Document And Entity Information
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Document And Entity Information
9 Months Ended
Sep. 30, 2013
Nov. 01, 2013
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2013  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2013  
Entity Registrant Name COMMUNICATIONS SYSTEMS INC  
Entity Central Index Key 0000022701  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   8,551,542

Condensed Consolidated Balance Sheets
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Condensed Consolidated Balance Sheets (USD $)
Sep. 30, 2013
Dec. 31, 2012
CURRENT ASSETS:    
Cash and cash equivalents $ 8,103,878 $ 17,869,712
Investments 8,113,687 12,701,538
Trade accounts receivable, less allowance for doubtful accounts of $56,000 and $69,000, respectively 36,731,208 14,683,227
Inventories 28,551,690 33,752,710
Prepaid income taxes   2,113,926
Other current assets 693,804 783,352
Deferred income taxes 4,203,426 4,013,628
TOTAL CURRENT ASSETS 86,397,693 85,918,093
PROPERTY, PLANT AND EQUIPMENT, net 14,764,093 14,474,913
OTHER ASSETS:    
Investments 2,976,742 5,376,397
Goodwill   5,956,934
Other assets 712,998 808,308
TOTAL OTHER ASSETS 3,689,740 12,141,639
TOTAL ASSETS 104,851,526 112,534,645
CURRENT LIABILITIES:    
Current portion of long-term debt 481,439 457,464
Accounts payable 4,993,242 9,237,233
Accrued compensation and benefits 3,492,892 3,044,864
Accrued consideration 256,519 770,041
Other accrued liabilities 1,843,606 1,670,009
Income taxes payable 47,061  
Dividends payable 1,442,951 61,833
TOTAL CURRENT LIABILITIES 12,557,710 15,241,444
LONG TERM LIABILITIES:    
Long-term compensation plans   350,457
Uncertain tax positions 233,782 320,426
Deferred income taxes 877,963 1,381,785
Pension liabilities 154,095 127,611
Long term debt - mortgage payable 753,394 1,117,529
TOTAL LONG-TERM LIABILITIES 2,019,234 3,297,808
COMMITMENTS AND CONTINGENCIES (Footnote 7)      
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; 8,548,273 and 8,474,896 shares issued and outstanding, respectively 427,414 423,745
Additional paid-in capital 37,133,171 36,404,518
Retained earnings 53,488,776 57,755,178
Accumulated other comprehensive loss (774,779) (588,048)
TOTAL STOCKHOLDERS' EQUITY 90,274,582 93,995,393
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 104,851,526 $ 112,534,645

Condensed Consolidated Balance Sheets (Parenthetical)
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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2013
Dec. 31, 2012
Condensed Consolidated Balance Sheets [Abstract]    
Trade accounts receivable, allowance for doubtful accounts $ 56,000 $ 69,000
Preferred stock, par value $ 1.00 $ 1.00
Preferred stock, shares authorized 3,000,000 3,000,000
Preferred stock, shares issued 0 0
Common stock, par value $ 0.05 $ 0.05
Common stock, shares authorized 30,000,000 30,000,000
Common stock, shares issued 8,548,273 8,474,896
Common stock, shares outstanding 8,548,273 8,474,896

Condensed Consolidated Statements Of (Loss) Income And Comprehensive (Loss) Income
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Condensed Consolidated Statements Of (Loss) Income And Comprehensive (Loss) Income (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
Condensed Consolidated Statements Of (Loss) Income And Comprehensive (Loss) Income [Abstract]        
Sales $ 44,616,873 $ 28,687,687 $ 104,006,206 $ 78,492,866
Costs and expenses:        
Cost of sales 30,993,686 17,927,814 69,078,776 47,128,483
Selling, general and administrative expenses 9,468,972 9,053,164 27,835,588 28,169,627
Impairment loss 5,849,853   5,849,853  
Total costs and expenses 46,312,511 26,980,978 102,764,217 75,298,110
Operating (loss) income (1,695,638) 1,706,709 1,241,989 3,194,756
Other (expenses) and income:        
Investment and other income (72) (8,342) 122,070 24,830
(Loss)/gain on sale of assets (33,388) (1,740) (78,065) 87,801
Interest and other expense (26,644) (33,187) (82,487) (104,918)
Other (expense) income, net (60,104) (43,269) (38,482) 7,713
(Loss) income from operations before income taxes (1,755,742) 1,663,440 1,203,507 3,202,469
Income tax expense 280,191 544,098 1,358,525 1,056,316
Net (loss) income (2,035,933) 1,119,342 (155,018) 2,146,153
Other comprehensive income (loss), net of tax:        
Additional minimum pension liability adjustments 179,450 4,671 (26,624) 137,397
Unrealized gains/(losses) on available-for-sale securities 12,193 33,855 (18,353) 39,488
Foreign currency translation adjustment 197,918 103,814 (141,754) 143,697
Total other comprehensive income (loss) 389,561 142,340 (186,731) 320,582
Comprehensive (loss) income $ (1,646,372) $ 1,261,682 $ (341,749) $ 2,466,735
Basic net (loss) income per share: $ (0.24) $ 0.13 $ (0.02) $ 0.25
Diluted net (loss) income per share: $ (0.24) $ 0.13 $ (0.02) $ 0.25
Weighted Average Basic Shares Outstanding 8,547,563 8,520,469 8,524,045 8,505,571
Weighted Average Dilutive Shares Outstanding 8,550,227 8,532,534 8,531,017 8,528,523
Dividends declared per share $ 0.16 $ 0.16 $ 0.48 $ 0.48

Condensed Consolidated Statements Of Changes In Stockholders' Equity
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Condensed Consolidated Statements Of Changes In Stockholders' Equity (USD $)
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Total
BALANCE at Dec. 31, 2012 $ 423,745 $ 36,404,518 $ 57,755,178 $ (588,048) $ 93,995,393
BALANCE, Shares at Dec. 31, 2012 8,474,896        
Net loss     (155,018)   (155,018)
Issuance of common stock under Employee Stock Purchase Plan 685 135,545     136,230
Issuance of common stock under Employee Stock Purchase Plan, Shares 13,708        
Issuance of common stock to Employee Stock Ownership Plan 2,230 461,589     463,819
Issuance of common stock to Employee Stock Ownership Plan, Shares 44,598        
Issuance of common stock under Non-Employee Stock Option Plan 750 109,500     110,250
Issuance of common stock under Non-Employee Stock Option Plan, Shares 15,000        
Issuance of common stock under Executive Stock Plan 4 694     698
Issuance of common stock under Executive Stock Plan, Shares 71        
Tax benefit from non-qualified stock options   13,562     13,562
Share-based compensation   7,763     7,763
Shareholder dividends     (4,111,384)   (4,111,384)
Other comprehensive loss       (186,731) (186,731)
BALANCE at Sep. 30, 2013 $ 427,414 $ 37,133,171 $ 53,488,776 $ (774,779) $ 90,274,582
BALANCE, Shares at Sep. 30, 2013 8,548,273        

Condensed Consolidated Statements Of Cash Flows
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Condensed Consolidated Statements Of Cash Flows (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net (loss) income $ (155,018) $ 2,146,153
Adjustments to reconcile net (loss) income to net cash provided by operating activities:    
Depreciation and amortization 1,627,804 1,636,887
Share-based compensation 7,763 366,574
Deferred taxes (693,619) 129,918
Impairment loss 5,849,853  
Change in fair value of acquisition-related contingent consideration (352,462) (161,644)
Loss/(gain) on sale of assets 78,065 (87,801)
Excess tax benefit from share based payments (13,562) (67,932)
Changes in assets and liabilities:    
Trade receivables (22,042,463) (2,101,517)
Inventories 5,187,881 (2,493,891)
Prepaid income taxes 2,126,683 890,067
Other assets 106,675 (2,815)
Accounts payable (4,243,547) (797,081)
Accrued compensation and benefits 560,605 (2,554,475)
Other accrued liabilities 161,650 (109,789)
Income taxes payable (38,272) (23,475)
Net cash used in operating activities (11,831,964) (3,230,821)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures (1,977,058) (2,047,771)
Purchases of investments (2,824,848) (13,599,917)
Proceeds from the sale of fixed assets 56,394 161,663
Proceeds from the sale of investments 9,794,000 15,556,039
Net cash provided by investing activities 5,048,488 70,014
CASH FLOWS FROM FINANCING ACTIVITIES:    
Cash dividends paid (2,730,265) (4,005,003)
Mortgage principal payments (340,161) (317,765)
Proceeds from issuance of common stock 247,178 249,847
Excess tax benefit from stock based payments 13,562 67,932
Payment of contingent consideration related to acquisition (161,060) (357,879)
Purchase of common stock   (252,647)
Net cash used in financing activities (2,970,746) (4,615,515)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (11,612) 25,011
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,765,834) (7,751,311)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,869,712 22,515,710
CASH AND CASH EQUIVALENTS AT END OF YEAR 8,103,878 14,764,399
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Income taxes (refunded)/paid (85,297) 74,508
Interest paid 79,293 103,945
Dividends declared not paid $ 1,367,724 $ 1,363,430

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
9 Months Ended
Sep. 30, 2013
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business

 

Communications Systems, Inc. (herein collectively called “CSI” or the “Company”) is a Minnesota corporation organized in 1969 that operates primarily as a holding company conducting its business through three business units having operations in the United States, Costa Rica, the United Kingdom and China. Through its Suttle business unit, the Company is principally engaged in the manufacture and sale of modular connecting and wiring devices for voice and data communications, digital subscriber line filters, and structured wiring systems. Through its Transition Networks business unit, the Company is engaged in the manufacture of media and rate conversion products for telecommunications networks. Through its JDL Technologies (“JDL”) business unit, the Company also provides IT solutions including network design, computer infrastructure installations, IT service management, change management, network security and network operations services.

 

Financial Statement Presentation

 

The condensed consolidated balance sheets and condensed consolidated statement of changes in stockholders’ equity as of September 30, 2013 and the related condensed consolidated statements of (loss) income and comprehensive (loss) income, and the condensed consolidated statements of cash flows for the periods ended September 30, 2013 and 2012 have been prepared by Company management.  In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2013 and 2012 and for the periods then ended have been made.

 

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted.  We recommend these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2012 Annual Report to Shareholders on Form 10-K.  The results of operations for the periods ended September 30, 2013 are not necessarily indicative of operating results for the entire year.

 

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period.  The estimates and assumptions used in the accompanying condensed consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the time of the financial statements.  Actual results could differ from those estimates.

 

Except to the extent updated or described below, the significant accounting policies set forth in Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2012, appropriately represent, in all material respects, the current status of accounting policies, and are incorporated herein by reference.

 

 

Revenue Recognition

 

The Company’s manufacturing operations (Suttle and Transition Networks) recognize revenue when the earnings process is complete, evidenced by persuasive evidence of an agreement, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue is recognized for domestic and international sales at the shipping point or delivery to customers, based on the related shipping terms. Risk of loss transfers at the point of shipment or delivery to customers, and the Company has no further obligation after this time. Sales are made directly to customers and through distributors. Payment terms for distributors are consistent with the terms of the Company’s direct customers. The Company records a provision for sales returns, sales incentives, and warranty costs at the time of the sale, based on historical experience and current trends.

 

JDL generally records revenue on hardware, software and related equipment sales and installation contracts when the revenue recognition criteria are met and products are installed and accepted by the customer. JDL records revenue on service contracts on a straight-line basis over the contract period, unless evidence suggests the revenue is earned in a different pattern. Each contract is individually reviewed to determine when the earnings process is complete.

 

Accumulated Other Comprehensive (Loss) Income

 

The components of accumulated other comprehensive income, net of tax, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

 

December 31

 

 

 

2013

 

 

2012

Foreign currency translation

 

$

(2,512,228)

 

$

(2,370,474)

Unrealized (loss)/gain on available-for-sale investments

 

 

5,237 

 

 

23,590 

Minimum pension liability

 

 

1,732,212 

 

 

1,758,836 

 

 

$

(774,779)

 

$

(588,048)

 


Cash Equivalents And Investments
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Cash Equivalents And Investments
9 Months Ended
Sep. 30, 2013
Cash Equivalents And Investments [Abstract]  
Cash Equivalents And Investments

NOTE 2 – CASH EQUIVALENTS AND INVESTMENTS

 

The following tables show the Company’s cash equivalents and available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short and long term investments as of September 30, 2013 and December 31, 2012:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

Cash Equivalents

 

Short-Term Investments

 

Long-Term Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market funds

$

1,548,267 

 

$

 -

 

$

 -

 

$

1,548,267 

 

$

1,548,267 

 

$

 

 

$

 

Subtotal

 

1,548,267 

 

 

 -

 

 

 -

 

 

1,548,267 

 

 

1,548,267 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

2,101,926 

 

 

785 

 

 

(2,213)

 

 

2,100,498 

 

 

 -

 

 

1,861,509 

 

 

238,989 

Corporate Notes/Bonds

 

8,966,889 

 

 

25,977 

 

 

(2,935)

 

 

8,989,931 

 

 

 -

 

 

6,252,178 

 

 

2,737,753 

Subtotal

 

11,068,815 

 

 

26,762 

 

 

(5,148)

 

 

11,090,429 

 

 

 -

 

 

8,113,687 

 

 

2,976,742 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

12,617,082 

 

$

26,762 

 

$

(5,148)

 

$

12,638,696 

 

$

1,548,267 

 

$

8,113,687 

 

$

2,976,742 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 

Corporate Notes/Bonds

 

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 

 

 

 -

Subtotal

 

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 

 

The Company tests for other than temporary losses on a quarterly basis and has considered the unrealized losses indicated above to be temporary in nature. The Company intends to hold the investments until it can recover the full principal amount and has the ability to do so based on other sources of liquidity. The Company expects these recoveries to occur prior to the contractual maturities.  All unrealized losses as of September 30, 2013 were in a continuous unrealized loss position for less than twelve months and are not deemed to be other than temporarily impaired as of September 30, 2013.

The following table summarizes the estimated fair value of our investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of September 30, 2013:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Estimated Market Value

 

 

 

 

 

Due within one year

 

$  

8,094,583 

 

$

8,113,687 

Due after one year through five years

 

 

2,974,232 

 

 

2,976,742 

 

 

11,068,815 

 

$

11,090,429 

 

The Company did not recognize any gross realized gains, and gross realized losses were immaterial, during the nine-month periods ending September 30, 2013 and 2012, respectively. If the Company had realized gains or losses, they would be included within investment and other income in the accompanying consolidated results of operations.


Stock-Based Compensation
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Stock-Based Compensation
9 Months Ended
Sep. 30, 2013
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

NOTE 3 - STOCK-BASED COMPENSATION

 

Employee Stock Purchase Plan

 

Under the Company’s Employee Stock Purchase Plan (“ESPP”), employees are able to acquire shares of common stock at 90% of the price at the end of each current quarterly plan term.  The most recent term ended September 30, 2013.  The ESPP is considered compensatory under current Internal Revenue Service rules.  At September 30, 2013, after giving effect to the shares issued as of that date, 38,856 shares remain available for purchase under the ESPP.

 

2011 Executive Incentive Compensation Plan

 

On March 28, 2011 the Board adopted and on May 19, 2011 the Company’s shareholders approved the Company’s 2011 Executive Incentive Compensation Plan (“2011 Incentive Plan”).  The 2011 Incentive Plan authorizes incentive awards to officers, key employees and non-employee directors in the form of options (incentive and non-qualified), stock appreciation rights, restricted stock, restricted stock units, performance stock units (“deferred stock”), performance cash units, and other awards in stock, cash, or a combination of stock and cash.  Up to 1,000,000 shares of our common stock may be issued pursuant to awards under the 2011 Incentive Plan. 

 

During 2013, stock options covering 169,550 shares were awarded to key executive employees, which options expire seven years from the date of award and vest 25% each year beginning one year after the date of award.  The Company also granted deferred stock awards of 202,078 shares to key employees during 2013 under the Company’s long-term incentive plan for performance over the 2013 to 2015 period.  The actual number of shares of deferred stock, if any, that are earned by the respective employees will be determined based on achievement against cumulative performance goals for the three years ending December 31, 2015 and the shares earned will be issued in the first quarter of 2016 to those key employees still with the Company at that time. The Company also granted deferred stock awards of up to 11,576 shares to executive employees that could be earned under the Company’s short-term incentive plan if actual revenue equaled or exceeded 150% of 2013 quarterly or annual revenue targets.  The shares earned by the respective executive employees will be issued no later than the first quarter of 2014.

 

During 2013, the Company granted restricted stock units totaling 28,280 units to the Company’s seven non-employee directors with the restricted stock units issued to each director having a value of $40,000 based on the closing price of the Company’s stock on May 21, 2013. These restricted stock units vest after one year and are issued as stock after another year. 

 

At September 30, 2013,  568,711 shares remained available for future issuance under the 2011 Incentive Plan.

 

 

Stock Option Plan for Directors

 

Shares of common stock are reserved for issuance to non-employee directors under options granted by the Company prior to 2011 under its Stock Option Plan for Non-Employee Directors (the “Director Plan”).  Under the Director Plan nonqualified stock options to acquire shares of common stock were automatically granted to each non-employee director concurrent with annual meetings of shareholders in 2010 and earlier years, with the exercise price of options granted being the fair market value of the common stock on the date of the respective shareholder meetings.  Options granted under the Director Plan expire 10 years from date of grant.   

 

No options were granted under the Director Plan in 2012 or 2013.  The Director Plan was amended as of May 19, 2011 to prohibit option grants in 2011 and future years.

 

1992 Stock Plan

 

Under the Company’s 1992 Stock Plan (“the Stock Plan”), shares of common stock may be issued pursuant to stock options, restricted stock or deferred stock grants to officers and key employees.  Exercise prices of stock options under the Stock Plan cannot be less than fair market value of the stock on the date of grant.  Rules and conditions governing awards of stock options, restricted stock and deferred stock are determined by the Compensation Committee of the Board of Directors, subject to certain limitations in the Stock PlanWhen seeking approval of the 2011 Incentive Plan at the 2011 Annual Meeting of Shareholders, the Company committed to amending the Stock Plan to prohibit the issuance of future equity awards if such approval was given. Effective August 11, 2011, the amendment to prohibit future stock options or other equity awards was approved by the Board.

 

At September 30, 2013, after reserving for stock options and deferred stock awards granted in prior years and adjusting for forfeitures and issuances during the year, there were 136,009 shares reserved for issuance under the Stock Plan. The Company has not awarded stock options or deferred stock under this plan in 2013.

 

Changes in Stock Options Outstanding

 

The following table summarizes changes in the number of outstanding stock options under the 2011 Incentive Plan, the Director Plan and Stock Plan over the period December 31, 2012 to September 30, 2013:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

Weighted average

 

 

 

exercise price

 

remaining

 

Options

 

per share

 

contractual term

Outstanding – December 31, 2012

311,153 

 

$

 

12.05 

 

4.98 

Awarded

169,550 

 

 

 

10.19 

 

 

Exercised

(15,000)

 

 

 

7.35 

 

 

Forfeited

(166,155)

 

 

 

11.49 

 

 

Outstanding – September 30, 2013

299,548 

 

 

 

11.54 

 

4.43 

 

 

 

 

 

 

 

 

Excercisable at September 30, 2013

184,188 

 

$

 

11.58 

 

4.08 

Expected to vest September 30, 2013

299,548 

 

 

 

11.54 

 

4.43 

 

The aggregate intrinsic value of all options (the amount by which the market price of the stock on the last day of the period exceeded the market price of the stock on the date of grant) outstanding at September 30, 2013 was $213,000.  The intrinsic value of all options exercised during the nine months ended September 30, 2013 was $38,000. Net cash proceeds from the exercise of all stock options were $110,000 and $86,000 for the nine months ended September 30, 2013 and 2012, respectively.

 

Changes in Deferred Stock Outstanding

 

The following table summarizes the changes in the number of deferred stock shares under the Stock Plan and 2011 Incentive Plan over the period December 31, 2012 to September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant Date

 

 

 

Shares

 

Fair Value

Outstanding – December 31, 2012

 

 

160,790 

 

$

14.16 

Granted

 

 

217,654 

 

 

10.07 

Vested

 

 

(71)

 

 

9.82 

Forfeited

 

 

(130,750)

 

 

11.35 

Outstanding – September 30, 2013

 

 

247,623 

 

 

12.05 

 

Changes in Restricted Stock Units Outstanding

 

The following table summarizes the changes in the number of restricted stock units under the 2011 Incentive Plan over the period December 31, 2012 to September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant Date

 

 

 

Shares

 

Fair Value

Outstanding – December 31, 2012

 

 

25,879 

 

$

10.82 

Granted

 

 

29,290 

 

 

9.97 

Vested

 

 

 -

 

 

 -

Forfeited

 

 

(4,040)

 

 

9.90 

Outstanding – September 30, 2013

 

 

51,129 

 

 

10.40 

 

Compensation Expense

 

Share-based compensation expense recognized for the nine-month period ended September 30, 2013 was $8,000 before income taxes and $5,000 after income taxes. Share-based compensation expense recognized for the nine-month period ended September 30, 2012 was $367,000 before income taxes and $238,000 after income taxes.  Unrecognized compensation expense for the Company’s plans was $621,000 at September 30, 2013.  Excess tax benefits from the exercise of stock options and issuance of restricted stock included in financing cash flows for the nine month periods ended September 30, 2013 and 2012 were $14,000 and $68,000, respectively. Share-based compensation expense is recorded as a part of selling, general and administrative expenses.


Inventories
v0.0.0.0
Inventories
9 Months Ended
Sep. 30, 2013
Inventories [Abstract]  
Inventories

NOTE 4 - INVENTORIES

 

Inventories summarized below are priced at the lower of first-in, first-out cost or market:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30

 

December 31

 

 

2013

 

2012

Finished goods

 

$         

18,772,477 

 

$

21,252,143 

Raw and processed materials

 

 

9,779,213 

 

 

12,500,567 

 

 

$

28,551,690 

 

$

33,752,710 

 


Goodwill And Other Intangible Assets
v0.0.0.0
Goodwill And Other Intangible Assets
9 Months Ended
Sep. 30, 2013
Goodwill And Other Intangible Assets [Abstract]  
Goodwill And Other Intangible Assets

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill is required to be evaluated for impairment on an annual basis and between annual tests upon the occurrence of certain events or circumstances. A two-step process is performed to analyze whether or not goodwill has been impaired. Step one is to test for potential impairment, and requires that the fair value of the reporting unit be compared to its book value including goodwill. If the fair value is higher than the book value, no impairment is recognized. If the fair value is lower than the book value, a second step must be performed. The second step is to measure the amount of impairment loss, if any, and requires that a hypothetical purchase price allocation be done to determine the implied fair value of goodwill. This fair value is then compared to the carrying value of goodwill. If the implied fair value is lower than the carrying value, an impairment adjustment must be recorded.

During the quarter ended September 30, 2013, due to the loss of key personnel and the continued decline in year-over-year revenues due primarily to continued slowdown in domestic government spending as well as a decline in sales of its legacy products,  management concluded that these events and circumstances were indicators to require us to perform an interim goodwill impairment analysis of our Transition Networks reporting unit.  This analysis included the determination of the reporting unit’s fair value primarily using discounted cash flows modeling. Based on the step one and step two analysis, considering Transition Networks’ reduced earnings and cash flow forecasts, the Company determined that Transition Networks’ goodwill was fully impaired and recorded a goodwill impairment for this segment of $5,850,000.

The changes in the carrying amount of goodwill for the nine months ended September 30, 2013 and 2012 by segment is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suttle

Transition Networks

Total

 

 

 

 

 

 

 

 

January 1, 2012

 

$

 -

$

5,990,571 

$

5,990,571 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

 -

 

(31,803)

 

(31,803)

 

 

 

 

 

 

 

 -

September 30, 2012

 

$

 -

$

5,958,768 

$

5,958,768 

 

 

 

 

 

 

 

 

January 1, 2013

 

$

 -

$

5,956,934 

$

5,956,934 

 

 

 

 

 

 

 

 

Impairment loss

 

 

 

 

(5,849,853)

 

(5,849,853)

Foreign currency translation

 

 

 -

 

(107,081)

 

(107,081)

 

 

 

 

 

 

 

 

September 30, 2013

 

$

 -

$

 -

$

 -

 

 

 

 

 

 

 

 

Gross goodwill

 

 

1,271,986 

$

5,849,853 

$

7,121,839 

Accumulated impairment loss

 

 

(1,271,986)

 

(5,849,853)

 

(7,121,839)

Balance at September 30, 2013

 

$

 -

$

 -

$

 -

 

The Company’s identifiable intangible assets with finite lives are being amortized over their estimated useful lives and were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

 

Gross Carrying Amount

Accumulated Amortization

Foreign Currency Translation

Net

 

 

 

 

 

 

Trademarks

 

81,785 
(24,946)
(1,107)
55,732 

Customer relationships

 

490,707 
(104,782)
(6,639)
379,286 

Technology

 

228,996 
(97,792)
(3,098)
128,106 

 

 

801,488