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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2009

or



| ̈ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from              to

Commission File Number 1-13806





REWARDS NETWORK INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 84-6028875                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606

(Address of principal executive offices) (Zip code)

312-521-6767

(Registrants telephone number, including area code)

N/A

(Former name, former address
and former fiscal year, if changed since last report)





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.    x  Yes     ̈  No

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

Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting
company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

As of August 4, 2009, there were 8,717,348 shares of the registrants common stock, par value $.02 per share, outstanding.









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INDEX

REWARDS NETWORK INC. AND SUBSIDIARIES



|                              |  |                                                                                                               |  |         
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                               |  | Page No.
|PART I. FINANCIAL INFORMATION
|                              |  |                                                                                                              
|Item 1.                       |  | Financial Statements:                                                                                         |  |         
|                              |  |                                                                                                              
|                              |  | Condensed Consolidated Balance SheetsJune 30, 2009 (unaudited) and December 31, 2008                         |  | 3       
|                              |  |                                                                                                              
|                              |  | Condensed Consolidated Statements of OperationsThree and six months ended June 30, 2009 and 2008 (unaudited) |  | 4       
|                              |  |                                                                                                              
|                              |  | Condensed Consolidated Statements of Cash FlowsSix months ended June 30, 2009 and 2008 (unaudited)           |  | 5       
|                              |  |                                                                                                              
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                |  | 6-10    
|                              |  |                                                                                                              
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                         |  | 11-25   
|                              |  |                                                                                                              
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                    |  | 25      
|                              |  |                                                                                                              
|Item 4.                       |  | Controls and Procedures                                                                                       |  | 25      
|                             
|PART II. OTHER INFORMATION   
|                              |  |                                                                                                              
|Item 2.                       |  | Sales of Equity Securities and Use of Proceeds                                                                |  | 26      
|                              |  |                                                                                                              
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                           |  | 26-28   
|                              |  |                                                                                                              
|Item 6.                       |  | Exhibits                                                                                                      |  | 29      
|                              | 
|SIGNATURES                    |  | 30                                                                                                           



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REWARDS NETWORK INC. AND SUBSIDIARIES

PART IFINANCIAL INFORMATION

Item 1  Financial Statements

Condensed Consolidated Balance Sheets

(in thousands, except per share data)



|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                         |  | June 30,2009 |         |   | December 31,2008 |  
|                                                                                                                                                         |  | (Unaudited)  |         |   |                  |  
|Assets                                                                                                                                                   |  |              |         |   |                  |   |         |  
|                                                                                                                                                         |  |             
|Current assets:                                                                                                                                          |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                                |  | $            | 21,014  |   |                  | $ | 9,008   |  
|Accounts receivable, net of allowance for doubtful accounts of $2,639 and $3,134, respectively                                                           |  |              | 4,460   |   |                  |   | 5,986   |  
|Dining credits, net of allowance for doubtful accounts of $16,270 and $20,064, respectively                                                              |  |              | 56,618  |   |                  |   | 75,663  |  
|Deferred income taxes                                                                                                                                    |  |              | 7,187   |   |                  |   | 10,379  |  
|Prepaid expenses                                                                                                                                         |  |              | 1,805   |   |                  |   | 1,411   |  
|Income taxes receivable                                                                                                                                  |  |              | 4,963   |   |                  |   | 1,411   |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                                     |  |              | 96,047  |   |                  |   | 103,858 |  
|Property and equipment, net of accumulated depreciation and amortization of $27,854 and $24,996, respectively                                            |  |              | 9,197   |   |                  |   | 10,540  |  
|Other assets                                                                                                                                             |  |              | 313     |   |                  |   | 406     |  
|Goodwill                                                                                                                                                 |  |              | 8,117   |   |                  |   | 8,117   |  
|Deferred income taxes                                                                                                                                    |  |              |        |   |                  |   | 895     |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                             |  | $            | 113,674 |   |                  | $ | 123,816 |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                                                                                         |  |             
|Liabilities and Stockholders Equity                                                                                                                     |  |              |         |   |                  |   |         |  
|                                                                                                                                                         |  |             
|Current liabilities:                                                                                                                                     |  |              |         |   |                  |   |         |  
|Accounts payabledining credits                                                                                                                          |  | $            | 3,952   |   |                  | $ | 5,081   |  
|Accounts payablemember benefits                                                                                                                         |  |              | 5,572   |   |                  |   | 6,839   |  
|Accounts payabletrade                                                                                                                                   |  |              | 2,179   |   |                  |   | 1,897   |  
|Accrued compensation                                                                                                                                     |  |              | 2,094   |   |                  |   | 4,091   |  
|Other current liabilities                                                                                                                                |  |              | 1,927   |   |                  |   | 2,774   |  
|Deferred membership fee income                                                                                                                           |  |              | 558     |   |                  |   | 651     |  
|Litigation and related accruals                                                                                                                          |  |              |        |   |                  |   | 3,164   |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                                |  |              | 16,282  |   |                  |   | 24,497  |  
|Deferred income taxes                                                                                                                                    |  |              | 118     |   |                  |   |        |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                                                                        |  |              | 16,400  |   |                  |   | 24,497  |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|                                                                                                                                                         |  |             
|Stockholders equity:                                                                                                                                    |  |              |         |   |                  |   |         |  
|Common stock, par value $0.02 per share; authorized 25,000 shares; issued 9,149 and 9,043 respectively; outstanding 8,715 and 9,001 shares,
respectively |  |              | 183     |   |                  |   | 542     |  
|Additional paid-in capital                                                                                                                               |  |              | 68,280  |   |                  |   | 67,870  |  
|Accumulated other comprehensive income:                                                                                                                  |  |              |         |   |                  |   |         |  
|Foreign currency translation, net of income taxes                                                                                                        |  |              | 33      |   |                  |   | 231     |  
|Retained earnings                                                                                                                                        |  |              | 32,821  |   |                  |   | 31,654  |  
|Treasury stock, at cost (434 and 42 shares, respectively)                                                                                                |  |              | (4,043  | ) |                  |   | (978    | )
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                               |  |              | 97,274  |   |                  |   | 99,319  |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                               |  | $            | 113,674 |   |                  | $ | 123,816 |  
|                                                                                                                                                         |  |              |         |   |                  |   |         |  

See accompanying notes to consolidated financial statements.



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REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per share
data)

(Unaudited)



|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                            |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                            |  | 2009                       |        |   | 2008                     |   |        | 2009 |  |   | 2008    |  
|Operating revenues:                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|                                                                            |  |                            |        |  
|Sales                                                                       |  | $                          | 54,555 |   |                          | $ | 65,723 |      |  | $ | 108,545 |   |  | $ | 124,786 |  
|                                                                            |  |                            |        |  
|Cost of sales                                                               |  |                            | 27,566 |   |                          |   | 34,876 |      |  |   | 56,261  |   |  |   | 65,495  |  
|Provision for losses                                                        |  |                            | 2,011  |   |                          |   | 3,259  |      |  |   | 5,438   |   |  |   | 5,484   |  
|Member benefits                                                             |  |                            | 7,880  |   |                          |   | 7,718  |      |  |   | 13,734  |   |  |   | 15,068  |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total direct expenses                                                       |  |                            | 37,457 |   |                          |   | 45,853 |      |  |   | 75,433  |   |  |   | 86,047  |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Net revenue                                                                 |  |                            | 17,098 |   |                          |   | 19,870 |      |  |   | 33,112  |   |  |   | 38,739  |  
|Membership fees and other income                                            |  |                            | 278    |   |                          |   | 318    |      |  |   | 543     |   |  |   | 669     |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total operating revenues                                                    |  |                            | 17,376 |   |                          |   | 20,188 |      |  |   | 33,655  |   |  |   | 39,408  |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|                                                                            |  |                            |        |  
|Operating expenses:                                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Salaries and benefits                                                       |  |                            | 4,733  |   |                          |   | 5,620  |      |  |   | 9,450   |   |  |   | 10,864  |  
|Sales commissions and expenses                                              |  |                            | 4,981  |   |                          |   | 4,606  |      |  |   | 10,093  |   |  |   | 9,863   |  
|Professional fees                                                           |  |                            | 662    |   |                          |   | 892    |      |  |   | 1,260   |   |  |   | 1,513   |  
|Member and merchant marketing                                               |  |                            | 599    |   |                          |   | 1,090  |      |  |   | 1,275   |   |  |   | 2,025   |  
|Depreciation and amortization                                               |  |                            | 1,315  |   |                          |   | 1,402  |      |  |   | 2,818   |   |  |   | 2,790   |  
|General and administrative                                                  |  |                            | 2,799  |   |                          |   | 3,013  |      |  |   | 5,570   |   |  |   | 6,534   |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total operating expenses                                                    |  |                            | 15,089 |   |                          |   | 16,623 |      |  |   | 30,466  |   |  |   | 33,589  |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Operating income                                                            |  |                            | 2,287  |   |                          |   | 3,565  |      |  |   | 3,189   |   |  |   | 5,819   |  
|                                                                            |  |                            |        |  
|Other income (expense):                                                     |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Interest income                                                             |  |                            | 5      |   |                          |   | 130    |      |  |   | 10      |   |  |   | 398     |  
|Interest expense and financing costs                                        |  |                            | (20    | ) |                          |   | (560   | )    |  |   | (60     | ) |  |   | (1,156  | )
|Gain on extinguishment of convertible subordinate debentures                |  |                            |       |   |                          |   |       |      |  |   |        |   |  |   | 128     |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Income before income tax provision                                          |  |                            | 2,272  |   |                          |   | 3,135  |      |  |   | 3,139   |   |  |   | 5,189   |  
|                                                                            |  |                            |        |  
|Income tax provision                                                        |  |                            | 992    |   |                          |   | 1,226  |      |  |   | 1,972   |   |  |   | 2,122   |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|                                                                            |  |                            |        |  
|Net income                                                                  |  | $                          | 1,280  |   |                          | $ | 1,909  |      |  | $ | 1,167   |   |  | $ | 3,067   |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|                                                                            |  |                            |        |  
|Earnings per share of common stock:                                         |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                       |  | $                          | 0.14   |   |                          | $ | 0.21   |      |  | $ | 0.13    |   |  | $ | 0.34    |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                     |  | $                          | 0.14   |   |                          | $ | 0.21   |      |  | $ | 0.13    |   |  | $ | 0.34    |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|                                                                            |  |                            |        |  
|Weighted average number of common and common equivalent shares outstanding: |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Basic                                                                       |  |                            | 8,912  |   |                          |   | 9,055  |      |  |   | 9,033   |   |  |   | 9,045   |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Diluted                                                                     |  |                            | 8,948  |   |                          |   | 9,104  |      |  |   | 9,094   |   |  |   | 9,131   |  
|                                                                            |  |                            |        |   |                          |   |        |      |  |   |         |   |  |   |         |  

See accompanying notes to unaudited condensed consolidated financial statements.



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REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)



|                                                                                  |  |                           |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Six Months Ended June 30, |       
|                                                                                  |  | (Unaudited)               |       
|                                                                                  |  | 2009                      |        |   | 2008 |  
|Cash flows from operating activities:                                             |  |                           |        |   |      |   |        |  
|Net income                                                                        |  | $                         | 1,167  |   |      | $ | 3,067  |  
|                                                                                  |  |                          
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |                           | 2,818  |   |      |   | 2,790  |  
|Amortization of deferred financing costs                                          |  |                           |       |   |      |   | 209    |  
|Provision for losses                                                              |  |                           | 5,438  |   |      |   | 5,484  |  
|Stock-based compensation                                                          |  |                           | 804    |   |      |   | 1,399  |  
|Deferred income taxes                                                             |  |                           | 4,206  |   |      |   | 47     |  
|Gain on extinguishment of convertible subordinated debentures                     |  |                           |       |   |      |   | (128   | )
|                                                                                  |  |                          
|Changes in assets and liabilities:                                                |  |                           |        |   |      |   |        |  
|Accounts receivable                                                               |  |                           | 471    |   |      |   | 57     |  
|Dining credits including accounts payabledining credits                          |  |                           | 13,605 |   |      |   | (471   | )
|Prepaid expenses                                                                  |  |                           | (393   | ) |      |   | 395    |  
|Income taxes receivable                                                           |  |                           | (3,547 | ) |      |   | 2,011  |  
|Other assets                                                                      |  |                           | 125    |   |      |   | (183   | )
|Accounts payablemember benefits                                                  |  |                           | (1,271 | ) |      |   | (573   | )
|Accounts payabletrade                                                            |  |                           | 29     |   |      |   | (109   | )
|Accrued compensation                                                              |  |                           | (1,999 | ) |      |   | 1,386  |  
|Other liabilities                                                                 |  |                           | (279   | ) |      |   | (779   | )
|Deferred membership fee income                                                    |  |                           | (93    | ) |      |   | (94    | )
|Litigation and related accruals                                                   |  |                           | (3,164 | ) |      |   | (216   | )
|                                                                                  |  |                           |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                           | 17,917 |   |      |   | 14,292 |  
|                                                                                  |  |                           |        |   |      |   |        |  
|Cash flows from investing activities:                                             |  |                           |        |   |      |   |        |  
|                                                                                  |  |                          
|Additions to property and equipment                                               |  |                           | (1,506 | ) |      |   | (2,412 | )
|                                                                                  |  |                           |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                           | (1,506 | ) |      |   | (2,412 | )
|                                                                                  |  |                           |        |   |      |   |        |  
|Cash flows from financing activities:                                             |  |                           |        |   |      |   |        |  
|Purchase of convertible subordinated debentures                                   |  |                           |       |   |      |   | (1,963 | )
|Common stock repurchased                                                          |  |                           | (4,138 | ) |      |   |       |  
|                                                                                  |  |                           |        |   |      |   |        |  
|Net cash used in financing activities                                             |  |                           | (4,138 | ) |      |   | (1,963 | )
|                                                                                  |  |                           |        |   |      |   |        |  
|                                                                                  |  |                          
|Effect of exchange rate on cash and cash equivalents                              |  |                           | (267   | ) |      |   | 26     |  
|                                                                                  |  |                           |        |   |      |   |        |  
|Net increase in cash and cash equivalents                                         |  |                           | 12,006 |   |      |   | 9,943  |  
|Cash and cash equivalents:                                                        |  |                           |        |   |      |   |        |  
|Beginning of the period                                                           |  |                           | 9,008  |   |      |   | 35,517 |  
|                                                                                  |  |                           |        |   |      |   |        |  
|End of the period                                                                 |  | $                         | 21,014 |   |      | $ | 45,460 |  
|                                                                                  |  |                           |        |   |      |   |        |  
|                                                                                  |  |                          
|Supplemental disclosures of cash flow information:                                |  |                           |        |   |      |   |        |  
|Cash paid during the period for:                                                  |  |                           |        |   |      |   |        |  
|Interest                                                                          |  | $                         |       |   |      | $ | 860    |  
|                                                                                  |  |                           |        |   |      |   |        |  
|Income taxes                                                                      |  | $                         | 1,667  |   |      | $ | 65     |  
|                                                                                  |  |                           |        |   |      |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except per share data)

Note 1  Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Management
of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these interim financial statements in conformity with accounting
principles generally accepted in the United States of America. In the opinion of management, all adjustments that are of a normal recurring nature necessary to fairly present the unaudited condensed consolidated financial position of Rewards Network
Inc. and its subsidiaries (collectively, the Company) at June 30, 2009, unaudited condensed consolidated results of operations of the Company for the three and six months ended June 30, 2009 and 2008 and unaudited condensed
consolidated statements of cash flows of the Company for the six months ended June 30, 2009 and 2008 have been made. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be
expected for the full year. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements through August 6, 2009, the date of filing of the
consolidated financial statements with the Securities and Exchange Commission. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the Securities and Exchange Commission on March 12, 2009. The condensed consolidated balance sheet as of December 31, 2008 is derived from the Companys audited consolidated financial statements.

Rewards Network Inc. (the Company) operates the leading dining rewards programs in North America by marketing its
participating restaurants to members of these programs and by providing incentives to members to dine at these restaurants. Participating restaurants benefit from these marketing efforts, reporting of program results, customer feedback through
member comments as well as access to capital offered by the Company. In addition to operating the dining rewards program of leading airline frequent flyer programs, clubs and other affinity organizations, the Company offers its own dining rewards
program through its website, www.rewardsnetwork.com.

The Company markets participating restaurants to members
principally through its internet, email and different mobile smartphone applications as well as various social media outlets. The Companys programs are designed to increase the frequency of dining and the amount spent on dining by members at
participating restaurants by providing incentives to members to dine at these restaurants, including airline miles, college savings rewards, reward program points, and Cashback RewardsSMsavings. As members spend more at participating restaurants, the amount of incentives they receive for dining increases. The
Company also offers reporting and customer feedback to participating restaurants and provides aggregate data regarding members activity and feedback through comments and ratings gathered from surveys. In addition, the Company provides access
to capital by purchasing a portion of future member transactions from participating restaurants in advance and at a discount. Bars and clubs also participate in the Companys programs, and for purposes of describing its business, are included
when the terms restaurants or merchants are used.

The Company is compensated for its services and, if applicable,
receives the portion of a members transaction that the Company purchased only if a member dines at a participating restaurant when rewards are available and pays using a credit or debit card (also referred to as a payment card) that the member
has registered with the Company. The Companys revenue is equal to a percentage of the members total dining transaction. These revenues are applied to recover the Companys costs where the Company has purchased a portion of future
member transactions; provide rewards to members; cover its selling, marketing, general and administrative expenses; and generate operating income that provides a return for its stockholders.

The Company primarily offers two programs to restaurants  the Marketing Services Program and the Marketing Credits Program. In both the Marketing
Services and Marketing Credits Programs, the Company markets participating restaurants to members, offers incentives to members to dine at these restaurants and provides reporting for restaurants on member activity and member feedback. The Company
also provides restaurants that participate in the Marketing Credits Program with access to capital through the purchase of a portion of future member transactions.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Shares of our common stock are traded on the NASDAQ under the symbol DINE.



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On June 11, 2009, the Companys stockholders approved a one-for-three reverse stock split of
the Companys common stock, which became effective on July 6, 2009. As a result of the reverse stock split, every three shares of common stock were adjusted as one share of common stock. In addition, on June 11, 2009, the Company
stockholders authorized a reduction in the number of authorized shares of the Companys common stock from 70,000 to 25,000. All share and per share data has been adjusted to reflect the reverse one-for-three stock split except for the par value
of common stock. This stock split resulted in a reduction of 18,273 shares issued and was accounted for by the transfer of $365 from common stock to additional paid in capital.

Note 2  Certain Relationships and Related Party Transactions (square footage not in thousands)

On May 5, 2003, the Company entered into an office lease agreement, which was amended on May 8, 2006 and August 24, 2006, with Equity Office Properties Management Corp., the agent for Two North Riverside Plaza Joint Venture
Limited Partnership, a limited partnership comprised in part of certain trusts. Samstock, L.L.C., the Companys largest stockholder, is indirectly owned by these trusts. The trustee of these trusts is Chai Trust Company, L.L.C., and Donald J.
Liebentritt, the Chairman of the Companys Board of Directors, is President of Chai Trust Company, L.L.C. The lease, as amended, provides for 28,721 square feet of office space at Two North Riverside Plaza, Chicago, Illinois and has a term from
September 1, 2003 through August 31, 2011. The Company paid rent of $137 and $134 for the three months ended June 30, 2009 and 2008, respectively and $275 and $267 for the six months ended June 30, 2009 and 2008, respectively.

The Company has entered into two storage space lease agreements with Equity Office Properties Management Corp., the agent for Two North
Riverside Plaza Joint Venture Limited Partnership, one dated November 2, 2005 and one dated October 22, 2003. The leases provide for an aggregate of 1,130 square feet of storage space at Two North Riverside Plaza, Chicago, Illinois. The
term of both leases is month-to-month. The Company paid rent of $4 and $3 for the three months ended June 30, 2009 and 2008 respectively and $7 for each of the six months ended June 30, 2009 and 2008.

The future minimum lease obligations for the above leases are as follows:



|                               |  |   |      
|------------------------------ |  | - | -----
|Remaining two quarters of 2009 |  | $ | 280  
|Year ending December 31, 2010  |  |   | 569  
|Year ending December 31, 2011  |  |   | 361  
|                               |  |   |      
|Total minimum lease payments   |  | $ | 1,210
|                               |  |   |      

Note 3  Litigation

On May 25, 2004, a complaint was filed in the Los Angeles County Superior Court against the Company and certain of its subsidiaries by Bistro
Executive, Inc. and certain other restaurants and their owners and guarantors who participated in the Companys dining credits purchase plan. The Company described this litigation, including the removal of the case to the United States District
Court for the Central District of California and the certification of class action treatment of the case, in greater detail in the Companys previously filed Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and some of the Current
Reports on Form 8-K.

On March 6, 2007, the Company entered into a formal agreement with the representative plaintiffs acting on
behalf of a Settlement Class to settle this litigation. On August 23, 2007, the District Court issued an order granting formal approval of the settlement and it became final on September 24, 2007 after no appeal was taken. The amounts
that members of the Settlement Class are entitled to under the settlement were determined through a claims process that resulted in a payment of the first installment for virtually all of the claims in December 2007. The Company
also made payments to the representative plaintiffs and the first installment of payments to class counsel in December 2007. The Company paid the second installment for virtually all of the claims and to class counsel as scheduled in July 2008. The
last remaining installment was paid during the first quarter of 2009.

The Company established the original reserve in the fourth
quarter of 2006 based on managements initial estimate of the cost of the settlement and related legal and administrative expenses. The related legal and administrative expenses included legal expenses incurred by the Company, legal expenses
from the plaintiffs attorneys, claims administration costs and class representation costs. The Company reversed $43 of this expense during 2008 and reversed an additional $70 of this expense during the three months ended March, 31 2009. The
reversals were based on a review of the claims filed by class members, managements best estimate of claims that could have been filed before the end of the claims filing period and actual payments made. The balance of the accrual relating to
this litigation was paid during the second quarter of 2009. The liability initially recorded included future legal and administrative costs as allowed under Emerging Issues Task Force (EITF) Topic No. D-77, Accounting for Legal
Costs Expected to Be Incurred in Connection with a Loss Contingency. The total litigation accrual was calculated using the discounted cash flow method. As such, the Company reduced the liability by $536 as a result of this discounted cash flow
and amortized this amount to expense. As of June 30, 2009, the liability was fully amortized.



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|                                          |  |                            |       |             |   |        |                  |  |   |                 |   |                            |   |             |  |   |             |  |   |                 |   |                     |   |     |   |  |   |    |  |   |  
|----------------------------------------- |  | -------------------------- | ----- | ----------- | - | ------ | ---------------- |  | - | --------------- | - | -------------------------- | - | ----------- |  | - | ----------- |  | - | --------------- | - | ------------------- | - | --- | - |  | - | -- |  | - | -
|                                          |  | Balance atDecember 31,2007 |       | AmountsPaid |   |        | Reclassification |  |   | InterestExpense |   | Balance atDecember 31,2008 |   | AmountsPaid |  |   | Adjustments |  |   | InterestExpense |   | BalanceJune 30,2009
|Expense for Class                         |  | $                          | 2,849 |             | $ | (1,631 | )                |  | $ | (30             | ) |                            | $ | 107         |  | $ | 1,295       |  | $ | (1,247          | ) |                     | $ | (56 | ) |  | $ | 8  |  | $ | 
|Related legal and administrative expenses |  |                            | 3,261 |             |   | (1,626 | )                |  |   | 117             |   |                            |   | 117         |  |   | 1,869       |  |   | (1,866          | ) |                     |   | (14 | ) |  |   | 11 |  |   | 
|                                          |  |                            |       |             |   |        |                  |  |   |                 |   |                            |   |             |  |   |             |  |   |                 |   |                     |   |     |   |  |   |    |  |   |  
|Total litigation and related expenses     |  | $                          | 6,110 |             | $ | (3,257 | )                |  | $ | 87              |   |                            | $ | 224         |  | $ | 3,164       |  | $ | (3,113          | ) |                     | $ | (70 | ) |  | $ | 19 |  | $ | 
|                                          |  |                            |       |             |   |        |                  |  |   |                 |   |                            |   |             |  |   |             |  |   |                 |   |                     |   |     |   |  |   |    |  |   |  

Note 4  Basic and Diluted Net Income per Share

Basic and diluted net income per share was computed by dividing net income available to common stockholders by the weighted-average number of shares of
the Companys common stock outstanding for each period presented. Weighted average shares of common stock equivalents of 986 for the three months ended June 30, 2008 and 1,004 for the six months ended June 30, 2008 were excluded as
their effect would have been anti-dilutive.

For periods with potentially dilutive securities, incremental shares and adjustments to net
income are determined using the if converted and treasury stock method as follows.



|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|------------------------------------------------------------------------------------------ |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                                                                           |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                                                                           |  | 2009                       |       | 2008                     |   | 2009  |  | 2008
|Net income                                                                                 |  | $                          | 1,280 |                          | $ | 1,909 |  | $    | 1,167 |  | $ | 3,067
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|                                                                                           |  |                            |       |                         
|Weighted average number of shares of common stock and common stock equivalents outstanding |  |                            |       |                          |   |       |  |      |       |  |   |      
|Basic                                                                                      |  |                            | 8,912 |                          |   | 9,055 |  |      | 9,033 |  |   | 9,045
|Stock options and restricted stock                                                         |  |                            | 36    |                          |   | 49    |  |      | 61    |  |   | 86   
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|Diluted                                                                                    |  |                            | 8,948 |                          |   | 9,104 |  |      | 9,094 |  |   | 9,131
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|                                                                                           |  |                            |       |                         
|Earnings per share                                                                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|Basic                                                                                      |  | $                          | 0.14  |                          | $ | 0.21  |  | $    | 0.13  |  | $ | 0.34 
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|Diluted                                                                                    |  | $                          | 0.14  |                          | $ | 0.21  |  | $    | 0.13  |  | $ | 0.34 
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      

Note 5  Business and Credit Concentrations

As of June 30, 2009, the Company had contracts or relationships with eight major airlines that offer frequent flyer miles or credits as rewards.
Members of each of the Upromise Inc., United Air Lines and American Airlines Inc. programs represented 10% or more of the Companys sales for the three and six months ended June 30, 2009 and 2008. The following table illustrates the
Companys partner sales concentration as a percentage of total sales.



|                                                      |  |                             |   |  |                           |   |  |      |   |  |      |  
|----------------------------------------------------- |  | --------------------------- | - |  | ------------------------- | - |  | ---- | - |  | ---- | -
|                                                      |  | Three Months Ended June 30, |   |  | Six Months Ended June 30, |  
|                                                      |  | 2009                        |   |  | 2008                      |   |  | 2009 |   |  | 2008 |  
|Airlines                                              |  | 59.0                        | % |  | 56.3                      | % |  | 58.7 | % |  | 56.1 | %
|                                                      |  |                             |   | 
|All partners that each represent 10% or more of sales |  | 58.5                        | % |  | 55.1                      | % |  | 59.0 | % |  | 54.4 | %

Note 6  Minimum Partner and Vendor Obligations

The Company has agreements with various partners and vendors that obligate the Company, among other things, to certain minimum purchases as well as
minimum thresholds of marketing activities. These partner and vendor obligations are generally measured over a one to five year period. The Company periodically evaluates whether its minimum obligations with respect to each partner and vendor will
be satisfied and records a liability for any estimated shortfall. The Company has minimum purchase obligations with these partners and vendors as follows:



|                                             |  |       
|-------------------------------------------- |  | ------
|Remaining two quarters of 2009               |  | 9,158 
|2010                                         |  | 11,600
|2011                                         |  | 5,500 
|2012                                         |  | 360   
|2013                                         |  | 180   
|Thereafter                                   |  |      
|                                             |  |       
|Total minimum partner and vendor obligations |  | 26,798
|                                             |  |       



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As of June 30, 2009, the Company has recorded an expense of $300 related to its expectations of
meeting its minimum purchase obligations for 2009.

Note 7  Comprehensive Income

The Companys comprehensive income was as follows:



|                                        |  |                             |       |                           |      |   |       |  |   |       |   |  |   |       |  
|--------------------------------------- |  | --------------------------- | ----- | ------------------------- | ---- | - | ----- |  | - | ----- | - |  | - | ----- | -
|                                        |  | Three Months Ended June 30, |       | Six Months Ended June 30, |     
|                                        |  | 2009                        |       |                           | 2008 |   | 2009  |  |   | 2008  |  
|Net income                              |  | $                           | 1,280 |                           |      | $ | 1,909 |  | $ | 1,167 |   |  | $ | 3,067 |  
|Other comprehensive (loss) income:      |  |                             |       |                           |      |   |       |  |   |       |   |  |   |       |  
|Foreign currency translation adjustment |  |                             | (162  | )                         |      |   | 29    |  |   | (198  | ) |  |   | (58   | )
|                                        |  |                             |       |                           |      |   |       |  |   |       |   |  |   |       |  
|Total comprehensive income              |  | $                           | 1,118 |                           |      | $ | 1,938 |  | $ | 969   |   |  | $ | 3,009 |  
|                                        |  |                             |       |                           |      |   |       |  |   |       |   |  |   |       |  

Note 8  Stock Buy Back

As announced on April 22, 2009, the Companys Board of Directors authorized the repurchase of up to $5,000 of our common stock. The stock
repurchase authorization does not have an expiration date and may be limited, suspended or terminated at any time without prior notice. During the three months ended June 30, 2009, we repurchased 443 shares for $4,138 at an average price of
$9.33 on a split-adjusted basis.

Note 9  Cash and Cash Equivalents

Cash and cash equivalents of $21,014 and $9,008 at June 30, 2009 and December 31, 2008, respectively, includes overnight repurchase agreements
and money market funds with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash
equivalents.

Note 10  Restricted Stock Units

The following table summarizes the Companys nonvested restricted stock unit award activity for all plans for the six months ended June 30, 2009.



|                               |  |        |   |  |                                     |      
|------------------------------ |  | ------ | - |  | ----------------------------------- | -----
|                               |  | Shares |   |  | WeightedAverageGrant-Date FairPrice
|Nonvested at December 31, 2008 |  | 217    |   |  | $                                   | 11.37
|                               |  |        |   |  |                                     |      
|Granted                        |  | 270    |   |  | $                                   | 10.47
|Vested                         |  | (83    | ) |  | $                                   | 14.86
|Forfeited                      |  | (22    | ) |  | $                                   | 13.94
|                               |  |        |   |  |                                     |      
|Nonvested at June 30, 2009     |  | 382    |   |  | $                                   | 12.28
|                               |  |        |   |  |                                     |      

Restricted stock unit awards granted during 2009 contain a combination of either a performance
condition linked to the Companys performance and a service condition or a performance and market condition linked to the performance of the Companys stock price. The performance and service conditions vest over a one to three year
service period subject to the achievement of the performance condition. The component containing the performance and market conditions may vest over a period of up to three years. Vesting may be accelerated to as early as the end of the first year
upon achievement of the market condition if it is determined that the performance condition has been met. The stock based compensation expense for the 2009 grant is being recognized over a



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one to three year period. Restricted stock unit awards granted during 2008 and 2007 generally vest and settle over a three year period based on a service
condition. As of June 30, 2009, $2,294 of total unrecognized compensation costs related to restricted stock unit awards are expected to be recognized over the weighted-average period of approximately 27 months. The Company recorded $623 and
$761 of stock compensation expense during the three and six months ended June 30, 2009, respectively and $553 and $1,293 of stock compensation expense during the three and six months ended June 30, 2008, respectively relating to restricted
stock units.

Note 11  Recent Accounting Pronouncement

In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 165, Subsequent Events. SFAS No. 165 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 was effective for interim or annual financial periods
ending after June 15, 2009. The adoption of SFAS No. 165 did not have an impact on the Companys results of operations or financial position.



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations (amounts in thousands, except share data, headcount, restaurants in the program and
average transaction amount)
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

You should read the following discussion together with our unaudited condensed
consolidated financial statements and notes to those financial statements, which are included in this report. This report contains forward-looking statements made pursuant to the safe harbor provisions of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words anticipates, intends, expects, could, should, plans, believes,
estimates or words or phrases of similar import generally identify forward-looking statements. You are cautioned that forward-looking statements are subject to risks, trends and uncertainties that could cause actual results, performance
or achievements to differ materially from those expressed in any forward-looking statements. Important factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by those statements include, but are not limited to, the following: (i) the impact of the economy on dining activity, (ii) our inability to attract and retain merchants, (iii) our susceptibility to
restaurant credit risk and the risk that its allowance for losses related to restaurant credit risk in connection with dining credits may prove inadequate, (iv) our dependence upon its relationships with payment card issuers, transaction
processors, presenters and aggregators, (v) a security breach that results in a payment card issuer re-issuing a significant number of registered payment cards, (vi) changes to payment card association rules and practices, (vii) our
dependence on its relationships with airlines and other reward program partners for a significant number of members, (viii) the concentration of a significant amount of our rewards currency in one industry group, the airline industry,
(ix) adverse weather conditions affecting dining activity, (x) our minimum purchase obligations and performance requirements, (xi) our inability to attract and retain active members, (xii) factors causing our operating results to
fluctuate over time, (xiii) our ability to obtain sufficient cash to operate its business, (xiv) changes in our programs that affect the rate of rewards, (xv) our inability to maintain an adequately-staffed sales force, (xvi) our
inability to maintain an appropriate balance between the number of members and the number of participating merchants in each market, (xvii) network interruptions, processing interruptions or processing errors, (xviii) susceptibility to a
changing regulatory environment, (xix) increased operating costs or loss of members due to privacy concerns of our program partners, payment card processors and the public, (xx) the failure of our security measures, (xxi) the loss of
key personnel, (xxii) increasing competition, and (xxiii) a shift toward Marketing Services Program that may cause revenues to decline. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any
forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to future results over time or otherwise, except as required by law. See the risk factors included as Part I,
Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008 for a more detailed discussion of the foregoing and other factors that could cause actual results to differ materially from those
included in the forward-looking statements and that, among others, should be considered in evaluating our outlook.

OVERVIEW

We operate the leading dining rewards programs in North America by marketing our participating restaurants to members of these
programs and by providing incentives to members to dine at these restaurants. Participating restaurants benefit from these marketing efforts, reporting of program results, customer feedback through member comments as well as access to capital that
we offer. In addition to operating the dining rewards program of leading airline frequent flyer programs, clubs and other affinity organizations, we offer our own dining rewards program through our website, www.rewardsnetwork.com. In 2009, we are
celebrating our 25thyear in business.

We market participating restaurants to members principally through our internet, email and different mobile smartphone applications
as well as various social media outlets. Our programs are designed to increase the frequency of dining and the amount spent on dining by members at participating restaurants by providing incentives to members to dine at these restaurants, including
airline miles, college savings rewards, reward program points, and Cashback RewardsSMsavings. As members spend more at participating restaurants, the amount of incentives they receive for dining increases. We also offer reporting and customer feedback to participating restaurants and provide aggregate data regarding
members activity and feedback through comments and ratings gathered from surveys. In addition, we provide access to capital by purchasing a portion of future member transactions from participating restaurants in advance and at a discount. Bars
and clubs also participate in our programs, and for purposes of describing our business, are included when the terms restaurants or merchants are used.

We are compensated for our services and, if applicable, receive the portion of a members transaction that we have purchased only if a member dines
at a participating restaurant when rewards are available and pays using a credit or debit card (also referred to as a payment card) that the member has registered with us. Our revenue per transaction is equal to a percentage of the members
total dining transaction amount. These revenues are applied to recover our costs where we have purchased a portion of future member transactions; provide rewards to members; cover our selling, marketing, general and administrative expenses; and
generate operating income that provides a return for our stockholders.



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We primarily offer two programs to restaurants  our Marketing Services Program and Marketing
Credits Program. In both the Marketing Services and Marketing Credits Programs, we market participating restaurants to members, offer incentives to members to dine at these restaurants and provide reporting for restaurants on member activity and
member feedback. We also provide restaurants that participate in the Marketing Credits Program with access to capital through our purchase of a portion of future member transactions. In discussing our business, we use the term dining
credits to refer to the portion of future member transactions that we purchase. Our contracts include a separate fee for marketing, reporting on member activity, member feedback and dining rewards programs. We include all components of the
Marketing Credits Program, including the payment for marketing, reporting on member activity, member feedback and dining rewards programs, in Marketing Credits Program sales and net revenues because we analyze our business in this manner.

Beginning in December 2007 and throughout 2008, we saw a decline in consumer spending and increased economic and credit uncertainty in the
restaurant industry. During the second half of 2008, in particular, we experienced a decline in average transaction amount as a result of members spending less at our restaurants, either by spending less on a particular meal or by altering their
dining behavior by dining at restaurants with lower prices. In anticipation of the potentially negative impact on our financial results from any deterioration in consumer spending and economic conditions, we took aggressive steps to manage risks in
our dining credits portfolio and reduce our ongoing operating expenses.

We implemented more conservative dining credits purchasing
policies during mid-2008 in light of the significant economic challenges and the credit uncertainty facing both the restaurant industry and consumers. These more conservative policies were aimed at generally reducing the amount of dining credits we
purchased from individual restaurants and shortening the usage periods of the dining credits purchased. These policies were also designed to improve the risk profile of our dining credits portfolio, which reduced the number of restaurants qualified
to participate in the Marketing Credits Program. These policies contributed to the increase in our cash position as we used less cash to purchase dining credits. We continued these more conservative policies into the second quarter of 2009 given our
insight into dining activity at our participating restaurants.

As a result of our more conservative dining credits purchasing policies
that lowered the average amount of capital at risk, our net dining credits portfolio decreased to $56,618 as of June 30, 2009 from $87,547 as of June 30, 2008 and $75,663 as of December 31, 2008 and our net dining credits usage period
decreased to 6.2 months at June 30, 2009 from 7.6 months at June 30, 2008 and 7.5 months at December 31, 2008. Although our net dining credits portfolio has decreased 35.3% between June 30, 2009 and 2008, sales decreased only
17.0% between quarterly periods partially due to a $2,009 or 33% increase in sales in the Marketing Services Program.

We continually
evaluate our dining credits purchase policies by monitoring the performance of our dining credits portfolio and observing current economic trends facing the restaurant industry. In determining the appropriate amount of dining credits to purchase
and, therefore, the length of the dining credits usage period for a particular restaurant, we consider the overall economic condition of the restaurant industry, the performance of participating restaurants and the individual restaurants
credit profile, sales, and history in our program. We have observed the amount members spend at our restaurants stabilize in the second quarter of 2009. We generally expect to continue conservative dining credit purchasing policies during this
challenging economic period, although we have modified our dining credits purchasing to increase the amount of dining credits we are willing to purchase from restaurants that meet certain credit, volume and tenure criteria. We also continue to focus
our dining credits purchases on the types of restaurants that are most appealing to consumers in light of current conditions and those merchants that we consider to present lower risk based on our risk models. As we have observed consumers shifting
spending to restaurants with lower prices, we have added more lower priced restaurants to our programs, which has contributed to a lower average transaction amount for the three months ended June 30, 2009 as compared to the three months ended
June 30, 2008. This trend towards adding more lower-priced restaurants has continued in the second quarter of 2009.

We believe that
purchasing fewer dining credits from individual restaurants is a conservative approach as we have less capital at risk with any individual restaurant. The downside to this approach is that Marketing Credits Program merchants complete the program in
a shorter time frame, leading to our sales resources needing to renew dining credit purchases more frequently. We believe that the trade-off of having less capital at risk as compared to the increase in the overall cost to renew merchants and the
risk of a merchant not renewing continues to be appropriate and prudent in this environment. We continue to monitor economic developments, member dining behavior and our restaurants business on an on-going basis and make business decisions
based on the developments that we observe. In response to the current economic environment, we may adjust our approach with our dining credits purchases in the future in order to manage risk in our dining credits portfolio. If we become more
conservative it would likely result in a further decrease in the size of our dining credits portfolio and lower future revenues. If we choose to purchase more dining credits from merchants who we identify as acceptable risk, it could result in an
increase in the size of our dining credits portfolio and use of cash. We may also increase our loss reserves in response to our assessment of the economy and the performance of our restaurants.

In addition to actively managing the risk in the dining credits portfolio, during the first the half of 2009 we also continued to reduce ongoing
operating expenses in order to better position the business to continue generating operating profit in a challenging



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economic environment. We have reduced member benefits expense, marketing expenses and other operating expenses. However, we continue to specifically avoid
cost reductions that would adversely impact our sales force. While we see the current environment as challenging, we also see an opportunity to continue to add more restaurants to our programs. In addition, the lower usage period for most merchants
requires us to renew their programs more frequently to maintain current sales levels. As a result, we will continue our investment in the sales force and intend to maintain full staffing levels.

We increased the total number of restaurants in our program to 10,197 at June 30, 2009, as compared to 9,769 at June 30, 2008, the highest
number of participating restaurants we have had since the fourth quarter of 2005. The increase in merchants is an indication of improved sales force productivity, driven in part by the continued maturation of our sales force. Marketing Services
merchants increased by 1,731, or 55.4%, while Marketing Credits merchants decreased by 1,303, or 19.6%. As a result of our more stringent dining credits purchasing policies, we accepted fewer restaurants into our Marketing Credits Program. While our
dining credits program continues to be a significant part of our business, we are focused on improving the marketing services that we provide to all of our participating restaurants in both the Marketing Services Program and Marketing Credits
Program. We believe the increase in the number of restaurants participating in our Marketing Services Program has been driven by new marketing initiatives as well as price adjustments to meet the needs of merchants in a difficult economic
environment. We were able to mitigate risk by acting conservatively within the Marketing Credits Program, actively grow the Marketing Services Program that has no capital at risk, and generate positive cash flows and profitability despite lower
sales than a year ago.

We use the data we generate from member spending activity at participating restaurants to manage both the Marketing
Credits Program and Marketing Services Program. For example, during the first quarter of 2009, we observed from our data that member spending at participating restaurants had been most impacted by the economic downturn during the week. We reacted to
this trend in the second quarter of 2009 by offering members across most of our member programs double rewards for dining on Mondays, Tuesdays, and Wednesdays. In the second quarter our members spent on average 21.7% more over the prior quarter on
Monday, Tuesday and Wednesday as compared to an increase of 10.6% over the prior quarter on those days the promotion was not offered. This promotion was well received by both our members and merchants and demonstrates the power of our data and
marketing efforts. We will continue to run the double benefit promotion for several of our programs in the third quarter of 2009.

During
the first half of 2009, we generated positive cash from operations, primarily as a result of the purchase of fewer dining credits during the period, but also through net income. We currently do not have any borrowings outstanding under our credit
facility and continue to operate on a debt-free basis.

On April 22, 2009, we announced that our Board of Directors authorized the
repurchase of up to $5,000 of our common stock. The stock repurchase authorization does not have an expiration date and may be limited, suspended or terminated at any time without prior notice. Shares may be purchased from time to time on the open
market or through private transactions, pursuant to Rule 10b5-1 trading plans or other available means. During the three months ended June 30, 2009, we repurchased 443 shares for $4,138. Repurchases are dependent on market conditions and other
factors. The purchases were funded from cash and cash reserves and the repurchased shares are maintained as treasury shares for possible future use. Any additional shares we may purchase are expected to be funded through cash from operations.

On July 6, 2009, we completed a one-for-three reverse split of our common stock in which every three shares of our common stock was
exchanged for one share of our common stock, as described further in Note 1 of this Quarterly Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES

Our discussion and analysis of the financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to the allowance for losses, the valuation allowance, if
any, for net deferred tax assets, goodwill, revenue recognition and legal contingencies. Our estimates are based on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following critical
accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.



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##### Table of Contents

Allowance for Losses

We provide allowances for dining credits losses and accounts receivables based on our estimate of losses that would result from the inability of
participating merchants to remain in business or our merchants unwillingness to honor their obligations relating to dining credits and accounts receivables. If the financial condition of our merchant base were to deteriorate beyond our
expectations, resulting in participating merchants inability to provide food, beverage, goods and services to members thereby reducing the redemption of dining credits, or if merchants are unwilling or otherwise unable to honor their
obligations relating to dining credits or accounts receivable in greater numbers than we expect, additional provision for losses may be required.

During the second quarter of 2008, we refined our methodology used to estimate losses in dining credits and accounts receivable. Prior to the second quarter of 2008, our methodology was primarily based upon the age
of the portfolio as calculated from sales from the preceding quarter. We applied estimated loss percentages to the aged portfolio based on the estimated time remaining on each deal. We also provided for specifically identified accounts and for
dining credits balances that were large or slow moving. Since the beginning of 2007, however, we have been collecting additional historical information on merchant account balances. With this additional data, during the second quarter of 2008, we
refined our estimation method and now use this information to monitor accounts, track historical write-offs, and fund new accounts. We now apply a reserve rate to accounts based upon additional characteristics, such as whether the account has been
referred for legal collection, the date of the last payment received from the merchant, whether our attempt to debit the merchants bank account for payments due to us has been rejected, the merchants commercial credit score, and the
aging of the account. The reserve rate for each account is based upon historical charge-off rates of accounts with similar characteristics. We also provide for specifically identified accounts and for dining credit balances that are large or slow
moving as we did previously. We will continue to review our reserve rates on a regular basis based upon historical charge-off rates and may adjust reserve rates based on changes in the nature of our business, risk considerations, economic conditions
or other factors. Losses are reduced by recoveries of dining credits previously charged off. Account balances are charged off against the allowance once we conclude that a merchant is unwilling or unable to honor their obligation relating to dining
credits. Subsequent to the account being charged off, we may continue to pursue recovery efforts. As of the beginning of 2008, we updated our write-off policy to further define when an account should be written-off.

In March 2007, we began to provide access to capital through a loan product, called RCR Loans. We discontinued offering the product line
effective January 2008, although we continue to service RCR Loan notes that we previously purchased. The net RCR Loan balance was $20 as of June 30, 2009. We provide an allowance for our RCR Loan product using a specific reserve method based on
the merchants payment history and previous experience with the merchant, if applicable. We purchased RCR Loan notes from WebBank after WebBank originated and funded the RCR Loan. If an RCR Loan merchant fails, we may not realize any value for
the RCR Loan note that we purchased. Even if an RCR Loan merchant stays in business, it may fail to repay the note that we purchased and we may incur costs to collect on the note and may not recover amounts sufficient to compensate us for damages
that we suffer.

Deferred Tax Assets Valuation Allowance

We record a valuation allowance to reduce our deferred tax assets when it is not likely to be recognized due to cumulative losses and the uncertainty as to future recoverability. We consider future taxable income
and available tax planning strategies in assessing the need for the valuation allowance. In the event we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset
would be charged to income in the period in which such determination is made.

Goodwill Impairment

On at least an annual basis, we evaluate whether events and changes in circumstances warrant the recognition of an impairment loss of unamortized
goodwill. If it is determined that a triggering event has occurred, we evaluate goodwill for impairment between our annual testing dates. The conditions that would trigger an impairment assessment of unamortized goodwill include a significant,
sustained negative trend in our operating results or cash flows, a decrease in demand for our programs, a change in the competitive environment, a decline in the market value of our Company and other industry and economic factors. Recoverability of
an asset is measured by comparison of its carrying amount to the expected future cash flows. Any impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair market value. We utilize a discounted
cash flow analysis in our impairment testing. Significant management judgment is required in the forecasting of future operating results that are used in the preparation of projected cash flows, and, if different conditions prevail or judgments are
made, a material write-down of goodwill could occur.

We comply with Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets, the current standard for periodic assessment of the carrying value of intangible assets, including goodwill. We assess the impact of SFAS No. 142 using a two-step approach to
assess goodwill based on applicable reporting units and any intangible assets, including goodwill, recorded in connection with our previous acquisitions. We report under a single reporting segment and as such our goodwill analysis is measured under
one reporting unit.



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Revenue Recognition

We recognize revenue from the Marketing Credits Program and Marketing Services Program when members patronize participating merchants and pay using a payment card they have registered with us. Revenue is recognized
only if the members transaction qualifies for a benefit in accordance with the rules of the members particular program. The amount of revenue recognized is that portion of the members total transaction amount that we are entitled
to receive in cash, in accordance with the terms of our agreement with the participating merchant. We are entitled to receive a greater amount of cash from merchants in our Marketing Credits Program than from merchants in our Marketing Services
Program. For example, if a members total qualified transaction amount is $100 at a Marketing Credits Program merchant, as evidenced by the full amount of the payment card transaction, and our contract provides for us to receive 80%, the amount
of revenue we recognize is $80, representing what we actually realize in cash. The same $100 transaction at a Marketing Services Program merchant may yield $17 in revenue to be recognized. Under the RCR Loan product, we recognize interest income on
an effective yield basis over the life of the loan.

RESULTS OF OPERATIONS  COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008

As a means of explaining our operations and results, the following table illustrates the relationship between revenue and expense
categories for the three months ended June 30, 2009 and 2008. These percentages have been rounded to the nearest tenth.



|                                       |  |                                                       |  |      
|-------------------------------------- |  | ----------------------------------------------------- |  | -----
|                                       |  | Percentage of Salesfor the Three Months EndedJune 30,
|                                       |  | 2009                                                  |  | 2008 
|Sales                                  |  | 100.0                                                 |  | 100.0
|Cost of sales                          |  | 50.5                                                  |  | 53.1 
|Provision for losses                   |  | 3.7                                                   |  | 5.0  
|Member benefits                        |  | 14.4                                                  |  | 11.7 
|                                       |  |                                                       |  |      
|Net revenue                            |  | 31.3                                                  |  | 30.2 
|                                       |  |                                                      
|Membership fees and other income       |  | 0.5                                                   |  | 0.5  
|                                       |  |                                                       |  |      
|Total operating revenue                |  | 31.9                                                  |  | 30.7 
|                                       |  |                                                       |  |      
|                                       |  |                                                      
|Salaries and benefits                  |  | 8.7                                                   |  | 8.6  
|Sales commission and expenses          |  | 9.1                                                   |  | 7.0  
|Professional fees                      |  | 1.2                                                   |  | 1.4  
|Member and merchant marketing expenses |  | 1.1                                                   |  | 1.7  
|Depreciation and amortization          |  | 2.4                                                   |  | 2.1  
|General and administrative expenses    |  | 5.1                                                   |  | 4.6  
|                                       |  |                                                       |  |      
|Total operating expenses               |  | 27.7                                                  |  | 25.3 
|                                       |  |                                                       |  |      
|Operating income                       |  | 4.2                                                   |  | 5.4  
|                                       |  |                                                      
|Other expense, net                     |  | 0.0                                                   |  | 0.6  
|                                       |  |                                                       |  |      
|                                       |  |                                                      
|Income before income tax provision     |  | 4.2                                                   |  | 4.8  
|                                       |  |                                                      
|Income tax provision                   |  | 1.8                                                   |  | 1.9  
|                                       |  |                                                       |  |      
|Net income                             |  | 2.3                                                   |  | 2.9  
|                                       |  |                                                       |  |      



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##### Table of Contents

Operating Revenues

The following table sets forth for the periods presented sales, components of costs of sales and certain other information for each of our two marketing programs. We use the term dining credits to refer to
the portion of future member transactions that we purchase. Our Marketing Credits Program contracts include a fee for marketing, customer feedback through member comments and ratings, member feedback and dining rewards programs. We include all
components of the Marketing Credits Program, including this fee, in Marketing Credits Program sales and revenues because we analyze our business in this manner. We use the term merchant in this discussion to refer to restaurants, bars
and clubs. Interest income from the discontinued RCR Loan product is included in the Marketing Credits Program sales for purposes of our income statement.



|                                                          |  |                                     |        |   |                          |   |        |       |  |   |                         |   |  |                          |        |   |       |   |        |   |  |   |         |  
|--------------------------------------------------------- |  | ----------------------------------- | ------ | - | ------------------------ | - | ------ | ----- |  | - | ----------------------- | - |  | ------------------------ | ------ | - | ----- | - | ------ | - |  | - | ------- | -
|                                                          |  | For The Three Months Ended June 30, |       
|                                                          |  | 2009                                |        |   | 2008                     |  
|                                                          |  | MarketingCreditsProgram             |        |   | MarketingServicesProgram |   |        | Total |  |   | MarketingCreditsProgram |   |  | MarketingServicesProgram |        |   | Total |  
|Merchant count as of June 30, 2009 and 2008, respectively |  |                                     | 5,343  |   |                          |   | 4,854  |       |  |   | 10,197                  |   |  |                          | 6,646  |   |       |   | 3,123  |   |  |   | 9,769   |  
|Number of qualified transactions                          |  |                                     | 1,396  |   |                          |   | 1,177  |       |  |   | 2,573                   |   |  |                          | 1,724  |   |       |   | 785    |   |  |   | 2,509   |  
|Average transaction amount                                |  | $                                   | 44.19  |   |                          | $ | 45.53  |       |  | $ | 44.80                   |   |  | $                        | 45.27  |   |       | $ | 46.75  |   |  | $ | 45.73   |  
|                                                          |  |                                     |        |   |                          |  
|Qualified transaction amount                              |  | $                                   | 61,683 |   |                          | $ | 53,583 |       |  | $ | 115,266                 |   |  | $                        | 78,039 |   |       | $ | 36,702 |   |  | $ | 114,741 |  
|Sales yield                                               |  |                                     | 75.5   | % |                          |   | 15.0   | %     |  |   | 47.3                    | % |  |                          | 76.5   | % |       |   | 16.3   | % |  |   | 57.3    | %
|Sales                                                     |  | $                                   | 46,546 |   |                          | $ | 8,009  |       |  | $ | 54,555                  |   |  | $                        | 59,723 |   |       | $ | 6,000  |   |  | $ | 65,723  |  
|                                                          |  |                                     |        |   |                          |  
|Cost of dining credits                                    |  | $                                   | 27,279 |   |                          | $ |       |       |  | $ | 27,279                  |   |  | $                        | 34,528 |   |       | $ |       |   |  | $ | 34,528  |  
|Processing fee                                            |  |                                     | 152    |   |                          |   | 135    |       |  |   | 287                     |   |  |                          | 207    |   |       |   | 141    |   |  |   | 348     |  
|                                                          |  |                                     |        |   |                          |   |        |       |  |   |                         |   |  |                          |        |   |       |   |        |   |  |   |         |  
|Total cost of sales                                       |  | $                                   | 27,431 |   |                          | $ | 135    |       |  | $ | 27,566                  |   |  | $                        | 34,735 |   |       | $ | 141    |   |  | $ | 34,876  |  
|                                                          |  |                                     |        |   |                          |   |        |       |  |   |                         |   |  |                          |        |   |       |   |        |   |  |   |         |  
|Provision for dining credits losses                       |  | $                                   | 2,011  |   |                          | $ |       |       |  | $ | 2,011                   |   |  | $                        | 3,259  |   |       | $ |       |   |  | $ | 3,259   |  
|                                                          |  |                                     |        |   |                          |  
|Member benefits                                           |  | $                                   | 3,411  |   |                          | $ | 2,677  |       |  | $ | 6,088                   |   |  | $                        | 4,078  |   |       | $ | 1,530  |   |  | $ | 5,608   |  
|Bonus rewards                                             |  |                                     | 351    |   |                          |   | 302    |       |  |   | 653                     |   |  |                          | 694    |   |       |   | 324    |   |  |   | 1,018   |  
|Partner Commissions                                       |  |                                     | 626    |   |                          |   | 513    |       |  |   | 1,139                   |   |  |                          | 755    |   |       |   | 337    |   |  |   | 1,092   |  
|                                                          |  |                                     |        |   |                          |   |        |       |  |   |                         |   |  |                          |        |   |       |   |        |   |  |   |         |  
|Total member benefits                                     |  | $                                   | 4,388  |   |                          | $ | 3,492  |       |  | $ | 7,880                   |   |  | $                        | 5,527  |   |       | $ | 2,191  |   |  | $ | 7,718   |  
|                                                          |  |                                     |        |   |                          |   |        |       |  |   |                         |   |  |                          |        |   |       |   |        |   |  |   |         |  
|Net revenue                                               |  | $                                   | 12,716 |   |                          | $ | 4,382  |       |  | $ | 17,098                  |   |  | $                        | 16,202 |   |       | $ | 3,668  |   |  | $ | 19,870  |  
|                                                          |  |                                     |        |   |                          |   |        |       |  |   |                         |   |  |                          |        |   |       |   |        |   |  |   |         |  

In analyzing sales, we focus on three key metrics: merchant count, qualified transaction amount
and sales yield. Merchant count is the number of merchants active in our program at the end of each period. Qualified transaction amount represents the total dollar value of all member dining transactions that qualify for a benefit, and therefore
provide revenue to us. Sales yield represents the percentage of the qualified transaction amount that we retain as revenue.

Ending
merchant count as of June 30, 2009 was 10,197 compared to 9,769 as of June 30, 2008, an increase of 4.4%. The increase in total Merchant Count was driven by a 55.4% increase in Marketing Services Program merchants to 4,854 merchants,
offset by a 19.6% decrease in Marketing Credits Program merchants to 5,343 merchants. We experienced a shift in the mix of merchants towards Marketing Services Program merchants from Marketing Credits Program merchants as a result of new marketing
initiatives and price adjustments in the Marketing Services Program designed to meet the needs of merchants in a difficult economic environment. In addition, more conservative dining credits purchase policies implemented during 2008 and continuing
into 2009 led us to purchase fewer dining credits from fewer merchants and caused some merchants to complete the program more quickly than in the past.

We continually evaluate our dining credits purchase policies by monitoring the performance of our dining credits portfolio and observing current economic trends facing the restaurant industry. Beginning in the fourth
quarter of 2007 and through the second quarter of 2009, we shortened the usage period of new dining credits by purchasing fewer dining credits from certain merchants as a result of our assessment of the overall economic trends facing the restaurant
industry and a decline in consumer spending. Shortening the dining credits usage period for a deal reduces our risk exposure with respect to that deal, but also decreases the revenue that we may realize from that deal and may shorten the period of
time the restaurant participates in our program if we are unable to renew the restaurants participation in our programs. Based on our analysis of the performance of individual merchants in our dining credits portfolio, we adjusted our dining
credits purchasing policies in the second quarter of 2009 to purchase more dining credits from merchants who met certain credit, volume and tenure criteria. Our net dining credits balance as of June 30, 2009 decreased to $56,618 from $75,663 at
December 31, 2008 due in part to the decrease in the dining credits net usage period.



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Qualified transaction amounts at our participating merchants increased by $525, or 0.5%, to $115,266 for
the three months ended June 30, 2009 compared with the same period in prior year. While the number of qualified transactions increased, average transaction amount decreased $0.93, or 2.0%, to $44.80 for the three months ended June 30, 2009
from $45.73 for the three months ended June 30, 2008. While members continued to dine despite the difficult economic climate, they generally spent less than they have in the past and shifted their dining habits from higher price point
establishments toward mid and lower price point establishments. In response to changing consumer behavior, we have added more restaurants with lower average price points, which contributed to the decrease in average transaction amount.

Total sales yield decreased to 47.3% for the three months ended June 30, 2009 compared to 57.3% for the three months ended June 30, 2008.
The decrease was due to the shift toward the Marketing Services Program, which has lower sales yields, and a decrease in sales yield in both the Marketing Credits and Marketing Services Programs. The Marketing Credits Program sales yield decreased
to 75.5% for the three months ended June 30, 2009 compared to 76.5% for the three months ended June 30, 2008. Sales yield for the Marketing Services Program decreased to 15.0% for the three months ended June 30, 2009 from 16.3% for
the same period in the prior year as we lowered the pricing of this product to accommodate the needs of merchants in this difficult economic environment.

Sales for the three months ended June 30, 2009 decreased 17.0% as compared with the three months ended June 30, 2008 primarily due to a 22.1% decrease in Marketing Credits Program sales, partially offset by
a 33.5% increase in Marketing Services Program sales. Marketing Credits Program sales decreased as a result of fewer Marketing Credits Program merchants participating in our program, due primarily to our conscious decision to become more
conservative in our dining credits purchases. Marketing Services Program sales increased as a result of a higher number of Marketing Services Program merchants, but were partially offset by lower sales yield.

Cost of sales decreased to 50.5% of total sales but increased to 58.9% of Marketing Credit Program sales for the three months ended June 30, 2009
compared to 53.1% of total sales and 58.2% of Marketing Credit Program sales for the same period in the prior year. The decrease in cost of sales compared to total sales was due to a shift in mix towards merchants participating in the Marketing
Services Program, which has minimal cost of sales. The increase in cost of sales compared to Marketing Credits Program sales was due to shortened usage periods on new Marketing Credits deals. Marketing Credits deals with shorter usage periods
typically have a higher cost of sales because we purchase those dining credits at less of a discount. The dining credits net usage period decreased to 6.2 months as of June 30, 2009 from 7.6 months as of June 30, 2008.

The provision for losses decreased to 3.7% of total sales and 4.3% of Marketing Credits Program sales for the three months ended June 30, 2009
compared with 5.0% of total sales and 5.5% of Marketing Credits Program sales for the three months ended June 30, 2008. While the provision for losses decreased period over period the allowance for doubtful accounts as a percentage of the gross
dining credits balance increased to 22.3% as of June 30, 2009 from 18.8% as of June 30, 2008 and 21.0% as of December 31, 2008. As we have adopted more conservative dining credits purchasing policies, we have intentionally decreased
the portfolio balance by purchasing fewer dining credits. This resulted in an increase in the allowance as a percentage of the total dining credits portfolio asset. We believe that the current reserve balance is appropriate given the increased
potential risk of merchant defaults in a challenging economy. The decline in the provision for losses expense is a reflection of our more conservative purchasing policy on portfolio risk because we have purchased fewer dining credits and primarily
from merchants who we believe are a lower risk. Net write-offs totaled $5,332 during the three months ended June 30, 2009 as compared to $2,681 during the three months ended June 30, 2008. This increase is primarily due to the timing of
write-offs under our write off policy. Write-offs in 2009 largely represent accounts that were funded prior to the changes in our credit policies. The increase in write-offs did not have a material effect on the quarterly provision as these accounts
generally were over 90% reserved at the time of write-off.

The provision for both periods included reserves for both our dining credits
portfolio and RCR Loan notes. There was a reversal of the provision for loss expense for RCR Loan notes of $75 for the three months ended June 30, 2009 as compared with a provision for loss expense of $229 for the three months ended
June 30, 2008. We decided to exit the RCR Loan product effective January 2008, although we continue to service RCR Loan notes that we previously purchased. The reversal of expense was related to the receipt of cash payments from certain RCR
Loan merchants for whom specific reserves had been established. The RCR Loan notes receivable, net of allowance for doubtful accounts, was $20 as of June 30, 2009 and $56 as of December 31, 2008.

Member benefits expense, which includes partner commissions and incentive bonus awards paid to members, increased to $7,880, or 14.4% of sales, for the
three months ended June 30, 2009 compared with $7,718, or 11.7% of sales, for the three months ended June 30, 2008. The increase in member benefit expense was primarily due to a double rewards promotion of approximately $1,200 incurred by
members for qualified dines taking place on Monday, Tuesday or Wednesday, as well as a shift towards Marketing Services Program sales. Member benefit expense for the Marketing Credits Program as a percentage of Marketing Credits



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##### Table of Contents

Program sales remained relatively consistent at 9.4% for the three months ended June 30, 2009 as compared with 9.3% for the three months ended
June 30, 2008. Member benefit expense for the Marketing Services Program as a percentage of Marketing Services Program sales increased to 43.6% for the three months ended June 30, 2009 from 36.5% for the three months ended June 30,
2008.

Net revenues decreased to $17,098, or 31.3% of sales, during the three months ended June 30, 2009 as compared to $19,870, or
30.2% of sales, during the three months ended June 30, 2008. The decrease in net revenues of $2,772 between periods was due to lower sales, partially offset by lower cost of sales and a lower provision for losses. The increase in net
revenues of 1.1% as a percentage of sales was due to the shift in sales mix more towards the Marketing Services Program, lower cost of sales and a lower provision for losses partially offset by an increase in member benefits expense as a percentage
of sales. Marketing Services Program merchants generate less sales dollars than a Marketing Credits Program merchant; however Marketing Services Program sales have a higher net revenue percentage than Marketing Credits Program sales.

Membership and other income decreased $40, or 12.6%, for the three months ended June 30, 2009 as compared with the same period in the prior year.
The decrease can be primarily attributed to the decline in fee paying members. Beginning in mid-2008, we introduced a new membership program that eliminates fees for certain members.

Operating Expenses

Salaries and benefits decreased $887 or 15.8% to $4,733 for the three
months ended June 30, 2009 from $5,620 for the three months ended June 30, 2008 primarily due to reductions in administrative employee head count.

Sales commissions and expenses include sales force salaries and benefits, commissions, travel costs and training. Sales commissions and expenses increased to 9.1% of sales for the three months ended June 30, 2009
compared to 7.0% of sales for the three months ended June 30, 2008 due to an increase in sales commissions, an increase in sales headcount, and higher sales bonus incentive compensation expense while sales were lower in 2009.

Professional fees decreased $230, or 25.8%, to $662 for the three months ended June 30, 2009 as compared to $892 for the three months ended
June 30, 2008 primarily as a result of lower legal fees.

Member and merchant marketing expenses decreased $491, or 45.0%, for the
three months ended June 30, 2009 compared with the same period in the prior year as we migrated away from using outside marketing agencies and towards internal resources to perform marketing functions. While our marketing expenses have
decreased by nearly a half, the total qualified transactions and active members have remained consistent between periods.

Depreciation and
amortization costs decreased $87, or 6.2%, for the three months ended June 30, 2009 compared to the three months ended June 30, 2008 as our investments in technology supporting the automation of internal processes and general information
technology investments mature.

General and administrative expenses decreased $214, or 7.1%, for the three months ended June 30, 2009
compared to with the same period in the prior year. The decrease was primarily due to a decrease in administrative employee travel expense, a decrease in rent and other office expenses and lower general corporate insurance premiums.

Other Income and Expense

Interest and other
income decreased $125 to $5 for the three months ended June 30, 2009 compared with the same period in the prior year as a result of lower cash and cash equivalent balances due to the repurchase of our convertible subordinated debentures
throughout 2008. Interest expense and financing costs decreased $540 to $20 as a result of the purchase of the remaining convertible subordinated debentures during 2008 as discussed below under Liquidity and Capital Resources.

Income tax provision

Our effective tax rate
for three months ended June 30, 2009 was 43.7% compared with 39.1% for the three months ended June 30, 2008. The increase primarily related to an increase in taxable income in states with higher income tax rates as well as other
adjustments.

Net income

Net
income was $1,280 for the three months ended June 30, 2009 compared with $1,909 for the three months ended June 30, 2008. The decrease between periods was primarily due to lower sales, partially offset by lower operating expenses.



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##### Table of Contents

On July 6, 2009, we completed the one-for-three reverse split of our common stock, in which every
three shares of our common stock was exchanged for one share of our common stock. Our common stock began trading at the market opening on July 7, 2009 on a split-adjusted basis. As a result of the reverse stock split, as of June 30, 2009
we had 8,717 shares of common stock outstanding.

On a split-adjusted basis, basic weighted average number of shares outstanding decreased
to 8,912 for the three months ended June 30, 2009 compared to 9,055 for the same period in the prior year. Diluted weighted average shares outstanding decreased to 8,948 for the three months ended June 30, 2009 compared to 9,104 for the
same period in the prior year. The decrease in basic and diluted weighted average number of shares outstanding was due to the repurchase of 442 shares, partially offset by the issuance of shares upon the vesting of restricted stock unit awards and
the distribution of deferred shares to the Board of Directors as compensation for serving on the Board of Directors.



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##### Table of Contents

RESULTS OF OPERATIONS  COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

As a means of explaining our operations and results, the following table illustrates the relationship between revenue and expense categories for the six
months ended June 30, 2009 and 2008. These percentages have been rounded to the nearest tenth.



|                                       |  |                                                     |  |      
|-------------------------------------- |  | --------------------------------------------------- |  | -----
|                                       |  | Percentage of Salesfor the Six Months EndedJune 30,
|                                       |  | 2009                                                |  | 2008 
|Sales                                  |  | 100.0                                               |  | 100.0
|Cost of sales                          |  | 51.8                                                |  | 52.5 
|Provision for losses                   |  | 5.0                                                 |  | 4.4  
|Member benefits                        |  | 12.7                                                |  | 12.1 
|                                       |  |                                                     |  |      
|Net revenue                            |  | 30.5                                                |  | 31.0 
|                                       |  |                                                    
|Membership fees and other income       |  | 0.5                                                 |  | 0.5  
|                                       |  |                                                     |  |      
|Total operating revenue                |  | 31.0                                                |  | 31.6 
|                                       |  |                                                     |  |      
|                                       |  |                                                    
|Salaries and benefits                  |  | 8.7                                                 |  | 8.7  
|Sales commission and expenses          |  | 9.3                                                 |  | 7.9  
|Professional fees                      |  | 1.2                                                 |  | 1.2  
|Member and merchant marketing expenses |  | 1.2                                                 |  | 1.6  
|Depreciation and amortization          |  | 2.6                                                 |  | 2.2  
|General and administrative expenses    |  | 5.1                                                 |  | 5.2  
|                                       |  |                                                     |  |      
|Total operating expenses               |  | 28.1                                                |  | 26.9 
|                                       |  |                                                     |  |      
|Operating income                       |  | 2.9                                                 |  | 4.7  
|                                       |  |                                                    
|Other expense, net                     |  | 0.1                                                 |  | 0.5  
|                                       |  |                                                     |  |      
|                                       |  |                                                    
|Income before income tax provision     |  | 2.9                                                 |  | 4.2  
|                                       |  |                                                    
|Income tax provision                   |  | 1.8                                                 |  | 1.7  
|                                       |  |                                                     |  |      
|Net income                             |  | 1.1                                                 |  | 2.5  
|                                       |  |                                                     |  |      



20



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##### Table of Contents

Operating Revenues

The following table sets forth for the periods presented our sales, components of our costs of sales and certain other information for each of our two marketing programs.



|                                                          |  |                                   |         |   |                          |   |        |       |  |   |                         |   |  |                          |         |   |       |   |        |   |  |   |         |  
|--------------------------------------------------------- |  | --------------------------------- | ------- | - | ------------------------ | - | ------ | ----- |  | - | ----------------------- | - |  | ------------------------ | ------- | - | ----- | - | ------ | - |  | - | ------- | -
|                                                          |  | For the Six Months Ended June 30, |        
|                                                          |  | 2009                              |         |   | 2008                     |  
|                                                          |  | MarketingCreditsProgram           |         |   | MarketingServicesProgram |   |        | Total |  |   | MarketingCreditsProgram |   |  | MarketingServicesProgram |         |   | Total |  
|Merchant count as of June 30, 2009 and 2008, respectively |  |                                   | 5,343   |   |                          |   | 4,854  |       |  |   | 10,197                  |   |  |                          | 6,646   |   |       |   | 3,123  |   |  |   | 9,769   |  
|Number of qualified transactions                          |  |                                   | 2,894   |   |                          |   | 2,040  |       |  |   | 4,934                   |   |  |                          | 3,245   |   |       |   | 1,561  |   |  |   | 4,806   |  
|Average transaction amount                                |  | $                                 | 43.33   |   |                          | $ | 45.48  |       |  | $ | 44.22                   |   |  | $                        | 46.08   |   |       | $ | 46.21  |   |  | $ | 46.12   |  
|                                                          |  |                                   |         |   |                          |  
|Qualified transaction amount                              |  | $                                 | 125,384 |   |                          | $ | 92,773 |       |  | $ | 218,157                 |   |  | $                        | 149,526 |   |       | $ | 72,133 |   |  | $ | 221,659 |  
|Sales yield                                               |  |                                   | 75.3    | % |                          |   | 15.2   | %     |  |   | 49.8                    | % |  |                          | 75.5    | % |       |   | 16.4   | % |  |   | 56.3    | %
|Sales                                                     |  | $                                 | 94,465  |   |                          | $ | 14,080 |       |  | $ | 108,545                 |   |  | $                        | 112,958 |   |       | $ | 11,828 |   |  | $ | 124,786 |  
|                                                          |  |                                   |         |   |                          |  
|Cost of dining credits                                    |  | $                                 | 55,757  |   |                          | $ |       |       |  | $ | 55,757                  |   |  | $                        | 64,866  |   |       | $ |       |   |  | $ | 64,866  |  
|                                                          |  |                                   |         |   |                          |   |        |       |  |   |                         |   |  |                          |         |   |       |   |        |   |  |   |         |  
|Processing fee                                            |  |                                   | 289     |   |                          |   | 215    |       |  |   | 504                     |   |  |                          | 406     |   |       |   | 223    |   |  |   | 629     |  
|                                                          |  |                                   |         |   |                          |   |        |       |  |   |                         |   |  |                          |         |   |       |   |        |   |  |   |         |  
|Total cost of sales                                       |  | $                                 | 56,046  |   |                          | $ | 215    |       |  | $ | 56,261                  |   |  | $                        | 65,272  |   |       | $ | 223    |   |  | $ | 65,495  |  
|Provision for losses                                      |  | $                                 | 5,438   |   |                          | $ |       |       |  | $ | 5,438                   |   |  | $                        | 5,484   |   |       | $ |       |   |  | $ | 5,484   |  
|                                                          |  |                                   |         |   |                          |  
|Member benefits                                           |  | $                                 | 6,159   |   |                          | $ | 4,206  |       |  | $ | 10,365                  |   |  | $                        | 8,112   |   |       | $ | 3,114  |   |  | $ | 11,226  |  
|Bonus rewards                                             |  |                                   | 658     |   |                          |   | 484    |       |  |   | 1,142                   |   |  |                          | 1,391   |   |       |   | 675    |   |  |   | 2,066   |  
|Partner Commissions                                       |  |                                   | 1,305   |   |                          |   | 922    |       |  |   | 2,227                   |   |  |                          | 1,216   |   |       |   | 560    |   |  |   | 1,776   |  
|                                                          |  |                                   |         |   |                          |   |        |       |  |   |                         |   |  |                          |         |   |       |   |        |   |  |   |         |  
|Total member benefits                                     |  | $                                 | 8,122   |   |                          | $ | 5,612  |       |  | $ | 13,734                  |   |  | $                        | 10,719  |   |       | $ | 4,349  |   |  | $ | 15,068  |  
|                                                          |  |                                   |         |   |                          |   |        |       |  |   |                         |   |  |                          |         |   |       |   |        |   |  |   |         |  
|Net revenue                                               |  | $                                 | 24,859  |   |                          | $ | 8,253  |       |  | $ | 33,112                  |   |  | $                        | 31,483  |   |       | $ | 7,256  |   |  | $ | 38,739  |  
|                                                          |  |                                   |         |   |                          |   |        |       |  |   |                         |   |  |                          |         |   |       |   |        |   |  |   |         |  

Ending merchant count as of June 30, 2009 was 10,197 compared to 9,769 as of June 30,
2008, an increase of 4.4% As discussed further above, the increase in total Merchant Count was driven by a 55.4% increase in Marketing Services Program merchants to 4,854 merchants offset by a 19.6% decrease in Marketing Credits Program merchants to
5,343 merchants.

Qualified transaction amounts at our participating merchants decreased $3,502, or 1.6%, to $218,157 for the six months
ended June 30, 2009 compared to the same period in the prior year as a result of the decrease in the average transaction amount. Although the number of qualified transactions increased 128 or 2.7% for the six months ended June 30, 2009
compared to the same period in the prior year, the average transaction amount decreased $1.90, or 4.1%, to $44.22 for the six months ended June 30, 2009 from $46.12 for the same period in the prior year. While members continued to dine despite
the difficult economic climate, they generally spent less than they have in the past and shifted their dining habits from higher price point establishments toward mid and lower price point establishments. In response to changing consumer behavior,
we have added more restaurants with lower average price points, which contributed to the decrease in average transaction amount.

Total
sales yield decreased to 49.8% for the six months ended June 30, 2009 compared to 56.3% for the same period in the prior year mainly due to a higher proportion of merchants participating in the Marketing Services Program as well as a decrease
in sales yield of the Marketing Services Program. Sales yield for the Marketing Services Program decreased to 15.2% during the six months ended June 30, 2009 from 16.4% for the same period in the prior year as we lowered the pricing of this
product to accommodate the needs of merchants in this difficult economic environment. The Marketing Credits Program sales yield decreased slightly to 75.3% during the six months ended June 30, 2009 compared to 75.5% in the same period in the
prior year.

Sales for the six months ended June 30, 2009 decreased 13.0% as compared with the same period in the prior year primarily
due to a 16.4% decrease in Marketing Credits Program sales, partially offset by a 19.0% increase in Marketing Services Program Sales.



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Marketing Credits Program sales decreased as a result of fewer Marketing Credits Program merchants participating in our program, due primarily to our
conscious decision to become more conservative in our dining credits purchases, as well as a decline in average transaction amount. Marketing Services Program sales increased as a result of a higher number of Marketing Services Program merchants,
but were partially offset by a decline in average transaction amount and product price decreases.

Cost of sales decreased to 51.8% of
total sales and increased to 59.3% of Marketing Credit Program sales for the six months ended June 30, 2009 compared to 52.5% of total sales and 57.8% of Marketing Credit Program sales for the same period in the prior year. The decrease in cost
of sales compared to total sales was due to a shift in mix towards merchants participating in the Marketing Services Program, which have minimal cost of sales. The increase in cost of sales compared to Marketing Credits Program sales was due to
shortened usage periods on new Marketing Credits deals. Marketing Credits deals with shorter usage periods typically have a higher cost of sales because we purchase those dining credits at less of a discount. The dining credits net usage period
decreased to 6.2 months as of June 30, 2009 from 7.6 months as of June 30, 2008.

The provision for losses increased to 5.0% of
total sales and to 5.8% of Marketing Credits Program sales for the six months ended June 30, 2009 compared with 4.4% of total sales and 4.9% of Marketing Credits Program sales for the same period in the prior year. The allowance for doubtful
accounts as a percentage of the gross dining credits balance also increased to 22.3% as of June 30, 2009 as compared to 18.8% as of June 30, 2008. While we have adopted more conservative dining credits purchasing policies, we have also
increased our reserves against the dining credits portfolio. The increase in the provision for losses is due to the calculation following our loss reserve methodology, which was refined during the second quarter of 2008, as discussed above under
Critical Accounting Policies and Estimates. We believe that the reserve balance is appropriate given the increased potential risk of merchant defaults in a challenging economy. Net write-offs totaled $9,726 during the six months ended June 30,
2009 as compared to $7,424 during the same period in the prior year. This increase is primarily due to the timing of write-offs under our write-off policy. Write-offs in 2009 largely represent accounts that were funded prior to our changes in credit
policy.

The provision for both periods included reserves for both our dining credits portfolio and RCR Loan notes. There was a reversal of
the provision for loss expense for RCR Loan notes of $24 for the six months ended June 30, 2009 as compared to a provision of loss expense of $627 for the six months ended June 30, 2008. We decided to exit the RCR Loan product effective
January 2008, although we continue to service RCR Loan notes that we previously purchased. The reversal of expense was related to the receipt of cash payments from certain RCR Loan merchants for whom specific reserves had been established.

Member benefits expense decreased to $13,734 or 12.7% of sales for the six months ended June 30, 2009 compared with $15,068, or 12.1%
of sales for the same period in the prior year. The increase in member benefit expense as a percentage of sales was primarily due to a double rewards promotion of approximately $1,200 incurred by members for qualified dines taking place on Monday,
Tuesday or Wednesday and a shift towards Marketing Services Program sales, partially offset by a decrease of $1,378 in an expense recorded relating to our minimum purchase obligations with various partners. Member benefit expense for the Marketing
Credits Program as a percentage of Marketing Credits Program sales was 8.6% for the six months ended June 30, 2009 as compared with 9.5% for the same period in the prior year. Member benefit expense for the Marketing Services Program as a
percentage of Marketing Services Program sales increased to 39.9% for the six months ended June 30, 2009 from 36.8% for the same period in the prior year as a result of the double promotions offered during the second quarter of 2009.

Net revenues decreased to $33,112, or 30.5% of sales during the six months ended June 30, 2009 as compared to $38,739 or 31.0% of
sales during the same period in the prior year. The decrease in net revenues of $5,627 was mainly due to a decrease in sales offset by a decrease in cost of sales driven by the overall shift in sales mix towards the Marketing Services
Program. Marketing Services Program merchants generate less sales dollars than a Marketing Credits Program merchant; however Marketing Services Program sales have a higher net revenue percentage than Marketing Credits Program sales.

Membership and other income decreased $126 or 18.8% for the six months ended June 30, 2009 compared with the same period in the prior year. The
decrease can be primarily attributed to the decline in fee paying members and the impact of an earn-your-dues dining program in which members earn their annual fees through the reduction of their cash back rewards savings. Beginning in mid-2008, we
introduced a new membership program that eliminated annual fees.

Operating Expenses

Salaries and benefits decreased $1,414, or 13.0%, to $9,450 for the six months ended June 30, 2009 from $10,864 for the same period in the prior year
primarily due to reductions in administrative employee head count.



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Sales commissions and expenses increased to 9.3% of sales for the six months ended June 30, 2009
compared to 7.9% of sales for the same period in the prior year due to an increase in sales headcount, an increase in sales commissions and higher sales bonus incentive compensation expense while sales were lower in 2009.

Professional fees decreased $253, or 16.7%, to $1,260 for the six months ended June 30, 2009 as compared to $1,513 for the same period in the prior
year, primarily attributed to lower legal fees.

Member and merchant marketing expenses decreased $750 or 37.0% for the six months ended
June 30, 2009 compared with the same period in the prior year as we continue to migrate our marketing efforts away from direct print mail and focus on more cost efficient email marketing. While our member and merchant marketing expense
decreased by a third, the total qualified transactions and active members have remained consistent between periods.

Depreciation and
amortization costs increased slightly by $28 or 1.0% for the six months ended June 30, 2009 compared to the same period in the prior year as we continue to invest in the development of our websites, technology investments supporting the
automation of internal processes, and general information technology investments.

General and administrative expenses decreased $964 or
14.8% for the six months ended June 30, 2009 compared to the same period in the prior year. The decrease was primarily due to a decrease in stock compensation expense relating to restricted stock unit awards for our Board of Directors as well
as a decrease in rent, other office and administrative employee travel expense. During the six months ended June 30, 2008 an expense of $724 was recorded due to the accelerated vesting of restricted stock units for our Board of Directors. No
such expense related to the accelerated vesting of restricted stock units was recorded during the six months ended June 30, 2009.

Other Income
and Expense

Interest and other income decreased $388 to $10 for the six months ended June 30, 2009 compared with the same
period in the prior year as a result of lower cash and cash equivalent balances due to the repurchase of our convertible subordinated debentures throughout 2008. Interest expense and financing costs decreased $1,096 to $60 due to a decrease in
interest expense recorded for our convertible subordinate debentures as a result of our purchase of the remaining convertible subordinated debentures in 2008 as discussed below under Liquidity and Capital Resources. In addition, we recorded a gain
of $128 relating to the purchase of outstanding convertible subordinated debentures during the six months ended June 30, 2008.

Income tax
provision

Our effective rate for the six months ended June 30, 2009 was 62.8% compared with 40.9% for the same period in the
prior year. The income tax provision for the six months ended June 30, 2009 included a tax expense of $573, or $0.06 per share, relating to the distribution of employee and director stock awards during the three months ended March 31,
2009. We previously recognized a tax benefit relating to such distributions based on the fair value at the date of grant. Upon distribution of the shares, the tax benefit is limited to the fair value of the awards at the date of distribution. As
such, we recorded additional tax expense equal to the amount of the deferred tax asset from the cumulative compensation cost that exceeded the actual tax benefit previously recorded.

Net income

Net income was $1,167 for the six months ended June 30, 2009 compared with
$3,067 for the same period in the prior year. The decrease in net income between periods was primarily due to lower sales, partially offset by lower operating expenses.

Basic weighted average number of shares outstanding decreased to 9,033 for the six months ended June 30, 2009 compared to 9,045 for the same period in the prior year. Diluted weighted average shares outstanding
decreased to 9,094 for the six months ended June 30, 2009 compared to 9,131 for the same period in the prior year primarily due to the repurchase of 442 shares, partially offset by the issuance of shares upon the vesting of restricted stock
unit awards and the distribution of deferred shares to the Board of Directors as compensation for serving on the Board of Directors.

LIQUIDITY AND CAPITAL RESOURCES

General

Cash and cash equivalents were $21,014, as of June 30, 2009, an increase of $12,006 from December 31, 2008. During the six months ended June 30, 2009, net cash provided by operating activities was
$17,917 compared to net cash provided by operating activities of $14,292 during the six months ended June 30, 2008. Net cash provided by operating activities during the six month ended June 30, 2009 was primarily due to a decrease in the
dining credits portfolio and net income.



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Net cash used in investing activities was $1,506 and $2,412 for the six months ended June 30, 2009
and 2008, respectively, from our investments in capital expenditures. Capital expenditures consisted principally of continued development of our websites, investments in technology supporting the automation of internal processes and sales force
productivity, and general information technology investments.

Net cash used in financing activities for the six months ended June 30,
2009 was $4,138 due to the repurchase of a portion of our common stock at an average price of $9.33 on a split adjusted basis. As announced on April 22, 2009, the Board of Directors authorized the repurchase of up to $5,000 of common stock. Net
cash used in financing activities for the six months ended June 30, 2008 was $1,963 due to the purchase of a portion of our outstanding convertible subordinated debentures.

We intend to continue to use our cash to purchase dining credits while strictly adhering to our purchasing and credit policies because we believe that
investing in this portfolio will contribute to long-term, profitable growth. We intend to continue investing in capital expenditures to support member and merchant marketing, customer feedback through member comments and ratings, improving our sales
force productivity, security and privacy controls, internal processes and operating efficiency

Convertible Subordinated Debentures

On October 15, 2003, we completed a private placement of $70,000 principal amount of our 3.25% Convertible Subordinated
Debentures with a final maturity date of October 15, 2023. The net proceeds from the offering were $67,500 and the issuance costs of $2,500 were amortized over five years. The debentures bore interest at 3.25% per annum, payable on
April 15 and October 15 of each year. Holders of the debentures could have required us to repurchase for cash all or part of the debentures on October 15, 2008, October 15, 2013 and October 15, 2018 or upon change of
control at a price equal to 100% of the principal amount of the debentures, together with accrued and unpaid interest. During 2007, we purchased $15,000 of the convertible subordinated debentures for $14,150 and during 2008 we purchased the
remaining $55,000 for $54,734. All amounts were funded from our cash and cash equivalents balances. As of June 30, 2009 and December 31, 2008, we had no outstanding convertible subordinated debentures.

Contractual Obligations and Commitments

We
lease facilities under long-term operating leases. These contractual obligations entered into in the ordinary course of business are not required to be reflected in our consolidated balance sheets, but may impact our liquidity. The following table
sets forth our future minimum lease payments under non-cancelable operating leases, long-term debt and other contractual obligations and commitments at June 30, 2009:



|                                        |  |                        |        |                             |   |       |  |      |        |      |   |       |  |            |     |  |   |     |  |   |  
|--------------------------------------- |  | ---------------------- | ------ | --------------------------- | - | ----- |  | ---- | ------ | ---- | - | ----- |  | ---------- | --- |  | - | --- |  | - | -
|                                        |  | Payments Due by Period
|Contractual Obligations and Commitments |  | Total                  |        | Remainingtwoquarters of2009 |   | 2010  |  | 2011 |        | 2012 |   | 2013  |  | Thereafter
|Vendor contracts                        |  | $                      | 26,798 |                             | $ | 9,158 |  | $    | 11,600 |      | $ | 5,500 |  | $          | 360 |  | $ | 180 |  | $ | 
|Operating leases                        |  |                        | 3,435  |                             |   | 692   |  |      | 1,278  |      |   | 852   |  |            | 413 |  |   | 200 |  |   | 
|Revolving credit facility               |  |                        | 266    |                             |   | 63    |  |      | 125    |      |   | 78    |  |            |    |  |   |    |  |   | 
|                                        |  |                        |        |                             |   |       |  |      |        |      |   |       |  |            |     |  |   |     |  |   |  
|Total                                   |  | $                      | 30,499 |                             | $ | 9,913 |  | $    | 13,003 |      | $ | 6,430 |  | $          | 773 |  | $ | 380 |  | $ | 
|                                        |  |                        |        |                             |   |       |  |      |        |      |   |       |  |            |     |  |   |     |  |   |  

Revolving Line of Credit

On November 6, 2007, we entered into a $25,000 senior secured revolving credit facility with RBS Business Capital (the Lender). We
amended this credit facility on August 11, 2008 to, among other matters, increase the amount we may borrow under the credit facility to a maximum of $40,000. The facility was further amended on June 1, 2009, to carve out the $5,000
stock repurchase from covenant testing, redefine certain covenants and revised the facilities unused line fees. The Lender has committed to $25,000 under the credit facility and has the ability to seek commitments for the additional $15,000
from other financial institutions. The maturity date of the credit facility is August 11, 2011. The credit facility is secured by substantially all of our assets. Up to $1,000 of the facility can be used for letters of credit. The
interest rates under the credit facility vary and are based on the Lenders prime rate and/or LIBOR. The amount we may borrow is based on the amount of our accounts receivable and dining credits, as determined under the credit facility.
Advances under the credit facility are subject to certain conditions precedent, including the accuracy of certain representations and warranties and the absence of any default or unmatured default. We may use advances for working capital, capital
expenditures, permitted acquisitions and for other purposes described in the credit facility.



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The credit facility has financial covenants that we will maintain a minimum ratio of debt to cash flow,
fixed charges to borrowed amounts and certain ratios related to our dining credits portfolio. The credit facility contains customary representations, warranties and covenants and includes customary events of default, including a change of control
provision. We can offer no assurances that we will be in compliance with all conditions precedent and all representations and warranties at a time when we would like to borrow under the credit facility. Further, we may not be able to borrow the full
amount under the credit facility if our dining credits portfolio or adjusted earnings before interest expense, income taxes, depreciation and amortization, as defined in the credit facility, decreases substantially. These limitations currently apply
as a result of the size of our dining credits portfolio. At June 30, 2009, approximately $19,100 was available under the terms of the credit facility. The amount of availability under the credit facility may be further limited if we become more
conservative in our dining credits purchases in light of current economic conditions and the performance of restaurants on our program or if our earnings decline.

We do not currently have any borrowings outstanding under this credit facility and we were in compliance with all of the covenants under this facility as of June 30, 2009.

Dining Credits

Net dining credits less
accounts payabledining credits was $52,666 at June 30, 2009, a decrease of $17,916 from December 31, 2008. Accounts payable-dining credits represent the unfunded portion of the total commitments. The decrease between periods in
dining credits funded is due primarily to a decline in the purchases of new dining credits on a per merchant basis as well as a decline in Marketing Credits Program merchants. As previously discussed, during the fourth quarter of 2007 we implemented
more conservative dining credits purchasing policies aimed at reducing the amount of dining credits we purchase from each merchant, which lowers the average usage period of the dining credits portfolio. We became even more conservative in our dining
credits purchasing policies in the last quarter of 2008 and we continued to adhere to these more conservative policies during the first half of 2009. Based on our analysis of the performance of individual merchants in our dining credits portfolio,
we adjusted our dining credits purchasing policies in the second quarter of 2009 to purchase more dining credits from merchants who met certain credit, volume and tenure criteria. As we identify merchants who meet our credit guidelines we have ample
liquidity to grow the dining credits portfolio. We believe that the purchase of future dining credits can generally be funded from cash generated from operations or from the utilization of our revolving credit facility.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards CodificationTMand the Hierarchy of Generally Accepted Accounting Principles, which replaces SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 168 provides for the FASB
Accounting Standards Codification (the Codification) to become the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification does not change GAAP but
reorganizes the literature. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. We will begin to use the Codification when referring to GAAP in our financial statements for the third quarter of 2009.
This will not have an impact on our financial position, results of operations or cash flows.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Our exposure to market risk for changes in interest rates is limited to the exposure related to our revolving credit facility which is tied to market rates. Our revolving credit facility is tied to the Eurodollar rate, which is basically
LIBOR, plus an applicable rate. The Eurodollar rate is subject to interest rate risk. However, as of June 30, 2009, there was no outstanding amount under this revolving credit facility.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
Disclosure Controls and Procedures. We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended (the Exchange Act),
is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commissions rules and forms. As of the end of the period covered by this report, an evaluation was performed under the
supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures
(pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of such date. The conclusions of the CEO and CFO from this evaluation were communicated to
the Audit Committee.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over
financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds.
|------- | ------------------------------------------------------------

(c) Purchases of Equity Securities by the Issuer

The following table provides information about our
repurchases of our common stock during the three months ended June 30, 2009 (all share amounts have been adjusted to reflect the reverse one-for-three stock split effective July 6, 2009 and all amounts in thousands except average price per
share):



|                         |  |                                              |  |                                          |       |                                                                                             |     |                                                                                                                          |   |      
|------------------------ |  | -------------------------------------------- |  | ---------------------------------------- | ----- | ------------------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------------------ | - | -----
|Period                   |  | (a) Total Numberof Shares(or Units)Purchased |  | (b) Average PricePaid per Share(or
Unit) |       | (c) Total Number ofShares (or Units)Purchased as Part ofPublicly AnnouncedPlans or
Programs |     | (d) Maximum Number(or ApproximateDollar Value) of Shares(or Units) that MayYet Be PurchasedUnder the Plans orPrograms(1)
|April 1  April 30, 2009 |  | 177                                          |  | $                                        | 9.75  |                                                                                             | 177 |                                                                                                                          | $ | 3,274
|May 1  May 31, 2009     |  | 264                                          |  | $                                        | 9.02  |                                                                                             | 441 |                                                                                                                          | $ | 893  
|June 1  June 30, 2009   |  | 2                                            |  | $                                        | 10.74 |                                                                                             | 443 |                                                                                                                          | $ | 872  
|                         |  |                                              |  |                                          |       |                                                                                             |     |                                                                                                                          |   |      
|Total                    |  | 443                                          |  | $                                        | 9.33  |                                                                                             | 443 |                                                                                                                          | $ | 872  



|(1) | Includes shares that may yet be repurchased by us pursuant to a stock repurchase program approved by our Board of Directors and announced on April 22, 2009 that authorizes us
to repurchase up to $5,000 of our outstanding common stock. The stock repurchase authorization does not have an expiration date and may be limited, suspended or terminated at any time without prior notice. Shares may be purchased from time to time
on the open market or through private transactions, pursuant to Rule 10b5-1 trading plans or other available means. Repurchases may occur depending on market conditions and other factors. The purchases will be funded from cash and cash reserves and
repurchased shares will be deposited into treasury and retained for possible future use.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

(a) Meeting of
Stockholders

Our annual meeting of stockholders was held on June 11, 2009.

(b) Election of Directors

At our annual
meeting of stockholders, the stockholders elected the following persons to the Board of Directors: (1) Donald J. Liebentritt, (2) Ronald L. Blake, (3) Raymond A. Gross, (4) F. Philip Handy (5) Marc C. Particelli,
(6) Michael J. Soenen, (7) Mark R. Sotir

(c) Matters Voted Upon



| | (i) | The stockholders voted as follows with respect to the election of the seven (7) directors (shares in thousands):
| | --- | ----------------------------------------------------------------------------------------------------------------



|                              |  |      
|----------------------------- |  | -----
|Donald J. Liebentritt        
|                              | 
|For                           |  | 8,453
|Withheld/Against              |  | 95   
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      



|                              |  |      
|----------------------------- |  | -----
|Ronald L. Blake              
|                              | 
|For                           |  | 8,454
|Withheld/Against              |  | 94   
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      



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|                              |  |      
|----------------------------- |  | -----
|Raymond A. Gross             
|                              | 
|For                           |  | 8,453
|Withheld/Against              |  | 95   
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      
|                             
|F. Philip Handy              
|                              | 
|For                           |  | 8,444
|Withheld/Against              |  | 104  
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      
|                             
|Marc C. Particelli           
|                              | 
|For                           |  | 8,511
|Withheld/Against              |  | 37   
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      
|                             
|Michael J. Soenen            
|                              | 
|For                           |  | 8,461
|Withheld/Against              |  | 87   
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      
|                             
|Mark R. Sotir                
|                              | 
|For                           |  | 8,456
|Withheld/Against              |  | 92   
|Exceptions/Abstain            |  |     
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 593  
|                              |  |      
|Total shares eligible to vote |  | 9,141
|                              |  |      



| | (ii) | The stockholders also voted to approve an amendment to the Certificate of Incorporation to effect a reverse stock split, pursuant to which the existing shares of common stock would
be combined into new shares of common stock at an exchange ratio of one-for-three. The stockholders voted as follows with respect to approval of this amendment to the Certificate of Incorporation (shares in thousands):
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                              |  |      
|----------------------------- |  | -----
|For                           |  | 8,399
|Withheld/Against              |  | 147  
|Exceptions/Abstain            |  | 2    
|                              |  |      
|Total shares voted            |  | 8,548
|Broker no vote                |  | 0    
|Total shares eligible to vote |  | 8,548
|                              |  |      



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##### Table of Contents

| | (iii) | The stockholders also voted to approve an amendment to the Certificate of Incorporation to reduce the total number of authorized shares of common stock from seventy million to
twenty-five million. The stockholders voted as follows with respect to approval of this amendment to the Certificate of Incorporation (shares in thousands):
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                              |  |      
|----------------------------- |  | -----
|For                           |  | 8,417
|Withheld/Against              |  | 124  
|Exceptions/Abstain            |  | 7    
|Total shares voted            |  | 8,548
|Broker no vote                |  | 0    
|Total shares eligible to vote |  | 8,548
|                              |  |      



| | (iv) | The stockholders also voted to ratify the appointment of our independent registered accounting firm for 2008. The stockholders voted as follows with respect to the ratification of
the appointment of our independent registered accounting firm for 2008 (shares in thousands):
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                              |  |      
|----------------------------- |  | -----
|For                           |  | 8,417
|Withheld/Against              |  | 25   
|Exceptions/Abstain            |  | 106  
|Total shares voted            |  | 8,548
|Broker no vote                |  | 0    
|                              |  |      
|Total shares eligible to vote |  | 8,548
|                              |  |      



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##### Table of Contents

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



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.1         |  | Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.s Registration Statement on Form S-3 (File No.
333-111390), filed on December 19, 2003.                                                                                                                                                                                                                                                                     
|            | 
|3.2         |  | Amendment to Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 3.1 to Rewards Network Inc.s Current Report on Form 8-K (File No.
333-111390), filed on July 6, 2009.                                                                                                                                                                                                                                                                              
|            | 
|3.3         |  | By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on March
12, 2004.                                                                                                                                                                                                                                                                                                 
|            | 
|4.1         |  | Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine Rewards
Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.                                                                                                                                                                                                               
|            | 
|4.2         |  | Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert M. Steiner, as
trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.                                                                                                              
|            | 
|4.3         |  | Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the former members
and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7,
2003.                                                            
|            | 
|10.1        |  | Rewards Network Inc. 2009 Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on
April 3, 2009.                                                                                                                                                                                                                                                                                         
|            | 
|10.2        |  | Form of Restricted Stock Unit Award Agreement is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on April
3, 2009.                                                                                                                                                                                                                                                                                                 
|            | 
|10.3        |  | Amended and Restated United Mileage Plus® Participation Agreement,
dated as of January 1, 2009, between Rewards Network Establishment Services Inc. and UAL Loyalty Services, LLC is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed
on May 22, 2009. Portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.
|            | 
|10.4        |  | Second Amendment to Loan and Security Agreement, dated as of June 1, 2009, between Rewards Network Inc. and each of its domestic subsidiaries signatory thereto and RBS Business Capital is
incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on June 4, 2009.                                                                                                                                                       
|            | 
|10.5*       |  | Amendment to Relationship Agreement, dated as of August 3, 2009, between Rewards Network Establishment Services Inc. and Upromise, Inc.                                                                                                                                                                                                                                                                                                                                                              
|            | 
|31.1*       |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|31.2*       |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|32.1*       |  | Section 1350 Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|32.2*       |  | Section 1350 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                



|* | Filed herewith
|- | --------------



29



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|               |  |  |  |                                                                                                                                     
|-------------- |  |  |  | ------------------------------------------------------------------------------------------------------------------------------------
|               |  |  |  | REWARDS NETWORK INC.                                                                                                                
|               |  | 
|August 6, 2009 |  |  |  | /s/ CHRISTOPHER J. LOCKE                                                                                                            
|               |  |  |  | Christopher J. Locke Senior Vice President and Chief Financial Officer (Principal Financial Officer and on behalf of the registrant)



30



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##### Table of Contents

Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|3.1         |  | Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.s Registration Statement on Form S-3 (File No.
333-111390), filed on December 19, 2003.                                                                                                                                                                                                                                                                     
|            | 
|3.2         |  | Amendment to Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 3.1 to Rewards Network Inc.s Current Report on Form 8-K (File No.
333-111390), filed on July 6, 2009.                                                                                                                                                                                                                                                                              
|            | 
|3.3         |  | By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on March
12, 2004.                                                                                                                                                                                                                                                                                                 
|            | 
|4.1         |  | Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine Rewards
Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.                                                                                                                                                                                                               
|            | 
|4.2         |  | Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert M. Steiner, as
trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.                                                                                                              
|            | 
|4.3         |  | Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the former members
and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7,
2003.                                                            
|            | 
|10.1        |  | Rewards Network Inc. 2009 Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on
April 3, 2009.                                                                                                                                                                                                                                                                                         
|            | 
|10.2        |  | Form of Restricted Stock Unit Award Agreement is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on April
3, 2009.                                                                                                                                                                                                                                                                                                 
|            | 
|10.3        |  | Amended and Restated United Mileage Plus® Participation Agreement,
dated as of January 1, 2009, between Rewards Network Establishment Services Inc. and UAL Loyalty Services, LLC is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed
on May 22, 2009. Portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.
|            | 
|10.4        |  | Second Amendment to Loan and Security Agreement, dated as of June 1, 2009, between Rewards Network Inc. and each of its domestic subsidiaries signatory thereto and RBS Business Capital is
incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on June 4, 2009.                                                                                                                                                       
|            | 
|10.5*       |  | Amendment to Relationship Agreement, dated as of August 3, 2009, between Rewards Network Establishment Services Inc. and Upromise, Inc.                                                                                                                                                                                                                                                                                                                                                              
|            | 
|31.1*       |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|31.2*       |  | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|32.1*       |  | Section 1350 Certification of Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|32.2*       |  | Section 1350 Certification of Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                



31