##### Table of Contents





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 September 30, 2010

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 November 3, 2010, there were 8,815,599 shares of the registrants common stock, par value $0.02 per share,
outstanding.









---

##### Table of Contents



INDEX

REWARDS NETWORK INC. AND SUBSIDIARIES



|                              |  |                                                                                                                      |    |          |       | 
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | -------- | ----- | 
|                              |  |                                                                                                                      |    | Page No. |      
|                              | 
|PART I. FINANCIAL INFORMATION |  |                                                                                                                      |    |         
|                              |  |                                                                                                                     
|Item 1.                       |  | Financial Statements:                                                                                                |    |          |       | 
|                              |  |                                                                                                                     
|                              |  | Condensed Consolidated Balance SheetsSeptember 30, 2010 (unaudited) and December 31,
2009                           |    |          | 3     | 
|                              |  |                                                                                                                     
|                              |  | Condensed Consolidated Statements of OperationsThree and nine months ended September 30, 2010 and 2009
 (unaudited) |    |          | 4     | 
|                              |  |                                                                                                                     
|                              |  | Condensed Consolidated Statements of Cash FlowsThree and nine months ended September 30, 2010 and 2009
 (unaudited) |    |          | 5     | 
|                              |  |                                                                                                                     
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                       |    |          | 6-9   | 
|                              |  |                                                                                                                     
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                |    |          | 10-24 | 
|                              |  |                                                                                                                     
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                           |    |          | 25    | 
|                              |  |                                                                                                                     
|Item 4.                       |  | Controls and Procedures                                                                                              |    |          | 25    | 
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                      |    |         
|                              |  |                                                                                                                     
|Item 6.                       |  | Exhibits                                                                                                             |    |          | 26    | 
|                              | 
|SIGNATURES                    |  |                                                                                                                      | 28 |         



2



---

##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES

PART IFINANCIAL INFORMATION

Item 
1  Financial Statements

Condensed Consolidated Balance Sheets

(in thousands, except per share data)



|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                         |  | September 30,2010 |         |   | December 31,2009 |  
|                                                                                                                                         |  | (Unaudited)       |         |   |                  |  
|Assets                                                                                                                                   |  |                   |         |   |                  |   |         |  
|Current assets:                                                                                                                          |  |                   |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                |  | $                 | 12,110  |   |                  | $ | 12,665  |  
|Accounts receivable, net of allowance for doubtful accounts of $1,288 and $1,773, respectively                                           |  |                   | 4,065   |   |                  |   | 5,011   |  
|Dining credits, net of allowance for unredeemable dining credits of $9,247 and $11,448, respectively                                     |  |                   | 66,055  |   |                  |   | 57,299  |  
|Deferred income taxes                                                                                                                    |  |                   | 4,149   |   |                  |   | 5,152   |  
|Prepaid expenses                                                                                                                         |  |                   | 1,663   |   |                  |   | 1,573   |  
|Income taxes receivable                                                                                                                  |  |                   | 3,455   |   |                  |   | 3,913   |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Total current assets                                                                                                                     |  |                   | 91,497  |   |                  |   | 85,613  |  
|Property and equipment, net of accumulated depreciation and amortization of $28,150 and $24,440, respectively                            |  |                   | 8,153   |   |                  |   | 8,231   |  
|Other assets                                                                                                                             |  |                   | 316     |   |                  |   | 282     |  
|Goodwill                                                                                                                                 |  |                   | 8,117   |   |                  |   | 8,117   |  
|Deferred income taxes                                                                                                                    |  |                   | 115     |   |                  |   | 597     |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Total assets                                                                                                                             |  |                   | 108,198 |   |                  | $ | 102,840 |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                     |  |                   |         |   |                  |   |         |  
|Current liabilities:                                                                                                                     |  |                   |         |   |                  |   |         |  
|Accounts payabledining credits                                                                                                          |  | $                 | 4,354   |   |                  | $ | 4,598   |  
|Accounts payablemember benefits                                                                                                         |  |                   | 7,396   |   |                  |   | 6,171   |  
|Accounts payabletrade                                                                                                                   |  |                   | 1,461   |   |                  |   | 1,079   |  
|Accrued compensation                                                                                                                     |  |                   | 2,638   |   |                  |   | 3,470   |  
|Other current liabilities                                                                                                                |  |                   | 2,054   |   |                  |   | 2,139   |  
|Deferred membership fee income                                                                                                           |  |                   | 334     |   |                  |   | 432     |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Total liabilities                                                                                                                        |  |                   | 18,237  |   |                  |   | 17,889  |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                    |  |                   |         |   |                  |   |         |  
|Common stock, par value $0.02 per share; authorized 25,000 shares; issued 9,149 shares; outstanding 8,815 and 8,673 shares,
respectively |  |                   | 183     |   |                  |   | 183     |  
|Additional paid-in capital                                                                                                               |  |                   | 68,659  |   |                  |   | 69,280  |  
|Accumulated other comprehensive income:                                                                                                  |  |                   |         |   |                  |   |         |  
|Foreign currency translation, net of income taxes                                                                                        |  |                   | 534     |   |                  |   | 440     |  
|Retained earnings                                                                                                                        |  |                   | 23,707  |   |                  |   | 19,546  |  
|Treasury stock, at cost (334 and 476 shares, respectively)                                                                               |  |                   | (3,122  | ) |                  |   | (4,498  | )
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Total stockholders equity                                                                                                               |  |                   | 89,961  |   |                  |   | 84,951  |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                               |  |                   | 108,198 |   |                  | $ | 102,840 |  
|                                                                                                                                         |  |                   |         |   |                  |   |         |  

See accompanying notes to unaudited condensed consolidated financial statements.



3



---

##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)



|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                         |  | Three Months EndedSeptember 30, |        |   | Nine Months EndedSeptember 30, |  
|                                                                                         |  | 2010                            |        |   | 2009                           |   |        | 2010 |  |   | 2009   |  
|Operating revenues:                                                                      |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Revenues (gross amounts billed of $50,866, $52,784, $154,919 and $161,329, respectively) |  | $                               | 27,346 |   |                                | $ | 27,523 |      |  | $ | 82,145 |   |  | $ | 80,311 |  
|Membership fees                                                                          |  |                                 | 239    |   |                                |   | 261    |      |  |   | 754    |   |  |   | 804    |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                           |  |                                 | 27,585 |   |                                |   | 27,784 |      |  |   | 82,899 |   |  |   | 81,115 |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Direct expenses:                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Member benefits                                                                          |  |                                 | 8,431  |   |                                |   | 8,164  |      |  |   | 23,606 |   |  |   | 21,898 |  
|Provision for losses                                                                     |  |                                 | 1,074  |   |                                |   | 1,811  |      |  |   | 2,851  |   |  |   | 7,249  |  
|Processing fees                                                                          |  |                                 | 287    |   |                                |   | 277    |      |  |   | 855    |   |  |   | 781    |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total direct expenses                                                                    |  |                                 | 9,792  |   |                                |   | 10,252 |      |  |   | 27,312 |   |  |   | 29,928 |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Gross profit                                                                             |  |                                 | 17,793 |   |                                |   | 17,532 |      |  |   | 55,587 |   |  |   | 51,187 |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Operating expenses:                                                                      |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Salaries and benefits                                                                    |  |                                 | 4,438  |   |                                |   | 4,749  |      |  |   | 14,521 |   |  |   | 14,199 |  
|Sales commissions and expenses                                                           |  |                                 | 5,084  |   |                                |   | 4,932  |      |  |   | 16,100 |   |  |   | 15,025 |  
|Professional fees                                                                        |  |                                 | 979    |   |                                |   | 546    |      |  |   | 2,487  |   |  |   | 1,806  |  
|Member and restaurant marketing                                                          |  |                                 | 686    |   |                                |   | 637    |      |  |   | 2,171  |   |  |   | 1,912  |  
|Depreciation and amortization                                                            |  |                                 | 1,159  |   |                                |   | 1,233  |      |  |   | 3,690  |   |  |   | 4,051  |  
|General and administrative                                                               |  |                                 | 2,860  |   |                                |   | 2,454  |      |  |   | 8,932  |   |  |   | 8,024  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                                 |  |                                 | 15,206 |   |                                |   | 14,551 |      |  |   | 47,901 |   |  |   | 45,017 |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Operating income                                                                         |  |                                 | 2,587  |   |                                |   | 2,981  |      |  |   | 7,686  |   |  |   | 6,170  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Other income (expense):                                                                  |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Interest and other income                                                                |  |                                 |       |   |                                |   | 7      |      |  |   | 1      |   |  |   | 17     |  
|Interest expense and financing costs                                                     |  |                                 | (31    | ) |                                |   | (22    | )    |  |   | (93    | ) |  |   | (82    | )
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Income before income tax provision                                                       |  |                                 | 2,556  |   |                                |   | 2,966  |      |  |   | 7,594  |   |  |   | 6,105  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Income tax provision                                                                     |  |                                 | 1,479  |   |                                |   | 1,059  |      |  |   | 3,433  |   |  |   | 3,031  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Net income                                                                               |  | $                               | 1,077  |   |                                | $ | 1,907  |      |  | $ | 4,161  |   |  | $ | 3,074  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Earnings per share of common stock:                                                      |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                    |  | $                               | 0.12   |   |                                | $ | 0.22   |      |  | $ | 0.47   |   |  | $ | 0.34   |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                  |  | $                               | 0.12   |   |                                | $ | 0.21   |      |  | $ | 0.46   |   |  | $ | 0.34   |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                                 |        |  
|Weighted average number of common and common equivalent shares outstanding:              |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                    |  |                                 | 8,953  |   |                                |   | 8,764  |      |  |   | 8,913  |   |  |   | 8,941  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                  |  |                                 | 9,057  |   |                                |   | 8,924  |      |  |   | 9,045  |   |  |   | 9,119  |  
|                                                                                         |  |                                 |        |   |                                |   |        |      |  |   |        |   |  |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



4



---

##### Table of Contents



REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)



|                                                                                  |  |                                 |         |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ---- | - | ------ | -
|                                                                                  |  | Nine Months Ended
September 30, |        
|                                                                                  |  | (Unaudited)                     |        
|                                                                                  |  | 2010                            |         |   | 2009 |  
|Cash flows from operating activities:                                             |  |                                 |         |   |      |   |        |  
|Net income                                                                        |  | $                               | 4,161   |   |      | $ | 3,074  |  
|                                                                                  |  |                                
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                 |         |   |      |   |        |  
|Depreciation and amortization                                                     |  |                                 | 3,690   |   |      |   | 4,051  |  
|Provision for losses                                                              |  |                                 | 2,851   |   |      |   | 7,249  |  
|Stock-based compensation                                                          |  |                                 | 1,565   |   |      |   | 1,208  |  
|Deferred income taxes                                                             |  |                                 | 1,485   |   |      |   | 5,286  |  
|                                                                                  |  |                                
|Changes in assets and liabilities:                                                |  |                                 |         |   |      |   |        |  
|Accounts receivable                                                               |  |                                 | 373     |   |      |   | 43     |  
|Dining credits including accounts payabledining credits                          |  |                                 | (11,247 | ) |      |   | 13,675 |  
|Prepaid expenses                                                                  |  |                                 | (90     | ) |      |   | (55    | )
|Income taxes receivable                                                           |  |                                 | 456     |   |      |   | (3,644 | )
|Other assets                                                                      |  |                                 | (34     | ) |      |   | 154    |  
|Accounts payablemember benefits                                                  |  |                                 | 1,223   |   |      |   | (989   | )
|Accounts payabletrade                                                            |  |                                 | (737    | ) |      |   | (746   | )
|Accrued compensation                                                              |  |                                 | (832    | ) |      |   | (989   | )
|Other liabilities                                                                 |  |                                 | (227    | ) |      |   | (520   | )
|Litigation and related accruals                                                   |  |                                 |        |   |      |   | (3,164 | )
|Deferred membership fee income                                                    |  |                                 | (97     | ) |      |   | (237   | )
|                                                                                  |  |                                 |         |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                                 | 2,540   |   |      |   | 24,396 |  
|                                                                                  |  |                                 |         |   |      |   |        |  
|                                                                                  |  |                                
|Cash flows from investing activities:                                             |  |                                 |         |   |      |   |        |  
|Additions to property and equipment                                               |  |                                 | (3,614  | ) |      |   | (2,275 | )
|                                                                                  |  |                                 |         |   |      |   |        |  
|Net cash used in investing activities                                             |  |                                 | (3,614  | ) |      |   | (2,275 | )
|                                                                                  |  |                                 |         |   |      |   |        |  
|                                                                                  |  |                                
|Cash flows from financing activities:                                             |  |                                 |         |   |      |   |        |  
|Common stock repurchased                                                          |  |                                 | (153    | ) |      |   | (4,138 | )
|Proceeds from the exercise of stock options                                       |  |                                 | 10      |   |      |   | 13     |  
|Tax benefit from the issuance of stock awards and exercise of stock options       |  |                                 | 591     |   |      |   |       |  
|                                                                                  |  |                                 |         |   |      |   |        |  
|Net cash provided by (used in) financing activities                               |  |                                 | 448     |   |      |   | (4,125 | )
|                                                                                  |  |                                 |         |   |      |   |        |  
|                                                                                  |  |                                
|Effect of exchange rate on cash and cash equivalents                              |  |                                 | 71      |   |      |   | (81    | )
|                                                                                  |  |                                 |         |   |      |   |        |  
|Net (decrease) increase in cash and cash equivalents                              |  |                                 | (555    | ) |      |   | 17,915 |  
|                                                                                  |  |                                
|Cash and cash equivalents:                                                        |  |                                 |         |   |      |   |        |  
|Beginning of the period                                                           |  |                                 | 12,665  |   |      |   | 9,008  |  
|                                                                                  |  |                                 |         |   |      |   |        |  
|End of the period                                                                 |  | $                               | 12,110  |   |      | $ | 26,923 |  
|                                                                                  |  |                                 |         |   |      |   |        |  
|                                                                                  |  |                                
|Supplemental disclosures of cash flow information:                                |  |                                 |         |   |      |   |        |  
|Cash paid during the period for:                                                  |  |                                 |         |   |      |   |        |  
|Interest                                                                          |  | $                               |        |   |      | $ |       |  
|                                                                                  |  |                                 |         |   |      |   |        |  
|Income taxes                                                                      |  | $                               | 825     |   |      | $ | 1,670  |  
|                                                                                  |  |                                 |         |   |      |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



5



---

##### Table of Contents



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 financial position of Rewards Network Inc. and its subsidiaries (collectively, the Company) at September 30, 2010, the results of operations of the Company for the three and
nine months ended September 30, 2010 and 2009 and the cash flows of the Company for the nine months ended September 30, 2010 and 2009 have been made. Operating results for the three and nine months ended September 30, 2010 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. 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, 2009 filed with the Securities and Exchange Commission on March 16,
2010. The condensed consolidated balance sheet as of December 31, 2009 is derived from the Companys audited consolidated financial statements.

The Company operates the leading dining rewards programs in North America by marketing participating restaurants to members of these programs and by providing incentives to members to dine at these
restaurants. In addition to offering its own dining rewards program, iDine®, at www.idine.com, the Company operates the dining rewards program of leading airline frequent flyer programs, hotel frequent-stay programs, retailer shopping
programs, college savings programs, and other affinity organizations.

The Company offers two programs to restaurants 
the Marketing Services Program and the Marketing Credits Program. In both the Marketing Credits Program and Marketing Services Program, the Company markets participating restaurants principally through its internet, email and 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 by members at participating restaurants by providing incentives to dine at these restaurants,
including airline miles, college savings rewards, reward program points, and cash back benefits. 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.

Restaurants that participate in the Marketing Credits Program receive the marketing, reporting, customer feedback and incentive programs as described above and also agree to allow the Company to purchase
a portion of member dining in advance and at a discount. In return for purchasing a bulk amount of dining in advance and agreeing to market the restaurant, provide rewards to members and provide other related services, the Company is able to
purchase member dining for substantially less than normal menu prices. The Company earns revenues only if members dine at participating restaurants in the program. If members do not dine at participating restaurants, the Company cannot redeem the
dining credits and otherwise has no recourse to the restaurant. Bars and clubs also participate in the Companys programs, and for purposes of describing its business, are included when the terms restaurants or clients
are used.

The Company recognizes revenue only if a member dines at a participating restaurant when rewards are available to
the member and pays using a credit or debit card (also referred to as a payment card) that the member has registered with the Company. In the Marketing Services Program, the Companys revenue is equal to a percentage of the members total
dining transaction. In the Marketing Credits Program, because the Company earns revenues for its services and the future dining it has purchased only if members dine at participating restaurants, the marketing efforts in connection with the
Marketing Credits Program are critical in driving members into participating restaurants in order to realize the benefits of the future dining that the Company purchases. In the Marketing Credits Program, the Companys revenue is equal to a
percentage of the members total dining transaction less the amount attributable to the redemption of dining credits. Revenues are applied to provide rewards to members; cover the Companys selling, marketing, general and administrative
expenses; and generate operating income that provides a return for the Companys stockholders.

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

Shares of the Companys common stock are traded on the NASDAQ under the symbol DINE.



6



---

##### Table of Contents



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 $143 and $139 for the three months ended September 30, 2010 and 2009, respectively, and $424 and $413 for the nine months ended September 30, 2010 and 2009, respectively, under this agreement.

The Company has entered into three storage space lease agreements with Equity Office Properties Management Corp., the agent
for Two North Riverside Plaza Joint Venture Limited Partnership, dated May 6, 2010, October 27, 2006 and October 22, 2003. The leases provide for an aggregate of 1,424 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 $5 for each of the three months ended September 30, 2010 and 2009, and $14 and $21 for the nine months ended September 30, 2010 and 2009, respectively.

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



|                              |  |   |     | 
|----------------------------- |  | - | --- | 
|Remaining quarter of 2010     |  | $ | 144 | 
|Year ending December 31, 2011 |  |   | 386 | 
|Thereafter                    |  |   |    | 
|                              |  |   |     | 
|Total minimum lease payments  |  | $ | 530 | 
|                              |  |   |     | 

Note 3  Basic and Diluted Net Income per Share

Basic 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. Diluted net income per share was computed in the same manner, but adjusts the shares outstanding to reflect the potential dilution that would occur if outstanding stock awards
were vested. For periods with potentially dilutive securities, incremental shares and adjustments to net income are determined using the treasury stock method. There were no shares excluded from the weighted average number of common stock
equivalents for any of the periods presented.



|                                                                                           |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|------------------------------------------------------------------------------------------ |  | ------------------------------- | ----- |  | ------------------------------ | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                                                                           |  | Three Months EndedSeptember
30, |       |  | Nine Months EndedSeptember
30, |  
|                                                                                           |  | 2010                            |       |  | 2009                           |   |       | 2010 |  |   | 2009  | 
|Net income                                                                                 |  | $                               | 1,077 |  |                                | $ | 1,907 |      |  | $ | 4,161 |  |  | $ | 3,074 | 
|                                                                                           |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Weighted average number of shares of common stock and common stock equivalents outstanding |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Basic                                                                                      |  |                                 | 8,953 |  |                                |   | 8,764 |      |  |   | 8,913 |  |  |   | 8,941 | 
|Stock options and restricted stock                                                         |  |                                 | 104   |  |                                |   | 160   |      |  |   | 132   |  |  |   | 178   | 
|                                                                                           |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Diluted                                                                                    |  |                                 | 9,057 |  |                                |   | 8,924 |      |  |   | 9,045 |  |  |   | 9,119 | 
|                                                                                           |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|                                                                                           |  |                                 |       | 
|Earnings per share                                                                         |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Basic                                                                                      |  | $                               | 0.12  |  |                                | $ | 0.22  |      |  | $ | 0.47  |  |  | $ | 0.34  | 
|                                                                                           |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 
|Diluted                                                                                    |  | $                               | 0.12  |  |                                | $ | 0.21  |      |  | $ | 0.46  |  |  | $ | 0.34  | 
|                                                                                           |  |                                 |       |  |                                |   |       |      |  |   |       |  |  |   |       | 

Note 4  Business and Credit Concentrations

As of September 30, 2010, the Company had contracts or relationships with seven major airlines that offer frequent flyer miles or
credits as rewards, representing more than 50% of the Companys revenues for the three and nine months ended September 30, 2010 and 2009. In addition to the major airlines, the Company also partners with various other loyalty program
providers to offer their members the opportunity to earn rewards. Members of each of the United Airlines, Upromise Inc., American Airlines Inc. and Delta Air Lines programs represented 10% or more of the Companys revenues for the three and
nine months ended September 30, 2010. Members of each of the Upromise Inc., United Airlines and American Airlines Inc. programs represented 10% or more of the Companys revenues for the three and nine months ended September 30, 2009.
The following table illustrates the Companys partner revenues concentration as a percentage of total revenues.



7



---

##### Table of Contents



|                                                      |  |                                 |      |   |                                 |  |      |      |  |  |      |   |  |  |      |  
|----------------------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------- |  | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                      |  | Three Months EndedSeptember 30, |      |   | Nine Months Ended
September 30, | 
|                                                      |  | 2010                            |      |   | 2009                            |  |      | 2010 |  |  | 2009 |  
|Airlines                                              |  |                                 | 59.8 | % |                                 |  | 60.2 | %    |  |  | 59.7 | % |  |  | 59.2 | %
|                                                      |  |                                 |      |  
|All partners that each represent 10% or more of sales |  |                                 | 65.5 | % |                                 |  | 56.8 | %    |  |  | 65.6 | % |  |  | 58.3 | %

Note 5  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. There were no such liabilities recorded at September 30, 2010. The Company has minimum purchase obligations with these
partners and vendors as follows:



|                                             |  |   |        | 
|-------------------------------------------- |  | - | ------ | 
|Remaining quarter of 2010                    |  | $ | 4,585  | 
|2011                                         |  |   | 5,950  | 
|2012                                         |  |   | 360    | 
|2013                                         |  |   | 180    | 
|Thereafter                                   |  |   |       | 
|                                             |  |   |        | 
|Total minimum partner and vendor obligations |  | $ | 11,075 | 
|                                             |  |   |        | 

Note 6  Comprehensive Income

The Companys comprehensive income was as follows:



|                                        |  |                                  |       |  |                                 |   |       |      |  |   |       |  |  |   |       | 
|--------------------------------------- |  | -------------------------------- | ----- |  | ------------------------------- | - | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                                        |  | Three Months Ended
September 30, |       |  | Nine Months Ended
September 30, |  
|                                        |  | 2010                             |       |  | 2009                            |   |       | 2010 |  |   | 2009  | 
|Net income                              |  | $                                | 1,077 |  |                                 | $ | 1,907 |      |  | $ | 4,161 |  |  | $ | 3,074 | 
|Other comprehensive income:             |  |                                  |       |  |                                 |   |       |      |  |   |       |  |  |   |       | 
|Foreign currency translation adjustment |  |                                  | 95    |  |                                 |   | 252   |      |  |   | 94    |  |  |   | 54    | 
|                                        |  |                                  |       |  |                                 |   |       |      |  |   |       |  |  |   |       | 
|Total comprehensive income              |  | $                                | 1,172 |  |                                 | $ | 2,159 |      |  | $ | 4,255 |  |  | $ | 3,128 | 
|                                        |  |                                  |       |  |                                 |   |       |      |  |   |       |  |  |   |       | 

Note 7  Cash and Cash Equivalents

Cash and cash equivalents of $12,110 and $12,665 at September 30, 2010 and December 31, 2009, respectively, include 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 8  Stock Awards

The following table summarizes the Companys nonvested restricted stock unit award activity for all plans for the nine months ended
September 30, 2010.



|                                |  |        |      |   |                                     |   |       | 
|------------------------------- |  | ------ | ---- | - | ----------------------------------- | - | ----- | 
|                                |  | Shares |      |   | WeightedAverageGrant-Date FairPrice |  
|Nonvested at December 31, 2009  |  |        | 451  |   |                                     | $ | 12.23 | 
|                                |  |        |      |   |                                     |   |       | 
|Granted                         |  |        | 164  |   |                                     | $ | 13.60 | 
|Vested                          |  |        | (245 | ) |                                     | $ | 11.19 | 
|Forfeited                       |  |        | (2   | ) |                                     | $ | 12.48 | 
|Cancelled                       |  |        | (102 | ) |                                     | $ | 15.26 | 
|                                |  |        |      |   |                                     |   |       | 
|Nonvested at September 30, 2010 |  |        | 266  |   |                                     | $ | 12.51 | 
|                                |  |        |      |   |                                     |   |       | 



8



---

##### Table of Contents



Restricted stock unit
awards granted during 2009 and 2010 contain a combination of 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.
The vesting related to the performance and market conditions for the 2009 grants were met in 2010 upon achievement of the market condition. The stock based compensation expense for the 2009 and 2010 grants are being recognized over a one to three
year period. Restricted stock unit awards granted during 2008 generally vest and settle over a three year period based on a service condition. As of September 30, 2010, approximately $776 of total unrecognized compensation costs related to
restricted stock unit awards are expected to be recognized over a weighted-average period of approximately 11 months. The vesting period of the 2008 and 2009 grants and the associated stock compensation expense will be accelerated if there is a
change in control of the Company as contemplated by the Agreement and Plan of Merger with EGI Acquisition Parent, L.L.C., as discussed in Note 10 of this Quarterly Report on Form 10-Q. The Company recorded $180 and $1,408 of stock compensation
expense during the three and nine months ended September 30, 2010, respectively, and $381 and $1,208 of stock compensation expense during the three and nine months ended September 30, 2009 relating to restricted stock units.

In addition, the Company established a pool of additional paid-in capital related to the tax effects of employee and director share-based
compensation (APIC Pool) of $6 and $576 during the three and nine months ended September 30, 2010, respectively. The APIC pool is available to absorb any future recognized tax deficiencies. The Company calculated the APIC Pool by
tracking each award grant on an individual-by-individual and grant-by-grant basis to determine if there is an excess tax benefit or tax deficiency for such award. The Company then compared the fair value expense to the tax deduction received for
each grant and aggregated the benefits and deficiencies to establish and maintain the APIC Pool. The Company groups the excess tax benefits from both employee and director stock awards into a single APIC pool.

Note 9  Stock Repurchase

On April 22, 2009, the Companys Board of Directors authorized the repurchase of up to $5,000 of the Companys common stock pursuant to 10b5-1 trading plans or other available means. During
the nine months ended September 30, 2010, the Company repurchased 15 shares for $153 pursuant to a 10b5-1 trading plan. The Company purchased a total of 505 shares for $4,790 since the repurchase authorization. Repurchases were dependent on
market conditions and other factors. The purchases were funded from cash and cash equivalents and the repurchased shares are maintained as treasury shares for possible future use. The 10b5-1 trading plan was terminated effective June 9, 2010.

Note 10  Subsequent Event

On October 28, 2010, the Company entered into an Agreement and Plan of Merger with EGI Acquisition Parent, L.L.C., a Delaware limited liability company (Parent), and EGI Acquisition,
L.L.C., a Delaware limited liability company and a wholly owned subsidiary of Parent (Purchaser). Each of Parent and Purchaser are affiliates of Equity Group Investments, L.L.C., a Delaware limited liability company. Under the Agreement
and Plan of Merger, Purchaser will offer to acquire all shares of Company common stock not owned by Purchaser through a cash tender offer for $13.75 per share. Purchaser intends to commence the tender offer on or before November 8, 2010. The
tender offer will expire 20 business days after the date it commences unless it is extended. Following the expiration of the tender offer, if Purchaser owns at least 90% of the outstanding shares of Company common stock, Purchaser intends to
complete the acquisition of the Company through the short-form procedure under Delaware law. In the merger, each outstanding share of Company common stock not tendered and purchased in the tender offer will be converted into the right to receive the
same consideration provided in the tender offer.



9



---

##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (amounts in thousands,
except per share data, 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 clients, (iii) our susceptibility to restaurant credit risk and the risk that our allowance for unredeemable dining credits may prove inadequate, (iv) modifications to our dining credits purchasing policies that lead to
an increase in the allowance for unredeemable dining credits, (v) network interruptions, processing interruptions or processing errors, (vi) susceptibility to a changing regulatory environment, (vii) our dependence upon our
relationships with payment card issuers, transaction processors, presenters and aggregators, (viii) the failure of our security measures, (ix) our failure to maintain compliance certifications, (x) increased operating costs or loss of
members due to privacy concerns of our program partners, payment card processors and the public, (xi) a security breach that results in a payment card issuer re-issuing a significant number of registered payment cards, (xii) changes to
payment card association rules and practices, (xiii) our dependence on our relationships with airlines and other reward program partners for a significant number of members, (xiv) the concentration of a significant amount of our rewards
currency in one industry group, the airline industry, (xv) our inability to attract and retain active members, (xvi) our ability to obtain sufficient cash to operate our business, (xvii) changes in our programs that affect the rate of
rewards, (xviii) our inability to maintain an adequately-staffed sales force, (xix) our inability to maintain an appropriate balance between the number of members and the number of participating clients in each market, (xx) changes in
the regulatory environment, (xxi) our minimum purchase obligations and performance requirements, (xxii) class action lawsuits, (xxiii) increasing competition, (xxiv) impairment to goodwill, (xxv) factors causing our
operating results to fluctuate over time, and (xxvi) adverse weather conditions affecting dining activity. 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, 2009 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 participating restaurants to members of
these programs and by providing incentives to members to dine at these restaurants. In addition to offering our own dining rewards program, iDine®, at www.idine.com, we operate the dining rewards program of leading airline frequent flyer programs, hotel frequent-stay programs, retailer shopping programs, college
savings programs and other affinity organizations.

In both our Marketing Services Program and our Marketing Credits Program,
which are described below, we recognize revenue 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 and in the Marketing Credits Program the redemption of dining credits is deducted from the presentation of revenues. These revenues are applied to
provide rewards to members; cover our selling, marketing, general and administrative expenses; and generate operating income that provides a return for our stockholders.

We 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
principally through websites, email and mobile smartphone applications, as well as various social media outlets. Our programs are designed to introduce new diners, increase the frequency of dining and increase the amount spent by members at
participating restaurants by providing incentives to dine at these restaurants, including airline miles, college savings rewards, reward program points, and cash back benefits. 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 to restaurants, bars and clubs also participate in our programs, and for purposes of describing our business, are included when the terms restaurants or clients are used.



10



---

##### Table of Contents



Restaurants that
participate in the Marketing Credits Program receive marketing, reporting, customer feedback and incentive programs as described above and also agree to allow us to purchase a portion of member dining in advance and at a discount. In return for
purchasing a bulk amount of dining in advance and agreeing to market the restaurant, providing rewards to members and providing other related services to the restaurant, we are able to purchase member dining for substantially less than normal menu
prices. We earn revenues only if members dine at participating restaurants in the program. In discussing our business, we use the term dining credits to refer to the portion of future member dining that we have purchased and we use
dining credits to track member dining at our restaurants in the Marketing Credits Program. When purchasing dining credits from a restaurant, we retain the risk that we will be unsuccessful in marketing the restaurant to members and providing
incentives for members to dine at the restaurant as well as the risk that members will not dine at the restaurant as frequently as we expect or indeed enough to use all of the dining credits that we purchased. There is no term to our agreement with
the restaurant and if members do not dine at the restaurant, we have no recourse to the restaurant for recovery of the dining credits. In addition, a restaurant may repurchase from us at any time the dining credits at their original cost.

Throughout 2009 and the first three quarters of 2010, we continued to be focused strategically on evolving into the leading
provider of marketing services to the restaurant industry while managing the risks in our dining credits portfolio. We sought to improve our marketing services by opening our network to increase interaction among members, restaurants and partners.
We believe that opening the network and focusing more aggressively on marketing services will provide us with more opportunities for growth and client retention. As a result of these efforts, as of September 30, 2010, we increased the number of
Marketing Services Program restaurants by 951, or 18.3%, as compared to September 30, 2009. During the same period, we increased our active member base by 6.0%, increased the number of completed surveys by 39.3% and increased the number of
email addressable members by 10.2%. In the first half of 2009, we also introduced a system that allows restaurants to respond to member feedback from post-dine surveys. These improvements benefit participating restaurants in both the Marketing
Services and Marketing Credits Programs.

The growth in the Marketing Services Program has been driven by increased sales
focus on this program and improved product features. We remain focused on continuous improvement in the Marketing Services Program because we expect it to be the primary vehicle to drive future revenue and profitability growth. Marketing Services
Program revenues for the three months ended September 30, 2010 were 15.6% higher than in the same period in the prior year. While Marketing Services Program revenues increase, total revenues decreased 0.7% for the three months ended
September 30, 2010 compared to the same period in the prior year due to a 9.5% decrease in the Marketing Credits Program revenues. The growth in the Marketing Services Program is attractive because it does not require us to put capital at risk
and we believe the opportunity to grow this product line is greater than the market opportunity for the Marketing Credits Program.

Our Marketing Credits Program continues to be a significant part of our business. We continually evaluate our dining credits purchasing policies by monitoring the performance of our dining credits
portfolio and observing current economic trends facing the restaurant industry. We began to observe the amount of member spend at participating restaurants stabilize during the second quarter of 2009 through the first half of 2010. Based on our
observations regarding member spending at our restaurants and our analysis of the performance of individual restaurants in our dining credits portfolio, we modified our approach to purchasing dining credits in the first half of 2009 and again in the
second quarter of 2010 to increase the amount of dining credits we purchase from restaurants that meet certain criteria relating to risk, sales volume and length of time in our program. As a result, our net dining credits portfolio increased to
$66,055 as of September 30, 2010 from $57,299 as of December 31, 2009 and $55,125 as of September 30, 2009. The number of Marketing Credits Program restaurants decreased by 351, or 7.1%, as of September 30, 2010 from
September 30, 2009 and Marketing Credits Program revenues declined 9.5% during the third quarter of 2010 as compared to the prior year period, despite the increase in the net dining credits balance. Although we have fewer merchants in the
portfolio than in the prior year, we believe that these merchants are generally more credit worthy merchants than merchants in the prior year period. We believe that our dining credits portfolio substantially reflects our more conservative policies
as evidenced by the reduction in the provision for losses expense.

We adjust our approach to purchasing dining credits in
response to economic trends. If we continue to purchase more dining credits from restaurants that we identify as acceptable risk, it could result in an increase in the size of our dining credits portfolio and use of cash. 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. Our allowance for unredeemable dining credits may also increase or decrease as a result of the performance of our
portfolio and of our assessment of the economy.

Operating expenses during the nine months ended September 30, 2010
increased as compared to the same period in the prior year as we continued to invest in opportunities to accelerate growth, including an increase in headcount, and the development and testing of a new daily specials product in two metropolitan
markets. In addition, we incurred $467 and $879 for the three and nine months ended September 30, 2010, respectively, in expenses related to the previously announced process implemented by the Board of Directors of the Company to evaluate
indications of interest received from parties potentially interested in pursuing a strategic transaction with the Company and other strategic alternatives.

We continue to focus on growing our Marketing Services Program, disciplined management of our dining credits portfolio, increasing member engagement and activity and having a disciplined approach to
managing operating expenses. We believe that these initiatives will contribute to growth and improve our cash flow generation and stockholder value. The implementation of these initiatives to date has resulted in positive operating cash flow,
improved return on assets, improved profitability and an increase in total revenues. We currently do not have any borrowings outstanding under our credit facility and continue to operate on a debt-free basis.



11



---

##### Table of Contents



During the fourth
quarter of 2009, we revised our revenue presentation in the statement of operations from reporting gross revenues to presenting revenues net of the redemption of dining credits, as described further in Note 2 of the notes to consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

CRITICAL ACCOUNTING POLICIES AND
ESTIMATES

Our discussion and analysis of our 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 unredeemable dining credits
and doubtful accounts, the valuation allowance, if any, for net deferred tax assets, goodwill and revenue recognition. 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.

Allowance for Unredeemable Dining Credits and Doubtful Accounts

We provide allowances for unredeemable dining credits and doubtful accounts receivables based on our estimate of losses that would
result from the inability of participating restaurants to remain in business, their unwillingness to honor their obligations relating to dining credits and accounts receivables or our inability to generate sufficient member traffic to utilize the
dining credits. We take on risk when purchasing dining credits from a restaurant, in part, because we retain the risk that we will be unsuccessful in marketing the restaurant to members and providing adequate incentives for members to dine at the
restaurant or that members will not dine at the restaurant as frequently as we expect or indeed enough to use all of the dining credits that we purchased. There is no term to our agreement with the restaurant and if members do not dine at the
restaurant, we have no recourse to the restaurant for recovery of the dining credits. In addition, a restaurant may repurchase from us at any time the dining credits at their original cost. If the financial condition of our restaurant base were to
deteriorate beyond our expectations, resulting in participating restaurants inability to provide food, beverage, goods and services to members and thereby reducing the redemption of dining credits, if restaurants are unwilling or otherwise
unable to honor their obligations relating to dining credits or accounts receivable in greater numbers than we expect, or if we are unable to successfully market our restaurant base to our members, additional allowances for unredeemable dining
credits and doubtful accounts receivable may be required.

We apply a reserve rate to dining credits based upon certain
characteristics, such as whether the account has been referred for legal collection, the date of the last payment received, whether our attempt to debit the restaurants bank account for payments due to us has been rejected and whether such
rejected debit has been resolved, the restaurant owners personal credit score and the expected usage period of the dining credits. The reserve rate for each account is based upon historical charge-off experience with accounts with similar
characteristics. We also provide for specifically identified accounts and for dining credit balances that are large or slow moving. Losses are reduced by recoveries of dining credits previously written off. Account balances are written off against
the allowance once we conclude that a restaurant is unwilling or unable to honor their obligation relating to dining credits or if we are unable to successfully market the restaurant to our members. Subsequent to the account being written off, we
may continue to pursue recovery efforts.

We will continue to review our reserve rates on a regular basis based upon
historical write off rates and may adjust reserve rates based on changes in the nature of our business, risk considerations, economic conditions, actual write off rates or other factors. We also adjust our dining credits purchases based upon trends
we see in the industry. We are continuing our disciplined approach to purchasing dining credits that we implemented beginning in mid-2008 which we have modified periodically since then in response to trends that we observe from analyzing both our
data and data on the restaurant industry generally. We will continue to monitor these trends and review and modify our reserve rates if deemed necessary.

Deferred Tax Assets Valuation Allowance

We record a valuation
allowance to reduce our deferred tax assets to reflect the amount that we believe is more likely than not to be realized. We consider future taxable income and available tax planning strategies in assessing the need for a 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. As of
September 30, 2010, we believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset.



12



---

##### Table of Contents



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 could 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
value. We utilize a discounted cash flow analysis in our impairment testing. Significant management judgment is required in the determination of an appropriate discount rate and 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 apply Accounting Standards Codification (ASC) 350-10, Intangibles-Goodwill and Other, the current standard for periodic assessment of the carrying value of intangible assets,
including goodwill. We assess the carrying value of goodwill and any indefinite life intangible assets recognized in connection with our previous acquisitions using a two-step approach based on applicable reporting units. We report under a single
reporting segment and our goodwill analysis is measured under one reporting unit. The carrying value of our goodwill as of September 30, 2010 was $8,117.

Revenue Recognition

We recognize revenue from the Marketing
Credits Program and Marketing Services Program when members patronize participating restaurants when rewards are available to them 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. In the Marketing Services Program the amount of revenue recognized is that portion of the members total transaction amount that we are entitled to
receive, in accordance with the terms of our agreement with the participating restaurant. In the Marketing Credits program, revenues equal the portion of the members total transaction amount that we are entitled to receive, in accordance with
the terms of our agreement with the participating restaurant less the portion of the transaction amount that is attributable to the redemption of dining credits. For example, in a Marketing Credits Program transaction, if a members total
qualified transaction amount is $100, as evidenced by the full amount of the payment card transaction, and our contract provides for us to receive 80% and we purchased the dining credits at a ratio of 2 to 1, the amount of our share of qualified
transaction amount is $80, representing what we actually realize in cash and the total revenues is $40 (net of the redemption of dining credits). In the Marketing Services Program the same $100 transaction may yield $17 in revenue to be recognized,
which is the amount we are entitled to receive in accordance with the terms of our agreement with the participating restaurant.



13



---

##### Table of Contents



RESULTS OF OPERATIONS 
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

The following table illustrates the relationship
between revenue and expense categories for the three months ended September 30, 2010 and 2009. These percentages have been rounded to the nearest tenth.



|                                         |  |                                                               |       |  |      |  |       | 
|---------------------------------------- |  | ------------------------------------------------------------- | ----- |  | ---- |  | ----- | 
|                                         |  | Percentage of Revenuesfor the Three Months EndedSeptember 30, |      
|                                         |  | 2010                                                          |       |  | 2009 | 
|Total revenues                           |  |                                                               | 100.0 |  |      |  | 100.0 | 
|Member benefits                          |  |                                                               | 30.6  |  |      |  | 29.4  | 
|Provision for losses                     |  |                                                               | 3.9   |  |      |  | 6.5   | 
|Processing fees                          |  |                                                               | 1.0   |  |      |  | 1.0   | 
|                                         |  |                                                               |       |  |      |  |       | 
|Gross profit                             |  |                                                               | 64.5  |  |      |  | 63.1  | 
|                                         |  |                                                              
|Salaries and benefits                    |  |                                                               | 16.1  |  |      |  | 17.1  | 
|Sales commission and expenses            |  |                                                               | 18.4  |  |      |  | 17.8  | 
|Professional fees                        |  |                                                               | 3.6   |  |      |  | 2.0   | 
|Member and restaurant marketing expenses |  |                                                               | 2.5   |  |      |  | 2.3   | 
|Depreciation and amortization            |  |                                                               | 4.2   |  |      |  | 4.4   | 
|General and administrative expenses      |  |                                                               | 10.4  |  |      |  | 8.8   | 
|                                         |  |                                                               |       |  |      |  |       | 
|Total operating expenses                 |  |                                                               | 55.1  |  |      |  | 52.4  | 
|                                         |  |                                                               |       |  |      |  |       | 
|Operating income                         |  |                                                               | 9.4   |  |      |  | 10.7  | 
|                                         |  |                                                              
|Other expense, net                       |  |                                                               | 0.1   |  |      |  | 0.1   | 
|                                         |  |                                                               |       |  |      |  |       | 
|                                         |  |                                                              
|Income before income tax provision       |  |                                                               | 9.3   |  |      |  | 10.7  | 
|                                         |  |                                                              
|Income tax provision                     |  |                                                               | 5.4   |  |      |  | 3.8   | 
|                                         |  |                                                               |       |  |      |  |       | 
|Net income                               |  |                                                               | 3.9   |  |      |  | 6.9   | 
|                                         |  |                                                               |       |  |      |  |       | 



14



---

##### Table of Contents



Operating Revenues

The following table sets forth for the periods presented total revenues, direct expenses and certain other information
for each of our two programs. We use the term dining credits to refer to the portion of future member dining that we purchase. Our Marketing Credits Program contracts include a separate fee for marketing, reporting on member activity,
member feedback and dining rewards. 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 revenues and
gross profit because we do not purchase, and a restaurant cannot sell the dining credits without marketing services. We analyze our business in this manner and because we earn revenues for our services and the future dining that we have purchased
only if members dine at participating restaurants, our marketing efforts with the Marketing Credits Program are critical in driving members into participating restaurants. We use the term restaurant or client in this
discussion to refer to restaurants, bars and clubs.



|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|---------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ------------------------ | - | ------ | -------------- |  | - | ----- | - |  | ----------------------- | ------- | - | ------------------------ | - | ------ | -------------- |  | - | ------ | - |  | - | ----- | - |  | - | ------- | -
|                                                                             |  | For The Three Months Ended September 30, |       
|                                                                             |  | 2010                                     |        |   | 2009                     |  
|                                                                             |  | MarketingCreditsProgram                  |        |   | MarketingServicesProgram |   |        | MembershipFees |  |   | Total |   |  | MarketingCreditsProgram |         |   | MarketingServicesProgram |   |        | MembershipFees |  |   | Total  |  
|Restaurant count as of September 30, 2010 and 2009, respectively             |  |                                          | 4,569  |   |                          |   | 6,152  |                |  |   |       |   |  |                         | 10,721  |   |                          |   | 4,920  |                |  |   | 5,201  |   |  |   |       |   |  |   | 10,121  |  
|Number of qualified transactions(1)                                          |  |                                          | 1,290  |   |                          |   | 1,719  |                |  |   |       |   |  |                         | 3,009   |   |                          |   | 1,311  |                |  |   | 1,436  |   |  |   |       |   |  |   | 2,747   |  
|Average transaction amount(1)                                                |  | $                                        | 44.35  |   |                          | $ | 44.79  |                |  |   |       |   |  | $                       | 44.60   |   |                          | $ | 44.60  |                |  | $ | 46.69  |   |  |   |       |   |  | $ | 45.70   |  
|                                                                             |  |                                          |        |   |                          |   |        |               
|Qualified transaction amount(1)                                              |  | $                                        | 57,208 |   |                          | $ | 76,995 |                |  |   |       |   |  | $                       | 134,203 |   |                          | $ | 58,473 |                |  | $ | 67,053 |   |  |   |       |   |  | $ | 125,526 |  
|Rewards Network percentage share of qualified transaction amount(1) (2)      |  |                                          | 69.3   | % |                          |   | 14.6   | %              |  |   |       |   |  |                         | 37.9    | % |                          |   | 73.7   | %              |  |   | 14.5   | % |  |   |       |   |  |   | 42.1    | %
|Rewards Network share of qualified transaction amount and membership
fees(1) |  | $                                        | 39,646 |   |                          | $ | 11,219 |                |  | $ | 239   |   |  | $                       | 51,104  |   |                          | $ | 43,082 |                |  | $ | 9,702  |   |  | $ | 261   |   |  | $ | 53,045  |  
|Redemption of dining credits(1)                                              |  | $                                        | 23,519 |   |                          | $ |       |                |  | $ |      |   |  | $                       | 23,519  |   |                          | $ | 25,261 |                |  | $ |       |   |  | $ |      |   |  | $ | 25,261  |  
|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Total revenues                                                               |  | $                                        | 16,127 |   |                          | $ | 11,219 |                |  | $ | 239   |   |  | $                       | 27,585  |   |                          | $ | 17,821 |                |  | $ | 9,702  |   |  | $ | 261   |   |  | $ | 27,784  |  
|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Revenue as a percentage of qualified transaction amount(1) (2)               |  |                                          | 28.2   | % |                          |   | 14.6   | %              |  |   |       |   |  |                         | 20.4    | % |                          |   | 30.5   | %              |  |   | 14.5   | % |  |   |       |   |  |   | 21.9    | %
|                                                                             |  |                                          |        |   |                          |   |        |               
|Member benefits                                                              |  | $                                        | 2,791  |   |                          | $ | 3,025  |                |  | $ |      |   |  | $                       | 5,816   |   |                          | $ | 2,410  |                |  | $ | 2,795  |   |  | $ |      |   |  | $ | 5,205   |  
|Bonus rewards                                                                |  | $                                        | 634    |   |                          | $ | 838    |                |  | $ |      |   |  | $                       | 1,472   |   |                          | $ | 830    |                |  | $ | 986    |   |  | $ |      |   |  | $ | 1,816   |  
|Partner commissions                                                          |  | $                                        | 520    |   |                          | $ | 623    |                |  | $ |      |   |  | $                       | 1,143   |   |                          | $ | 563    |                |  | $ | 580    |   |  | $ |      |   |  | $ | 1,143   |  
|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Total member benefits                                                        |  | $                                        | 3,945  |   |                          | $ | 4,486  |                |  | $ |      |   |  | $                       | 8,431   |   |                          | $ | 3,803  |                |  | $ | 4,361  |   |  | $ |      |   |  | $ | 8,164   |  
|Provision for losses                                                         |  | $                                        | 1,074  |   |                          | $ |       |                |  | $ |      |   |  | $                       | 1,074   |   |                          | $ | 1,811  |                |  | $ |       |   |  | $ |      |   |  | $ | 1,811   |  
|Processing fees                                                              |  | $                                        | 130    |   |                          | $ | 157    |                |  | $ |      |   |  | $                       | 287     |   |                          | $ | 128    |                |  | $ | 149    |   |  | $ |      |   |  | $ | 277     |  
|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|                                                                             |  |                                          |        |   |                          |   |        |               
|Gross profit                                                                 |  | $                                        | 10,978 |   |                          | $ | 6,576  |                |  | $ | 239   |   |  | $                       | 17,793  |   |                          | $ | 12,079 |                |  | $ | 5,192  |   |  | $ | 261   |   |  | $ | 17,532  |  
|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Gross profit as a percentage of total revenues(1)                            |  |                                          | 68.1   | % |                          |   | 58.6   | %              |  |   | 100.0 | % |  |                         | 64.5    | % |                          |   | 67.8   | %              |  |   | 53.5   | % |  |   | 100.0 | % |  |   | 63.1    | %
|                                                                             |  |                                          |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  



|(1) | Supplemental operating and statistical data. See the following paragraph for a complete description.
|--- | ----------------------------------------------------------------------------------------------------

|(2) | Total percentages exclude membership fees.
|--- | ------------------------------------------



15



---

##### Table of Contents



In analyzing revenues,
we consider Rewards Network share of qualified transaction amount, which represents the amount we retain from each transaction. In reviewing Rewards Network share of qualified transaction amount, we focus on the following key metrics: restaurant
count, qualified transaction amount, Rewards Network percentage share of qualified transaction amount and revenue as a percentage of qualified transaction amount. Restaurant count is the number of restaurants active in our program at the end of each
period. Qualified transaction amount represents the gross total dollar value of all member dining transactions that qualify for a benefit. Rewards Network percentage share of qualified transaction amount represents the percentage of the qualified
transaction amount that we retain. The related statistical measures (number of qualified transactions, average transaction amount, Rewards Network percentage share of qualified transaction amount and revenue as a percentage of qualified transaction
amount) are components of the qualified transaction amount. These supplemental financial measures provide useful information because they are important factors that affect our revenues. We use these supplemental financial measures in analyzing
operating results and managing the business.

Ending restaurant count as of September 30, 2010 was 10,721 compared to
10,121 as of September 30, 2009, an increase of 5.9%. The increase in total restaurant count was driven by an 18.3% increase in Marketing Services Program restaurants to 6,152 restaurants, partially offset by a 7.1% decrease in Marketing
Credits Program restaurants to 4,569 restaurants.

The number of Marketing Services Program restaurants increased as a result
of our initiatives to evolve into the leading provider of marketing services to the restaurant industry. The growth in this product has been driven by increased sales focus on this program and improved product features. We remain focused on
continuous improvement in the Marketing Services Program because we expect it to be the primary vehicle to drive future revenue and profitability growth.

The composition of the dining credits portfolio has shifted since the third quarter of 2008 both towards restaurant segments that have been impacted less by the current economic environment and towards
restaurants that not only meet our risk standards but also that perform well on our program. While the number of Marketing Credit restaurants declined, during the third quarter of 2010, our net dining credits portfolio balance grew with purchases
from restaurants that met our risk standards and we retained restaurants that performed well in our program.

We continually
evaluate our dining credits purchasing policies by monitoring the performance of our dining credits portfolio and observing current economic trends facing the restaurant industry. Based on our analysis of economic trends and the performance of
individual restaurants in our dining credits portfolio, we adjusted our dining credits purchasing policies beginning the second quarter of 2009 to purchase more dining credits from restaurants who met certain criteria relating to risk, sales volume
and length of time in our program. As a result our net dining credits usage period increased to 8.4 months as of September 30, 2010 from 6.5 as of September 30, 2009. In addition, the disciplined management and the performance of the
dining credits portfolio has resulted in a significant reduction in the provision for losses expense. As a result of the increased usage period and our targeted effort in 2010 to increase the level of dining credits we purchase, our net dining
credits balance as of September 30, 2010 increased by $6,696 from June 30, 2010 and by $8,756 from December 31, 2009 to $60,055.

Qualified transaction amount at our participating restaurants increased $8,677, or 6.9%, to $134,203 for the three months ended September 30, 2010 from $125,526 for the same period in the prior year
as a result of the increase in restaurant count and an increase in the number of qualified transactions, partially offset by a decrease in average transaction amount. The number of qualified transactions increased 262 or 9.5% for the three months
ended September 30, 2010 compared to the same period in the prior year. Average transaction amount decreased by $1.10, or 2.4%, to $44.60 for the three months ended September 30, 2010 from $45.70 in the prior year.

Rewards Network percentage share of qualified transaction amount decreased to 37.9% for the three months ended September 30, 2010
compared to 42.1% the three months ended September 30, 2009 primarily due to a higher proportion of restaurants participating in the Marketing Services Program as well as a decrease in the Marketing Credits Program share of qualified
transaction amount. The Marketing Services Program percentage share of qualified transaction amount increased to 14.6% for the three months ended September 30, 2010 compared to 14.5% for the same period in the prior year. The Marketing Credits
Program percentage share of qualified transaction amount decreased to 69.3% during the three months ended September 30, 2010 compared to 73.7% for the same period in the prior year as we purchased dining credits at less of a discount between
periods. This decrease resulted in a longer net dining credits usage period.

Rewards Network share of qualified transaction
amount and membership fees for three months ended September 30, 2010 decreased 3.7% to $51,104 for the three months ended September 30, 2010 compared to $53,045 for the same period in the prior year, primarily due to a $3,436 or 8.0%
decrease in Marketing Credits Program share of qualified transaction amount, partially offset by a $1,517 or 15.6% increase in the Marketing Services Program share of qualified transaction amount. Marketing Credits Program share of qualified
transaction amount decreased as a result of fewer Marketing Credits Program restaurants participating in our program and a decline in average transaction amount. Membership fees, which relate to our proprietary cash back program, iDine, decreased
8.4% due to a 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 fees for certain members. We expect membership fees to decline as more members enroll in the no-fee program. However, we also expect the member benefits paid to these iDine members to decline as a result of changes made to
the program. Marketing Services Program share of qualified transaction amount increased as a result of a higher number of Marketing Services Program restaurants. This was partially offset by a decrease in average transaction amount and product price
decreases.



16



---

##### Table of Contents



Redemption of dining
credits as a percent of Rewards Network share of qualified transaction amount and membership fees decreased to 46.0% for the three months ended September 30, 2010, compared to 47.6% for the same period in the prior year. This decrease was due
to a shift towards restaurants participating in the Marketing Services Program, which has no redemption of dining credits. Redemption of dining credits as a percent of Rewards Network share of the Marketing Credits Program qualified transactions
amount increased to 59.3% for the three months ended September 30, 2010, compared to 58.6% for the three months ended September 30, 2009. The increase in redemption of dining credits compared to Marketing Credits Program share of qualified
transaction amount was due to lower prices on the Marketing Credits Program. We believe the reduction in risk and increase in usage period outweighs the decrease in price as evidenced by the decline in the provision for losses.

Total revenues decreased $199 or 0.7% to $27,585 for the three months ended September 30, 2010 compared to the same period in the
prior year primarily as a result of a decrease in the number of Marketing Credits Program restaurants and a decrease average transaction amount, partially offset by an increase in the Marketing Services Program restaurant count.

Revenues as a percentage of qualified transaction amount decreased to 20.4% for the three months ended September 30, 2010 from 21.9%
for the same period in the prior year. The decrease was primarily due to a shift in mix towards our Marketing Services Program and fewer Marketing Credits Program restaurants participating in our program.

Member benefits expense increased to 30.6% of total revenues for the three months ended September 30, 2010 compared with 29.4% of
total revenues for the same period in the prior year. The increase in member benefit expense as a percentage of total revenues was primarily due to a shift towards Marketing Services Program revenues. The Marketing Services Program has a higher
member benefit expense as a percentage of revenues. Member benefit expense for the Marketing Services Program as a percentage of Marketing Services Program revenues decreased to 40.0% for the three months ended September 30, 2010 from 44.9% for
the same period in the prior year. Member benefit expense for the Marketing Credits Program as a percentage of Marketing Credits Program revenues increased to 24.5% for the three months ended September 30, 2010 as compared with 21.3% for the
same period in the prior year. We have leveraged our member incentives to influence enrollment, obtain more email addresses and completed surveys and increase dining frequency and spend. As a result, during the three months ended September 30,
2010 we increased the number of active members by 6.0%, increased the number of completed surveys by 39.3% and increased the number of email addressable members by 10.2% over the prior year period.

The provision for losses expense decreased to $1,074 or 3.9% of total revenues and 6.7% of Marketing Credits Program revenues for the
three months ended September 30, 2010 compared with $1,811 or 6.5% of total revenues and 10.2% of Marketing Credits Program revenues for the same period in the prior year. The allowance for unredeemable dining credits as a percentage of the
gross dining credits balance decreased to 12.3% as of September 30, 2010 from 16.7% as of December 31, 2009 and 19.9% as of September 30, 2009. The decline in the allowance for unredeemable dining credits as a percentage of the gross
dining credits balance is a reflection of our disciplined management of the dining credits portfolio. We have focused our dining credits purchases towards restaurants that we believe have less risk and on restaurants that have established
performance histories with us. We believe that the reserve balance is appropriate based upon our estimates for unredeemable dining credits.

Processing fees slightly increased to $287 or 1.0% of total revenues for the three months ended September 30, 2010 from $277 or 1.0% of total revenues for the same period in the prior year. The
increase was primarily due to a shift towards Marketing Services Program revenues. Processing fees are driven by the number of credit card transactions at participating restaurants. Processing fees as a percentage of qualified transaction amount
remained consistent between periods at 0.2%.

Gross profit increased to 64.5% of total revenues for the three months ended
September 30, 2010 as compared to 63.1% of total revenues for the same period in the prior year. The increase in gross profit as a percentage of total revenues was due to improved profitability of the Marketing Services Program and a
decrease in the provision for losses expense. Gross profit increased $261 or 1.5% to $17,793 for the three months ended September 30, 2010, as compared to $17,532 for the same period in the prior year mainly due to an increase in Marketing
Services Program revenue and the reduction in loss provision expense.



17



---

##### Table of Contents



Operating Expenses

Salaries and benefits decreased $311 or 6.5% to $4,438 for the three months ended September 30, 2010 from $4,749
for the same period in the prior year primarily due to a reduction in incentive and stock compensation expenses, partially offset by an increase in headcount.

Sales commissions and expenses include sales force salaries and benefits, commissions, travel costs and training. Sales commissions and expenses increased to 18.4% of total revenues for the three months
ended September 30, 2010 compared to 17.8% of total revenues for the same period in the prior year primarily due to an increase in sales headcount and an increase in sales commissions, partially offset by a reduction in incentive compensation
expense. We added additional sales employees during the fourth quarter of 2009 and the first half of 2010. Newly hired sales employees typically take nine months to achieve normal productivity. In addition, sales commissions are based on the
profitability of the account and gross profit improved during the three months ended September 30, 2010 as compared to the same period in the prior year.

Professional fees increased $433, or 79.3%, to $979 for the three months ended September 30, 2010 as compared to $546 for the same period in the prior year. As previously announced on June 9,
2010, a special committee of independent directors of the Board of Directors is evaluating indications of interest received from parties potentially interested in pursuing a strategic transaction with the Company and other strategic alternatives. We
incurred $467 in expenses related to this process during the three months ended September 30, 2010. There was no such expense during the three months ended September 30, 2009.

Member and restaurant marketing expenses increased $49 or 7.7% for the three months ended September 30, 2010 compared to the same
period in the prior year mainly as a result of the development and implementation of a new daily specials product in two metropolitan markets, found at www.idinedeals.com. This was partially offset by a reduction in other general marketing expenses.

Depreciation and amortization costs decreased $74 or 6.0% for the three months ended September 30, 2010 as compared to
the same period in the prior year as certain investments in technology supporting the automation of internal processes and general information technology investments became fully depreciated.

General and administrative expenses increased by $406 or 16.5% for the three months ended September 30, 2010 as compared to the same
period in the prior year primarily due to increased recruiting expenses from the increase in sales and administrative headcount, increased rent expense from the upgrade of our disaster recovery facility, increased telephone expense and an increase
in severance expense.

Other Income and Expense

There was no interest and other income recorded during the three months ended September 30, 2010 as compared to $7 in the same period in the prior year as we changed our bank account to a noninterest
bearing account to lower bank fees as the difference is more cost beneficial. Interest expense and financing costs increased $9 to $31 due to an increase in our line of credit fees.

Income tax provision

Our effective tax rate for the three months
ended September 30, 2010 was 57.9% compared with 35.7% for the same period in the prior year primarily due to the impact of a change in our annual election relating to foreign taxes. Based on our estimated foreign source income, we elected to
take a foreign tax deduction rather than a foreign tax credit as in the prior year period. In addition, the three months ended September 30, 2010 includes an adjustment relating to this change in election as a result of filing the 2009 tax
return.

Net income

Net income decreased $830 to $1,077 for the three months ended September 30, 2010 compared with $1,907 for the same period in the prior year primarily due to an increase in operating expenses and a
higher effective tax rate, partially offset by a decrease in the provision for losses.

Basic weighted average number of
shares outstanding increased to 8,953 for the three months ended September 30, 2010 compared to 8,764 for the same period in the prior year. Diluted weighted average shares outstanding increased to 9,057 for the three months ended
September 30, 2010 compared to 8,924 for the same period in the prior year. The increase in the basic and weighted average number of shares outstanding was due to the issuance of shares upon vesting of restricted stock unit awards, partially
offset by the repurchase of shares during 2010.



18



---

##### Table of Contents



RESULTS OF OPERATIONS 
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

The following table illustrates the relationship
between revenue and expense categories for the nine months ended September 30, 2010 and 2009. These percentages have been rounded to the nearest tenth.



|                                         |  |                                                              |       |  |      |  |       | 
|---------------------------------------- |  | ------------------------------------------------------------ | ----- |  | ---- |  | ----- | 
|                                         |  | Percentage of Revenuesfor the Nine Months EndedSeptember 30, |      
|                                         |  | 2010                                                         |       |  | 2009 | 
|Total revenues                           |  |                                                              | 100.0 |  |      |  | 100.0 | 
|Member benefits                          |  |                                                              | 28.5  |  |      |  | 27.0  | 
|Provision for losses                     |  |                                                              | 3.4   |  |      |  | 8.9   | 
|Processing fees                          |  |                                                              | 1.0   |  |      |  | 1.0   | 
|                                         |  |                                                              |       |  |      |  |       | 
|Gross profit                             |  |                                                              | 67.1  |  |      |  | 63.1  | 
|                                         |  |                                                             
|Salaries and benefits                    |  |                                                              | 17.5  |  |      |  | 17.5  | 
|Sales commission and expenses            |  |                                                              | 19.4  |  |      |  | 18.5  | 
|Professional fees                        |  |                                                              | 3.0   |  |      |  | 2.2   | 
|Member and restaurant marketing expenses |  |                                                              | 2.6   |  |      |  | 2.4   | 
|Depreciation and amortization            |  |                                                              | 4.5   |  |      |  | 5.0   | 
|General and administrative expenses      |  |                                                              | 10.8  |  |      |  | 9.9   | 
|                                         |  |                                                              |       |  |      |  |       | 
|Total operating expenses                 |  |                                                              | 57.8  |  |      |  | 55.5  | 
|                                         |  |                                                              |       |  |      |  |       | 
|Operating income                         |  |                                                              | 9.3   |  |      |  | 7.6   | 
|                                         |  |                                                             
|Other expense, net                       |  |                                                              | 0.1   |  |      |  | 0.1   | 
|                                         |  |                                                              |       |  |      |  |       | 
|                                         |  |                                                             
|Income before income tax provision       |  |                                                              | 9.2   |  |      |  | 7.5   | 
|                                         |  |                                                             
|Income tax provision                     |  |                                                              | 4.1   |  |      |  | 3.7   | 
|                                         |  |                                                              |       |  |      |  |       | 
|Net income                               |  |                                                              | 5.0   |  |      |  | 3.8   | 
|                                         |  |                                                              |       |  |      |  |       | 



19



---

##### Table of Contents



Operating Revenues

The following table sets forth for the periods presented total revenues, direct expenses and certain other information
for each of our two programs.



|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  
|---------------------------------------------------------------------------- |  | --------------------------------------- | ------- | - | ------------------------ | - | ------- | -------------- |  | - | ----- | - |  | ----------------------- | ------- | - | ------------------------ | - | ------- | -------------- |  | - | ------- | - |  | - | ----- | - |  | - | ------- | -
|                                                                             |  | For The Nine Months Ended September 30, |        
|                                                                             |  | 2010                                    |         |   | 2009                     |  
|                                                                             |  | MarketingCreditsProgram                 |         |   | MarketingServicesProgram |   |         | MembershipFees |  |   | Total |   |  | MarketingCreditsProgram |         |   | MarketingServicesProgram |   |         | MembershipFees |  |   | Total   |  
|Restaurant count as of September 30, 2010 and 2009, respectively             |  |                                         | 4,569   |   |                          |   | 6,152   |                |  |   |       |   |  |                         | 10,721  |   |                          |   | 4,920   |                |  |   | 5,201   |   |  |   |       |   |  |   | 10,121  |  
|Number of qualified transactions(1)                                          |  |                                         | 3,871   |   |                          |   | 4,814   |                |  |   |       |   |  |                         | 8,685   |   |                          |   | 4,205   |                |  |   | 3,476   |   |  |   |       |   |  |   | 7,681   |  
|Average transaction amount(1)                                                |  | $                                       | 44.99   |   |                          | $ | 45.90   |                |  |   |       |   |  | $                       | 45.49   |   |                          | $ | 43.72   |                |  | $ | 45.98   |   |  |   |       |   |  | $ | 44.74   |  
|                                                                             |  |                                         |         |   |                          |   |         |               
|Qualified transaction amount(1)                                              |  | $                                       | 174,157 |   |                          | $ | 220,967 |                |  |   |       |   |  | $                       | 395,124 |   |                          | $ | 183,857 |                |  | $ | 159,826 |   |  |   |       |   |  | $ | 343,683 |  
|Rewards Network percentage share of qualified transaction amount(1) (2)      |  |                                         | 70.5    | % |                          |   | 14.5    | %              |  |   |       |   |  |                         | 39.2    | % |                          |   | 74.8    | %              |  |   | 14.9    | % |  |   |       |   |  |   | 46.9    | %
|Rewards Network share of qualified transaction amount and membership
fees(1) |  | $                                       | 122,773 |   |                          | $ | 32,145  |                |  | $ | 754   |   |  | $                       | 155,672 |   |                          | $ | 137,547 |                |  | $ | 23,782  |   |  | $ | 804   |   |  | $ | 162,133 |  
|Redemption of dining credits(1)                                              |  | $                                       | 72,773  |   |                          | $ |        |                |  | $ |      |   |  | $                       | 72,773  |   |                          | $ | 81,018  |                |  | $ |        |   |  | $ |      |   |  | $ | 81,018  |  
|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  
|Total revenues                                                               |  | $                                       | 50,000  |   |                          | $ | 32,145  |                |  | $ | 754   |   |  | $                       | 82,899  |   |                          | $ | 56,529  |                |  | $ | 23,782  |   |  | $ | 804   |   |  | $ | 81,115  |  
|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  
|Revenue as a percentage of qualified transaction amount(1) (2)               |  |                                         | 28.7    | % |                          |   | 14.5    | %              |  |   |       |   |  |                         | 20.8    | % |                          |   | 30.7    | %              |  |   | 14.9    | % |  |   |       |   |  |   | 23.4    | %
|                                                                             |  |                                         |         |   |                          |   |         |               
|Member benefits                                                              |  | $                                       | 7,543   |   |                          | $ | 8,589   |                |  | $ |      |   |  | $                       | 16,132  |   |                          | $ | 8,569   |                |  | $ | 7,001   |   |  | $ |      |   |  | $ | 15,570  |  
|Bonus rewards                                                                |  | $                                       | 1,785   |   |                          | $ | 2,272   |                |  | $ |      |   |  | $                       | 4,057   |   |                          |   | 1,488   |                |  |   | 1,470   |   |  | $ |      |   |  |   | 2,958   |  
|Partner commissions                                                          |  | $                                       | 1,606   |   |                          | $ | 1,811   |                |  | $ |      |   |  | $                       | 3,417   |   |                          |   | 1,868   |                |  |   | 1,502   |   |  | $ |      |   |  |   | 3,370   |  
|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  
|Total member benefits                                                        |  | $                                       | 10,934  |   |                          | $ | 12,672  |                |  | $ |      |   |  | $                       | 23,606  |   |                          | $ | 11,925  |                |  | $ | 9,973   |   |  | $ |      |   |  | $ | 21,898  |  
|Provision for losses                                                         |  | $                                       | 2,851   |   |                          |   |        |                |  | $ |      |   |  | $                       | 2,851   |   |                          | $ | 7,249   |                |  | $ |        |   |  | $ |      |   |  | $ | 7,249   |  
|Processing fees                                                              |  | $                                       | 385     |   |                          | $ | 470     |                |  | $ |      |   |  | $                       | 855     |   |                          | $ | 417     |                |  | $ | 364     |   |  | $ |      |   |  | $ | 781     |  
|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  
|                                                                             |  |                                         |         |   |                          |   |         |               
|Gross profit                                                                 |  | $                                       | 35,830  |   |                          | $ | 19,003  |                |  | $ | 754   |   |  | $                       | 55,587  |   |                          | $ | 36,938  |                |  | $ | 13,445  |   |  | $ | 804   |   |  | $ | 51,187  |  
|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  
|Gross profit as a percentage of total revenues(1)                            |  |                                         | 71.7    | % |                          |   | 59.1    | %              |  |   | 100.0 | % |  |                         | 67.1    | % |                          |   | 65.3    | %              |  |   | 56.5    | % |  |   | 100.0 | % |  |   | 63.1    | %
|                                                                             |  |                                         |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |         |   |  |   |       |   |  |   |         |  



|(1) | Supplemental operating and statistical data. See the comparison of the three months ended September 30, 2010 and 2009 for a complete description.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Total percentages exclude membership fees.
|--- | ------------------------------------------

Ending restaurant count as of September 30, 2010 was 10,721 compared to 10,121 as of September 30, 2009, an increase of 5.9%. The increase in total restaurant count was driven by an 18.3%
increase in Marketing Services Program restaurants to 6,152 restaurants, partially offset by a 7.1% decrease in Marketing Credits Program restaurants to 4,569 restaurants.



20



---

##### Table of Contents



Qualified transaction
amount at our participating restaurants increased $51,441, or 15.0%, to $395,124 for the nine months ended September 30, 2010 compared to $343,683 for the same period in the prior year as a result of the increase in restaurant count, an
increase in the number of qualified transactions and an increase in average transaction amount. The number of qualified transactions increased 1,004 or 13.1% for the nine months ended September 30, 2010 compared to the same period in the prior
year. Average transaction amount increased by $0.75, or 1.7%, to $45.49 for the nine months ended September 30, 2010 from $44.74 in the prior year. We believe that the improvement in qualified transactions and average transaction amount is a
result of an improved consumer spending environment during the first half of 2010 and an increase in restaurant count as compared to the prior year. However, we remain cautious about the current conditions in the restaurant industry as we saw
average transaction amount decline during the third quarter of 2010.

Rewards Network percentage share of qualified
transaction amount decreased to 39.2% for the nine months ended September 30, 2010 compared to 46.9% for the same period in the prior year due to a higher proportion of restaurants participating in the Marketing Services Program as well as a
decrease in percentages of both programs. The Marketing Services Program percentage share of qualified transaction amount decreased to 14.5% for the nine months ended September 30, 2010 compared to 14.9% for the same period in the prior year as
we lowered the pricing of this product to accommodate the needs of restaurants in this difficult economic environment during 2009. The Marketing Credits Program percentage share of qualified transaction amount decreased to 70.5% during the nine
months ended September 30, 2010 compared to 74.8% for the same period in the prior year as we purchased dining credits at less of a discount.

Rewards Network share of qualified transaction amount and membership fees for nine months ended September 30, 2010 of $155,672 decreased 4.0% as compared with $162,133 for the same period in the
prior year, primarily due to a 10.7% decrease in Marketing Credits Program share of qualified transaction amount, partially offset by a 35.2% increase in the Marketing Services Program share of qualified transaction amount. Marketing Credits Program
share of qualified transaction amount decreased as a result of fewer Marketing Credits Program restaurants participating in our program, partially offset by an increase in average transaction amount. Membership fees decreased $50 due to a 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 membership program that eliminated fees
for certain members. We expect membership fees to decline as more members enroll in the no-fee program. Marketing Services Program share of qualified transaction amount increased as a result of a higher number of Marketing Services Program
restaurants and an increase in average transaction amount, partially offset by product price decreases.

Redemption of dining
credits as a percent of qualified transactions amount decreased to 46.7% of Rewards Network share of qualified transaction amount for the nine months ended September 30, 2010, compared to 50.0% for the same period in the prior year. The
decrease in redemption of dining credits compared to Rewards Network share of qualified transaction amount was due to a shift towards restaurants participating in the Marketing Services Program, which has no redemption of dining credits. Redemption
of dining credits as a percent of our share of Marketing Credits Program qualified transactions amount increased to 59.3% for the nine months ended September 30, 2010, compared to 58.9% for the same period in the prior year. The increase in
redemption of dining credits compared to Marketing Credits Program share of qualified transaction amount was due to lower prices on the Marketing Credits Program. We believe the reduction in risk and increase in usage period between periods
outweighs the decrease in price as evidenced by the decline in the provision for losses.

Total revenues increased $1,784 or
2.2% to $82,899 for the nine months ended September 30, 2010 compared to the same period in the prior year primarily as a result of an increase in the number of Marketing Services Program restaurants, an increase in qualified transaction amount
in the Marketing Services Program and an increase in average transaction amount, partially offset by a decline in the Marketing Credits Program restaurant count.

Revenues as a percentage of qualified transaction amount decreased to 20.8% for the nine months ended September 30, 2010 from 23.4% for the same period in the prior year. The decrease was primarily
due to a shift in mix towards our Marketing Services Program and fewer Marketing Credits Program restaurants participating in our program.

Member benefits expense increased to 28.5% of total revenues for the nine months ended September 30, 2010 compared with 27.0% of total revenues for the same period in the prior year. The increase in
member benefit expense as a percentage of total revenues was due to a shift towards Marketing Services Program revenues and additional member bonus expense. The Marketing Services Program has a higher member benefit expense as a percentage of
revenues. Member benefit expense for the Marketing Services Program as a percentage of Marketing Services Program revenues decreased to 39.4% for the nine months ended September 30, 2010 from 41.9% for the same period in the prior year. Member
benefit expense for the Marketing Credits Program as a percentage of Marketing Credits Program revenues also decreased to 21.9% for the nine months ended September 30, 2010 as compared with 21.1% for the same period in the prior year. As
previously discussed, we have leveraged our member incentives to influence enrollment, obtain more email addresses and completed surveys and increase dining frequency and spend.



21



---

##### Table of Contents



The provision for
losses expense decreased to $2,851 or 3.4% of total revenues and 5.7% of Marketing Credits Program revenues for the nine months ended September 30, 2010 compared with $7,249 or 8.9% of total revenues and 12.8% of Marketing Credits Program
revenues for the same period in the prior year. The decline in the provision for losses is a reflection of our continued disciplined management of the dining credits portfolio.

Processing fees increased to $855 or 1.0% of total revenues for the nine months ended September 30, 2010 from $781 or 1.0% of total
revenues for the same period in the prior year. The increase was primarily due to a shift towards Marketing Services Program revenues. Processing fees are driven by the number of credit card transactions at participating restaurants. Processing fees
as a percentage of qualified transaction amount remained consistent between periods at 0.2%.

Gross profit increased to 67.1%
of total revenues for the nine months ended September 30, 2010 as compared to 63.1% of total revenues for the same period in the prior year. The increase in gross profit as a percentage of total revenues was due to improved profitability
of our Marketing Services Program and a decrease in the provision for losses expense. Gross profit increased $4,400 or 8.6% to $55,587 for the nine months ended September 30, 2010 as compared to $51,187 for the same period in the prior year
mainly due to an increase in Marketing Services Program revenue and the reduction in loss provision expense.

Operating Expenses

Salaries and benefits increased $322 or 2.3% to $14,521 for the nine months ended September 30, 2010 from $14,199
for the same period in the prior year primarily due to an increase in stock compensation expense and an increase in headcount, partially offset by a decline in incentive compensation expense.

Sales commissions and expenses include sales force salaries and benefits, commissions, travel costs and training. Sales commissions and
expenses increased to 19.4% of total revenues for the nine months ended September 30, 2010 compared to 18.5% of total revenues for the same period in the prior year due to an increase in sales headcount and an increase in sales commissions,
partially offset by a decrease in incentive compensation expense. During the fourth quarter of 2009 through the first half of 2010 we hired additional sales account executives. Newly hired sales employees typically take nine months to achieve normal
productivity. In addition, sales commissions are based on the profitability of the account and revenues and gross profit improved during the nine months ended September 30, 2010 as compared to the same period in the prior year.

Professional fees increased $681, or 37.7%, to $2,487 for the nine months ended September 30, 2010 as compared to $1,806 for the
same period in the prior year, primarily due to $879 in expenses related to the process implemented by the Board of Directors for evaluating strategic alternatives as described above.

Member and restaurant marketing expenses increased by $259 or 13.5% for the nine months ended September 30, 2010 compared to the
same period in the prior year mainly as a result of increased marketing towards restaurants, increased web marketing and the development and testing of a new daily specials product in two metropolitan markets.

Depreciation and amortization costs decreased $361 or 8.9% for the nine months ended September 30, 2010 as compared to the same
period in the prior year as certain investments in technology supporting the automation of internal processes and general information technology investments became fully depreciated.

General and administrative expenses increased by $908 or 11.3% for the nine months ended September 30, 2010 as compared to the same
period in the prior year. The increase was primarily due to increased recruiting expenses and travel expense from the increase in headcount, increased rent expense from the upgrade of our disaster recovery facility and increased severance expense.

Other Income and Expense

Interest and other income decreased $16 to $1 for the nine months ended September 30, 2010 compared with the same period in the prior year as we changed our bank account to a noninterest bearing
account to lower bank fees as the difference is more cost beneficial. Interest expense and financing costs increased $11 to $93 due to an increase in our line of credit fees, partially offset by the amortization of the discounted cash flow recorded
during the nine months ended September 30, 2009 relating to the California class action lawsuit as discussed in our previously filed Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and some of the Current Reports on Form 8-K.

Income tax provision

Our effective tax rate for the nine months ended September 30, 2010 was 45.2% compared with 49.6% for the same period in the prior year. The income tax provision for the nine months ended
September 30, 2009 included a tax expense of $573, or $0.06 per share, relating to the distribution of employee and director stock awards. 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.



22



---

##### Table of Contents



Net income

Net income was $4,161 for the nine months ended September 30, 2010 compared to $3,074 for the nine months ended September 30,
2009. The increase in net income between periods was primarily due to an increase in gross profit in the Marketing Services Program and a reduction in the provision for losses expense, partially offset by an increase in operating expenses as we
invested in our sales force and sales force productivity tools, the development and implementation of the new daily specials product and we incurred expenses associated with the process implemented by the Board of Directors for evaluating strategic
alternatives.

Basic weighted average number of shares outstanding decreased to 8,913 for the nine months ended
September 30, 2010 compared to 8,941 for the same period in the prior year. Diluted weighted average shares outstanding decreased to 9,045 for the nine months ended September 30, 2010 compared to 9,119 for the same period in the prior
year. The decreases in the basic and diluted weighted average number of shares outstanding was due to the repurchase of shares during 2009 and the nine months ended September 30, 2010, partially offset by the issuance of shares upon vesting of
restricted stock unit awards.

LIQUIDITY AND CAPITAL RESOURCES

General

Cash and cash equivalents were $12,110 as of
September 30, 2010, a decrease of $555 from December 31, 2009. During the nine months ended September 30, 2010, net cash provided by operating activities was $2,540 compared to $24,396 during the same period in the prior year. Net
cash provided by operating activities during the nine months ended September 30, 2010 was primarily due to net income and noncash adjustments to reconcile net income to cash from operations, partially offset by an increase in dining credit
purchases. Net cash provided by operating activities during the nine months ended September 30, 2009 was primarily due to a decrease in the dining credits portfolio and net income. We implemented disciplined dining credits purchasing policies
in late 2007 and further tightened these policies in late 2008 and early 2009, which contributed to the level of cash generated from the dining credits portfolio during the nine month ended September 30, 2009. During the last several quarters
we increased dining credits purchases with restaurants that we believe have less risk and on restaurants that have established performance histories with us. We utilized cash from operations for the dining credits purchases during the nine months
ended September 30, 2010. We continue to monitor patterns in consumer spending and economic and credit conditions in the restaurant industry and adjust our dining credits purchasing polices accordingly. We intend to continue to utilize our cash
by purchasing dining credits while adhering to our purchasing and credit policies.

Net cash used in investing activities was
$3,614 and $2,275 for the nine months ended September 30, 2010 and 2009, 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. We intend to continue investing in capital expenditures to support member and merchant marketing, customer feedback through
member comments and ratings, to ensure ongoing data security and privacy, and to improve our internal processes and operating efficiency.

Net cash provided by financing activities for the nine months ended September 30, 2010 was $448 due to the tax benefit from the issuance of stock awards of $591 and exercise of stock options of $10,
partially offset by the purchase of a portion of our common stock of $153 at an average price of $10.47 per share. As discussed in Note 8 of this Quarterly Report on Form 10-Q, the tax benefit from the issuance of stock awards was due to the APIC
Pool established during the nine months ended September 30, 2010 relating to the excess tax benefits from employee and director stock awards. Net cash used in financing activities for the nine months ended September 30, 2009 was $4,138 due
to the repurchase of a portion of our common stock at an average price of $9.33 per share. As announced on April 22, 2009, the Board of Directors authorized the repurchase of up to $5,000 of common stock pursuant to 10b5-1 trading plans or
other available means. The 10b5-1 trading plan under which these purchases were made was terminated on June 9, 2010.



23



---

##### Table of Contents



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 September 30, 2010:



|                                        |  |                        |        |  |                         |   |       |      |  |   |       |  |  |      |     |  |            |   |     |  |  |   |   | 
|--------------------------------------- |  | ---------------------- | ------ |  | ----------------------- | - | ----- | ---- |  | - | ----- |  |  | ---- | --- |  | ---------- | - | --- |  |  | - | - | 
|                                        |  | Payments Due by Period |       
|Contractual Obligations and Commitments |  | Total                  |        |  | RemainingQuarter of2010 |   |       | 2011 |  |   | 2012  |  |  | 2013 |     |  | Thereafter |  
|Vendor contracts                        |  | $                      | 11,075 |  |                         | $ | 4,585 |      |  | $ | 5,950 |  |  | $    | 360 |  |            | $ | 180 |  |  | $ |  | 
|Operating leases                        |  |                        | 2,186  |  |                         |   | 355   |      |  |   | 1,031 |  |  |      | 564 |  |            |   | 236 |  |  |   |  | 
|Revolving credit facility               |  |                        | 109    |  |                         |   | 31    |      |  |   | 78    |  |  |      |    |  |            |   |    |  |  |   |  | 
|                                        |  |                        |        |  |                         |   |       |      |  |   |       |  |  |      |     |  |            |   |     |  |  |   |   | 
|Total                                   |  | $                      | 13,370 |  |                         | $ | 4,971 |      |  | $ | 7,059 |  |  | $    | 924 |  |            | $ | 416 |  |  | $ |  | 
|                                        |  |                        |        |  |                         |   |       |      |  |   |       |  |  |      |     |  |            |   |     |  |  |   |   | 

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 revise the facilitys unused line fees. The facility was amended a third time on October 5, 2009 to permit certain distributions, including issuing a cash dividend to stockholders, provided that certain
conditions are met. 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.

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 September 30, 2010, $24,394 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 September 30, 2010.

Dining Credits

Net dining credits less accounts payable-dining credits was $61,701 at September 30, 2010, an increase of $9,000 from
December 31, 2009. Accounts payable-dining credits represent the unfunded portion of the total commitments. The increase between periods in dining credits funded is due primarily to an increase in the purchases of dining credits, a decline in
the allowance for doubtful accounts and a decline in the accounts payable-dining credits. As previously discussed, based on our analysis of the performance of individual merchants in our dining credits portfolio, we adjusted our dining credits
purchasing policies in the first half of 2009 and again in the first half of 2010 to increase the amount of dining credits we purchase from restaurants that meet certain credit guidelines relating to risk, sales volume and length of time in our
program and as a result we have seen an increase in our net dining credits balance. In addition, as a result of our disciplined management of our dining credits portfolio, our allowance for unredeemable dining credits has decreased since year end.
As we identify merchants that meet our credit guidelines, we have 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.



24



---

##### Table of Contents



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 September 30, 2010, 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 as such term is defined under Rule
13(a)-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). 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.



25



---

##### Table of Contents



PART
IIOTHER INFORMATION

Item 6. Exhibits



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|2.1         |  | Agreement and Plan of Merger, dated as of October 28, 2010, by and among Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. is incorporated herein by
reference to Exhibit 2.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on October 28, 2010.                                                                                                                       
|            | 
|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        |  | Form of Change in Control Bonus Letter Agreement 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 August 18, 2010.                                                                                                                                                                                                                                
|            | 
|10.2        |  | Change in Control Bonus Letter Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke 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 August 18, 2010.                                                                                                                                                          
|            | 
|10.3        |  | Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated February 19, 2008 is incorporated herein by reference to Exhibit 10.3 to
Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.                                                                                                                                                              
|            | 
|10.4        |  | Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated March 31, 2009 is incorporated herein by reference to Exhibit 10.4 to Rewards
Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.                                                                                                                                                                 
|            | 
|10.5        |  | Amendment No. 2 to the Rewards Network Inc. 2006 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.5 to Rewards Network Inc.s Current Report on Form
8-K (File No. 001-13806), filed on August 18, 2010.                                                                                                                                                                                                       
|            | 
|10.6        |  | Form of Director Indemnification Agreement is incorporated herein by reference to Exhibit 10.6 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed
on August 18, 2010.                                                                                                                                                                                                                                      
|            | 
|10.7*       |  | Amendment No. 1 to the Rewards Network Inc. 2010 Incentive Compensation Plan.                                                                                                                                                                                                                                                                                                                                                            
|            | 
|10.8*       |  | Amendment No. 3 to the Rewards Network Inc. 2006 Non-Employee Director Awards Program.                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.9*       |  | Amendment No. 2 to Employment Agreement, dated August 16, 2010, between Rewards Network Inc. and Ronald L. Blake.                                                                                                                                                                                                                                                                                                                        



26



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.10*      |  | Amendment No. 2 to Offer Letter, dated August 16, 2010, between Rewards Network Inc. and Roya Behnia.                                                                                                                                                                                                                                                                                                                                             
|            | 
|10.11*      |  | Amendment No. 2 to Severance Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke.                                                                                                                                                                                                                                                                                                                             
|            | 
|10.12*      |  | Amendment No. 2 to Severance, Proprietary Interest Protection and Non-Solicitation Agreement, dated August 16, 2010, between Rewards Network Inc. and Megan E.
Flynn.                                                                                                                                                                                                                                                                             
|            | 
|10.13*      |  | Offer Letter, dated August 15, 2010, between Rewards Network Inc. and Andre L. Zardini.                                                                                                                                                                                                                                                                                                                                                           
|            | 
|10.14*      |  | Second Amendment to Agreement, dated as of October 1, 2010, by and between Rewards Network Services LLC and American Express Travel Related Services Company, Inc. Portions of this
exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.                                                                                                                  
|            | 
|10.15       |  | Tender and Support Agreement, dated as of October 28, 2010, by and among Samstock, L.L.C., EGI-Fund (00) Investors, L.L.C., EGI-Fund (05-07) Investors, L.L.C., and EGI-Fund (08-10)
Investors, L.L.C., Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. 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 October
28, 2010.
|            | 
|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
|- | --------------



27



---

##### 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.                                                                                                                
|                 | 
|November 4, 2010 |  | /S/    CHRISTOPHER J.
LOCKE                                                                                                         
|                 |  | Christopher J. Locke Senior Vice President and Chief Financial Officer
(Principal Financial Officer and on behalf of the registrant)



28



---

##### Table of Contents



Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|2.1         |  | Agreement and Plan of Merger, dated as of October 28, 2010, by and among Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. is incorporated herein by
reference to Exhibit 2.1 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on October 28, 2010.                                                                                                                       
|            | 
|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        |  | Form of Change in Control Bonus Letter Agreement 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 August 18, 2010.                                                                                                                                                                                                                                
|            | 
|10.2        |  | Change in Control Bonus Letter Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke 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 August 18, 2010.                                                                                                                                                          
|            | 
|10.3        |  | Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated February 19, 2008 is incorporated herein by reference to Exhibit 10.3 to
Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.                                                                                                                                                              
|            | 
|10.4        |  | Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated March 31, 2009 is incorporated herein by reference to Exhibit 10.4 to Rewards
Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.                                                                                                                                                                 
|            | 
|10.5        |  | Amendment No. 2 to the Rewards Network Inc. 2006 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.5 to Rewards Network Inc.s Current Report on Form
8-K (File No. 001-13806), filed on August 18, 2010.                                                                                                                                                                                                       
|            | 
|10.6        |  | Form of Director Indemnification Agreement is incorporated herein by reference to Exhibit 10.6 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806), filed
on August 18, 2010.                                                                                                                                                                                                                                      
|            | 
|10.7*       |  | Amendment No. 1 to the Rewards Network Inc. 2010 Incentive Compensation Plan.                                                                                                                                                                                                                                                                                                                                                            
|            | 
|10.8*       |  | Amendment No. 3 to the Rewards Network Inc. 2006 Non-Employee Director Awards Program.                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.9*       |  | Amendment No. 2 to Employment Agreement, dated August 16, 2010, between Rewards Network Inc. and Ronald L. Blake.                                                                                                                                                                                                                                                                                                                        
|            | 
|10.10*      |  | Amendment No. 2 to Offer Letter, dated August 16, 2010, between Rewards Network Inc. and Roya Behnia.                                                                                                                                                                                                                                                                                                                                    



29



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.11*      |  | Amendment No. 2 to Severance Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke.                                                                                                                                                                                                                                                                                                                             
|            | 
|10.12*      |  | Amendment No. 2 to Severance, Proprietary Interest Protection and Non-Solicitation Agreement, dated August 16, 2010, between Rewards Network Inc. and Megan E.
Flynn.                                                                                                                                                                                                                                                                             
|            | 
|10.13*      |  | Offer Letter, dated August 15, 2010, between Rewards Network Inc. and Andre L. Zardini.                                                                                                                                                                                                                                                                                                                                                           
|            | 
|10.14*      |  | Second Amendment to Agreement, dated as of October 1, 2010, by and between Rewards Network Services LLC and American Express Travel Related Services Company, Inc. Portions of this
exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.                                                                                                                  
|            | 
|10.15       |  | Tender and Support Agreement, dated as of October 28, 2010, by and among Samstock, L.L.C., EGI-Fund (00) Investors, L.L.C., EGI-Fund (05-07) Investors, L.L.C., and EGI-Fund (08-10)
Investors, L.L.C., Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. 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 October
28, 2010.
|            | 
|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                                                                                                                                                                                                                                                                                                                                                                                             



30