RAE » Topics » EXPLANATORY NOTE

This excerpt taken from the RAE 10-K filed Jun 7, 2005.

EXPLANATORY NOTE

 

RAE Systems Inc. (the “Company”) is filing this Amendment No. 2 on Form 10-K/A to amend our previously filed Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2005 and amended on May 2, 2005 (the “Original Filing”). In connection with the Company’s evaluation of the effectiveness of its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, and management’s assessment and testing thereof, the Company identified a number of material weaknesses, including inadequate codification of the Company’s revenue recognition policies and review procedures to ensure that revenues are recorded in the proper period. The Company identified a single distributor in Canada, accounting for less than 1% of our annual revenues, who (a) had not signed the Company’s standard distributor agreement sent to the distributor over the last three years and (b) from time to time, placed purchase orders with a “right of return” clause. In addition, the Company identified several U.S. local, state and federal agency purchase orders with freight delivery terms of “FOB destination,” requiring that the Company defer recognition of revenue until the shipments reach the customer, rather than the Company’s standard terms of “FOB factory.” Further, during the course of its review, the Company found a limited number of service contracts that were not properly deferred. After conferring with the Audit Committee of the Company’s Board of Directors and its independent registered public accounting firm on these matters, another independent certified public accounting firm was engaged to conduct an independent study (agreed-upon procedures report) of the impact of the Company’s revenue recognition practices. Based on the findings of the study by the independent certified public accounting firm, management concluded that the Company’s consolidated financial statements as of December 31, 2004, 2003, and 2000 and for each of the years then ended and the Company’s condensed financial data for the interim periods for fiscal years 2004 and 2003 should be restated. In addition, although the reporting errors in 2002 and 2001 were not considered material, the Company decided to restate these years as well to ensure consistency in reporting for this amended Form 10-K/A. Furthermore, as part of the restatement process, the Company made corrections to recognize rent expense on a straight-line basis with a corresponding adjustment to deferred rent (a liability), an error which had been previously identified but not considered to be sufficiently material to require correction. The Audit Committee of the Board of Directors concurred with management’s decision. This amendment is being filed to restate the consolidated financial statements for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 and for the interim quarters of 2004 and 2003 therein.

 

A discussion of the restatement is set forth in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation and in Note 2 to the Consolidated Financial Statements included in this Amendment No. 2 on Form 10-K/A. Changes also have been made to the following items in this Amendment No. 2 on Form 10-K/A as a result of the restatement:

 

Part II

 

    Item 6, “Selected Financial Data;”

 

    Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation;”

 

    Item 7A, “Quantitative and Qualitative Disclosures about Market Risk;”

 

    Item 8, “Financial Statements and Supplementary Data”, including the Notes to the Consolidated Financial Statements for 2004 and 2003;

 

    Item 9A, “Controls and Procedures;” and

 

Part IV

 

    Item 15, “Exhibits, Financial Statement Schedules.”

 

The other portions of the Original Filing are unaffected by the changes described above and have not been amended. All information in this amendment is as of the date of the Original Filing and does not reflect any subsequent information or events occurring after the date of the Original Filing, except to reflect the corrections noted above. Accordingly, this amendment should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing.


Table of Contents
PART II         1
ITEM 6.    SELECTED FINANCIAL DATA    1
ITEM 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     OPERATION    2
ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    13
ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    14
ITEM 9A.    CONTROLS AND PROCEDURES    14
PART IV         18
ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES    18


Table of Contents
This excerpt taken from the RAE 10-K filed May 2, 2005.

EXPLANATORY NOTE

 

RAE Systems Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-K/A to amend our previously filed Annual Report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2005 (the “Original Filing”). This amendment is being filed to provide management’s annual report on internal control over financial reporting, required by Item 308(a) of Regulation S-K, and the related attestation report of the registered public accounting firm, required by Item 308(b) of Regulation S-K. This amendment includes the following changes:

 

    Updates Item 9A, “Controls and Procedures” to provide management’s annual report on internal control over financial reporting;

 

    Adds the report on internal control over financial reporting from BDO Seidman, LLP, our independent registered public accounting firm, relating to the Company’s assessment of internal control over financial reporting and the effectiveness of internal control over financial reporting;

 

    Provides an additional consent of BDO Seidman, LLP; and

 

    Updates the Section 302 certifications from the Chief Executive Officer and the Chief Financial Officer.

 

The other portions of the Original Filing are unaffected by the changes described above and have not been amended. All information in this amendment is as of the date of the Original Filing and does not reflect any subsequent information or events occurring after the date of the Original Filing, except as noted below. Accordingly, this amendment should be read in conjunction with the Company’s filings made with the SEC subsequent to the filing of the Original Filing, including any amendments to those filings.

 

EXCERPTS ON THIS PAGE:

10-K
Jun 7, 2005
10-K
May 2, 2005
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