OHS Canada Magazine

RAE Systems Announces Fourth Quarter and 2002 Results

February 11, 2003

Health & Safety

SUNNYVALE, California February 10, 2003 RAE Systems Inc. (OTC BB: RAEE.OB), a leading hazardous environment detection company, today announced its fourth quarter and 2002 operating results.

For the quarter ended December 31, 2002, revenue was $6.3M, an increase of 26% compared to the same period last year, making RAE Systems one of the fastest growing
chemical detection companies in the industry. Worldwide consolidated net profit was $381K compared to $14K for the same quarter in 2001.

For the year ended December 31, 2002, revenue totaled $21.8M, an increase of 15% over 2001. The net loss was $9.5M in 2002 compared with a net profit of $137K in 2001. $9.3M of the $9.5M loss was the result of certain non-cash accounting charges related to the merger with Nettaxi that was consummated in April 2002.

Our performance improvements during 2002 are a direct reflection of our commitment to developing world class solutions and executing to our plan said Robert I. Chen, president and CEO of RAE Systems. Despite a flat Q1, our growth accelerated throughout the year, ending with a 26% year-to-year growth in Q4. We experienced an increase in sales throughout the world. In the United States, in particular, where our growth was most evident, we saw an increase in sales to the first responder and homeland defense community whom we have been supporting since 1996.

Continued Mr. Chen, During the last 10 years, RAE has delivered new sensor technology and created a new class of instrumentation using wireless networking. Responding to progressively demanding customer requirements, we have developed innovative technologies and products that we believe to be the missing link in security and monitoring applications. Our chemical sensors and instrumentations are tried and true and are used daily in extreme conditions. In support of national security, we soon expect ITRAP-certified (Illicit Trafficking and Radiation Assessment Program) radiation sensors that are ready for immediate deployment at ports of entry and borders.

About RAE Systems
RAE Systems Inc. is a smart sensing network platform and solution provider and a leading manufacturer of single and multiple sensor atmospheric monitors, photo- ionization detectors, gas detection tubes, sampling pumps and wirelessly connected gas detection and security monitoring
devices. Our products and services are designed to enable our customers to monitor gas and other volatile organic compounds in confined spaces, and to establish a perimeter security around hazardous material sites and sites of weapons of mass destruction. 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 50 countries.

For more information about RAE Systems, please visit www.RAESystems.com

Safe Harbor Statement for Q4 Results
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 “market acceptance” and “well-positioned”. 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 receptiveness of the chemical, radiation detection and systems 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
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.

RAE Systems Inc.
Condensed Consolidated Balance Sheets
December 31, 2002 December 31, 2001
Current Assets:
Cash and cash equivalents $ 7,193,500 $ 3,742,600
Restricted cash 3,000,000
Accounts receivable, net of allowance for doubtful accounts
of $175,800 and $200,000, respectively 2,475,700 2,398,100
Inventories 3,176,400 3,715,800
Prepaid expenses and other current assets 402,000 267,100
Deferred income taxes 500,800 500,800
Total Current Assets 13,748,400 13,624,400
Property and Equipment, net 2,026,800 1,202,300
Deposits and Other Assets 81,800 216,500
Investments in Unconsolidated Affiliate 784,700
$ 16,641,700 $ 15,043,200
Liabilities, Convertible Redeemable Preferred Stock, and Shareholders Equity
Current Liabilities:
Note payable and lines of credit $ $ 4,425,800
Accounts payable 942,400 842,200
Accounts payable, related party 757,900
Accrued expenses 1,689,700 1,234,800
Income taxes payable 1,532,300 1,670,200
Current portion of deferred revenue 149,700 248,900
Current portion of capital lease obligations 159,600 96,600
Total Current Liabilities 5,231,600 8,518,500
Deferred Revenue, net of current portion 149,900
Capital Leases Obligations, net of current portion 107,300 51,300
Deferred Income Taxes 443,100 443,100
Minority Interest in Consolidated Subsidiary 1,141,900
Total Liabilities 5,782,000 10,304,700
Commitments and Contingencies
Convertible Redeemable Preferred Stock:
Series A, $0.01 par value; 700,000 shares authorized; 0 and 700,000 issued,
and outstanding, respectively, $.40 per share redemption value 300,000
Series B, $0.01 par value; 1,000,000 shares authorized; 0 and 1,000,000 issued,
and outstanding, respectively, $1.00 per share redemption value 1,000,000
Shareholders Equity
Common stock, $0.001 par value; 200,000,000 shares authorized;
45,299,848 and 25,542,482 shares issued and outstanding, respectively 45,500 25,500
Additional paid-in capital 17,955,800 1,301,000
Deferred compensation (516,600) (717,800)
(Accumulated deficit) Retained Earnings (6,625,000) 2,829,800
Total Shareholders Equity 10,859,700 3,438,500
$ 16,641,700 $ 15,043,200
RAE Systems Inc.
Condensed Consolidated Statements of Operations
2002 2001 2002 2001
(Unaudited) (Unaudited)
Net Sales $ 6,263,100 $ 4,976,500 $ 21,844,800 $ 19,013,600
Cost of Sales 2,196,200 1,727,300 8,774,100 7,041,900
Gross Margin 4,066,900 3,249,200 13,070,700 11,971,700
Operating Expenses:
Sales and marketing 1,384,800 975,800 5,356,000 4,486,700
Research and development 584,200 958,000 2,531,100 3,289,300
General and administrative 1,138,000 943,100 4,449,600 3,055,900
Legal fees and settlement costs 394,600 503,900 969,700 1,237,000
Merger costs 8,734,700
Total Operating Expenses 3,501,600 3,380,800 22,041,100 12,068,900
Three months ended December 31, Twelve months ended December 31,
Operating (Loss) Income 565,300 (131,600) (8,970,400) (97,200)
Other Income (Expense):
Interest income 7,300 34,800 53,700 136,100
Interest expense (8,700) (84,400) (118,900) (294,200)
Other, net 1,700 2,800 100 (9,000)
Equity in loss of unconsolidated affiliate (85,300) (283,700)
Minority interest in loss of consolidated subsidiary 197,800 455,200
Income (Loss) Before Income Taxes 480,300 19,400 (9,319,200) 190,900
Income Taxes 99,200 5,600 135,600 54,100
Net (Loss) Income $ 381,100 $ 13,800 $ (9,454,800) $ 136,800
Basic Earnings (Loss) Per Common Share $ 0.01 $ 0.00 $ (0.24) $ 0.01
Diluted Earnings (Loss) Per Common Share $ 0.01 $ 0.00 $ (0.24) $ 0.01
Weighted-average common shares outstanding 45,153,990 15,676,366 39,902,169 15,596,922
Convertible preferred stock 6,800,000 6,800,000
Stock options 1,919,593 1,507,438 1,538,063
Diluted weighted-average common shares outstanding 47,073,583 23,983,804 39,902,169 23,934,985

Contact: Lea-Anne Matsuoka


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