EMRISE ANNOUNCES 2012 SECOND QUARTER, SIX-MONTH FINANCIAL RESULTS

Net Sales Up 27% and 10%,Respectively; Reports Quarterly Profit;
Reconfirms Financial Guidance for 2012

DURHAM, NC – August14, 2012 – EMRISE CORPORATION (OTCBB: EMRI), a multi-national manufacturer of defense and aerospace electronic devices and communications equipment, today announced significantly improved financial results for the Company’s second quarter and first six months ended June 30, 2012.  Chairman and CEO Carmine T. Oliva said the execution of EMRISE’s turnaround strategy remained on track as the Company continued to make considerable operational and financial progress during the second quarter and first six months of this year.

EMRISE reported much improved sales in the 2012 second quarter driven by a significant increase in sales at its Electronic Devices business units, combined with a substantial improvement in sales at its French Communications Equipment business unit. Overall netsales in the quarter increased 27 percent to $8.6 million from $6.8 million in last year’s second quarter, and were up sequentially 14 percent from net sales of $7.5 million in this year’s first quarter. For the first six months of 2012, overall net sales increased approximately 10 percent year over year to $16.1 million, compared to $14.7million in the first six months of 2011.   

Gross margins forthe 2012 second quarter and first six months improved year over year, and orderbookings continued to be strong as backlog at the end of the 2012 secondquarter was up from the backlog at the end of the 2012 first quarter and theend of last year.  EMRISE also reported significant year-over-year declines in operating loss for the second quarter and first six months of 2012 and, due in part to a gain from the early extinguishment of debtand an insurance settlement, the Company was profitable in this year’s second quarter.

 “Based on ourexcellent sales performance in the second quarter and first six months of this year and our strong backlog, we believe that sales will continue to increase throughout the balance of this year,” Oliva added.  “Even though we recorded a small operatingloss in this year’s second quarter, with the positive impact these sales increases can have on our overall operating results, we expect to generate operating profits and net profits in the third and fourth quarters of this year.”

 Other key highlights of this year’s second quarter and first six months included:

  • Electronic Devices sales in the quarter increased 26 percent year over year;
  • Communications Equipment sales in the quarter rose 28 percent compared to the same period last year;
  • Electronic Devices gross margin increased to 28.0 percent from 22.8 percent in the 2011 second quarter;
  • Operating expenses for the quarter declined year over year by approximately 12 percent;
  • Operating loss for the quarter and first six months declined year over year 85 percent and 64 percent respectively;
  • Net income in the 2012 second quarter improved by more than $1.2 million from last year’s second quarter, and net loss for this year’s first six months declined by more than $1.3 million from the 2011 first six months;
  • Order bookings of  in-flight entertainment and connectivity(IFE&C) products increased substantially year over year;
  • The Company made a final $225,000 payment in the quarter that paid off the remainingbalance of the note with its previous primary lender, the PEM Group, resultingin a $275,000 discount for early payoff of the note as well as the eliminationof the above-market 15.5 percent interest rate associated with the note; and
  • The Company introduced the CIP-ALL product family, a strategically important andversatile range of new network access products, which has been qualified by adominant European telecommunications company and a major European-basedinternational utility company for use in their respective networks.    

 Operating loss for the 2012 second quarter was $174,000, down more than $1 million from the $1.2 million operating loss in the second quarter of 2011.  For the first six months of 2012,operating loss declined by more than $1.3 million to $766,000 from $2.1 million in the first six months of 2011. 

 Net income for the 2012 second quarter was $378,000, or $0.04 per basic and diluted share,compared to net loss in the second quarter of 2011 of $879,000, or a loss perbasic and diluted share of $0.08, which included income net of tax fromdiscontinued operations of $347,000.  Therewas no income from discontinued operations recorded in the 2012 secondquarter.  Net income in the 2012 secondquarter included a $275,000 gain on the extinguishment of a debt with theCompany’s former principal finance provider, the PEM Group, and also benefitedfrom an insurance settlement at the Company’s French subsidiary.   

Net loss for thefirst six months of 2012 was $493,000, or a loss per basic and diluted share of $0.05, compared to net loss in the first six months of 2011 of $1.8 million, ora loss per basic and diluted share of $0.17, which included income net of tax fromdiscontinued operations of $406,000. There was a loss from discontinued operations of $9,000 recorded in the2012 first six months, which also included the gain on the extinguishment ofdebt and the insurance settlement at the Company’s French subsidiary.

 EMRISE plans tofile its Quarterly Report on Form 10-Q for the quarter ended June 30, 2012 withthe Securities and Exchange Commission (SEC) today.

 Additional Analysis of Results

 2012 Second Quarter Net Salesby Business Segment

The 26 percent year-over-year increase innet sales of the Company’s Electronic Devices business resulted from highersales of commercial aerospace IFE&C products and military products. The Companycontinues to see a strong order flow and growing backlog of orders to beshipped in these areas. 

Net sales in the Company’s CommunicationEquipment business increased 28 percent year over year compared to net sales inthe 2011 second quarter, due primarily to asignificant increase in sales at the Company's French Communications Equipment businessunit.  This increase was partially offsetby a general decline in infrastructure spending in the United States by telecommunications companiesand the U.S. government,specifically for timing and synchronization products such as those sold by EMRISE’sU.S.communications business.  Contributing tothe second quarter increase in Communications Equipment sales was the deliveryof the previously disclosed order that was delayed from this year’s firstquarter to the second quarter.

 Orders for EMRISE’s French network accessproducts have continued to provide a very solid backlog of shippable orders.  The Company's U.S.and French sales teams are actively working to expand the market reach for theFrench access products into the United States. However, in this highly competitivemarket, the efforts thus far have yet to translate into the level of sales thatmanagement believes is possible. 

 2012 SecondQuarter Gross Margins for the Company and by Business Segment

TheCompany’s overall gross margin in the 2012 second quarter improved to 27.8percent, significantly ahead of the 25.2 percent gross margin in thesecond quarter of 2011, and approximately the same as gross margin in the 2012 first quarter. The year-over-year gross margin improvements reflect consistentincreases in the performance of the Electronic Devices business throughout thefirst six months of this year.

 Gross margin in the Electronic Devices businessincreased to 28.0 percent from 22.8 percent in the 2011 second quarter, dueprimarily to higher sales volumes as described earlier, which resulted inimproved absorption of fixed overhead. Product mix also changed to include higher margin military sales and a highervolume of commercial aerospace markets sales, which typically have lowermargins than military sales.

 While the gross margin percentage in EMRISE’sCommunications Equipment business declined to 27.6 percent from 30.7 percent inthe same period in 2011, overall gross profit dollars were higher reflectingthe improved sales volume.  Lower salesvolumes at the Company’s U.S.business unit and increasing pressure on network access product margins wereoffset by steady sales increases at EMRISE’s French operations.   

 The Company expects to see a slight improvement ingross margin during the balance of 2012 as a result of anticipated increases insales volumes and the positive impact of those increases on the Company’soverall operating results.

 2012 Second Quarter Operating Expenses

Operating expenses in the secondquarter of 2012 declined nearly 12 percent to $2.6 million from $2.9 million for thesame period in 2011 as thecost control measures initiated during 2011 yielded savings in both selling,general and administrative (SG&A) expense and engineering and productdevelopment cost. 

 SG&A expense in the second quarter of 2012declined by approximately 9 percent to $2.3 million from $2.5 million in thesame period in 2011 despite the need to service the increase in sales.  As a percentage ofsales, SG&A expense declined to 26 percent in the second quarter of 2012from 36 percent of sales in the second quarter of 2011 and 31 percent of salesin the 2012 first quarter.  Theimprovement in SG&A expenses, as a percentage of sales, was due to theCompany’s continued focus on containing costs in proportion to its operationalneeds.

 Engineering and product development costs declinedapproximately 28 percent to $316,000, or approximately 4 percent of net sales inthe second quarter of 2012,from $438,000, or nearly 7 percent of net sales in the second quarter of 2011.Engineering and product development costs are increasingly captured in the costof the related product as the balance of engineering and development costsincurred has shifted from general product development to customer-specificengineering in the Company’s Electronic Devices business and the completion ofcertain new product developments in its Communications Equipment business.

 Backlog

Backlog as of June 30, 2012 was $27 million, up from $25.1 million as of March 31, 2012and $25.5 million as of December 31, 2011, as bookings in the second quarter of2012 continued to be strong.  The amountof backlog orders represents revenue that the Company anticipates recognizingin the future, as evidenced by purchase orders and other purchase commitmentsreceived from customers, but on which work has not yet been initiated or iscurrently in progress. Management believes that the majority of its currentbacklog will be shipped within the next 12 months. 

 Balance Sheet Highlights

As of June 30, 2012, the Company’s cash and equivalents totaled $852,000, restricted cash was $393,000, total assets were $23.3 million,total debt obligations were $5.1 million and stockholders’ equity was $10.3million.  As of December 31, 2011, cashand cash equivalents totaled $805,000, restricted cash was $386,000, totalassets were $24.7 million, total debt obligations were $5.7 million andstockholders’ equity was $10.6 million.

 Adjusted EBITDA 

Adjusted EBITDA for the secondquarter of 2012 was $691,000, a gain of $1.8 million from the Adjusted EBITDA loss of  $1.1 million in the second quarter of last year.  For the first six months of 2012 Adjusted EBITDA was $128,000, an improvement of $2 million from the $1.9 million Adjusted EBITDA loss in the first six months of 2011.

Outlook for 2012

EMRISE managementis reconfirming its earlier guidance for 2012 first given on March 30, 2012.  The Company currently has a significant backlog of booked orders for its Electronic Devices business and its French CommunicationsEquipment business, and expects substantially increased sales in the secondhalf of 2012, compared to the second half of 2011, as it ships these orders tomeet its customers’ requested delivery schedules. 

 While EMRISE isoptimistic about the growth of its network access business, it expects sales inits Communications Equipment business in 2012 will remain relatively consistentwith 2011 sales.

EMRISE believes overall revenue for 2012 should grow organically between11 percent and 14 percent over 2011 revenue. The Company also believes that, even though it incurred a small operatingloss in this year’s second quarter, it should achieve operating profitability andnet profits in the third and fourth quarters of 2012 and, including the secondquarter gain for the extinguishment of debt and the insurance settlement, italso expects to be profitable for the year as a result of improved sales andits ongoing cost containment efforts.

Non-GAAP Financial Measures - Reconciliation of Non-GAAP Measures

This news release includes a non-GAAPfinancial measure, as defined by SEC Regulation G, which management believesprovide a meaningful trend of operating performance, and measure of liquidityand the Company's ability to service debt. The non-GAAP measure included in this news release is AdjustedEBITDA.  EMRISE defines Adjusted EBITDAas earnings before interest, taxes, depreciation and amortization, non-cashstock compensation, asset impairments charges, and net other income, less netgain or loss on discontinued operations. Reconciliation between net income (loss) and Adjusted EBITDA is providedin the financial tables at the end of this news release.

Conference Call and Webcast

A conference callwith EMRISE management is scheduled for 11:30 a.m. EDT (8:30 a.m. PDT) on Tuesday,August 14, 2012 to discuss the Company’s financial results for its secondquarter ended June 30, 2012. To join the conference call, dial toll-free (877) 941-2321 five minutes prior to the scheduled start time. Forcallers outside the United States, dial (480) 629-9857.  A livewebcast of the call may also be accessed at www.emrise.com;on the EMRISE client page at www.allencaron.com;or at http://viavid.net.   Anarchived replay of the webcast will be available shortly after the call throughthe same web links listed above and will be available for 90 days.

About EMRISE Corporation

EMRISE designs, manufactures and marketselectronic devices, sub-systems and equipment for aerospace, defense,industrial and communications markets. EMRISE products perform key functions such as power supply and powerconversion; radio frequency (RF) and microwave signal processing; and networkaccess to public and private communications networks.  The use of its network products in public andprivate, legacy and latest Ethernet and Internet Protocol (IP) networks is aprimary growth driver for the Company's Communications Equipment businesssegment.  The use of its power supplies,RF and microwave signal processing devices and subsystems in on-board In-FlightEntertainment and Connectivity systems is a primary growth driver for theCompany's Electronic Devices business segment. EMRISE serves the worldwide baseof customers it has built in North America, Europe and Asia through operationsin the United States, England and France.  EMRISE is a publicly traded company whosecommon stock trades on the OTCBB under the symbol EMRI.  For more information, go to www.emrise.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of1995

Withthe exception of historical information, certain matters discussed in thispress release, including the Company’s ability to achieve continued revenuegrowth; its ability to achieve profitability in the third and fourth quartersof 2012, and for the year or any future period; its ability to increase salesin the IFE&C market and the UK military market; and its ability to meetrevenue goals for 2012 and other future-oriented matters are all forwardlooking statements within the meaning of the Private Securities LitigationReform Act.  The actual future results ofEMRISE could differ materially from those statements.  Factors that could cause or contribute tosuch differences include, but are not limited to: failure to meet workingcapital needs that causes supply interruptions or delays in shipments tocustomers; cost reductions that do not result in the anticipated level of cost savings;whether the Company can meet its debt obligations; whether the global economicrecession will have a further negative impact on the Company's sales and/or, overalloperations; inability to develop new products; unexpected costs, cost increasesor lack of expected savings that affect the future profitability of EMRISE; or unexpecteddelays which prevent timely shipment of current or future orders asexpected.  The Company also refers you tothose factors contained in the "Risk Factors" section of EMRISE'sAnnual Report on Form 10-K for the year ended December 31, 2011, the Company’sForm 10-Q for the second quarter ended June 30, 2012, its Current Reports onForm 8-K filed in recent months, and other EMRISE filings with the SEC.

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