EMRISE Reports Financial Results for 2009 Third Quarter and Nine Months Revenues from Continuing Operations Increase Year over Year, Gross Margins Up, Backlog Strong, Non-Cash Impairment and Other Charges Impact Bottom Line

EATONTOWN, N.J., Nov 16, 2009 (BUSINESS WIRE) -- EMRISE CORPORATION (NYSE Arca: ERI), a multi-national manufacturer of defense and aerospace electronic devices and communications equipment, today announced financial results for the third quarter and nine months ended September 30, 2009.

EMRISE Chairman and Chief Executive Officer Carmine T. Oliva said, "Although we face significant short term liquidity challenges, we continued to make progress toward achieving a number of key goals in this year's third quarter. Revenue increased year over year despite the ongoing economic uncertainty that impacted our non defense businesses and despite the negative impact of currency fluctuations. We were able to further reduce our debt and, working with our investment bankers, we made progress in our efforts to refinance our remaining debt, sell non-core assets, and raise cash through the sale of equity. The sale of non-core assets is of particular importance to us as doing so will further reduce our debt, making an overall refinancing that much easier, and it allows us to increase our focus on our performing core business units, which is a strategic goal of the Company." He said key highlights included: -- Year-over-year increases in net sales from continuing operations in the 2009 third quarter and first nine months of 10 percent and 20 percent, respectively, compared to the previous year periods; -- An increase in gross margins to 37.2 percent and 36.8 percent in this year's third quarter and first nine months, respectively, compared to 33.4 percent and 32.2 percent in the respective prior year periods; -- Strong performance by the Company's Advanced Control Components, Inc. ("ACC") subsidiary as it continued to increase sales and capture new programs; -- Strong third quarter performance at EMRISE's U.S. communications subsidiary, including a year-over-year increase in net sales and a third quarter gross margin improvement to 36.2 percent compared to 30 percent in the same quarter a year ago; -- Exiting the 2009 third quarter with a strong overall backlog with the percentage of backlog scheduled for shipment expected to be higher in the 2009 fourth quarter and upcoming year than in prior periods; and -- A further reduction in the Company's total debt during the 2009 third quarter.

Unless otherwise indicated, the financial results for the Digitran division of its wholly-owned subsidiary, EMRISE Electronics Corporation's ("EEC"), and XCEL Japan, Ltd. (collectively the "Digitran Operations"), both of which were sold on March 20, 2009, have been removed from the comparisons of the results for the periods reported and are presented in EMRISE's consolidated statements of operations for all periods as discontinued operations.

Overall net sales from continuing operations for the 2009 third quarter increased to $14.3 million from $13.1 million in the 2008 third quarter, and net sales from continuing operations for the first nine months of this year were $42.8 million, up from $35.7 million in the first nine months of 2008. The net sales increases for the third quarter and first nine months of 2009 included $2.8 million and $13.2 million, respectively, of net sales contributed by ACC, which was acquired on August 20, 2008, as well as increases from the Company's U.S. communications equipment subsidiary.

The increase in net sales for the 2009 third quarter was partially offset by modest declines in net sales in the Company's foreign electronic devices subsidiaries due primarily to the scheduled conclusion of a large customer contract and a decline at its French communications equipment subsidiary associated with ongoing poor global economic conditions, especially due to reduced expenditures by the French government. In addition, the year-over-year differences in quarterly average exchange rates between the U.S. dollar, the British pound sterling and the euro also negatively impacted the consolidated results of EMRISE's foreign subsidiaries when translated into U.S. dollars, when compared to the same periods last year, especially at our U.K. subsidiaries. Our U.K. subsidiaries experienced an 8 percent decrease in sales denominated in the British pound sterling for the third quarter of 2009 compared to the third quarter of 2008. However, when translated into U.S. dollars, these subsidiaries experienced a 21 percent year over year decline in net sales for the third quarter due to the impact of exchange rates. Approximately 50 percent of EMRISE's total revenues is generated by its foreign subsidiaries and is converted into U.S. dollars from foreign currencies.

In early November 2009, after a solicitation process led by its investment bankers, EMRISE received multiple offers to purchase substantially all of the assets of its subsidiary, RO Associates Incorporated ("RO"), a company within EMRISE's electronic devices segment. EMRISE has identified RO as a non-core asset and one which it would be willing to sell as part of its strategic objective of reducing debt and focusing on core businesses. In connection with the receipt of offers to purchase the assets of RO, EMRISE performed an assessment of recoverability associated with the long-lived assets of RO other than goodwill and indefinite life intangibles and, as a result, recorded a non-cash impairment charge of $619,000, which is included in the Company's statement of operations as "Loss on Impairment of Assets" for the three and nine months ended September 30, 2009. The Company is proceeding with the sale process and anticipates a timely close. If EMRISE is successful in consummating a sale transaction involving RO, the Company expects to incur an additional non-cash loss at the time of the closing, primarily due to the allocated goodwill from the electronic devices reporting unit. Upon selling the assets of RO, all of the assets and liabilities and operating results from that subsidiary would be classified as discontinued operations in all subsequent and comparative reporting periods.

"While I am pleased with all the progress we made in reshaping our business and improving efficiencies throughout the first nine months of this year, I am disappointed to report that in addition to the previously discussed exchange rate issues, there were unplanned, but necessary, increases in expenses in a number of key areas during this year's third quarter and a number of unusual cash and non-cash charges that negatively impacted our income from continuing operations and net income, including the $619,000 RO non-cash impairment charge," Oliva added.

Oliva indicated that "Excluding any further charges related to a sale of non-core businesses and refinancing related expenses, our goal is to return EMRISE to sustainable profitability as quickly as possible. We are committed to increasing our efforts to grow revenues and gross margins, implement tighter controls and further reduce expenses as required. We are also fully committed to continuing to take the steps needed to divest non-core assets to further reduce debt and to concentrate our focus and resources on our performing core businesses." Gross profit from continuing operations for the third quarter of 2009 increased to $5.3 million, or 37.2 percent of net sales, compared to $4.4 million, or 33.4 percent of net sales, in the third quarter of 2008. These year-over-year increases were due principally to the inclusion in this year's third quarter of ACC's incremental sales and the gross profit contributed by those additional sales, which was partially offset by a decline in gross profit at the Company's communications equipment segment due to lower sales volumes at the Company's French business unit. Gross profit from continuing operations for the first nine months of 2009 increased to $15.7 million, or 36.8 percent of net sales, from $11.5 million, or 32.2 percent of net sales, in the first nine months of 2008.

Operating expenses from continuing operations in the 2009 third quarter were $5.9 million, compared to $4.0 million in the prior year's third quarter. The year-over-year increase in operating expenses in this year's third quarter included approximately $1 million in quarterly incremental operating expenses of ACC due to the inclusion of ACC's operating expenses for the full quarter in 2009 compared to including only five weeks of such expenses in the third quarter of 2008, and the non-cash $619,000 RO impairment charge. Additionally, there was approximately $200,000 of employee termination costs in the third quarter of 2009 associated with the Company's cost reduction program and approximately $100,000 of expenses associated with EMRISE's efforts to refinance its debt, sell non-core assets, and raise cash through the sale of equity.

These increases in operating expenses in this year's third quarter were partially offset by a portion of the aggregate total of approximately $750,000 per quarter of anticipated reductions in overall operating expense at nearly all of the Company's business units and at the corporate level announced earlier this year. The impact of these major cost-saving measures is expected to be more fully realized in the fourth quarter of 2009.

Operating loss from continuing operations for the third quarter of 2009 was $623,000 compared to operating income of $397,000 in the third quarter of 2008.

Loss from continuing operations in the 2009 third quarter was $1.2 million compared to a loss from continuing operations in last year's third quarter of $861,000.

Net loss for the third quarter of 2009 was $1.8 million, or a loss of $0.18 per share, compared to net income of $333,000, or $0.03 per share in the third quarter of 2008. Net income for the 2008 third quarter included approximately $1.2 million of income from discontinued operations. The net loss for the third quarter of 2009 included: approximately $600,000 in expense associated with the sale of Digitran Operations; the non-cash $619,000 RO impairment charge; approximately $200,000 in severance expense associated with the Company's 2009 cost reduction programs; and approximately $100,000 of expenses incurred in connection with EMRISE's various refinancing related efforts, among a number of other items.

For the nine months ended September 30, 2009, net income was $2.6 million, or $0.25 per share, compared to a net loss of $820,000, or $0.08 per share, in the same period of 2008. Included in net income in the first nine months of 2009 were: a $5.3 million (net of $1.9 million in taxes) income/gain from discontinued operations associated with the sale of the Company's Digitran Operations; the non-cash $619,000 RO impairment charge; approximately $500,000 in non-cash accelerated amortization associated with the repayment of the Company's term loan in March 2009; approximately $500,000 of severance costs associated with the reduction of personnel at several of the Company's facilities; approximately $300,000 in inventory write downs; $300,000 in fees associated with waiver and amendments for the Company's credit facility; and approximately $100,000 of expenses incurred in connection with its various refinancing efforts.

Regarding the Company's expectations for the fourth quarter of 2009, Oliva commented, "As we entered the fourth quarter, the percentage of our backlog that is scheduled for shipment during the fourth quarter is higher than in past periods. This, along with the expected positive impact of our cost reduction efforts, gives us hope for substantial bottom line improvement in the fourth quarter and as we enter into 2010." Adjusted EBITDA in the 2009 third quarter was $519,000 as compared to Adjusted EBITDA of $699,000 in the same quarter of 2008. The decrease from the year ago quarter was primarily due to the additional costs that contributed to the Company's loss in this year's third quarter discussed above.

At September 30, 2009, backlog from continuing operations was $27.2 million, compared to $33.0 million as of December 31, 2008. The decrease is due to the reduction of backlog at all of the Company's electronic devices business units as orders were shipped that fulfilled a number of existing contracts during the first nine months of 2009. There was a small increase in backlog at the Company's U.S. communications equipment business unit associated with new orders for communication test equipment, for the FAA and U.S. Navy. At the end of this year's third quarter, approximately 92 percent of the backlog was for firm orders in the electronic devices segment, and approximately 8 percent was for firm orders in the communications equipment segment, which is up from the more typical 5 percent for that segment.

As of September 30, 2009, EMRISE's cash and equivalents were $3.9 million, up from $3.2 million at December 31, 2008, and the Company had approximately $16.1 million in debt, which is down substantially from $23.5 million at December 31, 2008. This decrease reflects the $10 million pay down of debt in March 2009 as a result of the sale of the Company's Digitran Operations, as well as further reductions of debt in the 2009 third quarter. Total assets were $49.2 million and stockholders' equity was $17.0 million at September 30, 2009.

As of September 30, 2009, EMRISE's working capital was a negative $975,000, which is down from $5.5 million at December 31, 2008, excluding the Company's Digitran Operations. This significant decrease in working capital is primarily due to the reclassification of the term loans associated with the Company's credit facility from long-term to short-term reflecting the maturity date of June 30, 2010.

As of November 1, 2009, $13.6 million was outstanding under the Company's credit facility, which is due on June 30, 2010. With the help of its investment bankers, the Company is aggressively pursuing alternate financing for its current credit facility, which includes several related activities that are being pursued simultaneously and with the highest priority by management. These activities include: the potential sale of non-core assets; the possibility of incurring new debt to replace some portion or all of the existing term debt; a replacement revolving facility to support the Company's ongoing working capital and growth needs; and raising of cash through the sale of equity. One of the Company's objectives is to reduce its overall debt as part of the process. The Company believes it will be successful in obtaining alternate financing through some combination of these initiatives; however, no assurances can be provided in this regard.

If the Company is not able to raise $3 million in equity capital by December 31, 2009, repay its credit facility on or prior to its maturity on June 30, 2010, and/or obtain alternate financing to fund the Company's operations after June 30, 2010, then the Company's ability to continue operations would be adversely affected. Furthermore, the Company has significant historical losses and if it is not able to attain, sustain or increase profitability on a quarterly or annual basis, then the Company may not be able to continue operations. Under any of the above scenarios, EMRISE may substantially restructure or alter its business operations and/or debt obligations, or may voluntarily seek, or be forced to seek, protection under the U.S. Bankruptcy Code. All of these circumstances raise substantial doubt as to the Company's ability to continue as a going concern.

Oliva commented that although the financial results for the third quarter are disappointing and the current liquidity situation is certainly concerning, "We believe that by continuing to aggressively execute our strategic business plans and work closely with our investment bankers to actively pursue our strategic recapitalization plan we can continue to grow the Company, return to profitability, reduce our debt, and secure alternate financing, all of which will result in a healthier and better capitalized company. We look forward to updating our investors and all of our stakeholders with the progress we are making in executing these strategic initiatives in the upcoming weeks and months." Conference Call and Webcast A conference call with EMRISE management is scheduled for 10:00 a.m. EST (7:00 a.m. PST) on Tuesday, November 17 to discuss the Company's financial results for its third quarter and nine months ended September 30, 2009. To join the call, dial toll-free [phone] five minutes prior to scheduled start time. For callers outside the United States, dial [phone]. A live webcast of the call may also be accessed at www.EMRISE.com; http://viavid.net/dce.aspx?sid=00006DC6; or on the EMRISE client page at www.allencaron.com. An archived replay of the webcast will be available shortly after the call through the same web links listed above and will be available for 90 days.

Non-GAAP Financial Measures - Reconciliation of Adjusted EBITDA to Net Income (Loss) This release includes Adjusted EBITDA, a non-GAAP financial measure as defined by SEC Regulation G. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, non-cash stock compensation, and net other income, less net gain or loss on discontinued operations. A reconciliation between net income (loss) and Adjusted EBITDA is provided in the financial tables at the end of this press release.

About EMRISE Corporation EMRISE designs, manufactures and markets electronic devices, sub-systems and equipment for aerospace, defense, industrial and communications markets. EMRISE products perform key functions such as power supply and power conversion; radio frequency (RF) and microwave signal processing; and network access and timing and synchronization of communications networks. Primary growth driver applications for EMRISE products include the use of its RF devices in radio-controlled improvised explosive device (RCIED) jamming systems, and the use of its Network Timing and Synchronization products in edge networks. EMRISE serves customers in North America, Europe and Asia through operations in the United States, England and France. The Company has built a worldwide base of customers including a majority of the Fortune 100 in the U.S. that do business in markets served by EMRISE and many similar-size companies in Europe and Asia.

For more information go to www.emrise.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995 With the exception of historical information, the matters discussed in this press release including, without limitation, EMRISE's belief that a future reduction in debt would make an overall refinancing much easier; the ability of EMRISE to successfully complete the sale of substantially all of the assets of RO, and that if such sale were consummated EMRISE would incur an additional non-cash loss on such sale; the ability of EMRISE to sustain profitability in the future; the ability of EMRISE to further dispose of non-core assets; EMRISE's belief that its cost saving measures will be more fully realized in the fourth quarter of 2009; the belief that EMRISE will achieve substantial bottom-line improvement in the fourth quarter of 2009 and entering into 2010; EMRISE's belief that it will be successful in obtaining alternative financing to replace its current credit facility, including the ability of EMRISE to raise $3.0 million in equity by December 31, 2009 as required under the terms of its credit facility, are forward looking statements. The actual future results of EMRISE could differ from those statements. Factors that could cause or contribute to such differences include, but are not limited to, unforeseen technical issues; failure to successfully negotiate the sale of substantially all of the assets of RO; unforeseen accounting issues related to any successful sale of the assets of RO; inability to grow sales; unexpected costs or lack of expected savings that affect the future profitability of EMRISE; inability to control operating expenses; unexpected cost increases that affect the profitability of products; inability to support the required development of new or existing products; unexpected delays by EMRISE customers, vendors or other circumstances which prevent timely shipment of current or future orders as expected; possibility of incurring significant costs toward the disposition of non-core assets with no guarantee of success; the availability of debt and equity capital from third party lenders and investors in light of current economic conditions and those factors contained in the "Risk Factors" Section of EMRISE's Form 10-K for the year ended December 31, 2008, Form 10-Q for the quarterly period ended September 30, 2009, and other EMRISE filings with the Securities and Exchange Commission.

EMRISE CORPORATION Condensed Consolidated Balance Sheets (Unaudited, in thousands, except share and per share amounts) September 30, December 31, 2009 2008 ASSETS (Unaudited) Current assets: Cash and cash equivalents $ 3,867 $ 3,242 Accounts receivable, net of allowances for doubtful accounts of 8,187 10,333 $203 at September 30, 2009 and $501 at December 31, 2008 Inventories, net 11,926 12,501 Current deferred tax assets 22 271 Prepaid and other current assets 1,185 1,283 Current assets of discontinued operations - 2,724 Total current assets 25,187 30,354 Property, plant and equipment, net 2,484 2,990 Goodwill 14,220 9,657 Intangible assets other than goodwill, net 5,294 6,618 Deferred tax assets 1,766 2,191 Other assets 248 683 Noncurrent assets of discontinued operations - 1,130 Total assets $ 49,199 $ 53,623 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,197 $ 4,625 Accrued expenses 6,279 6,939 Line of credit 4,032 4,084 Current portion of long-term debt, net of discount of $416 8,549 5,121 Notes payable to stockholders, current portion 375 542 Income taxes payable 662 451 Other current liabilities 2,068 357 Current liabilities of discontinued operations - 664 Total current liabilities 26,162 22,783 Long-term debt, net of discount of $980 at December 31, 2008 218 13,479 Notes payable to stockholders, less current portion 2,959 250 Deferred income taxes 1,824 2,203 Warrant liability 641 - Other liabilities 422 503 Noncurrent liabilities of discontinued operations - 401 Total liabilities 32,226 39,619 Commitments and contingencies Stockholders' equity: Preferred stock,$0.01 par value. Authorized 10,000,000 shares, - - zero shares issued and outstanding Common stock,$0.0033 par value. Authorized 150,000,000 shares; 126 126 10,213,412 and 10,204,079 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively Additional paid-in capital 43,444 44,806 Accumulated deficit (25,030) (28,101) Accumulated other comprehensive loss (1,567) (2,827) Total stockholders' equity 16,973 14,004 Total liabilities and stockholders' equity $ 49,199 $ 53,623 EMRISE CORPORATION Condensed Consolidated Statements of Operations (Unaudited, in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2009 2008 2009 2008 Net Sales $ 14,319 $ 13,078 $ 42,802 $ 35,743 Cost of Sales 8,998 8,685 27,065 24,197 Gross profit 5,321 4,393 15,737 11,546 Operating expenses: Selling, general and administrative 4,592 3,522 13,486 10,589 Engineering and product development 733 474 1,971 1,585 Loss on asset impairment 619 - 619 - Total operating expenses 5,944 3,996 16,076 12,174 Income (loss) from operations (623 ) 397 (339 ) (628 ) Other income (expense): Interest income 18 38 87 79 Interest expense (793 ) (816 ) (3,191 ) (2,004 ) Other, net (24 ) (167 ) 144 (64 ) Total other expense, net (799 ) (945 ) (2,960 ) (1,989 ) Loss before income taxes (1,422 ) (548 ) (3,299 ) (2,617 ) Income tax provision (benefit) (238 ) 313 (596 ) 393 Loss from continuing operations (1,184 ) (861 ) (2,703 ) (3,010 ) Discontinued operations: Income (loss) from discontinued operations including gain on sale (132 ) 1,194 7,156 2,190 of $6,995 YTD Tax provision (benefit) on discontinued operations 510 - 1,855 - Net gain (loss) on discontinued operations (642 ) 1,194 5,301 2,190 Net Income (loss) $ (1,826 ) $ 333 $ 2,598 $ (820 ) Earnings (loss) per share: Basic $ (0.18 ) $ 0.03 $ 0.25 $ (0.08 ) Diluted $ (0.18 ) $ 0.03 $ 0.25 $ (0.08 ) Weighted average shares outstanding Basic 10,213 10,201 10,208 10,201 Diluted 10,213 10,201 10,208 10,201 Per share amounts for the periods reported are adjusted to reflect the effect of the 1-for-3.75 reverse split of EMRISE common stock completed after the closing of the markets on November 19, 2008.

Reconciliation of Adjusted EBITDA to Net Income (Loss) (Unaudited, in thousands) Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 Net Income (loss) as reported $ (1,826 ) $ 333 $ 2,598 $ (820 ) Additions: Depreciation and amortization 487 274 1,465 744 Stock based compensation 36 28 113 61 Interest expense (income), net 775 778 3,104 1,925 Other expense (income), net 24 167 (144 ) 64 Income tax expense (benefit) 272 313 1,259 393 Loss from asset impairment 619 - 619 - Subtractions: Net gain (loss) on discontinued operations (132 ) 1,194 7,156 2,190 Adjusted EBITDA $ 519 $ 699 $ 1,858 $ 177 Use of Non-GAAP Financial Measures In evaluating its business, EMRISE considers and uses Adjusted EBITDA as a supplemental measure of its operating performance. We define Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization, non-cash stock compensation, and net other income, less net gain or loss on discontinued operations. Management believes that Adjusted EBITDA is a meaningful measure of liquidity and the Company's ability to service debt because it provides a measure of cash available for such purposes. Management provides an Adjusted EBITDA measure so that investors will have the same financial information that management uses with the belief that it will assist investors in properly assessing the Company's performance on a period-over-period basis.

The term Adjusted EBITDA is not defined under U.S. generally accepted accounting principles, or U.S. GAAP, and is not a measure of operating income, operating performance or liquidity presented in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and when assessing the Company's operating performance, investors should not consider Adjusted EBITDA in isolation, or as a substitute for net income (loss) or other consolidated income statement data prepared in accordance with U.S. GAAP. Other companies may calculate similar measures differently than EMRISE, limiting their usefulness as comparative tools. EMRISE compensates for these limitations by relying primarily on its GAAP results and using Adjusted EBITDA only supplementally.

SOURCE: EMRISE CORPORATION CONTACT: EMRISE CORPORATION John Donovan Chief Financial Officer 732-387-5790 [e-mail] or Allen & Caron, Inc Rene Caron (investors) or Len Hall (media) 949-474-4300 [e-mail] [e-mail] Copyright Business Wire 2009 -0- KEYWORD: United States

North America

New Jersey INDUSTRY KEYWORD: Technology

Semiconductor

Manufacturing

Aerospace

Defense

Other Defense SUBJECT CODE: Earnings

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