EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On January 3, 2007, RAE Systems (Asia) Ltd., a fully owned subsidiary of RAE Systems Inc. (“RAE”) entered into an agreement to purchase intellectual properties of Tianjin Securay Technology Ltd., Co (“Securay”) for Renminbi 12 million (US $1.5 million). This transaction, together with purchase agreements entered in 2006, completed our purchase of Securay. Including transactions entered in 2006, total purchase price was US$2million cash (the “Transactions”).
The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of RAE and Securay. The unaudited pro forma condensed combined balance sheet as of December 31, 2006 (the “Pro Forma Balance Sheet”) was prepared by combining RAE’s consolidated balance sheet as of December 31, 2006 with Securay’s consolidated balance sheet as of December 31, 2006, with the assumption that the Transaction had occurred as of December 31, 2006.
The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2006 (the “Pro Forma Statements of Operations”), have been prepared by combining RAE’s consolidated statement of operations for the year ended December 31, 2006 with Securay’s corresponding consolidated statement of operations for the year ended December 31, 2006. The Pro Forma Statement of Operations give effect to the Transaction as if it had occurred at the beginning of the year, or January 1, 2006. Neither the Pro Forma Statement of Operations nor the Pro Forma Balance Sheet reflects the anticipated cost savings or revenue enhancements in connection with the Transaction.
The Pro Forma Statement of Operations and the Pro Forma Balance Sheet are presented for illustrative purposes only. It is not necessarily indicative of the operating results or financial position that would have occurred if the Transaction had been consummated at the beginning of the period indicated, nor is such information indicative of the future operating results or financial position of RAE Systems Inc. after the acquisition.
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RAE Systems Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2006
Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2006
Pro Forma | Pro Forma | |||||||||||||||||||
RAE | Securay | Adjustments | Note | Combined | ||||||||||||||||
Assets | ||||||||||||||||||||
Cash and cash equivalents | $ | 18,119,000 | $ | 352,000 | $ | (1,500,000 | ) | A | $ | 16,971,000 | ||||||||||
Short-term investments | 3,248,000 | — | — | 3,248,000 | ||||||||||||||||
Accounts receivable, net of allowance for doubtful accounts | 16,966,000 | 2,000 | — | 16,968,000 | ||||||||||||||||
Inventories, net | 15,382,000 | — | 179,000 | B | 15,561,000 | |||||||||||||||
Other current assets | 6,564,000 | 103,000 | 260,000 | B, E | 6,927,000 | |||||||||||||||
Property and equipment, net | 15,120,000 | 164,000 | 124,000 | B, F | 15,408,000 | |||||||||||||||
Intangible assets, net | 5,304,000 | 803,000 | 111,000 | C | 6,218,000 | |||||||||||||||
Goodwill | 3,760,000 | — | 631,000 | D | 4,391,000 | |||||||||||||||
Acquisition in progress | 820,000 | — | (820,000 | ) | B | — | ||||||||||||||
Other long term assets | 4,470,000 | 4,470,000 | ||||||||||||||||||
Total Assets | $ | 89,753,000 | $ | 1,424,000 | $ | (1,015,000 | ) | $ | 90,162,000 | |||||||||||
Liabilities, Minority Interest in Consolidated Entities and Shareholders’ Equity | ||||||||||||||||||||
Accounts payable | $ | 7,547,000 | $ | — | $ | — | $ | 7,547,000 | ||||||||||||
Accrued liabilities | 8,793,000 | 138,000 | (138,000 | ) | G | 8,793,000 | ||||||||||||||
Other current liabilities | 7,298,000 | 271,000 | (271,000 | ) | G | 7,298,000 | ||||||||||||||
Long term liabilities | 5,441,000 | — | — | 5,441,000 | ||||||||||||||||
Total Liabilities | 29,079,000 | 409,000 | (409,000 | ) | 29,079,000 | |||||||||||||||
Minority Interest in Consolidated Entities | 4,495,000 | — | — | 4,495,000 | ||||||||||||||||
Shareholders’ Equity | 56,179,000 | 1,015,000 | (606,000 | ) | H | 56,588,000 | ||||||||||||||
Total Liabilities, Minority Interest in Consolidated Entities and Shareholders’ Equity | $ | 89,753,000 | $ | 1,424,000 | $ | (1,015,000 | ) | $ | 90,162,000 | |||||||||||
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RAE Systems Inc.
Unaudited Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 2006
Unaudited Pro Forma Condensed Combined Statement of Income for the Year Ended December 31, 2006
Pro Forma | Pro Forma | |||||||||||||||||||
RAE | Securay | Adjustments | Note | Combined | ||||||||||||||||
Net Sales | $ | 67,986,000 | $ | 368,000 | $ | (48,000 | ) | I | $ | 68,306,000 | ||||||||||
Cost of Sales | 32,251,000 | 422,000 | (54,733 | ) | I | 32,618,267 | ||||||||||||||
Gross Profit | 35,735,000 | (54,000 | ) | 6,733 | 35,687,733 | |||||||||||||||
Operating Expenses: | ||||||||||||||||||||
Sales and marketing | 19,277,000 | — | 126,000 | J | 19,403,000 | |||||||||||||||
Research and development | 6,234,000 | 544,000 | 6,000 | J | 6,784,000 | |||||||||||||||
General and administrative | 13,338,000 | — | — | 13,338,000 | ||||||||||||||||
Total Operating Expenses | 38,849,000 | 544,000 | 132,000 | 39,525,000 | ||||||||||||||||
Loss from Operations | (3,114,000 | ) | (598,000 | ) | (125,267 | ) | (3,837,267 | ) | ||||||||||||
Other Income | 571,000 | (41,000 | ) | — | 530,000 | |||||||||||||||
Income tax benefit | 965,000 | — | — | 965,000 | ||||||||||||||||
Minority interest in loss of consolidated subsidiaries | 49,000 | — | — | 49,000 | ||||||||||||||||
Net Loss | $ | (1,529,000 | ) | $ | (639,000 | ) | $ | (125,267 | ) | $ | (2,293,267 | ) | ||||||||
Net loss per share | ||||||||||||||||||||
Basic Loss Earnings Per Common Share | $ | (0.03 | ) | $ | (0.04 | ) | ||||||||||||||
Diluted Loss Earnings Per Common Share | $ | (0.03 | ) | $ | (0.04 | ) | ||||||||||||||
Shares used in computing net loss per share | ||||||||||||||||||||
Basic | 58,424,970 | 58,424,970 | ||||||||||||||||||
Diluted | 58,424,970 | 58,424,970 |
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Note To Unaudited Condensed Combined Pro Forma Financial Statements
The Company recorded the following pro forma adjustments to the Pro Forma Balance Sheet and Pro Forma Statement of Operations:
A — The total purchase price of the intangible assets was $1.5 million cash.
B — As of December 31, 2006, the Company purchased $467,000 of inventories and property and equipment from Securay. In addition to $353,000 of the original investment, a total $820,000 of investment in progress was recorded at December 31, 2006. The pro forma journal entry was recorded to reverse $820,000 of acquisition in progress and record assets in the respective categories in balance sheet.
C — To reflect fair value of intangible assets purchased. Intangible assets included the following:
Weighted average | ||||||||
Amount | useful life (year) | |||||||
Customer list | 741,000 | 7 | ||||||
Patents | 32,000 | 5 | ||||||
Trade name | 141,000 | 7 | ||||||
914,000 | ||||||||
D — Goodwill represents excess purchase price over fair value of assets purchased and liabilities assumed.
E — Represents elimination of intercompany receivables.
F — Represents elimination of building which was recorded in both RAE’s and Securay’s books.
G — RAE did not assume any liabilities in the Transactions. As a result, all Securay’s liabilities were reversed.
H — Represents elimination of Securay’s equity balance at December 31, 2006.
I — Represents elimination of intercompany sales.
J — Represents 12 months amortization of intangible assets.