SOURCE: RAE Systems

RAE Systems

March 10, 2010 16:05 ET

RAE Systems Reports Fourth Quarter and Year-End 2009 Results

Reported Fourth Quarter Net Income of $1.0 Million or $0.01 per Diluted Share

SAN JOSE, CA--(Marketwire - March 10, 2010) - RAE Systems Inc. (NYSE Amex: RAE), a leader in delivering innovative sensor solutions to serve industrial, energy, environmental and government safety markets worldwide, reported results for the fourth quarter and year-ended December 31, 2009.

Fourth Quarter 2009 Financial Results

For the fourth quarter of 2009, RAE Systems reported revenue of $24.2 million, compared with $19.9 million for the third quarter of 2009 and $24.0 million for fourth quarter of 2008. For the fourth quarter of 2009 the Americas contributed 40 percent of total revenue, Asia contributed 44 percent and Europe contributed 16 percent. Gross margin for the quarter was 47 percent, compared with 44 percent for the same quarter of 2008. Operating expenses for the fourth quarter 2009 were $11.8 million, compared with $15.9 million for the fourth quarter of 2008. Net income for the quarter was $968,000, or $0.01 per share, compared to a net loss of $4.9 million, or $0.08 per share, for the fourth quarter of 2008.

The net income in the fourth quarter was primarily due to a favorable income tax benefit of $1.0 million. The principal factor contributing to this benefit was the passage in November 2009 of the Worker, Homeownership, and Business Assistance Act of 2009. This new act permits the company to carry its 2008 net operating loss back to fiscal years ended in 2003 and 2004, which will result in a tax refund to the company of approximately $0.7 million in 2010.

Full Year 2009 Financial Results

For the full year 2009, RAE Systems reported revenue of $83.2 million, compared with $95.4 million in 2008. The Americas contributed 42 percent of total revenue, Asia contributed 41 percent and Europe contributed 17 percent. For the full year 2009, gross margin was 49 percent compared with 51 percent for 2008. Operating expenses were $48.3 million for the full year 2009, compared with $54.3 million for 2008. The net loss for the full year 2009 was $5.8 million or $0.10 per share, compared with a net loss of $7.2 million or $0.12 per share for the same period in 2008.

The company continues to be actively engaged in discussions with the Department of Justice and the Securities and Exchange Commission to settle the outstanding joint investigation into the company's alleged violations of the Foreign Corrupt Practices Act (FCPA). Although no assurances can be given as to whether the matter will settle or the amount of any settlement, the company booked an accrual of $3.5 million in the third quarter of 2009 relating to this potential settlement. Excluding the accrual for the potential FCPA settlement, the non-GAAP net loss for 2009 was $2.3 million, or $0.04 per share.

"In 2009, we continued to build our diversified product portfolio and develop new product applications, leveraging our installed base and exploiting growth opportunities in international markets," said Robert Chen, RAE Systems president and chief executive officer. "In addition, we improved our RAE Fushun and RAE Beijing operations and implemented cost containment measures. The current economy remains challenging, and at this time we expect our 2010 full year revenue to be in the range of $83 million to $85 million. At this current revenue level we expect to generate a small net loss for the year. We believe our strategic actions along with our diverse product offerings and broad addressable markets provide us with a foundation for long-term success."

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 disposable gas detection tubes, single gas personal monitors, multi-sensor chemical detection monitors, photoionization (PID) monitors for volatile organic compounds (VOCs), wireless gas detection systems, and radiation 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 95 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, the resolution of issues associated with the Company's Foreign Corrupt Practices Act, investigation 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.
                        Consolidated Balance Sheets
              (in thousands, except share and par value data)
                                (unaudited)


                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
ASSETS
Current assets:
  Cash and cash equivalents                     $     18,528  $     14,845
  Restricted cash                                      2,146             -
  Trade notes receivable                               2,039         1,870
  Accounts receivable, net of allowances of
   $5,380 and $3,472, respectively                    19,428        20,961
  Accounts receivable from affiliate                     322           100
  Inventories                                         12,068        17,604
  Prepaid expenses and other current assets            3,983         4,991
  Income taxes receivable                                659           895
                                                ------------  ------------
      Total current assets                            59,173        61,266
                                                ------------  ------------
Property and equipment, net                           15,590        14,976
Intangible assets, net                                 2,428         3,342
Investments in unconsolidated affiliates                 358           467
Other assets                                           1,325         1,124
                                                ------------  ------------
      Total assets                              $     78,874  $     81,175
                                                ============  ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $      6,454  $      6,387
  Accounts payable to affiliate                           92           382
  Payable to Fushun shareholder                            -            64
  Bank lines of credit                                 4,026         2,584
  Accrued liabilities                                 15,753        12,318
  Notes payable to related parties, current              370         1,329
  Income taxes payable                                   199           425
  Deferred revenue, current                              603           631
                                                ------------  ------------
      Total current liabilities                       27,497        24,120
                                                ------------  ------------
Deferred revenue, non-current                            615           685
Deferred tax liabilities, non-current                    156            83
Long-term debt                                         1,463             -
Deferred gain on sale of real estate                   4,444         5,079
Other long-term liabilities                              781         1,292
Notes payable to related parties, non-current            363         1,219
                                                ------------  ------------
      Total liabilities                               35,319        32,478
                                                ------------  ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Common stock, $0.001 par value, 200,000,000
   shares authorized; 59,438,328 and 59,443,914
   shares issued and outstanding, respectively            59            59
  Additional paid-in capital                          63,832        62,549
  Accumulated other comprehensive income               6,844         6,555
  Accumulated deficit                                (31,706)      (25,947)
                                                ------------  ------------
      Total RAE Systems Inc. shareholders'
       equity                                         39,029        43,216
  Noncontrolling interest                              4,526         5,481
                                                ------------  ------------
      Total shareholders' equity                      43,555        48,697
                                                ------------  ------------
      Total liabilities and shareholders'
       equity                                   $     78,874  $     81,175
                                                ============  ============




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

                                    Three Months Ended     Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2009      2008      2009      2008
                                    --------  --------  --------  --------
Net sales                           $ 24,243  $ 24,022  $ 83,172  $ 95,383
Cost of sales                         12,735    13,528    42,193    47,168
                                    --------  --------  --------  --------
Gross profit                          11,508    10,494    40,979    48,215
                                    --------  --------  --------  --------
Operating expenses:
  Sales and marketing                  5,311     5,429    18,824    21,427
  Research and development             1,588     1,843     6,354     6,665
  General and administrative           4,901     5,283    23,124    22,864
  Reduction of goodwill                    -     3,348         -     3,348
  Gain on abandonment of lease             -         -         -         -
                                    --------  --------  --------  --------
       Total operating expenses       11,800    15,903    48,302    54,304
                                    --------  --------  --------  --------
Operating loss from continuing
 operations                             (292)   (5,409)   (7,323)   (6,089)
Other income (expense):
  Interest income                         18        51        48       173
  Interest expense                       (88)     (105)     (402)     (397)
  Other, net                              48      (465)      188      (575)
  Equity in gain (loss) of
   unconsolidated affiliates              71        69      (109)       43
                                    --------  --------  --------  --------
Loss from continuing operations
 before income taxes                    (243)   (5,859)   (7,598)   (6,845)
Income tax (benefit) expense          (1,029)     (621)     (884)      538
                                    --------  --------  --------  --------
Income (loss) from continuing
 operations                              786    (5,238)   (6,714)   (7,383)
Gain from discontinued operations,
 net of tax                                -         -         -        11
                                    --------  --------  --------  --------
Net income (loss)                        786    (5,238)   (6,714)   (7,372)
  Net loss attributable to the
   noncontrolling interest               182       335       955       220
                                    --------  --------  --------  --------
Net income (loss) attributable to
 RAE Systems Inc.                   $    968  $ (4,903) $ (5,759) $ (7,152)
                                    ========  ========  ========  ========


Net loss per share - basic and
 diluted
  Continuing operations             $   0.01  $  (0.08) $  (0.10) $  (0.12)
  Discontinued operations                  -         -         -         -
                                    --------  --------  --------  --------
Net loss per share - basic and
 diluted                            $   0.01  $  (0.08) $  (0.10) $  (0.12)
                                    ========  ========  ========  ========

Weighted average common shares
 outstanding - Basic                  59,390    59,333    59,367    59,204
Stock options                            179         -         -         -
                                    --------  --------  --------  --------
Weighted average common shares
 outstanding - Diluted                59,569    59,333    59,367    59,204
                                    ========  ========  ========  ========



                             RAE Systems Inc.
   Non-GAAP Information and Reconciliation to Comparable GAAP Financial
                                 Measures
                    (in thousands, except share data)
                                (unaudited)


                 Three Months Ended                  Year Ended
           ------------------------------ --------------------------------
           December 31,    December 31,     December 31,     December 31,
               2009            2008             2009             2008
           ------------- ---------------  ---------------  ---------------
            Net            Net              Net              Net
           income Basic   income  Basic   income   Basic   income   Basic
           (loss)  EPS    (loss)   EPS    (loss)    EPS    (loss)    EPS
           ------ ------ -------  ------  -------  ------  -------  ------
GAAP
 measures  $  968 $ 0.01 $(4,903) $(0.08) $(5,759) $(0.10) $(7,152) $(0.12)
  Item
   reconciling
   GAAP net
   income
   and EPS to
   Non-GAAP
   net income
   and EPS:
  Related to
   operating
   expenses:
    General and
    administrative:
     Non-recurring
      charge for
      proposed FCPA
      settle-
      ment      -      -       -       -    3,500    0.06        -       -
           ------ ------ -------  ------  -------  ------  -------  ------
Non-GAAP
 measures  $  968 $ 0.01 $(4,903) $(0.08) $(2,259) $(0.04) $(7,152) $(0.12)
           ------ ------ -------  ------  -------  ------  -------  ------




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

                                                Three Months
                                                    Ended      Year Ended
                                                December 31   December 31,
                                                ------------  ------------  
                                                2009   2008   2009   2008
                                                -----  -----  -----  -----
Net sales                                         100%   100%   100%   100%
Cost of sales                                      53%    56%    51%    49%
                                                -----  -----  -----  -----
Gross profit                                       47%    44%    49%    51%
                                                -----  -----  -----  -----
Operating expenses:
  Sales and marketing                              22%    22%    23%    22%
  Research and development                          6%     8%     8%     7%
  General and administrative                       20%    22%    27%    24%
  Reduction of goodwill                             0%    14%     0%     4%
  Gain on abandonment of lease                      0%     0%     0%     0%
                                                -----  -----  -----  -----
       Total operating expenses                    48%    66%    58%    57%
                                                -----  -----  -----  -----
Operating income (loss) from continuing
 operations                                        -1%   -22%    -9%    -6%
Other income (expense):
  Interest income                                   0%     0%     0%     0%
  Interest expense                                  0%     0%     0%     0%
  Other, net                                        0%    -2%     0%    -1%
  Equity in gain (loss) of unconsolidated
   affiliates                                       0%     0%     0%     0%
                                                -----  -----  -----  -----
Income (loss) from continuing operations before
 income taxes                                      -1%   -24%    -9%    -7%
Income tax expense (benefit)                       -4%    -3%    -1%     1%
                                                -----  -----  -----  -----
Income (loss) from continuing operations            4%   -21%    -8%    -8%
Gain from discontinued operations, net of tax       0%     0%     0%     0%
                                                -----  -----  -----  -----
Net income (loss)                                   4%   -21%    -8%    -8%
  Net loss attributable to the noncontrolling
   interest                                         1%     1%     1%     0%
                                                -----  -----  -----  -----
Net income (loss) attributable to RAE Systems
 Inc.                                               4%   -20%    -7%    -8%
                                                =====  =====  =====  =====

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