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): April 30, 2003

COMMISSION FILE NUMBER: 000-26109

RAE Systems Inc.

(Exact name of registrant as specified in its charter)

Delaware	77-0588488
(State or other jurisdiction	(I.R.S. Employer
of incorporation)	Identification No.)

1339 Moffett Park Drive

Sunnyvale, California 94089

408-752-0723

(Address and telephone number of registrant’s principal executive offices)

TABLE OF CONTENTS

EXHIBIT 99.1

Item 7. Financial Statements and Exhibits.

c. Exhibits

Exhibit No.	Description
99.1	Press Release dated April 30, 2003

Item 9. REGULATION FD DISCLOSURE (Information Furnished in this Item 9 is Furnished Under Item 12.)

Item 12. Disclosure of Results of Operations and Financial Condition.

On April 30, 2003, RAE Systems Inc. (the “Company”) issued a press release announcing its financial results for the first quarter of 2003. A copy of the Company’s press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

The information furnished in Items 9 and 12 of this Current Report on Form 8-K, including the exhibit shall not be deemed to be incorporated by reference into the Company’s filings with the SEC under the Securities Act of 1933, as amended.

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.

	RAE Systems Inc.
Date: May 1, 2003	By:	/s/    JOSEPH NG
		Joseph Ng
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated April 30, 2003

EX-99.1

EXHIBIT 99.1

Contact:

Lea-Anne Matsuoka

877-723-2878

investorrelations@raesystems.com

RAE SYSTEMS REPORTS RECORD FIRST QUARTER RESULTS

Company Posts Third Consecutive Profitable Quarter with 61% Growth

SUNNYVALE, Calif. – April 30, 2003 – RAE Systems, (OTC BB: RAEE.OB) a leading provider of hazardous environment detection solutions for homeland defense, today announced its financial results for the first quarter ended March 31, 2003.

For the quarter, RAE Systems reported total revenues of $7.3 million compared to revenues of $4.5 million in the first quarter of 2002, an increase of 61%. Worldwide consolidated net profit was $775,000 or two cents per share, compared to a net loss of $179,000 for the same quarter in 2002. The growth in revenue was due to a significant increase in government sales, particularly for homeland security. RAE also experienced a substantial gain in Europe and Asia for the monitoring of toxic gases in confined space entry.

“We are pleased with our performance this quarter, and we continue to execute to plan as we support the growing demand for homeland security technologies that provide pervasive sensing,” said Robert I. Chen, president and CEO of RAE Systems. “Our growth is being driven by a variety of markets and applications, from cargo ports and first responders to military, government agencies and private industry. In each case, the need for hazardous environment detection, whether chemical or radiological, is paramount in protecting lives and assets.”

Highlights of the first quarter include:

– New York State purchase of 150 RAE Systems monitors. State and county task force teams for homeland security response will use MultiRAE monitors as part of their 75 standardized incident response trailers. Should a terrorist attack or hazardous materials event occur, the trailers can be easily moved to the location. The MultiRAE Plus is a handheld, five-gas monitor that provides the most complete first responder protection in hazardous environments. It simultaneously reads and displays

carbon monoxide (CO), volatile organic compounds (VOCs), combustible gas levels, oxygen and toxic gases, which saves money on multiple monitors, training and maintenance costs.

– RAE Systems expanded its product line by launching personal radiation detectors. Designed as front line security devices, the GammaRAE and NeutronRAE provide real time detection of radiation sources. Unlike dosimeters, which provide weighted averages over a period of time, the GammaRAE and NeutronRAE deliver instantaneous feedback to front line homeland defense personnel such as border guards, coastal defense forces and cargo port screeners.

– RAE Systems received its 17^th patent for “Non-Dispersive Infrared Gas Sensor Technology.” The technology is deployed in the MultiRAE IR gas detector, a handheld, five-gas monitor with the capability to simultaneously read and display carbon dioxide (CO2), volatile organic compounds (VOCs), combustible gas levels, oxygen and toxic gases, as well as in the AreaRAE-IAQ, a wireless gas monitor incorporating both NDIR and PID technologies for indoor air quality (IAQ) measurement. It combines VOC measurement with traditional IAQ parameters like temperature, humidity, CO2 and carbon monoxide (CO) in a single package.

###

About RAE Systems

RAE Systems Inc. is the leader in rapidly deployable sensing networks for homeland defense and a leading manufacturer of portable, wireless and fixed atmospheric monitors, photo-ionization detectors, radiation detectors, gas detection tubes, sampling pumps and security monitoring devices. Our customers use our products to monitor gas and other volatile organic compounds in confined spaces, to establish a perimeter security around hazardous material sites and to detect the illicit traffic of radio active materials. RAE Systems’ customers operate in such industries as safety and security, oil and gas, pharmaceuticals, utilities, food, chemical, airlines, military and hazardous material storage and disposal, and its monitors are used in civilian and government atmospheric monitoring programs in over 50 countries. For more information about RAE Systems, please visit www.RAESystems.com.

Safe Harbor Statement

This press release contains “forward-looking” statements, as that term is used in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are denoted by such words as “continue to execute to plan”, “growing demand”, and “will use”. 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 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 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.

TABLES

Condensed Consolidated Balance Sheets

	March 31, 2003			December 31, 2002
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	7,382,200		$	7,193,500
Accounts receivable, net of allowance for doubtful accounts of $175,700 and $175,700, respectively		3,398,900			2,475,700
Inventories		3,526,600			3,176,400
Prepaid expenses and other current assets		461,600			402,000
Deferred income taxes		528,800			528,800
Total Current Assets		15,298,100			13,776,400
Property and Equipment, net		1,956,200			2,026,800
Deposits and Other Assets		103,700			81,800
Investment in Unconsolidated Affiliate		718,800			784,700
	$	18,076,800		$	16,669,700
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	1,476,600		$	942,400
Accounts payable to affiliate		744,600			757,900
Accrued expenses		1,676,600			1,689,700
Income taxes payable		1,767,400			1,726,200
Current portion of deferred revenue		109,100			149,700
Current portion of capital lease obligations		159,600			159,600
Total Current Liabilities		5,933,900			5,425,500
Deferred Revenue, net of current portion		31,100			—
Capital Leases Obligations, net of current portion		54,900			107,300
Deferred Income Taxes		277,200			277,200
Total Liabilities		6,297,100			5,810,000
Commitments and Contingencies
Shareholders’ Equity:
Common stock, $0.001 par value; 200,000,000 shares authorized; 45,812,764 and 45,516,675 shares issued and outstanding, respectively		45,800			45,500
Additional paid-in capital		17,583,900			17,955,800
Deferred compensation		—			(516,600	)
Accumulated deficit		(5,850,000	)		(6,625,000	)
Total Shareholders’ Equity		11,779,700			10,859,700
	$	18,076,800		$	16,669,700

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Operations

	Three months ended March 31,
	2003			2002
	(Unaudited)			(Unaudited)
Net Sales	$	7,339,400		$	4,545,300
Cost of Sales		2,912,800			2,024,800
Gross Margin		4,426,600			2,520,500
Operating Expenses:
Sales and marketing		1,470,100			1,073,300
Research and development		706,000			594,000
General and administrative		1,187,600			845,200
Legal fees and settlement costs		88,600			77,900
Total Operating Expenses		3,452,300			2,590,400
Operating Income (Loss)		974,300			(69,900	)
Other Income (Expense):
Interest income		9,400			14,100
Interest expense		(8,500	)		(59,500	)
Other, net		1,100			(2,400	)
Equity in loss of unconsolidated affiliate		(65,900	)		(61,300	)
Total Other Income (Expense)		(63,900	)		(109,100	)
Income (Loss) Before Income Taxes		910,400			(179,000	)
Income Taxes		(135,400	)		—
Net Income (Loss)	$	775,000		$	(179,000	)
Basic Earnings (Loss) Per Common Share	$	0.02		$	(0.01	)
Diluted Earnings (Loss) Per Common Share	$	0.02		$	(0.01	)
Weighted-average common shares outstanding		45,637,578			25,544,312
Stock Options		1,397,375			—
Diluted weighted-average common shares outstanding		47,034,953			25,544,312

See accompanying notes to condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows

	Three months ended March 31,
	2003			2002
	(Unaudited)			(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows From Operating Activities:
Net Income (Loss)	$	775,000		$	(179,000	)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		186,600			121,400
Provision for doubtful accounts		—			(22,400	)
Inventory reserve		43,000			—
Compensation expense		125,000			—
Amortization of deferred compensation		—			49,200
Equity in loss of unconsolidated affiliate		65,900			61,300
Deferred income taxes		—			(146,700	)
Changes in operating assets and liabilities, net of effects of deconsolidation:
Accounts receivable		(923,200	)		78,600
Inventories		(393,200	)		(57,800	)
Prepaid expenses and other current assets		(59,600	)		(44,700	)
Accounts payable		534,200			705,600
Accounts payable to affiliate		(13,300	)		(2,500	)
Accrued expenses		(13,100	)		39,500
Income taxes payable		41,200			—
Deferred revenue		(9,500	)		(42,200	)
Net Cash Provided by Operating Activities		359,000			560,300
Cash Flows From Investing Activities:
Cash relinquished in deconsolidation		—			(878,300	)
Investment in affiliate		—			(500,000	)
Acquisition of property and equipment		(116,000	)		(73,000	)
Deposits and other		(21,900	)		(149,600	)
Net Cash Used In Investing Activities		(137,900	)		(1,600,900	)
Cash Flows From Financing Activities:
Proceeds from the issuance of common stock		20,000			200
Payment on capital lease obligation		(52,400	)		(32,100	)
Net Cash Used In Financing Activities		(32,400	)		(31,900	)
Net Increase (Decrease) in Cash and Cash Equivalents		188,700			(1,072,500	)
Cash and Cash Equivalents, beginning of period		7,193,500			3,742,600
Cash and Cash Equivalents, end of period	$	7,382,200		$	2,670,100
Supplemental Disclosure of Cash Flow Information:
Cash Paid:
Income taxes	$	100,000		$	146,700
Interest	$	8,500		$	49,500
Noncash Inventory and Financing Activities:
Capital leases entered into for equipment	$	—		$	160,400

See accompanying notes to condensed consolidated financial statements.