Rae Systems (RAE) 8-K RAE Systems Reports Fourth Quarter and Year-End 2006 Results

Exhibit 99.1

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

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, Calif. — 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.”

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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 includemulti-sensor chemical detection,wireless gas detection,radiation anddigital 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 visitwww.RAESystems.com.

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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.

[Tables to Follow]

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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 December 31,						Year ended 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 income (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) Earnings Per Common Share	$	(0.02	)	$	0.00		$	(0.03	)	$	(0.01	)
Diluted (Loss) Earnings 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