SOURCE: RAE Systems

May 05, 2008 16:05 ET

RAE Systems Reports First Quarter 2008 Results

SAN JOSE, CA--(Marketwire - May 5, 2008) - RAE Systems Inc. (AMEX: RAE), a leader in delivering innovative sensor solutions to serve industrial, energy, environmental, and government safety markets worldwide, reported financial results and business highlights for the first quarter ended March 31, 2008.

First Quarter 2008 Financial Results

For the first quarter of 2008, RAE Systems reported revenue of $17.9 million, compared with revenue of $17.9 million for the same quarter in 2007. For the first quarter of 2008, Americas contributed 42 percent of total revenue, Asia contributed 37 percent and Europe contributed 21 percent. Gross margin for the quarter was 50 percent, compared with 51 percent for the first quarter of 2007. The decline in the gross margin was due to a change in the sales mix of products sold in the Americas and China. In the Americas, during the first quarter of 2008 the company sold fewer higher margin multi-gas and radiation products and in China the company sold fewer higher margin RAE-branded products as compared to the first quarter of 2007. The net loss for the first quarter of 2008 was $2.3 million, or $0.04 per share, compared with a net loss of $2.3 million, or $0.04 per share, for the first quarter of 2007.

"Although our revenue was flat in the first quarter, we are confident that the new products we plan to introduce this year, expanding market opportunities and cost-control initiatives that we have put in place will enable us to achieve our financial goals for 2008," said Robert Chen, RAE Systems president and chief executive officer. "We believe the ongoing demand for our products, our global market presence and focus on the industrial sector will yield positive results for 2008. We are reaffirming our guidance for 2008 and expect revenue to be in the range of $104 million to $109 million and earnings per share to be positive for the year."

First Quarter 2008 Business Highlights:

--  Pemex, the Mexican Petroleum Company, selected QRAE II and ToxiRAE III
    products for its exploration and production operations.
--  The National Cooperative Refinery Association purchased AreaRAE
    wireless toxic gas monitors for OSHA compliance.
--  ConAgra Foods in Arkansas standardized on QRAE + 4-gas monitors for
    its food processing facilities.
--  The Port of Virginia Police purchased GammaRAE IIR units for port
    security.
--  The Spanish Civil Defense ministry purchased MultiRAE Plus portable
    toxic gas monitor for first responders.
--  The New Zealand Fire Services ordered MiniRAE 3000 and ppbRAE 3000
    Photoionization detectors.
--  Tiefa Coal Mine group selected RAE Systems to deliver a prototype
    digital mine management system for below ground deployment by RAE Fushun.
    The management system will provide below-ground communications, process
    management and personnel tracking.
--  RAE Systems was selected for additional key projects from PetroChina
    in the energy sector and several steel companies in the industrial sector.
    

About RAE Systems

RAE Systems is a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time. Products include multi-sensor chemical detection networks, wireless gas detection systems and radiation monitors for energy production and refining, industrial and environmental safety, and public and government first responder security. RAE Systems' products are used in over 85 countries by many of the world's leading corporations and by many U.S. government agencies. For more information about RAE Systems, please visit www.raesystems.com.

Safe Harbor Statement

This press release may contain "forward-looking" statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation: expressions of "belief," "anticipation," or "expectations" of management; statements as to industry trends or future results of operations of RAE Systems and its subsidiaries; and other statements that are not historical fact. These types of statements address matters that are subject to risks and uncertainties, which could cause actual results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, the general economic and industry factors and receptiveness of the market to RAE Systems and its products. In addition, our forward-looking statements should be considered in the context of other risk factors discussed in our filings with the Securities and Exchange Commission, including but not limited to our annual report on Form 10-K and Form 10-Q filings, available online at http://www.sec.gov. All forward-looking statements are based on information available to the company on the date hereof, and the company assumes no obligation to update such statements.




                             RAE Systems Inc.
                  Condensed Consolidated Balance Sheets
              (in thousands, except share and par value data)
                                (unaudited)


                                                 March 31,    December 31,
                                                   2008           2007
                                               ------------   ------------
ASSETS
Current assets:
  Cash and cash equivalents                    $     14,244   $     15,906
  Trade notes receivable                              2,992          2,793
  Accounts receivable, net of allowances
   of $2,235 and $2,060, respectively                19,811         22,749
  Accounts receivable from affiliate                     35             21
  Inventories                                        19,413         17,542
  Prepaid expenses and other current assets           3,346          2,930
  Income taxes receivable                             2,196          2,069
                                               ------------   ------------
     Total current assets                            62,037         64,010
                                               ------------   ------------
Property and equipment, net                          12,552         12,258
Intangible assets, net                                3,737          3,827
Goodwill                                              3,274          3,143
Investments in unconsolidated affiliates                417            425
Other assets                                          1,515          1,680
                                               ------------   ------------
  Total assets                                 $     83,532   $     85,343
                                               ============   ============
LIABILITIES, MINORITY INTEREST IN CONSOLIDATED
 ENTITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $      5,923   $      6,071
  Accounts payable to affiliate                         338            411
  Payable to Fushun shareholder                         592            609
  Bank lines of credit                                2,012          2,618
  Accrued liabilities                                11,171         12,098
  Notes payable to related parties, current             201            191
  Income taxes payable                                  883            674
  Deferred revenue, current                             402            488
                                               ------------   ------------
     Total current liabilities                       21,522         23,160
                                               ------------   ------------
Deferred revenue, non-current                           450            514
Deferred tax liabilities, non-current                   283            277
Deferred gain on sale of real estate,
 non-current                                          5,652          5,794
Other long-term liabilities                           1,393          1,487
Notes payable to related parties, non-current         2,417          2,370
                                               ------------   ------------
     Total liabilities                               31,717         33,602
                                               ------------   ------------

COMMITMENTS AND CONTINGENCIES (NOTE 5)

MINORITY INTEREST IN CONSOLIDATED ENTITIES            5,418          5,385

SHAREHOLDERS' EQUITY:
  Common stock, $0.001 par value, 200,000,000
   shares authorized; 59,161,214 and
   59,171,980 shares issued and outstanding,
   respectively                                          59             59
  Additional paid-in capital                         61,329         60,957
  Accumulated other comprehensive income              6,140          4,135
  Accumulated deficit                               (21,131)       (18,795)
                                               ------------   ------------
     Total shareholders' equity                      46,397         46,356
                                               ------------   ------------
     Total liabilities, minority interest in
      consolidated entities and shareholders'
      equity                                   $     83,532   $     85,343
                                               ============   ============



                             RAE Systems Inc.
              Condensed Consolidated Statements of Operations
                  (in thousands, except per share data)
                                (unaudited)


                                                        Three Months Ended
                                                             March 31,
                                                       -------------------
                                                         2008       2007
                                                       --------   --------
Net sales                                              $ 17,869   $ 17,934
Cost of sales                                             9,014      8,800
                                                       --------   --------
Gross profit                                              8,855      9,134
                                                       --------   --------
Operating expenses:
  Sales and marketing                                     5,380      5,154
  Research and development                                1,736      1,684
  General and administrative                              4,296      5,113
  Adjustment to lease abandonment accrual                     -       (611)
                                                       --------   --------
     Total operating expenses                            11,412     11,340
                                                       --------   --------
Operating loss from continuing operations                (2,557)    (2,206)
Other income (expense):
  Interest income                                            48         65
  Interest expense                                         (102)       (69)
  Other, net                                                307         15
  Equity in loss of unconsolidated affiliate                 (9)       (18)
                                                       --------   --------
Loss from continuing operations before income
 taxes and minority interest                             (2,313)    (2,213)
Income tax benefit (expense)                               (196)       126
                                                       --------   --------
Loss before minority interest                            (2,509)    (2,087)
Minority interest in loss of consolidated
 subsidiaries                                               163         21
                                                       --------   --------
Loss from continuing operations                          (2,346)    (2,066)
Gain (loss) from discontinued operations,
 net of tax                                                  10       (253)
                                                       --------   --------
Net loss                                               $ (2,336)  $ (2,319)
                                                       ========   ========

Net loss per share - basic and diluted:
  Continuing operations                                $  (0.04)  $  (0.04)
  Discontinued operations                                     -          -
                                                       --------   --------
Net loss per share - basic and diluted                 $  (0.04)  $  (0.04)
                                                       ========   ========
Weighted average common shares outstanding
 - basic and diluted                                     58,999     59,294
                                                       ========   ========



The following table sets forth the components of our Condensed Consolidated
          Statements of Operations as a percentage of net sales:


                                                        Three Months Ended
                                                             March 31,
                                                        ------------------
                                                          2008      2007
                                                        --------  --------
Net sales                                                    100%      100%
Cost of sales                                                 50%       49%
                                                        --------  --------
Gross profit                                                  50%       51%
                                                        --------  --------
Operating expenses:
  Sales and marketing                                         30%       29%
  Research and development                                    10%        9%
  General and administrative                                  24%       28%
  Adjustment to lease abandonment accrual                      0%       -3%
                                                        --------  --------
     Total operating expenses                                 64%       63%
                                                        --------  --------
Operating income (loss) from continuing operations           -14%      -12%
Other income (expense):
  Interest income                                              0%        0%
  Interest expense                                            -1%        0%
  Other, net                                                   2%        0%
  Equity in gain (loss) of unconsolidated affiliate            0%        0%
                                                        --------  --------
Income (loss) from continuing operations before income
 taxes and minority interest                                 -13%      -12%
Income tax benefit (expense)                                  -1%        0%
                                                        --------  --------
Income (loss) before minority interest                       -14%      -12%
Minority interest in income (loss) of consolidated
 subsidiaries                                                  1%        0%
                                                        --------  --------
Income (loss) from continuing operations                     -13%      -12%
Loss from discontinued operations, net of tax                  0%       -1%
                                                        --------  --------
Net income (loss)                                            -13%      -13%
                                                        ========  ========

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