Contact:
Lea-Anne Matsuoka
877-723-2878
investorrelations@raesystems.com
RAE SYSTEMS REPORTS RECORD SECOND QUARTER EARNINGS
Company Posts Fourth Consecutive Profitable Quarter with 44% Growth Over Q2 2002 SUNNYVALE, Calif. – July 30, 2003–RAE Systems Inc. (OTC BB: RAEE.OB), a leading provider of hazardous environment detection solutions for homeland defense, today announced record financial results for the second quarter ended June 30, 2003. For the quarter, RAE Systems reported total revenues of $7.5 million compared to revenues of $5.2 million in the second quarter of 2002, an increase of 44%. Worldwide consolidated net profit for the second quarter was $794,800 or 1.7 cents per share, compared to a loss of 23 cents for the same quarter in 2002. For the first half of 2003, revenues were $14.8 million as compared to $9.7 million in the first half of 2002, an increase of 52.4%. Net profit for the first half of 2003 was $1.6 million as compared to a net loss of $10.2 million in the first half of 2002. The loss in 2002 was primarily attributable to a one-time non-cash merger cost related to the reverse merger completed in April 2002. The growth in revenue was largely due to increasing customer acceptance of the AreaRAE wireless network system among first responders. RAE Systems also benefited from federal Homeland Security funding funneled through organizations such as EMS teams, fire and rescue squads, HAZMAT teams, and law enforcement agencies. They also experienced increased sales in Asia for Indoor Air Quality applications. “We’re pleased with our solid performance in our fourth consecutively profitable quarter,” said Robert I. Chen, president and CEO of RAE Systems. “Following a surge in demand during the spring due to the war in Iraq and a heightened focus on homeland defense, our outlook continues to be strong in light of our long-standing relationships with first responders. RAE is the brand of choice among many first responder organizations around the U.S. as the federal government continues to release homeland defense grants.” Highlights of the second quarter include:
- RAE Systems extended its reach into America’s heartland with the adoption of the company’s MultiRAE by the HAZMAT / Weapons of Mass Destruction (WMD) response team in Cole County, Missouri. The purchase marks the 10,000th MultiRAE unit sold.
- RAE Systems played a key role in the TOPOFF II terrorism drills that took place in Seattle and Chicago in May 2003. The simulated attacks effectively demonstrated how the AreaRAE pervasive sensing capability provided life-critical data directly to FEMA coordinators in Virginia.
- Added world-class expertise to the company's advisory board, including wireless communications, networking, electrical engineering and nuclear terrorism leaders Dr. Andrea Goldsmith (Stanford University), Dr. Lyle Feisel (State University of New York), Dr. Mario Gerla (University of California, Los Angeles), and Dr. Friedrich Steinhausler (Stanford University and the University of Salzburg, Austria).
- Launched the “Rapid Deployment Kit”, designed for quick assessment of environmental and WMD threats. The kit includes four, market proven, wireless AreaRAE chemical detection monitors with in-case charging as well as a Host Controller for monitoring from a command center up to two miles away. This ad-hoc network is self-configuring and enables various agencies and counties to interoperate in the even of a large scale attack.
- Enhanced support of first responders with two new equipment “peace of mind” programs, Guaranteed Cost of Ownership, offering four-year unconditional parts replacement and a fixed price, two-tier maintenance and repair plan.
- Continued leadership in photo-ionization detection solutions by creating rugged, miniaturized PID lamps that stand up to more severe conditions. RAE Systems has also pioneered self-cleaning PID lamps, a critical advantage when in hazardous environments.
- RAE Systems responded to the U.S. Government’s Maritime Transportation Security Act, signed into effect as Public Law 107-295 by President George W. Bush in November of 2002 by joining forces with All Set Tracking AB, a provider of technology and security solutions to intermodal container transportation companies around the world. The companies will work to jointly develop solutions to monitor the safety of ocean-based cargo.
- RAE Systems established partnerships with CIMC (China International Maritime Container) and Savi Technology to jointly develop smart and secure containers to enhance security in cargo container transport.
About RAE Systems
RAE Systems Inc. is the leader in rapidly deployable sensing networks for homeland defense and a leading manufacturer of portable, wireless and fixed atmospheric monitors, photo-ionization detectors, radiation detectors, gas detection tubes, sampling pumps and security monitoring devices. Our customers use our products to monitor gas and other volatile organic compounds in confined spaces, to establish a perimeter security around hazardous material sites and to detect the illicit traffic of radioactive materials. RAE Systems’ customers operate in such industries as safety and security, oil and gas, pharmaceuticals, utilities, food, chemical, airlines, military and hazardous material storage and disposal, and its monitors are used in civilian and government atmospheric monitoring programs in over 40 countries. For more information about RAE Systems, please visitwww.RAESystems.com Safe Harbor Statement This press release contains “forward- looking” statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are denoted by such words as “continue to be strong”. 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 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 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
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RAE Systems Inc.
Condensed Consolidated Balance Sheets
June 30, December 31,
2003 2002
------------- -------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 7,116,000 $ 7,193,500
Accounts receivable, net of allowance
for doubtful accounts of $175,700 and
$175,700, respectively 3,428,600 2,475,700
Inventories 4,204,500 3,176,400
Prepaid expenses and other current
assets 1,007,500 402,000
Deferred income taxes 528,800 528,800
------------- -------------
Total Current Assets 16,285,400 13,776,400
------------- -------------
Property and Equipment, net 2,015,600 2,026,800
Deposits and Other Assets 143,000 81,800
Investment in Unconsolidated Affiliate 651,600 784,700
------------- -------------
$ 19,095,600 $ 16,669,700
============= =============
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,507,800 $ 942,400
Accounts payable to affiliate 725,400 757,900
Accrued expenses 1,699,600 1,689,700
Income taxes payable 1,502,600 1,726,200
Current portion of deferred revenue 50,700 149,700
Current portion of capital lease
obligations 159,600 159,600
------------- -------------
Total Current Liabilities 5,645,700 5,425,500
------------- -------------
Deferred Revenue, net of current portion 26,700 --
Capital Leases Obligations, net of current
portion 14,200 107,300
Deferred Income Taxes 277,200 277,200
------------- -------------
Total Liabilities 5,963,800 5,810,000
------------- -------------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.001 par value;
200,000,000 shares authorized; 45,982,223
and 45,516,675 shares issued and
outstanding, respectively 46,000 45,500
Additional paid-in capital 18,141,000 17,955,800
Deferred compensation -- (516,600)
Accumulated deficit (5,055,200) (6,625,000)
------------- -------------
Total Shareholders' Equity 13,131,800 10,859,700
------------- -------------
$ 19,095,600 $ 16,669,700
============= =============
See accompanying notes to condensed consolidated financial statements.
RAE Systems Inc.
Condensed Consolidated Statements of Operations
Three months ended Six months ended
June 30, June 30,
-----------------------------------------------------
2003 2002 2003 2002
------------ ------------- ------------ -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Sales $ 7,459,100 $ 5,167,300 $14,798,500 $ 9,712,600
Cost of Sales 2,615,700 2,151,400 5,528,500 4,176,200
------------ ------------- ------------ -------------
Gross Margin 4,843,400 3,015,900 9,270,000 5,536,400
------------ ------------- ------------ -------------
Operating Expenses:
Sales and
marketing 1,911,500 1,466,300 3,381,600 2,539,600
Research and
development 757,000 611,300 1,463,000 1,205,300
General and
administrative 1,160,400 1,951,400 2,348,000 2,796,600
Legal fees and
settlement
costs 1,900 166,100 90,500 244,000
Merger costs -- 8,734,700 -- 8,734,700
------------ ------------- ------------ -------------
Total Operating
Expenses 3,830,800 12,929,800 7,283,100 15,520,200
------------ ------------- ------------ -------------
Operating
Income (Loss) 1,012,600 (9,913,900) 1,986,900 (9,983,800)
------------ ------------- ------------ -------------
Other Income
(Expense):
Interest income 7,300 17,900 16,700 32,000
Interest expense (5,700) (40,600) (14,200) (100,100)
Other, net 21,900 (13,500) 23,000 (15,900)
Equity in loss of
unconsolidated
affiliate (67,200) (59,300) (133,100) (120,600)
------------ ------------- ------------ -------------
Total Other
Income
(Expense) (43,700) (95,500) (107,600) (204,600)
------------ ------------- ------------ -------------
Income (Loss)
Before Income
Taxes 968,900 (10,009,400) 1,879,300 (10,188,400)
Income Taxes 174,100 7,800 309,500 7,800
------------ ------------- ------------ -------------
Net Income
(Loss) $ 794,800 $(10,017,200) $ 1,569,800 $(10,196,200)
============ ============= ============ =============
Basic Earnings
(Loss) Per
Common Share $ 0.02 $ (0.23) $ 0.03 $ (0.30)
============ ============= ============ =============
Diluted Earnings
(Loss) Per
Common Share $ 0.02 $ (0.23) $ 0.03 $ (0.30)
============ ============= ============ =============
Weighted-average
common shares
outstanding 45,851,788 43,228,593 45,745,275 34,435,323
Stock options 1,697,686 -- 1,525,955 --
------------ ------------- ------------ -------------
Diluted
weighted-average
common shares
outstanding 47,549,474 43,228,593 47,271,230 34,435,323
============ ============= ============ =============
RAE Systems Inc.
Condensed Consolidated Statements of Cash Flows
Six months ended June 30,
--------------------------
2003 2002
------------ -------------
(Unaudited) (Unaudited)
Increase (Decrease) in Cash and Cash
Equivalents
Cash Flows From Operating Activities:
Net Income (Loss) $ 1,569,800 $(10,196,200)
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Depreciation and amortization 438,000 263,800
Provision for doubtful accounts -- (24,300)
Inventory reserve (179,800) --
Compensation expense related to
options 280,300 --
Amortization of deferred compensation -- 862,800
Common stock issued for services -- 2,121,600
Common stock purchase rights granted
below fair value -- 2,308,300
Compensation expense related to
warrants 27,400 4,305,800
Equity in loss of unconsolidated
affiliate 133,100 120,600
Deferred income taxes -- --
Changes in operating assets and
liabilities, net of effects of
deconsolidation:
Accounts receivable (952,900) (31,400)
Inventories (848,300) 532,800
Prepaid expenses and other current
assets (304,100) (72,200)
Accounts payable 565,400 (50,100)
Accounts payable to affiliate (32,500) 59,200
Accrued expenses 9,900 (69,400)
Income taxes payable (223,600) (211,000)
Deferred revenue (72,300) (94,500)
------------ -------------
Net Cash Provided by (Used In) Operating
Activities 410,400 (174,200)
------------ -------------
Cash Flows From Investing Activities:
Cash relinquished in deconsolidation -- (878,300)
Restricted cash -- 3,000,000
Investment in affiliate -- (500,000)
Acquisition of property and equipment (426,800) (570,300)
Deposits and other (61,200) (686,400)
------------ -------------
Net Cash (Used In) Provided By Investing
Activities (488,000) 365,000
------------ -------------
Cash Flows From Financing Activities:
Proceeds from the issuance of common stock 93,200 200
Proceeds from merger/reorganization -- 6,965,500
Payments on notes payable and lines of
credit -- (4,425,800)
Payment on capital lease obligation (93,100) (65,000)
------------ -------------
Net Cash Provided By Financing Activities 100 2,474,900
------------ -------------
Net (Decrease) Increase in Cash and Cash
Equivalents (77,500) 2,665,700
Cash and Cash Equivalents, beginning of
period 7,193,500 3,742,600
------------ -------------
Cash and Cash Equivalents, end of period $ 7,116,000 $ 6,408,300
============ =============
Supplemental Disclosure of Cash Flow
Information:
Cash Paid:
Income taxes $ 509,500 $ 218,800
Interest $ 14,200 $ 100,100
Noncash Investing and Financing
Activities:
Warrant issued for services $ 328,800 $ --
Capital leases entered into for
equipment $ -- $ 329,800
============ =============
See accompanying notes to condensed consolidated financial statements.
