SAN JOSE, CA -- (Marketwire) -- 08/04/10 -- RAE Systems Inc. (NYSE Amex: RAE), a leader in delivering innovative sensor solutions to serve industrial, energy, environmental, and government safety markets worldwide, reported financial results and business highlights for the second quarter and six months ended June 30, 2010.

Financial Results
For the second quarter of 2010, RAE Systems reported revenue of $23.3 million, an increase of 17% over the second quarter of 2009. In the second quarter of 2010, the Americas contributed 54% of total revenue, Asia contributed 30% and Europe contributed 16% of revenue. Gross margin for the second quarter was 59%, compared with 50% for the second quarter of 2009. Operating expenses for the second quarter of 2010 were $11.9 million, or 51% of revenue, compared with $11.9 million, or 60% of revenue, for the second quarter of 2009. The second quarter net income was $2.0 million, or $0.04 per share, compared with a net loss of $2.3 million, or $0.03 per share, for the second quarter of 2009.

For the six months ended June 30, 2010, revenue was $42.1 million, up from $39.0 million for the same period in 2009. The net income for the first half of 2010 was $1.6 million, or $0.03 per share, compared with a net loss of $3.2 million, or $0.05 per share, for the same period in 2009.

"We had strong first half revenue in the Americas due to demand for our products as a result of the Gulf of Mexico oil spill and from first responders, the military and other government agencies," said Robert Chen, RAE Systems president and CEO. "Our improved gross margin performance was primarily due to higher sales in the Americas and the Middle East, and an improved product mix that included increased sales of multi-gas products, sensors and accessories."

"Although our first half revenue exceeded that of 2009 by nearly 8%, we are maintaining our full year 2010 revenue guidance of between $83 and $85 million, due to the weaker than expected revenue contribution from China. However, we now expect to generate a small profit for the year," Chen commented.

In June, the company met with officials from the Department of Justice and the Securities and Exchange Commission to provide an update on the company's compliance with the Foreign Corrupt Practices Act. The management team expects to have closure on this matter in the near future.

Business Highlights
In response to the Gulf of Mexico oil spill, the company launched web based tools to instruct responders on the best gas detection methodology to use in a variety of situations, such as:

• Protecting cleanup workers from exposure to toxic oil by-products
• Monitoring decontamination of people, equipment and wildlife
• Maintaining worker safety on off-shore oil rigs
• Managing area monitoring on vessels and providing worker safety on supply ships
• Area monitoring of the shoreline

These tools are useful not only to the company's Gulf Coast customers, but to its energy and environmental management customers worldwide.

In public venue protection, the company won a contract to deliver wireless toxic gas and radiation monitors as part of the safety and public venue protection preparations for the 16th Annual Asian Games being held in Guangzhou, China, in November.

In the hazardous material management market, the company signed an agreement with Rosenbauer International AG, a large German manufacturer of fire trucks, to provide its AreaRAE wireless gas and radiation sensor system for integration into Rosenbauer's line of hazardous material response trucks.

About RAE Systems
RAE Systems is a leading global provider of rapidly deployable connected, intelligent gas detection systems that enable real-time safety and security threat detection. RAE Systems products are used in more than 95 countries by many of the world's leading corporations and government agencies.

RAE Systems offers a full line of wirelessly enabled solutions including personal, hand-held, transportable, and fixed instruments designed to meet the needs of any usage scenario. Applications include energy production, refining, industrial and environmental safety, public venue safety and government first responder markets.

For more information about RAE Systems, please visit raesystems.com.

Safe Harbor Statement
This presentation may contain "forward-looking" statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include, without limitation: expressions of "belief," "anticipation," or "expectations" of management; statements as to industry trends or future results of operations of RAE Systems and its subsidiaries; and other statements that are not historical fact. 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 Systems 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 Form 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.

                              RAE Systems Inc.
                   Condensed Consolidated Balance Sheets
              (in thousands, except share and par value data)
                                (unaudited)

                                                  June 30,     December 31,
                                                    2010           2009
                                                ------------   ------------
ASSETS
Current assets:
  Cash and cash equivalents                     $     18,893   $     18,528
  Restricted cash                                      2,147          2,146
  Trade notes receivable                               1,667          2,039
  Accounts receivable, net of allowances of
   $5,773 and $5,380, respectively                    20,458         19,428
  Accounts receivable from affiliate                     209            322
  Inventories                                         12,752         12,068
  Prepaid expenses and other current assets            4,511          3,983
  Income taxes receivable                                  -            659
                                                ------------   ------------
    Total current assets                              60,637         59,173
                                                ------------   ------------
Property and equipment, net                           16,726         15,590
Intangible assets, net                                 1,984          2,428
Investments in unconsolidated affiliates                 259            358
Other assets                                             477          1,325
                                                ------------   ------------
  Total assets                                  $     80,083   $     78,874
                                                ============   ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $      7,294   $      6,454
  Accounts payable to affiliate                           37             92
  Bank debt, current                                   5,492          4,026
  Accrued liabilities                                 15,031         15,753
  Notes payable to related parties, current              386            370
  Income taxes payable                                   372            199
  Deferred revenue, current                              501            603
                                                ------------   ------------
    Total current liabilities                         29,113         27,497
                                                ------------   ------------
Deferred revenue, non-current                            501            615
Deferred tax liabilities, non-current                    108            156
Bank debt, non-current                                     -          1,463
Deferred gain on sale of real estate, non-
 current                                               4,126          4,444
Other long-term liabilities                              863            781
Notes payable to related parties, non-current            356            363
                                                ------------   ------------
    Total liabilities                                 35,067         35,319
                                                ------------   ------------


SHAREHOLDERS' EQUITY:
  Common stock, $0.001 par value, 200,000,000
   shares authorized; 59,431,601 and 59,438,328
   shares issued and outstanding, respectively            59             59
  Additional paid-in capital                          64,487         63,832
  Accumulated other comprehensive income               6,276          6,844
  Accumulated deficit                                (30,097)       (31,706)
                                                ------------   ------------
    Total RAE Systems Inc. shareholders' equity       40,725         39,029
  Noncontrolling interest                              4,291          4,526
                                                ------------   ------------
    Total shareholders' equity                        45,016         43,555
                                                ------------   ------------
    Total liabilities and shareholders' equity  $     80,083   $     78,874
                                                ============   ============

                              RAE Systems Inc.
              Condensed Consolidated Statements of Operations
                     (in thousands, except share data)
                                (unaudited)

                                  Three Months Ended     Six Months Ended
                                        June 30,              June 30,
                                  -------------------   -------------------
                                    2010       2009       2010       2009
                                  --------   --------   --------   --------
Net sales                         $ 23,300   $ 19,907   $ 42,095   $ 39,020
Cost of sales                        9,453     10,039     18,059     19,822
                                  --------   --------   --------   --------
Gross profit                        13,847      9,868     24,036     19,198
                                  --------   --------   --------   --------
Operating expenses:
  Sales and marketing                5,199      4,849      9,857      9,231
  Research and development           1,844      1,384      3,531      2,979
  General and administrative         4,869      5,692      8,967     10,105
                                  --------   --------   --------   --------
    Total operating expenses        11,912     11,925     22,355     22,315
                                  --------   --------   --------   --------
Operating income (loss)              1,935     (2,057)     1,681     (3,117)
Other income (expense):
  Interest income                       24          8         47         17
  Interest expense                     (18)       (90)       (69)      (235)
  Other, net                            45         53         99         (8)
  Equity in loss of
   unconsolidated affiliate            (45)       (66)       (96)      (133)
                                  --------   --------   --------   --------
Income (loss) before income taxes    1,941     (2,152)     1,662     (3,476)
Income tax expense                    (159)      (401)      (288)      (360)
                                  --------   --------   --------   --------
Net income (loss)                    1,782     (2,553)     1,374     (3,836)
  Net loss attributable to the
   noncontrolling interest             191        303        235        598
                                  --------   --------   --------   --------
Net income (loss) attributable to
 RAE Systems Inc.                 $  1,973   $ (2,250)  $  1,609   $ (3,238)
                                  ========   ========   ========   ========


Basic net income (loss) per share $   0.04   $  (0.03)  $   0.03   $  (0.05)
                                  ========   ========   ========   ========
Diluted net income (loss) per
 share                            $   0.04   $  (0.03)  $   0.03   $  (0.05)
                                  ========   ========   ========   ========

Weighted-average common shares
 outstanding-Basic                  59,411     59,359     59,408     59,351
Stock options and warrants             136          -        139          -
                                  --------   --------   --------   --------
Weighted-average common shares
 outstanding-Diluted                59,547     59,359     59,547     59,351
                                  ========   ========   ========   ========




The following table sets forth the components of our Condensed Consolidated
Statements of Operations as a percentage of net sales:


                                      Three Months Ended   Six Months Ended
                                           June 30,            June 30,
                                      ------------------  ------------------
                                        2010      2009      2010      2009
                                      --------  --------  --------  --------
Net sales                                 100%      100%      100%      100%
Cost of sales                              41%       50%       43%       51%
                                      --------  --------  --------  --------
Gross profit                               59%       50%       57%       49%
                                      --------  --------  --------  --------
Operating expenses:
  Sales and marketing                      22%       24%       24%       24%
  Research and development                  8%        7%        8%        7%
  General and administrative               21%       29%       21%       26%
                                      --------  --------  --------  --------
    Total operating expenses               51%       60%       53%       57%
                                      --------  --------  --------  --------
Operating income (loss)                     8%      -10%        4%       -8%
Other income (expense):
  Interest income                           0%        0%        0%        0%
  Interest expense                          0%       -1%        0%       -1%
  Other, net                                0%        0%        0%        0%
  Equity in loss of unconsolidated
   affiliate                                0%        0%        0%        0%
                                      --------  --------  --------  --------
Income (loss) before income taxes           8%      -11%        4%       -9%
Income tax expense                         -1%       -2%       -1%       -1%
                                      --------  --------  --------  --------
Net income (loss)                           7%      -13%        3%      -10%
  Net loss attributable to the
   noncontrolling interest                  1%        2%        1%        2%
                                      --------  --------  --------  --------
Net income (loss) attributable to RAE
 Systems Inc.                               8%      -11%        4%       -8%
                                      ========  ========  ========  ========

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