|                                   |  | 
|---------------------------------- |  | 
|UNITED STATES                     
|SECURITIES AND EXCHANGE COMMISSION
|Washington, DC 20549              
|                                   |  | 
|                                   |  | 
|                                   |  | 
|FORM 10-Q                         
|                                   |  | 
|                                   |  | 

|           |                                                                                                                                                  
|---------- | -------------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One)
|x          | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDEDSeptember 30, 2009; OR    
|           |                                                                                                                                                  
|o          | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM__________TO __________.

|                                                       |  | 
|------------------------------------------------------ |  | 
|Commission File Number: 000-20728                     
|                                                       |  | 
|                                                       |  | 
|                                                       |  | 
|RIMAGE CORPORATION                                    
|(Exact name of registrant as specified in its charter)

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

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

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

| |  | 
| |  | 
| |  | 

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

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). YesoNoo

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): YesoNox

Common Stock outstanding
at October 31, 2009  9,396,685 shares of $.01 par value Common Stock.

1





---

RIMAGE CORPORATIONFORM 10-QTABLE OF CONTENTSFOR THE QUARTER ENDED SEPTEMBER 30, 2009

|           |                                                                                                               |  |       |     
|---------- | ------------------------------------------------------------------------------------------------------------- |  | ----- | ----
|           | Description                                                                                                   |  |       | Page
|           |                                                                                                               |  |      
|PART 1     | FINANCIAL INFORMATION                                                                                         |  |      
|           |                                                                                                               |  |      
|Item 1.    | Financial Statements
 (unaudited)                                                                             |  |      
|           |                                                                                                               |  |      
|           | Condensed Consolidated Balance
 Sheets as of September 30, 2009 and December 31, 2008                         |  | 3    
|           |                                                                                                               |  |      
|           | Condensed Consolidated
 Statements of Income for the three and nine months ended September 30, 2009
 and 2008 |  | 4    
|           |                                                                                                               |  |      
|           | Condensed Consolidated
 Statements of Cash Flows for the nine months ended September 30, 2009 and
 2008       |  | 5    
|           |                                                                                                               |  |      
|           | Notes to Condensed Consolidated
 Financial Statements                                                         |  | 6-17 
|           |                                                                                                               |  |      
|Item 2.    | Managements Discussion and
 Analysis of Financial Condition and Results of Operations                        |  | 18-26
|           |                                                                                                               |  |      
|Item 3.    | Quantitative and Qualitative
 Disclosures about Market Risk                                                   |  | 26   
|           |                                                                                                               |  |      
|Item 4.    | Controls and Procedures                                                                                       |  | 26   
|           |                                                                                                               |  |      
|PART II    | OTHER INFORMATION                                                                                             |  | 26-27
|           |                                                                                                               |  |      
|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.    | Submission of Matters to a Vote of Security Holders                                                           |  |      
|           |                                                                                                               |  |      
|Item 5.    | Other Information                                                                                             |  |      
|           |                                                                                                               |  |      
|Item 6.    | Exhibits                                                                                                      |  |      
|           |                                                                                                               |  |      
|SIGNATURES |                                                                                                               |  | 28   

2

---

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

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

|                                                                                                                          |  |                     |         |                    |   |         | 
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ------------------ | - | ------- | 
|Assets                                                                                                                    |  | September 30,
 2009 |         | December 31,
 2008 |  
|                                                                                                                          |  |                     |         |                    |   |         | 
|Current assets:                                                                                                           |  |                     |         |                    |   |         | 
|Cash and cash equivalents                                                                                                 |  | $                   | 12,325  |                    | $ | 14,885  | 
|Marketable securities                                                                                                     |  |                     | 78,235  |                    |   | 39,870  | 
|Receivables, net of allowance for doubtful accounts and sales returns
 of $339 and $489, respectively                     |  |                     | 14,448  |                    |   | 11,099  | 
|Inventories                                                                                                               |  |                     | 4,120   |                    |   | 5,625   | 
|Prepaid income taxes                                                                                                      |  |                     |        |                    |   | 314     | 
|Prepaid expenses and other current assets                                                                                 |  |                     | 1,214   |                    |   | 2,014   | 
|Deferred income taxes - current                                                                                           |  |                     | 492     |                    |   | 344     | 
|Total current assets                                                                                                      |  |                     | 110,834 |                    |   | 74,151  | 
|                                                                                                                         
|Marketable securities - non-current                                                                                       |  |                     | 16,763  |                    |   | 40,647  | 
|Property and equipment, net                                                                                               |  |                     | 5,517   |                    |   | 6,183   | 
|Deferred income taxes - non-current                                                                                       |  |                     | 2,457   |                    |   | 2,281   | 
|Other assets - non-current                                                                                                |  |                     |        |                    |   | 194     | 
|Total assets                                                                                                              |  | $                   | 135,571 |                    | $ | 123,456 | 
|                                                                                                                          |  |                     |         |                    |   |         | 
|Liabilities and
 Stockholders Equity                                                                                     |  |                     |         |                    |   |         | 
|Current liabilities:                                                                                                      |  |                     |         |                    |   |         | 
|Trade accounts payable                                                                                                    |  | $                   | 5,427   |                    | $ | 4,534   | 
|Accrued compensation                                                                                                      |  |                     | 2,738   |                    |   | 1,879   | 
|Other accrued expenses                                                                                                    |  |                     | 1,027   |                    |   | 827     | 
|Income taxes payable                                                                                                      |  |                     | 413     |                    |   |        | 
|Deferred income and customer deposits                                                                                     |  |                     | 6,218   |                    |   | 4,507   | 
|Other current liabilities                                                                                                 |  |                     | 35      |                    |   | 263     | 
|Total current liabilities                                                                                                 |  |                     | 15,858  |                    |   | 12,010  | 
|                                                                                                                          |  |                     |         |                    |   |         | 
|Long-term liabilities:                                                                                                    |  |                     |         |                    |   |         | 
|Deferred income and customer deposits - non-current                                                                       |  |                     | 2,845   |                    |   | 1,942   | 
|Income taxes payable - non-current                                                                                        |  |                     | 266     |                    |   | 421     | 
|Other non-current liabilities                                                                                             |  |                     | 16      |                    |   | 35      | 
|Total long-term liabilities                                                                                               |  |                     | 3,127   |                    |   | 2,398   | 
|Total liabilities                                                                                                         |  |                     | 18,985  |                    |   | 14,408  | 
|                                                                                                                          |  |                     |         |                    |   |         | 
|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 9,380,185 and 9,334,435, respectively |  |                     | 94      |                    |   | 93      | 
|Additional paid-in capital                                                                                                |  |                     | 38,909  |                    |   | 37,484  | 
|Retained earnings                                                                                                         |  |                     | 76,554  |                    |   | 70,287  | 
|Accumulated other comprehensive income                                                                                    |  |                     | 1,029   |                    |   | 1,184   | 
|Total stockholders equity                                                                                                |  |                     | 116,586 |                    |   | 109,048 | 
|                                                                                                                          |  |                     |         |                    |   |         | 
|Total liabilities and stockholders equity                                                                                |  | $                   | 135,571 |                    | $ | 123,456 | 

See accompanying notes to condensed
consolidated financial statements.

3

---

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

|                                               |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|---------------------------------------------- |  | --------------------------------- | ------ | -------------------------------- | - | ------ | - | ---- | ------ | - | - | ------ | -
|                                               |  | Three Months Ended
 September 30, |        | Nine Months Ended
 September 30, |  
|                                               |  | 2009                              |        | 2008                             |   | 2009   |   | 2008 |       
|                                              
|Revenues:                                      |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Product                                        |  | $                                 | 19,731 |                                  | $ | 22,723 |   | $    | 52,224 |   | $ | 63,597 |  
|Service                                        |  |                                   | 2,634  |                                  |   | 2,487  |   |      | 8,317  |   |   | 7,048  |  
|Total revenues                                 |  |                                   | 22,365 |                                  |   | 25,210 |   |      | 60,541 |   |   | 70,645 |  
|Cost of revenues:                              |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Product                                        |  |                                   | 9,401  |                                  |   | 10,956 |   |      | 26,142 |   |   | 31,869 |  
|Service                                        |  |                                   | 1,867  |                                  |   | 2,277  |   |      | 5,549  |   |   | 7,209  |  
|Total cost of revenues                         |  |                                   | 11,268 |                                  |   | 13,233 |   |      | 31,691 |   |   | 39,077 |  
|Gross profit                                   |  |                                   | 11,097 |                                  |   | 11,977 |   |      | 28,850 |   |   | 31,568 |  
|                                              
|Operating expenses:                            |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Research and development                       |  |                                   | 1,514  |                                  |   | 1,227  |   |      | 4,990  |   |   | 4,091  |  
|Selling, general and administrative            |  |                                   | 5,009  |                                  |   | 5,225  |   |      | 15,499 |   |   | 17,535 |  
|Total operating expenses                       |  |                                   | 6,523  |                                  |   | 6,452  |   |      | 20,489 |   |   | 21,626 |  
|Operating income                               |  |                                   | 4,574  |                                  |   | 5,525  |   |      | 8,361  |   |   | 9,942  |  
|                                              
|Other income (expense):                        |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Interest, net                                  |  |                                   | 309    |                                  |   | 691    |   |      | 1,323  |   |   | 2,203  |  
|Realized gain on sale of marketable securities |  |                                   |       |                                  |   |       |   |      | 278    |   |   |       |  
|Gain (loss) on currency exchange               |  |                                   | 5      |                                  |   | 40     |   |      | 47     |   |   | (123   | )
|Other, net                                     |  |                                   | (4     | )                                |   | (20    | ) |      | (5     | ) |   |       |  
|Total other income, net                        |  |                                   | 310    |                                  |   | 711    |   |      | 1,643  |   |   | 2,080  |  
|Income before income taxes                     |  |                                   | 4,884  |                                  |   | 6,236  |   |      | 10,004 |   |   | 12,022 |  
|Income tax expense                             |  |                                   | 1,775  |                                  |   | 2,230  |   |      | 3,737  |   |   | 4,303  |  
|Net income                                     |  | $                                 | 3,109  |                                  | $ | 4,006  |   | $    | 6,267  |   | $ | 7,719  |  
|                                               |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Net income per basic share                     |  | $                                 | 0.33   |                                  | $ | 0.42   |   | $    | 0.67   |   | $ | 0.80   |  
|                                               |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Net income per diluted share                   |  | $                                 | 0.33   |                                  | $ | 0.42   |   | $    | 0.66   |   | $ | 0.79   |  
|                                               |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Basic weighted average shares outstanding      |  |                                   | 9,376  |                                  |   | 9,470  |   |      | 9,364  |   |   | 9,632  |  
|                                               |  |                                   |        |                                  |   |        |   |      |        |   |   |        |  
|Diluted weighted average shares outstanding    |  |                                   | 9,564  |                                  |   | 9,595  |   |      | 9,494  |   |   | 9,820  |  

See accompanying notes to
condensed consolidated financial statements.

4

---

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

|                                                                                   |      |                                  |         |   |   |         |  
|---------------------------------------------------------------------------------- | ---- | -------------------------------- | ------- | - | - | ------- | -
|                                                                                   |      | Nine months ended
 September 30, |        
|                                                                                   |      |                                  |         |   |  
|                                                                                   | 2009 | 2008                            
|Cash flows
 from operating activities:                                             |      |                                  |         |   |   |         |  
|Net income                                                                         |      | $                                | 6,267   |   | $ | 7,719   |  
|Adjustments to reconcile net income to net
 cash provided by operating activities: |      |                                  |         |   |   |         |  
|Depreciation and amortization                                                      |      |                                  | 897     |   |   | 1,044   |  
|Deferred income tax benefit                                                        |      |                                  | (305    | ) |   | (50     | )
|Gain on sale of marketable securities                                              |      |                                  | (278    | ) |   |        |  
|Loss on disposal of property and equipment                                         |      |                                  | 2       |   |   | 3       |  
|Stock-based compensation                                                           |      |                                  | 1,213   |   |   | 748     |  
|Excess tax benefits from stock-based
 compensation                                 |      |                                  |        |   |   | (673    | )
|Changes in operating assets and
 liabilities:                                      |      |                                  |         |   |   |         |  
|Receivables                                                                        |      |                                  | (3,252  | ) |   | (781    | )
|Inventories                                                                        |      |                                  | 1,506   |   |   | 2,160   |  
|Prepaid income taxes/income taxes payable                                          |      |                                  | 659     |   |   | 1,196   |  
|Prepaid expenses and other current assets                                          |      |                                  | 991     |   |   | 339     |  
|Trade accounts payable                                                             |      |                                  | 790     |   |   | (3,357  | )
|Accrued compensation                                                               |      |                                  | 840     |   |   | (1,085  | )
|Other accrued expenses and other current
 liabilities                              |      |                                  | (28     | ) |   | (59     | )
|Deferred income and customer deposits                                              |      |                                  | 2,598   |   |   | (399    | )
|                                                                                   |      |                                  |         |   |   |         |  
|Net cash provided by operating activities                                          |      |                                  | 11,900  |   |   | 6,805   |  
|                                                                                   |      |                                  |         |   |   |         |  
|Cash flows
 from investing activities:                                             |      |                                  |         |   |   |         |  
|Purchases of marketable securities                                                 |      |                                  | (58,119 | ) |   | (52,059 | )
|Maturities and sales of marketable
 securities                                     |      |                                  | 43,460  |   |   | 71,756  |  
|Purchases of property and equipment                                                |      |                                  | (208    | ) |   | (4,318  | )
|Other non-current items                                                            |      |                                  |        |   |   | (6      | )
|                                                                                   |      |                                  |         |   |   |         |  
|Net cash provided by (used in) investing activities                                |      |                                  | (14,867 | ) |   | 15,373  |  
|                                                                                   |      |                                  |         |   |   |         |  
|Cash flows
 from financing activities:                                             |      |                                  |         |   |   |         |  
|Checks written in excess of bank balance                                           |      |                                  |        |   |   | 1,124   |  
|Principal payments on capital lease
 obligations                                   |      |                                  | (19     | ) |   | (18     | )
|Repurchase of common stock                                                         |      |                                  |        |   |   | (9,284  | )
|Excess tax benefits from stock-based
 compensation                                 |      |                                  |        |   |   | 673     |  
|Proceeds from employee stock plans                                                 |      |                                  | 284     |   |   | 1,485   |  
|                                                                                   |      |                                  |         |   |   |         |  
|Net cash provided by (used in) financing activities                                |      |                                  | 265     |   |   | (6,020  | )
|                                                                                   |      |                                  |         |   |   |         |  
|Effect of
 exchange rate changes on cash                                           |      |                                  | 142     |   |   | (13     | )
|                                                                                   |      |                                  |         |   |   |         |  
|Net increase
 (decrease) in cash and cash equivalents                              |      |                                  | (2,560  | ) |   | 16,145  |  
|                                                                                   |      |                                  |         |   |   |         |  
|Cash and
 cash equivalents, beginning of period                                    |      |                                  | 14,885  |   |   | 7,416   |  
|                                                                                   |      |                                  |         |   |   |         |  
|Cash and
 cash equivalents, end of period                                          |      | $                                | 12,325  |   | $ | 23,561  |  
|                                                                                   |      |                                  |         |   |   |         |  
|Supplemental
 disclosures of net cash paid during the period for:                  |      |                                  |         |   |   |         |  
|Income taxes                                                                       |      | $                                | 2,980   |   | $ | 3,160   |  

See
accompanying notes to condensed consolidated financial statements.

5

---

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

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Basis of
 Presentation and Nature of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Rimage
 Corporation (the Company or Rimage) develops, manufactures and markets
 digital publishing systems that are used by businesses to produce recordable
 CD (CD-R), DVD (DVD-R) and blue laser 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 blue
 laser 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, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | 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 subsequent events through the date that the financial
 statements were issued, which was November 9, 2009, the date of the Companys
 Quarterly Report on Form 10-Q for the period ended September 30, 2009. Note
 13 describes a material event that occurred subsequent to September 30, 2009
 for which the conditions that generated the event did not exist as of
 September 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

6

---

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 September 30, 2009, a total of 662,770 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 non-employee
 directors under the 2007 Plan are subject to the risk of forfeiture and
 transfer restrictions that lapse one year 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 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 $413,000 and $1,212,000 for the three and nine months
 ended September 30, 2009, respectively, compared to $451,000 and $748,000 for
 the comparable periods in 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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 nine months ended
 September 30, 2009 and 2008:

|                                   |  |                                  |               |      |  |              |  
|---------------------------------- |  | -------------------------------- | ------------- | ---- |  | ------------ | -
|                                   |  | Nine Months
 Ended September 30, |              
|                                   |  | 2009                             |               | 2008 | 
|                                   |  |                                  |               |      | 
|                                   |  |                                  |               |      |  |              |  
|Expected life of options in
 years |  |                                  | 4.75          |      |  | 4.75
 - 6.00 |  
|                                   |  |                                  |               |      |  |              |  
|Risk-free interest rate            |  |                                  | 1.6%
 - 2.2   | %    |  | 3.1          | %
|                                   |  |                                  |               |      |  |              |  
|Expected volatility                |  |                                  | 48.5%
 - 49.7 | %    |  | 39.1
 - 40.0 | %
|                                   |  |                                  |               |      |  |              |  
|Expected dividend yield            |  |                                  | 0.0           | %    |  | 0.0          | %

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 Company reviews these assumptions at the time of each new option award and
 adjusts them as necessary to ensure proper option valuation. The expected
 life represents the period that the stock option awards are expected to be
 outstanding. 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
 in 2008 and 2009. As such, the Company used the simplified method for
 determining the expected life of stock options granted to employees in 2008
 and 2009, 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 September 30,      |       | Nine Months Ended September 30, |  
|                                                         |  | 2009                                  |       | 2008                            |   | 2009  |  | 2008 |      
|                                                         |  | (in thousands, except per share data) |      
|                                                         |  |                                       |       |                                 |   |       |  |      |       |  |   |       | 
|Number of options granted                                |  |                                       | 50    |                                 |   |      |  |      | 400   |  |   | 184   | 
|Fair value of options granted                            |  | $                                     | 352   |                                 | $ |      |  | $    | 2,503 |  | $ | 1,282 | 
|Per share weighted average fair value of options granted |  | $                                     | 7.03  |                                 | $ |      |  | $    | 6.25  |  | $ | 6.98  | 
|Total fair value of stock options vested                 |  | $                                     |      |                                 | $ |      |  | $    | 949   |  | $ | 879   | 
|Total intrinsic value of stock options exercised         |  | $                                     |      |                                 | $ |      |  | $    | 151   |  | $ | 2,592 | 
|Total intrinsic value of stock options outstanding       |  | $                                     | 3,163 |                                 | $ | 1,347 |  | $    | 3,163 |  | $ | 1,347 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Cash
 received from the exercise of stock options was $284,000 and $1,485,000 for
 the nine months ended September 30, 2009 and 2008, respectively. The exercise
 of stock options, expirations of vested stock options and lapse of restrictions
 on restricted stock during the nine months ended September 30, 2009 generated
 a net non-deductible income tax impact of $70,000, recorded as a reduction to
 additional paid-in capital. The exercise of stock options during the nine
 months ended September 30, 2008 generated an income tax benefit of $930,000,
 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 September 30, 2009 and December 31, 2008
 totaled $219,000 and $361,000, respectively (excluding interest and
 penalties). Changes in gross unrecognized tax benefits during the nine months
 ended September 30, 2009 consisted primarily of a net increase of $65,000 and
 a decrease of $217,000 for tax positions taken in prior years. The decrease
 of $217,000 is fully offset by a deferred tax asset. Included in the balance
 of unrecognized tax benefits at September 30, 2009 are potential benefits of
 $181,000 that if recognized, would affect the effective tax rate. The
 difference between this amount and the corresponding amount of gross
 unrecognized tax benefits relates primarily to deferred federal benefits of
 uncertain tax positions. The Company made no other material adjustments to
 its unrecognized tax benefits during the nine months ended September 30,
 2009.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | 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 $47,000 and $59,000 on a gross basis at September 30,
 2009 and December 31, 2008, 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 September 30, 2009, 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, except for variable rate demand notes, have
 original maturities ranging from three to 36 months. Variable rate demand
 notes may be liquidated in less than three months from the date of purchase,
 but have legal maturities of greater than three months and are required to be
 classified as marketable securities. Marketable securities are classified as
 available-for-sale. Available-for-sale securities are recorded at fair value
 and any unrealized holding gains and losses, net of the related tax effect,
 are excluded from earnings and are reported as a separate component of
 accumulated other comprehensive income until realized. See Note 8, Fair
 Value Measurements, for a discussion of inputs used to measure the fair
 value of the Companys available-for-sale securities. The Companys
 marketable securities at September 30, 2009 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):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                           |  |                     |       |                     |   |       | 
|------------------------------------------ |  | ------------------- | ----- | ------------------- | - | ----- | 
|                                           |  | September 30,
 2009 |       | December
 31,
 2008 |  
|                                          
|Finished goods and demonstration equipment |  | $                   | 1,354 |                     | $ | 1,717 | 
|Purchased parts and subassemblies          |  |                     | 2,766 |                     |   | 3,908 | 
|                                           |  | $                   | 4,120 |                     | $ | 5,625 | 
|                                           |  |                     |       |                     |   |       | 

|    |                                                                                                                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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):

10

---

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

|                                                           |  |                                   |       |                                  |   |       |   |      |       |   |   |       |  
|---------------------------------------------------------- |  | --------------------------------- | ----- | -------------------------------- | - | ----- | - | ---- | ----- | - | - | ----- | -
|                                                           |  | Three Months Ended
 September 30, |       | Nine Months Ended
 September 30, |  
|                                                           |  | 2009                              |       | 2008                             |   | 2009  |   | 2008 |      
|                                                          
|Net income                                                 |  | $                                 | 3,109 |                                  | $ | 4,006 |   | $    | 6,267 |   | $ | 7,719 |  
|Other comprehensive income:                                |  |                                   |       |                                  |   |       |   |      |       |   |   |       |  
|Net changes in:                                            |  |                                   |       |                                  |   |       |   |      |       |   |   |       |  
|Foreign currency translation adjustments                   |  |                                   | 298   |                                  |   | (475  | ) |      | 128   |   |   | (19   | )
|Net unrealized loss on marketable securities, net of taxes |  |                                   | (57   | )                                |   | (135  | ) |      | (282  | ) |   | (32   | )
|Total comprehensive income                                 |  | $                                 | 3,350 |                                  | $ | 3,396 |   | $    | 6,113 |   | $ | 7,668 |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(7) | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The Company enters into
 forward foreign exchange contracts principally to hedge intercompany
 receivables denominated in Euros arising from sales to its subsidiary in
 Germany. The Companys foreign exchange contracts do not qualify for hedge
 accounting under the Derivatives and Hedging Topic of the Codification. As a
 result, gains or losses related to mark-to-market adjustments on forward
 foreign exchange contracts are recognized as other income or expense in the
 income statement during the period in which the instruments are outstanding.
 The fair value of forward foreign exchange contracts represents the amount
 the Company would receive or pay to terminate the forward exchange contracts
 at the reporting date and is recorded in other current assets or other
 current liabilities depending on whether the net amount is a gain or a loss.
 The Company does not utilize financial instruments for trading or other
 speculative purposes.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As of September 30, 2009,
 the Company had four outstanding foreign exchange contracts with a notional
 amount totaling approximately $651,000. These contracts mature during 2009
 and bear exchange rates ranging from 1.4155 and 1.4589 U.S. Dollars per Euro.
 As of September 30, 2009, the fair value of foreign exchange contracts
 resulted in a net loss position of $10,000, which is recorded in other
 current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As of December 31, 2008,
 the Company had 15 outstanding foreign exchange contracts with a notional
 amount totaling $2,601,000, all maturing during the first half of 2009 at
 exchange rates ranging from 1.2431 to 1.3540 U.S. Dollars per Euro. As of
 December 31, 2008, the fair value of foreign exchange contracts resulted in a
 net loss position of approximately $238,000, which is recorded in other
 current liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Realized and unrealized
 gains or losses on derivative instruments related to foreign currency
 exchange contracts and their location on the Companys condensed consolidated
 statements of income are as follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                           |  |  |                           |  |                                  |     |      |   |    | 
|-------------------------- |  |  | ------------------------- |  | -------------------------------- | --- | ---- | - | -- | 
|                           |  |  |                           |  | Nine Months Ended
 September 30, |    
|Derivative
 Instrument     |  |  | Location                  |  | 2009                             |     | 2008 |  
|                           |  |  |                           |  |                                  |     |      |   |    | 
|Foreign Exchange Contracts |  |  | Gain on currency exchange |  | $                                | 217 |      | $ | 74 | 

11

---

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

| |                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The
 net gains from foreign exchange contracts reflected above were largely offset
 by the underlying transaction net losses arising from the foreign currency
 exposures for which these contracts relate.                              
| |                                                                                                                                                                                                                                          
| | The
 gross fair market value of derivative instruments related to foreign currency
 exchange contracts and their location on the Companys condensed consolidated
 balance sheets are as follows as of September 30, 2009 (in thousands):

| |                            |  |                          |  |                       |   |          |                              |                     |   |     |  
| | -------------------------- |  | ------------------------ |  | --------------------- | - | -------- | ---------------------------- | ------------------- | - | --- | -
| |                            |  | Asset Derivatives        |  | Liability Derivatives |  
| | Derivative Instrument      |  | Location                 |  | September 30,
 2009   |   | Location |                              | September 30,
 2009 |  
| | Foreign Exchange Contracts |  | Other current assets (1) |  | $                     |  |          | Other current liabilities(1) |                     | $ | (10 | )

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | (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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | The
 Fair Value Measurements and Disclosures Topic of the Codification establishes
 a framework for measuring fair value by creating a hierarchy of fair value
 measurements that distinguishes market data between observable independent
 market inputs and unobservable market assumptions by the reporting entity.
 Three levels within the hierarchy may be used to measure fair value:                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Level
 1: Inputs are unadjusted quoted prices in active markets for identical assets
 and liabilities.                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Level
 2: Inputs include data points that are observable such as quoted prices for similar
 assets or liabilities in active markets, quoted prices for identical or
 similar assets or liabilities in markets that are not active, and inputs
 (other than quoted prices) such as interest rates and yield curves that are
 observable for the asset or liability, either directly or indirectly.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | Level
 3: Inputs are generated from model-based techniques that use significant
 assumptions not observable in the market. These unobservable assumptions
 reflect an entitys own estimates of assumptions that market participants
 would use in pricing the asset or liability.                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The
 Companys assets and liabilities measured at fair value on a recurring basis
 and the fair value hierarchy utilized to determine such fair values is as
 follows at September 30, 2009:                                                                                                                                                                                                                                                                                                                                                                                                                                                          

12

---

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

|                                            |  |                                              |        |                                             |   |                                                  |  |                                              |        |  |   |   | 
|------------------------------------------- |  | -------------------------------------------- | ------ | ------------------------------------------- | - | ------------------------------------------------ |  | -------------------------------------------- | ------ |  | - | - | 
|                                            |  |                                              |        | Fair Value Measurements Using               |  
|(in thousands)                              |  | Total Carrying
 Value at
 September 30, 2009 |        | Quoted Prices in
 Active Markets
 (Level 1) |   | Significant Other
 Observable
 Inputs
 (Level 2) |  | Significant
 Unobservable
 Inputs
 (Level 3) |       
|Assets                                      |  |                                              |        |                                             |   |                                                  |  |                                              |        |  |   |   | 
|Available-for-sale securities               |  | $                                            | 94,998 |                                             | $ |                                                 |  | $                                            | 94,998 |  | $ |  | 
|Liabilities                                 |  |                                              |        |                                             |   |                                                  |  |                                              |        |  |   |   | 
|Foreign currency forward exchange contracts |  | $                                            | 10     |                                             | $ |                                                 |  | $                                            | 10     |  | $ |  | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 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.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | The
 Financial Instruments Topic of the Codification permits entities to choose to
 measure many financial instruments and certain other items at fair value. This
 statement also establishes presentation and disclosure requirements designed
 to facilitate comparisons between entities that choose different measurement
 attributes for similar types of assets and liabilities. Unrealized gains and
 losses on items for which the fair value option is elected would be reported
 in earnings. The Company has not elected the fair value measurement option
 provided for under this guidance for any of its financial assets or
 liabilities as of September 30, 2009, and the Company has not determined
 whether or not it will elect this option for financial instruments it may
 acquire in the future.                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(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 and nine months
 ended September 30, 2009, the Company did not repurchase any shares of its
 common stock. As of September 30, 2009, 422,917 shares were available for
 repurchase under the authorizations.       

13

---

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Recently Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | In
 September 2006, the Financial Accounting Standards Board (FASB) issued
 authoritative guidance on fair value measurements and disclosures. This
 guidance defines fair value, establishes a framework for measuring fair value
 and requires enhanced disclosures about fair value measurements. The Company
 adopted this guidance effective January 1, 2008. In February 2008, the FASB
 delayed the effective date of this guidance to fiscal years beginning after
 November 15, 2008 for nonfinancial assets and liabilities, except for items
 that are recognized and disclosed at fair value in the financial statements
 on a recurring basis (at least annually). Effective January 1, 2009, the
 company adopted the guidance applicable to nonfinancial assets and
 liabilities that was previously deferred. The adoption did not impact the
 Companys consolidated financial statements and related disclosures for the
 nine months ended September 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | In
 March 2008, the FASB issued authoritative guidance on disclosures about
 derivative instruments and hedging activities. The required disclosures
 include information about an entitys objectives and strategies for using
 derivatives, the existence and nature of credit-risk-related contingent
 features in derivative instruments, counterparty credit risk, the relative
 volume of derivative activity, the fair value of derivative instruments and
 related amounts of gains and losses. The Company adopted the disclosure
 provisions of this guidance effective January 1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | In
 June 2008, the FASB issued authoritative guidance on the treatment of
 participating securities in the calculation of earnings per share (EPS).
 This guidance requires all outstanding unvested share-based payment awards
 that contain nonforfeitable rights to dividends or dividend equivalents
 (whether paid or unpaid) to be considered participating securities and shall
 be included in the computation of basic and diluted earnings per share using
 the two-class method. All prior-period earnings per share data presented
 shall be adjusted retrospectively. The Company adopted this guidance
 effective January 1, 2009. As discussed under Note 11, while applicable to
 the Company, the adoption did not have a material impact on the Companys
 consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | In
 November 2007, the FASB issued authoritative guidance on the accounting for
 collaborative arrangements. This guidance applies to participants in a collaborative
 arrangement, defined as a contractual arrangement that involves a joint
 operating activity involving two (or more) parties who are both (a) active
 participants in the activity and (b) exposed to significant risks and rewards
 dependent on the commercial success of the activity. Revenues and costs
 incurred with third parties in connection with a collaborative arrangement
 should be presented gross or net by the collaborators based on criteria
 outlined in other applicable accounting literature. Payments to or from
 collaborators should be presented in the income statement based on the nature
 of the arrangement, the nature of the Companys business and whether the
 payments are within the scope of other accounting literature. This guidance
 is effective for the Company as of January 1, 2009, and should be applied to
 collaborative arrangements in existence at the date of adoption using the
 modified retrospective method that requires reclassification in all periods
 presented for those arrangements still in effect at the transition date,
 unless that application is impracticable. The adoption of this guidance did
 not have an impact on the Companys consolidated financial statements and
 related disclosures for the nine months ended September 30, 2009.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|     | In
 April 2009, the FASB issued authoritative guidance for estimating fair value
 of assets and liabilities when market activity has decreased and on
 identifying transactions that are not orderly. Additionally, entities are
 required to disclose in interim and annual periods the inputs and valuation
 techniques used to measure fair value. This guidance was effective for the
 Company for its quarter ended June 30, 2009. The adoption of this guidance
 did not have an impact on the Companys consolidated financial statements and
 related disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

14

---

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In
 May 2009, the FASB issued authoritative guidance on subsequent events. The
 objective of this guidance is to establish general standards of recognition
 and disclosure of events that occur after the balance sheet date but before
 the issuance of the financial statements. Under this guidance, an entity must
 record the effects of subsequent events that provide evidence about
 conditions that existed at the balance sheet date and, if material, must
 disclose but not record the effects of subsequent events which provide
 evidence about conditions that did not exist at the balance sheet date.
 Additional disclosure required by this standard includes the date through
 which subsequent events have been evaluated by management and whether that is
 the date on which the financial statements were issued. This guidance was
 effective for the Company for its quarter ended June 30, 2009. The additional
 disclosures required by this standard are included in Note 1.                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In
 July 2009, the FASB launched its Accounting Standards Codification and the
 Hierarchy of Generally Accepted Accounting Principles (the Codification).
 The Codification became the exclusive authoritative source of nongovernmental
 U.S. generally accepted accounting principles (GAAP) for interim and annual
 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 Company adopted the Codification during the three months
 ended September 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In
 August 2009, the FASB issued authoritative guidance that amends previously
 issued guidance on fair value measurements and disclosures. Under the updated
 guidance, companies determining the fair value of a liability may use the
 perspective of an investor that holds the related obligation as an asset. The
 update addresses practice difficulties caused by tension between fair value
 measurements based on the price that would be paid to transfer a liability to
 a new obligor and contractual or legal requirements that prevent such
 transfers from taking place. No new fair value measurements are required by
 this guidance. The new guidance is effective for the Company for its quarter
 ending December 31, 2009 and is not expected to have a material effect the
 Companys consolidated financial statements and related disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In
 September 2009, the FASB ratified its guidance on two revenue recognition
 standards that will become effective for the Company beginning January 1,
 2011, with earlier adoption permitted. Under the new guidance on revenue
 arrangements with multiple deliverables, 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. Under the new guidance on arrangements that include
 software elements, 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. In the initial year of
 application, companies are required to make qualitative and quantitative
 disclosures about the impact of the changes under both standards. The Company
 is currently evaluating the impact of adopting the new revenue recognition
 guidance on its consolidated financial statements and related disclosures.

15

---

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(11) | Computation
 of Net Income Per Share of Common Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     | Basic
 net income per common share is determined by dividing net income by the 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. Stock options to acquire weighted average common shares of
 709,000 and 732,000 for the three and nine months ended September 30, 2009,
 respectively, and weighted average common shares 788,000 and 717,000 for the
 three and nine months ended September 30, 2008, respectively, have been excluded
 from the computation of diluted weighted average shares outstanding for each
 respective period as their effect is anti-dilutive. Effective January 1,
 2009, the Company adopted guidance under the Earnings Per Share Topic of the
 Codification which requires all outstanding unvested share-based payment
 awards that contain nonforfeitable rights to dividends or dividend
 equivalents (whether paid or unpaid) to be considered participating
 securities and shall be included in the computation of basic and diluted
 earnings per share using the two-class method. As required by this guidance,
 the Company increased the amount of basic weighted average shares outstanding
 previously reported for the three and nine months ended September 30, 2008 by
 approximately 3,000 and 5,000 shares, respectively. These amounts pertain to
 outstanding unvested restricted stock deemed to be participating securities.
 The adjustment had no impact on previously reported earnings per share
 amounts. The following table identifies the components of net income per
 basic and diluted share (in thousands, except for per share data):

|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|-------------------------------------------------------- |  | ---------------------------------- | ----- | ---------------------------------- | - | ----- |  | ---- | ----- |  | - | ----- | 
|                                                         |  | Three
 Months Ended
 September 30, |       | Nine
 Months Ended 
 September 30, |  
|                                                         |  | 2009                               |       | 2008                               |   | 2009  |  | 2008 |      
|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|Shares outstanding at end
 of period                     |  |                                    | 9,380 |                                    |   | 9,353 |  |      | 9,380 |  |   | 9,353 | 
|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|Basic weighted average
 shares outstanding               |  |                                    | 9,376 |                                    |   | 9,470 |  |      | 9,364 |  |   | 9,632 | 
|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|Dilutive effect of stock
 options/restricted stock units |  |                                    | 188   |                                    |   | 125   |  |      | 130   |  |   | 188   | 
|Total diluted weighted
 average shares outstanding       |  |                                    | 9,564 |                                    |   | 9,595 |  |      | 9,494 |  |   | 9,820 | 
|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|Net income                                               |  | $                                  | 3,109 |                                    | $ | 4,006 |  | $    | 6,267 |  | $ | 7,719 | 
|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|Basic net income per common
 share                       |  | $                                  | 0.33  |                                    | $ | 0.42  |  | $    | 0.67  |  | $ | 0.80  | 
|                                                         |  |                                    |       |                                    |   |       |  |      |       |  |   |       | 
|Diluted net income per
 common share                     |  | $                                  | 0.33  |                                    | $ | 0.42  |  | $    | 0.66  |  | $ | 0.79  | 

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

16

---

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

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(13) | Subsequent
 Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | The
 Company announced a transition in its leadership by a press release issued on
 November 9, 2009, and as further disclosed in a Form 8-K filed on the same
 date. As described in these documents, on November 4, 2009, the Board of
 Directors of Rimage Corporation appointed Sherman Black, currently President
 and Chief Operating Officer, as the Companys President and Chief Executive
 Officer and a member of the Companys Board of Directors effective January 1,
 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | As
 a part of the Companys ongoing succession planning process, Mr. Black will
 succeed Mr. Bernard P. Aldrich who has been the Companys Chief Executive
 Officer and a director since 1996. On November 4, 2009, the Company and Mr.
 Aldrich entered into a Separation and Release Agreement (the Separation
 Agreement) that governs the terms of Mr. Aldrichs service through December
 31, 2009 and post-termination compensation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | Pursuant
 to the Separation Agreement, Mr. Aldrich will continue as the Companys Chief
 Executive Officer and as a director through December 31, 2009, at which time
 he will cease serving in both positions. Mr. Aldrich will provide the Company
 with a full release of claims and continue to be bound by a covenant not to
 compete. The Separation Agreement provides that Mr. Aldrich will receive a
 lump sum severance payment of $576,000 within 5 days after all rescission
 periods with respect to Mr. Aldrichs release of claims have expired, the
 Company will pay the employers portion of COBRA coverage for a period of 18
 months (approximately $10,000), and will pay Mr. Aldrich a lump sum payment
 at the end of that time of $50,000 to defray the costs of personal insurance.
 Any stock options held by Mr. Aldrich will continue on their current terms
 without modification. The Company anticipates that the expense associated
 with the Separation Agreement will be recognized in the fourth quarter of
 fiscal year 2009.
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|     | Mr.
 Aldrich also agreed to provide the Company with certain consulting services,
 primarily transition services to Mr. Black, effective for a 12-month period
 beginning January 1, 2010. This arrangement was memorialized in a consulting
 agreement pursuant to which Mr. Aldrich also agreed to extend his agreement
 not to compete with the Company for an additional one year after the term of
 the consulting agreement. In exchange for his services and the extended
 non-compete covenant, Mr. Aldrich will receive a monthly payment of
 $8,333.33. The Company anticipates that the expense associated with the
 consulting agreement will be recognized as related services are performed
 over the course of 2010.                                                                                                                                                                                                                                                                                                                               

17

---

| |                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------
| | Item 2.
 Managements Discussion and Analysis of Financial Condition and Results of
 Operations                                            
| |                                                                                                                                            
| | The following table sets
 forth, for the periods indicated, selected items from the Companys condensed
 consolidated statements of income.

|                                    |  |                                                                |       |                                             |  |                                                               |   |                                             |       |      |  |               |   |  |       |   |  |       |  
|----------------------------------- |  | -------------------------------------------------------------- | ----- | ------------------------------------------- |  | ------------------------------------------------------------- | - | ------------------------------------------- | ----- | ---- |  | ------------- | - |  | ----- | - |  | ----- | -
|                                    |  | Percentage (%)
 of Revenues
 Three Months Ended
 September 30, |       | Percentage (%)
 Inc/(Dec)
 Between
 Periods |  | Percentage (%)
 of Revenues
 Nine Months Ended
 September 30, |   | Percentage (%)
 Inc/(Dec)
 Between
 Periods |      
|                                    |  | 2009                                                           |       | 2008                                        |  | 2009 vs. 2008                                                 |   | 2009                                        |       | 2008 |  | 2009 vs. 2008 |  
|Revenues                            |  |                                                                | 100.0 |                                             |  | 100.0                                                         |   |                                             | (11.3 | )    |  | 100.0         |   |  | 100.0 |   |  | (14.3 | )
|Cost of revenues                    |  |                                                                | (50.4 | )                                           |  | (52.5                                                         | ) |                                             | (14.8 | )    |  | (52.3         | ) |  | (55.3 | ) |  | (18.9 | )
|Gross profit                        |  |                                                                | 49.6  |                                             |  | 47.5                                                          |   |                                             | (7.3  | )    |  | 47.7          |   |  | 44.7  |   |  | (8.6  | )
|Operating expenses:                 |  |                                                                |       |                                             |  |                                                               |   |                                             |       |      |  |               |   |  |       |   |  |       |  
|Research and development            |  |                                                                | (6.8  | )                                           |  | (4.9                                                          | ) |                                             | 23.4  |      |  | (8.2          | ) |  | (5.8  | ) |  | (22.0 | )
|Selling, general and administrative |  |                                                                | (22.3 | )                                           |  | (20.7                                                         | ) |                                             | (4.1  | )    |  | (25.7         | ) |  | (24.8 | ) |  | (11.6 | )
|Operating income                    |  |                                                                | 20.5  |                                             |  | 21.9                                                          |   |                                             | (17.2 | )    |  | 13.8          |   |  | 14.1  |   |  | (15.9 | )
|Other income, net                   |  |                                                                | 1.3   |                                             |  | 2.8                                                           |   |                                             | (56.4 | )    |  | 2.7           |   |  | 2.9   |   |  | (21.0 | )
|Income before income taxes          |  |                                                                | 21.8  |                                             |  | 24.7                                                          |   |                                             | (21.7 | )    |  | 16.5          |   |  | 17.0  |   |  | (16.8 | )
|Income tax expense                  |  |                                                                | (7.9  | )                                           |  | (8.8                                                          | ) |                                             | (20.4 | )    |  | (6.1          | ) |  | (6.1  | ) |  | (13.1 | )
|Net income                          |  |                                                                | 13.9  |                                             |  | 15.9                                                          |   |                                             | (22.4 | )    |  | 10.4          |   |  | 10.9  |   |  | (18.8 | )

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Rimage develops,
 manufactures and markets digital publishing systems that are used by
 businesses to produce recordable CD, DVD and blue laser 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 blue laser media. These systems allow customers to benefit from cost
 savings by reducing or eliminating their manual labor efforts in industries
 such as digital photography, medical imaging and business services. As
 Rimages sales within North America and Europe have averaged 95% 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 61% and 59% of its consolidated revenues during the nine
 months ended September 30, 2009 and 2008, 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.                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Results
 of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Revenues. Total revenues
decreased 11% and 14% to $22.4 million and $60.5 million for the three and
nine months ended September 30, 2009, respectively, from $25.2 million and
$70.6 million for the respective prior-year periods. The reduction in total
revenues between periods reflects a $3.0 million and $11.4 million decline in
product revenues for the three and nine months ended September 30, 2009,
respectively, partially offset by a $0.1 million and $1.3 million increase in
service-related revenues in each respective period. The reduction in product
revenues resulted from a $0.7 million and $5.1 million reduction in sales of
equipment for the three and nine months ended September 30, 2009, and a $2.3
million and $6.2 million reduction in sales of consumable products in each
respective period.                                                                                                               

18

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations
 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The overall decline in
 equipment sales in the current-year periods was primarily impacted by a
 reduced volume of sales in the Companys European market, followed by a lower
 volume of sales to the Companys U.S. channel partners. The reduction in
 equipment sales in the year-to-date period was also impacted by a shift in
 the distribution of sales to lower-end Producer products with lower average
 selling prices. The decrease in consumable product sales consisted primarily
 of declines in the volume of ribbon and ink cartridge sales of $1.6 million
 and $4.0 million for the current years third quarter and year-to-date
 periods, respectively, and a reduction in media and media kit sales of $0.7
 million and $2.2 million in the same respective periods. The growth in
 service-related revenues was primarily impacted by increased coverage of the
 Companys installed base of systems with maintenance contracts and a higher
 level of maintenance contract revenue recognized in the current year-to-date
 period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Recurring revenues,
 consisting of consumables, parts, maintenance contracts and service,
 comprised 57% and 61% of total revenues for the three and nine months ended
 September 30, 2009, respectively, compared to 58% and 59% in the same
 prior-year periods. Sales of Producer product line equipment comprised 37%
 and 33% of total revenues in the current years third quarter and
 year-to-date period, respectively, compared to 37% and 34% for the comparable
 periods in 2008. Remaining revenues in each period were generated by sales of
 Desktop product line equipment, representing 6% of revenues for the three and
 nine months ended September 30, 2009, compared to 5% and 7% in the same
 prior-year periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | International sales
 decreased 10% and 17% for the three and nine months ended September 30, 2009
 compared to the same periods last year, and comprised 35% and 40% of total
 sales, compared to 35% and 42% in the same prior-year periods. The decline in
 international sales was driven by an 18% and 22% reduction in sales in the
 Companys European market for the three and nine months ended September 30,
 2009, respectively, partially offset by sales growth in the Companys Asian
 markets of 37% and 17%, respectively. Currency fluctuations primarily
 affecting the Companys European operation contributed significantly to the
 decline in international revenues and reduced reported consolidated revenues
 for the three and nine months ended September 30, 2009 by 1% and 3%,
 respectively, relative to the same prior-year periods. The remaining decline
 in international sales in the current-year periods was primarily impacted by
 a reduced volume of equipment sales in Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | As of and for the nine
 months ended September 30, 2009, the Companys German and Japanese operations
 generated foreign revenues from unaffiliated customers of $21.4 million and
 operating income of $0.4 million. Net identifiable assets for these
 operations amounted to $9.9 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 nine months ended September 30, 2008
 were revenues of $26.0 million, operating income of $0.1 million and net
 identifiable assets of $9.1 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Gross
 profit. Gross profit as a percentage of total
 revenues was 50% and 48% for the three and nine months ended September 30,
 2009, compared to 48% and 45% for the same periods in 2008. The rise in gross
 profit as a percentage of total revenues for both current-year periods
 resulted primarily from reduced service costs related to improvements in the
 serviceability of the Companys products and lower compensation costs
 stemming from workforce reductions in 2008 and the first quarter of 2009, and
 for the year-to-date period, a higher level of maintenance contract revenues. Also contributing to
 the improvement in gross
 profit as a percentage of total revenue in both current-year periods was a
 lower volume of sales rebates from sales incentive programs. Additionally,
 the gross margin in the third quarter 2009 benefited from an increased
 concentration of higher-end systems in the Producer product line relative to
 the same period in the prior year. Partially offsetting the favorable impact
 of the above for both current-year periods was a reduction in average selling
 prices for lower-end products in the Producer product line, impacted by
 increased equipment sales in the U.S. retail market segment, which generally
 carry lower selling prices. Additionally, sales of consumable products in
 both current-year periods reflect a reduced volume and concentration of
 ribbons and ink cartridges, which generally carry higher margins than media
 and media kits. The gross margin in the current year-to-date period was also
 unfavorably impacted by a reduced volume and concentration of Producer
 product line equipment sales, which generally carry higher gross margins than
 Desktop product line equipment or recurring revenues.

19

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations
 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Future gross profit
 margins will continue to be affected by many factors, including product mix,
 the timing of new product introductions, changes in material costs,
 manufacturing volume, the 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 $1.5 million and $5.0 million for the three
 and nine months ended September 30, 2009, respectively, representing 7% and
 8% of revenues for each respective period. Expenses for the same prior-year
 periods totaled $1.2 million and $4.1 million, representing 5% and 6% of
 revenues, respectively. Expenses in both current-year periods reflect reduced
 compensation related costs stemming from workforce reductions offset by a
 higher level of investments in new product development. Rimage anticipates
 expenditures in research and development to increase approximately $1 million
 in the fourth quarter relative to the third quarter of 2009 as a result of
 the timing of expenses expected to be incurred on new product development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Selling, general and
 administrative expenses for the three and nine months ended September 30,
 2009 amounted to $5.0 million and $15.5 million, respectively, or 22% and 26%
 of revenues, compared to expenses in the same prior-year periods of $5.2
 million and $17.5 million, respectively, or 21% and 25% of revenues. The
 decline in expenses in both current-year periods primarily reflects the
 impact of cost reduction measures implemented during 2008 and early 2009, including
 reduced compensation related costs stemming from workforce reductions and
 reduced expenditures for travel and marketing and promotional programs. Also
 contributing to the decrease in expenses in the current year-to-date period
 was the net impact of currency fluctuations primarily affecting the Companys
 European operation, reducing expenses by $0.4 million. Partially offsetting
 the impact of the above for both current-year periods was an increase in
 employee incentive bonus expenses resulting from closer alignment of actual
 year-to-date revenue and operating income results to plan targets relative to
 the prior year.                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Other
 income, net. The
 Company recognized net interest income on cash and marketable securities of
 $0.3 million and $1.3 million for the three and nine months ended September
 30, 2009, compared to $0.7 million and $2.2 million for the same prior-year
 periods. The reduction in interest income in each of the current-year periods
 was the result of a decline in average effective yields approximating two
 percentage points relative to the same prior-year periods. Partially
 offsetting the impact of the reduction in interest rates was a $13 million
 and $7.5 million increase in average cash equivalent and marketable
 securities balances for the three and nine months ended September 30, 2009,
 respectively, compared to the same periods in the prior year. Other income
 for the nine months ended September
 30, 2009 includes the
 Companys recognition in the second quarter of a gain on sale of marketable
 securities of $0.3 million as a result of the sale of approximately $33
 million of municipal securities and reinvestment in U.S. treasury securities.
 Other income for the three and nine months ended September 30, 2009 also
 included net gains on foreign currency transactions of $5,000 and $47,000,
 respectively, compared to a net gain of $40,000 and a net loss of $123,000 on
 foreign currency transactions in the same periods in the prior year.

20

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Income
 taxes. The
 provision for income taxes represents federal, state and foreign income taxes
 on income. Income tax expense for the three and nine months ended September
 30, 2009 amounted to $1.8 million and $3.7 million, respectively, or 36.3%
 and 37.4% of income before taxes in each respective period. Income tax
 expense for the three and nine months ended September 30, 2008 was $2.2
 million and $4.3 million, or 35.8% of income before taxes in each period. The
 rise in the effective tax rate for the current-year periods primarily
 reflects the impact of higher state income taxes as a result of adjustments
 in certain state tax apportionment rates, a reduced benefit from the
 manufacturers tax deduction and the impact of tax-exempt interest income
 comprising a smaller percentage of pre-tax income. Partially offsetting the
 unfavorable effect of the above was the impact in both current-year periods
 of a reduction in U.S. pre-tax income resulting from a re-allocation to the
 U.S. parent company of expenses incurred in the Companys Japanese subsidiary
 to properly reflect expenses for each legal entity, a benefit in the
 current-year periods from the research credit, which was not reinstated in
 2008 until the fourth quarter, and a lower tax bracket from lower projected
 pre-tax income.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Net
 income / net income per share. Resulting net income for the three and nine months ended September
 30, 2009 was $3.1 million and $6.3 million, respectively, or 14% and 10% of revenues
 for the respective periods. Comparable amounts for the three and nine months
 ended September 30, 2008 were $4.0 million and $7.7 million, respectively, or
 16% and 11% of revenues, respectively. Related net income per diluted share
 amounts were $0.33 and $0.66 for the three and nine months ended September
 30, 2009, respectively, compared to $0.42 and $0.79 per diluted share for the
 respective prior-year periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | Liquidity
 and Capital Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The Company expects it
 will be able to maintain current operations and anticipated capital
 expenditure requirements for the foreseeable future through its internally
 generated funds 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 September 30, 2009, no amounts
 were outstanding under the credit agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | At September 30, 2009, the
 Company had working capital of $95.0 million, an increase of $32.8 million
 from working capital reported at December 31, 2008. The increase was
 primarily the result of the impact of a non-cash change in the classification
 of $18.7 million of marketable securities from non-current as of December 31,
 2008 to current as of September 30, 2009, the sale of $6.8 million of
 non-current marketable securities and corresponding purchase of current
 marketable securities and net income of $6.3 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
 nine months ended September 30, 2009, 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. Additionally, the Company may use
 its available cash for potential future strategic initiatives or alliances.                                                                                                                                                                                                                                                                                                                                                                          

21

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations
 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Net cash provided by
 operating activities totaled $11.9 million for the nine months ended
 September 30, 2009, compared to $6.8 million in the same prior-year period.
 The $5.1 million increase in cash generated from operating activities
 resulted from changes in operating assets and liabilities producing a $4.1 million
 net increase in cash for the nine months ended September, 2009, compared to a
 net use of cash of $2.0 million for the same period in 2008, partially offset
 by a $1.0 million reduction in net income adjusted for non-cash and
 non-operating items in the current-year period. Primarily contributing to the
 change in operating assets and liabilities compared to the comparable
 prior-year period was a $6.1 million favorable change in the aggregate amount
 of trade accounts payable, accrued compensation and accrued expenses and a
 $3.0 million favorable change in deferred income, partially offset by a $2.5
 million larger increase in receivables. The change in trade accounts payable,
 accrued compensation and accrued expenses reflects a $1.6 million aggregate
 increase in the amount of these balances in the current-year period, compared
 to a $4.5 million aggregate decrease in the same period last year. These
 changes were primarily due to reduced payments in the current-year period for
 inventory purchases, in the case of accounts payable, and reduced payments
 for bonus accruals, in the case of accrued compensation. The favorable change
 in deferred income resulted from a larger volume of new maintenance contracts
 or renewals in the second and third quarters of 2009 compared to the
 prior-year. The larger increase in accounts receivable in the current period
 was primarily impacted by a larger increase in sales in the last two months
 of third quarter 2009 relative to the last two months of fourth quarter 2008.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Investing activities used
 net cash of $14.9 million for the nine months ended September 30, 2009,
 compared to a net generation of cash of $15.4 million for the same prior-year
 period. The fluctuations in investing activities were primarily the result of
 $14.7 million in purchases of marketable securities, net of related
 maturities, during the nine months ended September 30, 2009, compared to
 $19.7 million in maturities of marketable securities, net of related
 purchases, in the same prior-year period. Purchases of property and equipment
 during the nine months ended September 30, 2009 and 2008 amounted to $0.2
 million and $4.3 million, respectively. Capital expenditures in both periods
 included purchases of office equipment and manufacturing tooling, and
 additionally in the prior-year period, the purchase of the Companys U.S.
 corporate headquarters and manufacturing facility, previously leased by the
 Company, at a cost of $3.9 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Financing activities
 generated net cash of $0.3 million for the nine months ended September 30,
 2009 and used net cash of $6.0 million in the same prior-year period.
 Financing activities in each period included proceeds from employee stock
 plans of $0.3 million and $1.5 million, respectively. Financing activities
 for the nine months ended September 30, 2008 also benefited from checks
 written in excess of the account bank balance of $1.1 million and excess tax
 benefits recognized as an addition to the additional paid-in capital pool of
 $0.7 million. Offsetting the increases in cash generated by financing
 activities in the prior years period was the Companys repurchase of 550,762
 shares of its common stock for $9.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

22

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations
 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Critical
 Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Management utilizes its
 technical knowledge, cumulative business experience, judgment and other
 factors in the selection and application of the Companys accounting
 policies. The 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 and sales returns,
 inventory provisions, deferred tax asset valuation allowances, accruals for
 uncertain tax positions, warranty accruals, 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, 2008. Management made no changes to the Companys
 critical accounting policies during the nine months ended September 30, 2009.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 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 nine months ended September 30,
 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Recently
 Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In September 2006, the
 Financial Accounting Standards Board (FASB) issued authoritative guidance
 on fair value measurements and disclosures. This guidance defines fair value,
 establishes a framework for measuring fair value and requires enhanced
 disclosures about fair value measurements. The Company adopted this guidance
 effective January 1, 2008. In February 2008, the FASB delayed the effective
 date of this guidance to fiscal years beginning after November 15, 2008 for
 nonfinancial assets and liabilities, except for items that are recognized and
 disclosed at fair value in the financial statements on a recurring basis (at
 least annually). Effective January 1, 2009, the company adopted the guidance applicable
 to nonfinancial assets and liabilities that was previously deferred. The
 adoption did not impact the Companys consolidated financial statements and
 related disclosures for the nine months ended September 30, 2009.                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In March 2008, the FASB issued
 authoritative guidance on disclosures about derivative instruments and
 hedging activities. The required disclosures include information about an
 entitys objectives and strategies for using derivatives, the existence and
 nature of credit-risk-related contingent features in derivative instruments,
 counterparty credit risk, the relative volume of derivative activity, the
 fair value of derivative instruments and related amounts of gains and losses.
 The Company adopted the disclosure provisions of this guidance effective
 January 1, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In June 2008, the FASB
 issued authoritative guidance on the treatment of participating securities in
 the calculation of earnings per share (EPS). This guidance requires all
 outstanding unvested share-based payment awards that contain nonforfeitable
 rights to dividends or dividend equivalents (whether paid or unpaid) to be
 considered participating securities and shall be included in the computation
 of basic and diluted earnings per share using the two-class method. All
 prior-period earnings per share data presented shall be adjusted
 retrospectively. The Company adopted this guidance effective January 1, 2009.
 As discussed under Note 11, while applicable to the Company, the adoption did
 not have a material impact on the Companys consolidated financial
 statements.                                                                                                                                                                                                                       

23

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations
 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In November 2007, the FASB
 issued authoritative guidance on the accounting for collaborative
 arrangements. This guidance applies to participants in a collaborative
 arrangement, defined as a contractual arrangement
 that involves a joint operating activity involving two (or more) parties who
 are both (a) active participants in the activity and (b) exposed to
 significant risks and rewards dependent on the commercial success of the
 activity. Revenues and costs incurred with third parties in connection with a
 collaborative arrangement should be presented gross or net by the
 collaborators based on criteria outlined in other applicable accounting
 literature. Payments to or from collaborators should be presented in the
 income statement based on the nature of the arrangement, the nature of the
 Companys business and whether the payments are within the scope of other
 accounting literature. This guidance is effective for the Company as of
 January 1, 2009, and should be applied to collaborative arrangements in
 existence at the date of adoption using the modified retrospective method
 that requires reclassification in all periods presented for those
 arrangements still in effect at the transition date, unless that application
 is impracticable. The adoption of this guidance did not have an impact on the
 Companys consolidated financial statements and related disclosures for the
 nine months ended September 30, 2009.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In April 2009, the FASB
 issued authoritative guidance for estimating fair value of assets and
 liabilities when market activity has decreased and on identifying
 transactions that are not orderly. Additionally, entities are required to
 disclose in interim and annual periods the inputs and valuation techniques
 used to measure fair value. This guidance was effective for the Company for
 its quarter ended June 30, 2009. The adoption of this guidance did not have
 an impact on the Companys consolidated financial statements and related
 disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In May 2009, the FASB
 issued authoritative guidance on subsequent events. The objective of this
 guidance is to establish general standards of recognition and disclosure of
 events that occur after the balance sheet date but before the issuance of the
 financial statements. Under this guidance, an entity must record the effects
 of subsequent events that provide evidence about conditions that existed at
 the balance sheet date and, if material, must disclose but not record the
 effects of subsequent events which provide evidence about conditions that did
 not exist at the balance sheet date. Additional disclosure required by this
 standard includes the date through which subsequent events have been
 evaluated by management and whether that is the date on which the financial
 statements were issued. This guidance was effective for the Company for its
 quarter ended June 30, 2009. The additional disclosures required by this
 standard are included in Note 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In July 2009, the FASB
 launched its Accounting Standards Codification and the Hierarchy of Generally
 Accepted Accounting Principles (the Codification). The Codification became
 the exclusive authoritative source of nongovernmental U.S. generally accepted
 accounting principles (GAAP) for interim and annual 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 Company adopted the
 Codification during the three months ended September 30, 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | In August 2009, the FASB
 issued authoritative guidance that amends previously issued guidance on fair
 value measurements and disclosures. Under the updated guidance, companies
 determining the fair value of a liability may use the perspective of an
 investor that holds the related obligation as an asset. The update addresses
 practice difficulties caused by tension between fair value measurements based
 on the price that would be paid to transfer a liability to a new obligor and
 contractual or legal requirements that prevent such transfers from taking
 place. No new fair value measurements are required by this guidance. The new
 guidance is effective for the Company for its quarter ending December 31,
 2009 and is not expected to have a material effect the Companys consolidated
 financial statements and related disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

24

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Managements
 Discussion and Analysis of Financial Condition and Results of Operations
 (Continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In September 2009, the
 FASB ratified its guidance on two revenue recognition standards that will
 become effective for the Company beginning January 1, 2011, with earlier
 adoption permitted. Under the new guidance on revenue arrangements with
 multiple deliverables, 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.
 Under the new guidance on arrangements that include software elements,
 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. In the initial year of application, companies are required to make
 qualitative and quantitative disclosures about the impact of the changes
 under both standards. The Company is currently evaluating the impact of
 adopting the new revenue recognition guidance on its consolidated financial
 statements and related disclosures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 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 95% 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 retail, medical and
 business services markets; increasing competition and the ability of the
 Companys products to successfully compete with products of competitors and
 newly developed media storage products; the ability of the Companys newly
 developed products to gain acceptance and compete against products in their
 markets; the significance of the Companys international operations and the
 risks associated with international operations including currency
 fluctuations, local economic health and management of these operations over
 long distances; the Companys ability to protect its intellectual property
 and to defend claims of others relating to its intellectual property; the
 Companys dependence upon the selling efforts of the Companys key channel
 partners; the Companys ability to maintain adequate inventory of products;
 the Companys reliance on single source suppliers; the ability of the
 Companys products to operate effectively with the computer products
 developed and to be developed by other manufacturers; the negative effect
 upon the Companys business from manufacturing or design defects; the effect
 of U.S. and international regulation; fluctuations in the Companys operating
 results; the Companys dependence upon its key personnel; the volatility of
 the price of the Companys common stock; provisions governing the Company
 relating to a change of control, compliance with corporate governance and
 securities disclosures rules and other risks, including those set forth in
 the Companys reports filed with the Securities and Exchange Commission,
 including Item 1A of Part I of the Companys Annual Report on Form 10-K for
 the year ended December 31, 2008. 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.

25

---

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, Bernard P. Aldrich, and the Companys Chief Financial Officer,
 Robert M. Wolf, have evaluated the Companys disclosure controls and
 procedures (as defined in the Exchange Act Rule 13a-15(e)) as of the end of
 the period covered by this report. Based upon such evaluation, they have
 concluded that these disclosure controls and procedures are effective.                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (b) Changes in Internal
 Control Over Financial Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | There have been no changes
 in internal controls over financial reporting that occurred during the fiscal
 quarter covered by this report that have materially affected, or are
 reasonably likely to materially affect, the Companys internal control over
 financial reporting.                                                                                                                                                                                                                                                                                                                                              

PART II  OTHER INFORMATION

| |                 |                                                             
| | --------------- | ------------------------------------------------------------
| | Item 1.         | Legal
 Proceedings                                          
| |                 |                                                             
| | Not Applicable. |                                                             
| |                 |                                                             
| | Item 1A.        | Risk
 Factors                                               
| |                 |                                                             
| | Not Applicable. |                                                             
| |                 |                                                             
| | Item 2.         | Unregistered
 Sales of Equity Securities and Use of Proceeds
| |                 |                                                             
| | Not applicable. |                                                             
| |                 |                                                             
| | Item 3.         | Defaults
 Upon Senior Securities                            
| |                 |                                                             
| | Not Applicable. |                                                             
| |                 |                                                             
| | Item 4.         | Submission
 of Matters to a Vote of Security Holders        
| |                 |                                                             
| | Not Applicable. |                                                             

26

---

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

27

---

SIGNATURES

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

|      |                   |  |     |                                |                    | 
|----- | ----------------- |  | --- | ------------------------------ | ------------------ | 
|      |                   |  |     |                                | RIMAGE CORPORATION | 
|      |                   |  |     | Registrant                    
|      |                   |  |     |                               
|Date: | November 9,
 2009 |  | By: | /s/ Bernard P. Aldrich        
|      |                   |  |     | Bernard P. Aldrich            
|      |                   |  |     | Chief Executive Officer       
|      |                   |  |     | (Principal Executive Officer) 
|      |                   |  |     |                               
|Date: | November 9,
 2009 |  | By: | /s/ Robert M. Wolf            
|      |                   |  |     | Robert M. Wolf                
|      |                   |  |     | Chief Financial Officer       
|      |                   |  |     | (Principal Financial Officer) 
|      |                   |  |     | (Principal Accounting Officer)

28

---