Table of Contents





UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
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, 2010;
 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: 000-20728



| |                                                         | 
| | ------------------------------------------------------- | 
| | RIMAGE
 CORPORATION                                     | 
| | (Exact
 name of registrant as specified in its charter) | 

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

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

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



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. YesxNo o

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). YesoNo o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2
of the Exchange Act):

Large Accelerated FileroAccelerated FilerxNon-Accelerated FileroSmaller Reporting Companyo

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): YesoNo x

Common Stock outstanding at
July 31, 2010  9,551,087 shares of $.01 par value Common Stock.

1







RIMAGE CORPORATION
FORM 10-QTABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 2010

|           |  |                                                                                                        |  |       |     
|---------- |  | ------------------------------------------------------------------------------------------------------ |  | ----- | ----
|           |  | Description                                                                                            |  |       | Page
|           |  |                                                                                                        |  |      
|PART 1     |  | FINANCIAL INFORMATION                                                                                  |  |      
|           |  |                                                                                                        |  |      
|Item
 1.   |  | Financial Statements (unaudited)                                                                       |  |      
|           |  |                                                                                                        |  |      
|           |  | Condensed Consolidated Balance Sheets as of
 June 30, 2010 and December 31, 2010                       |  | 3    
|           |  |                                                                                                        |  |      
|           |  | Condensed Consolidated Statements of Income
 for the three and six months ended June 30, 2010 and 2009 |  | 4    
|           |  |                                                                                                        |  |      
|           |  | Condensed Consolidated Statements of Cash
 Flows for the six months ended June 30, 2010 and 2009       |  | 5    
|           |  |                                                                                                        |  |      
|           |  | Notes to Condensed Consolidated Financial
 Statements                                                  |  | 6-15 
|           |  |                                                                                                        |  |      
|Item
 2.   |  | Managements Discussion and Analysis of Financial
 Condition and Results of Operations                 |  | 15-21
|           |  |                                                                                                        |  |      
|Item
 3.   |  | Quantitative and Qualitative Disclosures
 about Market Risk                                            |  | 21   
|           |  |                                                                                                        |  |      
|Item
 4.   |  | Controls and Procedures                                                                                |  | 21   
|           |  |                                                                                                        |  |      
|PART II    |  | OTHER INFORMATION                                                                                      |  | 22   
|           |  |                                                                                                        |  |      
|Item
 1.   |  | Legal Proceedings                                                                                      |  |      
|           |  |                                                                                                        |  |      
|Item
 1A.  |  | Risk Factors                                                                                           |  |      
|           |  |                                                                                                        |  |      
|Item
 2.   |  | Unregistered Sales of Equity Securities and
 Use of Proceeds                                           |  |      
|           |  |                                                                                                        |  |      
|Item
 3.   |  | Defaults Upon Senior Securities                                                                        |  |      
|           |  |                                                                                                        |  |      
|Item
 4.   |  | [Removed and Reserved]                                                                                 |  |      
|           |  |                                                                                                        |  |      
|Item
 5.   |  | Other Information                                                                                      |  |      
|           |  |                                                                                                        |  |      
|Item
 6.   |  | Exhibits                                                                                               |  |      
|           |  |                                                                                                        |  |      
|SIGNATURES |  |                                                                                                        |  | 23   

2

---



Table of Contents

PART
1  FINANCIAL INFORMATION 
Item 1. Financial Statements (unaudited)

RIMAGE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets(unaudited - in thousands, except share data)

|                                                                                                                         |  |                 |         |                     |   |         | 
|------------------------------------------------------------------------------------------------------------------------ |  | --------------- | ------- | ------------------- | - | ------- | 
|Assets                                                                                                                   |  | June
 30,
 2010 |         | December
 31,
 2009 |  
|                                                                                                                         |  |                 |         |                     |   |         | 
|Current assets:                                                                                                          |  |                 |         |                     |   |         | 
|Cash and cash equivalents                                                                                                |  | $               | 90,609  |                     | $ | 72,507  | 
|Marketable securities                                                                                                    |  |                 | 10,754  |                     |   | 28,581  | 
|Receivables, net of allowance for doubtful accounts and sales returns
 of $282 and $327, respectively                    |  |                 | 13,794  |                     |   | 13,732  | 
|Inventories                                                                                                              |  |                 | 6,688   |                     |   | 4,123   | 
|Prepaid income taxes                                                                                                     |  |                 |        |                     |   |        | 
|Prepaid expenses and other current assets                                                                                |  |                 | 1,367   |                     |   | 1,271   | 
|Deferred income taxes - current                                                                                          |  |                 | 603     |                     |   | 546     | 
|Total current assets                                                                                                     |  |                 | 123,815 |                     |   | 120,760 | 
|Marketable securities - non-current                                                                                      |  |                 | 6,762   |                     |   | 9,037   | 
|Property and equipment, net                                                                                              |  |                 | 7,939   |                     |   | 7,855   | 
|Deferred income taxes - non-current                                                                                      |  |                 | 2,691   |                     |   | 2,630   | 
|Other assets - non-current                                                                                               |  |                 | 198     |                     |   |        | 
|Total assets                                                                                                             |  | $               | 141,405 |                     | $ | 140,282 | 
|                                                                                                                         |  |                 |         |                     |   |         | 
|Liabilities and
 Stockholders Equity                                                                                    |  |                 |         |                     |   |         | 
|Current liabilities:                                                                                                     |  |                 |         |                     |   |         | 
|Trade accounts payable                                                                                                   |  | $               | 6,992   |                     | $ | 6,898   | 
|Accrued compensation                                                                                                     |  |                 | 2,545   |                     |   | 3,834   | 
|Other accrued expenses                                                                                                   |  |                 | 821     |                     |   | 911     | 
|Income taxes payable                                                                                                     |  |                 | 449     |                     |   | 222     | 
|Deferred income and customer deposits                                                                                    |  |                 | 5,436   |                     |   | 5,706   | 
|Other current liabilities                                                                                                |  |                 | 23      |                     |   | 18      | 
|Total current liabilities                                                                                                |  |                 | 16,266  |                     |   | 17,589  | 
|                                                                                                                         |  |                 |         |                     |   |         | 
|Long-term liabilities:                                                                                                   |  |                 |         |                     |   |         | 
|Deferred income and customer deposits - non-current                                                                      |  |                 | 1,582   |                     |   | 2,452   | 
|Income taxes payable - non-current                                                                                       |  |                 | 229     |                     |   | 213     | 
|Other non-current liabilities                                                                                            |  |                 | 70      |                     |   | 79      | 
|Total long-term liabilities                                                                                              |  |                 | 1,881   |                     |   | 2,744   | 
|Total liabilities                                                                                                        |  |                 | 18,147  |                     |   | 20,333  | 
|                                                                                                                         |  |                 |         |                     |   |         | 
|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 9,551,087 and 9,471,885 respectively |  |                 | 95      |                     |   | 94      | 
|Additional paid-in capital                                                                                               |  |                 | 41,789  |                     |   | 40,296  | 
|Retained earnings                                                                                                        |  |                 | 81,531  |                     |   | 78,782  | 
|Accumulated other comprehensive income (loss)                                                                            |  |                 | (157    | )                   |   | 777     | 
|Total stockholders equity                                                                                               |  |                 | 123,258 |                     |   | 119,949 | 
|                                                                                                                         |  |                 |         |                     |   |         | 
|Total liabilities and stockholders equity                                                                               |  | $               | 141,405 |                     | $ | 140,282 | 

See accompanying notes to
condensed consolidated financial statements.

3

---



Table of Contents

RIMAGE CORPORATION AND SUBSIDIARIESCondensed Consolidated
Statements of Income(unaudited - in thousands, except per share data)

|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|---------------------------------------------- |  | ---------------------------- | ------ | -------------------------- | - | ------ |  | ---- | ------ | - | - | ------ | -
|                                               |  | Three Months Ended
 June 30, |        | Six Months Ended
 June 30, |  
|                                               |  | 2010                         |        | 2009                       |   | 2010   |  | 2009 |       
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Revenues:                                      |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Product                                        |  | $                            | 19,808 |                            | $ | 17,132 |  | $    | 35,653 |   | $ | 32,493 |  
|Service                                        |  |                              | 2,495  |                            |   | 2,686  |  |      | 5,020  |   |   | 5,683  |  
|Total revenues                                 |  |                              | 22,303 |                            |   | 19,818 |  |      | 40,673 |   |   | 38,176 |  
|Cost of revenues:                              |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Product                                        |  |                              | 9,858  |                            |   | 8,813  |  |      | 17,613 |   |   | 16,741 |  
|Service                                        |  |                              | 1,810  |                            |   | 1,817  |  |      | 3,773  |   |   | 3,682  |  
|Total cost of revenues                         |  |                              | 11,668 |                            |   | 10,630 |  |      | 21,386 |   |   | 20,423 |  
|Gross profit                                   |  |                              | 10,635 |                            |   | 9,188  |  |      | 19,287 |   |   | 17,753 |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Operating expenses:                            |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Research and development                       |  |                              | 1,417  |                            |   | 1,501  |  |      | 2,858  |   |   | 3,476  |  
|Selling, general and administrative            |  |                              | 6,030  |                            |   | 5,148  |  |      | 12,297 |   |   | 10,490 |  
|Total operating expenses                       |  |                              | 7,447  |                            |   | 6,649  |  |      | 15,155 |   |   | 13,966 |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Operating income                               |  |                              | 3,188  |                            |   | 2,539  |  |      | 4,132  |   |   | 3,787  |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Other income (expense):                        |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Interest, net                                  |  |                              | 128    |                            |   | 458    |  |      | 296    |   |   | 1,014  |  
|Realized gain on sale of marketable securities |  |                              |       |                            |   | 278    |  |      |       |   |   | 278    |  
|Gain (loss) on currency exchange               |  |                              | (5     | )                          |   | 87     |  |      | (32    | ) |   | 42     |  
|Other, net                                     |  |                              |       |                            |   |       |  |      | 4      |   |   | (1     | )
|Total other income, net                        |  |                              | 123    |                            |   | 823    |  |      | 268    |   |   | 1,333  |  
|                                              
|Income before income taxes                     |  |                              | 3,311  |                            |   | 3,362  |  |      | 4,400  |   |   | 5,120  |  
|Income tax expense                             |  |                              | 1,258  |                            |   | 1,389  |  |      | 1,652  |   |   | 1,962  |  
|Net income                                     |  | $                            | 2,053  |                            | $ | 1,973  |  | $    | 2,748  |   | $ | 3,158  |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Net income per basic share                     |  | $                            | 0.22   |                            | $ | 0.21   |  | $    | 0.29   |   | $ | 0.34   |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Net income per diluted share                   |  | $                            | 0.22   |                            | $ | 0.20   |  | $    | 0.29   |   | $ | 0.33   |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Basic weighted average shares outstanding      |  |                              | 9,531  |                            |   | 9,372  |  |      | 9,504  |   |   | 9,358  |  
|                                               |  |                              |        |                            |   |        |  |      |        |   |   |        |  
|Diluted weighted average shares outstanding    |  |                              | 9,608  |                            |   | 9,517  |  |      | 9,588  |   |   | 9,463  |  

See accompanying notes to condensed
consolidated financial statements.

4

---



Table of Contents

RIMAGE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows(unaudited
- in thousands)

|                                                                                   |  |                             |        |      |   |         |  
|---------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- | - | ------- | -
|                                                                                   |  | Six
 months ended
 June 30, |       
|                                                                                   |  | 2010                        |        | 2009 |  
|Cash flows from operating activities:                                              |  |                             |        |      |   |         |  
|Net income                                                                         |  | $                           | 2,748  |      | $ | 3,158   |  
|Adjustments to reconcile net income to net cash provided by operating
 activities: |  |                             |        |      |   |         |  
|Depreciation and amortization                                                      |  |                             | 917    |      |   | 605     |  
|Deferred income tax benefit                                                        |  |                             | (72    | )    |   | (100    | )
|Gain on sale of marketable securities                                              |  |                             |       |      |   | (278    | )
|Loss on disposal of property and equipment                                         |  |                             | 1      |      |   | 2       |  
|Stock-based compensation                                                           |  |                             | 1,002  |      |   | 800     |  
|Excess tax benefits from stock-based compensation                                  |  |                             | (22    | )    |   |        |  
|Changes in operating assets and liabilities:                                       |  |                             |        |      |   |         |  
|Receivables                                                                        |  |                             | (716   | )    |   | (130    | )
|Inventories                                                                        |  |                             | (2,886 | )    |   | 1,808   |  
|Prepaid income taxes/income taxes payable                                          |  |                             | 196    |      |   | 927     |  
|Prepaid expenses and other current assets                                          |  |                             | (319   | )    |   | 283     |  
|Trade accounts payable                                                             |  |                             | 2,658  |      |   | (383    | )
|Accrued compensation                                                               |  |                             | (1,183 | )    |   | 639     |  
|Other accrued expenses and other current liabilities                               |  |                             | (77    | )    |   | (120    | )
|Deferred income and customer deposits                                              |  |                             | (1,086 | )    |   | 1,736   |  
|                                                                                   |  |                             |        |      |   |         |  
|Net
 cash provided by operating activities                                         |  |                             | 1,161  |      |   | 8,947   |  
|                                                                                   |  |                             |        |      |   |         |  
|Cash flows from investing activities:                                              |  |                             |        |      |   |         |  
|Purchases of marketable securities                                                 |  |                             |       |      |   | (52,273 | )
|Maturities and sales of marketable securities                                      |  |                             | 19,954 |      |   | 37,260  |  
|Purchases of property and equipment                                                |  |                             | (3,361 | )    |   | (110    | )
|                                                                                   |  |                             |        |      |   |         |  
|Net
 cash provided by (used in) investing activities                               |  |                             | 16,593 |      |   | (15,123 | )
|                                                                                   |  |                             |        |      |   |         |  
|Cash flows from financing activities:                                              |  |                             |        |      |   |         |  
|Principal payments on capital lease obligations                                    |  |                             | (9     | )    |   | (13     | )
|Excess tax benefits from stock-based compensation                                  |  |                             | 22     |      |   |        |  
|Proceeds from stock option exercises                                               |  |                             | 536    |      |   | 284     |  
|                                                                                   |  |                             |        |      |   |         |  
|Net cash provided by financing activities                                          |  |                             | 549    |      |   | 271     |  
|                                                                                   |  |                             |        |      |   |         |  
|Effect of exchange rate changes on cash                                            |  |                             | (201   | )    |   | (9      | )
|                                                                                   |  |                             |        |      |   |         |  
|Net increase (decrease) in cash and cash equivalents                               |  |                             | 18,102 |      |   | (5,914  | )
|                                                                                   |  |                             |        |      |   |         |  
|Cash and cash equivalents, beginning of period                                     |  |                             | 72,507 |      |   | 14,885  |  
|                                                                                   |  |                             |        |      |   |         |  
|Cash and cash equivalents, end of period                                           |  | $                           | 90,609 |      | $ | 8,971   |  
|                                                                                  
|Supplemental disclosures of net cash paid during the period for:                   |  |                             |        |      |   |         |  
|Income taxes                                                                       |  | $                           | 1,520  |      | $ | 1,135   |  

See accompanying notes to
condensed consolidated financial statements.

5

---



Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basis of Presentation and Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | Rimage
 Corporation (the Company or Rimage) develops, manufactures and markets
 workflow-integrated digital publishing solutions that are used by businesses
 to produce CD/DVD/Blu-ray discs with customized content and durable disc
 labeling. Rimage distributes its publishing systems from its operations in
 the United States, Germany and Japan. The Company also distributes related
 consumables for use with its systems, consisting of media kits, ribbons, ink
 cartridges and Rimage-branded blank CD-R, DVD-R and Blu-ray media.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | The
 accompanying condensed consolidated financial statements 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. 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 condensed consolidated financial
 statements should be read in conjunction with the consolidated financial
 statements and notes thereto included in the Companys Annual Report on Form
 10-K as of and for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | 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 estimates on items such as allowance for doubtful accounts and
 sales returns, inventory provisions, asset impairment charges, deferred tax
 asset valuation allowances, accruals for uncertain tax positions and warranty
 accruals. These estimates and assumptions are based on managements best
 judgment. Management evaluates estimates and assumptions on an ongoing basis
 using its technical knowledge, historical experience and other factors,
 including consideration of the impact of the current economic environment.
 Management believes its assumptions are reasonable in light of the current
 economic environment. Management adjusts such estimates and assumptions when
 facts and circumstances change. Illiquid credit markets, volatile equity,
 foreign currency and energy markets, and declines in business and consumer
 spending have combined to increase the uncertainty inherent in such estimates
 and assumptions. As future events and their effects cannot be determined with
 precision, actual results could differ significantly from these estimates.
 Changes in those estimates resulting from continuing changes in the economic
 environment will be reflected in the financial statements in future periods.                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(2) | Stock-Based Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | In
 May 2007, the Companys shareholders approved the 2007 Stock Incentive Plan
 (the 2007 Plan). The 2007 Plan provides for the grant of stock incentive
 awards in the form of incentive and non-qualified stock options, stock
 appreciation rights, restricted stock, restricted stock units, performance
 stock, performance units and other awards in stock and/or cash to certain key
 employees, non-employee directors and service providers. In May 2009, the
 Companys shareholders approved amendments to the 2007 Plan, including an
 increase in the number of shares authorized for issuance by 500,000 shares to
 a total of 1,230,320 shares. At June 30, 2010, a total of 454,870 shares were
 available for future grant under the 2007 Plan, as amended. Effective with
 the approval of the 2007 Plan in May 2007, the Company may not issue any new
 awards or options under its Amended and Restated 1992 Stock Option Plan (the
 1992 Plan). The exercise price of stock options granted under the 2007 Plan
 is equal to the market value on the date of grant. Options issued to
 employees through March 31, 2006 under the 1992 Plan generally become
 exercisable over a two-year period and terminate ten years from the date of
 grant. Options issued to employees after March 31, 2006 under both the 1992
 Plan and the 2007 Plan generally become exercisable over a four-year period.
 Options issued to employees through May 13, 2008 under the 1992 Plan and the
 2007 Plan terminate ten years from the date of grant, while options issued
 effective May 14, 2008 under the 2007 Plan terminate seven years from the
 date of grant. Stock options granted to non-employee directors vest six
 months from the date of grant and terminate ten years from the date of grant.
 Restricted stock and restricted stock unit awards issued to employees and
 non-employee directors under the 2007 Plan are subject to the risk of
 forfeiture and transfer restrictions that lapse in varying time periods from
 the date of grant.

6

---



Table of Contents

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In
 addition to awards granted under the 2007 Plan and 1992 Plan, the Company
 granted a non-qualified option to purchase 200,000 shares of its common stock
 to a newly hired executive officer on April 1, 2009. The option was granted
 outside of any shareholder-approved plan as an inducement to accept employment
 with the Company. The option has an exercise price equal to the closing price
 of the Companys common stock as reported by the Nasdaq Stock Market on the
 first day of employment of April 1, 2009, vests in four equal installments on
 each of the first four anniversaries of the date of grant and has a term of
 seven years. In other respects, the option was structured to mirror the terms
 of options granted under the 2007 Plan and is subject to a stock option plan
 between the Company and the executive officer.                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Under
 the guidance of the Stock Compensation Topic of the Codification, stock-based
 compensation expense is determined based on the grant-date fair value and is
 recognized on a straight-line basis over the vesting period for each
 stock-based award granted on or after January 1, 2006, and for previously
 granted awards not yet vested as of January 1, 2006. The Company recognizes
 stock-based compensation net of an estimated forfeiture rate, resulting in
 the recognition of compensation cost for only those shares expected to vest.
 Compensation cost is recognized for all awards over the vesting period to the
 extent the employees or directors meet the requisite service requirements,
 whether or not the award is ultimately exercised. Conversely, when an employee
 or director does not meet the requisite service requirements and forfeits the
 award prior to vesting, any compensation expense previously recognized for
 the award is reversed. The Company recognized stock-based compensation costs
 of $536,000 and $1,002,000 for the three and six months ended June 30, 2010,
 respectively, compared to $584,000 and $800,000 for the comparable periods in
 2009.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | The
 fair value of each option award is estimated at the date of grant using the
 Black-Scholes option pricing model. The following key assumptions were
 utilized in valuing option awards issued during the six months ended June 30,
 2010 and 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

7

---



Table of Contents

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

|                                   |  |               |   |             |  
|---------------------------------- |  | ------------- | - | ----------- | -
|                                   |  | 2010          |   | 2009        |  
|                                   |  |               |   |             |  
|Expected life of options in
 years |  | 4.75          |   | 4.75        |  
|                                   |  |               |   |             |  
|Risk-free interest rate            |  | 1.88%
 - 2.65 | % | 1.6%
 - 1.9 | %
|                                   |  |               |   |             |  
|Expected volatility                |  | 49.2%
 - 49.6 | % | 48.5        | %
|                                   |  |               |   |             |  
|Expected dividend yield            |  | 0.0           | % | 0.0         | %

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 Company reviews these assumptions at the time of each new option award and
 adjusts them as necessary to ensure proper option valuation. The expected
 life represents the period that the stock option awards are expected to be
 outstanding. Effective April 2008, the Companys Board of Directors approved
 a change in the contractual term of stock options granted to employees from
 ten to seven years. Given the reduction in the contractual term of its
 employee stock option awards, the Company determined it was unable to rely on
 its historical exercise data as a basis for estimating the expected life of
 stock options granted to employees subsequent to this change. As such, the
 Company used the simplified method for determining the expected life of
 stock options granted to employees in 2008, 2009 and 2010, as specified by
 Staff Accounting Bulletin (SAB) No. 107, Valuation of Share-Based Payment
 Arrangements for Public Companies, which bases the expected life calculation
 on the average of the vesting term and the contractual term of the awards.
 The risk-free interest rate is based on the yield of constant maturity U.S.
 treasury bonds with a remaining term equal to the expected life of the
 awards. The Company estimated the stock price volatility using historical
 weekly price observations over the expected life of the awards. The expected
 dividend yield is zero as the Company has not paid or declared any cash
 dividends on its common stock and does not currently have plans to pay
 dividends.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Other
 information pertaining to stock options is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                          |  |                                       |       |                                       |   |       |  |      |       |  |   |       | 
|--------------------------------------------------------- |  | ------------------------------------- | ----- | ------------------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                                          |  | Three Months Ended June 30,           |       | Six Months Ended June 30,             |  
|                                                          |  | 2010                                  |       | 2009                                  |   | 2010  |  | 2009 |      
|                                                          |  | (in thousands, except per share data) |       | (in thousands, except per share data) |  
|                                                          |  |                                       |       |                                       |  
|Number of options granted                                 |  |                                       | 142   |                                       |   | 350   |  |      | 217   |  |   | 350   | 
|Fair value of options
 granted                            |  | $                                     | 1,093 |                                       | $ | 2,152 |  | $    | 1,650 |  | $ | 2,152 | 
|Per share weighted average
 fair value of options granted |  | $                                     | 7.71  |                                       | $ | 6.14  |  | $    | 7.61  |  | $ | 6.14  | 
|Total fair value of stock
 options vested                 |  | $                                     | 1,116 |                                       | $ | 949   |  | $    | 1,116 |  | $ | 949   | 
|Total intrinsic value of
 stock options exercised         |  | $                                     | 462   |                                       | $ | 78    |  | $    | 528   |  | $ | 152   | 
|Total intrinsic value of
 stock options outstanding       |  | $                                     | 1,341 |                                       | $ | 2,807 |  | $    | 1,341 |  | $ | 2,807 | 

8

---



Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Cash
 received from the exercise of stock options was $536,000 and $284,000 for the
 six months ended June 30, 2010 and 2009, respectively. The exercise of stock
 options, expirations of vested stock options and lapse of restrictions on
 restricted stock generated a net non-deductible income tax impact of $45,000
 and $71,000 during the six months ended June 30, 2010 and 2009, respectively.
 The income tax impact was recorded as a reduction to additional paid-in
 capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(3) | Accounting for Uncertainty in Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Gross
 unrecognized tax benefits recorded under the guidance of the Income Taxes
 Topic of the Codification as of June 30, 2010 and December 31, 2009 totaled
 $375,000 and $364,000, respectively (excluding interest and penalties).
 Changes in gross unrecognized tax benefits during the six months ended June
 30, 2010 consisted primarily of a net increase of $14,000 for tax positions
 taken in the current year. Included in the balance of unrecognized tax
 benefits at June 30, 2010 are potential benefits of $355,000 that if
 recognized, would affect the effective tax rate. The difference between this
 amount and the corresponding amount of gross unrecognized tax benefits
 relates primarily to deferred federal benefits of uncertain tax positions.
 The Company made no other material adjustments to its unrecognized tax
 benefits during the six months ended June 30, 2010.                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The
 Company recognizes accrued interest and penalties related to unrecognized tax
 benefits as a component of income tax expense. Total accrued interest and
 penalties amounted to $41,000 and $36,000 on a gross basis at June 30, 2010
 and December 31, 2009, respectively, and are excluded from the gross amounts
 of unrecognized tax benefits reflected above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | The
 Company files income tax returns in the U.S. federal jurisdiction and various
 state and foreign jurisdictions. As of June 30, 2010, the Company was no
 longer subject to income tax examinations for taxable years before 2006 and
 2005 in the case of U.S. federal and German taxing authorities, respectively,
 and taxable years generally before 2005 in the case of state taxing
 authorities, consisting primarily of Minnesota, California and Maryland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(4) | Marketable Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Marketable
 securities consist primarily of U.S. treasury bills, money market securities,
 municipal securities, corporate securities and U.S. government agency
 securities with long-term credit ratings of AAA and short-term credit ratings
 of A-1. Marketable securities are classified as either short-term or
 long-term in the consolidated balance sheet based on their effective maturity
 date. All marketable securities have original maturities ranging from three
 to 36 months. Marketable securities 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 until realized. See Note 8, Fair Value Measurements,
 for a discussion of inputs used to measure the fair value of the Companys
 available-for-sale securities. The Companys marketable securities at June
 30, 2010 did not include any auction-rate securities, high-yield sub-prime
 backed paper or other affected securities which are subject to significant
 market value declines or liquidity issues.

9

---



Table of Contents

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

|    |                                                        
|--- | -------------------------------------------------------
|(5) | Inventories                                            
|    |                                                        
|    | Inventories consisted of
 the following (in thousands):

|                                            |  |                |       |                    |   |       | 
|------------------------------------------- |  | -------------- | ----- | ------------------ | - | ----- | 
|                                            |  | June 30,
 2010 |       | December 31,
 2009 |  
|                                            |  |                |       |                    |   |       | 
|Finished goods and
 demonstration equipment |  | $              | 2,066 |                    | $ | 1,425 | 
|Purchased parts and
 subassemblies          |  |                | 4,622 |                    |   | 2,698 | 
|                                            |  | $              | 6,688 |                    | $ | 4,123 | 

|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Comprehensive Income                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                
|    | Comprehensive
 income consists of the Companys net income, foreign currency translation
 adjustments, and unrealized holding gains and losses from available-for-sale
 securities. The components of and changes in other comprehensive income are
 as follows (in thousands):

|                                                                     |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|-------------------------------------------------------------------- |  | ----------------------------- | ----- | --------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                                     |  | Three
 Months Ended
 June 30, |       | Six
 Months Ended
 June 30, |  
|                                                                     |  | 2010                          |       | 2009                        |   | 2010  |   | 2009 |      
|                                                                     |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|Net income                                                           |  | $                             | 2,053 |                             | $ | 1,973 |   | $    | 2,748 |   | $ | 3,158 |  
|Other comprehensive income:                                          |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|Net changes in:                                                      |  |                               |       |                             |   |       |   |      |       |   |   |       |  
|Foreign currency translation adjustments                             |  |                               | (486  | )                           |   | 256   |   |      | (834  | ) |   | (170  | )
|Change in net unrealized gain on marketable securities, net of taxes |  |                               | (45   | )                           |   | (257  | ) |      | (100  | ) |   | (226  | )
|Total comprehensive income                                           |  | $                             | 1,522 |                             | $ | 1,972 |   | $    | 1,814 |   | $ | 2,762 |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The
 Company enters into forward foreign exchange contracts principally to hedge
 intercompany receivables denominated in Euros arising from sales to its
 subsidiary in Germany. The Companys foreign exchange contracts do not
 qualify for hedge accounting under the Derivatives and Hedging Topic of the
 Codification. As a result, gains or losses related to mark-to-market
 adjustments on forward foreign exchange contracts are recognized as other
 income or expense in the income statement during the period in which the
 instruments are outstanding. The fair value of forward foreign exchange
 contracts represents the amount the Company would receive or pay to terminate
 the forward exchange contracts at the reporting date and is recorded 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As
 of June 30, 2010, the Company had four outstanding foreign exchange contracts
 with a notional amount totaling approximately $588,000. These contracts
 mature during 2010 and bear exchange rates ranging from 1.1959 and 1.239 U.S.
 Dollars per Euro. As of June 30, 2010, the fair value of foreign exchange
 contracts resulted in a net loss position of $5,000, which is recorded in
 other current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

10

---



Table of Contents

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As
 of December 31, 2009, the Company had three outstanding foreign exchange
 contracts with a notional amount totaling $550,000, all maturing during the
 first quarter of 2010 at exchange rates ranging from 1.4554 to 1.4913 U.S.
 Dollars per Euro. As of December 31, 2009, the fair value of foreign exchange
 contracts resulted in a net gain position of approximately $17,000, which is
 recorded in other current assets.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Realized
 and unrealized gains or losses on derivative instruments related to foreign
 currency exchange contracts and their location on the Companys condensed
 consolidated statements of income are as follows (in thousands):                                                                                                                                                                                                   

|                           |  |          |                                   |      |                            |      |   |   |     | 
|-------------------------- |  | -------- | --------------------------------- | ---- | -------------------------- | ---- | - | - | --- | 
|                           |  |          |                                   |      | Six Months Ended
 June 30, |     
|Derivative
 Instrument     |  | Location |                                   | 2010 |                            | 2009 |  
|                           |  |          |                                   |      |                            |      |   |   |     | 
|Foreign Exchange Contracts |  |          | Gain (loss) on currency
 exchange |      | $                          | (101 | ) | $ | 235 | 

| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 net gains or losses from foreign exchange contracts reflected above were
 largely offset by the underlying transaction net gains and losses arising
 from the foreign currency exposures to which these contracts relate.      
| |                                                                                                                                                                                                                                     
| | The
 gross fair market value of derivative instruments related to foreign currency
 exchange contracts and their location on the Companys condensed consolidated
 balance sheets are as follows as of June 30, 2010 (in thousands):

|                           |  |                          |  |                       |   |          |                              |                |   |    |  
|-------------------------- |  | ------------------------ |  | --------------------- | - | -------- | ---------------------------- | -------------- | - | -- | -
|                           |  | Asset Derivatives        |  | Liability Derivatives |  
|Derivative
 Instrument     |  | Location                 |  | June 30,
 2010        |   | Location |                              | June 30,
 2010 |  
|                           |  |                          |  |                       |   |          |                              |                |  
|Foreign Exchange Contracts |  | Other current assets (1) |  | $                     | 2 |          | Other current liabilities(1) |                | $ | (7 | )

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1)
 As the Companys foreign exchange agreement is subject to a master netting
 arrangement, the Companys policy is to record the fair value of outstanding
 foreign exchange contracts as other current assets or other current
 liabilities, based on whether outstanding contracts are in a net gain or loss
 position, respectively. See Note 8, Fair Value Measurements, for additional
 information regarding the fair value measurements of derivative instruments
 related to foreign currency exchange contracts.                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The
 Company enters into its foreign exchange contracts with a single
 counterparty, a financial institution. The Company manages its concentration
 of counterparty risk associated with foreign exchange contracts by
 periodically assessing relevant information such as the counterpartys
 current financial statements, credit agency reports and/or credit references.
 To further mitigate credit risk, the Companys Foreign Exchange Agreement with
 its counterparty includes a master netting arrangement, which allows netting
 of asset and liability positions of outstanding foreign exchange contracts if
 settlement were required.

11

---



Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    | A
 hierarchy for inputs used in measuring fair value is in place that
 distinguishes market data between observable independent market inputs and
 unobservable market assumptions by the reporting entity. The hierarchy is
 intended to maximize the use of observable inputs and minimize the use of
 unobservable inputs by requiring that the most observable inputs be used when
 available. Three levels within the hierarchy may be used to measure fair
 value:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Level
 1: Inputs are unadjusted quoted prices in active markets for identical assets
 and liabilities.                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Level
 2: Inputs include data points that are observable such as quoted prices for
 similar assets or liabilities in active markets, quoted prices for identical
 or similar assets or liabilities in markets that are not active, and inputs
 (other than quoted prices) such as interest rates and yield curves that are
 observable for the asset or liability, either directly or indirectly.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | Level
 3: Inputs are generated from model-based techniques that use significant
 assumptions not observable in the market. These unobservable assumptions
 reflect an entitys own estimates of assumptions that market participants
 would use in pricing the asset or liability.                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
 Companys assets and liabilities measured at fair value on a recurring basis
 and the fair value hierarchy utilized to determine such fair values is as
 follows at June 30, 2010:                                                                                                                                                                                                                                                                                 

|                                            |  |                                         |        |                                             |                               |                                                  |  |                                              |        |   |   |   | 
|------------------------------------------- |  | --------------------------------------- | ------ | ------------------------------------------- | ----------------------------- | ------------------------------------------------ |  | -------------------------------------------- | ------ | - | - | - | 
|                                            |  |                                         |        |                                             | Fair Value Measurements Using |                                                 
|(in thousands)                              |  | Total Carrying
 Value at
 June 30, 2010 |        | Quoted Prices in
 Active Markets
 (Level 1) |                               | Significant Other
 Observable
 Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |       
|Assets                                      |  |                                         |        |                                             |                               |                                                  |  |                                              |        |   |   |   | 
|Available-for-sale securities               |  | $                                       | 17,516 |                                             | $                             |                                                 |  | $                                            | 17,516 |   | $ |  | 
|Foreign currency forward exchange contracts |  | $                                       | (5     | )                                           | $                             |                                                 |  | $                                            | (5     | ) | $ |  | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Available-for-sale
 securities in the preceding table are classified as either current or
 non-current marketable securities in the accompanying condensed consolidated
 balance sheets. Available-for-sale securities are carried at fair value based
 on significant observable inputs other than quoted market prices. Such inputs
 may include benchmark yields, reported trades, broker/dealer quotes, issuer
 spreads, two-sided markets, benchmark securities, bids, offers and other
 reference data. Foreign currency forward exchange contracts are also carried
 at fair value based on significant other observable market inputs, in this
 case, quoted foreign currency exchange rates. Such valuation represents the
 amount the Company would receive or pay to terminate the forward exchange
 contracts at the reporting date.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | In
 September 2009, the Financial Accounting Standards Board (FASB) issued
 Accounting Standards Update (ASU) 2009-12, Fair Value Measurements and
 Disclosures  Investments in Certain Entities That Calculate Net Asset Value
 per Share (or its Equivalent). ASU 2009-12 allows companies to use net asset
 value as a practical expedient to estimate fair value of investments that are
 within the scope of this ASU that do not have readily determinable fair
 values. The Company adopted this guidance in the first quarter of 2010, and
 the adoption did not have a material impact on the Companys consolidated financial
 statements.                                                                                                                                                                                     

12

---



Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9)  | Common Stock Repurchase Authorizations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | On
 October 17, 2007, the Companys Board of Directors authorized the repurchase
 of up to 500,000 shares of its common stock. In February 2008, the Companys
 Board of Directors increased the share repurchase authorization by an
 additional 500,000 shares, bringing total shares authorized for repurchase to
 1,000,000. Shares may be purchased at prevailing market prices in the open
 market or in private transactions, subject to market conditions, share price,
 trading volume and other factors. The repurchase program is funded from cash
 on hand and may be discontinued at any time. During the six months ended June
 30, 2010, the Company did not repurchase any shares of its common stock. As
 of June 30, 2010, 422,917 shares were available for repurchase under the
 authorizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(10) | Recently Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | In
 October 2009, the FASB issued two new revenue recognition standards. The
 first new standard is ASU No. 2009-13, Revenue Recognition (ASC Topic 605) 
 Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging
 Issues Task Force. Under ASU No. 2009-13, when vendor specific objective
 evidence or third party evidence for deliverables in an arrangement cannot be
 determined, a best estimate of the selling price is required to separate
 deliverables and allocate arrangement consideration using the relative selling
 price method. The second new standard is ASU No. 2009-14, Software (Topic
 985)  Certain Revenue Arrangements That Include Software Elements. Under
 ASU 2009-14, tangible products that have software components that are
 essential to the functionality of the tangible product will no longer be
 within the scope of the software revenue recognition guidance, and
 software-enabled products will now be subject to the new guidance for
 multiple deliverable arrangements discussed above. The guidance under both
 standards is effective for revenue arrangements entered into or materially
 modified in fiscal years beginning after June 15, 2010. Early adoption is
 permitted, and the Company has elected to adopt the guidance under both
 standards on a prospective basis in the first quarter of 2010.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | The
 adoption of ASU 2009-13 did not have a material impact on the Companys
 consolidated financial statements, nor did it result in a significant change
 from prior periods in how the Company allocates arrangement consideration to
 various units of accounting and did not significantly change the pattern and
 timing of revenue recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | The
 Company earns revenues through the sale of tangible products, consisting
 primarily of equipment and consumables. As part of its product offering, the
 Company also sells optional services, consisting primarily of
 separately-priced maintenance contracts and installation services. When sold
 as a multiple-element arrangement, each of these deliverables qualifies as a
 separate unit of accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     | Revenue
 for product sales is recognized upon shipment and transfer of risk of loss.
 Revenue associated with separately-priced maintenance agreements and
 installation services, however, is deferred until earned. Installation
 revenue is recognized upon successful completion of the service. In an
 arrangement including equipment, separately-priced maintenance and
 installation services, the amount deferred and recognized as revenue over the
 contract period for a separately-priced maintenance contract is the stated
 amount of the contract. The remaining consideration is allocated to the
 equipment and the installation service using the relative selling price
 method. The relative selling price is determined based on the Companys
 stand-alone selling prices for the equipment and installation service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

13

---



Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | While
 the Companys sales arrangements have not historically been within the scope
 of software revenue recognition guidance, the Company has elected to adopt
 the new guidance under ASU No. 2009-14 to facilitate application to potential
 future sales arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | In
 January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
 Disclosures  Improving Disclosures about Fair Value Measurements, which
 requires new disclosures about recurring and nonrecurring fair-value
 measurements including significant transfers into and out of Level 1 and
 Level 2 of the fair value hierarchy. The ASU also requires additional
 information in the roll-forward of Level 3 assets and liabilities including
 the presentation of purchases, sales, issuances and settlements on a gross
 basis. Further clarification for existing disclosure requirements provides
 for the disaggregation of assets and liabilities presented, and the
 enhancement of disclosures around inputs and valuation techniques. This ASU
 impacts disclosures only. The Company adopted the disclosure provisions of
 this ASU in the first quarter of 2010, with the exception of the additional
 required information in the roll-forward of Level 3 assets and liabilities,
 which will be effective for the Company in the first quarter of 2011. No
 transfers of assets or liabilities into or out of Level 1 or 2 of the fair value
 hierarchy occurred or were required during the six months ended June 30,
 2010. The Companys adoption of this guidance did not have a material impact
 on the Companys consolidated financial statements and related disclosures.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(11) | Computation of Net Income Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | Basic
 net income per common share is determined by dividing net income by the basic
 weighted average number of shares of common stock outstanding. Diluted net
 income per common share includes the potentially dilutive effect of common
 shares issued in connection with outstanding stock options using the treasury
 stock method and the dilutive impact of restricted stock units. Stock options
 to acquire weighted average common shares of 1,100,000 and 1,088,000 for the
 three and six months ended June 30, 2010, respectively, and weighted average
 common shares of 722,000 and 809,000 for the three and six months ended June
 30, 2009, respectively, have been excluded from the computation of diluted
 weighted average shares outstanding for each respective period as their
 effect is anti-dilutive. The following table identifies the components of net
 income per basic and diluted share (in thousands, except for per share data):                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                                                        |  |                               |       |                             |   |       |  |      |       |  |   |       | 
|------------------------------------------------------- |  | ----------------------------- | ----- | --------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                                        |  | Three
 Months Ended
 June 30, |       | Six Months
 Ended
 June 30, |  
|                                                        |  | 2010                          |       | 2009                        |   | 2010  |  | 2009 |      
|                                                        |  |                               |       |                             |   |       |  |      |      
|Shares outstanding at end
 of period                    |  |                               | 9,551 |                             |   | 9,375 |  |      | 9,551 |  |   | 9,375 | 
|                                                        |  |                               |       |                             |   |       |  |      |       |  |   |       | 
|Basic weighted average shares outstanding               |  |                               | 9,531 |                             |   | 9,372 |  |      | 9,504 |  |   | 9,358 | 
|                                                        |  |                               |       |                             |   |       |  |      |       |  |   |       | 
|Dilutive effect of stock options/restricted stock units |  |                               | 77    |                             |   | 145   |  |      | 84    |  |   | 105   | 
|Total diluted weighted average shares outstanding       |  |                               | 9,608 |                             |   | 9,517 |  |      | 9,588 |  |   | 9,463 | 
|                                                        |  |                               |       |                             |   |       |  |      |       |  |   |       | 
|Net income                                              |  | $                             | 2,053 |                             | $ | 1,973 |  | $    | 2,748 |  | $ | 3,158 | 
|                                                        |  |                               |       |                             |   |       |  |      |       |  |   |       | 
|Basic net income per common
 share                      |  | $                             | 0.22  |                             | $ | 0.21  |  | $    | 0.29  |  | $ | 0.34  | 
|                                                        |  |                               |       |                             |   |       |  |      |       |  |   |       | 
|Diluted net income per
 common share                    |  | $                             | 0.22  |                             | $ | 0.20  |  | $    | 0.29  |  | $ | 0.33  | 

14

---



Table of Contents

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

|     |                                                                                                                                                                                                                                                                                           
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | Contingencies                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                           
|     | 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.
|     |                                                                                                                                                                                                                                                                                           
|     | 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 condensed consolidated statements of income.                                                                                                                                               

| |                                      |  |                                                            |   |                                              |   |                                                          |   |                                              |   |       |   |                |  
| | ------------------------------------ |  | ---------------------------------------------------------- | - | -------------------------------------------- | - | -------------------------------------------------------- | - | -------------------------------------------- | - | ----- | - | -------------- | -
| |                                      |  | Percentage
 (%)
 of Revenues
 Three Months Ended
 June 30, |   | Percentage
 (%)
 Inc/(Dec)
 Between
 Periods |   | Percentage
 (%)
 of Revenues
 Six Months Ended
 June 30, |   | Percentage
 (%)
 Inc/(Dec)
 Between
 Periods |  
| |                                      |  | 2010                                                       |   | 2009                                         |   | 2010
 vs. 2009                                           |   | 2010                                         |   | 2009  |   | 2010
 vs. 2009 |  
| | Revenues                             |  | 100.0                                                      |   | 100.0                                        |   | 12.5                                                     |   | 100.0                                        |   | 100.0 |   | 6.5            |  
| | Cost of revenues                     |  | (52.3                                                      | ) | (53.6                                        | ) | 9.8                                                      |   | (52.6                                        | ) | (53.5 | ) | 4.7            |  
| | Gross profit                         |  | 47.7                                                       |   | 46.4                                         |   | 15.8                                                     |   | 47.4                                         |   | 46.5  |   | 8.6            |  
| | Operating expenses:                  |  |                                                            |   |                                              |   |                                                          |   |                                              |   |       |   |                |  
| | Research and
 development            |  | (6.4                                                       | ) | (7.6                                         | ) | (5.5                                                     | ) | (7.0                                         | ) | (9.1  | ) | (17.8          | )
| | Selling, general
 and administrative |  | (27.0                                                      | ) | (26.0                                        | ) | 17.1                                                     |   | (30.2                                        | ) | (27.5 | ) | 17.2           |  
| | Operating income                     |  | 14.3                                                       |   | 12.8                                         |   | 25.6                                                     |   | 10.2                                         |   | 9.9   |   | 9.1            |  
| | Other income, net                    |  | 0.5                                                        |   | 4.2                                          |   | (85.1                                                    | ) | 0.6                                          |   | 3.5   |   | (79.9          | )
| | Income before income taxes           |  | 14.8                                                       |   | 17.0                                         |   | (1.5                                                     | ) | 10.8                                         |   | 13.4  |   | (14.1          | )
| | Income tax expense                   |  | (5.6                                                       | ) | (7.0                                         | ) | (9.4                                                     | ) | (4.0                                         | ) | (5.1  | ) | (15.8          | )
| | Net income                           |  | 9.2                                                        |   | 10.0                                         |   | 4.1                                                      |   | 6.8                                          |   | 8.3   |   | (13.0          | )

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Rimage
 develops, manufactures and markets workflow-integrated digital publishing
 solutions that are used by businesses to produce CD/DVD/Blu-ray discs with
 customized content and durable disc labeling. Rimage distributes its
 publishing systems from its operations in the United States, Germany and
 Japan. The Company also distributes related consumables for use with its
 systems, consisting of media kits, ribbons, ink cartridges and Rimage-branded
 blank CD-R, DVD-R and Blu-ray media. These systems allow customers to benefit
 from cost savings by eliminating their manual labor efforts in markets and
 applications such as digital photography, medical imaging, business services,
 law enforcement and video workflows. As Rimages sales within North America
 and Europe have averaged 92% of total sales over the past three years, the
 strength of the economies in these regions plays an important role in
 determining the success of Rimage.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Rimage
 earns revenues through the sale of equipment, consumables and parts (included
 in Product revenues in the accompanying condensed consolidated statements of
 income), as well as maintenance contracts, repair and installation services
 (included in Service revenues in the condensed consolidated statements of
 income). Rimages recurring revenues (consumables, parts, maintenance
 contracts and service) comprised 58% and 64% of its consolidated revenues
 during the six months ended June 30, 2010 and 2009, respectively. Exclusive
 of a small amount of capital lease obligations, Rimage has no long-term debt
 and does not require significant capital investment for its ongoing
 operations as all fabrication of tooling-intensive parts is outsourced to
 vendors.                                                                                                                                                                                  

15

---



Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition
 and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Revenues. Total revenues increased 13% and 7% to $22.3 million and $40.7
 million for the three and six months ended June 30, 2010, respectively, from
 $19.8 million and $38.2 million for the respective prior-year periods. The
 increase in total revenues between periods reflects a $2.7 million and $3.2
 million increase in product revenues for the three and six months ended June
 30, 2010, respectively, partially offset by a $0.2 million and $0.7 million
 decline in service-related revenues in each respective period. The increase
 in product revenues resulted from a $3.7 million and $3.2 million rise in
 sales of equipment for the three and six months ended June 30, 2010,
 respectively, partially offset by a $1.0 million and $0.1 million reduction
 in sales of consumable products in each respective period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The
 overall increase in equipment sales in the current-year periods was primarily
 impacted by growth in retail equipment sales, driven by $2.9 million in
 equipment sales under a multi-system sales agreement completed in the second
 quarter with a retail customer. Second quarter revenues also reflected an
 increase in non-retail equipment sales in the U.S. and Asian markets. The
 decline in sales of consumable products in the second quarter consisted primarily
 of a reduced volume of sales of ribbons and ink cartridges of $1.1 million,
 partially offset by increased sales of media and media kits of $0.2 million.
 The second quarter reduction in sales of ribbons and ink cartridges was
 primarily affected by significant purchases from the Companys U.S.
 distributors in the first quarter 2010 as they prepared for a change in the
 Companys sales distribution model effective April 1, 2010. As part of this
 change, Rimage discontinued its distributor relationships with distributors
 in the United States, Germany, and the United Kingdom and sells products in
 these regions to end-user customers primarily through value-added resellers
 or other strategic partners and also directly to select accounts through its
 own sales force. The decline in service-related revenues in both current-year
 periods was primarily impacted by the timing and amount of maintenance
 contract renewals resulting in the recognition of a reduced level of
 maintenance contract revenues.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Recurring
 revenues, consisting of consumables, parts, maintenance contracts and
 service, comprised 51% and 58% of total revenues for the three and six months
 ended June 30, 2010, respectively, compared to 64% in the same prior-year
 periods. Sales of Producer and Professional Series product line equipment
 comprised 45% and 38% of total revenues in the current-years second quarter
 and year-to-date periods, compared to 31% for the comparable periods in 2009.
 Remaining revenues in each period were generated by sales of Desktop product
 line equipment, representing 4% of revenues for the three and six months
 ended June 30, 2010, compared to 5% in the respective prior-year periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | International
 sales decreased 1% and 4% for the three and six months ended June 30, 2010,
 respectively, compared to the same periods last year, and comprised 34% and
 39% of total sales, compared to 38% and 43% in the same prior-year periods.
 The decline in international sales was driven by a 6% and 24% reduction in
 sales in the Companys European market for the three and six months ended
 June 30, 2010, partially offset by sales growth in the Companys Asian
 markets of 36% and 24%, respectively. The second quarter decline in sales in
 the Companys European market was caused by currency fluctuations, with
 revenues on a constant currency basis otherwise remaining consistent with the
 prior years second quarter. The decline in European revenues for the six
 months ended June 30, 2010 was impacted primarily by a reduced volume of
 equipment sales. Currency fluctuations reduced reported consolidated revenues
 for the three months ended June 30, 2010 by 2% and had a minimal impact on
 consolidated revenues for the year-to-date period.                                                                                                                                                                                                                                                                                                                                                                                                                                          

16

---



Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition
 and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Revenue
 levels in 2010 will be dependent upon many factors, including the
 effectiveness of changes that occurred effective April 1, 2010 to improve the
 efficiency of the Companys sales channels, described above. Other factors
 that will influence revenue levels in 2010 include the performance of the
 Companys channel partners, the timing of new product introductions, the
 timing of customer orders and related product deliveries, the rate of
 adoption of new applications for the Companys products in its targeted
 markets, the impact of changes in economic conditions and the impact of
 foreign currency exchange rate fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Gross profit. Gross profit as a percentage of total revenues was 47.7% and 47.4%
 for the three and six months ended June 30, 2010, compared to 46.4% and 46.5%
 for same periods in 2009. The rise in gross profit as a percentage of total
 revenues for both current-year periods resulted primarily from an increased
 volume and concentration of Producer and Professional Series product line
 equipment sales, which generally carry higher gross margins than Desktop
 product line equipment or recurring revenues. Margins were also favorably
 impacted by increased selling prices in the second quarter for consumable
 sales in the U.S. channel market, reflecting the impact of removing
 distributors from the Companys U.S. sales distribution model effective April
 1, 2010.                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Partially
 offsetting the favorable impact of the above was an aggregate reduction in
 average selling prices for Producer and Professional Series equipment,
 impacted by increased sales in the U.S. retail market segment, which
 generally carry lower selling prices, and a price reduction on sales of 8100N
 systems, the high-end of the Producer product line. Additionally, margins for
 both current-year periods were unfavorably impacted by a reduction in
 service-related revenues, and for the year-to-date period, an increase in
 associated service costs, primarily resulting from investments to strengthen
 the service support infrastructure of the Companys international
 subsidiaries. Also, sales of consumable products in the second quarter
 reflect a reduced volume and concentration of ribbons and ink cartridges,
 which generally carry higher margins than media and media kits.                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Future
 gross profit margins will continue to be affected by many factors, including
 the impact of recently implemented changes in the Companys sales
 distribution model described above, product mix, the timing of new product
 introductions, the timing of customer orders and related product deliveries,
 changes in material costs, manufacturing volume, the growth rate of service
 related revenues relative to associated service support costs and foreign
 currency exchange rate fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Operating expenses. Research and development expenses totaled
 $1.4 million and $2.9 million for the three and six months ended June 30,
 2010, respectively, representing 6% and 7% of revenues for each respective
 period. Expenses for the same prior-year periods totaled $1.5 million and
 $3.5 million, representing 8% and 9% of revenues, respectively. Expenses in
 the prior-year periods reflect costs incurred as part of a development
 arrangement with a third party supplier to develop the 5400N and 3400 Professional
 Series products launched by the Company in the first quarter of 2010. The
 Company incurred a lower level of expenses in the current-year periods as a
 result of the timing of activities associated with new product development
 projects scheduled for 2010. Increased compensation costs associated with
 late 2009 and 2010 personnel additions partially offset the impact of the
 prior-year development project. Rimage anticipates expenditures in research
 and development in the third quarter 2010 will increase 30-35% from the
 second quarter level.

17

---



Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition
 and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Selling,
 general and administrative expenses for the three and six months ended June
 30, 2010 amounted to $6.0 million and $12.3 million, respectively, or 27% and
 30% of revenues, compared to expenses in the same prior-year periods of $5.1
 million and $10.5 million, respectively, or 26% and 27% of revenues. The rise
 in expenses in both current-year periods primarily reflects the impact of
 investments made to strengthen the Companys core business, including
 increased compensation-related costs from personnel additions, new hire
 recruiting costs, legal expenses associated with new business initiatives,
 travel expenses, and for the year-to-date period, promotional programs and
 increased equity compensation costs. Additionally, the Company incurred
 expenses in the current-year periods for the implementation of an enhanced
 sales order processing system to support the changes made effective April 1,
 2010 in its sales distribution model. Rimage anticipates expenditures for
 selling, general and administrative activities in the third quarter of 2010
 will increase moderately relative to second quarter expense levels.                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Other income, net.The Company recognized net interest income
 on cash and marketable securities of $0.1 million and $0.3 million for the
 three and six months ended June 30, 2010, compared to $0.5 million and $1.0
 million for the same prior-year periods. The reduction in interest income in
 the current-year periods was the result of a decline in average effective
 yields relative to the same prior-year periods. This resulted from the
 Companys change to a more conservative investment strategy as well as an environment
 of generally lower interest rates. Partially offsetting the impact of the
 reduction in interest rates was an $8 million and $12 million increase in
 average cash equivalent and marketable securities balances for the three and
 six months ended June 30, 2010 compared to the same periods in the prior
 year. Other income for the three and six months ended June 30, 2009 includes
 the Companys recognition in the second quarter 2009 of a gain on sale of
 marketable securities of $0.3 million as a result of the sale of
 approximately $33 million of municipal securities and reinvestment in U.S.
 treasury securities. Other income for the three and six months ended June 30,
 2010 also included net losses on foreign currency transactions of $5,000 and
 $32,000, respectively, compared to net gains of $87,000 and $42,000 in the
 same periods in the prior year.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 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, 2010 amounted to $1.3 million and $1.7 million, respectively, or
 38.0% and 37.5% of income before taxes in each respective period. Income tax
 expense for the three and six months ended June 30, 2009 was $1.4 million and
 $2.0 million, or 41.3% and 38.3% of income before taxes in each respective
 period. The decrease in the effective tax rate for the current-year periods
 primarily reflects the impact of a shift in the mix of projected pre-tax
 earnings between the U.S. and the Companys Japanese subsidiary. Also
 contributing to the reduction in the effective tax rate in the current-year
 periods was an increased benefit from the Section 199 deduction, impacted by
 an increase in the rate applied to qualified production activities income
 from 6% to 9% effective January 1, 2010. Partially offsetting the favorable
 impact of the above for both current-year periods was the impact of a
 significantly reduced amount of projected tax-exempt interest income
 comprising a smaller percentage of pre-tax income and the expiration of the
 federal research credit effective January 1, 2010, resulting in no tax
 benefit in the current periods.                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Net income / net income per share.Resulting net income for the three and six
 months ended June 30, 2010 was $2.1 million and $2.7 million, respectively,
 or 9% and 7% of revenues for the respective periods. Comparable amounts for
 the three and six months ended June 30, 2009 were $2.0 million and $3.2
 million, respectively, or 10% and 8% of revenues, respectively. Related net income
 per diluted share amounts were $0.22 and $0.29 for the three and six months
 ended June 30, 2010, respectively, compared to $0.20 and $0.33 per diluted
 share for the respective prior-year periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

18

---



Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition
 and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Liquidity and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The
 Company expects it will be able to maintain current operations and
 anticipated capital expenditure requirements for the foreseeable future
 through its internally generated funds. The Company has a credit agreement
 which allows for advances under an unsecured revolving loan up to a maximum
 advance of $10 million. At June 30, 2010, no amounts were outstanding under
 the credit agreement. The credit agreement expired in accordance with its
 terms effective July 1, 2010, and is not expected to be renewed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | At
 June 30, 2010, the Company had working capital of $107.5 million, up $4.4
 million from working capital reported at December 31, 2009. The increase was
 primarily the result of the impact of a non-cash change in the classification
 of $2.3 million of marketable securities from non-current as of December 31,
 2009 to current as of June 30, 2010, net income adjusted for non-cash items
 of $4.6 million and proceeds from stock option exercises of $0.5 million,
 partially offset by the use of $3.4 million of cash to purchase property and
 equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | On
 October 17, 2007, the Companys Board of Directors authorized the repurchase
 of up to 500,000 shares of its common stock. In February 2008, the Companys
 Board of Directors increased the share repurchase authorization by an
 additional 500,000 shares, bringing total shares authorized for repurchase to
 1,000,000. Shares may be purchased at prevailing market prices in the open
 market or in private transactions, subject to market conditions, share price,
 trading volume and other factors. The repurchase program may be discontinued
 at any time. The Company will finance the purchase of the shares, if any,
 using cash on hand. During the three and six months ended June 30, 2010, the
 Company did not repurchase any shares of its common stock. As of June 30,
 2010, 422,917 shares were available for repurchase under the authorizations.
 The Company also intends on utilizing its assets primarily for its continued
 organic growth and potential future strategic initiatives or alliances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Net
 cash provided by operating activities totaled $1.2 million for the six months
 ended June 30, 2010, compared to $8.9 million in the same prior-year period.
 The $7.7 million decrease in cash generated from operating activities
 resulted from changes in operating assets and liabilities producing an $8.2
 million greater use of cash for the six months ended June 30, 2010 compared
 to the same prior-year period. Primarily contributing to the change in
 operating assets and liabilities compared to the prior-year period were
 unfavorable changes of $4.7 million in inventories, $2.8 million in deferred
 income, $1.3 million in prepaid income taxes and prepaid expenses and $0.6
 million in receivables, partially offset by a $1.3 million favorable change
 in the aggregate amount of trade accounts payable, accrued compensation and
 accrued expenses. The change in inventories resulted from a $2.9 million
 increase in inventories in the current period, compared to a $1.8 million
 decline in the prior-year. The current period increase in inventories was
 impacted by the Companys preparation for expected sales orders under a
 retail sales agreement completed in the second quarter and also a change in
 the Companys sales model effective April 1, 2010 under which it sells
 products to end-user customers through value-added resellers instead of
 through distributors in major markets, requiring increased inventory levels.
 The unfavorable change in deferred income resulted from a lower volume of
 maintenance contract renewals in the second quarter of 2010 compared to the
 same prior-year period. The unfavorable change in prepaid income taxes and
 prepaid expenses was impacted primarily by the amount and timing of payments
 for estimated taxes and other prepaid expenses. The favorable change in the
 aggregate amount of trade accounts payable, accrued compensation and accrued
 expenses reflects a $1.3 million larger increase in the aggregate amount of
 these balances in the current-year period, compared to the same period last
 year. These changes resulted primarily from a higher level of inventory
 purchases and accrued development expenses remaining in accounts payable at
 the end of the period, partially offset by increased payments in the
 current-year period for annual incentive bonuses to employees for calendar
 year 2009 performance and expenditures for property and equipment.

19

---



Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition
 and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Investing
 activities provided net cash of $16.6 million for the six months ended June
 30, 2010, compared to a net use of cash of $15.1 million for the same
 prior-year period. The fluctuations in investing activities were primarily
 the result of $20.0 million in maturities of marketable securities during the
 six months ended June 30, 2010, compared to $15.0 million in purchases of
 marketable securities, net of related maturities, in the same prior-year
 period. Purchases of property and equipment during the six months ended June
 30, 2010 and 2009 amounted to $3.4 million and $0.1 million, respectively.
 Capital expenditures in the current-year period included $2.4 million of
 production tooling capitalized by the Company in late 2009 associated with a
 new product line launched during the first quarter of 2010. Remaining capital
 expenditures in the current-year period consisted primarily of costs to
 support the Companys information technology infrastructure related requirements.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Financing
 activities generated net cash of $0.5 million and $0.3 million for the six
 months ended June 30, 2010 and 2009, respectively. Financing activities in
 each period consisted primarily of proceeds from stock option exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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 accounting policies 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 include revenue recognition, allowance for doubtful accounts,
 inventory provisions, deferred tax asset valuation allowances, accruals for
 uncertain tax positions, stock-based compensation and impairment of
 long-lived assets. These accounting policies are discussed in Item 7.
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 of the Companys Annual Report on Form 10-K for the year ended December 31,
 2009. Management made no changes to the Companys critical accounting
 policies during the six months ended June 30, 2010.                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In
 applying its critical accounting policies, management reassesses its
 estimates each reporting period based on available information. Changes in
 such estimates did not have a significant impact on earnings for the six
 months ended June 30, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 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 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.                                                                                                                                                                                                                                                                                                                                                                                    

20

---



Table of Contents

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition
 and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 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
 economic health of the markets from which Rimage derives its sales and, in
 particular, the strength of the economies within North America and Europe
 where the Company has averaged 92% of total sales over the past three years;
 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 Companys
 targeted 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 ability of the Companys newly
 developed products to gain acceptance and compete against products in their
 markets; 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 ability to effectively market its products and serve customers
 through its value-added resellers, distributors, strategic partners and its
 own sales force; 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 Item 1A of Part I of the Companys Annual Report on Form 10-K for
 the year ended December 31, 2009. 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 Japanese Yen to the U.S. dollar as the financial
 position and operating results of the Companys German and Japanese
 subsidiaries, Rimage Europe GmbH and Rimage Japan Co., Ltd., 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
 intercompany receivables denominated in Euros arising from sales to its
 subsidiary in Germany. Gains or losses on forward exchange contracts are
 calculated at each period end and are recognized in net income in the period
 in which they arose. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Item 4. Controls and
 Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (a)
 Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The
 Companys Chief Executive Officer, Sherman L. Black, and the Companys Chief
 Financial Officer, Robert M. Wolf, have evaluated the Companys disclosure
 controls and procedures as of June 30, 2010. Based upon such evaluation, they
 have concluded that these disclosure controls and procedures are effective.
 The Companys Chief Executive Officer and Chief Financial Officer used the
 definition of disclosure controls and procedures as set forth in Rule
 13a-15(e) under the Exchange Act in making their conclusion as to the
 effectiveness of such controls and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

21

---



Table of Contents

| |                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b)
 Changes in Internal Control Over Financial Reporting                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                
| | There
 have been no changes in internal controls over financial reporting that
 occurred during the second quarter ended June 30, 2010 that have materially
 affected, or are reasonable likely to materially affect, the Companys
 internal control over financial reporting.

PART II  OTHER INFORMATION

| |                                                      |                                                              |                                                                                                 
| | ---------------------------------------------------- | ------------------------------------------------------------ | ------------------------------------------------------------------------------------------------
| | Item 1.                                              | Legal
 Proceedings                                          
| |                                                      |                                                             
| | Not Applicable.                                     
| |                                                      |                                                             
| | Item 1A.                                             | Risk
 Factors                                               
| |                                                      |                                                             
| | Not Applicable.                                     
| |                                                      |                                                             
| | Item 2.                                              | Unregistered
 Sales of Equity Securities and Use of Proceeds
| |                                                      |                                                             
| | Not applicable.                                     
| |                                                      |                                                             
| | Item 3.                                              | Defaults
 Upon Senior Securities                            
| |                                                      |                                                             
| | Not Applicable.                                     
| |                                                      |                                                             
| | Item 4.                                              | [Removed
 and Reserved]                                     
| |                                                      |                                                             
| | Item 5.                                              | Other
 Information                                          
| |                                                      |                                                             
| | Not Applicable.                                     
| |                                                      |                                                             
| | Item 6.                                              | Exhibits                                                    
| |                                                      |                                                             
| | (a)     The
 following exhibits are included herein:
| |                                                      |                                                             
| |                                                      | 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.                                                    

22

---



Table of Contents

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 6, 2010 | By: | /s/
 Sherman L. Black          
|                     |     | Sherman
 L. Black              
|                     |     | Chief
 Executive Officer       
|                     |     | (Principal
 Executive Officer) 
|                     |     |                                
|Date: August 6, 2010 | By: | /s/
 Robert M. Wolf            
|                     |     | Robert
 M. Wolf                
|                     |     | Chief
 Financial Officer       
|                     |     | (Principal
 Financial Officer) 
|                     |     | (Principal
 Accounting Officer)

23

---