SOURCE: RAE Systems

February 28, 2007 16:05 ET

RAE Systems Reports Fourth Quarter and Year-End 2006 Results

Fourth Quarter 2006 Revenue Increased 15% From the Fourth Quarter of 2005; Annual Revenue Grew by 13% From 2005 to 2006

SAN JOSE, CA -- (MARKET WIRE) -- February 28, 2007 -- RAE Systems Inc. (AMEX: RAE), a leading global developer and manufacturer of rapidly-deployable, multi-sensor chemical and radiation detection monitors and networks for energy production and refining, industrial and environmental safety, and public and government first responder security, today reported results for the fourth quarter and full year-ended December 31, 2006.

2006 Fourth Quarter Financial Results

For the fourth quarter of 2006, RAE Systems reported revenue of $21.1 million, compared with revenue of $18.3 million for the same quarter in 2005, an increase of 15 percent. The growth in revenue was largely attributable to increased sales in Asia that grew 24 percent, and Europe that grew 31 percent. Asia and Europe accounted for 56 percent of revenue compared with 51 percent in 2005.

Net loss for the fourth quarter of 2006 was $(1.0) million or $(0.02) per share, compared with net income of $91,000 or $0.00 per share for the fourth quarter of 2005.

2006 Full Year Financial Results

For 2006, RAE Systems reported revenue of $68.0 million, compared with revenue of $60.3 million in 2005. This represents a 13 percent year-over-year increase.

The net loss for 2006 was $(1.5) million or $(0.03) per share, compared with a net loss of $(0.8) million or $(0.01) per share for 2005.

"In 2006, we were able to continue our double digit sales growth," said Robert Chen, RAE Systems president and chief executive officer. "We focused our technology and sales efforts on China and European industrial growth; we made two key strategic investments; and we increased our ownership in RAE Beijing (RAE-KLH). In 2007, we are taking steps to re-establish a strong sales position in the Americas, while maintaining continuous growth in our international markets. Our target markets are energy production and refining, industrial and environmental safety, and public and government first responder security sectors."

2006 Business Highlights

In the Americas:

--  In July 2006, the company acquired Aegison Corporation to offer mobile
    digital video solutions to our law enforcement and other customers.
--  The company believes the AreaRAE wireless toxic gas and radiation
    system was adopted as the defacto standard for continuous monitoring of
    worker safety in the petrochemical industry during plant turnarounds. The
    AreaRAE provides customers a significant cost savings and productivity
    advantage for helping bring plants back on-line more quickly.
--  U.S. National Guard Civil Support Teams standardized across the
    country on the RAE Systems AreaRAE platform. Fifty-seven systems were
    deployed - at least one system for each state.
--  The GammaRAE II R portable radiation detector/dosimeter was selected
    for evaluation by the State of Illinois as part of their large multi-year
    radiation equipment procurement.
    
In Europe and the Middle-east:
--  Dow Chemical and several other chemical manufacturers throughout
    Europe standardized on the MiniRAE 2000 and ppbRAE Plus PID instruments for
    industrial hygiene applications.
--  The Halberg Guss, steel plant in Germany standardized on ToxiRAE II
    for personal monitoring of Carbon Monoxide exposure.
    
In Asia:
--  In July 2006, the company increased its ownership in RAE Beijing to
    96% to benefit from our efforts to drive higher revenue and operating
    profit growth.
--  In December 2006, the company formed RAE Fushun a joint venture with
    Liaoning Coal Industry Group Co. to capitalize on China's growing reliance
    on coal based energy resources.
--  The company was awarded an order for 1,600 RAEGuard fixed sensor
    systems from PetroChina, Dushanzi Project, the largest oil and gas project
    in the region.
--  RAE Beijing shipped an order to Ben-Xi Steel Group, one of the largest
    steel manufacturers in China, and continues to grow its market share in the
    China steel industry.
    
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, wireless gas detection, radiation and digital video monitoring networks for energy production and refining, industrial and environmental safety, and public and government first responder security sectors. RAE Systems' products are used in over 65 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


                                                December 31,  December 31,
                                                    2006          2005
                                                (Unaudited)
                                                ------------  ------------
Assets

Current Assets:
  Cash and cash equivalents                     $ 18,119,000  $ 13,524,000
  Short-term investments                           3,248,000    14,348,000
  Trade notes receivable                           1,977,000     1,087,000
  Accounts receivable, net of allowance for
   doubtful accounts of $843,000 and $963,000
   at December 31, 2006 and 2005, respectively    16,966,000    11,707,000
  Accounts receivable from affiliate                 154,000        84,000
  Inventories, net                                15,382,000     9,477,000
  Prepaid expenses and other current assets        4,769,000     2,773,000
  Deferred tax assets                                935,000     2,869,000
                                                ------------  ------------
Total Current Assets                              61,550,000    55,869,000
                                                ------------  ------------
Property and Equipment, net                       15,018,000    14,911,000

Long Term Investments                                     --     1,616,000

Intangible Assets, net                             5,992,000     1,782,000

Goodwill                                           3,760,000       136,000

Long Term Deferred Tax Assets                      3,402,000       634,000

Deposits and Other Assets                            648,000       867,000

Acquisition in Progress                              820,000            --

Investment in Unconsolidated Affiliate               420,000       449,000
                                                ------------  ------------
Total Assets                                    $ 91,610,000  $ 76,264,000
                                                ============  ============

Liabilities, Minority Interest in Consolidated
 Entities and Shareholders' Equity

Current Liabilities:
  Accounts payable                              $  8,458,000  $  3,979,000
  Accounts payable to affiliate                      360,000            --
  Accrued liabilities                             12,719,000     7,329,000
  Notes payable - related parties                    822,000       759,000
  Income taxes payable                               520,000       407,000
  Current portion of deferred revenue              2,030,000     2,029,000
                                                ------------  ------------
Total Current Liabilities                         24,909,000    14,503,000
                                                ------------  ------------
Deferred Revenue, net of current portion             736,000       296,000
Deferred Tax Liabilities                             438,000       379,000
Other Long Term Liabilities                        1,045,000     1,466,000
Long Term Notes Payable - Related Parties          3,221,000       821,000
                                                ------------  ------------
Total Liabilities                                 30,349,000    17,465,000
                                                ------------  ------------

Commitments and Contingencies

Minority Interest in Consolidated Entities         4,479,000     4,226,000

Shareholders' Equity:
  Common stock, $0.001 par value; 200,000,000
   shares authorized; 59,274,596 and 57,837,843
   shares issued and outstanding at December 31,
   2006 and 2005, respectively                        59,000        58,000
  Additional paid-in capital                      59,431,000    56,629,000
  Accumulated other comprehensive income           1,245,000       310,000
  Accumulated deficit                             (3,953,000)   (2,424,000)
                                                ------------  ------------
Total Shareholders' Equity                        56,782,000    54,573,000
                                                ------------  ------------
Total Liabilities, Minority Interest in
 Consolidated Entities and Shareholders' Equity $ 91,610,000  $ 76,264,000
                                                ============  ============



                                                          RAE Systems Inc.

                           Condensed Consolidated Statements of Operations


                        Three months ended             Year ended
                           December 31,                December 31,
                    --------------------------  --------------------------
                        2006          2005          2006          2005
                    (Unaudited)   (Unaudited)   (Unaudited)
                    ------------  ------------  ------------  ------------

Net Sales           $ 21,095,000  $ 18,269,000  $ 67,986,000  $ 60,293,000

Cost of Sales         10,499,000     7,828,000    32,251,000    24,690,000
                    ------------  ------------  ------------  ------------
Gross Margin          10,596,000    10,441,000    35,735,000    35,603,000
                    ------------  ------------  ------------  ------------
Operating Expenses:
  Sales and
   marketing           6,673,000     4,510,000    19,277,000    16,835,000
  Research and
   development         1,968,000     1,718,000     6,234,000     5,414,000
  General and
   administrative      3,681,000     3,990,000    13,338,000    12,915,000
  Loss on abandonment
   of lease                   --            --            --     2,027,000
                    ------------  ------------  ------------  ------------
Total Operating
 Expenses             12,322,000    10,218,000    38,849,000    37,191,000
                    ------------  ------------  ------------  ------------
Operating (Loss)
 Income               (1,726,000)      223,000    (3,114,000)   (1,588,000)
                    ------------  ------------  ------------  ------------
Other Income (Expense):
  Interest income        153,000       174,000       782,000       641,000
  Interest expense       (90,000)     (143,000)     (249,000)     (180,000)
  Other, net              15,000        23,000       230,000        25,000
  Equity in gain (loss)
   of unconsolidated
   affiliate              41,000       (40,000)     (194,000)     (196,000)
                    ------------  ------------  ------------  ------------
Total Other Income       119,000        14,000       569,000       290,000
                    ------------  ------------  ------------  ------------
(Loss) Income
 Before Income
 Taxes, Minority
 Interest and
 Cumulative Effect
 of Change in
 Accounting
 Principle            (1,607,000)      237,000    (2,545,000)   (1,298,000)
Income tax
 (benefit) expense      (679,000)        9,000      (965,000)     (477,000)
                    ------------  ------------  ------------  ------------
(Loss) Income
 Before Minority
 Interest and
 Cumulative Effect
 of Change in
 Accounting
 Principle              (928,000)      228,000    (1,580,000)     (821,000)
Minority interest
 in (income) loss
 of consolidated
 subsidiaries            (27,000)     (137,000)       49,000        62,000
                    ------------  ------------  ------------  ------------
(Loss) Income
 Before Cumulative
 Effect of Change
 in Accounting
 Principle              (955,000)       91,000    (1,531,000)     (759,000)
Cumulative effect
 of change in
 accounting
 principle, net of
 tax effects                  --            --         2,000            --

                    ------------  ------------  ------------  ------------

Net (Loss) Income   $   (955,000) $     91,000  $ (1,529,000) $   (759,000)
                    ============  ============  ============  ============
Basic (Loss) Income
 Per Common Share   $      (0.02) $       0.00  $      (0.03) $      (0.01)
                    ============  ============  ============  ============
Diluted (Loss)
 Income Per Common
 Share              $      (0.02) $       0.00  $      (0.03) $      (0.01)
                    ============  ============  ============  ============
Weighted average
 common shares
 outstanding -
 Basic                59,154,875    57,827,767    58,424,970    57,687,714
Dilutive effect of
 employee stock plans         --     1,554,861            --            --

                    ------------  ------------  ------------  ------------

Weighted average
 common shares
 outstanding -
 Diluted              59,154,875    59,382,628    58,424,970    57,687,714
                    ============  ============  ============  ============

Contact Information

  • Company Contact:
    Investor Relations
    408-952-8449
    Email Contact

    IR Agency Contact:
    Kirsten Chapman
    Lippert / Heilshorn & Associates, Inc.
    415-433-3777
    Email Contact