SOURCE: RAE Systems

RAE Systems

March 22, 2011 08:00 ET

RAE Systems Reports Fourth Quarter and Year-End 2010 Results

Reports Fourth Quarter 2010 Net Income From Continuing Operations of $1.9 Million, or $0.04 per Basic and Fully Diluted Share

SAN JOSE, CA--(Marketwire - March 22, 2011) - 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, 2010.

Fourth Quarter 2010 Financial Results

For the fourth quarter of 2010, RAE Systems reported revenue from continuing operations of $23.3 million, compared with $21.1 million for fourth quarter of 2009. The Americas contributed 53 percent of total revenue, Asia contributed 29 percent and Europe contributed 18 percent. Gross margin from continuing operations for the quarter was 61 percent, compared with 53 percent for the same quarter of 2009. Total operating expenses for the fourth quarter 2010 were $13.3 million, including legal and financial advisory expenses of approximately $1.5 million related to the company's previously announced merger with a private equity firm, compared with $10.7 million for the fourth quarter of 2009.

On January 13, 2011, the company announced that it had signed a definitive agreement to sell its interest in its RAE Fushun joint venture. As a result, the company is accounting for RAE Fushun as a discontinued operation in 2010. This transaction resulted in a net loss from discontinued operations in the fourth quarter of $4.6 million, or $0.08 per basic and fully diluted share. Income from continuing operations was $1.9 million, or $0.04 per basic and fully diluted share. The consolidated net loss for the quarter was $2.7 million, or $0.04 per basic and fully diluted share compared with net income of $968,000, or $0.01 per basic and fully diluted share in the fourth quarter of 2009.

The net income from continuing operations in the fourth quarter of 2010 was primarily due to a favorable income tax benefit of $1.1 million. The principal factors contributing to this benefit were an increase in the company's China entities' deferred tax assets due to a tax rate adjustment in China and a decrease in the current tax provision related to passage of new U.S. tax legislation in the fourth quarter.

Full Year 2010 Financial Results

For the full year 2010, RAE Systems reported revenue from continuing operations of $87.1 million, compared with $75.0 million in 2009. The Americas contributed 54 percent of total revenue, Asia contributed 28 percent and Europe contributed 18 percent. For the full year 2010, gross margin from continuing operations was 60 percent compared with 53 percent for 2009. Total operating expenses for the full year 2010 were $46.3 million, including legal and financial advisory expenses of approximately $3.1 million related to the company's previously announced merger with a private equity firm, compared with $43.5 million for 2009.

The 2010 net loss for the full year included a $7.8 million loss, or $0.13 per basic and fully diluted share from the discontinuation of the RAE Fushun joint venture. 2010 income from continuing operations was $5.3 million, or $0.09 per basic and fully diluted share. The consolidated net loss for the full year of 2010 was $2.6 million, or $0.04 per basic and fully diluted share, compared with a net loss of $5.8 million, or $0.10 per basic and fully diluted share for the same period in 2009.

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, 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.

[Tables to Follow]


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


                                               December 31,   December 31,
                                                   2010           2009
                                               ------------   ------------
ASSETS
Current assets:
  Cash and cash equivalents                    $     16,296   $     17,153
  Restricted cash                                     2,000          2,000
  Trade notes receivable                              2,018          1,527
  Accounts receivable, net of allowances
   of $3,539 and $2,675, respectively                14,286         14,735
  Accounts receivable from affiliate                    200            322
  Inventories                                        11,546          9,308
  Prepaid expenses and other current assets           4,557          3,339
  Income taxes receivable                               130            659
  Current assets of discontinued operation            6,093         10,130
                                               ------------   ------------
    Total current assets                             57,126         59,173
                                               ------------   ------------
Property and equipment, net                          10,730          7,582
Intangible assets, net                                  196            544
Investments in unconsolidated affiliates                184            358
Other assets                                            393          1,325
Noncurrent assets of discontinued operation           3,478          9,892
                                               ------------   ------------
  Total assets                                 $     72,107   $     78,874
                                               ============   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                             $      5,475   $      5,725
  Accounts payable to affiliate                          25             92
  Bank lines of credit                                1,814          4,026
  Accrued liabilities                                11,957         11,962
  Notes payable to related parties, current             278            370
  Income taxes payable                                  128              -
  Deferred revenue, current                             557            603
  Current liabilities of discontinued operation       5,790          4,719
                                               ------------   ------------
    Total current liabilities                        26,024         27,497
                                               ------------   ------------
Deferred revenue, non-current                           776            615
Deferred tax liabilities, non-current                   141              -
Deferred gain on sale of real estate                  3,809          4,444
Other long-term liabilities                           1,491            761
Notes payable to related parties, non-current             -            363
Noncurrent liabilities of discontinued
 operation                                              182          1,639
                                               ------------   ------------
    Total liabilities                                32,423         35,319
                                               ------------   ------------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
  Common stock, $0.001 par value, 200,000,000
   shares authorized; 59,512,064 and 59,438,328
   shares issued and outstanding, respectively           59             59
  Additional paid-in capital                         65,041         63,832
  Accumulated other comprehensive income              7,786          6,844
  Accumulated deficit                               (34,311)       (31,706)
                                               ------------   ------------
    Total RAE Systems Inc. shareholders'
     equity                                          38,575         39,029
  Noncontrolling interest                             1,109          4,526
                                               ------------   ------------
    Total shareholders' equity                       39,684         43,555
                                               ------------   ------------
    Total liabilities and shareholders'
       equity                                  $     72,107   $     78,874
                                               ============   ============





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


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
Net sales                           $ 23,341  $ 21,138  $ 87,053  $ 74,993
Cost of sales                          9,137    10,000    34,752    35,415
                                    --------  --------  --------  --------
Gross profit                          14,204    11,138    52,301    39,578
                                    --------  --------  --------  --------
Operating expenses:
  Sales and marketing                  5,333     4,617    19,494    16,354
  Research and development             1,847     1,549     7,077     5,956
  General and administrative           6,084     4,534    19,691    21,149
                                    --------  --------  --------  --------
    Total operating expenses          13,264    10,700    46,262    43,459
                                    --------  --------  --------  --------
Operating income (loss) from
 continuing operations                   940       438     6,039    (3,881)
Other income (expense):
  Interest income                          4        17        66        46
  Interest expense                       (51)      (76)     (185)     (390)
  Other, net                             (42)       73      (177)      277
  Equity in gain (loss) of
   unconsolidated affiliates             (60)       71      (173)     (109)
                                    --------  --------  --------  --------
Income (loss) from continuing
 operations before income taxes          791       523     5,570    (4,057)
Income tax (expense) benefit           1,124       946      (297)      800
                                    --------  --------  --------  --------
Income (loss) from continuing
 operations                            1,915     1,469     5,273    (3,257)
Discontinued operations:
  Loss from discontinued
   operations, net of tax             (7,331)     (683)  (11,178)   (3,457)
  Net loss attributable to the
   noncontrolling interest             2,721       178     3,342       952
                                    --------  --------  --------  --------
    Loss from discontinued
     operations                       (4,610)     (505)   (7,836)   (2,505)
                                    --------  --------  --------  --------
Net income (loss)                     (2,695)      964    (2,563)   (5,762)
  Net income (loss) attributable
   to the noncontrolling interest        (42)        4       (42)        3
                                    --------  --------  --------  --------
Net income (loss) attributable to
 RAE Systems Inc.                   $ (2,737) $    968  $ (2,605) $ (5,759)
                                    ========  ========  ========  ========


Earnings per common share - basic:
  Continuing operations             $   0.04  $   0.02  $   0.09  $  (0.06)
  Discontinued operations              (0.08)    (0.01)    (0.13)    (0.04)
                                    --------  --------  --------  --------
Net loss per share - basic and
 diluted                            $  (0.04) $   0.01  $  (0.04) $  (0.10)
                                    ========  ========  ========  ========
Diluted net loss per share
  Continuing operations             $   0.04  $   0.02  $   0.09  $  (0.06)
  Discontinued operations              (0.08)    (0.01)    (0.13)    (0.04)
                                    --------  --------  --------  --------
Diluted net loss per share          $  (0.04) $   0.01  $  (0.04) $  (0.10)
                                    ========  ========  ========  ========

Weighted average common shares
 outstanding - Basic                  59,512    59,390    59,439    59,367
Stock options                            477       179       136         -
                                    --------  --------  --------  --------
Weighted average common shares
 outstanding - Diluted                59,989    59,569    59,575    59,367
                                    ========  ========  ========  ========





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,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
Net sales                               100%      100%      100%      100%
Cost of sales                            39%       47%       40%       47%
                                    --------  --------  --------  --------
Gross profit                             61%       53%       60%       53%
                                    --------  --------  --------  --------
Operating expenses:
  Sales and marketing                    23%       22%       23%       22%
  Research and development                8%        7%        8%        8%
  General and administrative             26%       22%       23%       28%
                                    --------  --------  --------  --------
    Total operating expenses             57%       51%       54%       58%
                                    --------  --------  --------  --------
Operating income (loss) from
 continuing operations                    4%        2%        6%       -5%
Other income (expense):
  Interest income                         0%        0%        0%        0%
  Interest expense                        0%        0%        0%        0%
  Other, net                              0%        0%        0%        0%
  Equity in gain (loss) of
   unconsolidated affiliates             -1%        0%        0%        0%
                                    --------  --------  --------  --------
Income (loss) from continuing
 operations before income taxes           3%        2%        6%       -5%
Income tax (expense) benefit              5%        5%        0%        1%
                                    --------  --------  --------  --------
Income (loss) from continuing
 operations                               8%        7%        6%       -4%
Discontinued operations:
  Loss from discontinued
   operations, net of tax               -32%       -3%      -13%       -5%
  Net loss attributable to the
   noncontrolling interest               12%        1%        4%        1%
                                    --------  --------  --------  --------
    Loss from discontinued
     operations                         -20%       -2%       -9%       -4%
                                    --------  --------  --------  --------
Net income (loss)                       -12%        5%       -3%       -8%
  Net (income) loss attributable
   to the noncontrolling interest         0%        0%        0%        0%
                                    --------  --------  --------  --------
Net income (loss) attributable
 to RAE Systems Inc.                    -12%        5%       -3%       -8%
                                    ========  ========  ========  ========

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