|                                  
|----------------------------------
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, DC 20549              

| |           | 
| | --------- | 
| |           | 
| |           | 
| | FORM 10-Q | 
| |           | 
| |           | 

|           |                                                                                                                                                 
|---------- | ------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|☒          | QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED September 30,
2010; OR   
|           |                                                                                                                                                 
|☐          | TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM __________TO __________.

Commission File Number: 000-20728

|
|
|

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

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

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

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

|
|
|

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes☒No ☐

Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes☐No ☐

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

Large Accelerated Filer☐Accelerated Filer☒Non-Accelerated Filer☐Smaller Reporting Company☐

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes☐No ☒

Common
Stock outstanding at October 31, 2010 -- 9,559,733 shares of $.01 par value
Common Stock.

1







RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED SEPTEMBER 30, 2010

|           |  |                                                                                                             |  |       |     
|---------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----- | ----
|           |  | Description                                                                                                 |  |       | Page
|           |  |                                                                                                             |  |       |     
|PART 1     |  | FINANCIAL
INFORMATION                                                                                       |  |      
|           |  |                                                                                                             |  |       |     
|Item
1.    |  | Financial
Statements (unaudited)                                                                            |  |      
|           |  |                                                                                                             |  |       |     
|           |  | Condensed Consolidated Balance Sheets as of
September 30, 2010 and December 31, 2009                        |  | 3    
|           |  |                                                                                                             |  |       |     
|           |  | Condensed Consolidated Statements of Income
for the three and nine months ended September 30, 2010 and 2009 |  | 4    
|           |  |                                                                                                             |  |       |     
|           |  | Condensed Consolidated Statements of Cash
Flows for the nine months ended September 30, 2010 and 2009       |  | 5    
|           |  |                                                                                                             |  |       |     
|           |  | Notes to Condensed Consolidated Financial
Statements                                                        |  | 6-15 
|           |  |                                                                                                             |  |       |     
|Item
2.    |  | Managements Discussion and Analysis of
Financial Condition and Results of Operations                       |  | 16-23
|           |  |                                                                                                             |  |       |     
|Item
3.    |  | Quantitative and Qualitative Disclosures
about Market Risk                                                  |  | 23   
|           |  |                                                                                                             |  |       |     
|Item
4.    |  | Controls and Procedures                                                                                     |  | 23   
|           |  |                                                                                                             |  |       |     
|PART II    |  | OTHER
INFORMATION                                                                                           |  | 24   
|           |  |                                                                                                             |  |       |     
|Item
1.    |  | Legal
Proceedings                                                                                           |  |      
|           |  |                                                                                                             |  |       |     
|Item
1A.   |  | Risk
Factors                                                                                                |  |      
|           |  |                                                                                                             |  |       |     
|Item
2.    |  | Unregistered
Sales of Equity Securities and Use of Proceeds                                                 |  |      
|           |  |                                                                                                             |  |       |     
|Item
3.    |  | Defaults
Upon Senior Securities                                                                             |  |      
|           |  |                                                                                                             |  |       |     
|Item
4.    |  | [Removed
and Reserved]                                                                                      |  |      
|           |  |                                                                                                             |  |       |     
|Item
5.    |  | Other
Information                                                                                           |  |      
|           |  |                                                                                                             |  |       |     
|Item
6.    |  | Exhibits                                                                                                    |  |      
|           |  |                                                                                                             |  |       |     
|SIGNATURES |  | 25                                                                                                         

2

---



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

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

|                                                                                                                        |  |                    |         |                   |   |         | 
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------- | 
|Assets                                                                                                                  |  | September
30,
2010 |         | December
31,
2009 |  
|                                                                                                                        |  |                    |         |                   |   |         | 
|Current assets:                                                                                                         |  |                    |         |                   |   |         | 
|Cash and cash equivalents                                                                                               |  | $                  | 96,879  |                   | $ | 72,507  | 
|Marketable securities                                                                                                   |  |                    | 9,682   |                   |   | 28,581  | 
|Receivables, net of allowance for doubtful accounts and sales returns
of $328 and $327, respectively                    |  |                    | 14,412  |                   |   | 13,732  | 
|Inventories                                                                                                             |  |                    | 5,600   |                   |   | 4,123   | 
|Prepaid expenses and other current assets                                                                               |  |                    | 942     |                   |   | 1,271   | 
|Deferred income taxes - current                                                                                         |  |                    | 566     |                   |   | 546     | 
|Total current assets                                                                                                    |  |                    | 128,081 |                   |   | 120,760 | 
|Marketable securities - non-current                                                                                     |  |                    | 6,716   |                   |   | 9,037   | 
|Property and equipment, net                                                                                             |  |                    | 7,837   |                   |   | 7,855   | 
|Deferred income taxes - non-current                                                                                     |  |                    | 2,438   |                   |   | 2,630   | 
|Other assets - non-current                                                                                              |  |                    | 230     |                   |   |        | 
|Total assets                                                                                                            |  | $                  | 145,302 |                   | $ | 140,282 | 
|                                                                                                                        |  |                    |         |                   |   |         | 
|Liabilities and
Stockholders Equity                                                                                    |  |                    |         |                   |   |         | 
|Current liabilities:                                                                                                    |  |                    |         |                   |   |         | 
|Trade accounts payable                                                                                                  |  | $                  | 5,889   |                   | $ | 6,898   | 
|Accrued compensation                                                                                                    |  |                    | 3,500   |                   |   | 3,834   | 
|Other accrued expenses                                                                                                  |  |                    | 719     |                   |   | 911     | 
|Income taxes payable                                                                                                    |  |                    | 50      |                   |   | 222     | 
|Deferred income and customer deposits                                                                                   |  |                    | 6,092   |                   |   | 5,706   | 
|Other current liabilities                                                                                               |  |                    | 57      |                   |   | 18      | 
|Total current liabilities                                                                                               |  |                    | 16,307  |                   |   | 17,589  | 
|                                                                                                                        |  |                    |         |                   |   |         | 
|Long-term liabilities:                                                                                                  |  |                    |         |                   |   |         | 
|Deferred income and customer deposits - non-current                                                                     |  |                    | 1,437   |                   |   | 2,452   | 
|Income taxes payable - non-current                                                                                      |  |                    | 205     |                   |   | 213     | 
|Other non-current liabilities                                                                                           |  |                    | 66      |                   |   | 79      | 
|Total long-term liabilities                                                                                             |  |                    | 1,708   |                   |   | 2,744   | 
|Total liabilities                                                                                                       |  |                    | 18,015  |                   |   | 20,333  | 
|                                                                                                                        |  |                    |         |                   |   |         | 
|Stockholders equity:                                                                                                   |  |                    |         |                   |   |         | 
|Rimage stockholders equity:                                                                                            |  |                    |         |                   |   |         | 
|Preferred stock, $.01 par value, authorized 250,000 shares, no shares
issued and outstanding                            |  |                    |        |                   |   |        | 
|Common stock, $.01 par value, authorized 29,750,000 shares, issued and
outstanding 9,551,087 and 9,471,885 respectively |  |                    | 96      |                   |   | 94      | 
|Additional paid-in capital                                                                                              |  |                    | 42,269  |                   |   | 40,296  | 
|Retained earnings                                                                                                       |  |                    | 83,857  |                   |   | 78,782  | 
|Accumulated other comprehensive income                                                                                  |  |                    | 507     |                   |   | 777     | 
|Total Rimage stockholders equity                                                                                       |  |                    | 126,729 |                   |   | 119,949 | 
|Noncontrolling interest                                                                                                 |  |                    | 558     |                   |   |        | 
|Total stockholders equity                                                                                              |  |                    | 127,287 |                   |   | 119,949 | 
|                                                                                                                        |  |                    |         |                   |   |         | 
|Total
liabilities and stockholders equity                                                                              |  | $                  | 145,302 |                   | $ | 140,282 | 

See accompanying notes to
condensed consolidated financial statements.

3

---



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

|                                                      |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|----------------------------------------------------- |  | --------------------------------- | ------ | -------------------------------- | - | ------ | - | ---- | ------ |  | - | ------ | -
|                                                      |  | Three Months Ended
 September 30, |        | Nine Months Ended
 September 30, |  
|                                                      |  | 2010                              |        | 2009                             |   | 2010   |   | 2009 |       
|Revenues:                                             |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Product                                               |  | $                                 | 20,948 |                                  | $ | 19,731 |   | $    | 56,601 |  | $ | 52,224 |  
|Service                                               |  |                                   | 2,419  |                                  |   | 2,634  |   |      | 7,439  |  |   | 8,317  |  
|Total revenues                                        |  |                                   | 23,367 |                                  |   | 22,365 |   |      | 64,040 |  |   | 60,541 |  
|Cost of revenues:                                     |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Product                                               |  |                                   | 9,912  |                                  |   | 9,401  |   |      | 27,525 |  |   | 26,142 |  
|Service                                               |  |                                   | 1,763  |                                  |   | 1,867  |   |      | 5,536  |  |   | 5,549  |  
|Total cost of revenues                                |  |                                   | 11,675 |                                  |   | 11,268 |   |      | 33,061 |  |   | 31,691 |  
|Gross profit                                          |  |                                   | 11,692 |                                  |   | 11,097 |   |      | 30,979 |  |   | 28,850 |  
|Operating expenses:                                   |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Research and development                              |  |                                   | 1,796  |                                  |   | 1,514  |   |      | 4,654  |  |   | 4,990  |  
|Selling, general and administrative                   |  |                                   | 6,412  |                                  |   | 5,009  |   |      | 18,709 |  |   | 15,499 |  
|Total operating expenses                              |  |                                   | 8,208  |                                  |   | 6,523  |   |      | 23,363 |  |   | 20,489 |  
|Operating income                                      |  |                                   | 3,484  |                                  |   | 4,574  |   |      | 7,616  |  |   | 8,361  |  
|Other income (expense):                               |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Interest, net                                         |  |                                   | 110    |                                  |   | 309    |   |      | 406    |  |   | 1,323  |  
|Realized gain on sale of marketable securities        |  |                                   |       |                                  |   |       |   |      |       |  |   | 278    |  
|Gain on currency exchange                             |  |                                   | 38     |                                  |   | 5      |   |      | 6      |  |   | 47     |  
|Other, net                                            |  |                                   |       |                                  |   | (4     | ) |      | 4      |  |   | (5     | )
|Total other income, net                               |  |                                   | 148    |                                  |   | 310    |   |      | 416    |  |   | 1,643  |  
|Income before income taxes                            |  |                                   | 3,632  |                                  |   | 4,884  |   |      | 8,032  |  |   | 10,004 |  
|Income tax expense                                    |  |                                   | 1,335  |                                  |   | 1,775  |   |      | 2,987  |  |   | 3,737  |  
|Net income                                            |  |                                   | 2,297  |                                  |   | 3,109  |   |      | 5,045  |  |   | 6,267  |  
|Net loss attributable to
 the noncontrolling interest |  |                                   | 30     |                                  |   |       |   |      | 30     |  |   |       |  
|Net income attributable to
 Rimage                    |  | $                                 | 2,327  |                                  | $ | 3,109  |   | $    | 5,075  |  | $ | 6,267  |  
|                                                      |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Net income per basic share                            |  | $                                 | 0.24   |                                  | $ | 0.33   |   | $    | 0.53   |  | $ | 0.67   |  
|                                                      |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Net income per diluted
 share                         |  | $                                 | 0.24   |                                  | $ | 0.33   |   | $    | 0.53   |  | $ | 0.66   |  
|                                                      |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Basic weighted average
 shares outstanding            |  |                                   | 9,559  |                                  |   | 9,376  |   |      | 9,522  |  |   | 9,364  |  
|                                                      |  |                                   |        |                                  |   |        |   |      |        |  |   |        |  
|Diluted weighted average
 shares outstanding          |  |                                   | 9,621  |                                  |   | 9,564  |   |      | 9,600  |  |   | 9,494  |  

See accompanying notes to condensed consolidated financial statements.

4

---



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

|                                                                                  |  |                                 |        |      |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- | - | ------- | -
|                                                                                  |  | Nine
months ended
September 30, |       
|                                                                                  |  | 2010                            |        | 2009 |  
|Cash flows from operating
activities:                                             |  |                                 |        |      |   |         |  
|Net income                                                                        |  | $                               | 5,045  |      | $ | 6,267   |  
|Adjustments to reconcile net income to net cash provided by operating
activities: |  |                                 |        |      |   |         |  
|Depreciation
and amortization                                                     |  |                                 | 1,445  |      |   | 897     |  
|Deferred
income tax benefit                                                       |  |                                 | 252    |      |   | (305    | )
|Gain
on sale of marketable securities                                             |  |                                 |       |      |   | (278    | )
|Loss
on disposal of property and equipment                                        |  |                                 | 5      |      |   | 2       |  
|Stock-based
compensation                                                          |  |                                 | 1,486  |      |   | 1,213   |  
|Excess
tax benefits from stock-based compensation                                 |  |                                 | (21    | )    |   |        |  
|Changes
in operating assets and liabilities:                                      |  |                                 |        |      |   |         |  
|Receivables                                                                       |  |                                 | (868   | )    |   | (3,252  | )
|Inventories                                                                       |  |                                 | (1,480 | )    |   | 1,506   |  
|Prepaid income taxes/income taxes payable                                         |  |                                 | (226   | )    |   | 659     |  
|Prepaid expenses and other current assets                                         |  |                                 | 124    |      |   | 991     |  
|Trade accounts payable                                                            |  |                                 | 1,454  |      |   | 790     |  
|Accrued compensation                                                              |  |                                 | (203   | )    |   | 840     |  
|Other accrued expenses and other current liabilities                              |  |                                 | (321   | )    |   | (28     | )
|Deferred income and customer deposits                                             |  |                                 | (646   | )    |   | 2,598   |  
|                                                                                  |  |                                 |        |      |   |         |  
|Net
cash provided by operating activities                                         |  |                                 | 6,046  |      |   | 11,900  |  
|                                                                                  |  |                                 |        |      |   |         |  
|Cash flows from investing
activities:                                             |  |                                 |        |      |   |         |  
|Purchases of marketable securities                                                |  |                                 |       |      |   | (58,119 | )
|Maturities and sales of marketable securities                                     |  |                                 | 21,013 |      |   | 43,460  |  
|Purchases of property and equipment                                               |  |                                 | (3,817 | )    |   | (208    | )
|                                                                                  |  |                                 |        |      |   |         |  
|Net
cash provided by (used in) investing activities                               |  |                                 | 17,196 |      |   | (14,867 | )
|                                                                                  |  |                                 |        |      |   |         |  
|Cash flows from financing
activities:                                             |  |                                 |        |      |   |         |  
|Contribution from noncontrolling interest                                         |  |                                 | 588    |      |   |        |  
|Principal payments on capital lease obligations                                   |  |                                 | (14    | )    |   | (19     | )
|Excess tax benefits from stock-based compensation                                 |  |                                 | 21     |      |   |        |  
|Proceeds from stock option exercises                                              |  |                                 | 536    |      |   | 284     |  
|                                                                                  |  |                                 |        |      |   |         |  
|Net
cash provided by financing activities                                         |  |                                 | 1,131  |      |   | 265     |  
|                                                                                  |  |                                 |        |      |   |         |  
|Effect of exchange rate
changes on cash                                           |  |                                 | (1     | )    |   | 142     |  
|                                                                                  |  |                                 |        |      |   |         |  
|Net increase (decrease) in
cash and cash equivalents                              |  |                                 | 24,372 |      |   | (2,560  | )
|                                                                                  |  |                                 |        |      |   |         |  
|Cash and cash equivalents,
beginning of period                                    |  |                                 | 72,507 |      |   | 14,885  |  
|                                                                                  |  |                                 |        |      |   |         |  
|Cash and cash equivalents,
end of period                                          |  | $                               | 96,879 |      | $ | 12,325  |  
|                                                                                  |  |                                 |        |      |   |         |  
|Supplemental disclosures of
net cash paid during the period for:                  |  |                                 |        |      |   |         |  
|Income taxes                                                                      |  | $                               | 3,014  |      | $ | 2,980   |  

See accompanying notes to condensed consolidated financial statements.

5

---



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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basis of
 Presentation and Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Rimage
 Corporation (the Company or Rimage) develops, manufactures and markets
 workflow-integrated digital publishing solutions that are used by businesses
 to produce CD/DVD/Blu-ray discs with customized content and durable disc
 labeling. Rimage distributes its publishing systems from its operations in
 the United States, Germany, Japan, and effective in the third quarter 2010,
 from its joint venture operation in China. The Company also distributes
 related consumables for use with its systems, consisting of media kits,
 ribbons, ink cartridges and Rimage-branded blank CD-R, DVD-R and Blu-ray
 media.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
 accompanying condensed consolidated financial statements are unaudited and
 have been prepared by the Company in accordance with accounting principles
 generally accepted in the United States of America for interim financial
 information, pursuant to the rules and regulations of the Securities and
 Exchange Commission. Pursuant to such rules and regulations, certain
 financial information and footnote disclosures normally included in the
 financial statements have been condensed or omitted. However, in the opinion
 of management, the financial statements include all adjustments, consisting
 of normal recurring accruals, necessary for a fair presentation of the
 financial position and results of operations and cash flows of the interim
 periods presented. Operating results for these interim periods are not
 necessarily indicative of results to be expected for the entire year, due to
 seasonal, operating and other factors. These condensed consolidated financial
 statements should be read in conjunction with the consolidated financial
 statements and notes thereto included in the Companys Annual Report on Form
 10-K as of and for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
 preparation of financial statements in conformity with accounting principles
 generally accepted in the United States of America requires management to
 make estimates and assumptions that affect the reported amounts of assets and
 liabilities at the date of the financial statements and the reported amounts
 of revenues and expenses during the reporting period. Actual results could
 differ from estimates on items such as allowance for doubtful accounts and
 sales returns, inventory provisions, asset impairment charges, deferred tax
 asset valuation allowances, accruals for uncertain tax positions and warranty
 accruals. These estimates and assumptions are based on managements best
 judgment. Management evaluates estimates and assumptions on an ongoing basis
 using its technical knowledge, historical experience and other factors,
 including consideration of the impact of the current economic environment.
 Management believes its assumptions are reasonable in light of the current
 economic environment. Management adjusts such estimates and assumptions when
 facts and circumstances change. Illiquid credit markets, volatile equity,
 foreign currency and energy markets, and declines in business and consumer
 spending have combined to increase the uncertainty inherent in such estimates
 and assumptions. As future events and their effects cannot be determined with
 precision, actual results could differ significantly from these estimates.
 Changes in those estimates resulting from continuing changes in the economic
 environment will be reflected in the financial statements in future periods.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(2) | Stock-Based
 Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | In
 May 2007, the Companys shareholders approved the 2007 Stock Incentive Plan
 (the 2007 Plan). The 2007 Plan provides for the grant of stock incentive
 awards in the form of incentive and non-qualified stock options, stock
 appreciation rights, restricted stock, restricted stock units, performance
 stock, performance units and other awards in stock and/or cash to certain key
 employees, non-employee directors and service providers. In May 2009, the
 Companys shareholders approved amendments to the 2007 Plan, including an
 increase in the number of shares authorized for issuance by 500,000                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

6

---



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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | shares
 to a total of 1,230,320 shares. At September 30, 2010, a total of 420,808
 shares were available for future grant under the 2007 Plan, as amended.
 Effective with the approval of the 2007 Plan in May 2007, the Company may not
 issue any new awards or options under its Amended and Restated 1992 Stock
 Option Plan (the 1992 Plan). The exercise price of stock options granted
 under the 2007 Plan is equal to the market value on the date of grant.
 Options issued to employees through March 31, 2006 under the 1992 Plan
 generally become exercisable over a two-year period and terminate ten years
 from the date of grant. Options issued to employees after March 31, 2006
 under both the 1992 Plan and the 2007 Plan generally become exercisable over
 a four-year period. Options issued to employees through May 13, 2008 under
 the 1992 Plan and the 2007 Plan terminate ten years from the date of grant,
 while options issued effective May 14, 2008 under the 2007 Plan terminate
 seven years from the date of grant. Stock options granted to non-employee
 directors vest six months from the date of grant and terminate ten years from
 the date of grant. Restricted stock and restricted stock unit awards issued
 to employees and non-employee directors under the 2007 Plan are subject to
 the risk of forfeiture and transfer restrictions that lapse in varying time
 periods from the date of grant.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In
 addition to awards granted under the 2007 Plan and 1992 Plan, the Company
 granted a non-qualified option to purchase 200,000 shares of its common stock
 to a newly hired executive officer on April 1, 2009. The option was granted
 outside of any shareholder-approved plan as an inducement to accept
 employment with the Company. The option has an exercise price equal to the
 closing price of the Companys common stock as reported by the Nasdaq Stock
 Market on the first day of employment of April 1, 2009, vests in four equal
 installments on each of the first four anniversaries of the date of grant and
 has a term of seven years. In other respects, the option was structured to
 mirror the terms of options granted under the 2007 Plan and is subject to a
 stock option plan between the Company and the executive officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Under
 the guidance of the Stock Compensation Topic of the Codification, stock-based
 compensation expense is determined based on the grant-date fair value and is
 recognized on a straight-line basis over the vesting period for each
 stock-based award granted on or after January 1, 2006, and for previously
 granted awards not yet vested as of January 1, 2006. The Company recognizes
 stock-based compensation net of an estimated forfeiture rate, resulting in
 the recognition of compensation cost for only those shares expected to vest.
 Compensation cost is recognized for all awards over the vesting period to the
 extent the employees or directors meet the requisite service requirements,
 whether or not the award is ultimately exercised. Conversely, when an
 employee or director does not meet the requisite service requirements and
 forfeits the award prior to vesting, any compensation expense previously
 recognized for the award is reversed. The Company recognized stock-based
 compensation costs of $484,000 and $1,486,000 for the three and nine months
 ended September 30, 2010, respectively, compared to $413,000 and $1,212,000
 for the comparable periods in 2009.                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The
 fair value of each option award is estimated at the date of grant using the
 Black-Scholes option pricing model. The following key assumptions were
 utilized in valuing option awards issued during the nine months ended
 September 30, 2010 and 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

7

---



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

|                                   |  |                              |   |               |  
|---------------------------------- |  | ---------------------------- | - | ------------- | -
|                                   |  | Nine Months Ended September, |  
|                                   |  | 2010                         |   | 2009          |  
|                                   |  |                              |   |               |  
|Expected life of options in
 years |  | 4.75                         |   | 4.75          |  
|                                   |  |                              |   |               |  
|Risk-free interest rate            |  | 1.6%
 - 2.65                 | % | 1.6%
 - 2.2   | %
|                                   |  |                              |   |               |  
|Expected volatility                |  | 49.2%
 - 49.6                | % | 48.5%
 - 49.7 | %
|                                   |  |                              |   |               |  
|Expected dividend yield            |  | 0.0                          | % | 0.0           | %

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

|                                                          |  |                                       |       |                                       |   |       |  |      |       |  |   |       | 
|--------------------------------------------------------- |  | ------------------------------------- | ----- | ------------------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                                          |  | Three Months Ended September 30,      |       | Nine Months Ended September 30,       |  
|                                                          |  | 2010                                  |       | 2009                                  |   | 2010  |  | 2009 |      
|                                                          |  | (in thousands, except per share data) |       | (in thousands, except per share data) |  
|                                                          |  |                                       |       |                                       |   |       |  |      |       |  |   |       | 
|Number of options granted                                 |  |                                       | 67    |                                       |   | 50    |  |      | 284   |  |   | 400   | 
|Fair value of options
 granted                            |  | $                                     | 488   |                                       | $ | 352   |  | $    | 2,138 |  | $ | 2,503 | 
|Per share weighted average
 fair value of options granted |  | $                                     | 7.23  |                                       | $ | 7.03  |  | $    | 7.52  |  | $ | 6.25  | 
|Total fair value of stock
 options vested                 |  | $                                     | 84    |                                       | $ |      |  | $    | 1,053 |  | $ | 949   | 
|Total intrinsic value of
 stock options exercised         |  | $                                     |      |                                       | $ |      |  | $    | 528   |  | $ | 151   | 
|Total intrinsic value of
 stock options outstanding       |  | $                                     | 1,676 |                                       | $ | 3,163 |  | $    | 1,676 |  | $ | 3,163 | 

8

---



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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Cash
 received from the exercise of stock options was $536,000 and $284,000 for the
 nine months ended September 30, 2010 and 2009, respectively. The exercise of
 stock options, expirations of vested stock options and lapse of restrictions
 on restricted stock generated a net non-deductible income tax impact of
 $48,000 and $70,000 during the nine months ended September 30, 2010 and 2009,
 respectively. The income tax impact was recorded as a reduction to additional
 paid-in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | Accounting
 for Uncertainty in Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Gross
 unrecognized tax benefits recorded under the guidance of the Income Taxes
 Topic of the Codification as of September 30, 2010 and December 31, 2009
 totaled $350,000 and $364,000, respectively (excluding interest and
 penalties). Changes in gross unrecognized tax benefits during the nine months
 ended September 30, 2010 consisted primarily of a net increase of $16,000 for
 tax positions taken in the current year and a net decrease of $29,000 for tax
 positions taken in prior years. Included in the balance of unrecognized tax
 benefits at September 30, 2010 are potential benefits of $143,000 that if
 recognized, would affect the effective tax rate. The difference between this
 amount and the corresponding amount of gross unrecognized tax benefits
 relates primarily to deferred federal benefits of uncertain tax positions.
 The Company made no other material adjustments to its unrecognized tax
 benefits during the nine months ended September 30, 2010.                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The
 Company recognizes accrued interest and penalties related to unrecognized tax
 benefits as a component of income tax expense. Total accrued interest and
 penalties amounted to $42,000 and $36,000 on a gross basis at September 30,
 2010 and December 31, 2009, respectively, and are excluded from the gross
 amounts of unrecognized tax benefits reflected above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The
 Company files income tax returns in the U.S. federal jurisdiction and various
 state and foreign jurisdictions. As of September 30, 2010, the Company was no
 longer subject to income tax examinations for taxable years before 2007 and
 2005 in the case of U.S. federal and German taxing authorities, respectively,
 and taxable years generally before 2005 in the case of state taxing
 authorities, consisting primarily of Minnesota, California and Maryland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(4) | Marketable
 Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | Marketable
 securities consist primarily of U.S. treasury bills, money market securities,
 municipal securities, corporate securities and U.S. government agency
 securities with long-term credit ratings of AAA and short-term credit ratings
 of A-1. Marketable securities are classified as either short-term or
 long-term in the consolidated balance sheet based on their effective maturity
 date. All marketable securities have original maturities ranging from three
 to 36 months. Marketable securities are classified as available-for-sale.
 Available-for-sale securities are recorded at fair value and any unrealized
 holding gains and losses, net of the related tax effect, are excluded from
 earnings and are reported as a separate component of accumulated other
 comprehensive income until realized. See Note 8, Fair Value Measurements,
 for a discussion of inputs used to measure the fair value of the Companys
 available-for-sale securities. The Companys marketable securities at
 September 30, 2010 did not include any auction-rate securities, high-yield
 sub-prime backed paper or other affected securities which are subject to
 significant market value declines or liquidity issues.

9

---



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

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

|                                            |  |                     |       |                    |   |       | 
|------------------------------------------- |  | ------------------- | ----- | ------------------ | - | ----- | 
|                                            |  | September 30,
 2010 |       | December 31,
 2009 |  
|                                            |  |                     |       |                    |   |       | 
|Finished goods and
 demonstration equipment |  | $                   | 1,794 |                    | $ | 1,425 | 
|Purchased parts and
 subassemblies          |  |                     | 3,806 |                    |   | 2,698 | 
|                                            |  | $                   | 5,600 |                    | $ | 4,123 | 

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

|                                                                     |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|-------------------------------------------------------------------- |  | ---------------------------------- | ----- | --------------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                                     |  | Three
 Months Ended
 September 30, |       | Nine
 Months Ended
 September 30, |  
|                                                                     |  | 2010                               |       | 2009                              |   | 2010  |   | 2009 |      
|                                                                     |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|Net income                                                           |  | $                                  | 2,327 |                                   | $ | 3,109 |   | $    | 5,075 |   | $ | 6,267 |  
|Other comprehensive income:                                          |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|Net changes in:                                                      |  |                                    |       |                                   |   |       |   |      |       |   |   |       |  
|Foreign currency translation adjustments                             |  |                                    | 690   |                                   |   | 298   |   |      | (144  | ) |   | 128   |  
|Change in net unrealized gain on marketable securities, net of taxes |  |                                    | (26   | )                                 |   | (57   | ) |      | (126  | ) |   | (282  | )
|Total comprehensive income                                           |  | $                                  | 2,991 |                                   | $ | 3,350 |   | $    | 4,805 |   | $ | 6,113 |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The
 Company enters into forward foreign exchange contracts principally to hedge
 intercompany receivables denominated in Euros arising from sales to its
 subsidiary in Germany. The Companys foreign exchange contracts do not
 qualify for hedge accounting under the Derivatives and Hedging Topic of the
 Codification. As a result, gains or losses related to mark-to-market
 adjustments on forward foreign exchange contracts are recognized as other
 income or expense in the income statement during the period in which the
 instruments are outstanding. The fair value of forward foreign exchange
 contracts represents the amount the Company would receive or pay to terminate
 the forward exchange contracts at the reporting date and is recorded in other
 current assets or other current liabilities depending on whether the net
 amount is a gain or a loss. The Company does not utilize financial
 instruments for trading or other speculative purposes.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As
 of September 30, 2010, the Company had eight outstanding foreign exchange
 contracts with a notional amount totaling approximately $684,000. These
 contracts mature during 2010 and bear exchange rates ranging from 1.2608 and
 1.3635 U.S. Dollars per Euro. As of September 30, 2010, the fair value of
 foreign exchange contracts resulted in a net loss position of $39,000, which
 is recorded in other current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

10

---



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

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

|                           |  |                                   |  |                                  |      |      |   |     |  | 
|-------------------------- |  | --------------------------------- |  | -------------------------------- | ---- | ---- | - | --- |  | 
|                           |  |                                   |  | Nine Months Ended
 September 30, |     
|Derivative
 Instrument     |  | Location                          |  | 2010                             |      | 2009 |  
|                           |  |                                   |  |                                  |      |      |   |     | 
|Foreign Exchange Contracts |  | Gain (loss) on currency
 exchange |  | $                                | (115 | )    | $ | 217 | 

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

|                           |  |                          |  |                       |   |          |                              |                     |   |     |  
|-------------------------- |  | ------------------------ |  | --------------------- | - | -------- | ---------------------------- | ------------------- | - | --- | -
|                           |  | Asset Derivatives        |  | Liability Derivatives |  
|Derivative
 Instrument     |  | Location                 |  | September 30,
 2010   |   | Location |                              | September 30,
 2010 |  
|                           |  |                          |  |                       |   |          |                              |                     |  
|Foreign Exchange Contracts |  | Other current assets (1) |  | $                     |  |          | Other current liabilities(1) |                     | $ | (39 | )

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

11

---



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

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

|                                            |  |                                              |        |                                             |                               |                                                  |  |                                              |        |   |   |   | 
|------------------------------------------- |  | -------------------------------------------- | ------ | ------------------------------------------- | ----------------------------- | ------------------------------------------------ |  | -------------------------------------------- | ------ | - | - | - | 
|                                            |  |                                              |        |                                             | Fair Value Measurements Using |                                                 
|(in thousands)                              |  | Total Carrying
 Value at
 September 30, 2010 |        | Quoted Prices in
 Active Markets
 (Level 1) |                               | Significant Other
 Observable
 Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |       
|Assets                                      |  |                                              |        |                                             |                               |                                                  |  |                                              |        |   |   |   | 
|Available-for-sale securities               |  | $                                            | 16,398 |                                             | $                             |                                                 |  | $                                            | 16,398 |   | $ |  | 
|Foreign currency forward exchange contracts |  | $                                            | (39    | )                                           | $                             |                                                 |  | $                                            | (39    | ) | $ |  | 

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

12

---



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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9)  | Common
 Stock Repurchase Authorizations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | On
 October 17, 2007, the Companys Board of Directors authorized the repurchase
 of up to 500,000 shares of its common stock. In February 2008, the Companys
 Board of Directors increased the share repurchase authorization by an
 additional 500,000 shares, bringing total shares authorized for repurchase to
 1,000,000. Shares may be purchased at prevailing market prices in the open
 market or in private transactions, subject to market conditions, share price,
 trading volume and other factors. The repurchase program is funded from cash
 on hand and may be discontinued at any time. During the nine months ended
 September 30, 2010, the Company did not repurchase any shares of its common
 stock, and 422,917 shares remained available for repurchase under the authorizations
 as of September 30, 2010. Effective October 2010, the Companys Board
 approved the continuation of common stock repurchases under the current
 authorization, and the Company repurchased less than $350,000 of its common
 stock during the fourth quarter prior to the filing of this Form 10-Q.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(10) | Recently
 Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | In
 October 2009, the FASB issued two new revenue recognition standards. The
 first new standard is ASU No. 2009-13, Revenue Recognition (ASC Topic 605) 
 Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging
 Issues Task Force. Under ASU No. 2009-13, when vendor specific objective
 evidence or third party evidence for deliverables in an arrangement cannot be
 determined, a best estimate of the selling price is required to separate
 deliverables and allocate arrangement consideration using the relative
 selling price method. The second new standard is ASU No. 2009-14, Software
 (Topic 985)  Certain Revenue Arrangements That Include Software Elements.
 Under ASU 2009-14, tangible products that have software components that are
 essential to the functionality of the tangible product will no longer be
 within the scope of the software revenue recognition guidance, and
 software-enabled products will now be subject to the new guidance for
 multiple deliverable arrangements discussed above. The guidance under both
 standards is effective for revenue arrangements entered into or materially
 modified in fiscal years beginning after June 15, 2010. Early adoption is
 permitted, and the Company has elected to adopt the guidance under both
 standards on a prospective basis in the first quarter of 2010.                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | The
 adoption of ASU 2009-13 did not have a material impact on the Companys
 consolidated financial statements, nor did it result in a significant change
 from prior periods in how the Company allocates arrangement consideration to
 various units of accounting and did not significantly change the pattern and
 timing of revenue recognition.The Company earns revenues through the sale of
 tangible products, consisting primarily of equipment and consumables. As part
 of its product offering, the Company also sells optional services, consisting
 primarily of separately-priced maintenance contracts and installation
 services. When sold as a multiple-element arrangement, each of these
 deliverables qualifies as a separate unit of accounting.Revenue for product
 sales is recognized upon shipment and transfer of risk of loss. Revenue
 associated with separately-priced maintenance agreements and installation
 services, however, is deferred until earned. Installation revenue is
 recognized upon successful completion of the service. In an arrangement
 including equipment, separately-priced maintenance and installation services,
 the amount deferred and recognized as revenue over the contract period for a
 separately-priced maintenance contract is the stated amount of the contract.
 The remaining consideration is allocated to the equipment and the
 installation service using the relative selling price method. The relative
 selling price is determined based on the Companys stand-alone selling
 prices, or in the absence of stand-alone selling prices, estimated selling

13

---



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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | prices for the equipment
 and installation service.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | While
 the Companys sales arrangements have not historically been within the scope
 of software revenue recognition guidance, the Company has elected to adopt
 the new guidance under ASU No. 2009-14 to facilitate application to potential
 future sales arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | In
 January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and
 Disclosures  Improving Disclosures about Fair Value Measurements, which
 requires new disclosures about recurring and nonrecurring fair-value
 measurements including significant transfers into and out of Level 1 and
 Level 2 of the fair value hierarchy. The ASU also requires additional
 information in the roll-forward of Level 3 assets and liabilities including
 the presentation of purchases, sales, issuances and settlements on a gross
 basis. Further clarification for existing disclosure requirements provides
 for the disaggregation of assets and liabilities presented, and the
 enhancement of disclosures around inputs and valuation techniques. This ASU
 impacts disclosures only. The Company adopted the disclosure provisions of
 this ASU in the first quarter of 2010, with the exception of the additional
 required information in the roll-forward of Level 3 assets and liabilities,
 which will be effective for the Company in the first quarter of 2011. No
 transfers of assets or liabilities into or out of Level 1 or 2 of the fair
 value hierarchy occurred or were required during the nine months ended September
 30, 2010. The Companys adoption of this guidance did not have a material
 impact on the Companys consolidated financial statements and related
 disclosures.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(11) | Computation
 of Net Income Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | Basic
 net income per common share is determined by dividing net income by the basic
 weighted average number of shares of common stock outstanding. Diluted net
 income per common share includes the potentially dilutive effect of common
 shares issued in connection with outstanding stock options using the treasury
 stock method and the dilutive impact of restricted stock units. Stock options
 to acquire weighted average common shares of 1,188,000 and 1,121,000 for the
 three and nine months ended September 30, 2010, respectively, and weighted
 average common shares of 709,000 and 732,000 for the three and nine months
 ended September 30, 2009, respectively, have been excluded from the
 computation of diluted weighted average shares outstanding for each
 respective period as their effect is anti-dilutive. The following table
 identifies the components of net income per basic and diluted share (in
 thousands, except for per share data):                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|------------------------------------------------------- |  | ---------------------------------- | ----- | --------------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                                        |  | Three
 Months Ended
 September 30, |       | Nine
 Months Ended
 September 30, |  
|                                                        |  | 2010                               |       | 2009                              |   | 2010  |  | 2009 |      
|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|Shares outstanding at end
 of period                    |  |                                    | 9,551 |                                   |   | 9,380 |  |      | 9,551 |  |   | 9,380 | 
|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|Basic weighted average shares outstanding               |  |                                    | 9,559 |                                   |   | 9,376 |  |      | 9,522 |  |   | 9,364 | 
|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|Dilutive effect of stock options/restricted stock units |  |                                    | 62    |                                   |   | 188   |  |      | 78    |  |   | 130   | 
|Total diluted weighted average shares outstanding       |  |                                    | 9,621 |                                   |   | 9,564 |  |      | 9,600 |  |   | 9,494 | 
|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|Net income attributable to
 Rimage                      |  | $                                  | 2,327 |                                   | $ | 3,109 |  | $    | 5,075 |  | $ | 6,267 | 
|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|Basic net income per common
 share                      |  | $                                  | 0.24  |                                   | $ | 0.33  |  | $    | 0.53  |  | $ | 0.67  | 
|                                                        |  |                                    |       |                                   |   |       |  |      |       |  |   |       | 
|Diluted net income per
 common share                    |  | $                                  | 0.24  |                                   | $ | 0.33  |  | $    | 0.53  |  | $ | 0.66  | 

14

---



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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | The
 Company is exposed to a number of asserted and unasserted claims encountered
 in the normal course of business. In the opinion of management, the
 resolution of these matters will not have a material adverse effect on the
 Companys financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(13) | Consolidation
 of Joint Venture Entity and Noncontrolling Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | In
 mid August 2010, the Company received approval of its registration of a
 majority-owned joint venture in China, Rimage Information Technology
 (Shanghai) Co., Ltd. (RIT), and was issued a business license which allowed
 initiation of operations. RIT will deploy a complete digital publishing
 solution for medical imaging in hospitals in China. The initial
 capitalization of RIT consisted of $1,200,000 in cash, of which Rimage
 invested $612,000 for a 51% interest, and Taiwan Electronic Data Processing
 (TEDPC), a Taiwanese software provider in the healthcare solutions market,
 invested $588,000 for the remaining 49% interest.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | RIT
 will purchase digital publishing systems from Rimage and a license for
 medical disc system software source code from TEDPC, and integrate the
 software with Rimages digital publishing systems to allow deployment of a
 complete digital publishing solution in the Chinese medical imaging market.
 RIT has a commitment to pay TEDPC a minimum of $600,000 over the first three
 years of operations for the licensing of the software source code. Ownership
 of the source code and associated intellectual property will be transferred
 to RIT by TEDPC when the minimum payment has been fulfilled.                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | The
 key operating decisions of the entity are subject to simple majority approval
 of the Board of Directors of RIT, and Rimage has majority representation on
 the Board. Given Rimages control over the operations of RIT and its majority
 voting interest, the Company consolidates the financial statements of RIT
 with its consolidated financial statements, with the equity and earnings
 (loss) attributed to the noncontrolling interest identified separately in the
 accompanying condensed consolidated balance sheets and statements of income.                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     | During
 the three and nine months ended September 30, 2010, RIT earned no revenues
 and incurred a net loss of approximately $60,000, of which approximately
 $30,000 was attributed to the noncontrolling interest. Consolidated
 stockholders equity as of September 30, 2010 included $558,000 attributable
 to the noncontrolling interest.                                                                                                                                                                                                                                                                                                                

15

---



| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | 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
 September 30, |       | Percentage (%)
 Inc/(Dec)
 Between
 Periods |  | Percentage (%)
 of Revenues
 Nine Months Ended
 September 30, |   | Percentage (%)
 Inc/(Dec)
 Between
 Periods |      
|                                    |  | 2010                                                           |       | 2009                                        |  | 2010 vs. 2009                                                 |   | 2010                                        |       | 2009 |  | 2010 vs. 2009 |  
|Revenues                            |  |                                                                | 100.0 |                                             |  | 100.0                                                         |   |                                             | 4.5   |      |  | 100.0         |   |  | 100.0 |   |  | 5.8   |  
|Cost of revenues                    |  |                                                                | (50.0 | )                                           |  | (50.4                                                         | ) |                                             | 3.6   |      |  | (51.6         | ) |  | (52.3 | ) |  | 4.3   |  
|Gross profit                        |  |                                                                | 50.0  |                                             |  | 49.6                                                          |   |                                             | 5.4   |      |  | 48.4          |   |  | 47.7  |   |  | 7.4   |  
|Operating expenses:                 |  |                                                                |       |                                             |  |                                                               |   |                                             |       |      |  |               |   |  |       |   |  |       |  
|Research and development            |  |                                                                | (7.7  | )                                           |  | (6.8                                                          | ) |                                             | 18.6  |      |  | (7.3          | ) |  | (8.2  | ) |  | (6.7  | )
|Selling, general and administrative |  |                                                                | (27.4 | )                                           |  | (22.3                                                         | ) |                                             | 28.0  |      |  | (29.2         | ) |  | (25.7 | ) |  | 20.7  |  
|Operating income                    |  |                                                                | 14.9  |                                             |  | 20.5                                                          |   |                                             | (23.8 | )    |  | 11.9          |   |  | 13.8  |   |  | (8.9  | )
|Other income, net                   |  |                                                                | 0.6   |                                             |  | 1.3                                                           |   |                                             | (52.3 | )    |  | 0.7           |   |  | 2.7   |   |  | (74.7 | )
|Income before income taxes          |  |                                                                | 15.5  |                                             |  | 21.8                                                          |   |                                             | (25.6 | )    |  | 12.6          |   |  | 16.5  |   |  | (19.7 | )
|Income tax expense                  |  |                                                                | (5.7  | )                                           |  | (7.9                                                          | ) |                                             | (24.8 | )    |  | (4.7          | ) |  | (6.1  | ) |  | (20.1 | )
|Net income                          |  |                                                                | 9.8   |                                             |  | 13.9                                                          |   |                                             | (26.1 | )    |  | 7.9           |   |  | 10.4  |   |  | (19.5 | )
|Less noncontrolling
 interest       |  |                                                                | 0.1   |                                             |  |                                                              |   |                                             |      |      |  |              |   |  |      |   |  |      |  
|Net income attributable to
 Rimage  |  |                                                                | 9.9   |                                             |  | 13.9                                                          |   |                                             | (25.2 | )    |  | 7.9           |   |  | 10.4  |   |  | (19.0 | )

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Rimage
 develops, manufactures and markets workflow-integrated digital publishing
 solutions that are used by businesses to produce CD/DVD/Blu-ray discs with
 customized content and durable disc labeling. Rimage distributes its
 publishing systems from its operations in the United States, Germany, Japan,
 and effective in the third quarter 2010, from its joint venture operation in
 China. The Company also distributes related consumables for use with its
 systems, consisting of ribbons, ink cartridges, Rimage-branded blank CD-R,
 DVD-R and Blu-ray media, or media kits, which combine these items for the
 customers convenience. These systems allow customers to benefit from cost
 savings by eliminating their manual labor efforts in markets and applications
 such as digital photography, medical imaging, business services, law enforcement
 and video workflows. As Rimages sales within North America and Europe have
 averaged 92% of total sales over the past three years, the strength of the
 economies in these regions plays an important role in determining the success
 of Rimage.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Rimage
 earns revenues through the sale of equipment, consumables and parts (included
 in Product revenues in the accompanying condensed consolidated statements of
 income), as well as maintenance contracts, repair and installation services
 (included in Service revenues in the condensed consolidated statements of
 income). Rimages recurring revenues (consumables, parts, maintenance
 contracts and service) comprised 56% and 61% of its consolidated revenues
 during the nine months ended September 30, 2010 and 2009, respectively.
 Exclusive of a small amount of capital lease obligations, Rimage has no
 long-term debt and does not require significant capital investment for its
 ongoing operations as all fabrication of tooling-intensive parts is
 outsourced to vendors.                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | As
 part of its plan to improve the efficiency of its sales channels, effective
 April 1, 2010, Rimage discontinued its distributor relationships with
 distributors in the United States, Germany, and the United Kingdom, and now
 sells products in these regions to end-user customers primarily through
 value-added resellers or other strategic partners, and also directly to
 select accounts through its own sales force.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

16

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of
 Financial Condition and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | In
 mid-August 2010, the Company received approval of its registration of a
 majority-owned joint venture in China, Rimage Information Technology
 (Shanghai) Co., Ltd. (RIT), and was issued a business license which allowed
 initiation of operations. The Chinese healthcare systems transition from
 medical film to optical disc for distribution of patient imaging related
 information is expected to drive growth in the digital medical imaging market
 in China. As part of the Companys strategy to participate in this growth
 opportunity, RIT will deploy a complete digital publishing solution for
 medical imaging in hospitals in China.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The
 initial capitalization of RIT consisted of $1,200,000 in cash, of which
 Rimage invested $612,000 for a 51% interest, and Taiwan Electronic Data
 Processing (TEDPC), a Taiwanese software provider in the healthcare
 solutions market, invested $588,000 for the remaining 49% interest. The
 Company consolidates the financial statements of RIT with its consolidated
 financial statements, with the equity and earnings (loss) attributed to the
 noncontrolling interest identified separately in the accompanying condensed
 consolidated balance sheets and statements of income. During the three and
 nine months ended September 30, 2010, RIT earned no revenues and incurred a
 net loss of approximately $60,000, of which approximately $30,000 was
 attributed to the noncontrolling interest. Consolidated stockholders equity
 as of September 30, 2010 included $558,000 attributable to the noncontrolling
 interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Results
 of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Revenues. Total revenues increased 4% and 6% to $23.4 million and $64.0
 million for the three and nine months ended September 30, 2010, respectively,
 from $22.4 million and $60.5 million for the respective prior-year periods.
 The increase in total revenues between periods reflects a $1.2 million and
 $4.4 million increase in product revenues for the three and nine months ended
 September 30, 2010, respectively, partially offset by a $0.2 million and $0.9
 million decline in service-related revenues in each respective period. The
 increase in product revenues resulted from a $1.8 million and $5.0 million
 rise in sales of equipment for the three and nine months ended September 30,
 2010, respectively, partially offset by a $0.6 million reduction in sales of
 consumable products in each respective period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The
 overall increase in equipment sales in the current-year periods was primarily
 impacted by growth in retail equipment sales, driven by sales of $2.7 million
 in the third quarter and $5.6 million year to date under a multi-system sales
 agreement obtained in the second quarter with a retail customer. Also
 contributing to the revenue growth in the current-year periods were increased
 sales to federal government agencies, driven by sales of the Companys new
 surveillance systems. These gains were partially offset by decreases in
 equipment sales in the Companys European markets, impacted unfavorably by
 foreign currency fluctuations and reduced sales to medical OEM and channel
 partners. The decline in sales of consumable products in the current-year
 periods consisted of a reduced volume of ribbon and ink cartridge sales
 amounting to $0.8 million in the third quarter and $0.7 million in the
 year-to-date period, partially offset by increased sales of media and media
 kits of $0.2 million and $0.1 million in each respective period. Reduced
 utilization by end-user customers of the Companys installed base of digital
 publishing systems in its U.S. and European markets impacted the reduction in
 ribbon and ink-cartridge sales. The decline in service-related revenues in
 both current-year periods was primarily impacted by the timing and amount of
 maintenance contract renewals resulting in the recognition of a reduced level
 of maintenance contract revenues. Recurring revenues, consisting of
 consumables, parts, maintenance contracts and service, comprised 51% and 56%
 of total revenues for the three and nine months ended September 30, 2010,

17

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition and
 Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | respectively,
 compared to 57% and 61% in the same prior-year periods. Sales of Producer and
 Professional Series product line equipment comprised 45% and 40% of total
 revenues in the current-years third quarter and year-to-date periods,
 respectively, compared to 37% and 33% for the comparable periods in 2009.
 Remaining revenues in each period were generated by sales of Desktop product
 line equipment, representing 4% of revenues for the three and nine months
 ended September 30, 2010, compared to 6% in the respective prior-year
 periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | International
 sales decreased 10% and 6% for the three and nine months ended September 30,
 2010, respectively, compared to the same periods last year, and comprised 30%
 and 36% of total sales, compared to 35% and 40% in the same prior-year
 periods. The decline in international sales was driven by a 17% and 12%
 reduction in sales in the Companys European market for the three and nine
 months ended September 30, 2010, respectively. Sales in the Companys Asian
 markets were down 2% in the third quarter and rose 18% in the year-to-date
 period, compared to the prior years comparable periods. The current-period
 reductions in sales in the Companys European markets were the result of a
 general decline in product sales and the impact of foreign currency
 fluctuations, which reduced European sales by approximately 10% and 4% for
 the third quarter and year-to-date periods, respectively. In the aggregate,
 currency fluctuations reduced reported consolidated revenues for the three
 and nine months ended September 30, 2010 by 2% and 1%, respectively.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Future
 revenues will be dependent upon many factors, including the effectiveness of
 changes that occurred effective April 1, 2010 to improve the efficiency of
 the Companys sales channels, described in the Overview section above, the
 success of the Companys deployment of a complete digital publishing solution
 for medical imaging in hospitals in China and the rate of adoption of other
 new solutions-based products introduced by the Company. Other factors that
 will influence future revenues include the performance of the Companys
 channel partners, the timing of new product introductions, the timing of
 customer orders and related product deliveries, the rate of adoption of other
 new applications for the Companys products in its targeted markets, the
 impact of changes in economic conditions and the impact of foreign currency
 exchange rate fluctuations.                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Gross profit. Gross profit as a
 percentage of total revenues was 50.0% and 48.4% for the three and nine
 months ended September 30, 2010, compared to 49.6% and 47.7% for same periods
 in 2009. Gross profit as a percentage of total revenues for both current-year
 periods was favorably impacted by a higher concentration of Producer and
 Professional Series product line equipment sales, which generally carry
 higher gross margins than Desktop product line equipment or recurring
 revenues. Margins in both current-year periods were also favorably impacted
 by sales of the Companys new surveillance systems, which contain a higher
 relative content of embedded software, and resulting higher margins.
 Additionally, margins benefitted from increased selling prices in the second
 and third quarters for product sales in the U.S. channel market, reflecting
 the impact of removing distributors from the Companys U.S. sales
 distribution model effective April 1, 2010.                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Partially
 offsetting the favorable impact of the above on gross profit as a percentage
 of revenue was the impact of foreign currency fluctuations which reduced
 reported revenues for the Companys European operations to a greater degree
 than associated costs of revenue. Further, an increased volume and
 concentration of sales in the U.S. retail market segment, which generally
 carry lower selling prices, and a price reduction on sales of 8100N systems,
 the high-end of the Producer product line, resulted in an aggregate reduction
 in average selling prices for Producer and Professional Series equipment in
 the current-year periods, producing an unfavorable impact on equipment
 margins. Additionally, margins for the current year-to-date period were
 unfavorably impacted by a reduction in service-related revenues, impacted by
 the timing and amount of maintenance contract renewals, while                                                                                                                                                                    

18

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition and
 Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | associated
 service support costs remained stable, primarily resulting from continued
 investments to strengthen the service support infrastructure of the Companys
 international subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Future
 gross profit margins will continue to be affected by many factors, including
 the impact of recently implemented changes in the Companys sales distribution
 model described above, product mix, the timing of new product introductions,
 the timing of customer orders and related product deliveries, changes in
 material costs, manufacturing volume, the growth rate of service related
 revenues relative to associated service support costs and foreign currency
 exchange rate fluctuations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Operating expenses. Research and
 development expenses totaled $1.8 million and $4.7 million for the three and
 nine months ended September 30, 2010, respectively, representing 8% and 7% of
 revenues for each respective period. Expenses for the same prior-year periods
 totaled $1.5 million and $5.0 million, representing 7% and 8% of revenues,
 respectively. Expenses in the prior-year periods reflect costs incurred as
 part of a development arrangement with a third party supplier to develop the
 5400N and 3400 Professional Series products launched by the Company in the
 first quarter of 2010. The Company incurred a lower level of expenses in the
 current year-to-date period as a result of the timing of activities
 associated with new product development projects scheduled for 2010. The
 expense growth in the current periods third quarter was driven by increased
 compensation costs associated with late 2009 and 2010 personnel additions,
 coupled with increased spending on a new online publishing solution under
 development. Rimage anticipates expenditures in research and development in
 the fourth quarter 2010 will increase approximately 10% from the third
 quarter level.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Selling,
 general and administrative expenses for the three and nine months ended
 September 30, 2010 amounted to $6.4 million and $18.7 million, respectively,
 or 27% and 29% of revenues, compared to expenses in the same prior-year
 periods of $5.0 million and $15.5 million, respectively, or 22% and 26% of
 revenues. The rise in expenses in both current-year periods primarily
 reflects the impact of investments made to strengthen the Companys core
 business and implement its growth strategy, including increased compensation-related
 costs from personnel additions, new hire recruiting costs, legal expenses
 associated with new business initiatives, travel expenses, promotional
 programs, increased equity compensation costs and expenses associated with
 the Companys majority-owned joint venture established in China in the third
 quarter. Additionally, the Company incurred expenses in the current-year
 periods for the implementation of an enhanced sales order processing system
 to support the changes made effective April 1, 2010 in its sales distribution
 model, as well as the initiation of a project to further develop the
 reporting capabilities of its enterprise resource planning system. Expenses
 in the current-year periods also included one-time separation costs of
 approximately $0.3 million associated with the departure of an executive
 officer in the third quarter. As a result of a workforce reduction
 implemented in the fourth quarter of 2010, expenses in the fourth quarter
 will include additional one-time separation costs. As such, Rimage
 anticipates expenditures for selling, general and administrative activities
 in the fourth quarter to be comparable to third quarter 2010 expense levels.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Other income, net. The Company
 recognized net interest income on cash and marketable securities of $0.1
 million and $0.4 million for the three and nine months ended September 30,
 2010, compared to $0.3 million and $1.3 million for the same prior-year
 periods. The reduction in interest income in the current-year periods was the
 result of a decline in average effective yields relative to the same
 prior-year periods. This resulted from the Companys change to a more
 conservative investment strategy as well as an environment of generally lower
 interest rates. Partially offsetting the impact of the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

19

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition and
 Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | reduction
 in interest rates was a $5.1 million and $10.1 million increase in average
 cash equivalent and marketable securities balances for the three and nine
 months ended September 30, 2010 compared to the same periods in the prior
 year. Other income for the nine months ended September 30, 2009 includes the
 Companys recognition in the second quarter 2009 of a gain on sale of
 marketable securities of $0.3 million as a result of the sale of
 approximately $33 million of municipal securities and reinvestment in U.S.
 treasury securities. Other income for the three and nine months ended
 September 30, 2010 also included net gains on foreign currency transactions
 of $38,000 and $6,000, respectively, compared to net gains of $5,000 and
 $47,000 for the same periods in the prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Income taxes. The provision for income taxes represents federal, state and
 foreign income taxes on income. Income tax expense for the three and nine
 months ended September 30, 2010 amounted to $1.3 million and $3.0 million,
 respectively, or 36.8% and 37.2% of income before taxes in each respective
 period. Income tax expense for the three and nine months ended September 30,
 2009 was $1.8 million and $3.7 million, or 36.3% and 37.4% of income before
 taxes in each respective period. The effective tax rate for the current-year
 periods was favorably affected by a shift in the mix of projected pre-tax
 earnings between the U.S. and the Companys Japanese subsidiary, an increased
 benefit from the Section 199 deduction, impacted by an increase in the rate
 applied to excludable production activities income from 6% to 9% effective
 January 1, 2010 and a reduction in state income tax expense due primarily to
 a reduction in apportionment factors in certain states. Unfavorably impacting
 the effective tax rate for both current-year periods was the impact of a
 significantly reduced amount of projected tax-exempt interest income
 comprising a smaller percentage of pre-tax income and the expiration of the
 federal research credit effective January 1, 2010, resulting in no tax
 benefit in the current periods.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Net income / net income per share. Resulting net income attributable to Rimage for the three and nine
 months ended September 30, 2010 was $2.3 million and $5.1 million,
 respectively, or 10% and 8% of revenues for the respective periods.
 Comparable amounts for the three and nine months ended September 30, 2009
 were $3.1 million and $6.3 million, respectively, or 14% and 10% of revenues,
 respectively. Related net income per diluted share amounts were $0.24 and
 $0.53 for the three and nine months ended September 30, 2010, respectively,
 compared to $0.33 and $0.66 per diluted share for the respective prior-year
 periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Liquidity
 and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The
 Company expects it will be able to maintain current operations and
 anticipated capital expenditure requirements for the foreseeable future
 through its internally generated funds. Prior to July 1, 2010, the Company
 had a credit agreement which allowed for advances under an unsecured
 revolving loan up to a maximum advance of $10 million. The credit agreement
 expired in accordance with its terms effective July 1, 2010, and is not expected
 to be renewed in the near term.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | At
 September 30, 2010, the Company had working capital of $112 million, up $8.6
 million from working capital reported at December 31, 2009. The increase was
 primarily the result of the impact of a non-cash change in the classification
 of $2.3 million of marketable securities from non-current as of December 31,
 2009 to current as of September 30, 2010, net income adjusted for non-cash
 items of $8.2 million, a contribution of $0.6 million from the noncontrolling
 interest in the Companys joint venture in China and proceeds from stock
 option exercises of $0.5 million, partially offset by the use of $3.8 million
 of cash to purchase property and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

20

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition and
 Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | On
 October 17, 2007, the Companys Board of Directors authorized the repurchase
 of up to 500,000 shares of its common stock. In February 2008, the Companys
 Board of Directors increased the share repurchase authorization by an
 additional 500,000 shares, bringing total shares authorized for repurchase to
 1,000,000. Shares may be purchased at prevailing market prices in the open
 market or in private transactions, subject to market conditions, share price,
 trading volume and other factors. The repurchase program may be discontinued
 at any time. The Company will finance the purchase of the shares, if any,
 using cash on hand. During the three and nine months ended September 30,
 2010, the Company did not repurchase any shares of its common stock, and 422,917 shares remained available for repurchase under the authorizations as of September 30, 2010.
Effective October 2010, the Company’s Board approved the continuation of common stock repurchases under the current authorization,
and the Company repurchased less than $350,000 of its common stock during the fourth quarter prior to the filing of this Form 10-Q. The Company also intends on utilizing its cash primarily for
 its continued organic growth and potential future strategic initiatives or
 alliances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Net
 cash provided by operating activities totaled $6.0 million for the nine
 months ended September 30, 2010, compared to $11.9 million in the same
 prior-year period. The $5.9 million decrease in cash generated from operating
 activities resulted from changes in operating assets and liabilities
 producing a $2.2 million net use of cash for the nine months ended September
 30, 2010, compared to a $4.1 million net increase in cash for the same period
 in 2009, partially offset by a $0.4 million increase in net income adjusted
 for non-cash items in the current-year period. Primarily contributing to the
 change in operating assets and liabilities compared to the prior-year period
 were unfavorable changes of $3.0 million in inventories, $3.2 million in
 deferred income, $1.8 million in the aggregate amount of prepaid expenses and
 income taxes payable, and $0.7 million in the aggregate amount of trade
 accounts payable, accrued compensation and accrued expenses, partially offset
 by a $2.4 million smaller increase in receivables. The change in inventories
 resulted from a $1.5 million increase in the current year-to-date period,
 compared to a $1.5 million decline in the prior year, impacted by a change in
 the Companys sales model effective April 1, 2010 under which it sells
 products to end-user customers through value-added resellers instead of
 through distributors in major markets, requiring increased inventory levels.
 The change in deferred income resulted from a $0.6 million decrease in the
 current year-to-date period, compared to a $2.6 million increase in the same
 prior-year period, resulting from a lower volume of maintenance contract
 renewals in 2010 compared to the prior year. The unfavorable change in
 prepaid expenses and income taxes payable was impacted primarily by the
 amount and timing of payments for estimated income taxes, value added taxes
 and prepaid maintenance contracts. The unfavorable change in the aggregate
 amount of trade accounts payable, accrued compensation and accrued expenses
 resulted primarily from increased payments in the current-year period for
 annual incentive bonuses to employees for calendar year 2009 performance and
 expenditures for property and equipment, partially offset by a higher level
 of inventory purchases and accrued development expenses remaining in accounts
 payable at the end of the period. The smaller increase in receivables in the
 current-year period was primarily impacted by a smaller increase in sales in
 the last two months of third quarter 2010 from the last two months in 2009
 compared to the change in same prior-year periods.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Investing
 activities provided net cash of $17.2 million for the nine months ended
 September 30, 2010, compared to a net use of cash of $14.9 million for the
 same prior-year period. The fluctuations in investing activities were
 primarily the result of $21.0 million in maturities of marketable securities
 during the nine months ended September 30, 2010, compared to $14.7 million in
 purchases of marketable securities, net of related maturities, in the same
 prior-year period. Purchases of property and equipment during the nine months
 ended September 30, 2010 and 2009 amounted to $3.8 million and $0.2 million,
 respectively. Capital expenditures in the current-year period included $2.4
 million of production tooling capitalized by the Company in late 2009
 associated with a new product line launched during the first quarter of 2010.
 Remaining capital expenditures in the current-year period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

21

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of Financial Condition and
 Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | consisted
 primarily of costs to support the Companys information technology
 infrastructure related requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Financing
 activities generated net cash of $1.1 million and $0.3 million for the nine
 months ended September 30, 2010 and 2009, respectively. The increase in the
 current period was primarily due to a $0.6 million contribution from the
 noncontrolling interest in the Companys majority-owned joint venture
 established in China in the third quarter and increased proceeds from stock
 option exercises of approximately $0.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Critical
 Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Management
 utilizes its technical knowledge, cumulative business experience, judgment
 and other factors in the selection and application of the Companys
 accounting policies. The accounting policies considered by management to be
 the most critical to the presentation of the consolidated financial
 statements because they require the most difficult, subjective and complex
 judgments include revenue recognition, allowance for doubtful accounts,
 inventory provisions, deferred tax asset valuation allowances, accruals for
 uncertain tax positions, stock-based compensation and impairment of
 long-lived assets. These accounting policies are discussed in Item 7.
 Managements Discussion and Analysis of Financial Condition and Results of
 Operations of the Companys Annual Report on Form 10-K for the year ended
 December 31, 2009. Additionally, effective January 1, 2010, the Company
 adopted two new revenue recognition standards described in Note 10, Recently
 Issued Accounting Standards, which further augment the polices described in
 the Companys Form 10-K. Management made no significant changes to the
 Companys critical accounting policies during the nine months ended September
 30, 2010.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | In
 applying its critical accounting policies, management reassesses its
 estimates each reporting period based on available information. Changes in
 such estimates did not have a significant impact on the Companys
 consolidated financial statements for the nine months ended September 30,
 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | Cautionary
 Note Regarding Forward-Looking Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | This
 report contains forward-looking statements that involve risks and
 uncertainties. For this purpose, any statements contained in this report that
 are not statements of historical fact may 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
 economic health of the markets from which Rimage derives its sales and, in
 particular, the strength of the economies within North America and Europe
 where the Company has averaged 92% of total sales over the past three years;
 the Companys ability to keep pace with changes in technology in the computer
 and storage media industries as well as technology changes in the Companys
 targeted markets; increasing competition and the ability of the Companys
 products to successfully compete with products of competitors and newly
 developed media storage products; the ability of the Companys newly
 developed products to gain acceptance and compete against products in their
 markets; the significance of the Companys international operations and the
 risks associated with international operations including currency
 fluctuations, local economic                                                                                                                                                                                                         

22

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements Discussion and Analysis of
 Financial Condition and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | health
 and management of these operations over long distances; the Companys ability
 to protect its intellectual property and to defend claims of others relating
 to its intellectual property; the Companys ability to effectively market its
 products and serve customers through its value-added resellers, distributors,
 strategic partners and its own sales force; the Companys ability to maintain
 adequate inventory of products; the Companys reliance on single source
 suppliers; the ability of the Companys products to operate effectively with
 the computer products developed and to be developed by other manufacturers;
 the negative effect upon the Companys business from manufacturing or design
 defects; the effect of U.S. and international regulation; fluctuations in the
 Companys operating results; the Companys dependence upon its key personnel;
 the volatility of the price of the Companys common stock; provisions
 governing the Company relating to a change of control, compliance with
 corporate governance and securities disclosures rules and other risks,
 including those set forth in the Companys reports filed with the Securities
 and Exchange Commission, including Item 1A of Part I of the Companys Annual
 Report on Form 10-K for the year ended December 31, 2009. These
 forward-looking statements are made as of the date of this report and the
 Company assumes no obligation to update such forward-looking statements, or
 to update the reasons why actual results could differ materially from those
 anticipated in such forward-looking statements.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Item 3. Quantitative and Qualitative Disclosures
 about Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The
 Company is exposed to market risk from foreign exchange rate fluctuations of
 the European Euro, Japanese Yen and Chinese Yuan to the U.S. dollar as the
 financial position and operating results of the Companys German subsidiary,
 Rimage Europe GmbH, its Japanese subsidiary, Rimage Japan Co., Ltd. and its
 majority-owned Chinese joint venture, Rimage Information Technology
 (Shanghai) Co., Ltd. are translated into U.S. dollars for consolidation.
 Resulting translation adjustments are recorded as a separate component of
 stockholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The
 Company enters into forward exchange contracts principally to hedge
 intercompany receivables denominated in Euros arising from sales to its
 subsidiary in Germany. Gains or losses on forward exchange contracts are
 calculated at each period end and are recognized in net income in the period
 in which they arose. The Company records the fair value of its open forward
 foreign exchange contracts in other current assets or other current
 liabilities depending on whether the net amount is a gain or a loss. The
 Company does not utilize financial instruments for trading or other
 speculative purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | Item 4. Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (a)
 Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | The
 Companys Chief Executive Officer, Sherman L. Black, and the Companys Chief
 Financial Officer, James R. Stewart, have evaluated the Companys disclosure
 controls and procedures as of September 30, 2010. Based upon such evaluation,
 they have concluded that these disclosure controls and procedures are effective.
 The Companys Chief Executive Officer and Chief Financial Officer used the
 definition of disclosure controls and procedures as set forth in Rule
 13a-15(e) under the Exchange Act in making their conclusion as to the
 effectiveness of such controls and procedures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | (b)
 Changes in Internal Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

23

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There have been no changes
in internal controls over financial reporting that occurred during the third
quarter ended September 30, 2010 that have materially affected, or are reasonable
likely to materially affect, the Companys internal control over financial
reporting.

|                            |                                                      |                                                              |                                                                                                    
|--------------------------- | ---------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------
|PART II  OTHER INFORMATION
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 1.                                              | Legal
 Proceedings                                          
|                            |                                                      |                                                              |                                                                                                    
|                            | Not Applicable.                                      |                                                              |                                                                                                    
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 1A.                                             | Risk
 Factors                                               
|                            |                                                      |                                                              |                                                                                                    
|                            | Not Applicable.                                      |                                                              |                                                                                                    
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 2.                                              | Unregistered
 Sales of Equity Securities and Use of Proceeds
|                            |                                                      |                                                              |                                                                                                    
|                            | Not Applicable.                                      |                                                              |                                                                                                    
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 3.                                              | Defaults
 Upon Senior Securities                            
|                            |                                                      |                                                              |                                                                                                    
|                            | Not Applicable.                                      |                                                              |                                                                                                    
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 4.                                              | [Removed
 and Reserved]                                     
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 5.                                              | Other
 Information                                          
|                            |                                                      |                                                              |                                                                                                    
|                            | Not Applicable.                                      |                                                              |                                                                                                    
|                            |                                                      |                                                              |                                                                                                    
|                            | Item 6.                                              | Exhibits                                                    
|                            |                                                      |                                                              |                                                                                                    
|                            | (a)     The
 following exhibits are included herein:
|                            |                                                      |                                                              |                                                                                                    
|                            |                                                      | 31.1                                                         | Certification
 of Chief Executive Officer pursuant to Rules 13a-14 and 15d-14 of the
 Exchange Act.
|                            |                                                      |                                                              |                                                                                                    
|                            |                                                      | 31.2                                                         | Certification
 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.                                                       

24

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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: November 8, 2010 | By: | /s/
 Sherman L. Black          
|                       |     | Sherman
 L. Black              
|                       |     | Chief
 Executive Officer       
|                       |     | (Principal
 Executive Officer) 
|                       |     |                                
|Date: November 8, 2010 | By: | /s/
 James R. Stewart          
|                       |     | James
 R. Stewart              
|                       |     | Chief
 Financial Officer       
|                       |     | (Principal
 Financial Officer) 
|                       |     | (Principal
 Accounting Officer)

25

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