The following table sets forth, for the periods indicated, selected items from the Company's condensed consolidated statements of income.

                                          Percentage (%)         Percentage (%)        Percentage (%)         Percentage (%)
                                           of Revenues            Incr/(Decr)           of Revenues            Incr/(Decr)
                                        Three Months Ended          Between          Nine Months Ended           Between
                                          September 30,             Periods            September 30,             Periods

                                        2008         2007        2008 vs. 2007       2008         2007        2008 vs. 2007

Revenues                                    100          100                 (25 )       100          100                 (12 )
Cost of revenues                            (52 )        (51 )               (23 )       (55 )        (53 )                (9 )

Gross profit                                 48           49                 (27 )        45           47                 (16 )
Operating expenses:
Research and development                     (5 )         (5 )               (23 )        (6 )         (6 )               (11 )
Selling, general and administrative         (21 )        (18 )               (15 )       (25 )        (23 )                (4 )

Operating income                             22           26                 (36 )        14           18                 (32 )
Other income, net                             3            3                 (30 )         3            3                 (20 )

Income before income taxes                   25           29                 (35 )        17           21                 (30 )
Income tax expense                           (9 )        (11 )               (36 )        (6 )         (7 )               (28 )

Net income                                   16           18                 (35 )        11           14                 (31 )

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. 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. Rimage anticipates increased sales and marketing expenditures in 2008 as a result of increased resources focused on developing these markets. As Rimage's sales within North America and Europe have averaged 94% of total sales over the past three years, the strength of the economies in these regions plays an important role in determining the success of Rimage.

Rimage earns revenues through the sale of equipment, consumables (ribbons, ink cartridges and Rimage-branded blank CD-R and DVD-R media), maintenance contracts, parts and repair services. Rimage's recurring revenues (consumables, maintenance contracts, parts and service) comprised approximately 59% and 46% of its consolidated revenues during the nine months ended September 30, 2008 and 2007, 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.

Revenues. Consolidated revenues decreased 25% and 12% to $25.2 million and $70.6 million for the three and nine months ended September 30, 2008, respectively, from $33.7 million and $80.7 million for the respective prior-year periods. The reduction in revenues resulted from decreased sales of Producer and Desktop product line equipment of $8.8 million and $14.5 million for the three and nine months ended September 30, 2008, respectively, compared to the same periods in the prior year. The overall decline in the volume of equipment sales was primarily due to deliveries against significant orders from the retail market segment during the prior year's second and third quarters, compared to minimal equipment sales in this market segment in the current-year periods. Sales in the retail market

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

segment can fluctuate significantly between periods due to uneven rollout schedules of the Company's retail customers. The lower volume and concentration of sales in the retail market segment during the current-year periods helped drive an increase in average selling prices on Producer equipment configurations, partially offsetting the impact on revenue of a decreased volume of equipment sales. Sales of Producer product line equipment comprised 37% and 34% of total revenues for the three and nine months ended September 30, 2008, respectively, compared to 49% and 44% for the same periods in the prior year. Sales of Desktop product line equipment represented 5% and 7% of revenues for the three and nine months ended September 30, 2008, respectively, compared to 8% and 9% in the respective prior-year periods. Partially offsetting the overall decrease in equipment sales was an increase in the volume of recurring revenues of $0.4 million and $4.5 million for the three and nine months ended September 30, 2008, respectively, compared to the same periods in the prior year. The growth in recurring revenues was primarily due to the continued expansion of the Company's worldwide installed base of CD-R and DVD-R publishing systems and the Company's increased emphasis on promoting this portion of its business. Recurring revenues comprised 58% and 59% of total revenues for the three and nine months ended September 30, 2008, respectively, compared to 43% and 46% in the same prior-year periods.

International sales decreased 3% for the third quarter and increased 11% for the year-to-date period compared to the same prior-year periods, and comprised 35% and 42% of total respective sales, compared to 27% and 33% for the same periods in the prior year. Currency fluctuations affecting the Company's European and Japanese operations reduced the decline in the third quarter and generated the increase in the year-to-date period of total international revenues, resulting in an increase in reported consolidated revenues for the three and nine months ended September 30, 2008 of 2.8% and 4.4%, respectively, relative to the same prior-year periods.

As of and for the nine months ended September 30, 2008, the Company's German and Japanese operations generated foreign revenues from unaffiliated customers of $26.0 million and operating income of $0.1 million. Net identifiable assets for these operations amounted to $9.1 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, 2007 were revenues of $22.8 million, operating income of $0.2 million and net identifiable assets of $9.5 million. The growth in total revenues for these operations occurred primarily as a result of foreign currency fluctuations.

The Company is estimating that fourth quarter 2008 consolidated revenues will range between $20 million and $22 million.

Gross profit. Gross profit as a percentage of revenues was 48% and 45% for the three and nine months ended September 30, 2008, respectively, compared to 49% and 47% for the respective prior year periods. The decline in gross profit as a percentage of revenues for both current-year periods resulted primarily from a shift in the distribution of sales to lower margin products. This shift is driven largely 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. Sales in the current-year periods also included an increased volume and concentration of sales of media and media kits, which generally carry lower margins than other product offerings, comprising 21% and 20% of revenues for the three and nine months ended September 30, 2008, respectively, compared to 13% and 12% in the same prior-year periods.

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

Partially offsetting the unfavorable impact of changes in product mix was an improvement in equipment margins primarily as a result of higher average selling prices on Producer equipment configurations, influenced by the lower concentration of sales in the retail market segment. Additionally, gross margin for the current-year periods benefited from reductions in compensation related costs stemming from a workforce reduction in the second quarter 2008 in the Company's U.S. operations. Gross margin for the current year-to-date period was also favorably impacted by reduced inventory related charges to cost of sales of approximately $0.3 million.

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 $1.2 million and $4.1 million for the three and nine months ended September 30, 2008, respectively, representing 5% and 6% of revenues for each period, respectively. Expenses for the same prior-year periods totaled $1.6 million and $4.6 million, representing 5% and 6% of revenues, respectively. The reduction in expenses between periods was primarily due to the timing of activities associated with new product development projects and enhancements to existing products. Rimage anticipates expenditures in research and development in the fourth quarter of 2008 to increase approximately 5% to 10% from this year's third quarter to support new product development initiatives and to improve existing products.

Selling, general and administrative expenses for the three and nine months ended September 30, 2008 amounted to $5.2 million and $17.5 million, respectively, or 21% and 25% of revenues, compared to expenses in the same prior-year periods of $6.2 million and $18.3 million, respectively, or 18% and 23% of revenues. Currency fluctuations affecting the Company's European and Japanese operations increased selling, general and administrative expenses in the current year's third quarter and year-to-date period by $0.2 million and $0.7 million, respectively, from the same periods in the prior year. The increased expenses from currency fluctuations were more than offset in the current-year periods by lower bonus expenses, stemming from below plan revenue and operating income, and a $0.2 million and $0.5 million respective decrease in stock-based compensation costs. Further offsetting the impact of currency fluctuations for the current-year periods were reduced expenditures for marketing and promotional programs, and for the nine months ended September 30, 2008, reduced consulting and related expenses of $0.2 million primarily stemming from the Company's implementation in the prior year's first quarter of a new enterprise resource planning ("ERP") system in the Company's European operation.

Other income, net. The Company recognized net interest income on cash and marketable securities of $0.7 million and $2.2 million for the three and nine months ended September 30, 2008, respectively, compared to $0.9 million and $2.6 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 interest rates approximating one percentage point relative to the same prior-year periods. Partially offsetting the impact of the reduction in interest rates was a $6 million and $9 million increase in average cash equivalent and marketable securities balances for the three and nine months ended September 30, 2008, respectively, compared to the same periods in the prior year. Other income for the three and nine months ended September, 2008 included a net gain and a net loss on foreign currency transactions of $40,000 and $123,000, respectively, compared to net gains on foreign

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

currency transactions of $163,000 and $74,000 in the respective prior year periods. The net loss in the current year-to-date period was impacted by larger fluctuations in the rate of exchange between the U.S. dollar and the Japanese Yen and European Euro applied to intercompany receivable balances denominated in these foreign currencies.

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, 2008 amounted to $2.2 million and $4.3 million, or 35.8% of income before taxes in each period. Income tax expense for the three and nine months ended September 30, 2007 was $3.5 million and $6.0 million, or 35.8% and 34.8% of income before taxes, respectively. The rise in the effective tax rate for the year-to-date period primarily reflects the increased impact of recording no tax benefit on foreign operating losses for the Company's Japanese subsidiary. Additionally, the increase in the year-to-date period was further impacted by higher state income taxes and the recognition of a benefit in the same period in 2007 for the federal research credit, which was not yet reinstated for 2008 as of September 30, 2008. Tax-exempt interest income comprised a larger percentage of pre-tax income in the current year-to-date period, generating a partially offsetting favorable impact on the effective tax rate. The Company anticipates its effective tax rate will range between 35% and 37% for the full year 2008.

Net income / net income per share. Resulting net income for the three and nine months ended September 30, 2008 was $4.0 million and $7.7 million, respectively, or 16% and 11% of revenues for the respective periods. Comparable amounts for the three and nine months ended September 30, 2007 were $6.2 million and $11.2 million, respectively, or 18% and 14% of revenues, respectively. Related net income per diluted share amounts for the three and nine months ended September 30, 2008 were $0.42 and $0.79, respectively, compared to $0.59 and $1.07 per diluted share for the respective prior-year periods. The Company expects fourth quarter 2008 net income to range from $0.15 to $0.21 per diluted share.

The Company expects it will be able to maintain current operations, including anticipated capital expenditure requirements, through its internally generated funds and, if required, from Rimage's existing credit agreement. This credit agreement allows for advances under an unsecured revolving loan up to a maximum advance of $10 million. At September 30, 2008, no amounts were outstanding under the credit agreement.

At September 30, 2008, the Company had working capital of $66.3 million, a decrease of $0.6 million from working capital reported at December 31, 2007. The decrease was primarily the result of the Company's use of $9.3 million during the nine months ended September 30, 2008 to repurchase shares of its common stock and $3.9 million in September 2008 to purchase its U.S. corporate headquarters and manufacturing facility, previously leased by the Company. Year-to-date net income adjusted for non-cash items of $9.5 million, proceeds from employee stock plans of $1.5 million and the impact of a $1.2 million net change in classification of marketable securities partially offset the uses of cash described above. The net change in marketable securities resulted from a non-cash change in the classification of $18.5 million of marketable securities from non-current as of December 31, 2007 to current as of September 30, 2008, partially offset by a $17.3 million net use of cash to purchase non-current marketable securities.

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

On October 17, 2007, the Company's Board of Directors authorized the repurchase of up to 500,000 shares of its common stock. In February 2008, the Company's Board of Directors increased the share repurchase authorization by an additional 500,000 shares, bringing total shares authorized for repurchase to 1,000,000. Shares will 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 using cash on hand. During the nine months ended September 30, 2008, the Company repurchased 550,762 shares of its common stock at an average purchase price of $16.86 per share under the authorizations. 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.

Net cash provided by operating activities totaled $6.8 million for the nine months ended September 30, 2008, compared to $18.0 million in the same prior-year period. The $11.2 million reduction in cash generated from operations resulted from changes in operating assets and liabilities producing a net use of cash of $2.0 million in 2008 compared to a net increase in cash of $6.3 million in 2007, coupled with a $3.2 million decrease in net income adjusted for non-cash items for the nine months ended September 30, 2008 compared to the same prior-year period. Contributing to the change in operating assets and liabilities compared to the prior year's period was a $1.6 million smaller increase in income taxes payable and unfavorable variations of $2.7 million in receivables, $3.6 million in deferred income and $5.0 million in the aggregate amount of trade accounts payable, accrued compensation and accrued expenses. These changes were partially offset by favorable variations of $3.7 million in inventories and $0.9 in prepaid expenses. The unfavorable change in receivables resulted from an $0.8 million increase in receivables in the current period, compared to a $1.9 million decrease in the comparable prior-year period, primarily impacted by a $2.2 million increase in revenue in September 2008 relative to December 2007 (last month of each quarter), compared to a $3.7 million decrease in revenue between the comparable prior-year periods. The unfavorable change in deferred income resulted from a larger volume of new maintenance contracts initiated during the first nine months of 2007 compared to 2008. The changes in trade accounts payable, accrued compensation and accrued expenses were primarily due to the timing of related payments, and in the case of accounts payable, reduced inventory purchases. The favorable change in inventories resulted from a $2.2 million reduction in inventories during the current-year period, compared to a $1.5 million increase in the same prior-year period. The decrease in inventories in the current period resulted primarily from the Company's maintenance of lower levels of buffer inventory stock and a reduced level of sales.

Investing activities provided a net increase in cash of $15.4 million for the nine months ended September 30, 2008, compared to a net use of cash of $10.5 million for the same prior-year period. The fluctuations in investing activities were primarily the result of $19.7 million in maturities of marketable securities, net of related purchases, during the nine months ended September 30, 2008, compared to $9.5 million in purchases of marketable securities, net of related maturities, in the same prior-year period. Capital expenditures for the nine months ended September 30, 2008 and 2007 totaled $4.3 million and $1.2 million, respectively. Capital expenditures in the current period consisted of the purchase of the Company's U.S. corporate headquarters and manufacturing facility ($3.9 million), previously leased by the Company, and purchases of manufacturing tooling and office equipment. Expenditures in the prior-year period consisted primarily of costs capitalized as part of the implementation of an enterprise resource planning system and purchases of manufacturing tooling.

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

Financing activities used net cash of $6.0 million and $9.6 million for the nine months ended September 30, 2008 and 2007, respectively. The significant net use of cash in each period was primarily attributable to the Company's repurchase of shares of its common stock, requiring $9.3 million of cash to repurchase 550,762 shares in the current period and $12.6 million to repurchase 500,000 shares in the prior-year period. Partially offsetting the Company's use of cash to repurchase common stock in each period were proceeds from employee stock plans of $1.5 million and $2.0 million, respectively. Checks written in excess of the account bank balance also generated a partially offsetting increase in cash from financing activities in the current-year period of $1.1 million.

Additionally, each period includes excess tax benefits recognized as an addition to the additional paid-in capital ("APIC") pool of $0.7 million and $1.0 million, respectively. Such amounts are required to be reported as an addition to financing activities and a reduction in operating activities in the Statements of Cash Flows under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share-Based Payment."

Management utilizes its technical knowledge, cumulative business experience, judgment and other factors in the selection and application of the Company's accounting policies. The accounting policies described below are considered by management to be the most critical to the presentation of the consolidated financial statements because they require the most difficult, subjective and complex judgments. Management made no changes to the Company's critical accounting policies during the nine months ended September 30, 2008.

In applying the critical accounting policies described below, management reassesses its estimates each reporting period based on available information. Changes in such estimates did not have a significant impact on earnings for the three or nine months ended September 30, 2008.

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

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

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

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

upon its published list prices and recognizes the associated service revenue upon the successful completion of the service.

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

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

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

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

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

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