Communications Systems, Inc. Announces 2006 Financial Results.

HECTOR, Minn., May 16 /PRNewswire-FirstCall/ -- Communications Systems, Inc. today reported its financial results for each of the four quarters and the twelve months ended December 31, 2006. The Company also reported that it has filed its 2006 Form 10-K report as well as its March 2006, June 2006 and September 2006 Form 10-Q reports with the Securities and Exchange Commission. Filing of the 2006 Form 10-K and Form 10-Q reports was delayed due to issues and uncertainties arising from a civil investigation of the Company's JDL Technologies subsidiary that is being conducted by the U.S. Department of Justice ("DOJ") and accounting and internal control issues related to and within JDL Technologies.

JDL has been the subject of the DOJ civil investigation since April 2006. The investigation involves allegations of false claims for E-RATE funding for work performed for the U.S. Virgin Islands Department of Education ("VIDOE"). The parties under investigation include VIDOE, JDL and others. In addition to cooperating with DOJ investigators since April 2006 the Company has conducted its own internal investigation of its VIDOE business. To date the Company has not been notified by the DOJ or any other agency of any program violation or the basis for any other claim. Moreover, as a result of its internal investigation the Company believes that JDL has acted ethically and legally in its dealings with the VIDOE and the E-RATE program and that the DOJ's investigation of JDL will be resolved without material cost to the Company.

The Company's internal investigation of JDL included evaluations of JDL's accounting policies and procedures and internal controls. The Company determined that because JDL's ability to receive E-RATE funds was affected by actions that might have been taken by other individuals or companies involved with the VIDOE and E-RATE programs, JDL might be unable to collect for provided services even though JDL's conduct was compliant with the E-RATE program. It also became apparent in 2006 that JDL's contracts with the VIDOE would not be approved for payment by government authorities until the authorities were satisfied that the VIDOE was operating within the E-RATE program's legal guidelines. Accordingly, after considering the uncertainties created by the DOJ investigation of VIDOE, continuing governmental review of VIDOE's compliance with the E-RATE program and JDL's inability to collect for services provided without E-RATE program approval of its contracts with VIDOE, the Company determined it could not recognize revenue in 2006 from JDL's VIDOE contracts until it received a Funding Commitment Decision Letter ("FCDL") from the government that approved the contracts. The Company will maintain this approach into 2007 and beyond, until it becomes convinced that such approvals are routine and that it is remote funding will not be approved and that financial reports including such revenues can be relied upon as accurate. The Company also uncovered other financial reporting related issues at JDL that, combined with the change in revenue recognition policies, caused the 2006 quarterly operating results the Company is reporting today to vary from the guidance the Company issued in its May, August and November 2006 press releases.

The Company also announced that in April and May 2007, JDL Technologies received a FCDL for each of the contracts to provide maintenance, interconnection and internet access services to VIDOE for the ...