2009 IN REVIEW

2009 was an interesting and very challenging year for Communications Systems, Inc. (CSI). Coming off the best year in CSI’s 40-year history in 2008, we were cautiously optimistic about 2009. It was a hard act to follow. CSI had a good year in 2009 and, in fact, was recognized twice during the year by two nationally-known organizations. In May 2009, CSI was selected to be included in the Russell 2000. The Russell 2000 is the most well known of a series of market-value weighted indices published by the Frank Russell Company. The index measures the performance of 2000 small companies in terms of market capitalization. In October 2009, CSI was selected to be one of Forbes Magazine’s “200 Best Small Companies in America”. This is what Forbes had to say: ‘Despite a rough economy and other forces that took the NASDAQ to its 6-year low, this year’s Forbes 200 Best Small Companies is a stellar bunch of up-and-comers. Although some companies have experienced rough waters over the past few years, such as a slip in sales and earnings, their balance sheets indicate they have the muscle to remain viable entities over the long term. Each company on the list has earned its place and is, indeed, good enough to be called "One of the best."’ CSI saw the world economy continue to weaken during the first quarter of 2009, especially the international business for Transition Networks and Austin Taylor business units. The challenges were apparent and although we were not able to maintain growth in revenue and operating profit as we planned, our business units did a good job of managing assets and investments. This resulted in three of the four business units, JDL, Suttle and Transition Networks, reporting profitable results in 2009.

STRONG FINANCIAL POSITION

CSI continued its history of generating strong cash flows. Net cash from operations in 2009 was $17,637,000 compared to $10,222,000 in 2008. At December 31, 2009, CSI’s cash, cash equivalents and investments were $40,069,000 compared to $29,952,000 at the end of 2008 despite using approximately $4.6 million in cash for stock dividends and stock buy-back programs during the year. CSI continued to pay our shareholders’ dividends and paid out $0.52 per share in dividends during 2009.

POSITIVE OUTLOOK 2010

As the world economies heal themselves, CSI remains committed to the expansion of our global presence and the continuation of strategic initiatives. We will build on our strong brand names, protect and grow our core businesses, leverage our business units’ capabilities, and play a role of expansion through acquisition. Long term we will grow through product and market diversification, and continue to seek strategic partnerships andalliances. We will bring new and innovative solutions to our current and future customers.

IN SUMMARY

2009 was a good year for CSI despite a severe decline in residential and commercial construction and a global recession which significantly affected our revenue. We reduced the impact to our bottom line through costcontrols and other measures. Like most companies 2010 is expected to be challenging given the current economic climate. CSI has a strong balance sheet and liquidity to navigate these difficult times. Our employees are doing an outstanding job of managing through these challenges while continuing to prepare CSI and its business units for growth and increased profitability. To our shareholders, employees, customers and partners: Thank You for your continued support. Sincerely,

Jeffrey K. Berg