RAE Systems Reports First Quarter 2006 Results

Company reaffirms revenue guidance of $68 to $73 million for full year 2006


SAN JOSE, Calif. - May 9, 2006--RAE Systems Inc. (AMEX:RAE), a leading global developer and manufacturer of rapidly-deployable, multi-sensor chemical and radiation detection monitors and networks for homeland security and industrial applications, today reported results for the first quarter of 2006.

For the first quarter of 2006, RAE Systems reported revenue of $12.4 million as compared to revenue of $12.2 million for the same quarter in 2005. The growth in revenue reflects increased sales in both Europe and Asia, which were largely offset by a slow-down in U.S. Government orders. Europe and Asia grew at a combined rate of approximately 23 percent over the first quarter of 2005. Sales in the Americas declined by approximately 12 percent compared to the first quarter of 2005. Gross margin for the first quarter of 2006 was 54 percent as compared to 59 percent for the first quarter of 2005. The decrease was primarily attributable to a shift in sales in the Americas towards lower-margin portable products as well as from increased sales of lower-margin installation and distributor products in Asia. Net loss for the first quarter of 2006 was $896,000 or $0.02 per share compared to net income of $94,000 or $0.00 per share for the first quarter of 2005. The Company also received a one-time benefit of $139,000 in the first quarter of 2006 from a change in accounting principle in moving, as required, from Financial Accounting Standard 123 to 123R "Share-Based Payment."

The Company ended the first quarter of 2006 with $28.3 million of cash and investments and $1.6 million of debt. That compares to $29.5 million of cash and investments and $1.6 million of debt as of December 31, 2005.

"I am pleased that we were able to continue double-digit sales growth in our overseas markets in the first quarter of 2006, in what traditionally is a seasonally slow quarter," said Robert Chen, RAE Systems CEO. "However, I am disappointed that we took a step back in the Americas where we experienced a slow-down in U.S. government orders. We believe our photoionization and wireless products continue to lead the industry and we are confident that we will regain our momentum in the Americas. As a Company, we continue to pursue our goal of providing leading-edge technology to the security and industrial markets and we are continuing to invest in our vision of pervasive sensing. Finally, I would like to reaffirm our full-year revenue guidance of $68 million to $73 million."