RAE Systems Reports Third Quarter 2009 Results

�RAE Systems Inc.Condensed Consolidated Balance Sheets(in thousands, except share and par value data)(unaudited)September 30, December 31,2009 2008------------- ------------ ASSETS Current assets:Cash and cash equivalents $ 16,157 $ 14,845Trade notes receivable 1,762 1,870Accounts receivable, net of allowances of$5,096 and $3,472, respectively 18,628 20,961Accounts receivable from affiliate 224 100Inventories 14,581 17,604Prepaid expenses and other current assets 4,235 4,991Income taxes receivable 102 895------------- ------------Total current assets 55,689 61,266------------- ------------ Property and equipment, net 15,600 14,976 Intangible assets, net 2,656 3,342 Investments in unconsolidated affiliates 289 467 Other assets 658 1,124------------- ------------Total assets $ 74,892 $ 81,175============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:Accounts payable $ 7,003 $ 6,387Accounts payable to affiliate 83 382Payable to Fushun shareholder 2 64Bank lines of credit 3,739 2,584Accrued liabilities 13,598 12,318Notes payable to related parties, current 370 1,329Income taxes payable 267 425Deferred revenue, current 522 631------------- ------------Total current liabilities 25,584 24,120------------- ------------ Deferred revenue, non-current 508 685 Deferred tax liabilities, non-current 1 83 Deferred gain on sale of real estate,non-current 4,602 5,079 Other long-term liabilities 1,385 1,292 Notes payable to related parties, non-current 362 1,219------------- ------------Total liabilities 32,442 32,478------------- ------------COMMITMENTS AND CONTINGENCIES (NOTE 5)SHAREHOLDERS' EQUITY:Common stock, $0.001 par value, 200,000,000shares authorized; 59,438,328 and 59,443,914shares issued and outstanding, respectively 59 59Additional paid-in capital 63,465 62,549Accumulated other comprehensive income 6,892 6,555Accumulated deficit (32,674) (25,947)------------- ------------Total RAE Systems Inc. shareholders'equity 37,742 43,216Noncontrolling interest 4,708 5,481------------- ------------Total shareholders' equity 42,450 48,697------------- ------------Total liabilities and shareholders'equity $ 74,892 $ 81,175============= ============RAE Systems Inc.Condensed Consolidated Statements of Operations(in thousands, except share data)(unaudited)Three Months Ended Nine Months EndedSeptember 30, September 30,------------------ ------------------2009 2008 2009 2008-------- -------- -------- -------- Net sales $ 19,909 $ 28,845 $ 58,929 $ 71,361 Cost of sales 9,636 13,070 29,458 33,640-------- -------- -------- -------- Gross profit 10,273 15,775 29,471 37,721-------- -------- -------- -------- Operating expenses:Sales and marketing 4,282 5,197 13,513 15,998Research and development 1,787 1,541 4,766 4,822General and administrative 8,118 7,658 18,223 17,581-------- -------- -------- --------Total operating expenses 14,187 14,396 36,502 38,401-------- -------- -------- -------- Operating (loss) income fromcontinuing operations (3,914) 1,379 (7,031) (680) Other income (expense):Interest income 13 36 30 122Interest expense (79) (91) (314) (292)Other, net 148 (192) 140 (110)Equity in loss of unconsolidatedaffiliate (47) 10 (180) (26)-------- -------- -------- -------- (Loss) income from continuingoperations before income taxes (3,879) 1,142 (7,355) (986) Income tax expense 215 (494) (145) (1,159)-------- -------- -------- -------- Loss from continuing operations (3,664) 648 (7,500) (2,145) Gain from discontinued operations,net of tax - (4) - 11-------- -------- -------- -------- Net loss (3,664) 644 (7,500) (2,134)Net loss (income) attributable tothe noncontrolling interest 175 (90) 773 (115)-------- -------- -------- -------- Net loss attributable to RAESystems Inc. $ (3,489) $ 554 $ (6,727) $ (2,249)======== ======== ======== ========Basic net income (loss) per shareContinuing operations $ (0.06) $ 0.01 $ (0.11) $ (0.04)Discontinued operations - - - --------- -------- -------- -------- Basic net income (loss) per share $ (0.06) $ 0.01 $ (0.11) $ (0.04)======== ======== ======== ======== Diluted net income (loss) per shareContinuing operations $ (0.06) $ 0.01 $ (0.11) $ (0.04)Discontinued operations - - - --------- -------- -------- -------- Diluted net income (loss) per share $ (0.06) $ 0.01 $ (0.11) $ (0.04)======== ======== ======== ========Weighted-average common sharesoutstanding-Basic 59,375 59,304 59,359 59,162 Stock options and warrants - 456 - --------- -------- -------- -------- Weighted-average common sharesoutstanding-Diluted 59,375 59,760 59,359 59,162======== ======== ======== ========RAE Systems Inc.Non-GAAP Information and Reconciliation to Comparable GAAP FinancialMeasures(in thousands, except share data)(unaudited)Three Months Ended--------------------------------------September 30, 2009 September 30, 2008------------------ -------------------Net Netincome Basic income Basic(loss) EPS (loss) EPS-------- -------- --------- --------- GAAP measures $ (3,489) $ (0.06) $ 554 $ 0.01Item reconciling GAAP net incomeand EPS to Non-GAAP net incomeand EPS:Related to operating expenses:General and administrative:Non-recurring charge forproposed FCPA settlement 3,500 0.06 - --------- -------- --------- --------- Non-GAAP measures $ 11 $ - $ 554 $ 0.01-------- -------- --------- ---------Nine Months Ended--------------------------------------September 30, 2009 September 30, 2008------------------ ------------------Net Netincome Basic income Basic(loss) EPS (loss) EPS-------- -------- -------- -------- GAAP measures $ (6,727) $ (0.11) $ (2,249) $ (0.04)Item reconciling GAAP net incomeand EPS to Non-GAAP net incomeand EPS:Related to operating expenses:General and administrative:Non-recurring charge forproposed FCPA settlement 3,500 0.06 - --------- -------- --------- --------- Non-GAAP measures $ (3,227) $ (0.05) $ (2,249) $ (0.04)-------- -------- -------- --------The following table sets forth the components of our Condensed Consolidated Statements of Operations as a percentage of net sales:Three Months Nine MonthsEnded EndedSeptember 30, September 30,---------------- ----------------2009 2008 2009 2008------- ------- ------- ------- Net sales 100% 100% 100% 100% Cost of sales 48% 45% 50% 47%------- ------- ------- ------- Gross profit 52% 55% 50% 53%------- ------- ------- ------- Operating expenses:Sales and marketing 22% 18% 23% 23%Research and development 9% 5% 7% 7%General and administrative 41% 27% 31% 25%Adjustment to lease abandonmentaccrual 0% 0% 0% 0%------- ------- ------- -------Total operating expenses 71% 50% 62% 55%------- ------- ------- ------- Operating (loss) income from continuingoperations -20% 5% -12% -1% Other income (expense):Interest income 0% 0% 0% 0%Interest expense -1% 0% -1% 0%Other, net 1% -1% 0% 0%Equity in loss of unconsolidatedaffiliate 0% 0% 0% 0%------- ------- ------- ------- (Loss) income from continuingoperations before income taxes -19% 4% -12% -1% Income tax expense 1% -2% 0% -2%------- ------- ------- ------- Loss from continuing operations -18% 2% -13% -3% Gain from discontinued operations, netof tax 0% 0% 0% 0%------- ------- ------- ------- Net loss -18% 2% -13% -3%Net loss (income) attributable to thenoncontrolling interest 1% 0% 1% 0%------- ------- ------- ------- Net loss attributable to RAE SystemsInc. -18% 2% -11% -3%======= ======= ======= =======

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