1084876--3/31/2006--RAE_SYSTEMS

related topics

{regulation, change, law}

{property, intellectual, protect}

{stock, price, operating}

{control, financial, internal}

{customer, product, revenue}

{product, market, service}

{competitive, industry, competition}

{system, service, information}

{regulation, government, change}

{acquisition, growth, future}

{loss, insurance, financial}

{personnel, key, retain}

{operation, international, foreign}

{product, liability, claim}

Our future revenues are unpredictable, our operating results are likely to fluctuate from quarter to quarter, and if we fail to meet the expectations of securities analysts or investors, our stock price could decline significantly. While we were profitable for the fourth quarter of 2005, we remain unprofitable on a year to date basis through the end of the fourth quarter. We might continue to incur operating losses and may not be profitable in the future. In addition, if our financial results continue to border on profitability, the financial impact of future events may be magnified and may lead to disproportionate impact on the trading price of our stock. The market for gas and radiation detection monitoring devices is highly competitive, and if we cannot compete effectively, our business may be harmed. We might 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. If our new enterprise resource planning software is not implemented correctly, it could cause errors in our financial reporting or unexpected business interruptions. Future changes in accounting and taxation standards or practices can have a significant effect on our reported results. 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 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 might 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 may lose sales if our distributors stop selling our products. 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. Our business could suffer if we lose the services of any of our executive officers. Our officers, directors and principal stockholders beneficially own approximately 35% of our common stock and, accordingly, may exert substantial influence over the company.

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1084876--3/31/2006--RAE_SYSTEMS_INC