Rae Systems (RAE) 8-K RAE Systems Reports Fourth Quarter and Year-End 2009 Results

Exhibit 99.1

Company Contact:	IR Agency Contact:
Investor Relations	Becky Herrick
408-952-8449	Lippert/Heilshorn & Associates, Inc.
investorrelations@raesystems.com	415-433-3777
	bherrick@lhai.com

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, Calif. — 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.

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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

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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.

[Tables to Follow]

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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
	December 31,						Year Ended 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, 2009				December 31, 2008						December 31, 2009						December 31, 2008
	Net income		Basic		Net income			Basic			Net income			Basic			Net 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 settlement		—		—		—			—			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
	December 31						Year Ended 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.		5	%		-20	%		-7	%		-8	%