its targeted customers through a variety of marketing media including trade shows, associations, advertising, social media and the Suttle website, www.suttleonline.com.

Customers

Suttle’s customers include the major ~~communication companies~~telecommunication carriers globally, including ~~both telephone and cable service provider companies. The Company’s major telephone company customers include~~ Verizon, ATT, and CenturyLink (formerly Qwest). Major telephone companies are served directly by Suttle’s sales staff and through a select group of distributors. Sales (including DSL) to the major telephone companies, as a group, both directly and through distribution, represented ~~75%~~80% of Suttle’s sales in ~~2012~~2013 and ~~68%~~75% in ~~2011.~~2012.

Other customers include smaller telephone companies, electrical/low-voltage contractors, home builders, and a nationwide network of distributors. Suttle serves these customers primarily through distributors but also directly by its sales staff. Sales to cable customers and original equipment manufacturers ~~(OEMs)~~(“OEMs”) are made through the nationwide network of distributors and through the Suttle sales staff. Sales to OEMs and other distributors were ~~12%~~11% of Suttle’s sales in ~~2012~~2013 and ~~11%~~12% in ~~2011.~~2012. Sales to international customers and other customers represented ~~13%~~9% of Suttle’s sales in ~~2012~~2013 and ~~21%~~13% in ~~2011.~~2012.

Competition

Suttle encounters strong competition in all its product lines and competes primarily on the basis of the broad lines of products offered, product performance, quality, price, delivery, and customer support. In addition, distributors of Suttle’s products also market products for one or more of these competitors.

Order Book

Suttle manufactures its products on the basis of estimated customer requirements. Outstanding customer orders at March 1, ~~2013~~2014 were approximately ~~$2,961,000~~$2,008,000 compared to approximately ~~$3,250,000~~$2,961,000 at March 1, ~~2012.~~2013. New orders are generally filled within 60 days. Suttle does not believe its order book is a significant indicator of longer term future results.

Manufacturing and Sources of Supply

Suttle manufactures its products using plastic or metal parts, wire sub-assemblies, fasteners, brackets, electronic circuit boards and other components, most of which are fabricated by Suttle. There are multiple sources of supply for the materials and parts required and the Company is not dependent upon any single supplier, except that Suttle’s corrosion-resistant products use a moisture-resistant gel-filled fig available only from Tyco Electronics Connectivity. Although Suttle has not generally experienced significant problems in obtaining its required supplies, ~~from time to time~~periodically it experiences spot shortages and additional order lead times are required from its offshore suppliers.

Research and ~~Development:~~Development; Patents

Suttle continually monitors industry requirements and creates new products to improve its existing product line. Although Suttle has historically not relied significantly on patents to protect its competitive position, as a result of duplication of its designs by foreign apparatus manufacturers, Suttle has begun to apply for design patents on a number of its new products.

Intellectual Property

The Suttle brand name is a trademark important to its business. Suttle regularly supports this name by trade advertising and believes it is well known in the marketplace. Other important trademarks include ~~FutureLink~~^TM ~~brand umbrella~~FutureLink™ for end-to-end products for outside plant, connectivity and premise distribution; SOHO ~~Access~~^TMAccess™ for small office and home office enclosures and modules; ~~SpeedStar~~^TMSpeedStar™ for passive premise connectivity; and CorroShield^® brand gel that prevents network corrosion.

(ii)Transition Networks

Transition Networks, Inc. (“Transition” or “Transition Networks”) is based in Minnetonka, Minnesota and also maintains operations in China and the U.K. Transition designs, assembles and markets NIDs, media converters, network interface cards (NICs), Ethernet switches, Small Form factor Pluggable modules (SFP), and other connectivity products under the Transition Networks and MILAN brand names. Transition sells its products through distributors, resellers, integrators, and OEMs. These NIDs, media converter and Ethernet Switch products permit voice and data networks to move information between copper-wired equipment and fiber-optic cable. Sales by Transition Networks were $53,843,000 (52% of consolidated sales) in 2012 compared to $91,450,000 (64% of consolidated sales) in 2011. International sales accounted for 27% of Transition’s sales, or $14,457,000 in 2012, compared to $14,002,000, or 15% of Transition’s sales in 2011.

~~Products~~

~~Transition Networks designs, assembles and~~ sells NIDs, media converter devices, Ethernet switches and other connectivity products that make it possible to transmit telecommunications signals between systems using different types of media (for example, between copper and fiber optic networks). Transition sells its products through distributors, resellers, integrators, OEMs, and directly to service providers. These NIDs, media converter and Ethernet Switch products permit voice and data networks to move information between copper-wired equipment and fiber-optic cable. Sales by Transition Networks were $43,857,000 (33% of consolidated sales) in 2013 compared to $53,843,000 (52% of consolidated sales) in 2012. International sales accounted for 30% of Transition’s sales, or $13,196,000 in 2013, compared to $14,457,000, or 27% of Transition’s sales in 2012.

Products

Transition Networks designs, assembles and markets NIDs, media converters, network interface cards (“NICs”), Ethernet switches, Small Form factor Pluggable modules (“SFP”), and other connectivity products under the Transition Networks and MILAN brand names. These products enable customers to integrate fiber optics into their existing network infrastructure as their networks grow, and extend data services to customers or remote locations. Protocols supported ~~include,~~include: 10 Gigabit Ethernet, Gigabit Ethernet, Fast Ethernet, Ethernet, T1/E1, DS3, Circuit Emulation Services (TDM or ISDN over IP), RS232, RS485, OC3, OC12, and more. Transition Networks develops product hardware and software internally, and expenses the related costs as they are incurred. The company also buys and resells products from other OEMs to augment our product offerings. In connection with the sale of its hardware products, Transition Networks provides its customers with a variety of software management options including powerful Element Management System (EMS) software for providing superior service provisioning and monitoring of next-generation Carrier Ethernet 2.0 Services. The Company has been developing and marketing Ethernet-based networking products for approximately 25 years. Transition Networks continues to develop products that address the enterprise, service provider, industrial, and security markets and, in addition, targets the specific vertical markets of government and education.

Manufacturing and Sources of Supply

Transition Networks uses contract manufacturers to manufacture its products in different geographical locations. In ~~2012, 65%~~2013, 66% of the total value of its products was manufactured in Asia while the remaining ~~35%~~34% was manufactured in the US. Offshore sources of supply are subject to certain risks, including political risk. The Company has alternate sources of supply for its products in different geographical locations and to date has not had problems obtaining necessary product.

Markets and Marketing

Transition Networks’ products are used in a broad array of markets, including federal government, enterprise networks, service providers’ networks, security and surveillance, as well as industrial environments. Transition Networks has a broad customer base and its products are used in a variety of applications.

The media conversion product line addresses and is used in a variety of applications. The ION and Point ~~System~~^TMSystem™ chassis-based modular systems are used primarily in telecommunications closets for high-density applications and when multiple protocols need to be supported. Stand-alone media converters are used typically at a workstation or for lower density applications. The line of Ethernet switches is used in last mile access, backhaul, central closet and at the end user stations. The NID line of products address the high quality access requirements for both business services and wireless backhaul data communications and telecommunications applications.

Marketing primarily consists of direct marketing using a sales force, tradeshows, trade magazine advertising, on-line advertising, website, social media and public relations activities. Transition Networks also provides and participates in advertising and cooperative marketing campaigns with distribution partners.

The Company’s “Transition Networks” and “MILAN” brand names are important to its business. The Company regularly supports these names by trade advertising and believes them to be well known in the marketplace.

Research and Development

Transition Networks continues to develop products that address the federal government, enterprise, service provider, security and industrial markets. This includes developing converters for emerging protocols and existing protocols in new markets, as well as new industry standards. Some of these products include remote management devices built on the IEEE® 802.3AH, 802.3AG, ITU-T Y.1731 standards, Metro Ethernet Forum (MEF)® and MEF 2.0 standards, and Power Over Ethernet based on the IEEE® 802.3AF and IEEE® 802.3AT standards. Some design efforts are paced by the development of critical components such as integrated circuits and optical transceivers.

Research and development consists ~~primarily~~ of conception, design and development of new products, as well as testing, and equipment and supplies associated with enhancing existing ~~products and developing new~~ products. Research and development costs are expensed when incurred and were $2,277,000 in 2013 compared to $2,030,000 in ~~2012 compared to $1,937,000 in 2011.~~2012.

Transition Networks’ research and development operations are conducted in the United States, United Kingdom and China. The US location has a global engineering and product development leadership responsibility. The China operation focuses primarily on engineering, including hardware and software development as well as testing. Additional China operations include marketing, purchasing, and sales support. In the 2013 fourth quarter, the Company decided to close its Chinese engineering facility and received regulatory approval from the Chinese government to commence deregistration procedures, the first step in closing this facility. The Company decided to close the China operations to streamline engineering processes and to mitigate the rising costs of doing business in Shanghai. The Company expects to complete the office closing in the first half of 2014. The UK facility was added in 2011 as a result of the Patapsco acquisition. The UK location focuses on engineering and support for Circuit Emulation Products as well as logistics and sales activities.

Competition

Transition Networks faces strong competition across its entire product line. A large number of competitors exist for the highest volume products in the Fast Ethernet and Gigabit Ethernet families as well as the NIDs. Low cost competitors from China and Taiwan are strongest in Asian, Europe, Middle East, and Africa (EMEA) and South American markets, but have had ~~limited~~less success in the North American ~~market for the~~ media converter ~~products.~~product market. Transition Networks also faces new competitors as it enters new markets for industrial products, security market, and higher performance devices for the service provider market.

Order Book

Outstanding customer orders for Transition Networks products were approximately $2,389,000 at March 1, 2014 and $2,651,000 at March 1, ~~2013 and $4,418,000 at March 1, 2012.~~2013. Transition Networks orders are fulfilled on a relatively short-term basis and therefore the Company does not consider the order book as a significant indicator of longer term future results.

(iii) JDL Technologies, Inc.

JDL Technologies, Inc. (“JDL Technologies” or “JDL”), based in Fort Lauderdale, Florida, provides information technology ~~(IT)~~(“IT”) solutions focused on network design and integration, IT service and support management, cloud and virtualization services, and network operations center management. JDL’s ~~2012~~2013 sales were ~~$5,377,000 (5%~~$33,116,000 (25% of consolidated sales) compared to ~~2011~~2012 sales of ~~$12,401,000 (9%~~$5,377,000 (5% of consolidated sales). Project revenue totaled $31,698,000 in 2013 or 96% of JDL sales compared to $4,123,000 in 2012 or 77% of JDL ~~sales compared to $11,310,000 in 2011 or 91% of JDL~~ sales. Managed services revenues were $1,418,000 and $1,254,000 in 2013 and ~~$1,091,000 in~~ 2012, ~~and 2011,~~ respectively.

Competitive Strategy

While the South Florida information technology market includes a number of other value-added resellers (VARs) and managed service providers (MSPs), JDL has differentiated itself in several strategic ways during more than 15 years of success and is uniquely qualified to help organizations optimize their information technology.


	•§	JDL has never wavered in its commitment to help IT professionals keep their technology up and running, fix problems quickly, support their user communities, and regularly add new value to their organizations. Key avenues for delivering on this commitment—and key competitive advantages—are JDL’s secure, on-premise, state-of-the-art ~~datacenter~~data center and managed services operations center.

	•§	JDL’s portfolio of technology solutions has steadily expanded to reflect the constant introduction of new technologies—as well as growing demand among businesses for increasingly diverse solutions to strengthen their competitive edge and continuity. With its team of professionally certified engineers, more than 240 years of technical experience, and talented leadership, JDL develops best-of-breed IT solutions that effectively meet these demands.

	•§	Augmenting its own exceptional bench strength, JDL maintains active partnerships with industry leaders such as Cisco, Citrix, EMC, HP, Sophos and VMware as well as younger technology innovators like Aerohive, Axcient, Bradford Networks, Meru and Nutanix. These strategic partnerships enable JDL to leverage a comprehensive array of proven technologies in order to design solutions uniquely suited to each client.

As a result of these combined factors, JDL has become a trusted advisor to a wide range of clients throughout South Florida, and continues to earn important incremental business and solid references.

This solid foundation has allowed JDL to expand into Central Florida, opening an office in ~~Tampa in the first quarter of~~ 2013 to serve clients throughout the Tampa and Orlando region, led by a seasoned sales manager well-known in the area for his technology experience and contact network. This expansion taps an under-served market that JDL is well-positioned to penetrate.

Targeted Vertical Markets

Looking beyond its deep roots in the public education sector, in 2012 JDL began to aggressively expand into select other verticals, including the healthcare market and general commercial enterprise.

Education:

~~Since~~Prior to 2013, JDL’s ~~inception, its~~ largest client ~~has~~for the past several years had been the School Board of Broward County, Florida (SBBC), the sixth largest system in the United States. JDL staffs and manages the SBBC network operations center, which monitors all network elements (servers, switches, routers) and more than 60,000 computers in 265 buildings.

Leveraging this experience, in October 2012, JDL was selected to provide the hardware and wiring for 232 schools in the Miami-Dade County Public School District (M-DCPS) as part of the wireless classroom initiative. Miami-Dade is the fourth-largest district in the U.S., serving some 345,000 students and employing more than 40,000 educators and staff. ~~Deployment is ongoing.~~ Additionally, in the first quarter of 2013, JDL successfully bid for the networking project that will enable wireless classrooms in the De Soto County Public School District, JDL’s first win in the Central Florida region.

Healthcare:
In its strategic advance on the healthcare vertical, during the fourth quarter of 2012 JDL sought and won status as a preferred technology vendor for two of Florida’s four Regional Extension Centers (RECs), federally funded by the Health Information Technology REC Grant Program to improve healthcare delivery by promoting the widespread adoption and meaningful use of health information technology. Through these RECs, JDL has access to healthcare practices in 17 counties throughout Central Florida. In response to one of their members’ most immediate needs—for a simple, managed data protection solution that meets HIPAA compliance standards—JDL is deploying an enterprise-grade encryption solution that has been reengineered to extend cost-effective data protection to the numerous midsize and smaller providers in the region.

In its strategic advance on the healthcare vertical, during the fourth quarter of 2012 JDL sought and won status as a preferred technology vendor for two of Florida’s four Regional Extension Centers (“RECs”), federally funded by the Health Information Technology REC Grant Program to improve healthcare delivery by promoting the widespread adoption and meaningful use of health information technology. Through these RECs, JDL has access to healthcare practices in 17 counties throughout Central Florida. In response to one of their members’ most immediate needs—for a simple, managed data protection solution that meets HIPAA compliance standards—JDL is deploying an enterprise-grade encryption solution that has been reengineered to extend cost-effective data protection to the numerous midsize and smaller providers in the region.

In South Florida, JDL maintains several healthcare-related clients and continues to grow this base, which includes a leading producer of diabetes management solutions used around the world, a multi-location practice specializing in diabetes and other endocrine-related disorders, innovative emergency care centers, and a large pharmacy chain.

Commercial:

Among commercial enterprises, JDL continues to build a solid roster of diverse clients, including:


	-	A 60-year-old Florida financial institution with two dozen branches and more than $4 billion in assets;
	-	A global fitness program whose 14 million followers take weekly classes in over 100,000 locations; and
	-	A well-known furniture store in Florida since the 1960s with more than a dozen showrooms and warehouses.

Technology Solutions

JDL Technologies specializes in designing, deploying and managing information technology solutions that enable organizations to focus on the mission-critical activities that drive their success. JDL’s IT solutions encompass an extensive range of networking, virtualization, cloud and other services—many of which are available under ongoing JDL management in order to conserve client IT resources and generate monthly recurring revenues for the company.

Managed Services:

JDL’s flagship brand, JDL TechWatch Managed IT Services, continues to expand, and currently offers network management, availability assurance, event alerting and incident management; server, workstation, mobile device and other asset management; software patching services; IT help desk support; SIP trunking; migration, conversion and vendor management. JDL also offers technical consulting services and training.

Network Services:

The JDL team has extensive experience in assessing, designing and implementing wired and wireless networks as well as entire IT infrastructures. Networking services also include MPLS, private line and IP, network and endpoint security, network tuning and cabling/wiring services.

~~Network Services:~~
Cloud Solutions:
The JDL team has extensive experience in assessing, designing and implementing wired and wireless networks as well as entire IT infrastructures. Networking services also include MPLS, private line and IP, network and endpoint security, network tuning and cabling/wiring services.
~~Cloud Solutions:~~
JDL’s cloud services range from storage, backup and recovery to hosted PBX, hosted contact center services and hosted email services, all billable as monthly recurring revenue. Many clients are opting to move elements of their infrastructures to the cloud for the benefits of vertical and horizontal scalability and internal bandwidth conservation.
~~Virtualization:~~
JDL’s talented virtualization engineers assess, design, deploy, and manage virtualization programs that ensure client access to any workload, anytime, anywhere, on any device. Virtualization may encompass desktops, servers, applications, storage or any combination, including connectivity and software licensing. Businesses gain the advantage of economies of scale and enhanced security and disaster recovery protections that are inherent in virtualized environments.
JDL’s cloud services range from storage, backup and recovery to hosted PBX, hosted contact center services and hosted email services, all billable as monthly recurring revenue. Many clients are opting to move elements of their infrastructures to the cloud for the benefits of vertical and horizontal scalability and internal bandwidth conservation.
Virtualization:
JDL’s talented virtualization engineers assess, design, deploy, and manage virtualization programs that ensure client access to any workload, anytime, anywhere, on any device. Virtualization may encompass desktops, servers, applications, storage or any combination, including connectivity and software licensing. Businesses gain the advantage of economies of scale and enhanced security and disaster recovery protections that are inherent in virtualized environments.

As information technology continues to evolve at the speed of light, JDL is committed to retaining its position on the leading edge by ensuring its engineers are trained and certified in the newest technology solutions.

Order Book and Future Plans

Outstanding customer orders and contracts for JDL products and services were approximately $1,501,000 at March 1, 2014 and $24,491,000 at March 1, ~~2013 and $750,000 at March 1, 2012.~~2013. The outstanding orders and contracts ~~in 2013 reflect JDL’s significant ongoing contract~~at March 1, 2014 are primarily projects with ~~Miami-Dade~~the Broward County ~~Public~~ School District ~~which is~~and are scheduled to complete in October 2013. Although this project will contribute to CSI’s overall profitability, this project is primarily hardware; therefore the Company’s margins from this project will be significantly lower than the margins from JDL’s historical projects, which have included a significant value-added service component.by June of 2014. The Company does not consider current outstanding orders and contracts as a significant indicator of ~~longer term~~longer-term future results.

Most of JDL’s revenues in 2013 and earlier years have been derived from projects to supply IT infrastructure and services for K-12 schools that were funded by federal and local government sources. Because this form of funding varies substantially from year to year, there have been large swings in JDL’s annual revenues over the past several years. We expect this volatility in JDL’s annual revenues to continue in 2014 and future years. Accordingly, in order to reduce its dependence on government funding, JDL continues to aggressively pursue opportunities to provide managed services, migration to the cloud, virtualization and other network services for small and medium sized commercial businesses with a focus on healthcare, legal and financial services markets.

(2)Employment Levels

As of March 1, ~~2013~~2014 the Company employed ~~492~~596 people. Of this number, ~~287~~420 were employed by Suttle (including 92106 in Hector, Minnesota, ~~191~~312 in Costa Rica and 42 in the U.K.), ~~152~~128 by Transition Networks, Inc. ~~(114~~(111 in Minnetonka, MN, 228 in China, and 169 in the U.K.), 30 by JDL Technologies, Inc., and 2318 in corporate general and administrative positions.

(3)Executive Officers of Registrant

The executive officers of the Company and their ages at March 1, ~~2013~~2014 are set forth below. See Item 9B of this Form 10-K for additional information on the Company’s management.


	Name			Age	Position¹

	Curtis A. Sampson			80	Chairman of the Board and Interim Chief Executive Officer [2013]²

	~~William G. Schultz~~		44		~~President and Chief Executive Officer [2011]~~²
Edwin C. Freeman		58
	~~David T. McGraw~~		61		Vice President, Treasurer and Chief Financial Officer ~~[2008]~~[2013]³

	Bruce Blackwood		50	51	~~Vice~~ President and General Manager, Suttle [2007]⁴

	~~Seweryn Sadura~~Scott Otis		42	52	~~Vice~~ President and General Manager, Transition Networks ~~[2011]~~[2013]⁵

	Michael J. Skucius		59	60	Vice President, Information Technology [2010]⁶

	~~Karen Nesburg Bleick~~		48		~~Vice President, Human Resources [2009]~~⁷

	Scott Fluegge		43	44	~~Vice~~ President and General Manager, JDL Technologies, Inc [2011]⁸

	Kristin A. Hlavka		31	32	Corporate Controller [2011]⁹

1
Dates in brackets indicate period during which officers began serving in such capacity. Executive officers serve at the pleasure of the Board of Directors and are ~~elected annually for one-year terms.~~subject to contractual agreements.

2
Mr. Sampson was appointed Interim Chief Executive Officer of the Company in September 2013. He served as the Company’s Chief Executive Officer from 1969 to June 2007. He has been the Company’s Chairman of the Board of Directors since 1971.

23
Mr. ~~Schultz~~Freeman was appointed Chief ~~Executive~~Financial Officer ~~of the Company~~ in ~~May 2011.~~September 2013. From ~~May 2010~~March 1992 to ~~May 2011~~September 2013, he ~~served as the Company’s Executive Vice President of Operations. From October 2007 to April 2010 he served~~held management positions within operations and finance at Bro-Tex Co, Inc, (paper and cloth wiper products, and carpet recycling) most recently serving as the Vice President and ~~General Manager of Transition Networks, Inc. From May 2000~~Chief Financial Officer. Prior to ~~September 2007,~~his appointment as Chief Financial Officer, he served as ~~Transition Networks Vice President~~a director of ~~Marketing. Prior to May 2000, he was Distribution Business Manager for AMP Division of Tyco International, Ltd.~~CSI since 1988.

3
Mr. McGraw was appointed Chief Financial Officer in January 2008. From September 2002 to December 2007 he served as President of Suttle. From May 2001 to August 2002, he served as Chief Operating Officer of JDL Technologies, Inc. Prior to May 2001, he was Vice President-General Manager of Precision Diversified Industries in Plymouth, MN.
4
Mr. Blackwood ~~was appointed~~served as Vice President and General Manager of Suttle from December 2007 until he was appointed President in ~~December 2007.~~September 2013. From July 2001 to November 2007, he served as Suttle’s Vice President of Sales. Prior to July 2001 he was Vice President of Sales for Americable.

5
Mr. ~~Sadura~~Otis was appointed ~~Vice~~ President and General Manager of Transition Networks in ~~February 2011.~~September 2013. From ~~June 2007~~December 2010 to ~~January~~June 2011 he served as ~~the Director of China~~Vice President, Operations - Professional Services for ~~Transition Networks.~~TE Connectivity, Inc. Prior to ~~June 2007,~~December 2010, he was ~~a Product Manager at Transition Networks.~~the Vice President, Marketing and Business Development – ADC Professional Services.

6
Mr. Skucius was appointed Vice President of Information Technology in January 2010. From July 2007 to December 2009 he served as Vice President and General Manager of JDL. From 1980 to 2007 he was the Company’s Director of Management Information Services.

7
~~Ms. Nesburg Bleick was appointed Vice President, Human Resources in January 2009. From October 2002 to December 2008, she served as Director of Human Resources.~~
8
Mr. Fluegge ~~was appointed~~served as Vice President and General Manager of JDL Technologies from December 2011 until he was appointed President in ~~December 2011.~~September 2013. Prior to this, he was the Vice President of Workload Automation at GSS AMERICA / GSS INFOTECH / INFOSPECTRUM CONSULTING.

98
Ms. Hlavka was appointed Corporate Controller in May 2011. From July 2008 to April 2011, she served as the Assistant Corporate Controller. Prior to July 2008, she was an auditor for Deloitte and Touche, LLP. She also served as Interim Chief Financial Officer from May 2013 until September 2013.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Financial information about domestic and foreign operations and export sales may be obtained by reference to Note 12 of the “Notes to Consolidated Financial Statements” under Item 8 herein.

ITEM 1A.
RISK FACTORS
Forward Looking Statements
          Certain statements contained in this Annual Report on Form 10-K are “forward-looking” statements within the meaning of and in reliance on the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for forward-looking statements. Actual events and results may differ materially from those expressed or forecasted in forward-looking statements due to a number of factors. The principal important risk factors that could cause our actual performance and future events and actions to differ materially from these forward-looking statements include, but are not limited to, the risk factors discussed below.
Risks Related to Our Business
The primary markets we serve are highly competitive, and our ability to compete requires continual focus on delivering high-quality, competitively priced products and the regular introduction of new products that meet evolving customer requirements.
          Competition in the markets for voice and data communications products is intense. Our ability to compete with other manufacturers of these products depends primarily on our engineering, manufacturing and marketing skills; the price, quality and reliability of our products; our delivery and service capabilities; and our control of operating expenses. We have experienced, and anticipate continuing to experience, pricing pressures from our customers as well as our competitors. The markets we serve are characterized by rapid technological advances and evolving industry standards. These markets can be significantly affected by new product introductions and marketing activities of industry participants. ~~Certain~~Some of our competitors and potential competitors ~~may~~ have greater financial, technological, manufacturing, marketing, and personnel resources than we. Present and future competitors may be able to identify new markets and develop new products that are superior to those developed by us. They may also adapt new technologies faster, devote greater resources to research and development, promote products more aggressively, and price products more competitively than us. We cannot ensure that competition will not intensify or that we will be able to compete effectively in the markets in which we compete.
We face many challenges in maintaining acceptable margins, and our level of gross margin may not be sustainable.
          Gross margins among our products vary and are subject to fluctuation from quarter to quarter. The factors that may affect our gross margins adversely are numerous and include:

•
Changes in customer, geographic, or product mix;

•
Our ability to reduce product costs;

•
Increases in material or labor costs;

•
Expediting costs incurred to meet customer delivery requirements;

•
Excess inventory and inventory carrying charges;

•
Obsolescence charges;

•
Changes in shipment volume;

•
Changes in component pricing;

•
Increased price competition;

•
Changes in distribution channels;

•
Lower margins on competitive-bid contracts;

•
Increased warranty cost; and

•
Our ability to manage the impact of foreign currency exchange rate fluctuations.

Consolidation among our customers has occurred and further consolidation may occur, resulting in the loss of some customers and reducing revenue during the pendency of business combinations and related integration activities.
          We believe future consolidation may occur among our customers for them to increase market share and achieve greater economies of scale. Consolidation has affected our business as our customers focus on completing business combinations and integrating their operations. In certain instances, customers integrating large-scale acquisitions have reduced their purchases of our products during the integration period.
          The business impact to us of significant customer mergers is likely to be unclear until sometime after these transactions are completed. After a consolidation occurs, a customer may choose to reduce the number of vendors from which it purchases equipment and may choose one of our competitors as its preferred vendor. We cannot ensure that we will continue to supply equipment to the surviving communications service provider after a business combination is completed.
Our profitability could be affected negatively if one or more of our key customers substantially reduces orders for our products or transitions their purchases towards lower gross margin products.
          Our customer base is somewhat concentrated, with our top ten customers accounting for ~~76%~~83%, 76% and ~~70%~~76% of net sales for 2013, 2012 ~~2011~~ and ~~2010,~~2011, respectively. The merger of AT&T and BellSouth in our fiscal 2007 created one of our largest customers. In fiscal 2013, 2012 ~~2011~~ and ~~2010,~~2011, this combined company accounted for approximately ~~17%~~24%, 9%17% and 9% of our sales, respectively. Another one of our largest customers, Verizon, accounted for 8%, 6%8% and 6% of our net sales for the years 2013, 2012 ~~2011~~ and ~~2010.~~2011. If we lose a significant customer for any reason, our sales and gross profit will be negatively affected.
Our market is subject to rapid technological change and, to compete effectively, we must continually introduce new products that achieve market acceptance.
          The communications equipment industry is characterized by rapid technological changes, evolving industry standards, changing market conditions, short product life cycles and rapidly changing customer requirements and frequent new product and service introductions and enhancements. The introduction of products using new technologies or the adoption of new industry standards can make our existing products, or products under development, obsolete or unmarketable. Our future success will depend on our ability to enhance our existing products, to introduce new products to meet changing customer requirements and emerging technologies, and to demonstrate the performance advantages and cost-effectiveness of our products over competing products. Our failure to modify our products to support new alternative technologies or failure to achieve widespread customer acceptance of these modified products could cause us to lose market share and cause our revenues to decline.
          We may not predict technological trends or the success of new products in the communications equipment market accurately. New product development often requires forecasting of market trends, development and implementation of new technologies and processes and substantial capital commitments. We do not know whether other new products we develop will gain market acceptance or result in profitable sales.
          Certain of our competitors have greater engineering and product development resources than we have. Although we expect to continue to invest significant resources in product development activities, our efforts to achieve and maintain profitability will require us to be selective and focused with our research and development expenditures. If we fail to anticipate or respond in a cost-effective and timely manner to technological developments, changes in industry standards or customer requirements, or if we experience any significant delays in product development or introduction, our business, operating results and financial condition could be affected adversely.
          We may experience delays in developing and marketing product enhancements or new products that respond to technological change, evolving industry standards and changing customer requirements. We cannot ensure that we will not experience difficulties that could delay or prevent the successful development, introduction, and marketing of these products or product enhancements, or that our new products and product enhancements will adequately meet the requirements of the marketplace and achieve any significant or sustainable degree of market acceptance in existing or additional markets. In addition, the future introductions or announcements of products by us or one of our competitors embodying new technologies or changes in industry standards or customer requirements could render our then-existing products obsolete or unmarketable. We cannot ensure that the introduction or announcement of new product offerings by us or one or more of our competitors will not cause customers to defer their purchase of our existing products, which could cause our revenues to decline.

Our business units are dependent upon federal government spending.
          Our JDL Technologies and Transition Networks business units are involved in projects that receive much of their funding from the United States federal government. To the extent that federal government spending is delayed or curtailed by government actions, ~~including the sequestration that began on March 1, 2013,~~ our revenues and operating results may be adversely affected.
We evaluate and frequently pursue acquisitions, but we may not successfully close these acquisitions and, if these acquisitions are completed, we may have difficulty integrating the acquired businesses with our existing operations.
          We regularly consider the acquisition of complementary companies and product lines. We cannot, however, ensure that we will be able to find appropriate candidates for acquisitions, reach agreement to acquire them, or obtain requisite shareholder or regulatory approvals needed to close strategic acquisitions, despite the effort and management attention invested.
          The impact of future acquisitions on our business, operating results and financial condition is uncertain. In the case of businesses we may acquire in the future, we may have difficulty assimilating these businesses and their products, services, technologies and personnel into our operations. These difficulties could disrupt our ongoing business, distract our management and workforce, increase our expenses and materially adversely affect our operating results and financial condition. Also, we may not be able to retain key management and other critical employees after an acquisition. We may also acquire unanticipated liabilities. In addition to these risks, we may not realize all of the anticipated benefits of these acquisitions.
Our operating results fluctuate from quarter to quarter.
          Our operating results are difficult to predict and may fluctuate significantly from quarter to quarter. Fluctuations in our quarterly operating results may be caused by many factors, including the following:

•
the volume of customer orders and our ability to fulfill those orders in a timely manner;

•
the overall level of capital expenditures by our customers;

•
work stoppages and other developments affecting the operations of our customers;

•
the timing of and our ability to obtain new customer contracts;

•
the timing of revenue recognition;

•
the timing of new product and service introductions;

•
the availability of products and services;

•
market acceptance of new and enhanced versions of our products and services;

•
variations in the mix of products and services we sell;

•
the timing of federal and state government funding of projects;

•
the location and utilization of our production capacity and employees; and

•
the availability and cost of key components of our products.

          Our expense levels are based in part on expectations of future revenues. If revenue levels in a particular quarter are lower than expected, our operating results will be affected adversely.

We depend on manufacturing relationships and on limited-source suppliers and any disruptions in these relationships may cause damage to our customer relationships.
          We procure all parts and certain services involved in the production of our products from, and subcontract much of our product manufacturing to outside firms that specialize in these services. Although most of the components of our products are available from multiple vendors, we have several single-source supplier relationships, either because alternative sources are not available or because the relationship is advantageous to us. We cannot ensure that our suppliers will be able to meet our future requirements for products and components in a timely fashion. In addition, the availability of many of these components to us is dependent in part on our ability to provide our suppliers with accurate forecasts of our future requirements. Delays or lost sales could be caused by other factors beyond our control, including defects in the quality of components or products supplied by others.

We are dependent upon our senior management and other critical employees.

Like all communications technology companies, our success is dependent on the efforts and abilities of our senior management personnel and other critical employees, including those in sales, marketing and product development functions. Our ability to attract, retain and motivate these employees is critical to our success. In addition, because we may acquire one or more businesses in the future, our success will depend, in part, upon our ability to retain and integrate our own personnel with personnel from acquired entities that are necessary to the continued success or the successful integration of the acquired businesses.

Managing our inventory is complex and may include write-downs of excess or obsolete inventory.

Managing our inventory of components and finished products is complicated by a number of factors, including the need to maintain a significant inventory of finished goods for orders we anticipate but may not be received. These issues may cause us to purchase and maintain significant amounts of inventory. If this inventory is not used as expected based on anticipated requirements, it may become excess or obsolete. The existence of excess or obsolete inventory can result in sales price reductions or inventory write-downs, which could adversely affect our business and results of operations.

We face risks associated with expanding our sales outside of the United States.

We believe that our future growth depends in part upon our ability to increase sales in international markets. These sales are subject to a variety of risks, including fluctuations in currency exchange rates, tariffs, import restrictions and other trade barriers, unexpected changes in regulatory requirements, longer accounts receivable payment cycles and potentially adverse tax consequences, and export license requirements. In addition, we are subject to the risks inherent in conducting business internationally, including political and economic instability and unexpected changes in diplomatic and trade relationships. We cannot ensure that one or more of these factors will not have a material adverse effect on our business strategy and financial condition.

Compliance with internal control requirements is expensive and poses certain risks.

We expect to incur significant continuing costs, including accounting fees and staffing costs, in order to maintain compliance with the internal control requirements of the Sarbanes-Oxley Act of 2002. Expansion of our business, particularly internationally, will necessitate ongoing changes to our internal control systems, processes and information systems. In addition, if we complete acquisitions in the future, our ability to integrate operations of the acquired company could impact our compliance with Section 404 of the Sarbanes-Oxley Act. We cannot be certain that as our business changes, our current design for internal control over financial reporting will be sufficient to enable management to determine that our internal controls are effective for any period, or on an ongoing basis.

In the future, if we fail to complete the annual Section 404 evaluation in a timely manner, we could be subject to regulatory scrutiny and a loss of public confidence in our internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.

Product defects or the failure of our products to meet specifications could cause us to lose customers and revenue or to incur unexpected expenses.

If our products do not meet our customers’ performance requirements, our customer relationships may suffer. Also, our products may contain defects or fail to meet product specifications. Any failure or poor performance of our products could result in:


	•	delayed market acceptance of our products;

•
delayed product shipments;

•
unexpected expenses and diversion of resources to replace defective products or identify and correct the source of errors;

•
damage to our reputation and our customer relationships;

•
delayed recognition of sales or reduced sales; and

•
product liability claims or other claims for damages that may be caused by any product defects or performance failures.
Our sales and operations may continue to be impacted adversely by current global economic conditions.
For the past several years, financial markets globally have experienced extreme disruption. This includes, among other things, extreme volatility in security prices, severely diminished liquidity and credit availability, ratings downgrades of certain investments and declining valuations of others. The severity and length of the present disruptions in the financial markets and the global economy are unknown. We cannot ensure that there will not be a further deterioration in financial markets and in business conditions generally. These economic developments have adversely affected our business in a number of ways and will likely continue to adversely affect our business during the foreseeable future.
~~During 2013, we will begin implementing a new Enterprise Resources Planning.~~

~~In 2012, we began developing a~~Part of our future success depends on our ability to successfully transition all of our operations to our new Enterprise Resources Planning ~~(“ERP”)~~system.

During 2011 and 2012, we purchased and began to install a new Enterprise Resource Planning (ERP) system. On April 4, 2013, our Transition Networks business unit “went live” on this system. The new ERP system ~~that~~ is designed to significantly strengthen our long-term ~~performance. Our first business unit will begin operating on this new system in the second quarter 2013 and we intend that~~term performance by standardizing all ~~our~~CSI business units ~~will be converted by~~on a common platform, lowering our manufacturing costs, and better managing our supply chain. We expect Suttle to go live on the ~~end of the second quarter of~~new ERP sometime in 2014. ~~The development and implementation of any ERP system depends upon the ability of management~~If we are unable to successfully ~~develop and implement~~transition our remaining business units to the ~~system. If~~ERP in our proposed timetable, we ~~fail~~will experience a delay in achieving improved operating efficiencies as well as additional costs related to ~~successfully implement our ERP system, it could have~~ a ~~material adverse effect on our revenues and operations.~~delayed implementation.

Risks Related to Our Common Stock

Our stock price has been volatile historically and the price of our common stock may fluctuate significantly in the future.

The trading price of our common stock has been and may continue to be subject to wide fluctuations. Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products by us or our competitors, the operating and stock price performance of other companies that investors may deem comparable to us, and new reports relating to trends in our markets or general economic conditions.

In addition, the stock market in general, and prices for companies in our industry in particular, have experienced extreme volatility that often has been unrelated to the operating performance of these companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance.

Anti-takeover provisions in our charter documents, our shareholder rights agreement and Minnesota law could prevent or delay a change in control of our company.

Provisions of our articles of incorporation and bylaws, our shareholder rights agreement (also known as a “poison pill”) and Minnesota law may discourage, delay or prevent a merger or acquisition that a shareholder may consider favorable, and could limit the price that investors are willing to pay for our common stock. These provisions include the following:


	•	advance notice requirements for shareholder proposals;

	•	authorization for our board of directors to issue preferred stock without shareholder approval;

	•	authorization for our board of directors to issue preferred stock purchase rights upon a third party’s acquisition of 16.5% or more of our outstanding shares of common stock;

•
limitations on business combinations with interested shareholders;

•
classification of Board of Directors that serve staggered, three year terms; and

•
a super majority vote by shareholders is required to approve certain corporate actions, including merger transactions.
Some of these provisions may discourage a future acquisition of our company even though our shareholders would receive an attractive value for their shares, or a significant number of our shareholders believe such a proposed transaction would be in their best interest.

ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.

ITEM 2.
PROPERTIES
CSI conducts administrative, manufacturing and engineering functions at the following facilities:

-
~~In Minnetonka, Minnesota, the~~The Company owns a 105,000 square foot building in Minnetonka, Minnesota, where its executive and administrative offices are located. In addition, Transition Networks uses this facility for its warehouse, assembly, engineering and administrative operations, JDL Technologies, Inc. uses this facility for some administrative operations, and Suttle uses this facility for its sales, marketing and product development.

-
Suttle’s manufacturing is conducted at two locations. ~~At Hector, Minnesota, the~~The Company owns three plants totaling 88,000 square feet of manufacturing ~~space.~~space in Hector, Minnesota. The Company leases 40,000 square feet of manufacturing space in San Jose, Costa Rica.

-
Austin Taylor Communications, Ltd. owns a 40,000 square foot facility in Bethesda, Wales, U.K.

-
Transition Networks leases 10,000 square feet of office space for engineering, procurement and marketing activities in Shanghai, China. The Company also leases 7,000 square feet of office space in the U.K. for its Patapsco operations.
CSI believes these facilities will be adequate to accommodate its administrative, manufacturing and distribution needs for the foreseeable future.

ITEM 3.
LEGAL PROCEEDINGS
The Company is subject to claims and lawsuits that have been filed in the ordinary course of business. From time to time, the Company brings suit against others to enforce contract rights or property rights, or to collect debts in the ordinary course of business. Management believes that the resolution or settlement of currently pending litigation will not have a material adverse effect on the results of operations or liquidity of the Company.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.

PART II


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES


(a)	MARKET INFORMATION

The Company’s common stock trades on the NASDAQ under the trading symbol JCS.

The table below presents the price range of high and low trades of the Company’s common stock for each quarterly period indicated as reported by NASDAQ for ~~2012~~2013 and ~~2011.~~2012.


	2012				2011				2013				2012

	High		Low		High		Low		High		Low		High		Low

First	$	15.49	$	12.91	$	16.49	$	13.33	$	11.25	$	9.75	$	15.49	$	12.91
Second		14.09		10.36		20.82		15.01		10.69		9.55		14.09		10.36
Third		11.87		9.96		20.93		12.60		12.35		9.66		11.87		9.96
Fourth		11.52		9.73		17.19		12.50		12.25		9.95		11.52		9.73


(b)	HOLDERS

At March 1, ~~2013~~2014 there were approximately ~~594~~577 registered holders of record of Communications Systems, Inc. common stock.


(c)	DIVIDENDS

Communications Systems, Inc. paid regular quarterly dividends to its shareholders on the dates and at the rates indicated below:


Payment Date		Dividend per Share

January 1, 2014	$	.16
October 1, 2013		.16
July 1, 2013		.16
April 1, 2013		.16
December 27, 2012	$	.16
October 1, 2012		.16
July 1, 2012		.16
April 1, 2012		.16
January 1, 2012		~~.15~~
~~October 1, 2011~~			~~.15~~
~~July 1, 2011~~			~~.15~~
~~April 1, 2011~~			~~.15~~
~~January 1, 2011~~			.15

The Company accelerated the payment of the dividend declared in the fourth quarter of 2012 and paid the dividend on December 27, 2012 rather than January 1, 2013. The payment of future dividends will be determined at the discretion of the Board of Directors.


(d)	INFORMATION REGARDING EQUITY COMPENSATION PLANS

The following table presents information about the Company’s equity compensation plans, under which equity securities of the Company are authorized for issuance, as of December 31, ~~2012:~~2013:

Securities Authorized for Issuance Under Equity Compensation Plans


Plan Category (1)	Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options warrants and rights			Number of shares of common stock available for future issuance under equity compensation plans (excluding shares in column (a))		Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options warrants and rights		Number of shares of common stock remaining available for future issuance under equity compensation plans (excluding shares in column (a))


Equity compensation plans approved by security holders:

1992 Stock Plan-Employee Plan		154,430		$	14.57		—		84,718	$	14.29		—
1992 Stock Plan-Nonemployee Director Plan		132,000		$	9.92		—		117,000	$	10.24		—
1990 Employee Stock Purchase Plan		4,225		$	9.36		52,564		3,153	$	10.03		35,587
2011 Executive Incentive Compensation Plan		211,392		$	12.99		773,026		361,054	$	11.04		623,250

Equity compensation plans not approved by security holders:

None


(1)	The Company does not have individual compensation arrangements involving the grant of options, warrants and rights.


(e)	FIVE YEAR PERFORMANCE GRAPH

The following graph presents, at the end of each of the Company’s last five fiscal years, the cumulative total return on the common stock of the Company as compared to the cumulative total return reported for the NASDAQ (U.S.), and the NASDAQ Telecommunications Index. Company information and each index assume the investment of $100 on the last business day before January 1, ~~2007~~2008 and the reinvestment of all dividends.

~~Comparison of Five-Year Cumulative Total Return~~


Comparison of Five-Year Cumulative Total Return													Comparison of Five-Year Cumulative Total Return

Company or Index	2007		2008		2009		2010		2011		2012			2008		2009		2010		2011		2012		2013

Communications Systems, Inc.	$	100.000	$	69.833	$	117.385	$	139.049	$	144.724	$	113.343		$	100.000	$	168.093	$	199.115	$	207.241	$	162.342	$	184.442
NASDAQ US		100.000		61.172		87.928		104.131		104.686		123.849			100.000		143.741		170.174		171.081		202.398		281.914
NASDAQ TELCOM		100.000		57.458		86.159		111.247		117.637		158.937			100.000		149.951		193.615		204.735		276.614		401.346


(f)	RECENT SALES OF UNREGISTERED SECURITIES


	Common Stock						Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total										Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
															Common Stock
	Shares			Amount
																							Shares					Amount
BALANCE AT DECEMBER 31, 2009		8,352,883		$	417,644				$		33,641,510		$	52,007,261				$	(127,122	)	$	85,939,293

BALANCE AT DECEMBER 31, 2010																					8,422,890		$	421,144		$	34,491,370		$	56,769,816		$	(285,637	)	$	91,396,693
Net income											9,715,433						9,715,433													9,797,866						9,797,866
Issuance of common stock under Employee Stock Purchase Plan		11,107			555			124,579									125,134				10,308			515			151,761									152,276
Issuance of common stock to Employee Stock Ownership Plan		37,900			1,895			469,581									471,476				22,493			1,125			314,902									316,027
Issuance of common stock under Employee Stock Option Plan		21,000			1,050			181,626									182,676				9,000			450			72,450									72,900
Issuance of common stock under Executive Stock Plan																					2,083			105			31,974									32,079
Tax benefit from non-qualified employee stock options								34,981									34,981										21,920									21,920
Share based compensation								39,093									39,093										448,896									448,896
Shareholder dividends											(4,952,878	)					(4,952,878	)
Other comprehensive loss														(158,515	)			(158,515	)

BALANCE AT DECEMBER 31, 2010		8,422,890			421,144			34,491,370			56,769,816			(285,637	)		91,396,693

Net income											9,797,866						9,797,866
Issuance of common stock under Employee Stock Purchase Plan		10,308			515			151,761									152,276
Issuance of common stock to Employee Stock Ownership Plan		22,493			1,125			314,902									316,027
Issuance of common stock under Non-Employee Stock Option Plan		9,000			450			72,450									72,900
Issuance of common stock under Executive Stock Plan		2,083			105			31,974									32,079
Tax benefit from non-qualified stock options								21,920									21,920
Share based compensation								448,896									448,896
Shareholder dividends											(5,101,340	)					(5,101,340	)
Shareholder dividends ($0.60 per share)																														(5,101,340	)					(5,101,340	)
Other comprehensive income														393,243			393,243																393,243			393,243

BALANCE AT DECEMBER 31, 2011		8,466,774			423,339			35,533,273			61,466,342			107,606			97,530,560				8,466,774			423,339			35,533,273			61,466,342			107,606			97,530,560

Net income											2,238,114						2,238,114													2,238,114						2,238,114
Issuance of common stock under Employee Stock Purchase Plan		13,849			692			171,078									171,770				13,849			692			171,078									171,770
Issuance of common stock to Employee Stock Ownership Plan		36,145			1,807			506,391									508,198				36,145			1,807			506,391									508,198
Issuance of common stock under Non-Employee Stock Option Plan		12,000			600			84,983									85,583				12,000			600			84,983									85,583
Issuance of common stock under Executive Stock Plan		16,156			808			39,503									40,311				16,156			808			39,503									40,311
Tax benefit from non-qualified stock options								67,835									67,835										67,835									67,835
Share based compensation								302,964									302,964										302,964									302,964
Purchase of common stock		(70,028	)		(3,501	)		(301,509	)		(452,941	)					(757,951	)			(70,028	)		(3,501	)		(301,509	)		(452,941	)					(757,951	)
Shareholder dividends											(5,496,336	)					(5,496,336	)
Shareholder dividends ($0.64 per share)																														(5,496,336	)					(5,496,336	)
Other comprehensive loss														(695,654	)		(695,654	)															(695,654	)		(695,654	)

BALANCE AT DECEMBER 31, 2012		8,474,896			423,745			36,404,518			57,755,178			(588,048	)		93,995,393				8,474,896			423,745			36,404,518			57,755,178			(588,048	)		93,995,393

Net loss																														(957,888	)					(957,888	)
Issuance of common stock under Employee Stock Purchase Plan																					16,977			849			172,354									173,203
Issuance of common stock to Employee Stock Ownership Plan																					44,598			2,230			461,589									463,819
Issuance of common stock under Non-Employee Stock Option Plan																					15,000			750			109,500									110,250
Issuance of common stock under Executive Stock Plan																					1,849			92			27,312									27,404
Tax benefit from non-qualified stock options																											16,284									16,284
Share based compensation																											(80,886	)								(80,886	)
Shareholder dividends ($0.64 per share)																														(5,473,572	)					(5,473,572	)
Other comprehensive income																																	348,036			348,036

BALANCE AT DECEMBER 31, 2013																					8,553,320			427,666			37,110,671			51,323,718			(240,012	)		88,622,043


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K


For the fiscal year ended December 31, ~~2012~~2013

Commission File Number: 001-31588



COMMUNICATIONS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)


	Minnesota		41-0957999

	(State or other jurisdiction		(Federal Employer
	of incorporation or organization)		Identification No.)


ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs⁽¹⁾

October 2012		46,555	$	10.85		46,555		411,910
November 2012		—		—		—		411,910
December 2012		—		—		—		411,910
Total		46,555	$	10.85		46,555		411,910


(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	10900 Red Circle Drive, Minnetonka, MN 55343
	(Address of principal executive offices and zip code)


(g)	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS


ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs⁽¹⁾

October 2013		—	$	—		—		411,910
November 2013		—		—		—		411,910
December 2013		—		—		—		411,910
Total		—	$	—		—		411,910


(1)	Shares represent remaining amount of a 500,000 share repurchase authorization approved by the Company’s Board in October 2008 and publicly announced in November 2008.


	Year Ended December 31										Year Ended December 31

	2012		2011		2010		2009		2008		2013			2012		2011		2010		2009


Selected Income Statement Data
Sales	$	104,250	$	143,775	$	120,072	$	109,792	$	122,700	$	131,320		$	104,250	$	143,775	$	120,072	$	109,792

Costs and Expenses:
Cost of Sales		62,753		84,880		68,872		67,944		76,008		86,421			62,753		84,880		68,872		67,944
Selling, General and Administrative Expenses		38,101		40,108		35,586		31,433		33,109		36,743			38,101		40,108		35,586		31,433
Impairment Loss		—		1,272		—		196		2,999
Impairment loss												5,850			—		1,272		—		196
Restructuring expense												1,149			—		—		—		—

Total Costs and Expenses		100,854		126,260		104,458		99,573		112,116		130,163			100,854		126,260		104,458		99,573
Operating Income		3,396		17,515		15,614		10,219		10,584		1,157			3,396		17,515		15,614		10,219
Other Income, Net		2		105		20		581		597
Other (Expense) Income, Net												(53	)		2		105		20		581
Income Before Income Taxes		3,398		17,620		15,634		10,800		11,181		1,104			3,398		17,620		15,634		10,800
Income Tax Expense		1,160		7,822		5,919		4,756		4,570		2,061			1,160		7,822		5,919		4,756

Net Income	$	2,238	$	9,798	$	9,715	$	6,044	$	6,611
Net (Loss) Income											$	(957	)	$	2,238	$	9,798	$	9,715	$	6,044

Basic Net Income Per Share	$	0.26	$	1.16	$	1.16	$	0.72	$	0.77
Diluted Net Income Per Share	$	0.26	$	1.15	$	1.15	$	0.72	$	0.77
Basic Net (Loss) Income Per Share											$	(0.11	)	$	0.26	$	1.16	$	1.16	$	0.72
Diluted Net (Loss) Income Per Share											$	(0.11	)	$	0.26	$	1.15	$	1.15	$	0.72
Cash Dividends Declared Per Share	$	0.64	$	0.60	$	0.59	$	0.52	$	0.48	$	0.64		$	0.64	$	0.60	$	0.59	$	0.52

Average Dilutive Shares Outstanding		8,519		8,496		8,415		8,352		8,563		8,531			8,519		8,496		8,415		8,352


Selected Balance Sheet Data
Total Assets	$	112,535	$	116,659	$	109,070	$	102,914	$	98,738	$	103,533		$	112,535	$	116,659	$	109,070	$	102,914
Property, Plant and Equipment, Net		14,475		14,019		13,214		13,322		12,015		14,941			14,475		14,019		13,214		13,322
Long-term Liabilities		3,298		3,741		5,004		4,220		4,919		1,838			3,298		3,741		5,004		4,220
Stockholders’ Equity		93,995		97,531		91,397		85,939		83,728		88,622			93,995		97,531		91,397		85,939


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	•	~~We must apply our financial resources~~Suttle manufactures and sells copper and fiber connectivity products, enclosure systems, xDSL filters and splitters, and active technologies for voice, data and video communications under the Suttle brand in the United States and internationally;

	•	Transition Networks designs, assembles and sells NIDs, media converter devices, Ethernet switches and other connectivity products that make it possible to ~~support increased~~transmit telecommunications signals between systems using different types of media; and

	•	JDL Technologies provides technology solutions including virtualization, managed services, wired and wireless network design and implementation services, and converged infrastructure configuration and deployment.


	•	The Company’s 2013 sales ~~maintain brand loyalty, improve product quality and develop new products.~~were $131.3 million, a 26% increase compared to 2012 sales of $104.2 million.

	•	The Company’s 2013 net loss was $958,000, or ($0.11) per diluted share, compared to net income of $2.2 million or $0.26 per diluted share in fiscal 2012. The Company had a goodwill write-off totaling $5.8 million during 2013. The impact of this goodwill impairment loss on 2013 net income was approximately $4.8 million or $0.56 per share.

	•	At 2013 year end, the ~~same time, we must maintain price levels~~Company had cash, cash equivalents and ~~control expenses to provide adequate margins~~investments of $29.7 million and ~~superior bottom line results.~~positive working capital of $70.6 million.

	•	~~Finally,~~During 2013, the Company took a series of actions that culminated in the adoption of a restructuring and revitalization plan on September 4, 2013. On that date, the Company’s Chairman became Interim Chief Executive Officer and the Company appointed a new Chief Financial Officer. This revitalization plan is designed to ~~accelerate our~~strengthen the Company’s business by focusing all operational and financial responsibility at the business unit level, reducing corporate overhead expenses, and aggressively reducing costs in order to free up resources for investments in growth. Implementation of this plan continued in the 2013 fourth quarter. The Company incurred 2013 expenses of $1.1 million in connection with the restructuring, including significant severance payments.

	•	Suttle achieved strong growth ~~we must~~in fiscal 2013 posting sales of $54.3 million, a 21% increase over fiscal 2012. As a result of increased efficiencies associated with the higher sales level and favorable product mix, Suttle’s gross margin increased to 29% in 2013 compared to 27% in 2012. Suttle’s operating income increased to $5,457,000 in 2013 from $2,603,000 in 2012.

	•	Transition Networks’ fiscal 2013 sales decreased 19% to $43.9 million compared to $53.8 million in 2012. Gross margins generally remained steady in 2013, dropping slightly to 51% in the 2013 as compared to 52% in 2012. Transition Networks incurred an operating loss of $3.2 million in 2013 compared to operating income of $5.9 million in 2012 due to the write off of goodwill totaling $5.8 million in the 2013 third quarter. Because of declining product sales in its existing markets, Transition Networks is focused on developing new products for key growth markets, particularly telecommunications carriers.

	•	JDL Technologies’ fiscal 2013 sales were $33.1 million compared to $5.4 million in 2012 due to substantially increased sales to its two South Florida school district customers. JDL reported 2013 operating income of $4.0 million compared to a 2012 operating loss of $655,000. Federal and local funding for investments in IT infrastructure and services for K-12 schools varies substantially from year to year. There have been large swings in JDL’s annual revenues over the past several years. This volatility in JDL’s annual revenues is expected to continue in 2014 and future years, and accordingly, in order to ~~expand our sales outside of~~reduce its dependence on government funding, JDL continues to aggressively pursue revenue opportunities in the ~~US and prudently acquire complementary~~small to medium size IT services business market. Its revenue from these commercial businesses ~~and product lines.~~increased to $2.2 million in 2013 from $1.3 million in 2012.


	Suttle Sales by Product Group

	2013		2012

Modular connecting products	$	14,077,000	$	13,428,000
DSL products		8,057,000		8,254,000
Structured cabling products		26,900,000		18,081,000
Other products		5,312,000		5,267,000

	$	54,346,000	$	45,030,000


	Suttle Sales by Customer Group

	2013		2012

Telecommunication customers	$	43,296,000	$	33,645,000
Distributors		5,938,000		5,540,000
International		4,547,000		5,394,000
Other		565,000		451,000

	$	54,346,000	$	45,030,000


	Transition Networks Sales by Region

	2013		2012

North America	$	30,661,000	$	39,386,000
EMEA		5,145,000		5,744,000
Rest of world		8,051,000		8,713,000

	$	43,857,000	$	53,843,000


	Transition Networks Sales by Product Group

	2013		2012

Media converters	$	31,940,000	$	35,817,000
Ethernet switches		4,394,000		4,738,000
Ethernet adapters		4,165,000		4,948,000
Other products		3,358,000		8,340,000

	$	43,857,000	$	53,843,000


	JDL Revenue by Customer Group

	2013		2012

Broward County FL schools	$	7,928,000	$	3,265,000
Miami Dade County FL schools		22,988,000		825,000
All other		2,200,000		1,287,000

	$	33,116,000	$	5,377,000


	Less than One Year		1 – 3 Years		3 – 5 Years		More Than 5 Years		Less than One Year		1 – 3 Years		3 – 5 Years		More Than 5 Years

Long-term debt	$	457,000	$	1,014,000	$	104,000	$	—	$	490,000	$	628,000	$	—	$	—
Interest on long-term debt		93,000		88,000		1,000		—		61,000		28,000		—		—
Pensions		462,000		756,000		723,000		1,998,000		414,000		267,000		497,000		1,411,000
Operating leases		305,000		470,000		83,000				287,000		306,000		—
Compensation plans				350,000						199,000

Total	$	1,317,000	$	2,678,000	$	911,000	$	1,998,000	$	1,451,000	$	1,229,000	$	497,000	$	1,411,000


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


/s/ ~~William G. Schultz~~Curtis A. Sampson		/s/ ~~David T. McGraw~~Edwin C. Freeman

~~William G. Schultz~~Curtis A. Sampson		~~David T. McGraw~~Edwin C. Freeman
Interim Chief Executive Officer		Chief Financial Officer


/s/ Deloitte & Touche LLP

Minneapolis, Minnesota
March ~~15, 2013~~14, 2014


	December 31 2012			December 31 2011		December 31 2013			December 31 2012

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	17,869,712		$	22,515,710	$	20,059,120		$	17,869,712
Investments		12,701,538			18,635,601		5,742,314			12,701,538
Trade accounts receivable, less allowance for doubtful accounts of $69,000 and $175,000, respectively		14,683,227			14,461,168
Trade accounts receivable, less allowance for doubtful accounts of $69,000 and $69,000, respectively							22,902,323			14,683,227
Inventories		33,752,710			25,986,003		29,111,656			33,752,710
Prepaid income taxes		2,113,926			3,893,003		1,381,502			2,113,926
Other current assets		783,352			999,863		716,784			783,352
Deferred income taxes		4,013,628			3,455,047		3,758,750			4,013,628

TOTAL CURRENT ASSETS		85,918,093			89,946,395		83,672,449			85,918,093

PROPERTY, PLANT AND EQUIPMENT, net		14,474,913			14,019,019		14,941,492			14,474,913
OTHER ASSETS:
Investments		5,376,397			4,883,510		3,920,978			5,376,397
Goodwill		5,956,934			5,990,571		—			5,956,934
Funded pension assets		—			905,552		305,028			—
Other assets		808,308			913,869		692,794			808,308

TOTAL OTHER ASSETS		12,141,639			12,693,502		4,918,800			12,141,639

TOTAL ASSETS	$	112,534,645			116,658,916	$	103,532,741		$	112,534,645


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	457,464		$	427,345	$	489,706		$	457,464
Accounts payable		9,237,233			4,398,848		4,894,869			9,237,233
Accrued compensation and benefits		3,044,864			5,870,000		3,927,728			3,044,864
Accrued consideration		770,041			1,002,623		558,801			770,041
Other accrued liabilities		1,670,009			2,388,867		1,765,428			1,670,009
Dividends payable		61,833			1,299,963		1,436,318			61,833

TOTAL CURRENT LIABILITIES		15,241,444			15,387,646		13,072,850			15,241,444

LONG TERM LIABILITIES:
Long-term compensation plans		350,457			283,075		—			350,457
Uncertain tax positions		320,426			405,673		400,846			320,426
Deferred income taxes		1,381,785			1,476,969		809,179			1,381,785
Pension liabilities		127,611			—		—			127,611
Long-term debt - mortgage payable		1,117,529			1,574,993		627,823			1,117,529

TOTAL LONG-TERM LIABILITIES		3,297,808			3,740,710		1,837,848			3,297,808

COMMITMENTS AND CONTINGENCIES (Footnote 8)

STOCKHOLDERS’ EQUITY
Preferred stock, par value $1.00 per share; 3,000,000 shares authorized; none issued
Common stock, par value $.05 per share; 30,000,000 shares authorized; 8,474,896 and 8,466,774 shares issued and outstanding, respectively		423,745			423,339
Common stock, par value $.05 per share; 30,000,000 shares authorized; 8,553,320 and 8,474,896 shares issued and outstanding, respectively							427,666			423,745
Additional paid-in capital		36,404,518			35,533,273		37,110,671			36,404,518
Retained earnings		57,755,178			61,466,342		51,323,718			57,755,178
Accumulated other comprehensive (loss) income		(588,048	)		107,606
Accumulated other comprehensive loss							(240,012	)		(588,048	)

TOTAL STOCKHOLDERS’ EQUITY		93,995,393			97,530,560		88,622,043			93,995,393

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	112,534,645		$	116,658,916	$	103,532,741		$	112,534,645


	December 31						December 31

	2012			2011			2013			2012

Minimum pension liability							$	1,796,000		$	1,759,000
Unrealized gain on available-for-sale investments								2,000			24,000
Foreign currency translation	$	(2,370,474	)	$	(337,597	)		(2,038,000	)		(2,371,000	)
Unrealized gain on available-for-sale investments		23,590			(2,633	)
Minimum pension liability		1,758,836			447,836

	$	(588,048	)	$	107,606		$	(240,000	)	$	(588,000	)

Title of each class

Name of each exchange on which registered

Common Stock, $.05 par value
~~Preferred Stock Purchase Rights~~

Preferred Stock Purchase Rights


																		December 31, 2013
	December 31, 2012
																Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash Equivalents		Short-Term Investments		Long-Term Investments
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash Equivalents		Short-Term Investments		Long-Term Investments

Cash equivalents:
Money Market funds	$	5,497,788	$	—	$	—		$	5,497,788	$	5,497,788	$		$		$	5,751,965	$	—	$	—		$	5,751,965	$	5,751,965	$		$

Subtotal		5,497,788		—		—			5,497,788		5,497,788		—		—		5,751,965		—		—			5,751,965		5,751,965		—		—


Investments:
Certificates of deposit																	4,024,031		687		(4,992	)		4,019,726		239,904		2,582,502		1,197,320
Corporate Notes/Bonds																	5,861,162		22,830		(522	)		5,883,470		—		3,159,812		2,723,658

Subtotal																	9,885,193		23,517		(5,514	)		9,903,196		239,904		5,742,314		3,920,978


Total																$	15,637,158	$	23,517	$	(5,514	)	$	15,655,161	$	5,991,869	$	5,742,314	$	3,920,978


																		December 31, 2012

																Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash Equivalents		Short-Term Investments		Long-Term Investments


Cash equivalents:
Money Market funds																$	5,497,788	$	—	$	—		$	5,497,788	$	5,497,788	$		$

Subtotal																	5,497,788		—		—			5,497,788		5,497,788		—		—


Investments:
Certificates of deposit		8,157,749		3,727		(1,945	)		8,159,531		—		7,258,768		900,763		8,157,749		3,727		(1,945	)		8,159,531		—		7,258,768		900,763
Corporate Notes/Bonds		8,241,327		35,364		(914	)		8,275,777		—		3,800,143		4,475,634		8,241,327		35,364		(914	)		8,275,777		—		3,800,143		4,475,634
Commercial Paper		1,638,892		3,735		—			1,642,627		—		1,642,627		—		1,638,892		3,735		—			1,642,627		—		1,642,627		—

Subtotal		18,037,968		42,826		(2,859	)		18,077,935		—		12,701,538		5,376,397		18,037,968		42,826		(2,859	)		18,077,935		—		12,701,538		5,376,397


Total	$	23,535,756	$	42,826	$	(2,859	)	$	23,575,723	$	5,497,788	$	12,701,538	$	5,376,397	$	23,535,756	$	42,826	$	(2,859	)	$	23,575,723	$	5,497,788	$	12,701,538	$	5,376,397


	December 31, 2011

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash Equivalents		Short-Term Investments		Long-Term Investments

Cash equivalents:
Money Market funds	$	829,881	$	—	$	—		$	829,881	$	829,881	$		$

Subtotal		829,881		—		—			829,881		829,881		—		—


Investments:
Certificates of deposit		23,527,506		8,213		(16,608	)		23,519,111		—		18,635,601		4,883,510

Subtotal		23,527,506		8,213		(16,608	)		23,519,111		—		18,635,601		4,883,510


Total	$	24,357,387	$	8,213	$	(16,608	)	$	24,348,992	$	829,881	$	18,635,601	$	4,883,510


	Amortized Cost		Estimated Market Value		Amortized Cost		Estimated Market Value

Due within one year	$	12,687,866	$	12,701,538	$	5,730,052	$	5,982,218
Due after one year through five years		5,350,102		5,376,397		3,915,131		3,920,978

	$	18,037,968	$	18,077,935	$	9,645,183	$	9,903,196


				December 31						Estimated useful life			December 31
	Estimated useful life
			2012			2011						2013			2012

Land				$	3,135,351		$	3,114,330					$	3,116,177		$	3,135,351
Buildings and improvements		7-40 years			8,858,976			8,779,969			7-40 years			8,527,594			8,858,976
Machinery and equipment		3-15 years			23,247,888			23,266,325			3-15 years			25,408,221			23,247,888
Furniture and fixtures		5-10 years			3,644,306			3,966,579			5-10 years			4,041,884			3,644,306
Construction in progress					1,546,732			515,095						617,708			1,546,732

					40,433,253			39,642,298						41,711,584			40,433,253
Less accumulated depreciation					(25,958,340	)		(25,623,279	)					(26,770,092	)		(25,958,340	)

				$	14,474,913		$	14,019,019					$	14,941,492		$	14,474,913


	Suttle			Transition Networks			Total			Suttle			Transition Networks			Total

January 1, 2011	$	1,271,986		$	3,288,231		$	4,560,217

Impairment loss		(1,271,986	)		—			(1,271,986	)
Acquisition		—			2,702,340			2,702,340
								—

December 31, 2011		—			5,990,571			5,990,571
January 1, 2012										$	—		$	5,990,571		$	5,990,571

Foreign currency translation		—			(33,637	)		(33,637	)		—			(33,637	)		(33,637	)
																	—

December 31, 2012	$	—		$	5,956,934		$	5,956,934		$	—			5,956,934			5,956,934


January 1, 2013										$	—		$	5,956,934		$	5,956,934

Impairment loss											—			(5,849,853	)		(5,849,853	)
Foreign currency translation											—			(107,081	)		(107,081	)


December 31, 2013										$	—		$	—		$	—


Gross goodwill		1,271,986		$	5,956,934		$	7,228,920			1,271,986		$	5,849,853		$	7,121,839
Accumulated impairment loss		(1,271,986	)		—			(1,271,986	)		(1,271,986	)		(5,849,853	)		(7,121,839	)

Balance at December 31, 2012	$	—		$	5,956,934		$	5,956,934
Balance at December 31, 2013										$	—		$	—		$	—


	December 31, 2013

	Gross Carrying Amount		Accumulated Amortization			Foreign Currency Translation			Net

Trademarks		81,785		(17,262	)		(10,545	)		53,978
Customer relationships		490,707		(72,500	)		(43,105	)		375,102
Technology		228,996		(67,667	)		(42,066	)		119,263

		801,488		(157,429	)		(95,716	)		548,343


Year Ending December 31:
2014	$	104,000
2015		104,000
2016		86,000
2017		59,000
2018		55,000


	2012			2011

Change in benefit obligation:
Benefit obligation at the beginning of the year	$	5,150,000		$	4,919,000
Service cost		275,000			36,000
Interest cost		244,000			240,000
Participant contributions		0			15,000
Augmentations		0			45,000
Actuarial (gains)/losses		325,000			62,000
Benefits paid		(552,000	)		(162,000	)
Foreign currency gains		233,000			(5,000	)

Benefit obligation at the end of the year		5,675,000			5,150,000

Change in plan assets:
Fair value of plan assets at beginning of year		6,056,000			5,269,000
Actual return on plan assets		(289,000	)		892,000
Employer contributions		58,000			48,000
Participant contributions		0			15,000
Benefits paid		(552,000	)		(162,000	)
Foreign currency losses		274,000			(6,000	)

Fair value of plan assets at end of year		5,547,000			6,056,000

Funded status at end of year – net asset /(liability)	$	(128,000	)	$	906,000


Weighted average assumptions used to determine net periodic pension costs:
Discount rate	4.3	%	4.7	%
Expected return on assets	5.1	%	4.2	%


	Options			Weighted average exercise price per share		Weighted average remaining contractual term		Options			Weighted average exercise price per share		Weighted average remaining contractual term

Outstanding – December 31, 2009		189,000		$	9.77		4.75 years
Awarded		18,000			11.82
Exercised		(21,000	)		8.70
Forfeited		(24,000	)		14.13

Outstanding – December 31, 2010		162,000		$	9.49		5.33 years		162,000		$	9.49		5.33 years
Awarded		96,250			14.16				96,250			14.16
Exercised		(9,000	)		8.10				(9,000	)		8.10
Forfeited		(12,430	)		11.23				(12,430	)		11.23

Outstanding – December 31, 2011		236,820		$	11.35		5.18 years		236,820		$	11.35		5.18 years
Awarded		92,223			13.10				92,223			13.10
Exercised		(12,000	)		7.13				(12,000	)		7.13
Forfeited		(5,890	)		10.58				(5,890	)		10.58

Outstanding – December 31, 2012		311,153			12.05		4.99 years		311,153		$	12.05		4.99 years
Awarded									169,550			10.19
Exercised									(15,000	)		7.35
Forfeited									(156,264	)		11.25

Excercisable at December 31, 2012		180,185		$	11.05		4.33 years
Expected to vest December 31, 2012		308,405			12.03		4.98 years
Outstanding – December 31, 2013									309,439			11.66		4.13 years

Excercisable at December 31, 2013									231,586		$	11.73		3.58 years
Expected to vest December 31, 2013									309,439			11.66		4.13 years