Rae Systems (RAE) 8-K Regulation FD Disclosure

Protection through Detection

Protection through Detection

RAE Systems Inc.

RAE Systems Inc.

(AMEX: RAE)

(AMEX: RAE)

Bob Chen, President & CEO

Bob Chen, President & CEO

Don Morgan, Vice President & CFO

Don Morgan, Vice President & CFO

Bob Durstenfeld, Dir., Corp. Marketing

Bob Durstenfeld, Dir., Corp. Marketing

Exhibit 99.1

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2

Safe Harbor Statement

Safe Harbor Statement

This

presentation

(including

information

incorporated

or

deemed

incorporated

by

reference

herein)

contains

“forward-looking

statements”

within

the

meaning

of

the

Private

Litigation

Reform

Act

of

1995.

Forward-looking

statements

are

those

involving

future

events

and

future

results

that

are

based

on

current

expectations,

estimates,

forecasts,

and

projects

as

well

as

the

current

beliefs

and

assumptions

of

our

management.

Words

such

as

“outlook”,

“believes”,

“expects”,

“appears”,

“may”,

“will”,

“should”,

“anticipates”,

or

the

negative

thereof

or

comparable

terminology,

are

intended

to

identify

such

forward

looking

statements.

Any

statement

that

is

not

a

historical

fact,

including

estimates,

projections,

future

trends

and

the

outcome

of

events

that

have

not

yet

occurred,

is

a

forward-looking

statement.

Forward-looking

statements

are

only

predictions

and

are

subject

to

risks,

uncertainties

and

assumptions

that

are

difficult

to

predict.

Therefore

actual

results

may

differ

materially

and

adversely

from

those

expressed

in

any

forward-looking

statements. 

Factors

that

might

cause

or

contribute

to

such

differences

include,

but

are

not

limited

to,

those

discussed

under

the

section

entitled

“Risk

Factors”

in

our

reports

filed

with

the

SEC.

Many

of

such

factors

relate

to

events

and

circumstances

that

are

beyond

our

control.

You

should

not

place

undue

reliance

on

forward-looking

statements.

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3

Our

Our Business

PRODUCTS

Detect toxic gases &

radiological agents    

Portable

Rugged

Rugged

Battery operated

Battery operated

SYSTEMS

Provide integrated &

actionable threat

information

Wireless networks

Remote monitoring / Web

Integrated data (GPS, weather)

Application-specific system SW

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4

Markets

Industrial / Environmental Safety & Hygiene

Confined Space

Hazardous Waste

Oil & Gas

Environmental

Monitoring

Homeland Security

Military

First Responders

Public Venue

Protection

Port / Border

Security

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5

Customers

Regulatory

Economic

Purchase

Purchase

Drivers

Drivers

Health & Safety

Security

Health & Safety

Security

Enterprise

Government

Government

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6

RAE Systems Business

RAE Systems Business

Portables

Integrated

Wireless Systems

Wireless Systems

Components & Accessories

ents &

Services

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7

Business Mix -

Business Mix -

2004

2004

Portables

Portables

48%

48%

Integrated

Integrated

Wireless Systems

Wireless Systems

18%

18%

Distribution

Distribution

17%

17%

Service

Service

4%

4%

Consumables

Consumables

13%

13%

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8

Global Operations

Global Operations

Cost-efficient

Cost-efficient

infrastructure

infrastructure

in China

in China

Headquarters in

Headquarters in

Silicon Valley,

Silicon Valley,

USA

USA

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9

Worldwide Presence`

Worldwide Presence`

Shanghai

Shanghai

Tokyo

Tokyo

Hong Kong

Hong Kong

Singapore

Singapore

France

France

Spain

Spain

U.K.

U.K.

Benelux

Benelux

Beijing

Beijing

San Jose, CA

San Jose, CA

Denmark

Denmark

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Geographic Mix

Geographic Mix

Americas

Americas

65%

65%

Europe

Europe

10%

10%

Asia

Asia

25%

25%

Americas

Americas

56%

56%

Europe

Europe

11%

11%

Asia

Asia

33%

33%

2004

2004

2005

2005

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11

Channels & Partnerships

Channels & Partnerships

Americas

Americas

Direct sales

Direct sales

Distributors & reps

Distributors & reps

Europe

Europe

HQ in Denmark with pan-

HQ in Denmark with pan-

European direct sales staff

European direct sales staff

Subsidiaries in U.K & France

Subsidiaries in U.K & France

Direct presence in Middle East

Direct presence in Middle East

Asia

Asia

Direct sales through KLH

Direct sales through KLH

in China

in China

HK sales office

HK sales office

Distributors elsewhere

Distributors elsewhere

OEM

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Products,

Products,

Technology

Technology

&

&

Applications

Applications

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13

Sensor Technology

Sensor Technology

Photo-Ionization Detection (PID)

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Combustible

Chemical Detection Tube

Corona Discharge

Ion Mobility

Electro-chemical

Solid Polymer

Infrared

Radiation

Speciation

A world leader in photo-

A world leader in photo-

ionization technology for

ionization technology for

detection of volatile

detection of volatile

organic compounds

organic compounds

(e.g. gasoline, benzene)

(e.g. gasoline, benzene)

2005

2006

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14

Intellectual Property

Intellectual Property

18 patents focused on

18 patents focused on

chemical sensor

chemical sensor

technologies

technologies

9

9

years

years

remaining

remaining

on

on

fundamental

fundamental

PID

PID

patents

patents

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15

Alarm       

(detect & warn) 

Measurement 

(instrument data)

Hazard

Hazard Detection

Evolution

Evolution

Area Monitoring

(manned multiple monitoring

products,

wireless

point-to-

point network)

Pervasive Sensing

(unmanned multiple sensors,

wireless mesh network)

Value-Add =

Real-Time

Decision

Support

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16

Technology & Products

RAEWatch

AreaRAE

MultiRAE

MiniRAE 2000

ppbRAE

ToxiRAE

BadgeRAE

Products

Products

Technology

Alarm       

(detect & warn) 

Measurement 

(instrument data)

Area Monitoring

(manned multiple

monitoring products,

point-to-point network)

Pervasive Sensing

(unmanned multiple

sensors, mesh network)

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17

Enterprise

First Responders,

Military

Government

Environmental

Agency

Applications

Alarm       

(detect & warn) 

Measurement 

(instrument data)

Area Monitoring

(manned multiple

monitoring products,

point-to-point network)

Pervasive Sensing

(unmanned multiple

sensors, mesh network)

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18

Application Scenarios

Incident Command

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19

Application

Scenarios

Scenarios

Public Venue Security

Public Venue Security

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20

Emerging

Application Scenarios

Building Air Quality Monitoring

Sensor/RF Node

Sensor/RF Node

Network Interrogator

Network Interrogator

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21

Emerging

Emerging

Application Scenarios

Application Scenarios

Perimeter Monitoring

Perimeter Monitoring

Sensor/RF Node

Sensor/RF Node

Network Interrogator

Network Interrogator

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22

Emerging

Emerging

Application Scenarios

Application Scenarios

Cargo Container Monitoring

Cargo Container Monitoring

Sensor/RF Node

Sensor/RF Node

Network Access Point

Network Access Point

Satellite Communicator

Satellite Communicator

Door Lock and RFID

Door Lock and RFID

Interior sensors monitor and

Interior sensors monitor and

communicate through the door lock

communicate through the door lock

sensor to the Network Access Point

sensor to the Network Access Point

and onto the Satellite Communicator

and onto the Satellite Communicator

Door lock sensor protects against

Door lock sensor protects against

intrusion and responds to RFID

intrusion and responds to RFID

signals to transmit container log to

signals to transmit container log to

RAE reader at portal on the dock

RAE reader at portal on the dock

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Emerging

Emerging

Application Scenarios

Application Scenarios

Truck/Trailer Theft Prevention

Truck/Trailer Theft Prevention

Sensor/RF Node

Sensor/RF Node

Satellite Communicator

Satellite Communicator

Network Interrogator

Network Interrogator

Door Lock

Door Lock

Door

Door

Lock

Lock

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Markets &

Markets &

Growth Opportunities

Growth Opportunities

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25

Market Opportunity

Market Opportunity

Homeland

Homeland

Security

Security

Spending

Spending

$41.1 Billion

$41.1 Billion

FY2006 budget request

FY2006 budget request

7% Y/Y growth

7% Y/Y growth

U.S. Department of

U.S. Department of

Homeland Security

Homeland Security

Chemical

Chemical

Sensor        

Sensor        

Market Size

Market Size

$2.8 Billion

$2.8 Billion

8.5% projected growth per

8.5% projected growth per

year through 2008

year through 2008

Freedonia report:

Freedonia report:

Chemical Sensors to

Chemical Sensors to

2008: Liquid, Gas &

2008: Liquid, Gas &

Biosensors

Biosensors

Growth of

Growth of

Investment in

Investment in

Fixed Assets

Fixed Assets

(factories, equipment,

(factories, equipment,

property & infrastructure)

property & infrastructure)

25.8%

25.8%

in 2004

in 2004

United States

United States

United States

United States

China

China

The Economist

The Economist

27 Jan 2005

27 Jan 2005

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26

Market Drivers

Market Drivers

Developing countries

Developing countries

Growing industrial

Growing industrial

infrastructure

infrastructure

Increasing focus on

Increasing focus on

human health & safety

human health & safety

Industrialized world

Industrialized world

Terrorism & other

Terrorism & other

safety concerns

safety concerns

Environmental &

Environmental &

industrial regulations

industrial regulations

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27

Competitive Environment

Competitive Environment

History: North American mining industry

History: North American mining industry

COMPETITIVE

COMPETITIVE

STRENGTHS

STRENGTHS

•

•

A technology

A technology

leader in PID &

leader in PID &

emerging wireless

emerging wireless

systems

systems

•

•

Strong brand

Strong brand

•

•

Broad product

Broad product

offering

offering

•

•

Cost-efficient

Cost-efficient

infrastructure in

infrastructure in

China

China

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Information

Information

Value

Value

Real-time

Real-time

Decision

Decision

Support

Support

Emerging Market Potential

Emerging Market Potential

$500

$500

$10,000

$10,000

$0.10

$0.10

Thousands

Thousands

Millions

Millions

Number of Sensors

Number of Sensors

Personal

Personal

Protection

Protection

Area

Area

Protection

Protection

Pervasive

Pervasive

Sensing

Sensing

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Growth Strategy

Growth Strategy

Expand leadership position in emerging          

Expand leadership position in emerging          

wireless sensor networks

wireless sensor networks

Enhance & defend portable product line

Enhance & defend portable product line

Increase revenue in Europe & Asia

Increase revenue in Europe & Asia

Aggressively pursue rapidly growing safety

Aggressively pursue rapidly growing safety

market in China

market in China

Selectively pursue strategic acquisitions &

Selectively pursue strategic acquisitions &

partnerships

partnerships

Gain scale &/or address adjacent products & markets (accretive)

Gain scale &/or address adjacent products & markets (accretive)

Acquire complementary technologies

Acquire complementary technologies

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Financial

Financial

Overview

Overview

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Company History

Company History

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

2005

Company founded by          

Company founded by          

Robert I. Chen (current CEO)

Robert I. Chen (current CEO)

& Peter Hsi (current CTO)

& Peter Hsi (current CTO)

$1.1M angel

$1.1M angel

funding

funding

Public via

Public via

reverse merger

reverse merger

$32 M

$32 M

secondary

secondary

offering

offering

KLH acquisition

KLH acquisition

Moved to AMEX

Moved to AMEX

Sept. 11,

Sept. 11,

2001

2001

Established operations

Established operations

in China

in China

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Revenue Growth

Revenue Growth

9.4

10.8

18.398

19.039

21.828

31.361

45.54

60.3

$10

$10

$20

$20

$30

$30

$40

$40

2004

2004

2003

2003

2002

2002

2001

2001

2000

2000

1999

1999

1998

1998

$31.4M

$31.4M

$21.8M

$21.8M

$19.0M

$19.0M

$18.4M

$18.4M

$10.8M

$10.8M

$9.4M

$9.4M

$45.5M

$45.5M

CAGR

CAGR

30%

30%

$50

$50

$60

$60

2005

2005

$60.3M

$60.3M

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2006 Guidance

2006 Guidance

(*per February 2006 conference call)

(*per February 2006 conference call)

$10

$10

$20

$20

$30

$30

$40

$40

2004

2004

2003

2003

2002

2002

2001

2001

2000

2000

1999

1999

1998

1998

$31.4M

$31.4M

$21.8M

$21.8M

$19.0M

$19.0M

$18.4M

$18.4M

$10.8M

$10.8M

$9.4M

$9.4M

$68-73M

$68-73M

(E)

(E)

2006 Sales

2006 Sales

Guidance

Guidance

$68M to $73M*

$68M to $73M*

$50

$50

2005

2005

$45.5M

$45.5M

$60

$60

$70

$70

$60.3M

$60.3M

2006E*

2006E*

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Income Statement

Income Statement

2005 -2004 Comparison

2005 -2004 Comparison

2005 -UNAUDITED

2005 -UNAUDITED

Q4

Q4

2005

2005

Q4

Q4

2004

2004

Total Year

Total Year

2004

2004

Revenue

Revenue

Gross Profit

Gross Profit

R&D

R&D

Sales &

Sales &

Mktg

Mktg

G&A

G&A

Net

Net

Income (Loss)

Income (Loss)

EPS

EPS

$ 60.3 M

COGS

COGS

$( 0.6)M

$35.6 M

$ 16.6 M

$ 24.7 M

TOTAL

TOTAL

$ 5.3 M

$ 13.2 M

$ 37.1 M

$(0.01)/share

$15.0 M

$ 0.4 M

$8.1 M

$ 2.4 M

$ 6.9 M

$ 1.4 M

$ 3.8 M

$ 7.6 M

$0.01/share

$ 18.3 M

$ 0.3 M

$ 10.5 M

$4.5 M

$7.8 M

$ 1.7 M

$4.0 M

$ 10.2 M

$0.00/share

$45.5 M

$2.3 M

$ 27.0 M

$10.3 M

$ 18.5 M

$ 4.3 M

$8.9 M

$ 23.5 M

$0.04/share

$ 2.0 M

Loss on

Loss on

Lease

Lease

Total Year

Total Year

2005

2005

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High-Leverage

High-Leverage

Business Model

Business Model

Gross Margin

Gross Margin

50% -

50% -

60%

60%

Pre-Tax

Pre-Tax

Operating Income

Operating Income

Target

Target

10% -

10% -

20%

20%

Strong

Strong

Balance Sheet

Balance Sheet

Cash &

Cash &

Investments

Investments

$29.5 M

$29.5 M

Debt

Debt

$1.7 M

$1.7 M

* As of December 31, 2005, Unaudited

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Summary

Summary

RAE Systems Investment Proposition

RAE Systems Investment Proposition

Growing

worldwide

markets

Broad

customer

base

&

rapidly

emerging

applications

Sustainable

technical

advantages

Proprietary

sensor

technology

System

know-how

&

domain

knowledge

Growing

consumables

&

service

revenue

High-margin

“annuity”

business

Strong

brand

&

worldwide

market

presence

Globally

distributed

infrastructure

Localized

sales

&

support

/

cost-efficient

manufacturing

in

China

Financial

strength

Strong

balance

sheet

High-leverage

business

model

Access

to

capital

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Contact Us

Contact Us

Company Information:

Company Information:

InvestorRelations@RAESystems.com

InvestorRelations@RAESystems.com

408-952-8449

408-952-8449

www.RAESystems.com

www.RAESystems.com

IR Agency Contact:

IR Agency Contact:

David Barnard, CFA

David Barnard, CFA

415-433-3777

415-433-3777

David@lhai-sf.com

David@lhai-sf.com

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Index

Index

1.

RAE Systems Inc.

2.

Safe Harbor

3.

Our Business

4.

Markets

5.

Customers

6.

RAE Systems Business Segments

7.

Business

Segment

Mix

-

2004

8.

Global Operations

9.

Worldwide Presence

10.

Geographic

Mix

-

2004

11.

Channels & Partnerships

12.

Products, Technology & Applications

13.

Sensor Technology

14.

Intellectual Property

15.

Hazard Detection Evolution

16.

Technology & Products

17.

Applications

18.

Application

Scenarios

-

Incident

Command

19.

Application

Scenarios

-

Public

Venue

Security

20.

Emerging

Application

-

Building

Air

Quality

Monitoring

21.

Emerging

Application

-

Perimeter

Monitoring

22.

Emerging

Application

-

Cargo

Container

Monitoring

23.

Emerging

Application

-

Truck/Trailer

Theft

Prevention

24.

Markets & Growth Opportunities

25.

Market Opportunity

26.

Market Drivers

27.

Competitive Environment

28.

Emerging Market Potential

29.

Growth Strategy

30.

Financial

Overview

31.

Company History

32.

Revenue Growth

33.

2005 Guidance

34.

Income Statement

35.

High-Leverage

Business

Model

36.

Summary