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
March 31, 2007; OR       
|  |                                                                                                                                                 
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________TO __________.

Commission File Number: 0-20728

---

RIMAGE CORPORATION

(Exact name of Registrant as specified in its charter)

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

|                                                                                    
|------------------------------------------------------------------------------------
|7725 Washington Avenue South, Edina, MN 55439                                       
|(Address of principal executive offices)                                            
|                                                                                    
|952-944-8144                                                                        
|(Registrants telephone number, including area code)                                
|                                                                                    
|NA                                                                                  
|(Former name, former address, and former fiscal year, if changed since last report.)

Common Stock outstanding at April 30, 2007  10,099,667 shares
of $.01 par value Common Stock.

---

Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes xNo o

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

Large Accelerated FileroAccelerated Filerx Non-Accelerated Filero

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act): Yes o No x





---

RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2007

|         |                         |                                  |                                                                                                      |      
|-------- | ----------------------- | -------------------------------- | ---------------------------------------------------------------------------------------------------- | -----
|         |                         |                                  | Description                                                                                          | Page 
|        
|         |                         |                                  |                                                                                                      |      
|PART
  I | FINANCIAL
  INFORMATION |                                 
|         |                         |                                  |                                                                                                     
|         | Item
  1.               | Financial Statements (unaudited) |                                                                                                     
|         |                         |                                  |                                                                                                      |      
|         |                         |                                  | Condensed Consolidated Balance
  Sheets as of March 31, 2007 and December 31, 2006                   | 3    
|         |                         |                                  |                                                                                                      |      
|         |                         |                                  | Condensed Consolidated
  Statements of Income for the three months ended March 31, 2007 and 2006     | 4    
|         |                         |                                  |                                                                                                      |      
|         |                         |                                  | Condensed Consolidated
  Statements of Cash Flows for the three months ended March 31, 2007 and 2006 | 5    
|         |                         |                                  |                                                                                                      |      
|         |                         |                                  | Notes to Condensed Consolidated
  Financial Statements                                               | 6-12 
|         |                         |                                  |                                                                                                      |      
|         | Item 2.                 |                                  | Managements Discussion and
  Analysis of Financial Condition and Results of Operations              | 13-21
|         |                         |                                  |                                                                                                      |      
|         | Item 3.                 |                                  | Quantitative and Qualitative
  Disclosures about Market Risk                                         | 21   
|         |                         |                                  |                                                                                                      |      
|         | Item 4.                 |                                  | Controls and Procedures                                                                              | 22   

|           |                   |          | 
|---------- | ----------------- | -------- | 
|PART II    | OTHER INFORMATION | 22-23   
|           |                   |         
|           | Items 1-5.        | None     | 
|           |                   |          | 
|           | Item 6.           | Exhibits | 
|           |                   |          | 
|SIGNATURES | 24               

2

---

Table of Contents

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

|                                                                                                                            |  |                |         |                   |   |         | 
|--------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | ------- | 
|Assets                                                                                                                      |  | March 31,
2007 |         | December
31,
2006 |  
|                                                                                                                            |  |                |         |                   |  
|                                                                                                                            |  |                |         |                   |   |         | 
|Current assets:                                                                                                             |  |                |         |                   |   |         | 
|Cash and cash equivalents                                                                                                   |  | $              | 13,479  |                   | $ | 8,500   | 
|Marketable securities                                                                                                       |  |                | 40,378  |                   |   | 30,266  | 
|Receivables, net of allowance for doubtful accounts and sales returns
  of $566,000 and $878,000, respectively              |  |                | 16,003  |                   |   | 21,697  | 
|Inventories                                                                                                                 |  |                | 7,301   |                   |   | 6,072   | 
|Prepaid expenses and other current assets                                                                                   |  |                | 1,737   |                   |   | 1,151   | 
|Deferred income taxes - current                                                                                             |  |                | 2,430   |                   |   | 2,430   | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total current assets                                                                                                        |  |                | 81,328  |                   |   | 70,116  | 
|                                                                                                                            |  |                |         |                   |   |         | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Marketable securities - non-current                                                                                         |  |                | 29,655  |                   |   | 38,594  | 
|Property and equipment, net                                                                                                 |  |                | 3,714   |                   |   | 3,626   | 
|Deferred income taxes - non-current                                                                                         |  |                | 78      |                   |   | 23      | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total assets                                                                                                                |  | $              | 114,775 |                   | $ | 112,359 | 
|                                                                                                                            |  |                |         |                   |   |         | 
|                                                                                                                           
|Liabilities
  and Stockholders Equity                                                                                      |  |                |         |                   |   |         | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Current liabilities:                                                                                                        |  |                |         |                   |   |         | 
|Trade accounts payable                                                                                                      |  | $              | 6,284   |                   | $ | 7,136   | 
|Accrued compensation                                                                                                        |  |                | 1,818   |                   |   | 2,882   | 
|Other accrued expenses                                                                                                      |  |                | 1,227   |                   |   | 1,237   | 
|Income taxes payable                                                                                                        |  |                |        |                   |   | 1,207   | 
|Deferred income and customer deposits                                                                                       |  |                | 4,108   |                   |   | 3,509   | 
|Other current liabilities                                                                                                   |  |                | 82      |                   |   | 192     | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total current liabilities                                                                                                   |  |                | 13,519  |                   |   | 16,163  | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Long-term liabilities:                                                                                                      |  |                |         |                   |   |         | 
|Deferred income and customer deposits - non-current                                                                         |  |                | 918     |                   |   | 715     | 
|Other non-current liabilities                                                                                               |  |                |        |                   |   | 5       | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total long-term liabilities                                                                                                 |  |                | 918     |                   |   | 720     | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total liabilities                                                                                                           |  |                | 14,437  |                   |   | 16,883  | 
|                                                                                                                            |  |                |         |                   |   |         | 
|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 10,095,751 and 9,925,430, respectively |  |                | 101     |                   |   | 99      | 
|Additional paid-in capital                                                                                                  |  |                | 30,626  |                   |   | 27,914  | 
|Retained earnings                                                                                                           |  |                | 69,446  |                   |   | 67,324  | 
|Accumulated other comprehensive income                                                                                      |  |                | 165     |                   |   | 139     | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total stockholders equity                                                                                                  |  |                | 100,338 |                   |   | 95,476  | 
|                                                                                                                            |  |                |         |                   |   |         | 
|                                                                                                                            |  |                |         |                   |   |         | 
|Total liabilities and stockholders equity                                                                                  |  | $              | 114,775 |                   | $ | 112,359 | 
|                                                                                                                            |  |                |         |                   |   |         | 

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
March 31, |       
|                                              |  | 2007                         |        | 2006 |  
|                                              |  |                              |        |      |  
|                                              |  |                              |        |      |   |        | 
|Revenues                                      |  | $                            | 21,526 |      | $ | 22,637 | 
|Cost of revenues                              |  |                              | 11,778 |      |   | 12,964 | 
|                                              |  |                              |        |      |   |        | 
|Gross profit                                  |  |                              | 9,748  |      |   | 9,673  | 
|                                              |  |                              |        |      |   |        | 
|Operating expenses:                           |  |                              |        |      |   |        | 
|Research and development                      |  |                              | 1,590  |      |   | 1,576  | 
|Selling, general and administrative           |  |                              | 5,828  |      |   | 6,123  | 
|                                              |  |                              |        |      |   |        | 
|Total operating expenses                      |  |                              | 7,418  |      |   | 7,699  | 
|                                              |  |                              |        |      |   |        | 
|                                              |  |                              |        |      |   |        | 
|Operating income                              |  |                              | 2,330  |      |   | 1,974  | 
|                                              |  |                              |        |      |   |        | 
|Other income (expense):                       |  |                              |        |      |   |        | 
|Interest, net                                 |  |                              | 803    |      |   | 609    | 
|Gain on currency exchange                     |  |                              | 6      |      |   | 12     | 
|Other, net                                    |  |                              | 20     |      |   |       | 
|                                              |  |                              |        |      |   |        | 
|Total other income, net                       |  |                              | 829    |      |   | 621    | 
|                                              |  |                              |        |      |   |        | 
|Income before income taxes                    |  |                              | 3,159  |      |   | 2,595  | 
|Income tax expense                            |  |                              | 1,037  |      |   | 961    | 
|                                              |  |                              |        |      |   |        | 
|Net income                                    |  | $                            | 2,122  |      | $ | 1,634  | 
|                                              |  |                              |        |      |   |        | 
|                                              |  |                              |        |      |   |        | 
|Net income per basic share                    |  | $                            | 0.21   |      | $ | 0.17   | 
|                                              |  |                              |        |      |   |        | 
|                                              |  |                              |        |      |   |        | 
|Net income per diluted
  share                |  | $                            | 0.20   |      | $ | 0.16   | 
|                                              |  |                              |        |      |   |        | 
|                                              |  |                              |        |      |   |        | 
|Basic weighted average
  shares outstanding   |  |                              | 9,979  |      |   | 9,685  | 
|                                              |  |                              |        |      |   |        | 
|                                              |  |                              |        |      |   |        | 
|Diluted weighted average
  shares outstanding |  |                              | 10,494 |      |   | 10,331 | 
|                                              |  |                              |        |      |   |        | 

See accompanying notes to
condensed consolidated financial statements

4

---

Table of Contents

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

|                                                                                    |  |                              |         |      |   |        |  
|----------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---- | - | ------ | -
|                                                                                    |  | Three
months ended
March 31, |        
|                                                                                    |  | 2007                         |         | 2006 |  
|                                                                                    |  |                              |         |      |  
|Cash flows from operating
  activities:                                             |  |                              |         |      |   |        |  
|Net income                                                                          |  | $                            | 2,122   |      | $ | 1,634  |  
|Adjustments to reconcile net income to net cash provided by operating
  activities: |  |                              |         |      |   |        |  
|Depreciation and amortization                                                       |  |                              | 387     |      |   | 344    |  
|Deferred income tax benefit                                                         |  |                              | (55     | )    |   | (12    | )
|Loss on sale of property and equipment                                              |  |                              |        |      |   | 11     |  
|Stock-based compensation                                                            |  |                              | 212     |      |   | 202    |  
|Excess tax benefits from stock-based compensation                                   |  |                              | (925    | )    |   | (781   | )
|Changes in operating assets and liabilities:                                        |  |                              |         |      |   |        |  
|Receivables                                                                         |  |                              | 5,694   |      |   | 162    |  
|Inventories                                                                         |  |                              | (1,229  | )    |   | 334    |  
|Prepaid income taxes / income taxes payable                                         |  |                              | (467    | )    |   | (474   | )
|Prepaid expenses and other current assets                                           |  |                              | (165    | )    |   | (5     | )
|Trade accounts payable                                                              |  |                              | (724    | )    |   | 163    |  
|Accrued compensation                                                                |  |                              | (1,064  | )    |   | (1,473 | )
|Other accrued expenses and other current liabilities                                |  |                              | (120    | )    |   | 84     |  
|Deferred income and customer deposits                                               |  |                              | 801     |      |   | 576    |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Net
  cash provided by operating activities                                         |  |                              | 4,467   |      |   | 765    |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Cash flows from investing
  activities:                                             |  |                              |         |      |   |        |  
|Purchases of marketable securities                                                  |  |                              | (13,636 | )    |   | (7,990 | )
|Maturities of marketable securities                                                 |  |                              | 12,465  |      |   | 11,170 |  
|Purchases of property and equipment                                                 |  |                              | (603    | )    |   | (812   | )
|Other non-current items                                                             |  |                              | 10      |      |   | 19     |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Net
  cash provided by (used in) investing activities                               |  |                              | (1,764  | )    |   | 2,387  |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                   
|Cash flows from financing
  activities:                                             |  |                              |         |      |   |        |  
|Principal payments on capital lease obligations                                     |  |                              | (5      | )    |   | (1     | )
|Excess tax benefits from stock-based compensation                                   |  |                              | 925     |      |   | 781    |  
|Proceeds from employee stock plans                                                  |  |                              | 1,343   |      |   | 936    |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Net
  cash provided by financing activities                                         |  |                              | 2,263   |      |   | 1,716  |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                   
|Effect of exchange rate
  changes on cash                                           |  |                              | 13      |      |   | 28     |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Net increase in cash and
  cash equivalents                                         |  |                              | 4,979   |      |   | 4,896  |  
|                                                                                    |  |                              |         |      |   |        |  
|Cash and cash equivalents,
  beginning of period                                    |  |                              | 8,500   |      |   | 12,693 |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Cash and cash equivalents,
  end of period                                          |  | $                            | 13,479  |      | $ | 17,589 |  
|                                                                                    |  |                              |         |      |   |        |  
|                                                                                    |  |                              |         |      |   |        |  
|Supplemental disclosures of
  net cash paid during the period for:                  |  |                              |         |      |   |        |  
|Income taxes                                                                        |  | $                            | 1,563   |      | $ | 1,330  |  
|                                                                                    |  |                              |         |      |   |        |  
|Non-cash investing and
  financing activities:                                      |  |                              |         |      |   |        |  
|Income tax reductions relating to exercise of stock
options                         |  | $                            | 235     |      | $ | 162    |  
|Unrealized net gains (losses) from available-for-sale
securities                    |  | $                            | 2       |      | $ | (4     | )
|Capital lease obligations                                                           |  | $                            |        |      | $ | 30     |  

See accompanying notes to condensed
consolidated financial statements

5

---

Table of Contents

RIMAGE
CORPORATION AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basis of
  Presentation and Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Rimage Corporation (the
  Company) develops, manufactures and distributes high performance CD-Recordable
  (CD-R) and DVD-Recordable (DVD-R) publishing and duplication systems from its
  operations in the United States, Germany and Japan. The Company also
  distributes related consumables for use with its systems, consisting of media
  kits, ribbons, ink cartridges and blank CD-R and DVD-R media.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The accompanying condensed
  consolidated financial statements of Rimage Corporation are unaudited and
  have been prepared by the Company in accordance with accounting principles
  generally accepted in the United States of America for interim financial
  information, pursuant to the rules and regulations of the Securities and
  Exchange Commission. Pursuant to such rules and regulations, certain
  financial information and footnote disclosures normally included in the
  financial statements have been condensed or omitted. However, in the opinion
  of management, the financial statements include all adjustments, consisting
  of normal recurring accruals, necessary for a fair presentation of the
  financial position and results of operations and cash flows of the interim
  periods presented. 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 for the year ended December 31, 2006.                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The preparation of
  financial statements in conformity with accounting principles generally
  accepted in the United States of America requires management to make
  estimates and assumptions that affect the reported amounts of assets and
  liabilities at the date of the financial statements and the reported amounts
  of revenues and expenses during the reporting period. Actual results could
  differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(2) | Stock-Based
  Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Stock
  Option Plan, initially approved by shareholders in September 1992, and with
  the latest amendments approved by shareholders in May 2005, provides for the
  grant of incentive stock options, non-qualified stock options, restricted
  stock awards, deferred stock awards, stock appreciation rights and
  performance stock to certain key administrative, managerial and executive
  employees and the automatic periodic grants of stock options to non-employee
  directors. At March 31, 2007, a total of 233,153 shares were available for
  future grant under the plan. The exercise price of stock options granted
  under the Stock Option Plan is equal to the market value on the date of
  grant. Options issued to employees through March 31, 2006 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 generally become
  exercisable over a four-year period and terminate ten 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. Performance
  shares granted to employees under the Stock Option Plan provide a right to
  receive shares of the Companys common stock contingent on the Companys
  achievement of revenue and operating income performance goals for the
  calendar year which follows two years after the grant date. Shares of the
  Companys common

6

---

Table of Contents

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | stock are issued to
  employees for the performance shares only if the Company achieves the
  performance goals during the applicable performance period. If the
  performance goals are not achieved at the end of the performance period, all
  performance shares will be canceled and the employees will receive no common
  stock for the canceled performance shares.                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 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 recognized stock-based compensation
  costs of $212,000 and $203,000 for the three months ended March 31, 2007 and
  2006, respectively.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | 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 three months ended March 31, 2007 and 2006:                                                                                                                                                                                             

|                                    |  |                                |      |      |  |      |  
|----------------------------------- |  | ------------------------------ | ---- | ---- |  | ---- | -
|                                    |  | Three
  Months Ended March 31, |     
|                                    |  | 2007                           |      | 2006 | 
|                                    |  |                                |      |      | 
|                                    | 
|Expected life of options
  in years |  |                                | 6.0  |      |  | 5.0  |  
|                                    | 
|Risk-free interest rate             |  |                                | 4.5  | %    |  | 4.3  | %
|                                    | 
|Expected volatility                 |  |                                | 40.0 | %    |  | 37.8 | %
|                                    | 
|Expected dividend yield             |  |                                | 0.0  | %    |  | 0.0  | %
|                                    |  |                                |      |      |  |      |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In accordance with
  Statement of Financial Accounting Standard (SFAS) No. 123R, Share-Based
  Payment, 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 and is determined based on an analysis of
  historical exercise behavior and anticipated future exercise patterns, giving
  consideration to the contractual terms of unexercised stock option 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.

7

---

Table of Contents

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

Other information pertaining
to stock options is as follows:

|                                                           |  |                                       |       |      |   |       | 
|---------------------------------------------------------- |  | ------------------------------------- | ----- | ---- | - | ----- | 
|                                                           |  | Three Months Ended March 31,          |      
|                                                           |  | 2007                                  |       | 2006 |  
|                                                           |  |                                       |       |      |  
|                                                           |  | (in thousands, except per share data) |      
|                                                           |  |                                       |      
|Number of
  options granted                                |  |                                       | 10    |      |   | 5     | 
|Fair value
  of options granted                            |  | $                                     | 121   |      | $ | 67    | 
|Per share
  weighted average fair value of options granted |  | $                                     | 12.09 |      | $ | 13.32 | 
|Total fair
  value of stock options vested                 |  | $                                     | 300   |      | $ | 533   | 
|Total
  intrinsic value of stock options exercised         |  | $                                     | 3,221 |      | $ | 3,139 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Cash received from the
  exercise of stock options was $1,343,000 and $936,000 for the three months
  ended March 31, 2007 and 2006, respectively. The income tax benefit realized
  from the exercise of stock options and recorded as an increase to additional
  paid-in capital was $1,159,000 and $943,000 for the three months ended March
  31, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | Accounting
  for Uncertainty in Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company implemented
  the provisions of FASB Interpretation No. (FIN) 48, Accounting for
  Uncertainty in Income Taxesan interpretation of FASB Statement No. 109,
  effective January 1, 2007. This interpretation clarifies the accounting for
  uncertainty in income taxes recognized in an enterprises financial
  statements in accordance with FASB Statement No. 109, Accounting for Income
  Taxes. This interpretation prescribes a recognition threshold and
  measurement criteria for the financial statement recognition and measurement
  of a tax position taken or expected to be taken in a tax return. It also
  provides guidance on derecognition, classification, interest and penalties,
  accounting in interim periods, disclosure and transition.                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | As of January 1, 2007, the
  Company had approximately $266,000 of total unrecognized tax benefits. Nearly
  all of this amount would favorably impact the effective income tax rate in
  any future period, if recognized. The Company recognizes accrued interest and
  penalties related to unrecognized tax benefits as a component of income tax
  expense. Included in the total amount of unrecognized tax benefits as of
  January 1, 2007 was accrued interest and penalties of $68,000. The Company
  believes that it is reasonably possible that the amount of unrecognized tax
  benefits as of January 1, 2007 relating to filing positions with certain
  state taxing authorities may decrease by up to $65,000 by December 31, 2007
  to the extent agreements are reached on such filing positions with the
  applicable state taxing authorities.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | The Company files income
  tax returns in the U.S. federal jurisdiction and various state and foreign
  jurisdictions. As of January 1, 2007, the Company was no longer subject to
  income tax examinations for taxable years before 2005 in the case of U.S.
  federal and German taxing authorities, and taxable years before 2002 in the
  case of various state taxing authorities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

8

---

Table of Contents

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The impact of adopting FIN
  48 on the Companys financial statements for the three months ended March 31,
  2007 was insignificant. As part of its assessment of tax positions under this
  pronouncement, the Company reduced its tax contingency reserve in the first
  quarter of 2007 by $36,000 for exposure items included in prior years tax
  reserves.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Marketable
  Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Marketable securities
  consist primarily of municipal securities, U.S. government agency and money
  market securities and corporate securities with long-term credit ratings of
  AAA and short-term credit ratings of A-1. Marketable securities are
  classified as short-term or long-term in the balance sheet based on their
  effective maturity date. All marketable securities, except for variable rate
  demand notes, have maturities ranging from three to 36 months. Variable rate
  demand notes have maturities of three months or less, but are required to be
  classified as marketable securities. 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 (loss) until realized.                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | Prior
  Period Revisions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Certain prior period
  amounts in the Condensed Consolidated Statements of Cash Flows have been
  revised to conform to the current period presentation. These revisions
  increased cash flows from investing activities by $1.7 million and decreased
  net cash provided by operating activities by $58,000 in the Condensed
  Consolidated Statements of Cash Flows for the three months ended March 31,
  2006. The revisions resulted from certain immaterial corrections to properly
  classify variable rate demand notes of $3.9 million and $5.6 million as
  current marketable securities rather than cash and cash equivalents as of
  March 31, 2006 and December 31, 2005, respectively. The corrections to
  current marketable securities were made to adjust the prior
  misclassifications based on the current interpretation of cash equivalents
  pursuant to Statement of Financial Accounting Standard (SFAS) No. 95,
  Statement of Cash Flows. Additionally, the Company reduced cash and cash
  equivalents and increased receivables by $255,000 and $197,000 as of March
  31, 2006 and December 31, 2005, respectively, to correct an error in the
  classification of interest receivable in each period.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(6) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Inventories consisted of
  the following (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                                              |  |                  |       |                       |   |       | 
| | -------------------------------------------- |  | ---------------- | ----- | --------------------- | - | ----- | 
| |                                              |  | March 31,
  2007 |       | December
  31,
  2006 |  
| |                                              |  |                  |       |                       |   |       | 
| |                                              |  |                  |       |                       |   |       | 
| | Finished goods and
  demonstration equipment |  | $                | 2,399 |                       | $ | 1,958 | 
| | Purchased parts and
  subassemblies          |  |                  | 4,902 |                       |   | 4,114 | 
| |                                              |  |                  |       |                       |   |       | 
| |                                              |  | $                | 7,301 |                       | $ | 6,072 | 
| |                                              |  |                  |       |                       |   |       | 

9

---

Table of Contents

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

|    |                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Comprehensive
  Income                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                         
|    | Comprehensive income
  consists of the Companys net income, foreign currency translation
  adjustments and unrealized holding gains (losses) from available for sale
  investments. The components of and changes in other comprehensive income
  (loss) are as follows (in thousands):

|                                                       |  |                             |       |  |      |   |       |  
|------------------------------------------------------ |  | --------------------------- | ----- |  | ---- | - | ----- | -
|                                                       |  | Three Months EndedMarch 31, |      
|                                                       |  |                             |      
|                                                       |  | 2007                        |       |  | 2006 |  
|                                                       |  |                             |       |  |      |  
|                                                      
|Net income                                             |  | $                           | 2,122 |  |      | $ | 1,634 |  
|Other comprehensive income
  (loss):                   |  |                             |       |  |      |   |       |  
|Net changes in:                                        |  |                             |       |  |      |   |       |  
|Foreign currency translation adjustments               |  |                             | 24    |  |      |   | 47    |  
|Net unrealized gains (losses) on marketable securities |  |                             | 2     |  |      |   | (4    | )
|                                                       |  |                             |       |  |      |   |       |  
|Total comprehensive income                             |  | $                           | 2,148 |  |      | $ | 1,677 |  
|                                                       |  |                             |       |  |      |   |       |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(8) | Foreign
  Currency Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company enters into
  forward foreign exchange contracts to hedge intercompany receivables
  denominated in Euros arising from sales to its subsidiary in Germany. Gains
  or losses on forward foreign exchange contracts are calculated at each period
  end and are recognized in net income in the period in which they arose. The
  fair value of forward foreign exchange contracts is recorded in other current
  assets or other current liabilities depending on whether the net amount is a
  gain or a loss.                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As of March 31, 2007, the
  Company had 21 outstanding foreign currency contracts totaling $4,545,000.
  These contracts mature during 2007 and bear exchange rates ranging from
  1.2827 to 1.3336 U.S. Dollars per Euro. As of March 31, 2007, the fair value
  of foreign currency contracts resulted in a net loss position of $55,000,
  which is recorded in other current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | As of December 31, 2006,
  the Company had 27 outstanding foreign currency contracts totaling
  $5,617,000, all maturing during 2007 at exchange rates ranging from 1.2532 to
  1.3336 U.S. Dollars per Euro. As of December 31, 2006, the fair value of
  foreign currency contracts resulted in a net loss position of $164,000, which
  is recorded in other current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(9) | Recently
  Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | In September 2006, the
  FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair
  Value Measurements. SFAS No. 157 establishes a single authoritative
  definition of fair value, sets out a framework for measuring fair value and
  requires additional disclosures about fair-value measurements. This Statement
  applies only to fair-value measurements that are already required or
  permitted by other accounting standards, except for measurements of
  share-based payments and measurements that are similar to, but not intended
  to be, fair value. This Statement is expected to increase the consistency of
  fair value measurements, but imposes no requirements for additional fair-value
  measures in financial statements. The provisions under SFAS No. 157 are
  effective for the

10

---

Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | Company beginning January
  1, 2008, and are expected to be applied prospectively. The Company is
  currently evaluating the impact of adopting this pronouncement on its
  consolidated financial statements and related disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     | In February 2007, the FASB
  issued SFAS No. 159, The Fair Value Option for Financial Assets and
  Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. SFAS
  No. 159 permits entities to choose to measure many financial instruments and
  certain warranty and insurance contracts at fair value on a
  contract-by-contract basis. A business entity is required to report
  unrealized gains and losses on items for which the fair value option has been
  elected in earnings at each subsequent reporting date. SFAS No. 159 includes
  financial statement presentation and disclosure requirements for assets and
  liabilities reported at fair value as a consequence of the election. The
  objective of this Statement is to improve financial reporting by providing
  entities with the opportunity to mitigate volatility in reported earnings
  caused by measuring related assets and liabilities differently without having
  to apply complex hedge accounting provisions. The provisions of SFAS No. 159
  are effective for the Company beginning January 1, 2008. The Company is
  currently evaluating the impact of adopting this pronouncement on its
  consolidated financial statements and related disclosures.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(10) | Warranty
  Reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     | The warranty reserve
  rollforward, including provisions and claims, is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| |                     |  |                   |     |                     |  |                 |  |                         |      |                |  |   |  |   |     | 
| | ------------------- |  | ----------------- | --- | ------------------- |  | --------------- |  | ----------------------- | ---- | -------------- |  | - |  | - | --- | 
| | Three
Months Ended: |  | Beginning
Balance |     | Warranty
Provisions |  | Warranty
Claims |  | Foreign
Exchange Impact |      | Ending
Balance | 
| |                     |  |                   |     |                     |  |                 |  |                         |      |                | 
|
| | March 31, 2007      |  | $                 | 394 |                     |  | 278             |  |                         | (226 | )              |  | 1 |  | $ | 447 | 
| |                     |  |                   |     |                     |  |                 |  |                         |      |                |  |   |  |   |     | 
| | March 31, 2006      |  | $                 | 317 |                     |  | 183             |  |                         | (172 | )              |  | 4 |  | $ | 332 | 

11

---

Table of Contents

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) | Computation
  of Net Income Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | Basic net income per
  common share is determined by dividing net income by the 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.
  Options to acquire 187,408 and 31,474 weighted average common shares have
  been excluded from the computation of diluted weighted average shares
  outstanding for the three months ended March 31, 2007 and 2006, as their
  effect is anti-dilutive. The following is a summary of the weighted average
  common shares outstanding and diluted potential common shares (in thousands,
  except for per share data):

|                                                    |  |                              |        |      |   |        | 
|--------------------------------------------------- |  | ---------------------------- | ------ | ---- | - | ------ | 
|                                                    |  | Three
Months Ended
March 31, |       
|                                                    |  |                              |       
|                                                    |  | 2007                         |        | 2006 |  
|                                                    |  |                              |        |      |  
|                                                   
|Shares outstanding at end
  of period               |  |                              | 10,096 |      |   | 9,806  | 
|                                                    |  |                              |        |      |   |        | 
|                                                   
|Weighted average shares outstanding                 |  |                              | 9,979  |      |   | 9,685  | 
|                                                    |  |                              |        |      |   |        | 
|Weighted average potential common shares            |  |                              | 515    |      |   | 646    | 
|                                                    |  |                              |        |      |   |        | 
|                                                   
|Total diluted weighted
  average shares outstanding |  |                              | 10,494 |      |   | 10,331 | 
|                                                    |  |                              |        |      |   |        | 
|                                                   
|Net income                                          |  | $                            | 2,122  |      | $ | 1,634  | 
|                                                    |  |                              |        |      |   |        | 
|                                                   
|Basic net income per common
  share                 |  | $                            | 0.21   |      | $ | 0.17   | 
|                                                    |  |                              |        |      |   |        | 
|                                                   
|Diluted net income per
  common share               |  | $                            | 0.20   |      | $ | 0.16   | 
|                                                    |  |                              |        |      |   |        | 

|     |                                                                                                                                                                                                                                                                                               
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

12

---

Table of Contents

|                                                                                              | 
|--------------------------------------------------------------------------------------------- | 
|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
March 31, |       | Percentage (%)
Increase/(Decrease)
Between
Periods | 
| |                                     |  |                                                         |       |                                                    | 
| |                                     |  | 2007                                                    |       | 2006                                               |  | 2007 vs. 2006 |  
| |                                     |  |                                                         |       |                                                    |  |               |  
| | Revenues                            |  |                                                         | 100.0 |                                                    |  | 100.0         |   |  | (4.9 | )
| | Cost of revenues                    |  |                                                         | (54.7 | )                                                  |  | (57.3         | ) |  | (9.1 | )
| | Gross profit                        |  |                                                         | 45.3  |                                                    |  | 42.7          |   |  | 0.8  |  
| | Operating expenses:                 |  |                                                         |       |                                                    |  |               |   |  |      |  
| | Research and development            |  |                                                         | (7.4  | )                                                  |  | (7.0          | ) |  | 0.9  |  
| | Selling, general and administrative |  |                                                         | (27.1 | )                                                  |  | (27.1         | ) |  | (4.8 | )
| | Operating income                    |  |                                                         | 10.8  |                                                    |  | 8.7           |   |  | 18.0 |  
| | Other income, net                   |  |                                                         | 3.9   |                                                    |  | 2.7           |   |  | 33.5 |  
| | Income before income taxes          |  |                                                         | 14.7  |                                                    |  | 11.4          |   |  | 21.7 |  
| | Income tax expense                  |  |                                                         | (4.8  | )                                                  |  | (4.2          | ) |  | 7.9  |  
| | Net income                          |  |                                                         | 9.9   |                                                    |  | 7.2           |   |  | 29.9 |  

Overview

Rimage develops,
manufactures and distributes CD-Recordable (CD-R) and DVD-Recordable (DVD-R)
publishing and duplication systems from its operations in the United States,
Germany and Japan. These systems allow customers to benefit from cost savings
by reducing their manual labor efforts in industries such as digital
photography, medical imaging, banking and finance, government and business
services. Rimage anticipates increased sales and marketing expenditures in 2007
as a result of increased resources focused on developing these markets. As
Rimages sales within North America and Europe have averaged 94% of total sales
over the past three years, the strength of the economies in each of these
regions plays an important role in determining the success of Rimage.

Rimage earns revenues
through the sale of equipment, consumables (ribbons, ink cartridges,
Rimage-branded blank CD-R and DVD-R media), maintenance contracts, parts and
repair services. Rimages recurring revenues (consumables, maintenance
contracts, parts and service) comprised 51% and 48% of consolidated revenues
during the three months ended March 31, 2007 and 2006, respectively. Exclusive
of a small amount of capital lease obligations, Rimage has no long-term debt and does not require
significant capital investments as all fabrication of its products is
outsourced to vendors.

Results of Operations

Revenues. Revenues decreased 5% to $21.5 million for the three months ended
March 31, 2007 from $22.6 million for the same prior year period. The reduction
in revenues resulted from a decline in the volume of Desktop and Producer
product line equipment sales of $0.8 million and $0.4 million, respectively.
The overall decline in the volume of equipment sales was primarily due to
reduced sales in the Companys U.S. distribution channel. While the volume of
Producer product

13

---

Table of Contents

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

line equipment sales
declined in the aggregate, revenues for higher-end systems within the Producer
product line increased approximately 7% relative to the same prior year period.
The resulting higher concentration of high-end Producer equipment sales
contributed to higher average selling prices which partially offset the impact
of reduced sales volume. Also partially offsetting the reduction in the volume
of equipment sales was an increased volume of recurring revenues of $0.2
million, consisting of sales of printer ribbons, ink cartridges, media kits,
blank CD-R and DVD-R media, parts and maintenance contracts. The growth in
recurring revenues was primarily due to the continued expansion of the
Companys worldwide installed base of CD-R and DVD-R publishing systems, and
the Companys increased emphasis on promoting this portion of its business.
Recurring revenues comprised 51% of total revenues for the three months ended
March 31, 2007, compared to 48% in the same prior year period. Sales of
Producer product line equipment comprised 38% of total revenues in both the
current and prior year quarters, and sales of desktop product line equipment
represented 11% of revenues in the first quarter of 2007, compared to 14% in the
first quarter of 2006.

International sales rose 3%
in this years first quarter compared to the same period last year, and
comprised 41% of total sales, compared to 38% in last years first quarter. The
European market continued to generate the majority of international sales.
Sales in Asian markets, however, generated most of the increase in
international sales during the quarter, increasing 34% from the prior years
first quarter. The increase in sales in Asian markets reflects increased sales
efforts in this region with the establishment of a subsidiary operation in
Japan in 2005. Currency fluctuations affecting the Companys European and
Japanese operations increased reported consolidated revenues for the three
months ended March 31, 2007 by 3% relative to the same prior year period.

As of and for the three
months ended March 31, 2007, foreign revenues from unaffiliated customers
generated by the Companys German and Japanese operations and the operating
income and net identifiable assets of such operations were $7.6 million, $0.1 million and $9.7 million,
respectively. These amounts related primarily to the Companys German
operations, as the establishment of subsidiary operations in Japan occurred in
June 2005. Comparable amounts for the Companys German and Japanese operations
as of and for the three months ended March 31, 2006 were revenues of $7.3
million, operating income of $0.1 million and net identifiable assets of $7.1
million. The growth in revenues and assets is due to increasing penetration in
foreign markets of sales of CD-R and DVD-R products.

The Company is estimating
that second quarter 2007 consolidated revenues will range between $25 million
and $27 million.

Gross profit. Gross profit as a percentage of revenues was 45% for the three months
ended March 31, 2007, compared to 43% for the same period in 2006. The
improvement in gross profit as a percentage of revenues primarily resulted from
a shift in the distribution of sales to higher margin products. Producer
product line equipment sales generally carry higher margins than desktop
product line equipment or recurring revenues. While the aggregate volume of
Producer product line equipment sales decreased in this years first quarter,
sales of higher-end systems within the Producer product line increased by 7%
from the prior years quarter, contributing to higher average

14

---

Table of Contents

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

selling prices.
Additionally, sales of desktop product line equipment, media and media kits,
which generally carry the lowest margins of all product offerings, comprised in
the aggregate a smaller proportion of total revenues, at 24% for the three
months ended March 31, 2007, compared to 30% in the same prior year period. Stock-based
compensation expense included in cost of revenue for the three months ended
March 31, 2007 and 2006 had a minimal impact on gross profit as a percentage of
revenues for each period, and amounted to $28,000 and $15,000, respectively.

Future gross profit margins
will continue to be affected by many factors, including product mix, the timing
of new product introductions, changes in material costs, manufacturing volume,
the rate of growth of service related revenues relative to associated service support
costs and foreign currency exchange rate fluctuations.

Operating expenses. Research and development expenses totaled $1.6 million or 7% of
revenues for both quarterly periods ended March 31, 2007 and 2006. Expenses in
the current period reflect continued development of new products and
enhancements to existing products. Research and development expenses for the
three months ended March 31, 2007 and 2006 were minimally impacted by
stock-based compensation expenses of $39,000 and $43,000, respectively. Rimage
anticipates continued expenditures in research and development in 2007 to
support new product development initiatives and to improve existing products.

Selling, general and
administrative expenses for the three months ended March 31, 2007 and 2006 were
27% of revenues for both periods, at $5.8 million and $6.1 million,
respectively. The $0.3 million decline in selling, general and administrative
expenses for the three months ended March 31, 2007 primarily reflects a
reduction in general and administrative expenses. The current period decrease
in expenses occurred primarily as a result of $1.2 million of consulting
expenses incurred in the prior years first quarter for the completion of a
strategic analysis of the Companys operations. General and administrative
expenses in the first quarter 2007 also include a $0.1 million benefit for the
reversal of previously established reserves in the allowance for doubtful
accounts stemming primarily from an improvement in collection history.
Partially offsetting the impact of the described expense reductions was the
incurrence of approximately $0.5 million in expenses in the current period
associated with the implementation of a new enterprise resource planning
(ERP) system. Management completed the initial phase of its ERP system
implementation in the first quarter, and is evaluating the potential for
implementation of additional modules to support sales and marketing activities.
Also partially offsetting the reduction in general and administrative expenses were
increased costs associated with a 16% increase in average headcount between
periods. Stock-based compensation expenses included in selling, general and
administrative expenses amounted to $145,000 and $143,000 for the three months
ended March 31, 2007 and 2006, respectively.

Other income, net. The Company recognized net interest income on cash and marketable
securities of $0.8 million for the three months ended March 31, 2007, compared
to $0.6 million for the same prior year period. The current period increase was
due primarily to a $15.0 million increase in average cash equivalent and
marketable securities balances for the three months ended March 31, 2007
compared to the same period in the prior year.

15

---

Table of Contents

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

Income taxes. The provision for income taxes represents federal, state and foreign
income taxes on income. Income tax expense for the three months ended March 31,
2007 and 2006 amounted to approximately $1.0 million in each period, or 33% and
37% of income before taxes, respectively. The decrease in the
effective tax rate for the three months ended March 31, 2007 primarily reflects
the benefit of increased tax-exempt interest income.

The Company implemented the
provisions of FASB Interpretation No. (FIN) 48, Accounting for Uncertainty
in Income Taxesan interpretation of FASB Statement No. 109, effective January
1, 2007. As part of its assessment of tax positions under FIN 48, the Company
reduced its tax contingency reserve by $36,000 in the first quarter of 2007.

The Company anticipates its
effective tax rate will range between 34% and 35% for the full year 2007.

Net income / net income per share. Resulting net income for the three months
ended March 31, 2007 was $2.1 million, or 9.9% of revenues. This compares to
net income of $1.6 million, or 7.2% of revenues for the same prior year period.
Related net income per diluted share amounts were $0.20 and $0.16 for the three
months ended March 31, 2007 and 2006, respectively. The Company expects second
quarter 2007 net income to range from $0.25 to $0.30 per diluted share.

Liquidity and Capital Resources

The Company expects it will
be able to maintain current operations, including anticipated capital expenditure
requirements, through its internally generated funds and, if required, from
Rimages existing credit agreement. This credit agreement allows for advances
under an unsecured revolving loan up to a maximum advance of $10 million. At
March 31, 2007, no amounts were outstanding under the credit agreement.

At March 31, 2007, the
Company had working capital of $67.8 million, an increase of $13.9 million from
working capital reported at December 31, 2006. The increase was primarily the
result of first quarter net income of $2.1
million, proceeds from employee stock plans of $1.3 million and the change in
classification of $8.9 million of marketable securities from non-current as of
December 31, 2006 to current as of March 31, 2007 as the remaining term to
maturity for these securities is twelve months or less as of March 31, 2007.
The Company intends on utilizing its current assets primarily for its continued
organic growth. Additionally, the Company may use its available cash for
potential future strategic initiatives or alliances.

Net cash provided by
operating activities totaled $4.5 million for the three months ended March 31,
2007, compared to $0.8 million in the same prior year period. The $3.7 million
increase in cash generated from operations was primarily impacted by a $0.5
million increase in net income adjusted for non-cash items and a $3.4 million
increase in cash from changes in operating assets and liabilities. Primarily
contributing to the change in operating assets and liabilities compared to the
prior years period was a $5.5 million larger reduction in receivables,
partially offset by a $1.6 million variation in the change in inventories and a
$0.7 million larger reduction in trade accounts payable, accrued compensation
and accrued expenses. The larger decrease in accounts receivable in the current
years period was primarily impacted by a $4.5 million reduction in revenue in
March

16

---

Table of Contents

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

2007 relative to December
2006 (last month of the consecutive quarters), compared to a $1.0 million
increase in revenue between the comparable prior year periods. Also
contributing to the larger decrease in accounts receivable in the first quarter
of 2007 compared to the same period in the prior year was a $1.1 million
reduction in revenue quarter over quarter. The change in inventories resulted
from a $1.2 million increase in inventories during the current years first
quarter, compared to a $0.3 reduction in the same prior year period. The
current periods increase in inventories resulted from lower sales and a larger
build-up of finished goods inventory for expected second quarter sales. The
larger current period reduction in accounts payable, accrued compensation and
accrued expense accounts is primarily due to the timing of vendor and payroll
payments.

Investing activities
resulted in a net use of cash of $1.8 million for the three months ended March
31, 2007 and provided a net increase in cash of $2.4 million for the same prior
year period. The decrease in cash from investing activities was the result of
$1.2 million in purchases of marketable securities, net of related maturities,
during the three months ended March 31, 2007, compared to $3.2 million in maturities
of marketable securities, net of related purchases, in the same prior year
period. Partially offsetting the impact of this change was a $0.2 million
reduction in capital expenditures. Capital expenditures for three months ended
March 31, 2007 totaled $0.6 million, and consisted primarily of costs
capitalized as part of the implementation of an enterprise resource planning
system and purchases of manufacturing tooling. Costs capitalized during the
quarter for the enterprise resource planning system amounted to $0.2 million,
and consisted primarily of software development costs.

Net cash provided by
financing activities totaled $2.3 million and $1.7 million for the three months
ended March 31, 2007 and 2006, respectively. Financing activities in each period
included proceeds from employee stock plans of $1.3 million and $0.9 million,
respectively. Additionally, each period includes excess tax benefits recognized
as an addition to the APIC (additional paid-in capital) pool of $0.9 million
and $0.8 million, respectively. Such amounts are required to be reported as an
addition to financing activities and a reduction in operating activities in the
Statements of Cash Flows under the provisions of SFAS 123R.

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 described below are considered by management to be the most
critical to the presentation of the consolidated financial statements because
they require the most difficult, subjective and complex judgments. Management
made no changes to the Companys critical accounting policies during the first
quarter of 2007.

In applying the critical accounting policies
described below, 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 three months ended March 31, 2007.

Revenue Recognition.
Revenue for product sales (including hardware and consumables), which do not
include any requirement for installation or training, is recognized on
shipment, at which point the following criteria of SEC Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition, Topic 13(A)(1) have been
satisfied:

17

---

Table of Contents

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

| |   |                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Persuasive
  evidence of an arrangement exists. Orders are received for all sales and
  sales invoices are mailed on shipment.                                                                                                                              
| |  | Delivery has
  occurred. Product has been transferred to the customer or the customers
  designated delivery agent, at which time title and risk of loss transfers.                                                                                        
| |  | The vendors
  price is fixed or determinable. All sales prices are fixed at the time of the
  sale (shipment).                                                                                                                                             
| |  | Collectibility
  is probable. All sales are made on the basis that collection is expected in
  line with the Companys standard payment terms, which are consistent with
  industry practice in the geographies in which the Company markets its
  products.

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

The Company
records a reserve for sales returns from its customers. The amount of the
reserve is     based upon historical
trends, timing of new product introductions and other factors. A return policy
is in place with the Companys distributors to restrict the volume of returned
products, and the Company reviews the distributors inventory to insure
compliance with the return policy.

Revenue for
maintenance agreements is recognized on a straight-line basis over the life of
the contracts, in accordance with FASB Technical Bulletin No. 90-1, Accounting
for Separately Priced Extended Warranty and Product Maintenance Contracts.

Emerging
Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables provides revenue recognition guidance for arrangements with
multiple deliverables, and the criteria to determine if items in a multiple
deliverable agreement should be accounted for separately. The elements of the
Companys sales transactions are clearly and separately stated and sufficient
evidence of their fair value exists to separately account for the elements.

Allowance for
Doubtful Accounts and Sales Returns. The Company
records a reserve for accounts receivable that are potentially uncollectible.
The reserve is established based on a specific assessment of accounts with
known collection exposure, based upon a review of the age of the receivable,
the customers payment history, the customers financial condition and industry
and general economic conditions, as well as a general assessment of collection
exposure in the remaining receivable population based upon bad debt history.
Actual bad debt exposure could differ significantly from managements estimates
if economic conditions worsened for the Companys customers. As described above
under Revenue Recognition, the Company also records a reserve for sales
returns from its customers. The amount of the reserve is based upon historical
trends, timing of new product introductions and other factors.

18

---

Table of Contents

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

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

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

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

Stock-Based
Compensation. The Company implemented the fair
value recognition provisions of SFAS No. 123R effective January 1, 2006 using
the modified prospective method. Under this method, the Company recognizes
compensation expense on a straight-line basis over the vesting period for all
stock-based awards granted on or after January 1, 2006, and for previously
granted awards not yet vested as of January 1, 2006. The Company recognized
stock-based compensation costs of approximately $0.2 million in each of the
three months ended March 31, 2007 and 2006.

The Company
utilizes a Black-Scholes option pricing model to estimate the fair value of
each award on the date of grant. The Black-Scholes model requires the input of
certain assumptions that involve management judgment. Key assumptions that
affect the calculation of fair value include the expected life of stock-based
awards and the Companys stock price volatility. Additionally, the Company is
required to estimate the expected forfeiture rate of unvested awards and
recognize expense for only those shares expected to vest. The assumptions used
in calculating the fair value of
stock-based awards and the forfeiture rate of such awards reflect
managements best estimates. However, circumstances may change and additional
data may become available over time, which could result in changes to these
assumptions that materially impact the fair value determination of future
awards or their estimated rate of forfeiture. If factors change and the Company
uses different assumptions in the application of SFAS 123R in future periods,
the compensation expense recorded under SFAS 123R may differ significantly from
the expense recorded in the current period. See

19

---

Table of Contents

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

Note 2 under
the Notes to Condensed Consolidated Financial Statements in this Form 10Q for
additional information on stock-based compensation.

Impairment of
Long-lived Assets. Long-lived assets at March 31,
2007 consisted of property and equipment. In accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets, the Company reviews the carrying amount of its
long-lived assets when events or changes in circumstances such as market value,
asset utilization, physical change, legal factors or other matters indicate
that the carrying amount of the assets may not be recoverable. When this review
indicates the carrying amount of an asset or asset group exceeds the sum of the
future undiscounted cash flows expected to be generated by the assets, the
Company recognizes an asset impairment charge against operations for the amount
by which the carrying amount of the impaired asset exceeds its fair value.
Considerable judgment is required in the evaluation of whether certain events
or circumstances lead to an indication of impairment, and in the assumptions
used in determining the amount and period over which future revenues are
expected to be earned, related costs, terminal values and discount rates.

Recently Issued
Accounting Standards

In September
2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No.
157, Fair Value Measurements. SFAS No. 157 establishes a single authoritative
definition of fair value, sets out a framework for measuring fair value and
requires additional disclosures about fair-value measurements. This Statement
applies only to fair-value measurements that are already required or permitted
by other accounting standards, except for measurements of share-based payments
and measurements that are similar to, but not intended to be, fair value. This
Statement is expected to increase the consistency of fair value measurements,
but imposes no requirements for additional fair-value measures in financial
statements. The provisions under SFAS No. 157 are effective for the Company
beginning January 1, 2008, and are expected to be applied prospectively. The Company
is currently evaluating the impact of adopting this pronouncement on its
consolidated financial statements and related disclosures.

In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115.
SFAS No. 159 permits entities to choose to measure many financial instruments
and certain warranty and insurance contracts at fair value on a
contract-by-contract basis. A business entity is required to report unrealized
gains and losses on items for which the fair value option has been elected in
earnings at each subsequent reporting date. SFAS No. 159 includes financial
statement presentation and disclosure requirements for assets and liabilities
reported at fair value as a consequence of the election. The objective of this
Statement is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. The provisions of SFAS No. 159 are effective for
the Company beginning January 1, 2008. The Company is currently evaluating the
impact of adopting this pronouncement on its consolidated financial statements
and related disclosures.

20

---

Table of Contents

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

Cautionary Note Regarding Forward-Looking
Statements

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

Factors that
could cause or contribute to such differences include, but are not limited to,
the following, as well as other factors not now identified: the Companys
ability to keep pace with changes in technology in the computer and storage
media industries as well as technology changes in the retail, medical, banking,
government and business services 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 dependence upon the selling efforts of the Companys key channel
partners; the Companys ability to maintain adequate inventory of products; the
Companys  reliance on single source
suppliers; the ability of the Companys products to operate effectively with
the computer products developed and to be developed by other manufacturers; the
negative effect  upon the Companys
business from manufacturing or design defects; the effect of U.S. and
international regulation; fluctuations in the Companys operating results; the
Companys dependence upon its key personnel; the volatility of the price of the
Companys common stock; provisions governing the Company relating to a change
of control, compliance with corporate governance and securities disclosures
rules and other risks, including those set forth in the Companys reports filed
with the Securities and Exchange Commission, including Item 1A of Part I of the
Companys Annual Report on Form 10-K for the year ended December 31, 2006.
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 inter-company
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

21

---

Table of Contents

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

(b) Changes in Internal Control Over Financial Reporting

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

PART II  OTHER
INFORMATION

|         |  |                                                    
|-------- |  | ---------------------------------------------------
|Item 1.  |  | Legal Proceedings                                  
|         |  |                                                    
|         |  | Not Applicable.                                    
|         |  |                                                    
|Item 1A. |  | Risk Factors                                       
|         |  |                                                    
|         |  | Not Applicable.                                    
|         |  |                                                    
|Item 2.  |  | Changes in Securities and Use of Proceeds          
|         |  |                                                    
|         |  | Not Applicable.                                    
|         |  |                                                    
|Item 3.  |  | Defaults Upon Senior Securities                    
|         |  |                                                    
|         |  | Not Applicable.                                    
|         |  |                                                    
|Item 4.  |  | Submission of Matters to a Vote of Security Holders
|         |  |                                                    
|         |  | Not Applicable.                                    
|         |  |                                                    
|Item 5.  |  | Other Information                                  
|         |  |                                                    
|         |  | Not Applicable                                     

22

---

Table of Contents

|        |          |                                             |                                                                                                  
|------- | -------- | ------------------------------------------- | -------------------------------------------------------------------------------------------------
|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.                                                      

23

---

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:   May 10, 2006 | By: | /s/ Bernard P. Aldrich             | 
|                     |     |                                    |  | 
|                     |     | Bernard P. Aldrich                 | 
|                     |     | Director, Chief Executive Officer, | 
|                     |     | and President                      | 
|                     |     | (Principal Executive Officer)      | 
|                     |     |                                    | 
|                    
|Date:   May 10, 2006 | By: | /s/ Robert M. Wolf                 | 
|                     |     |                                    |  | 
|                     |     | Robert M. Wolf                     | 
|                     |     | Chief Financial Officer            | 
|                     |     | (Principal Financial Officer)      | 
|                     |     | (Principal Accounting Officer)     | 

24

---