UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
DC 20549

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

|           |                                                                                                                                                     
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2010; OR          
|           |                                                                                                                                                     
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
 __________TO ____________.

Commission File Number: 000-20728


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| |  | 
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|

| |                                                        | 
| | ------------------------------------------------------ | 
| | 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 x No o

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

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

Large Accelerated FileroAccelerated FilerxNon-Accelerated
FileroSmaller Reporting Companyo

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

Common Stock outstanding
at April 30, 2010  9,496,962 shares of $.01 par value Common Stock.

1







RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2010

|           |  |                                                                                                     |  |       |     
|---------- |  | --------------------------------------------------------------------------------------------------- |  | ----- | ----
|           |  | Description                                                                                         |  |       | Page
|           |  |                                                                                                     |  |      
|PART 1     |  | FINANCIAL INFORMATION                                                                               |  |      
|           |  |                                                                                                     |  |      
|Item 1.    |  | Financial Statements (unaudited)                                                                    |  |      
|           |  |                                                                                                     |  |      
|           |  | Condensed Consolidated Balance
 Sheets as of March 31, 2010 and December 31, 2009                   |  | 3    
|           |  |                                                                                                     |  |      
|           |  | Condensed Consolidated
 Statements of Income for the three months ended March 31, 2010 and 2009     |  | 4    
|           |  |                                                                                                     |  |      
|           |  | Condensed Consolidated
 Statements of Cash Flows for the three months ended March 31, 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              |  | 16-21
|           |  |                                                                                                     |  |      
|Item 3.    |  | Quantitative and Qualitative
 Disclosures about Market Risk                                         |  | 22   
|           |  |                                                                                                     |  |      
|Item 4.    |  | Controls and Procedures                                                                             |  | 22   
|           |  |                                                                                                     |  |      
|PART II    |  | OTHER INFORMATION                                                                                   |  | 22-23
|           |  |                                                                                                     |  |      
|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 |  |                                                                                                     |  | 24   

2

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

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

|                                                                                                                         |  |                 |         |                    |   |         | 
|------------------------------------------------------------------------------------------------------------------------ |  | --------------- | ------- | ------------------ | - | ------- | 
|Assets                                                                                                                   |  | March 31,
 2010 |         | December 31,
 2009 |  
|                                                                                                                         |  |                 |         |                    |  
|Current assets:                                                                                                          |  |                 |         |                    |   |         | 
|Cash and cash equivalents                                                                                                |  | $               | 83,114  |                    | $ | 72,507  | 
|Marketable securities                                                                                                    |  |                 | 15,911  |                    |   | 28,581  | 
|Receivables, net of allowance for doubtful accounts and sales returns
 of $292 and $327, respectively                    |  |                 | 11,069  |                    |   | 13,732  | 
|Inventories                                                                                                              |  |                 | 5,151   |                    |   | 4,123   | 
|Prepaid income taxes                                                                                                     |  |                 | 647     |                    |   |        | 
|Prepaid expenses and other current assets                                                                                |  |                 | 1,221   |                    |   | 1,271   | 
|Deferred income taxes - current                                                                                          |  |                 | 581     |                    |   | 546     | 
|Total current assets                                                                                                     |  |                 | 117,694 |                    |   | 120,760 | 
|                                                                                                                         |  |                 |         |                    |   |         | 
|Marketable securities - non-current                                                                                      |  |                 | 8,986   |                    |   | 9,037   | 
|Property and equipment, net                                                                                              |  |                 | 8,092   |                    |   | 7,855   | 
|Deferred income taxes - non-current                                                                                      |  |                 | 2,741   |                    |   | 2,630   | 
|Other assets - non-current                                                                                               |  |                 | 190     |                    |   |        | 
|Total assets                                                                                                             |  | $               | 137,703 |                    | $ | 140,282 | 
|                                                                                                                         |  |                 |         |                    |   |         | 
|Liabilities and
 Stockholders Equity                                                                                    |  |                 |         |                    |   |         | 
|Current liabilities:                                                                                                     |  |                 |         |                    |   |         | 
|Trade accounts payable                                                                                                   |  | $               | 6,236   |                    | $ | 6,898   | 
|Accrued compensation                                                                                                     |  |                 | 2,137   |                    |   | 3,834   | 
|Other accrued expenses                                                                                                   |  |                 | 773     |                    |   | 911     | 
|Income taxes payable                                                                                                     |  |                 |        |                    |   | 222     | 
|Deferred income and customer deposits                                                                                    |  |                 | 5,576   |                    |   | 5,706   | 
|Other current liabilities                                                                                                |  |                 | 18      |                    |   | 18      | 
|Total current liabilities                                                                                                |  |                 | 14,740  |                    |   | 17,589  | 
|                                                                                                                         |  |                 |         |                    |   |         | 
|Long-term liabilities:                                                                                                   |  |                 |         |                    |   |         | 
|Deferred income and customer deposits - non-current                                                                      |  |                 | 1,868   |                    |   | 2,452   | 
|Income taxes payable - non-current                                                                                       |  |                 | 233     |                    |   | 213     | 
|Other non-current liabilities                                                                                            |  |                 | 75      |                    |   | 79      | 
|Total long-term liabilities                                                                                              |  |                 | 2,176   |                    |   | 2,744   | 
|Total liabilities                                                                                                        |  |                 | 16,916  |                    |   | 20,333  | 
|                                                                                                                         |  |                 |         |                    |   |         | 
|Stockholders equity:                                                                                                    |  |                 |         |                    |   |         | 
|Preferred stock, $.01 par value, authorized 250,000 shares, no shares
 issued and outstanding                            |  |                 |        |                    |   |        | 
|Common stock, $.01 par value, authorized 29,750,000 shares, issued and
 outstanding 9,485,385 and 9,471,885 respectively |  |                 | 95      |                    |   | 94      | 
|Additional paid-in capital                                                                                               |  |                 | 40,841  |                    |   | 40,296  | 
|Retained earnings                                                                                                        |  |                 | 79,477  |                    |   | 78,782  | 
|Accumulated other comprehensive income                                                                                   |  |                 | 374     |                    |   | 777     | 
|Total stockholders equity                                                                                               |  |                 | 120,787 |                    |   | 119,949 | 
|                                                                                                                         |  |                 |         |                    |   |         | 
|Total
 liabilities and stockholders equity                                                                              |  | $               | 137,703 |                    | $ | 140,282 | 

See accompanying notes to
condensed consolidated financial statements.

3

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

|                                             |  |                               |        |      |   |        |  
|-------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ------ | -
|                                             |  | Three Months Ended
 March 31, |       
|                                             |  | 2010                          |        | 2009 |  
|                                             |  |                               |        |      |  
|Revenues:                                    |  |                               |        |      |   |        |  
|Product                                      |  | $                             | 15,844 |      | $ | 15,361 |  
|Service                                      |  |                               | 2,526  |      |   | 2,997  |  
|Total revenues                               |  |                               | 18,370 |      |   | 18,358 |  
|Cost of revenues:                            |  |                               |        |      |   |        |  
|Product                                      |  |                               | 7,755  |      |   | 7,928  |  
|Service                                      |  |                               | 1,963  |      |   | 1,865  |  
|Total cost of revenues                       |  |                               | 9,718  |      |   | 9,793  |  
|Gross profit                                 |  |                               | 8,652  |      |   | 8,565  |  
|                                             |  |                               |        |      |   |        |  
|Operating expenses:                          |  |                               |        |      |   |        |  
|Research and development                     |  |                               | 1,441  |      |   | 1,975  |  
|Selling, general and administrative          |  |                               | 6,267  |      |   | 5,342  |  
|Total operating expenses                     |  |                               | 7,708  |      |   | 7,317  |  
|                                             |  |                               |        |      |   |        |  
|Operating income                             |  |                               | 944    |      |   | 1,248  |  
|                                             |  |                               |        |      |   |        |  
|Other income (expense):                      |  |                               |        |      |   |        |  
|Interest, net                                |  |                               | 168    |      |   | 556    |  
|Loss on currency exchange                    |  |                               | (27    | )    |   | (45    | )
|Other, net                                   |  |                               | 4      |      |   | (1     | )
|Total other income, net                      |  |                               | 145    |      |   | 510    |  
|                                             |  |                               |        |      |   |        |  
|Income before income taxes                   |  |                               | 1,089  |      |   | 1,758  |  
|Income tax expense                           |  |                               | 394    |      |   | 573    |  
|                                             |  |                               |        |      |   |        |  
|Net income                                   |  | $                             | 695    |      | $ | 1,185  |  
|                                             |  |                               |        |      |   |        |  
|Net income per basic share                   |  | $                             | 0.07   |      | $ | 0.13   |  
|                                             |  |                               |        |      |   |        |  
|Net income per diluted share                 |  | $                             | 0.07   |      | $ | 0.13   |  
|                                             |  |                               |        |      |   |        |  
|Basic weighted average shares outstanding    |  |                               | 9,476  |      |   | 9,344  |  
|                                             |  |                               |        |      |   |        |  
|Diluted weighted average
 shares outstanding |  |                               | 9,557  |      |   | 9,431  |  

See accompanying notes to
condensed consolidated financial statements.

4

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

|                                                                                   |  |                               |        |      |   |        |  
|---------------------------------------------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ------ | -
|                                                                                   |  | Three months ended
 March 31, |       
|                                                                                   |  | 2010                          |        | 2009 |  
|Cash flows from operating activities:                                              |  |                               |        |      |   |        |  
|Net income                                                                         |  | $                             | 695    |      | $ | 1,185  |  
|Adjustments to reconcile net income to net cash provided by operating
 activities: |  |                               |        |      |   |        |  
|Depreciation and amortization                                                      |  |                               | 374    |      |   | 309    |  
|Deferred income tax benefit                                                        |  |                               | (112   | )    |   | (263   | )
|Loss on disposal of property and equipment                                         |  |                               |       |      |   | 2      |  
|Stock-based compensation                                                           |  |                               | 467    |      |   | 215    |  
|Excess tax benefits from stock-based compensation                                  |  |                               | (12    | )    |   |       |  
|Changes in operating assets and liabilities:                                       |  |                               |        |      |   |        |  
|Receivables                                                                        |  |                               | 2,390  |      |   | (408   | )
|Inventories                                                                        |  |                               | (1,154 | )    |   | 366    |  
|Prepaid income taxes/income taxes payable                                          |  |                               | (837   | )    |   | (104   | )
|Prepaid expenses and other current assets                                          |  |                               | (151   | )    |   | 189    |  
|Trade accounts payable                                                             |  |                               | 1,560  |      |   | 346    |  
|Accrued compensation                                                               |  |                               | (1,651 | )    |   | (8     | )
|Other accrued expenses and other current liabilities                               |  |                               | (132   | )    |   | (186   | )
|Deferred income and customer deposits                                              |  |                               | (686   | )    |   | (387   | )
|                                                                                   |  |                               |        |      |   |        |  
|Net
 cash provided by operating activities                                         |  |                               | 751    |      |   | 1,256  |  
|                                                                                   |  |                               |        |      |   |        |  
|Cash flows from investing activities:                                              |  |                               |        |      |   |        |  
|Purchases of marketable securities                                                 |  |                               |       |      |   | (1,593 | )
|Maturities and sales of marketable securities                                      |  |                               | 12,631 |      |   | 626    |  
|Purchases of property and equipment                                                |  |                               | (2,727 | )    |   | (73    | )
|                                                                                   |  |                               |        |      |   |        |  
|Net
 cash provided by (used in) investing activities                               |  |                               | 9,904  |      |   | (1,040 | )
|                                                                                   |  |                               |        |      |   |        |  
|Cash flows from financing activities:                                              |  |                               |        |      |   |        |  
|Principal payments on capital lease obligations                                    |  |                               | (5     | )    |   | (6     | )
|Excess tax benefits from stock-based compensation                                  |  |                               | 12     |      |   |       |  
|Proceeds from stock option exercises                                               |  |                               | 66     |      |   | 188    |  
|                                                                                   |  |                               |        |      |   |        |  
|Net
 cash provided by financing activities                                         |  |                               | 73     |      |   | 182    |  
|                                                                                   |  |                               |        |      |   |        |  
|Effect of exchange rate changes on cash                                            |  |                               | (121   | )    |   | (74    | )
|                                                                                   |  |                               |        |      |   |        |  
|Net increase in cash and cash equivalents                                          |  |                               | 10,607 |      |   | 324    |  
|                                                                                   |  |                               |        |      |   |        |  
|Cash and cash equivalents, beginning of period                                     |  |                               | 72,507 |      |   | 14,885 |  
|                                                                                   |  |                               |        |      |   |        |  
|Cash and cash equivalents, end of period                                           |  | $                             | 83,114 |      | $ | 15,209 |  
|                                                                                   |  |                               |        |      |   |        |  
|Supplemental disclosures of net cash paid during the period for:                   |  |                               |        |      |   |        |  
|Income taxes                                                                       |  | $                             | 1,334  |      | $ | 940    |  

See accompanying notes to
condensed consolidated financial statements.

5

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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
 digital publishing systems that are used by businesses to produce recordable
 CD (CD-R), DVD (DVD-R) and Blu-ray Discs with customized digital content
 on an on-demand basis. Rimage distributes its publishing systems from its
 operations in the United States, Germany and Japan. The Company also
 distributes related consumables for use with its systems, consisting of media
 kits, ribbons, ink cartridges and Rimage-branded blank CD-R, DVD-R and
 Blu-ray media.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
 accompanying condensed consolidated financial statements are unaudited and
 have been prepared by the Company in accordance with accounting principles generally
 accepted in the United States of America for interim financial information,
 pursuant to the rules and regulations of the Securities and Exchange
 Commission. Pursuant to such rules and regulations, certain financial
 information and footnote disclosures normally included in the financial
 statements have been condensed or omitted. However, in the opinion of
 management, the financial statements include all adjustments, consisting of
 normal recurring accruals, necessary for a fair presentation of the financial
 position and results of operations and cash flows of the interim periods
 presented. Operating results for these interim periods are not necessarily
 indicative of results to be expected for the entire year, due to seasonal,
 operating and other factors. These condensed consolidated financial
 statements should be read in conjunction with the consolidated financial
 statements and notes thereto included in the Companys Annual Report on Form
 10-K as of and for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | In
 July 2009, the FASB launched its Accounting Standards Codification (the
 Codification). The Codification became the exclusive authoritative source
 of nongovernmental U.S. generally accepted accounting principles (GAAP) for
 interim and annual accounting periods ending after September 15, 2009, except
 for rules and interpretive releases of the SEC, which are sources of
 authoritative GAAP for SEC registrants. The Codification did not change GAAP
 but reorganized the literature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
 Company has evaluated for potential disclosure subsequent events through the
 date that the financial statements were issued. Note 13 describes a material
 event that occurred subsequent to March 31, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

6

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Stock-Based
 Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | In
 May 2007, the Companys shareholders approved the 2007 Stock Incentive Plan
 (the 2007 Plan). The 2007 Plan provides for the grant of stock incentive
 awards in the form of incentive and non-qualified stock options, stock
 appreciation rights, restricted stock, restricted stock units, performance
 stock, performance units and other awards in stock and/or cash to certain key
 employees, non-employee directors and service providers. In May 2009, the
 Companys shareholders approved amendments to the 2007 Plan, including an
 increase in the number of shares authorized for issuance by 500,000 shares to
 a total of 1,230,320 shares. At March 31, 2010, a total of 613,995 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 and agreement 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 $467,000 and $215,000 for the three months ended March
 31, 2010 and 2009, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

7

---



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

| |                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 fair value of each option award is estimated at the date of grant using the
 Black-Scholes option pricing model. The following key assumptions were
 utilized in valuing option awards issued during the three months ended March
 31, 2010. No stock options were granted during the three months ended March
 31, 2009.

|                                   |  |                              |   |      | 
|---------------------------------- |  | ---------------------------- | - | ---- | 
|                                   |  | Three Months Ended March 31, |  
|                                   |  | 2010                         |   | 2009 | 
|                                   |  |                              |   |      | 
|Expected life of options in
 years |  | 4.75                         |   |     | 
|                                   |  |                              |   |      | 
|Risk-free interest rate            |  | 2.34%
 - 2.65                | % |     | 
|                                   |  |                              |   |      | 
|Expected volatility                |  | 49.2%
 - 49.6                | % |     | 
|                                   |  |                              |   |      | 
|Expected dividend yield            |  | 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. For all stock options granted to non-employee directors in 2008,
 the expected life was determined based on an analysis of historical exercise
 behavior and anticipated future exercise patterns, giving consideration to
 the contractual terms of unexercised stock option awards. 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.

8

---



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

| |                                                              
| | -------------------------------------------------------------
| | Other information pertaining
 to stock options is as follows:

|                                                         |  |                                       |       |      |   |       | 
|-------------------------------------------------------- |  | ------------------------------------- | ----- | ---- | - | ----- | 
|                                                         |  | Three Months Ended March 31,          |      
|                                                         |  | 2010                                  |       | 2009 |  
|                                                         |  | (in thousands, except per share data) |      
|                                                         |  |                                       |       |      |   |       | 
|Number of options granted                                |  |                                       | 75    |      |   |      | 
|Fair value of options granted                            |  | $                                     | 557   |      | $ |      | 
|Per share weighted average fair value of options granted |  | $                                     | 7.43  |      | $ |      | 
|Total intrinsic value of stock options exercised         |  | $                                     | 66    |      | $ | 74    | 
|Total intrinsic value of stock options outstanding       |  | $                                     | 1,000 |      | $ | 1,060 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Cash
 received from the exercise of stock options was $66,000 and $188,000 for the
 three months ended March 31, 2010 and 2009, respectively. The exercise of
 stock options and lapse of restrictions on restricted stock generated an
 income tax benefit of $12,000 and $28,000 during the three months ended March
 31, 2010 and 2009, respectively. The income tax benefit was recorded as an
 increase 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 March 31, 2010 and December 31, 2009 totaled
 $382,000 and $364,000, respectively (excluding interest and penalties).
 Changes in gross unrecognized tax benefits during the three months ended
 March 31, 2010 consisted primarily of a net increase of $21,000 for tax
 positions taken in the current year. Included in the balance of unrecognized
 tax benefits at March 31, 2010 are potential benefits of $363,000 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 three months ended March 31, 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 $37,000 and $36,000 on a gross basis at March 31, 2010
 and December 31, 2009, respectively, and are excluded from the gross amounts
 of unrecognized tax benefits reflected above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

9

---



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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | The
 Company files income tax returns in the U.S. federal jurisdiction and various
 state and foreign jurisdictions. As of March 31, 2010, the Company was no
 longer subject to income tax examinations for taxable years before 2006 and
 2005 in the case of U.S. federal and German taxing authorities, respectively,
 and taxable years generally before 2005 in the case of state taxing
 authorities, consisting primarily of Minnesota, California and Maryland.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(4) | Marketable Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Marketable
 securities consist primarily of U.S. treasury 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 March
 31, 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(5) | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Inventories
 consisted of the following (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                            |  |                 |       |                    |   |       | 
|------------------------------------------- |  | --------------- | ----- | ------------------ | - | ----- | 
|                                            |  | March 31,
 2010 |       | December 31,
 2009 |  
|                                            |  |                 |       |                    |   |       | 
|Finished goods and
 demonstration equipment |  | $               | 1,607 |                    | $ | 1,425 | 
|Purchased parts and
 subassemblies          |  |                 | 3,544 |                    |   | 2,698 | 
|                                            |  | $               | 5,151 |                    | $ | 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
 March 31, |     
|                                                                 |  | 2010                          |      | 2009 |  
|                                                                 |  |                               |      |      |   |       |  
|Net income                                                       |  | $                             | 695  |      | $ | 1,185 |  
|Other comprehensive income:                                      |  |                               |      |      |   |       |  
|Net changes in:                                                  |  |                               |      |      |   |       |  
|Foreign currency translation adjustments                         |  |                               | (348 | )    |   | (427  | )
|Change in unrealized gain on marketable securities, net of taxes |  |                               | (55  | )    |   | 32    |  
|Total comprehensive income                                       |  | $                             | 292  |      | $ | 790   |  

10

---



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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 March 31, 2010, the
 Company had four outstanding foreign exchange contracts with a notional
 amount totaling approximately $745,000. These contracts mature during 2010
 and bear exchange rates ranging from 1.3311 and 1.3638 U.S. Dollars per Euro.
 As of March 31, 2010, the fair value of foreign exchange contracts resulted
 in a net gain position of $3,000, which is recorded in other current assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | 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):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                           |  |          |                                   |      |   |                               |   |   |     | 
|-------------------------- |  | -------- | --------------------------------- | ---- | - | ----------------------------- | - | - | --- | 
|                           |  |          |                                   |      |   | Three Months Ended
 March 31, |  
|Derivative
 Instrument     |  | Location |                                   | 2010 |   | 2009                          |  
|                           |  |          |                                   |      |   |                               |   |   |     | 
|Foreign Exchange Contracts |  |          | Gain (loss) on currency
 exchange |      | $ | (48                           | ) | $ | 180 | 

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

11

---



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

| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 March 31, 2010 (in thousands):

|                           |  |                          |  |                       |   |          |                              |                 |   |    |  
|-------------------------- |  | ------------------------ |  | --------------------- | - | -------- | ---------------------------- | --------------- | - | -- | -
|                           |  | Asset Derivatives        |  | Liability Derivatives |  
|Derivative Instrument      |  | Location                 |  | March 31,
 2010       |   | Location |                              | March 31,
 2010 |  
|                          
|Foreign Exchange Contracts |  | Other current assets (1) |  | $                     | 5 |          | Other current liabilities(1) |                 | $ | (2 | )

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

12

---



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

| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 March 31,
 2010:

|                                            |  |                                          |        |                                             |                               |                                                  |  |                                              |        |  |   |   | 
|------------------------------------------- |  | ---------------------------------------- | ------ | ------------------------------------------- | ----------------------------- | ------------------------------------------------ |  | -------------------------------------------- | ------ |  | - | - | 
|                                            |  |                                          |        |                                             | Fair Value Measurements Using |                                                 
|(in thousands)                              |  | Total Carrying
 Value at
 March 31, 2010 |        | Quoted Prices in
 Active Markets
 (Level 1) |                               | Significant Other
 Observable
 Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |       
|Assets                                      |  |                                          |        |                                             |                               |                                                  |  |                                              |        |  |   |   | 
|Available-for-sale securities               |  | $                                        | 24,897 |                                             | $                             |                                                 |  | $                                            | 24,897 |  | $ |  | 
|Foreign currency forward exchange contracts |  | $                                        | 3      |                                             | $                             |                                                 |  | $                                            | 3      |  | $ |  | 

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(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 three months ended March 31,
 2010, the Company did not repurchase any shares of its common stock. As of
 March 31, 2010, 422,917 shares were available for repurchase under the
 authorizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(10) | Recently
 Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     | In October 2009, the FASB
 issued two new revenue recognition standards. The first new standard is ASU
 No. 2009-13, Revenue Recognition (ASC Topic 605)  Multiple-Deliverable
 Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.
 Under ASU No. 2009-13, when vendor specific objective evidence or third party
 evidence for deliverables in an arrangement cannot be determined, a best
 estimate of the selling price is required to separate deliverables and
 allocate arrangement consideration using the relative selling price method.
 The second new standard is ASU No. 2009-14, Software (Topic 985)  Certain
 Revenue Arrangements That Include Software Elements. Under ASU 2009-14,
 tangible products that have software components that are essential to the
 functionality of the tangible product will no longer be within the scope of
 the software revenue recognition guidance, and software-enabled products will
 now be subject to the new guidance for multiple deliverable arrangements discussed
 above. The guidance under both standards is effective for revenue
 arrangements entered into or materially modified in fiscal years beginning
 after June 15, 2010. Early adoption is permitted, and the Company has elected
 to adopt the guidance under both standards on a prospective basis in the
 first quarter of 2010. The adoption did not have a material impact on the
 Companys consolidated financial statements.

13

---



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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | As of the first quarter
 2010, revenue from multiple element arrangements is allocated among the
 separate units of accounting based on the relative selling price of each
 deliverable that is subject to the requirements of ASU 2009-13. The application
 of this new standard did not 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. 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 in an
 arrangement including equipment, separately-priced maintenance and
 installation services is allocated to the equipment and the installation
 service using the relative selling price method. The relative selling price
 is determined based on the Companys stand-alone selling prices for the
 equipment and installation service.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(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 1,078,000 and 869,000 for the three months
 ended March 31, 2010 and 2009, respectively, have been excluded from the
 computation of diluted weighted average shares outstanding for each
 respective period as their effect is anti-dilutive.                                                                                                                                    

14

---



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

| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | The following table
 identifies the components of net income per basic and diluted share (in
 thousands, except for per share data):

|                                                            |  |                               |       |      |   |       | 
|----------------------------------------------------------- |  | ----------------------------- | ----- | ---- | - | ----- | 
|                                                            |  | Three Months Ended
 March 31, |      
|                                                            |  | 2010                          |       | 2009 |  
|                                                            |  |                               |       |      |   |       | 
|Shares outstanding at end
 of period                        |  |                               | 9,485 |      |   | 9,353 | 
|                                                            |  |                               |       |      |   |       | 
|Basic weighted average shares outstanding                   |  |                               | 9,476 |      |   | 9,344 | 
|                                                            |  |                               |       |      |   |       | 
|Dilutive effect of stock options and restricted stock units |  |                               | 81    |      |   | 87    | 
|Total diluted weighted average shares outstanding           |  |                               | 9,557 |      |   | 9,431 | 
|                                                            |  |                               |       |      |   |       | 
|Net income                                                  |  | $                             | 695   |      | $ | 1,185 | 
|                                                            |  |                               |       |      |   |       | 
|Basic net income per common
 share                          |  | $                             | 0.07  |      | $ | 0.13  | 
|                                                            |  |                               |       |      |   |       | 
|Diluted net income per
 common share                        |  | $                             | 0.07  |      | $ | 0.13  | 

|     |                                                                                                                                                                                                                                                                                                                                                                  
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | Subsequent
 Event                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                  
|     | In April 2010, the Company
 entered into an agreement with a software provider to develop a complete
 digital publishing solution for medical imaging in Chinese hospitals and
 clinics. The Company intends to finalize go-to-market plans for the medical
 solution during the second quarter of 2010, subject to receipt of necessary
 governmental approvals.
|     |                                                                                                                                                                                                                                                                                                                                                                  
|     |                                                                                                                                                                                                                                                                                                                                                                  

15

---



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

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 RevenuesThree Months EndedMarch 31, |       | Percentage (%)Inc/(Dec)BetweenPeriods | 
|                                    |  | 2010                                                 |       | 2009                                  |  | 2010 vs. 2009 |  
|Revenues                            |  |                                                      | 100.0 |                                       |  | 100.0         |   |  | 0.1   |  
|Cost of revenues                    |  |                                                      | (52.9 | )                                     |  | (53.3         | ) |  | (0.8  | )
|Gross profit                        |  |                                                      | 47.1  |                                       |  | 46.7          |   |  | 1.0   |  
|Operating expenses:                 |  |                                                      |       |                                       |  |               |   |  |       |  
|Research and development            |  |                                                      | (7.9  | )                                     |  | (10.8         | ) |  | (27.1 | )
|Selling, general and administrative |  |                                                      | (34.1 | )                                     |  | (29.1         | ) |  | 17.3  |  
|Operating income                    |  |                                                      | 5.1   |                                       |  | 6.8           |   |  | (24.4 | )
|Other income, net                   |  |                                                      | 0.8   |                                       |  | 2.8           |   |  | (71.5 | )
|Income before income taxes          |  |                                                      | 5.9   |                                       |  | 9.6           |   |  | (38.1 | )
|Income tax expense                  |  |                                                      | (2.1  | )                                     |  | (3.1          | ) |  | (31.3 | )
|Net income                          |  |                                                      | 3.8   |                                       |  | 6.5           |   |  | (41.3 | )

Overview

Rimage
develops, manufactures and markets digital publishing systems that are used by
businesses to produce recordable CD, DVD and Blu-ray discs with customized
digital content on an on-demand basis. Rimage distributes its publishing
systems from its operations in the United States, Germany and Japan. The
Company also distributes related consumables for use with its systems,
consisting of media kits, ribbons, ink cartridges and Rimage-branded blank
CD-R, DVD-R and Blu-ray media. These systems allow customers to benefit from
cost savings by eliminating their manual labor efforts in markets and
applications such as digital photography, medical imaging, business services,
law enforcement and video workflows. As Rimages sales within North America and
Europe have averaged 92% of total sales over the past three years, the strength
of the economies in these regions plays an important role in determining the
success of Rimage.

Rimage
earns revenues through the sale of equipment, consumables and parts (included
in Product revenues in the accompanying condensed consolidated statements of
income), as well as maintenance contracts, repair and installation services
(included in Service revenues in the condensed consolidated statements of
income). Rimages recurring revenues (consumables, parts, maintenance contracts
and service) comprised 66% and 64% of its consolidated revenues during the
three months ended March 31, 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 its products is outsourced to vendors.

16

---



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

Results of Operations

Revenues. Total revenues for the three months ended March 31, 2010 were $18.4
million, consistent with revenues of $18.4 million for the same prior-year
period. Product revenues in the current-year period rose $0.5 million while
service related revenues declined $0.5 million relative to the prior-year
period. The increase in product revenues for the three months ended March 31,
2010 resulted from a $1.0 million increase in sales of consumable products and
parts, partially offset by a $0.5 million reduction in sales of equipment.

The
growth in sales of consumable products was driven by an increased volume of
sales of ribbons and ink cartridges of $1.2 million, primarily affected by
higher purchases from the Companys U.S. distributors as they prepared for a
change in the Companys sales distribution model effective April 1, 2010. As
part of this change, Rimage discontinued its distributor relationships with
distributors in the United States, Germany, and the United Kingdom and will
sell 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. Partially offsetting this increase was a
reduction in sales of media and media kits of $0.3 million. The overall decline
in equipment sales in the current-year period was primarily impacted by a
reduced volume of sales in the Companys European market. The reduction in
equipment sales in the current period was also impacted by a shift in the
distribution of sales to lower-end Producer products with lower average selling
prices. The decline in service-related revenues was primarily impacted by the
timing of maintenance contract renewals resulting in a reduced level of
maintenance contract revenue recognized in the current period.

Recurring
revenues, consisting of consumables, parts, maintenance contracts and service,
comprised 66% of total revenues for the three months ended March 31, 2010,
compared to 64% in the same prior-year period. Sales of Producer product line
equipment comprised 29% of total revenues in the current period, compared to
31% for the comparable period in 2009. Remaining revenues in each period were
generated by sales of Desktop product line equipment, representing 5% of
revenues for the three months ended March 31, 2010 and 2009, respectively.

International
sales decreased 8% for the three months ended March 31, 2010 compared to the
same period last year, and comprised 44% of total sales, compared to 48% in the
same prior-year period. The decline in international sales was driven by a 13%
reduction in sales in the Companys European market, partially offset by sales
growth in the Companys Asian markets of 18%. Currency fluctuations primarily
affecting the Companys European operation had a partially offsetting impact on
the decline in European sales and increased reported consolidated revenues for
the three months ended March 31, 2010 by 2% compared to the same prior-year
period.

As
of and for the three months ended March 31, 2010, the Companys German and
Japanese operations generated foreign revenues from unaffiliated customers of
$7.0 million and operating income of $0.1 million. Net identifiable assets for
these operations amounted to $10.4 million. These amounts pertain primarily to
the Companys German operations. Comparable amounts for the Companys German
and Japanese operations as of and for the three months ended March 31, 2009
were revenues of $8.0 million, operating income of $0.1 million and net
identifiable assets of $9.5 million.

Revenue
levels in 2010 will be dependent upon many factors, including the effectiveness
of changes that occurred effective April 1, 2010 to improve the efficiency of
the Companys sales channels, described above. Other factors that will
influence revenue levels in 2010 include the performance of the Companys
channel partners, the timing of new product introductions, the rate of adoption
of new applications for the Companys products in its targeted markets, the
impact of changes in economic conditions and the impact of foreign currency
exchange rate fluctuations.

17

---



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

Gross profit. Gross profit as a percentage of total revenues was 47.1% for the three
months ended March 31, 2010, compared to 46.7% for the same period in 2009. The
small improvement in gross profit as a percentage of total revenues for the
current-year period resulted primarily from the impact of changes in the
distribution and content of recurring revenues. Sales of ribbons and ink
cartridges, which typically generate higher margins than other recurring
revenues, increased 24% and comprised 34% of revenues in the first quarter of
2010, compared to 27% in the same period in 2009. Further, sales of media /
media kits and maintenance contracts / services, which typically generate lower
margins, comprised 15% and 14% of revenues in the current period, respectively,
compared to 17% and 16%, respectively, in the same prior-year period. Gross
profit in the current period also benefited from the impact of foreign currency
fluctuations on revenues generated in the Companys European market.

Partially
offsetting the favorable impact of the above was a reduction in maintenance
contract revenues in the current period, coupled with increased service costs
resulting from investments to strengthen the service support infrastructure of
the Companys international subsidiaries. Additionally, gross margins were
unfavorably impacted in the current period by a reduction in average selling
prices for lower-end products in the Producer product line, primarily resulting
from increased equipment sales in the U.S. retail market segment, which
generally carry lower selling prices.

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,
changes in material costs, manufacturing volume, the growth rate of service
related revenues relative to associated service support costs and foreign
currency exchange rate fluctuations.

Operating expenses. Research and development expenses totaled $1.4 million, or 8% of
revenues, and $2.0 million, or 11% of revenues, for the quarterly periods ended
March 31, 2010 and 2009, respectively. Expenses in the prior-year period
reflect costs incurred as part of a development arrangement with a third party
supplier to develop a new product launched by the Company in the first quarter
of 2010. The Company incurred a lower level of expenses in the current period
as a result of the timing of activities associated with new product development
projects scheduled for 2010. Rimage anticipates expenditures in research and
development will increase moderately in the second quarter of 2010 relative to
the first quarter.

Selling,
general and administrative expenses for the three months ended March 31, 2010
amounted to $6.3 million, or 34% of revenues, compared to $5.3 million, or 29%
of revenues for the three months ended March 31, 2009. The rise in expenses in
the current-year period primarily reflects the impact of investments made to
strengthen the Companys core business, including increased
compensation-related costs from personnel additions and equity compensation as
well as higher costs for recruiting, travel and promotional programs.
Additionally, the Company incurred expenses in the current period for the
implementation of an enhanced sales order processing system to support the
changes made effective April 1, 2010 in its sales distribution model. Also
contributing to the increase in expenses in the current period was the impact
of currency fluctuations primarily affecting the Companys European operation,
increasing expenses by $0.1 million. Rimage anticipates expenditures for
selling, general and administrative activities in the second quarter of 2010
will approximate first quarter expense levels.

18

---



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

Other income, net. The Company recognized net interest income on cash and marketable
securities of $0.2 million for the three months ended March 31, 2010, compared
to $0.6 million for the same prior-year period. The reduction in interest
income in the current period was the result of a decline in average effective
yields approximating two percentage points relative to the same prior-year
period. This resulted from the Companys change to a more conservative
investment strategy as well as an environment of generally lower interest
rates. Partially offsetting the impact of the reduction in interest rates was a
$15 million increase in average cash equivalent and marketable securities
balances for the three months ended March 31, 2010 compared to the same period
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 months ended March 31,
2010 and 2009 amounted to $0.4 million and $0.6 million, respectively, or 36.2%
and 32.6% of income before taxes in each respective period. The increase in the
effective tax rate for the three months ended March 31, 2010 primarily reflects
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 period. Partially offsetting the unfavorable effect of
the above was the impact in the current period of the implementation in late
2009 of recommendations of a transfer price study which reduced projected U.S.
pre-tax income and reduced the projected loss of the Companys Japanese
subsidiary. Also partially offsetting the unfavorable impact of the above
changes was an increased benefit in the current period from the Section 199
deduction, impacted by an increase in the rate applied to qualified production
activities income from 6% to 9% effective January 1, 2010.

Net income / net income per share. Resulting net income for the three months
ended March 31, 2010 was $0.7 million, or 4% of revenues. Comparable amounts
for the three months ended March 31, 2009 were $1.2 million, or 6% of revenues.
Related net income per diluted share amounts were $0.07 and $0.13 for the three
months ended March 31, 2010 and 2009, respectively.

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 and, if required, from Rimages existing credit
agreement. This credit agreement allows for advances under an unsecured
revolving loan up to a maximum advance of $10 million. At March 31, 2010, no
amounts were outstanding under the credit agreement.

At
March 31, 2010, the Company had working capital of $103.0 million, down $0.2
million from working capital reported at December 31, 2009. The decrease was
primarily the result of the use of $2.7 million of cash to purchase property
and equipment, partially offset by net income adjusted for non-cash items of
$1.4 million and proceeds from stock option exercises of $0.1 million.

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 months ended March 31, 2010, the Company did not repurchase
any shares of its common stock. The Company also intends on utilizing its
assets primarily for its continued organic growth and potential future
strategic initiatives or alliances.

19

---



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

Net
cash provided by operating activities totaled $0.8 million for the three months
ended March 31, 2010, compared to $1.3 million in the same prior-year period.
The $0.5 million decrease in cash generated from operating activities resulted
from changes in operating assets and liabilities producing a $0.5 million
greater use of cash for the three months ended March 31, 2010 compared to the
same prior-year period. Primarily contributing to the change in operating
assets and liabilities compared to the prior-year period were unfavorable
changes of $1.5 million in inventories and $0.4 million in the aggregate amount
of trade accounts payable, accrued compensation and accrued expenses, a $1.1
million larger increase in prepaid income taxes and prepaid expenses and a $0.3
million larger decrease in deferred income, partially offset by a $2.8 million
favorable change in receivables. The change in inventories resulted from a $1.1
million increase in inventories in the current period, compared to a $0.4
million decline in the prior-year. The current period increase in inventories
occurred as the Company prepared for the impact of a change in its sales model
effective April 1, 2010 under which it will sell products to end-user customers
through value-added resellers instead of through distributors in major markets,
requiring increased inventory levels. The change in prepaid income taxes and
prepaid expenses was impacted primarily by the amount and timing of payments
for estimated taxes and other prepaid expenses. The change in the aggregate
amount of trade accounts payable, accrued compensation and accrued expenses
reflects a $0.2 million aggregate decrease in the amount of these balances in
the current-year period, compared to a $0.2 million aggregate increase in the
same period last year. These changes were primarily due to 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 the impact of a higher level of inventory purchases
remaining in accounts payable at the end of the period. The favorable change in
receivables resulted from a $2.4 million reduction in receivables in the
current period and a $0.4 million increase in the prior-year period, primarily
impacted by a $0.9 million decrease in sales from December 2009 to March 2010,
compared to a $1.5 million increase in sales from December 2008 to March 2009.

Investing
activities provided net cash of $9.9 million for the three months ended March
31, 2010, compared to a net use of cash of $1.0 million for the same prior-year
period. The fluctuations in investing activities were primarily the result of
$12.6 million in maturities of marketable securities during the three months
ended March 31, 2010, compared to $1.0 million in purchases of marketable
securities, net of related maturities, in the same prior-year period. Purchases
of property and equipment during the three months ended March 31, 2010 and 2009
amounted to $2.7 million and $0.1 million, respectively. Capital expenditures
in the current-year period included $2.4 million of production tooling
capitalized by the Company in late 2009 associated with a new product launched
during the first quarter of 2010. Remaining capital expenditures in the
current-year period consisted primarily of costs to support the Companys
information technology infrastructure related requirements.

Financing
activities generated net cash of $0.1 million and $0.2 million for the three
months ended March 31, 2010 and 2009, respectively. Financing activities in
each period consisted primarily of proceeds from stock option exercises.

Critical Accounting Policies

Management
utilizes its technical knowledge, cumulative business experience, judgment and
other factors in the selection and application of the Companys accounting
policies. The accounting policies considered by management to be the most
critical to the presentation of the consolidated financial statements because
they require the most difficult, subjective and complex judgments include
revenue recognition, allowance for doubtful accounts, inventory provisions,
deferred tax asset valuation allowances, accruals for uncertain tax positions,
stock-based compensation and impairment of long-lived assets. These accounting
policies are discussed in Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations of the Companys Annual Report
on Form 10-K for the year ended December 31, 2009. Management made no changes
to the Companys critical accounting policies during the three months ended
March 31, 2010.

20

---



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

In
applying its critical accounting policies, management reassesses its estimates
each reporting period based on available information. Changes in such estimates
did not have a significant impact on earnings for the three months ended March
31, 2010.

Cautionary Note Regarding
Forward-Looking Statements

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

Factors
that could cause or contribute to such differences include, but are not limited
to, the following, as well as other factors not now identified: the economic
health of the markets from which Rimage derives its sales and, in particular,
the strength of the economies within North America and Europe where the Company
has averaged 92% of total sales over the past three years; the Companys
ability to keep pace with changes in technology in the computer and storage
media industries as well as technology changes in the Companys targeted
markets; increasing competition and the ability of the Companys products to
successfully compete with products of competitors and newly developed media
storage products; the ability of the Companys newly developed products to gain
acceptance and compete against products in their markets; the significance of
the Companys international operations and the risks associated with
international operations including currency fluctuations, local economic health
and management of these operations over long distances; the Companys ability
to protect its intellectual property and to defend claims of others relating to
its intellectual property; the Companys ability to effectively market its
products and serve customers through its value-added resellers, distributors,
strategic partners and its own sales force; the Companys ability to maintain
adequate inventory of products; the Companys reliance on single source
suppliers; the ability of the Companys products to operate effectively with
the computer products developed and to be developed by other manufacturers; the
negative effect upon the Companys business from manufacturing or design
defects; the effect of U.S. and international regulation; fluctuations in the
Companys operating results; the Companys dependence upon its key personnel;
the volatility of the price of the Companys common stock; provisions governing
the Company relating to a change of control, compliance with corporate
governance and securities disclosures rules and other risks, including those
set forth in the Companys reports filed with the Securities and Exchange
Commission, including Item 1A of Part I of the Companys Annual Report on Form
10-K for the year ended December 31, 2009. These forward-looking statements are
made as of the date of this report and the Company assumes no obligation to
update such forward-looking statements, or to update the reasons why actual
results could differ materially from those anticipated in such forward-looking
statements.

21

---



Item 3. Quantitative and Qualitative Disclosures
about Market Risk

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

The
Company enters into forward exchange contracts principally to hedge
intercompany receivables denominated in Euros arising from sales to its
subsidiary in Germany. Gains or losses on forward exchange contracts are
calculated at each period end and are recognized in net income in the period in
which they arose. The Company records the fair value of its open forward
foreign exchange contracts in other current assets or other current liabilities
depending on whether the net amount is a gain or a loss. The Company does not
utilize financial instruments for trading or other speculative purposes.

Item
4. Controls and Procedures

(a) Evaluation of Disclosure
Controls and Procedures

The
Companys Chief Executive Officer, Sherman L. Black, and the Companys Chief
Financial Officer, Robert M. Wolf, have evaluated the Companys disclosure
controls and procedures as of March 31, 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

There
have been no changes in internal controls over financial reporting that
occurred during the first quarter ended March 31, 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]                                     

22

---



|        |                   
|------- | ------------------
|Item 5. | Other
 Information

Not Applicable.

|        |         
|------- | --------
|Item 6. | Exhibits

(a)          The
following exhibits are included herein:

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

23

---



SIGNATURES

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

| |  |                    
| |  | -------------------
| |  | RIMAGE
 CORPORATION
| |  | Registrant         

|                  |     |                                
|----------------- | --- | -------------------------------
|Date: May 7, 2010 | By: | /s/
 Sherman L. Black          
|                  |     | Sherman
 L. Black              
|                  |     | Chief
 Executive Officer       
|                  |     | (Principal
 Executive Officer) 
|                 
|Date: May 7, 2010 | By: | /s/
 Robert M. Wolf            
|                  |     | Robert
 M. Wolf                
|                  |     | Chief
 Financial Officer       
|                  |     | (Principal
 Financial Officer) 
|                  |     | (Principal
 Accounting Officer)

24

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