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):
May 6, 2009

RAE Systems Inc.

(Exact name of registrant as specified in its charter)

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

Item 2.02 Results of Operations and Financial Conditions.

     On May 6, 2009, RAE Systems Inc. (the “Company”) issued a press release announcing its financial results for the fiscal quarter ended March 31, 2009. A copy of the Company’s press release is attached hereto as Exhibit 99.1.

     The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Description
99.1	Earnings release dated May 6, 2009 regarding the Company’s financial results for the fiscal quarter ended March 31, 2009.

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: May 6, 2009

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

EXHIBIT INDEX

Exhibit No.	Description
99.1	Earnings release dated May 6, 2009 regarding the Company’s financial results for the fiscal quarter ended March 31, 2009.

EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Company Contact:	IR Agency Contact:
Investor Relations	Becky Herrick
408-952-8402	415-433-3777
investorrelations@raesystems.com	bherrick@lhai.com

RAE Systems Reports First Quarter 2009 Results

First Quarter 2009 Revenue Increased 7% Over First Quarter 2008

SAN JOSE, Calif. — May 6, 2009 —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 first quarter ended March 31, 2009.

“The growth in first quarter revenue was driven by our diversified markets and the adoption of the new products we introduced last year,” said Robert Chen, RAE Systems president and chief executive officer. “While the global economic slowdown has impacted our business, we believe trends in the regulatory compliance and energy market, including the industrial and oil production sectors, will continue to be significant long-term market drivers for us. In all of our markets, we will continue to explore and develop strategic value-added partnerships to leverage our product and market expertise. We expect full year 2009 revenue to be comparable with 2008 and excluding the impact of the previously announced FCPA investigation we expect to be profitable for the year.”

First Quarter 2009 Financial Results

For the first quarter of 2009, RAE Systems reported revenue of $19.1 million, compared to $17.9 million in the same quarter in 2008. For the first quarter of 2009, Americas contributed 42 percent of total revenue; Asia contributed 39 percent; and Europe contributed 19 percent. Gross margin for the quarter was 49 percent, compared with 50 percent for the first quarter of 2008. The decline in the gross margin during the first quarter of 2009 was primarily due to unfavorable exchange rate fluctuations in the Euro and the write-down of inventory. The net loss for the first quarter of 2009

1

FOR IMMEDIATE RELEASE

was $988,000, or $0.02 per share, compared with a net loss of $2.3 million, or $0.04 per share, for the first quarter of 2008.

First Quarter 2009 Business Highlights

• Deployed the MultiRAE Plus to the U.S. military for aviation safety including for the Presidential Inauguration and Special Olympics.

• Delivered wireless AreaRAE Steel Rapid Deployment Kits, GammaRAE II R radiation monitors and LifeShirt personnel monitors to the Kuwait Civil Defense Force.

• Received certification for AreaRAE Steel monitors for deployment in the most hazardous working environments.

• Received European ATEX hazardous environment intrinsic safety certifications for the MiniRAE 3000 and ppbRAE 3000 next generation photoionization detectors for volatile organic compounds.

• Received China Mine Safety certification for the company’s integrated digital mine safety and control systems.

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 disposable gas detection tubes, single gas personal monitors, multi-sensor chemical detection monitors, photoionization (PID) monitors for volatile organic compounds (VOCs), wireless gas detection systems, and radiation 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 95 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” 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.

2

FOR IMMEDIATE RELEASE

[Tables to Follow]

3

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

	March 31,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	14,703		$	14,845
Trade notes receivable		1,945			1,870
Accounts receivable, net of allowances of $3,911 and $3,472, respectively		18,095			20,961
Accounts receivable from affiliate		141			100
Inventories		16,163			17,604
Prepaid expenses and other current assets		4,344			4,991
Income taxes receivable		979			895
Total current assets		56,370			61,266
Property and equipment, net		14,988			14,976
Intangible assets, net		3,111			3,342
Investments in unconsolidated affiliates		399			467
Other assets		1,021			1,124
Total assets	$	75,889		$	81,175
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,445		$	6,387
Accounts payable to affiliate		208			382
Payable to Fushun shareholder		2			64
Bank lines of credit		3,744			2,584
Accrued liabilities		10,452			12,318
Notes payable to related parties, current		750			1,329
Income taxes payable		444			425
Deferred revenue, current		565			631
Total current liabilities		20,610			24,120
Deferred revenue, non-current		628			685
Deferred tax liabilities, non-current		—			83
Deferred gain on sale of real estate, non-current		4,920			5,079
Other long-term liabilities		1,339			1,292
Notes payable to related parties, non-current		758			1,219
Total liabilities		28,255			32,478
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Common stock, $0.001 par value, 200,000,000 shares authorized; 59,443,914 and 59,443,914 shares issued and outstanding, respectively		59			59
Additional paid-in capital		62,913			62,549
Accumulated other comprehensive income		6,404			6,555
Accumulated deficit		(26,935	)		(25,947	)
Total RAE Systems Inc. shareholders’ equity		42,441			43,216
Noncontrolling interest		5,193			5,481
Total shareholders’ equity		47,634			48,697
Total liabilities and shareholders’ equity	$	75,889		$	81,175

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

	Three Months Ended
	March 31,
	2009			2008
Net sales	$	19,113		$	17,869
Cost of sales		9,783			9,014
Gross profit		9,330			8,855
Operating expenses:
Sales and marketing		4,382			5,380
Research and development		1,595			1,736
General and administrative		4,413			4,296
Total operating expenses		10,390			11,412
Operating loss from continuing operations		(1,060	)		(2,557	)
Other income (expense):
Interest income		9			48
Interest expense		(145	)		(102	)
Other, net		(61	)		307
Equity in loss of unconsolidated affiliate		(67	)		(9	)
Loss from continuing operations before income taxes		(1,324	)		(2,313	)
Income tax benefit (expense)		41			(196	)
Loss from continuing operations		(1,283	)		(2,509	)
Gain from discontinued operations, net of tax		—			10
Net loss		(1,283	)		(2,499	)
Net loss attributable to the noncontrolling interest		295			163
Net loss attributable to RAE Systems Inc.	$	(988	)	$	(2,336	)
Net loss per share-basic and diluted:
Continuing operations	$	(0.02	)	$	(0.04	)
Discontinued operations		—			—
Net loss per share-basic and diluted	$	(0.02	)	$	(0.04	)
Weighted average common shares outstanding-basic and diluted		59,343			58,999

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

	Three Months Ended
	March 31,
	2009			2008
Net sales		100	%		100	%
Cost of sales		51	%		50	%
Gross profit		49	%		50	%
Operating expenses:
Sales and marketing		23	%		30	%
Research and development		9	%		10	%
General and administrative		23	%		24	%
Adjustment to lease abandonment accrual		0	%		0	%
Total operating expenses		55	%		64	%
Operating loss from continuing operations		-6	%		-14	%
Other income (expense):
Interest income		0	%		0	%
Interest expense		-1	%		-1	%
Other, net		0	%		2	%
Equity in loss of unconsolidated affiliate		0	%		0	%
Loss from continuing operations before income taxes		-7	%		-13	%
Income tax benefit (expense)		0	%		-1	%
Loss from continuing operations		-7	%		-14	%
Gain from discontinued operations, net of tax		0	%		0	%
Net loss		-7	%		-14	%
Net loss attributable to the noncontrolling interest		2	%		1	%
Net loss attributable to RAE Systems Inc.		-5	%		-13	%