Rae Systems (RAE) 8-K Regulation FD Disclosure

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, Director, Corp. Marketing

Bob Durstenfeld, Director, Corp. Marketing

Fall 2006

Fall 2006

Exhibit 99.1

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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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Mission

Mission

Provide

Provide

rapidly-deployable

rapidly-deployable

sensor networks

sensor networks

that enable customers to identify

that enable customers to identify

safety and security threats in real-time

safety and security threats in real-time

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Company History

Company History

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

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

$1.1M

angel

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

2006

2007

Aegison

Aegison

DVR

DVR

acquisition

acquisition

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Products

Products

Handheld

Handheld

Detect toxic gases

Detect toxic gases

& radiation sources

& radiation sources

Portable

Portable

Rugged

Rugged

Wireless network

Wireless network

compatible

compatible

Sensor Systems

Sensor Systems

Integrated &

Integrated &

actionable threat

actionable threat

information

information

Mobile & fixed

Mobile & fixed

digital video storage

digital video storage

Integrated sensor

Integrated sensor

data

data

Integrated

Integrated

Video Systems

Video Systems

Sensor triggered

Sensor triggered

video storage

video storage

Rapidly deployed

Rapidly deployed

Wireless networks

Wireless networks

/Web enabled remote

/Web enabled remote

monitoring

monitoring

Integrated data

Integrated data (GPS,

(GPS,

weather)

weather)

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Global Convergence of Safety and Security

Global Convergence of Safety and Security

High

Low

Low

High

Degree of Security

Canary

Pre-1900s

Personal Protection

1900s

Area Protection

2000s

Pervasive Sensing and

Integrated Data Management  

Today

Guns, Gates & Guards

Video

Surveillance

Analog 1980s

Digital 1990s

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Government & Security

Government & Security

Military

Military

First Responders

First Responders

Public Venue

Public Venue

Protection

Protection

Port / Border

Port / Border

Security

Security

Industrial / Environmental Safety

Industrial / Environmental Safety

Confined Space

Confined Space

Hazardous Waste

Hazardous Waste

Oil & Gas

Oil & Gas

Environmental

Environmental

Monitoring

Monitoring

Markets

Markets

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Government

Government

Commercial

Commercial

Customers

Customers

Regulatory

Economic

Purchase

Purchase

Drivers

Drivers

Health & Safety

Security

Health & Safety

Security

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RAE Systems Business

RAE Systems Business

Components & Accessories

Services

Instrumentation

Security Systems

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2005 Business Mix

2005 Business Mix

Instrumentation

55%

KLH

30%

Service

3%

Consumables

12%

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2005 KLH Business Mix

2005 KLH Business Mix

Engr. Services

Engr. Services

16%

16%

RAE Mfg.

RAE Mfg.

26%

26%

KLH Mfg.

KLH Mfg.

35%

35%

OEM Resale

OEM Resale

23%

23%

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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

Dubai

Dubai

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Geographic Mix

Geographic Mix

Americas

Americas

66%

66%

Europe

Europe

10%

10%

Asia

Asia

24%

24%

Americas

Americas

56%

56%

Europe

Europe

11%

11%

Asia

Asia

33%

33%

2004

2004

$ 45.8M

$ 45.8M

2005

2005

$ 60.3M

$ 60.3M

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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

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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Intellectual Property

Intellectual Property

20 patents focused on

20 patents focused on

chemical sensor and

chemical sensor and

digital video technologies

digital video technologies

9 years remaining on

9 years remaining on

fundamental PID patents

fundamental PID patents

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Alarm       

Alarm       

Measurement

Measurement

BadgeRAE

BadgeRAE

ToxiRAE  

ToxiRAE  

MultiRAE

MultiRAE

MiniRAE 2000

MiniRAE 2000

ppbRAE

ppbRAE

AreaRAE

AreaRAE

Hazard Detection Evolution

Hazard Detection Evolution

Area Monitoring

Area Monitoring

Pervasive Sensing

Pervasive Sensing

RAEWatch

RAEWatch

Value       Real-time Decision Support

Value       Real-time Decision Support

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Application

Application

Incident Command & Control

Incident Command & Control

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Application

Application

Public Venue Security

Public Venue Security

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Application

Application

Fixed and Mobile Digital Video

Fixed and Mobile Digital Video

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Emerging

Emerging

Application

Application

Building Air Quality & Security Monitoring

Building Air Quality & Security Monitoring

Sensor/RF Node

Sensor/RF Node

Network Interrogator

Network Interrogator

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Detection      

Markets &

Markets &

Growth Opportunities

Growth Opportunities

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Market Opportunity

Market Opportunity

Homeland

Security

CBRNE

Spending

$421 Million

FY2006 budget request

7% Y/Y growth

U.S. Department of

Homeland Security

And Civitas

Group

Industrial

Chemical

Sensor        

Market

$2.8 Billion

8.5% projected growth per

year through 2008

Freedonia report:

Chemical Sensors to

2008: Liquid, Gas &

Biosensors

China

Industrial 

Spending

Growth

+17 %

Jan-June ’05 to ‘06

(factories, equipment,

property & infrastructure)

National Bureau of

Statistics

Aug. 2006

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Market Drivers

Market Drivers

Industrialized countries

Industrialized countries

Terrorism and other safety 

Terrorism and other safety 

and security concerns

and security concerns

Environmental & industrial

Environmental & industrial

regulations

regulations

Developing countries

Developing countries

Growing industrial

Growing industrial

infrastructure

infrastructure

Increasing focus on human

Increasing focus on human

health, safety and security

health, safety and security

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Competitive Environment

Competitive Environment

History: North American mining industry

History: North American mining industry

COMPETITIVE

COMPETITIVE

STRENGTHS

STRENGTHS

•

•

Leader in wireless

Leader in wireless

sensing systems

sensing systems

•

•

Strong brand

Strong brand

•

•

Broad sensor

Broad sensor

product offering

product offering

•

•

Strong presence in

Strong presence in

China market

China market

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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 & partnerships in wireless

Expand leadership & partnerships in wireless

sensor networks for safety and security

sensor networks for safety and security

Increase market share in Europe & Asia

Increase market share in Europe & Asia

through channel development

through channel development

Aggressively pursue rapidly growing safety, 

Aggressively pursue rapidly growing safety, 

environmental & security markets in China

environmental & security markets in China

Selectively establish strategic partnerships &

Selectively establish strategic partnerships &

acquire complementary solutions

acquire complementary solutions

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Detection     

Financial

Financial

Overview

Overview

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Revenue Growth

Revenue Growth

$10

$10

$20

$20

$30

$30

$40

$40

2004

2004

2003

2003

2002

2002

2001

2001

2000

2000

1999

1999

1998

1998

$31.4M

$21.8M

$19.0M

$18.4M

$10.8M

$9.4M

$45.5M

CAGR

CAGR

30%

30%

$50

$50

$60

$60

2005

2005

$60.3M

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2006 Guidance

2006 Guidance

(*per July 2006 conference call)

(*per July 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

$21.8M

$19.0M

$18.4M

$10.8M

$9.4M

$64-68M

(E)

2006 Sales

2006 Sales

Guidance

Guidance

$64M to $68M*

$64M to $68M*

$50

$50

2005

2005

$45.5M

$60

$60

$70

$70

$60.3M

2006 E*

2006 E*

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Income Statement

Income Statement

2003 -2005 Comparison

2003 -2005 Comparison

Total Year

Total Year

2003

2003

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

Income (Loss)

EPS

EPS

$ 60.3 M

COGS

COGS

$( 0.8)M

$35.6 M

$ 16.6 M

$ 24.7 M

TOTAL

TOTAL

$ 5.3 M

$ 13.3 M

$ 37.2 M

$(0.01)/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

$ 31.4 M

$ 2.7 M

$19.3 M

$ 7.3 M

$12.1 M

$ 3.0 M

$ 5.2 M

$ 15.5 M

$ 0.06/share

$ 2.0 M

Loss on

Loss on

Lease

Lease

Total Year

Total Year

2005

2005

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Income Statement

Income Statement

Q2 and Six Months Ended June 30 --

Q2 and Six Months Ended June 30 --

2006/2005

2006/2005

Comparisons

Comparisons

2006 -Unaudited

2006 -Unaudited

Q2

2006

Q2

2005

Revenue

Gross Profit

R&D

Sales &

Mktg

G&A

Net

Income (Loss)

EPS

COGS

TOTAL

$ 13.6 M

$ (1.3) M

$ 8.3 M

$ 4.5 M

$ 5.3 M

$ 1.4 M

$ 3.3 M

$ 11.2 M

$ (0.02) /share

$ 15.9 M

$ (0.05) M

$ 8.5 M

$ 4.4 M

$ 7.4 M

$ 1.5 M

$ 3.0 M

$ 8.9 M

$ 0.00/share

$ 2.0 M

Loss on

Lease

6 Mos

2006

6 Mos

2005

$ 25.9 M

$ (1.2)  M

$ 15.5 M

$ 7.9 M

$ 10.4 M

$ 2.5 M

$ 5.8 M

$ 18.2 M

$ (0.02) /share

$ 28.3 M

$ (1.1) M

$ 15.2 M

$ 8.5 M

$ 13.1 M

$ 2.7 M

$ 6.0 M

$ 17.2 M

$ (0.02)/share

$ 2.0 M

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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*

$ 26.3 M

$ 26.3 M

Debt*

Debt*

$ 1.7 M

$ 1.7 M

* As of June 30, 2006

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Summary

Summary

RAE Systems Investment Proposition

RAE Systems Investment Proposition

Growing worldwide safety & security markets

Growing worldwide safety & security markets

Convergence of Safety & Security

Broad customer base & rapidly emerging applications

Sustainable technical advantages

Sustainable technical advantages

Proprietary sensor technology

System know-how & domain knowledge

Strong brand & worldwide market presence

Strong brand & worldwide market presence

Products deployed in over 65 countries

Localized sales & support / cost-efficient manufacturing in China

Financial strength

Financial strength

Strong balance sheet and access to capital

High-leverage business model

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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:

Kirsten Chapman

Kirsten Chapman

415-433-3777

415-433-3777

Kirsten@lhai-sf.com

Kirsten@lhai-sf.com

Protection through Detection

35

Index

Index

1.

RAE Systems Inc.

2.

Safe Harbor

3.

Mission

4.

Company History

5.

Products

6.

Convergence of Safety & Security

7.

Markets

8.

Customers

9.

RAE Systems Business

10.

2005 Business Segment Mix

11.

2005 KLH Business Mix

12.

Worldwide Presence

13.

Geographic Mix

14.

Sensor Technology

15.

Intellectual Property

16.

Hazard Detection Evolution

17.

Application -

Incident Command

18.

Application -

Public Venue Security

19.

Application -

Fixed & Mobile Digital Video

20.

Emerging

Application -

Building Air Quality

Monitoring

21.

Markets & Growth Opportunities

22.

Market Opportunity

23.

Market Drivers

24.

Competitive Environment

25.

Emerging Market Potential

26.

Growth Strategy

27.

Financial  Overview

28.

Revenue Growth

29.

2006 Guidance

30.

Income Statement 2003-2005

31.

Income Statement Q2/2006 vs. Q1/2005

32.

High-Leverage Business Model

33.

Summary

34.

Contact Us

35.

Index