1084876--3/16/2007--RAE_SYSTEMS

related topics

{property, intellectual, protect}

{regulation, change, law}

{customer, product, revenue}

{acquisition, growth, future}

{product, market, service}

{competitive, industry, competition}

{regulation, government, change}

{loss, insurance, financial}

{control, financial, internal}

{operation, international, foreign}

{product, liability, claim}

We may require additional capital in the future, which may not be available or may only be available on unfavorable terms. The market for gas and radiation detection monitoring devices is highly competitive, and if we cannot compete effectively, our business may be harmed. We may not be successful in the development or introduction of new products and services in a timely and effective manner and, consequently, we may not be able to remain competitive and the results of operations may suffer. Recently enacted changes in the securities laws and regulations have and are likely to continue to increase our costs. In the event we are unable to satisfy regulatory requirements relating to internal control over financial reporting or, if these controls are not effective, our business and financial results may suffer. We are subject to risks and uncertainties of the government marketplace, including the risk that the government may not fund projects that our products are designed to address and that certain terms of our contracts with government agencies may subject us to adverse government actions or penalties. We may not be successful in promoting and developing our brand, which could prevent us from remaining competitive. We may face risks from our substantial international operations and sales. The loss of Normal Trade Relation status for China, changes in current tariff structures or adoption of other trade policies adverse to China could have an adverse effect on our business. The government of China may change or even reverse its policies of promoting private industry and foreign investment, in which case our assets and operations may be at risk. Any failure to adequately protect and enforce our intellectual property rights could harm our business. We may face intellectual property infringement claims that might be costly to resolve and affect our results of operations. Some of our products may be subject to product liability claims which could be costly to resolve and affect our results of operations. We sell a majority of our products through distributors, and if our distributors stop selling our products, our revenues would suffer. Because we purchase a significant portion of our component parts from a limited number of third party suppliers, we are subject to the risk that we may be unable to acquire quality components in a timely manner, which could result in delays of product shipments and damage our business and operating results. Future acquisitions that we undertake could be difficult to integrate, disrupt our business, dilute stockholder value or harm our results of operations. Our ownership interest in Renex will cause us to incur losses that we would not otherwise incur.

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1084876--3/16/2007--RAE_SYSTEMS_INC