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, 2004
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: 001-31783
RAE Systems Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0588488 | |
| (State or other jurisdiction of incorporation) |
(I.R.S. Employer 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 April 28, 2004 | |
| Common Stock, $0.001 Par Value | 56,581,920 |
INDEX
| Part I. Financial Information |
Page | |||||
| Item 1. |
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| (a) RAE Systems Inc. Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003 |
4 | |||||
| 5 | ||||||
| 6 | ||||||
| 7 | ||||||
| (e) RAE Systems Inc. Notes to Condensed Consolidated Financial Statements |
8 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
13 | ||||
| Item 3. |
16 | |||||
| Item 4. |
22 | |||||
| Part II. Other Information |
||||||
| Item 1. |
22 | |||||
| Item 2. |
22 | |||||
| Item 3. |
23 | |||||
| Item 4. |
23 | |||||
| Item 5. |
23 | |||||
| Item 6. |
23 | |||||
| 25 | ||||||
| 26 | ||||||
| Exhibits |
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Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123 for stock-based employee compensation under the modified prospective method as provided for in SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure, an amendment of FASB Statement No. 123. These fair value recognition provisions generally result in stock-based compensation charges for options granted under our 1993 and 2002 stock option plans. While our interim financial statements herein for the quarter ended March 31, 2004 reflect a non-cash compensation charge related to options of $363,000, these charges may increase significantly depending on the number of options granted in the future and, to a lesser extent, upon the volatility of our stock and the life of such options.
Item 1. RAE Systems Inc. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
RAE Systems Inc.
Condensed Consolidated Balance Sheets
| March 31, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| Assets |
||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 31,123,000 | $ | 7,512,000 | ||||
| Short-term investments |
6,689,000 | — | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $247,000 and $176,000, respectively |
5,741,000 | 5,380,000 | ||||||
| Accounts receivable from affiliate |
139,000 | — | ||||||
| Inventories |
4,351,000 | 3,659,000 | ||||||
| Prepaid expenses and other current assets |
758,000 | 762,000 | ||||||
| Deferred income taxes |
666,000 | 666,000 | ||||||
| Total Current Assets |
49,467,000 | 17,979,000 | ||||||
| Property and Equipment, net |
1,926,000 | 1,748,000 | ||||||
| Deposits and Other Assets |
272,000 | 327,000 | ||||||
| Investment in Unconsolidated Affiliate |
441,000 | 509,000 | ||||||
| $ | 52,106,000 | $ | 20,563,000 | |||||
| Liabilities and Shareholders’ Equity |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 1,517,000 | $ | 1,611,000 | ||||
| Accounts payable to affiliate |
— | 594,000 | ||||||
| Accrued expenses |
2,170,000 | 2,159,000 | ||||||
| Income taxes payable |
783,000 | 948,000 | ||||||
| Current portion of deferred revenue |
69,000 | 67,000 | ||||||
| Current portion of capital lease obligations |
93,000 | 122,000 | ||||||
| Total Current Liabilities |
4,632,000 | 5,501,000 | ||||||
| Deferred Revenue, net of current portion |
90,000 | 102,000 | ||||||
| Total Liabilities |
4,722,000 | 5,603,000 | ||||||
| Commitments and Contingencies |
||||||||
| Shareholders’ Equity: |
||||||||
| Common stock, $0.001 par value; 200,000,000 shares authorized; 55,601,349 and 46,824,626 shares issued and outstanding, respectively |
56,000 | 47,000 | ||||||
| Additional paid-in capital |
51,051,000 | 18,753,000 | ||||||
| Accumulated other comprehensive (loss) income |
(61,000 | ) | 7,000 | |||||
| Accumulated deficit |
(3,662,000 | ) | (3,847,000 | ) | ||||
| Total Shareholders’ Equity |
47,384,000 | 14,960,000 | ||||||
| $ | 52,106,000 | $ | 20,563,000 | |||||
(See accompanying notes to condensed consolidated financial statements)
4
Condensed Consolidated Statements of Income
RAE Systems Inc.
Condensed Consolidated Statements of Income
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| Net Sales |
$ | 8,182,000 | $ | 7,339,000 | ||||
| Cost of Sales |
2,979,000 | 2,912,000 | ||||||
| Gross Margin |
5,203,000 | 4,427,000 | ||||||
| Operating Expenses: |
||||||||
| Sales and marketing |
2,067,000 | 1,470,000 | ||||||
| Research and development |
920,000 | 706,000 | ||||||
| General and administrative |
1,635,000 | 1,188,000 | ||||||
| Legal fees and settlement costs |
77,000 | 89,000 | ||||||
| Total Operating Expenses |
4,699,000 | 3,453,000 | ||||||
| Operating Income |
504,000 | 974,000 | ||||||
| Other Income (Expense): |
||||||||
| Interest income |
75,000 | 9,000 | ||||||
| Interest expense |
(4,000 | ) | (8,000 | ) | ||||
| Other, net |
17,000 | 1,000 | ||||||
| Equity in loss of unconsolidated affiliate |
(68,000 | ) | (66,000 | ) | ||||
| Other Income (Expense), net: |
20,000 | (64,000 | ) | |||||
| Income Before Income Taxes |
524,000 | 910,000 | ||||||
| Income Taxes |
339,000 | 135,000 | ||||||
| Net Income |
$ | 185,000 | $ | 775,000 | ||||
| Basic Earnings Per Common Share |
$ | 0.00 | $ | 0.02 | ||||
| Diluted Earnings Per Common Share |
$ | 0.00 | $ | 0.02 | ||||
| Weighted-average common shares outstanding |
52,874,797 | 45,637,578 | ||||||
| Stock options and warrants |
4,317,663 | 1,397,375 | ||||||
| Diluted weighted-average common shares outstanding |
57,192,460 | 47,034,953 | ||||||
(See accompanying notes to condensed consolidated financial statements)
5
Condensed Consolidated Statements of Cash Flows
RAE Systems Inc.
Condensed Consolidated Statements of Cash Flows
| Three months ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | (Unaudited) | |||||||
| Increase (Decrease) in Cash and Cash Equivalents |
||||||||
| Cash Flows From Operating Activities: |
||||||||
| Net Income |
$ | 185,000 | $ | 775,000 | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
180,000 | 187,000 | ||||||
| Provision for doubtful accounts |
71,000 | — | ||||||
| Inventory reserve |
81,000 | 43,000 | ||||||
| Compensation expense under fair value accounting of common stock options |
363,000 | 125,000 | ||||||
| Common stock warrants granted for services |
42,000 | — | ||||||
| Equity in loss of unconsolidated affiliate |
68,000 | 66,000 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(432,000 | ) | (923,000 | ) | ||||
| Accounts receivable from affiliate |
(139,000 | ) | — | |||||
| Inventories |
(773,000 | ) | (393,000 | ) | ||||
| Prepaid expenses and other current assets |
(38,000 | ) | (60,000 | ) | ||||
| Accounts payable |
(94,000 | ) | 534,000 | |||||
| Accounts payable to affiliate |
(594,000 | ) | (13,000 | ) | ||||
| Accrued expenses |
11,000 | (13,000 | ) | |||||
| Income taxes payable |
(165,000 | ) | 41,000 | |||||
| Deferred revenue |
(10,000 | ) | (10,000 | ) | ||||
| Net Cash (Used In) Provided By Operating Activities |
(1,244,000 | ) | 359,000 | |||||
| Cash Flows From Investing Activities: |
||||||||
| Short-term investments |
(6,689,000 | ) | — | |||||
| Acquisition of property and equipment |
(358,000 | ) | (116,000 | ) | ||||
| Deposits and other |
55,000 | (22,000 | ) | |||||
| Net Cash Used In Investing Activities |
(6,992,000 | ) | (138,000 | ) | ||||
| Cash Flows From Financing Activities: |
||||||||
| Proceeds from the exercise of stock options and warrants |
154,000 | 20,000 | ||||||
| Proceeds from the sale of common stock |
32,160,000 | — | ||||||
| Offering costs |
(370,000 | ) | — | |||||
| Payment on capital lease obligation |
(29,000 | ) | (52,000 | ) | ||||
| Net Cash Provided By Financing Activities |
31,915,000 | (32,000 | ) | |||||
| Effect of exchange rate changes |
(68,000 | ) | — | |||||
| Net Increase in Cash and Cash Equivalents |
23,611,000 | 189,000 | ||||||
| Cash and Cash Equivalents, beginning of period |
7,512,000 | 7,193,000 | ||||||
| Cash and Cash Equivalents, end of period |
$ | 31,123,000 | $ | 7,382,000 | ||||
| Supplemental Disclosure of Cash Flow Information: |
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| Cash Paid: |
||||||||
| Income taxes |
$ | 279,000 | $ | 100,000 | ||||
| Interest |
$ | 3,000 | $ | 9,000 | ||||
| Noncash Investing and Financing Activities: |
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