8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 13, 2007

RAE Systems Inc.

(Exact name of registrant as specified in its charter)

Delaware	001-31783	77-0280662
(State or other jurisdiction	(Commission File No.)	(I.R.S. Employer
of incorporation)		Identification No.)

3775 North First Street
San Jose, California 95134
408-952-8200
(Address and telephone number of registrant’s principal executive offices)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 8.01. Other Events.
	Item 9.01 Financial Statements and Exhibits.
SIGNATURE
EXHIBIT INDEX
EXHIBIT 99.1

Item 8.01. Other Events.

     The following are updates to certain of the legal proceedings described in Note 5 to the RAE Systems Inc. (the “Company”) consolidated condensed financial statements, Commitments and Contingencies, which is incorporated by reference into the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2007.

     Polimaster Ltd. (“Polimaster”) filed a complaint against the Company on May 9, 2005, in the United States District Court for the Northern District of California in a case styled Polimaster Ltd. v. RAE Systems Inc. (Case No. 05-CV-01887-JF). The complaint alleged, among other things, that the Company breached its contract with Polimaster and infringed upon Polimaster’s intellectual property rights. Polimaster moved for a preliminary injunction on June 17, 2005. The Court denied Polimaster’s request on September 6, 2005. The dispute was subject to a contractual arbitration agreement, although the federal court retained jurisdiction over the matter pending arbitration by the parties.

     Arbitration was formally commenced on June 12, 2006 for the Polimaster matter. Polimaster’s Demand for Arbitration asserted damages totaling $13.2 million and sought an injunction against sales of the Company’s Gamma Rae II and Neutron RAE II radiation detection products. The Company asserted counterclaims against Polimaster for breach of contract and tortuous interference with contract, among other things, and sought monetary damages of its own. A ten day arbitration proceeding was completed on March 16, 2007. The arbitration was conducted under the auspices of Judicial Arbitration and Mediation Services, Inc. (JAMS) in California. The parties filed post hearing briefs in May 2007.

     On July 13, 2007, the Company issued a press release announcing the decision of arbitrator in connection with the Polimaster matter. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

     (d) Exhibits. The following exhibit is filed herewith:

Exhibit No.	Description
99.1	Press release date July 13, 2007.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: July 13, 2007

RAE SYSTEMS INC.
By:	/s/ Randall Gausman
Name:	Randall Gausman
Title:	Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated July 13, 2007.

EX-99.1

Exhibit 99.1

For Immediate Release

Contact:
Bob Durstenfeld
408-952-8402
bdurstenfeld@raesystems.com

RAE Systems Wins Polimaster Arbitration

San Jose, Calif. — July 13, 2007 — RAE Systems Inc. (AMEX: RAE), a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time, today announced it prevailed in its arbitration with Polimaster Ltd. In an Interim Award, the arbitrator ruled among other things that:

(i)	Polimaster failed to prove its claims and is not entitled to relief;
(ii)	RAE Systems has proven its counter claims and is awarded damages of approximately $2.4 million; and
(iii)	RAE Systems as the prevailing party may file an application for attorney’s fees and costs.

Further determinations regarding whether the arbitrator’s factual findings should be treated as confidential and RAE Systems’ application for attorney’s fees and costs will be included in a Final Award, which will also incorporate the contents of the Interim Award.

“We always believed Polimaster’s claim was without merit, and we are gratified the arbitration proceeding has confirmed our position,” said Robert Chen, president and chief executive officer. “With the resolution of this case, we believe the company has a clear path to drive greater success of our radiation products worldwide.”

As previously announced, RAE Systems and Polimaster had been involved in an arbitration proceeding conducted under the auspices of Judicial Arbitration and Mediation Services, Inc. in California. Although RAE Systems has been awarded damages and may also be awarded attorneys fees and costs, at this time the company is unable to determine whether it will be able to collect on any such awards due to uncertainties pertaining to Polimaster’s financial position and other factors.

For Immediate Release

About RAE Systems
RAE Systems is a leading global provider of rapidly deployable sensor networks that enable customers to identify safety and security threats in real time. Products include multi-sensor chemical detection, wireless gas detection, radiation and digital video monitoring networks for energy production and refining, industrial and environmental safety, and public and government first responder security sectors. RAE Systems’ products are used in over 65 countries by many of the world’s leading corporations and by many U.S. government agencies. For more information about RAE Systems, please visit www.RAESystems.com.

Safe Harbor Statement

This press release 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” which relate to the potential recovery of arbitration awards. Factors that could cause the Company to be unable to recover such awards could include uncertainties pertaining to Polimaster’s financial position and other factors. 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.

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