UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE PERIOD FROM TO
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 of registrant’s principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports, and (2) has been subject to filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class |
Outstanding at May 1, 2003 | |
| Common Stock, $0.001 Par Value |
45,825,127 | |
RAE Systems Inc.
2
In connection with becoming a public company through a reverse merger transaction, certain options under our 1993 Stock Plan became subject to variable accounting in accordance with FASB Interpretation No. 44 (FIN 44). As of December 31, 2002, there were 2,014,941 options outstanding under the 1993 Stock Plan that were subject to variable accounting. To eliminate the variable effects of such accounting treatment, we have adopted the fair value recognition provisions of SFAS 123 for stock-based employee compensation, effective January 1, 2003 under the modified prospective method as provided for in SFAS 148, Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123. Our interim financial statements herein for the quarter ended March 31, 2003 reflect a non-cash compensation charge of $125,000. Stock-based compensation charges have significantly impacted our financial statements, and will continue to impact the financial statements on a prospective basis.
3
Item 1: RAE Systems Inc. Financial Statements (Unaudited)
RAE Systems Inc.
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.
4
RAE Systems Inc.
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 |
|
|
— |
| ||
| Net Income (Loss) |
$ |
775,000 |
|
$ |
(179,000 |
) | ||
| Diluted weighted-average common shares outstanding |
|
47,034,953 |
|
|
25,544,312 |
| ||
See accompanying notes to condensed consolidated financial statements.
5
RAE Systems Inc.
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 |
||||||