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             Inc/(Dec)             of Revenues              Inc/(Dec)
                     Three Months Ended           Between            Six Months Ended            Between
                          June 30,                Periods                June 30,                Periods
                      2009         2008        2009 vs. 2008         2009         2008        2009 vs. 2008
Revenues                100.0        100.0               (12.6 )       100.0       100.0                (16.0 )
Cost of revenues        (53.6 )      (56.3 )             (16.8 )       (53.5 )     (56.9 )              (21.0 )
Gross profit             46.4         43.7                (7.3 )        46.5        43.1                 (9.4 )
Operating
expenses:
Research and
development              (7.6 )       (6.7 )              (0.8 )        (9.1 )      (6.3 )              (21.4 )
Selling, general
and
administrative          (26.0 )      (25.0 )              (9.2 )       (27.5 )     (27.1 )              (14.8 )
Operating income         12.8         12.0                (7.0 )         9.9         9.7                (14.3 )
Other income,
net                       4.2          1.3               186.5           3.5         3.0                 (2.6 )
Income before
income taxes             17.0         13.3                11.5          13.4        12.7                (11.5 )
Income tax
expense                  (7.0 )       (4.8 )              27.5          (5.1 )      (4.5 )               (5.4 )
Net income               10.0          8.5                 2.4           8.3         8.2                (15.0 )

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 64% and 60% of its consolidated revenues during the six months ended June 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.

Revenues. Total revenues decreased 13% and 16% to $19.8 million and $38.2 million for the three and six months ended June 30, 2009, respectively, from $22.7 million and $45.4 million for the respective prior-year periods. The reduction in total revenues between periods reflects a $3.3 million and $8.4 million decline in product revenues for the three and six months ended June 30, 2009, respectively, partially offset by a $0.4 million and $1.1 million increase in service-related revenues in each respective period. The reduction in product revenues resulted from a $2.3 million and $4.4 million reduction in sales of equipment for the three and six months ended June 30, 2009, and a $1.0 million and $4.0 million reduction in sales of consumable products in each respective period.

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 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 $1.1 million and $2.4 million for the current year's second quarter and year-to-date periods, respectively, and also for the year-to-date period, a reduction in media and media kit sales of $1.5 million. 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 64% of total revenues for the three and six months ended June 30, 2009, compared to 58% and 60% in the same prior-year periods. Sales of Producer product line equipment comprised 31% of total revenues in the current year's second quarter and year-to-date period, compared to 35% and 33% 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 six months ended June 30, 2009, compared to 7% in the same prior-year periods.

International sales decreased 31% and 21% for the three and six months ended June 30, 2009 compared to the same periods last year, and comprised 38% and 43% of total sales, compared to 47% and 45% in the same prior-year periods. 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 six months ended June 30, 2009 by 4% and 4.5%, 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.

As of and for the six months ended June 30, 2009, the Company's German and Japanese operations generated foreign revenues from unaffiliated customers of $14.6 million and operating income of $0.1 million. Net identifiable assets for these operations amounted to $8.5 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 six months ended June 30, 2008 were revenues of $18.1 million, operating income of $0.1 million and net identifiable assets of $11.4 million.

Gross profit. Gross profit as a percentage of total revenues was 46% and 47% for the three and six months ended June 30, 2009, compared to 44% and 43% 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 a higher level of maintenance contract revenues, coupled with 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.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. Partially offsetting the favorable impact of the above was a shift in the distribution of sales to lower margin products. This shift was driven 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. Additionally, Producer product line equipment sales in the current-year periods included a higher concentration of lower-end products, resulting in lower average selling prices and reduced equipment margins.

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 $3.5 million for the three and six months ended June 30, 2009, respectively, representing 8% and 9% of revenues for each respective period. Expenses for the same prior-year periods totaled $1.5 million and $2.9 million, representing 7% 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 continue at a similar level in the third quarter of 2009.

Selling, general and administrative expenses for the three and six months ended June 30, 2009 amounted to $5.1 million and $10.5 million, respectively, or 26% and 27% of revenues, compared to expenses in the same prior-year periods of $5.7 million and $12.3 million, respectively, or 25% and 27% 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 the absence of personnel recruiting costs, and reduced expenditures for travel and marketing and promotional programs. Also contributing to the decrease in expenses in the current year's second quarter and year-to-date period was the net impact of currency fluctuations primarily affecting the Company's European operation, reducing expenses by $0.1 million and $0.3 million, respectively. The Company expects a similar level of selling, general and administrative expenses in the third quarter of 2009.

Other income, net. Other income for the three and six months ended June 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. The Company recognized net interest income on cash and marketable securities of $0.5 million and $1.0 million for the three and six months ended June 30, 2009, compared to $0.7 million and $1.5 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 an $8 million and $5 million increase in average cash equivalent and marketable securities balances for the three and six months ended June 30, 2009, respectively, compared to the same periods in the prior year. Other income for the three and six months ended June 30, 2009 included net gains on foreign currency transactions of $87,000 and $42,000, respectively, compared to net losses on foreign currency transactions in the same periods in the prior year of $410,000 and $163,000, respectively. Translation gains of $0.2 million associated with an intercompany loan that was deemed to be permanently invested in the first quarter of 2008 were recorded as transaction gains during the first quarter of 2008, but should have been recorded as other comprehensive income at that time. The Company recorded a pre-tax out-of-period adjustment during the second quarter 2008 to reduce the transaction gains and to increase other comprehensive income to properly state other comprehensive income as of June 30, 2008.

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 six months ended June 30, 2009 amounted to $1.4 million and $2.0 million, respectively, or 41.3% and 38.3% of income before taxes in each respective period. Income tax expense for the three and six months ended June 30, 2008 was $1.1 million and $2.1 million, or 36.1% and 35.8% of income before taxes, respectively. The rise in the effective tax rate for the current-year periods primarily reflects the increased impact of recording no tax benefit on foreign operating losses for the Company's Japanese subsidiary. Also contributing to the increase in the effective tax rate was a reduced benefit from the manufacturer's tax deduction. Partially offsetting the unfavorable impact of the above was the impact in both current-year periods of a lower tax bracket from lower projected pre-tax income and a benefit from the research credit, which was not reinstated in 2008 until the fourth quarter.

Net income / net income per share. Resulting net income for the three and six months ended June 30, 2009 was $2.0 million and $3.2 million, respectively, or 10% and 8% of revenues for the respective periods. Comparable amounts for the three and six months ended June 30, 2008 were $1.9 million and $3.7 million, respectively, or 8% of revenues for both periods. Related net income per diluted share amounts were $0.20 and $0.33 for the three and six months ended June 30, 2009, respectively, compared to $0.19 and $0.37 per diluted share for the respective prior-year periods.

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 June 30, 2009, no amounts were outstanding under the credit agreement.

At June 30, 2009, the Company had working capital of $89.8 million, an increase of $27.7 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 $17.6 million of marketable securities from non-current as of December 31, 2008 to current as of June 30, 2009, the sale of $6.8 million of non-current marketable securities and corresponding purchase of current marketable securities and net income of $3.2 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 six months ended June 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.

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

Net cash provided by operating activities totaled $8.9 million for the six months ended June 30, 2009, compared to $2.1 million in the same prior-year period. The $6.8 million increase in cash generated from operating activities resulted from changes in operating assets and liabilities producing a $4.8 million net increase in cash for the six months ended June, 2009, compared to a net use of cash of $1.8 million for the same period in 2008, coupled with a $0.3 million larger increase 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 $3.4 million favorable change in the aggregate amount of trade accounts payable, accrued compensation and accrued expenses, a $2.2 million favorable change in deferred income and a $1.7 million favorable change in net prepaid income taxes, partially offset by an unfavorable variation of $0.7 million in receivables. The change in trade accounts payable, accrued compensation and accrued expenses reflects a $0.1 million aggregate increase in the amount of these balances in the current-year period, compared to a $3.3 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 maintenance contract renewals in the second quarter of 2009 compared to the same prior-year period. The favorable change in net prepaid income taxes resulted from a reduced amount of income tax payments for the current tax year. The unfavorable change in receivables resulted from a $0.1 million increase in receivables in the current period, compared to a $0.6 million decrease in the comparable prior-year period, primarily impacted by a larger increase in sales in June 2009 relative to December 2008 (last month of each period), compared to the comparable prior-year periods.

Investing activities used net cash of $15.1 million for the six months ended June 30, 2009, compared to a net generation of cash of $16.6 million for the same prior-year period. The fluctuations in investing activities were primarily the result of $15.0 million in purchases of marketable securities, net of related maturities, during the six months ended June 30, 2009, compared to $16.7 million in maturities of marketable securities, net of related purchases, in the same prior-year period. Purchases of property and equipment during the six months ended June 30, 2009 and 2008 amounted to $0.1 million and $0.5 million, respectively. Capital expenditures in both periods consisted primarily of purchases of office equipment and manufacturing tooling.

Financing activities generated net cash of $0.3 million for the six months ended June 30, 2009 and used net cash of $2.8 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 six months ended June 30, 2008 also benefited from 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 275,310 shares of its common stock for $5.0 million.

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 six months ended June 30, 2009.

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

In applying its critical accounting policies, management reassesses its estimates each reporting period based on available information. Changes in such estimates did not have a significant impact on earnings for the six months ended June 30, 2009.

In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. The Company adopted SFAS No. 157 for financial assets and liabilities effective January 1, 2008. In February 2008, FASB Staff Position ("FSP") No. 157-2 was issued, which delayed the effective date of FASB No. 157 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 requirements of SFAS No. 157 that had been deferred under FSP No. 157-2. The adoption did not impact the Company's consolidated financial statements and related disclosures for the six months ended June 30, 2009.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities--an Amendment to SFAS No. 133." SFAS No. 161 requires additional quantitative and qualitative disclosures for derivative instruments. 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 SFAS No. 161 effective January 1, 2009.

In June 2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." FSP No. EITF 03-6-1 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 FSP No. EITF 03-6-1 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.

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

In November 2007, the FASB issued EITF No. 07-1, "Accounting for Collaborative Arrangements." This Issue 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 the criteria in EITF Issue No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent," and 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 Issue 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 EITF No. 07-1 did not have an impact on the Company's consolidated financial statements and related disclosures for six months ended June 30, 2009.

In April 2009, the FASB issued FSP No. FAS 157-4, "Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly." FAS 157-4 provides guidance on estimating fair value 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. The provisions of FAS 157-4 are effective for the Company for its quarter ended June 30, 2009. The adoption of this pronouncement did not have an impact on the Company's consolidated financial statements and related disclosures

In May 2009, the FASB issued SFAS No. 165, "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 SFAS No.165, as under previous practice, 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. SFAS No. 165 was effective for the Company for its quarter ended June 30, 2009. The additional disclosures required by this standard are included in Note 1.

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 . . .