UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 June 30, 2005; OR
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________________   TO  _________________.


Commission File Number:   0-20728


RIMAGE CORPORATION
(Exact name of Registrant as specified in its charter)


Minnesota
41-1577970
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)

7725 Washington Avenue South, Edina, MN 55439
(Address of principal executive offices)

952-944-8144
(Registrant’s telephone number, including area code)

NA
(Former name, former address, and former fiscal year, if changed since last report.)


Common Stock outstanding at July 31, 2005 – 9,534,056 shares
of $.01 par value Common Stock.

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes    X    No         

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 period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    X    No         



1




RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2005


Description Page
 
PART I   FINANCIAL INFORMATION      
 
     Item 1.  Financial Statements 
 
        Consolidated Balance Sheets
        as of June 30, 2005 (unaudited)
        and December 31, 2004
3  
 
        Consolidated Statements of Operations
        (unaudited) for the three and six months
        ended June 30, 2005 and 2004
4  
 
        Consolidated Statements of Cash Flows
        (unaudited) for the six months
        ended June 30, 2005 and 2004
5  
 
        Condensed Notes to Consolidated
        Financial Statements (unaudited)
6-10  
 
     Item 2.       Management’s Discussion and Analysis of
        Financial Condition and Results of Operations
11-18  
 
     Item 3.       Quantitative and Qualitative Disclosures about
        Market Risk
18  
 
     Item 4.       Controls and Procedures 19  
 
PART II   OTHER INFORMATION   19-20  
 
     Item 1-3.  None
 
     Item 4.  Submission of Matters to a Vote of Security Holders
 
     Item 5.  None
 
     Item 6.  Exhibits
 
SIGNATURES 21



2




RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2005 and December 31, 2004

Assets June 30,
2005
(unaudited)
December 31,
2004

Current assets:            
    Cash and cash equivalents   $ 22,678,219   $ 13,320,681  
    Marketable securities    33,390,849    39,174,799  
    Trade accounts receivable, net of allowance for doubtful accounts  
           and sales returns of $579,000 and $600,000, respectively    11,197,973    10,183,814  
    Inventories    7,554,771    7,395,689  
    Prepaid expenses and other current assets    1,123,811    462,214  
    Deferred income taxes - current    1,127,642    1,127,642  

              Total current assets    77,073,265    71,664,839  

 
Property and equipment, net    2,809,867    2,386,494  
Other non-current assets    54,167    86,667  

                        Total assets   $ 79,937,299   $ 74,138,000  

Liabilities and Stockholders’ Equity  

Current liabilities:
    Trade accounts payable   $ 5,415,647   $ 4,717,073  
    Accrued compensation    2,076,929    2,300,009  
    Other accrued expenses    1,619,115    1,121,370  
    Income taxes payable    365,777    1,100,257  
    Deferred income and customer deposits    2,103,452    1,821,057  
    Other current liabilities    11,525    217,640  

              Total current liabilities    11,592,445    11,277,406  
 
Long-term liabilities:
    Deferred taxes    122,932    122,932  
    Other non-current liabilities    19,238    16,317  

              Total long-term liabilities    142,170    139,249  

 
              Total liabilities    11,734,615    11,416,655  
 
Stockholders’ equity:  
   Preferred stock, $.01 par value, authorized 250,000 shares,
           no shares issued and outstanding          
    Common stock, $.01 par value, authorized 29,750,000 shares,  
           issued and outstanding 9,502,420 and 9,365,479, respectively    95,024    93,655  
    Additional paid-in capital    20,425,952    19,677,692  
    Retained earnings    47,850,476    42,871,670  
    Accumulated other comprehensive income (loss)    (168,768 )  78,328  

              Total stockholders’ equity    68,202,684    62,721,345  

 
Commitments and contingencies
 
                        Total liabilities and stockholders’ equity   $ 79,937,299   $ 74,138,000  


See accompanying condensed notes to consolidated financial statements



3




RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2005 2004 2005 2004

Revenues     $ 22,306,863   $ 17,630,729   $ 43,182,161   $ 32,074,427  
Cost of revenues    12,661,706    9,563,962    23,926,655    16,934,136  

          Gross profit    9,645,157    8,066,767    19,255,506    15,140,291  

 
Operating expenses:  
   Research and development    1,499,407    1,227,038    2,778,029    2,351,930  
   Selling, general and administrative    4,786,577    3,658,327    9,146,637    6,869,046  

          Total operating expenses    6,285,984    4,885,365    11,924,666    9,220,976  

 
          Operating income    3,359,173    3,181,402    7,330,840    5,919,315  

 
Other income (expense):
   Interest, net    332,515    124,124    606,513    267,425  
   Loss on currency exchange    (6,159 )  (14,293 )  (72,955 )  (23,968 )
   Other, net    7,424    (92,578 )  1,014    (79,631 )

          Total other income, net    333,780    17,253    534,572    163,826  

 
Income before income taxes    3,692,953    3,198,655    7,865,412    6,083,141  
Income taxes    1,405,383    1,167,509    2,886,606    2,220,346  

          Net income   $ 2,287,570   $ 2,031,146   $ 4,978,806   $ 3,862,795  

 
Net income per basic share   $ 0.24   $ 0.22   $ 0.53   $ 0.42  

 
Net income per diluted share   $ 0.22   $ 0.20   $ 0.49   $ 0.39  

 
Basic weighted average shares outstanding    9,490,910    9,313,162    9,456,683    9,255,964  

 
Diluted weighted average shares and  
    assumed conversion shares    10,214,125    9,941,572    10,152,471    9,942,095  


See accompanying condensed notes to consolidated financial statements



4




RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)

Six months ended
June 30,
2005 2004

Cash flows from operating activities:            
        Net income   $ 4,978,806   $ 3,862,795  
        Adjustments to reconcile net income to net cash
           provided by operating activities:
            Depreciation and amortization    565,212    494,433  
            Loss on disposal of property and equipment    25,528    100,836  
            Changes in operating assets and liabilities:  
                  Trade accounts receivable    (1,014,159 )  (2,963,256 )
                  Inventories    (159,082 )  (1,407,759 )
                  Prepaid expenses and other current assets    (661,597 )  (51,981 )
                  Trade accounts payable    698,574    1,707,975  
                  Accrued compensation    (223,080 )  (106,029 )
                  Other accrued expenses and other current liabilities    287,880    (243,456 )
                  Income taxes payable    (535,634 )  (42,216 )
                  Deferred income and customer deposits    282,395    (99,649 )

 
                              Net cash provided by operating activities    4,244,843    1,251,693  

 
Cash flows from investing activities:  
        Purchases of marketable securities    (12,581,050 )  (6,020,335 )
        Maturities of marketable securities    18,365,000    13,919,541  
        Purchases of property and equipment    (975,194 )  (692,364 )
        Proceeds from sale of property and equipment    5,480    60  
        Other non-current assets    (91,092 )  (151,293 )

 
                              Net cash provided by investing activities    4,723,144    7,055,609  

 
Cash flows from financing activities:
        Principal payments on capital lease obligations    (5,228 )    
        Proceeds from stock option exercises    550,783    417,505  

 
                              Net cash provided by financing activities    545,555    417,505  

 
Effect of exchange rate changes on cash    (156,004 )  (36,805 )

 
Net increase in cash and cash equivalents    9,357,538    8,688,002  
 
Cash and cash equivalents, beginning of period    13,320,681    26,741,627  

 
Cash and cash equivalents, end of period   $ 22,678,219   $ 35,429,629  

 
Supplemental disclosures of net cash paid during the period for:
        Income taxes   $ 3,422,240   $ 2,126,448  
 
Supplemental disclosures of non cash financing activities during the period for:
        Tax effect of disqualifying disposition of stock options   $ 198,846   $  

The Company entered into capital lease obligations of $11,899 during the six months ended June 30, 2005.

See accompanying condensed notes to consolidated financial statements



5




RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(1)   Basis of Presentation and Nature of Business
  Rimage Corporation (the Company) develops, manufactures and distributes high performance CD Recordable (CD-R) and DVD-Recordable (DVD-R) publishing and duplication systems from its operations in the United States and Germany, and effective June 2005, Japan. The Company also distributes related consumables for use with its systems, consisting of media kits, ribbons, ink cartridges and blank CD-R and DVD-R media.

  The accompanying interim consolidated financial statements of Rimage Corporation are unaudited and have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission. Pursuant to such rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations and cash flows of the interim periods presented. Certain previously reported amounts have been reclassified to conform with the current presentation. Operating results for these interim periods are not necessarily indicative of results to be expected for the entire year, due to seasonal, operating and other factors. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(2)   Marketable Securities
  Marketable securities primarily consist of U.S. Treasury, money market and municipal securities with long-term credit ratings of AAA and short-term credit ratings of A-1. All marketable securities have maturities of twelve months or less and are classified as available-for-sale. Available-for-sale securities are recorded at fair value and any unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of accumulated other comprehensive income (loss) until realized.

(3)   Stock Based Compensation
  The Company applies APB No. 25 and related interpretations in accounting for the issuance of stock incentives to employees and directors. Accordingly, no compensation expense related to employees’ and directors’ stock incentives has been recognized in the financial statements as all options granted under stock incentive plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation costs for the Company’s stock incentive plans been determined based on the fair value of the awards on the date of grant, consistent with the provisions of SFAS No. 123, the Company’s net income and basic and diluted earnings per share for the three and six months ended June 30, 2005 and 2004 would have been adjusted to the proforma amounts stated below:







6




RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Three Months
Ended
June 30, 2005
Three Months
Ended
June 30, 2004
Six Months
Ended
June 30, 2005
Six Months
Ended
June 30, 2004

Net income:                    
  As reported   $ 2,287,570   $ 2,031,146   $ 4,978,806   $ 3,862,795  
  Stock based employee
     compensation, net of tax    (371,803 )  (264,636 )  (560,934 )  (420,323 )
 
  Proforma   $ 1,915,767   $ 1,766,510   $ 4,417,872   $ 3,442,472  

Basic net income per share:
  As reported   $ 0.24   $ 0.22   $ 0.53   $ 0.42  
  Stock based employee
     compensation, net of tax   $ (0.04 ) $ (0.03 ) $ (0.06 ) $ (0.05 )
 
  Proforma   $ 0.20   $ 0.19   $ 0.47   $ 0.37  

Diluted net income per share:
  As reported   $ 0.22   $ 0.20   $ 0.49   $ 0.39  
  Stock based employee
     compensation, net of tax   $ (0.03 ) $ (0.03 ) $ (0.05 ) $ (0.04 )
 
  Proforma   $ 0.19   $ 0.17   $ 0.44   $ 0.35  


(4)   Inventories
  Inventories consist of the following as of:

June 30,
2005
December 31,
2004

Finished goods and demonstration equipment     $ 1,904,374   $ 1,385,148  
Work-in-process    476,590    479,787  
Purchased parts and subassemblies    5,173,807    5,530,754  

    $ 7,554,771   $ 7,395,689  


(5)   Comprehensive Income
  Comprehensive income consists of the Company’s net income, foreign currency translation adjustments and unrealized holding gains (losses) from available for sale investments. The components of and changes in other comprehensive income (loss) are as follows:

Three Months Ended
June 30,
Six Months Ended
June 30,
2005 2004 2005 2004

Net income     $ 2,287,570   $ 2,031,146   $ 4,978,806   $ 3,862,795  
Other comprehensive income (loss):  
   Foreign currency translation adjustment    (148,162 )  (11,450 )  (260,426 )  (56,095 )
   Net unrealized gains (losses) on securities    32,338    (4,970 )  13,330    (2,003 )

Total other comprehensive income   $ 2,171,746   $ 2,014,726   $ 4,731,710   $ 3,804,697  




7




RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

(6)   Foreign Currency Contracts
  The Company enters into forward foreign exchange contracts to hedge inter-company receivables denominated in Euros arising from sales to its subsidiary in Germany. Gains or losses on forward foreign exchange contracts are calculated at each period end and are recognized in net income in the period in which they arose. The fair value of forward foreign exchange contracts is recorded in other current assets or other current liabilities depending on whether the net amount is a gain or a loss.

  As of June 30, 2005, the Company had eighteen outstanding foreign currency contracts totaling $3,853,000. These contracts mature in 2005 and bear rates ranging from 1.2039 to 1.3334 U.S. Dollars per Euro. As of June 30, 2005, the fair value of foreign currency contracts was a net gain position of $177,675, recorded in other current assets.

(7)   Recent Accounting Developments
  In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123 (Revised 2004), “Share-Based Payment.” SFAS No 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. SFAS No 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. In April 2005, the Securities and Exchange Commission amended the compliance dates for SFAS No. 123R, with the result that the effective date for the Company’s implementation of SFAS No. 123R is deferred from July 1, 2005 to January 1, 2006. While the Company cannot precisely determine the impact on net earnings that may result from the adoption of SFAS No 123R, estimated compensation expense related to prior annual periods can be found in the notes to the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2004, and for interim periods, note 3 to the Consolidated Financial Statements included in this Quarterly Report on Form 10Q. The ultimate amount of increased compensation expense will be dependent on whether the Company adopts SFAS 123R using the modified prospective or retrospective method, the number of option shares granted during the year, their timing and vesting period, and the method used to calculate the fair value of the awards, among other factors. In April 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment,” confirming the latitude in SFAS No. 123R’s provisions on selecting models for valuing share options and clarifying other positions on accounting and disclosure for share-based-payment arrangements. SAB 107 permits registrants to choose from different valuation models to estimate the fair value of share options, assuming consistent application, and also provides guidance on developing assumptions used in valuing employee share options and on related MD&A disclosures.

  FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” was issued in March 2005, and provides clarification on certain provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations.” Under Interpretation No. 47, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for a conditional asset retirement obligation should be recognized when incurred, generally upon acquisition, construction, development or through the normal operation of the asset. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. Interpretation No. 47 is effective for the Company



8




RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

  no later than December 31, 2005, and is not expected to have a significant impact on the Company’s consolidated financial statements.

  In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling charges and spoilage. This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal” which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of fixed production overheads to the cost of production be based on normal capacity of the production facilities. The provisions under SFAS No. 151 are effective for the Company beginning January 1, 2006, and shall be applied prospectively. The Company does not expect that the adoption of this pronouncement will have a significant impact on its consolidated financial statements.

  In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The guidance in APB No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based upon the fair value of the assets exchanged. SFAS No. 153 amends APB No. 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. This Statement is effective for the Company for nonmonetary asset exchanges beginning July 1, 2005. The provisions of this Statement shall be applied prospectively. The Company does not expect the adoption of this pronouncement to have a significant impact on its consolidated financial statements.

  In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior period’s financial statements of voluntary changes in accounting principle unless it is impracticable to do so. Retrospective application refers to the application of a different accounting principle to previously issued financial statements as if that principle had always been used. Statement 154‘s retrospective-application requirement replaces APB 20‘s requirement to recognize most voluntary changes in accounting principle by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement is effective for the Company for accounting changes and corrections of errors made beginning January 1, 2006. The Company does not currently expect the adoption of this pronouncement to have a significant impact on its consolidated financial statements.

(8)   Warranty Reserve
  The Company’s non-consumable products are warranted to the end-user to ensure end-user confidence in design, workmanship and overall quality. Warranty lengths vary by product type, ranging from periods of six to twelve months. Warranty covers parts, labor and other associated expenses. The Company performs the majority of warranty work, while authorized distributors and dealers also perform some warranty work. Warranty expense is accrued at the time of sale based on an analysis of historical claims experience, which includes labor and parts costs and the proportion of parts that can be re-used.






9




RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

  The warranty reserve rollforward, including provisions and claims, is as follows:

Six Months Ended: Beginning
Balance
Warranty
Provisions
Warranty
Claims
Foreign
Exchange Impact
Ending
Balance
 
 
        June 30, 2005     $ 187,000   $ 336,000   $ (313,000 ) $ (6,000 ) $ 204,000  
 
       June 30, 2004    $ 172,000   $ 273,000   $ (246,000 ) $ (2,000 ) $ 197,000  

(9)   Litigation
  The Company is exposed to a number of asserted and unasserted claims encountered in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s financial position or results of operations.














10




Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

  The following table sets forth, for the periods indicated, selected items from the Company’s consolidated statements of operations.


Percentage (%)
of Revenues
Three Months Ended
June 30,
Percentage (%)
Increase
Between
Periods
Percentage (%)
of Revenues
Six Months Ended
June 30,
Percentage (%)
Increase
Between
Periods

2005 2004 2005 vs. 2004 2005 2004 2005 vs. 2004

Revenues       100    100    27     100    100    35  
Cost of revenues     (57 )  (54 )  32     (55 )  (53 )  41  

Gross profit     43    46    20     45    47    27  
Operating expenses:  
     Research and development     (7 )  (7 )  22     (6 )  (7 )  18  
     Selling, general and admin     (21 )  (21 )  31     (21 )  (21 )  33  

Operating income     15    18    6     17    18    24  
Other income, net     1        1,835     1    1    226  

Income before income taxes     17    18    15     18    19    29  
Income tax expense     (6 )  (7 )  20     (7 )  (7 )  30  

Net income     10    12    13     12    12    29  


  Overview
  Rimage develops, manufactures and distributes CD-Recordable (CD-R) and DVD-Recordable (DVD-R) publishing and duplication systems from its operations in the United States, Germany, and effective June 2005, Japan. These systems allow customers to benefit from cost savings by eliminating their manual labor efforts in industries such as banking, medical, retail and government. Rimage anticipates sales and marketing expenditures will continue to grow as a result of applying increased resources to further penetrate these markets. As Rimage’s sales within North America and Europe have averaged 94% of total sales over the past three years, the strength of the economies in each of these regions plays an important role in determining the success of Rimage.

  Rimage earns revenues through the sale of equipment, consumables (ribbons, ink cartridges and Rimage-branded blank CD-R and DVD-R media), maintenance contracts, parts and repair services. Rimage’s recurring revenues (consumables, maintenance contracts, parts and service) comprised approximately 39% and 38% of consolidated revenues during the six months ended June 30, 2005 and 2004, respectively. Exclusive of a small amount of capital lease obligations, Rimage has no long-term debt and does not require significant capital investments as all fabrication of its products is outsourced to vendors.

  Results of Operations

  Revenues.   Revenues increased 27% to $22.3 million and 35% to $43.2 million for the three and six months ended June 30, 2005, respectively, from $17.6 million and $32.1 million for the same prior-year periods. The growth in revenues for both the quarterly and year-to-date periods was primarily impacted by an increase of $2.6 million and $4.7 million, respectively, in recurring revenues, including sales of CD-R and DVD-R media, printer ribbons and ink cartridges, parts and maintenance contracts. The strong growth in recurring revenues is primarily due to the continued expansion of the Company’s worldwide installed base of CD-R and DVD-R publishing systems. Sales of desktop product line equipment also increased significantly in each period, with sales growth of $1.7 million and $2.4 million for the three and six months ended June 30,



11




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  2005, respectively. Desktop product line sales were positively impacted by the Company’s release in the second quarter of its new desktop product, the Rimage 360i. Also contributing significantly to sales growth for the year-to-date period was an increase in the volume of Producer product line equipment sales of approximately $4 million, impacted by strong sales of the Rimage DiscLab system introduced in 2004.

  International sales rose 19% and 21% for the three and six months ended June 30, 2005 over the same prior year periods, and comprised 34% and 35% of total sales, compared to 36% and 40%, respectively. Currency fluctuations primarily affecting the Company’s European operations increased reported consolidated revenues for the three and six months ended June 30, 2005 by approximately 1%.

  As of and for the six months ended June 30, 2005, foreign revenues from unaffiliated customers generated by the Company’s German and Japanese operations and the operating income and net identifiable assets of such operations were $12,857,000, $465,000 and $6,636,000, respectively. These amounts relate primarily to the Company’s German operations, as the establishment of subsidiary operations in Japan did not occur until June 2005. Comparable amounts for the Company’s German operations as of and for the six months ended June 30, 2004 were revenues of $10,934,000, operating income of $459,000 and net identifiable assets of $5,136,000. The growth is due to increasing penetration in foreign markets of sales of CD-R and DVD-R products.

  Gross profit.   Gross profit as a percentage of revenues was 43% and 45% for the three and six months ended June 30, 2005, respectively, compared to 46% and 47% for the same prior-year periods. The decline in gross profit as a percentage of revenues for both periods in 2005 was primarily due to increased costs for manufacturing and service labor and overhead due to investments in these areas to support the launch of the new desktop product in the second quarter and expected continued growth in total sales. Also negatively impacting 2005 gross profit margins was an increase in both the volume and concentration of recurring revenues, including consumable product sales, which generally carry lower margins than equipment sales. Recurring revenues comprised 42% and 39% of total revenues for the three and six months ended June 30, 2005, compared to 39% and 38% in the same prior year periods.

  Rimage anticipates that its gross profit percentage during the remainder of 2005 will be in the low to mid-40% range. Actual margins will continue to be affected by many factors, including product mix, the timing of new product introductions, manufacturing volume, foreign currency exchange rate fluctuations and levels of sales returns.

  Operating expenses.   Research and development expenses totaled $1.5 million and $2.8 million for the three and six months ended June 30, 2005, representing 7% and 6% of revenues, respectively. Expenses for the same prior year periods totaled $1.2 million and $2.4 million, respectively, representing 7% of revenues for each period. The 22% and 18% respective increases in 2005 expenses reflect continued development of next generation products, including materials and resources required to complete development work on the Rimage 360i desktop product released in the second quarter 2005.

  Rimage expects its research and development expenditures to range from 6% to 8% of revenues for the full year 2005. These expenditures will be made to support new product development initiatives and improve existing products.

  Selling, general and administrative expenses for the three and six months ended June 30, 2005 were 21% of revenues at $4.8 million and $9.1 million, respectively, compared to expenses in the same prior year periods approximating 21% of revenues at $3.7 million and $6.9 million, respectively. The dollar growth in expenses





12




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  in this year’s second quarter and year-to-date period primarily reflects the continued expansion of the Company’s sales and marketing organization, implementation of programs to support the second quarter launch of the Rimage 360i desktop product and other marketing initiatives as well as incremental expenses associated with Sarbanes Oxley compliance. Sales and marketing expenses increased approximately $0.7 million and $1.2 million for the three and six months ended June 30, 2005, respectively, due to increased costs for product marketing and promotional activities and a 7% and 14% respective increase in average sales and marketing headcount relative to the same prior year periods. General and administrative expenses contributed the remaining $0.4 million and $1 million growth in expenses in the second quarter and year-to-date period, respectively, impacted by a 12% and 23% respective increase in average headcount, increased management compensation costs, and for the year-to-date period, incremental expenses associated with the completion of Sarbanes-Oxley compliance for the 2004 fiscal year. Selling, general and administrative expenses are expected to increase in the second half of 2005 relative to the first half primarily as a result of the planned engagement of a third party consulting firm to perform a strategic study for the Company, with related fees approximating $1.5 million.

  Other income, net.   The Company recognized net interest income on cash investments of $0.3 million and $0.6 million for the three and six months ended June 30, 2005, compared to $0.1 million and $0.3 million for the same prior year periods. The increase in both the quarterly and year-to-date periods was due to a $5 million increase in average cash equivalent and marketable securities balances and a small increase in effective yields. Other income for the six months ended June 30, 2005 and 2004 was negatively affected by net losses on foreign currency transactions, amounting to $73,000 in 2005 and $24,000 in 2004.

  Income before income taxes.   Income before income taxes increased 15% and 29% to $3.7 million and $7.9 million for the three and six months ended June 30, 2005, respectively, compared to $3.2 million and $6.1 million for the same periods in 2004. This rate of growth is lower than the rate of revenue growth in each period of 27% and 35%, respectively, and reflects the decline in gross margins and increase in operating expenses to support expected continued growth in revenues, as discussed above.

  Income taxes.   The provision for income taxes represents federal, state, and foreign income taxes on income. Income tax expense for the three and six months ended June 30, 2005 amounted to $1.4 million and $2.9 million, or 38.1% and 36.7% of income before taxes, respectively. Income tax expense for the three and six months ended June 30, 2004 was $1.2 million and $2.2 million or 36.5% of income before taxes for each period. The higher effective tax rate in the second quarter of 2005 primarily reflects an increase in state income tax expense and lower expected research and development tax credits. The Company anticipates its effective tax rate will range between 36% and 37% for the full year 2005.

  Net income / net income per share.   Resulting net income for the three and six months ended June 30, 2005 was $2.3 million, or 10.3% of revenues, and $5.0 million, or 11.5% of revenues, respectively. This compares to net income of $2.0 million, or 11.5% of revenues, and $3.9 million, or 12.0% of revenues for the same prior year periods. Related net income per diluted share amounts for the three and six months ended June 30, 2005 were $.22 and $.49, respectively, compared to $.20 and $.39 per diluted share for the same prior year periods.

  Liquidity and Capital Resources

  The Company expects it will be able to maintain current operations, including anticipated capital expenditure requirements, through its internally generated funds and, if required, from Rimage’s existing credit





13




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  agreement. This credit agreement allows for advances under an unsecured revolving loan up to a maximum advance of $10 million. At June 30, 2005, no amounts were outstanding under the credit agreement.

  Current assets increased to $77.1 million as of June 30, 2005 from $71.7 million at December 31, 2004, reflecting increased cash and cash equivalents and marketable securities ($3.6 million), accounts receivable ($1 million), prepaid expenses ($0.7 million) and inventories ($0.1 million). The increase in cash and marketable securities and accounts receivable was impacted largely by revenue growth during the six months ended June 30, 2005. The allowance for doubtful accounts and sales returns as a percentage of receivables was 5% at June 30, 2005, compared to 7% at June 30, 2004. The reduction in 2005 reserve levels is primarily due to improved management of sales returns and improved quality of receivable balances. The increase in prepaid expenses was primarily due to the renewal during the first quarter of a paid-up software license agreement for a three-year term. Despite the increase in revenue during the current year-to-date period and expected growth in third quarter revenue, inventory levels at June 30, 2005 increased by only 2% from December 31, 2004, due to improved inventory management. Inventories remain high relative to historic levels due to the need to stock long lead-time parts and additional inventory of CD-R and DVD-R media, printer ribbons and cartridges as a result of expected continued growth in consumable product sales. Current liabilities increased to $11.6 million as of June 30, 2005 from $11.3 million as of December 31, 2004, due to increased accounts payable ($0.7 million), accrued expenses ($0.3 million) and deferred income and customer deposits ($.3 million), partially offset by reduced income taxes payable ($0.7 million) and other current liabilities ($0.2 million). The increase in accounts payable and the reduction in income taxes payable primarily reflect timing of payments. The Company intends on utilizing its current assets primarily for its continued organic growth. In addition, the Company may use its available cash for potential future acquisitions or strategic alliances.

  Net cash provided by operating activities was $4.2 million for the six months ended June 30, 2005, compared to $1.3 million in the same prior year period. The approximate $3 million increase in cash generated from operations was primarily impacted by a $1.1 million increase in net income adjusted for non-cash items and a $1.9 million favorable net impact from changes in operating assets and liabilities. Primarily contributing to the change in operating assets and liabilities was a $1.9 million smaller increase in accounts receivable for the six months ended June 30, 2005 compared to the same prior year period, due primarily to a larger concentration of second quarter sales in June 2004 relative to June 2005, and the related timing of receivable collections. Also contributing to the favorable change in the current period was a $1.2 million smaller increase in inventories, partially offset by a $1 million smaller increase in accounts payable, impacted by a build up of inventory and related accounts payable as of June 30, 2004 for long lead-time parts and newly released products.

  Net cash provided by investing activities was $4.7 million for the six months ended June 30, 2005, compared to $7.1 million during the same period in 2004. The decline in cash provided by investing activities was the result of a $2.1 million increase in purchases of marketable securities, net of related maturities of marketable securities, and a $0.3 million increase in capital expenditures. The increased level of capital expenditures was driven primarily by leasehold improvements for the Company’s corporate facility.

  Net cash provided by financing activities totaled $0.5 million and $0.4 million for the six months ended June 30, 2005 and 2004, respectively. Amounts in both periods primarily reflect proceeds from stock option exercises.






14




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  Critical Accounting Policies.

  Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company’s accounting policies. The following accounting policies are considered by management to be the most critical to the presentation of the consolidated financial statements because they require the most difficult, subjective and complex judgments:

  Revenue Recognition.   Revenue for product sales (including hardware and consumables), which do not include any requirement for installation or training, is recognized on shipment, at which point the following criteria of SAB Topic 13(A)(1) have been satisfied:

 

Persuasive evidence of an arrangement exists. Orders are received for all sales and sales invoices are mailed on shipment.


 

Delivery has occurred. Product has been transferred to the customer or the customer’s designated delivery agent, at which time title and the risk of loss transfers.


 

The vendor’s price is fixed or determinable. All sales prices are fixed at the time of the sale (shipment).


 

Collectibility is probable. All sales are made on the basis that collection is expected in line with the Company’s standard payment terms, which are consistent with industry practice in the geographies in which the Company markets its products.


  A standard product sale by the Company does not require a commitment on the Company’s part to provide installation, set-up or training. When such services are requested, value-added resellers generally arrange and perform the service directly with the customer, with no financial interest or obligation on the part of the Company. In the limited situations in which the Company does provide installation or training services for customers, the Company charges separately for the service based upon its published list prices, and recognizes revenue upon the successful completion of the service.

  The Company accrues for warranty costs and sales returns at the time of shipment based upon historical experience and known trends in the business.

  Revenue for maintenance agreements is recognized on a straight-line basis over the life of the contracts (commencing once the period covered by standard warranty expires) based on renewal prices.

  Revenue Arrangements with Multiple Deliverables.   EITF 00-21, “Revenue Arrangements with Multiple Deliverables,” provides revenue recognition guidance for arrangements with multiple deliverables, and the criteria to determine if items in a multiple deliverable agreement should be accounted for separately. In some arrangements, the different revenue-generating activities are sufficiently separable and there exists sufficient evidence of their fair values to separately account for some or all of the activities. In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. This issue addresses when and how an arrangement involving multiple deliverables should be divided into separate units of accounting. This issue does not change otherwise applicable revenue recognition criteria. The adoption of EITF 00-21 did not have an impact on the financial position or results of operations of the Company.

  Allowance for Doubtful Accounts and Sales Returns.   The Company records a reserve for accounts receivable that are potentially uncollectible. The reserve is established based on a specific assessment of accounts with known collection exposure, based upon a review of the age of the receivable, the customer’s payment history,





15




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  the customer’s financial condition and industry and general economic conditions, as well as a general assessment of collection exposure in the remaining receivable population based upon bad debt history. Actual bad debt exposure could differ significantly from management’s estimates if economic conditions worsened for the Company’s customers. The Company also records a reserve for sales returns from its customers. The amount of the reserve is based upon historical trends, timing of new product introductions and other factors.

  Inventory Reserves.   The Company records reserves for inventory shrinkage and for potentially excess, obsolete and slow moving inventory. The amounts of these reserves are based upon historical loss trends, inventory levels, physical inventory and cycle count adjustments, expected product lives and forecasted sales demand. Results could be materially different if demand for the Company’s products decreased because of economic or competitive conditions, or if products became obsolete because of technical advancements in the industry or by the Company.

  Deferred Tax Assets.   The Company recognizes deferred tax assets for the expected future tax impact of temporary differences between book and taxable income. A valuation allowance and income tax charge are recorded when, in management’s judgment, realization of a specific deferred tax asset is uncertain. Income tax expense could be materially different from actual results because of changes in management’s expectations regarding future taxable income, the relationship between book and taxable income and tax planning strategies employed by the Company.

  Warranty Reserves.   The Company’s non-consumable products are warranted to the end-user to ensure end-user confidence in design, workmanship and overall quality. Warranty lengths vary by product type, ranging from periods of six to twelve months. Warranty covers parts, labor and other associated expenses. The Company performs the majority of warranty work, while authorized distributors and dealers also perform some warranty work. The Company records a liability for warranty claims at the time of sale. The amount of the liability is based on an analysis of historical claims experience, which includes labor and parts costs and consideration of the proportion of parts that can be re-used. Also considered are the anticipated impact of changes in product quality, releases of new products and other factors. Claims experience could be materially different from actual results because of the introduction of new, more complex products; a change in the Company’s warranty policy in response to industry trends, competition or other external forces; or manufacturing changes that could impact product quality.

  New Accounting Pronouncements

  In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123 (Revised 2004), “Share-Based Payment.” SFAS No 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS No. 123R focuses primarily on accounting for transactions in which an entity obtains employee services through share-based payment transactions. SFAS No 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. In April 2005, the Securities and Exchange Commission amended the compliance dates for SFAS No. 123R, with the result that the effective date for the Company’s implementation of SFAS No. 123R is deferred from July 1, 2005 to January 1, 2006. While the Company cannot precisely determine the impact on net earnings that may result from the adoption of SFAS No 123R, estimated compensation expense related to prior annual periods can be found in the notes to the Consolidated Financial Statements included in the Company’s Form 10-K for the year ended December 31, 2004, and for interim periods, note 3 to the Consolidated Financial Statements included in this Quarterly Report on Form 10Q. The ultimate amount of increased compensation expense will be dependent





16




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  on whether the Company adopts SFAS 123R using the modified prospective or retrospective method, the number of option shares granted during the year, their timing and vesting period, and the method used to calculate the fair value of the awards, among other factors. In April 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 107, “Share-Based Payment,” confirming the latitude in SFAS No. 123R’s provisions on selecting models for valuing share options and clarifying other positions on accounting and disclosure for share-based-payment arrangements. SAB 107 permits registrants to choose from different valuation models to estimate the fair value of share options, assuming consistent application, and also provides guidance on developing assumptions used in valuing employee share options and on related MD&A disclosures.

  FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” was issued in March 2005, and provides clarification on certain provisions of SFAS No. 143, “Accounting for Asset Retirement Obligations.” Under Interpretation No. 47, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for a conditional asset retirement obligation should be recognized when incurred, generally upon acquisition, construction, development or through the normal operation of the asset. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. Interpretation No. 47 is effective for the Company no later than December 31, 2005, and is not expected to have a significant impact on the Company’s consolidated financial statements.

  In November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling charges and spoilage. This Statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of “so abnormal” which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of fixed production overheads to the cost of production be based on normal capacity of the production facilities. The provisions under SFAS No. 151 are effective for the Company beginning January 1, 2006, and shall be applied prospectively. The Company does not expect that the adoption of this pronouncement will have a significant impact on its consolidated financial statements.

  In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.” The guidance in APB No. 29 is based on the principle that exchanges of nonmonetary assets should be measured based upon the fair value of the assets exchanged. SFAS No. 153 amends APB No. 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. This Statement is effective for the Company for nonmonetary asset exchanges beginning July 1, 2005. The provisions of this Statement shall be applied prospectively. The Company does not expect the adoption of this pronouncement to have a significant impact on its consolidated financial statements.

  In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” SFAS No. 154 replaces APB No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Changes in Interim Financial Statements.” SFAS No. 154 requires retrospective application to prior period’s financial statements of voluntary changes in accounting principle unless it is impracticable to do so. Retrospective application refers to the application of a different accounting principle to previously issued financial statements as if that principle had always been used. Statement 154‘s retrospective-application requirement replaces APB 20‘s requirement to recognize most voluntary changes in accounting principle by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. This Statement is effective for the Company for accounting changes and corrections of errors made





17




  Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)

  beginning January 1, 2006. The Company does not currently expect the adoption of this pronouncement to have a significant impact on its consolidated financial statements.

  Cautionary Note Regarding Forward-Looking Statements

  This report contains forward-looking statements that involve risks and uncertainties. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,”“anticipate,” “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties. The Company’s actual results could differ significantly from those discussed in the forward-looking statements.

  Factors that could cause or contribute to such differences include, but are not limited to, the following, as well as other factors not now identified: the Company’s ability to keep pace with changes in technology in the computer and storage media industries as well as technology changes in the retail, medical, banking, government and office markets; increasing competition and the ability of the Company’s products to successfully compete with products of competitors and newly developed media storage products; the significance of the Company’s international operations and the risks associated with international operations including currency fluctuations, local economic health and management of these operations over long distances; the Company’s ability to protect its intellectual property and to defend claims of others relating to its intellectual property; the Company’s dependence upon the selling efforts of the Company’s key channel partners; the Company’s ability to maintain adequate inventory of products; the Company’s reliance on single source suppliers; the ability of the Company’s products to operate effectively with the computer products developed and to be developed by other manufacturers; the negative effect upon the Company’s business from manufacturing or design defects; the effect of U.S. and international regulation; fluctuations in the Company’s operating results; the Company’s dependence upon its key personnel; the volatility of the price of the Company’s common stock; provisions governing the Company relating to a change of control, compliance with corporate governance and securities disclosures rules and other risks, including those set forth in the Company’s reports filed with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2004. These forward-looking statements are made as of the date of this report and the Company assumes no obligation to update such forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

  The Company is exposed to market risk from foreign exchange rate fluctuations of the European Euro and the Japanese Yen to the U.S. dollar as the financial position and operating results of the Company’s German and Japanese subsidiaries, Rimage Europe and Rimage Japan, respectively, are translated into U.S. dollars for consolidation. Resulting translation adjustments are recorded as a separate component of stockholders’ equity.

  The Company enters into forward exchange contracts principally to hedge the eventual dollar cash flow of foreign currency denominated transactions (principally European Euro) with Rimage Europe. The primary objective of these hedging activities is to maintain an approximately balanced position in foreign currencies so that exchange gains and losses resulting from exchange rate changes, net of related tax effects, are minimized. Gains or losses on forward exchange contracts are recognized in income on a current basis over the term of the contracts. The Company records the fair value of its open forward foreign exchange contracts in other current assets or other current liabilities depending on whether the net amount is a gain or a loss. The Company does not utilize financial instruments for trading or other speculative purposes.





18




Item 4.   Controls and Procedures

  (a)    Evaluation of Disclosure Controls and Procedures

  The Company’s Chief Executive Officer, Bernard P. Aldrich, and the Company’s Chief Financial Officer, Robert M. Wolf, have evaluated the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon such evaluation, they have concluded that these disclosure controls and procedures are effective.

  (b)    Changes in Internal Control Over Financial Reporting

  There have been no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.   Legal Proceedings

  Not applicable.

Item 2.   Changes in Securities, Use of Proceeds and Issuer Purchases of Securities

  Not applicable.

Item 3.   Defaults Upon Senior Securities

  Not applicable.

Item 4.   Submission of Matters to a Vote of Security Holders

  The Company’s Annual Meeting of Shareholders’ was held on May 17, 2005. Of the 9,476,587 shares outstanding and entitled to vote at the meeting, 9,199,902 shares were present, either in person or by proxy. The following describes the matters considered by the Company’s shareholders at the Annual Meeting, as well as the results of the votes cast at the meeting:

1.      To elect seven (7) directors of the Company to serve until the next Annual Meeting of Shareholders or until their respective successors have been elected and qualified.

Nominee In Favor Withheld
 
Bernard Aldrich   8,599,401   600,501  
Lawrence Benveniste  8,448,330   751,572  
Philip Hotchkiss  8,492,504   707,398  
Thomas Madison  8,409,054   790,848  
Steven Quist  8,554,977   644,925  
James Reissner  8,351,249   848,653  
David Suden  8,556,801   643,101  


19




PART II – OTHER INFORMATION (continued)

2.      To amend the Company’s Amended and Restated 1992 Stock Option Plan to increase the number of shares authorized for issuance by 500,000 and to expand the types of equity compensation awards that may be granted under the Plan.

FOR
AGAINST
ABSTAIN
BROKER NON-VOTE
4,536,371   1,125,842   22,792   3,514,897  

Item 5.   Other Information

  Not applicable.

Item 6.   Exhibits

  (a)   The following exhibits are included herein:

    11.1   Calculation of Earnings per Share.
    31.1   Certificate of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
    31.2   Certificate of Chief Financial Officer pursuant to Rules 13a-14 and 15d-14 of the Exchange Act.
    32   Certifications pursuant to 18 U.S.C. § 1350.














20




SIGNATURES

In accordance with the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

    RIMAGE CORPORATION
      Registrant
 
 
Date:    August 5, 2005 By:    /s/   Bernard P. Aldrich
 
 
    Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
 
 
Date:    August 5, 2005 By:    /s/   Robert M. Wolf
 
 
    Robert M. Wolf
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)











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