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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended June 30, 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 August 3, 2010, there were 8,808,094 shares of the registrants common stock, par value $0.02 per share,
outstanding.









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INDEX

REWARDS NETWORK INC. AND SUBSIDIARIES



|                              |  |                                                                                                               |  |         
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                               |  | Page No.
|PART I. FINANCIAL INFORMATION |  |                                                                                                              
|                              |  |                                                                                                              
|Item 1.                       |  | Financial Statements:                                                                                         |  |         
|                              |  |                                                                                                              
|                              |  | Condensed Consolidated Balance SheetsJune 30, 2010 (unaudited) and December 31,
2009                         |  | 3       
|                              |  |                                                                                                              
|                              |  | Condensed Consolidated Statements of OperationsThree and six months ended June 30, 2010 and 2009 (unaudited) |  | 4       
|                              |  |                                                                                                              
|                              |  | Condensed Consolidated Statements of Cash FlowsThree and six months ended June 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 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                   |  | 26      
|                              |  |                                                                                                              
|Item 6.                       |  | Exhibits                                                                                                      |  | 27      
|                              |  |                                                                                                              
|SIGNATURES                    |  |                                                                                                               |  | 28      



2



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REWARDS NETWORK INC. AND SUBSIDIARIES

PART IFINANCIAL INFORMATION

Item 1  Financial Statements

Condensed Consolidated Balance Sheets

(in thousands, except per share data)



|                                                                                                                                         |  |              |         |   |                  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                         |  | June 30,2010 |         |   | December 31,2009 |  
|                                                                                                                                         |  | (Unaudited)  |         |   |                  |  
|Assets                                                                                                                                   |  |              |         |   |                  |   |         |  
|Current assets:                                                                                                                          |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                |  | $            | 12,308  |   |                  | $ | 12,665  |  
|Accounts receivable, net of allowance for doubtful accounts of $1,304 and $1,773, respectively                                           |  |              | 4,167   |   |                  |   | 5,011   |  
|Dining credits, net of allowance for unredeemable dining credits of $9,708, and $11,448, respectively                                    |  |              | 59,359  |   |                  |   | 57,299  |  
|Deferred income taxes                                                                                                                    |  |              | 3,784   |   |                  |   | 5,152   |  
|Prepaid expenses                                                                                                                         |  |              | 2,125   |   |                  |   | 1,573   |  
|Income taxes receivable                                                                                                                  |  |              | 4,939   |   |                  |   | 3,913   |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                     |  |              | 86,682  |   |                  |   | 85,613  |  
|Property and equipment, net of accumulated depreciation and amortization of $26,972 and $24,440, respectively                            |  |              | 8,560   |   |                  |   | 8,231   |  
|Other assets                                                                                                                             |  |              | 362     |   |                  |   | 282     |  
|Goodwill                                                                                                                                 |  |              | 8,117   |   |                  |   | 8,117   |  
|Deferred income taxes                                                                                                                    |  |              | 380     |   |                  |   | 597     |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                             |  | $            | 104,101 |   |                  | $ | 102,840 |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Liabilities and Stockholders Equity                                                                                                     |  |              |         |   |                  |   |         |  
|Current liabilities:                                                                                                                     |  |              |         |   |                  |   |         |  
|Accounts payabledining credits                                                                                                          |  | $            | 3,058   |   |                  | $ | 4,598   |  
|Accounts payablemember benefits                                                                                                         |  |              | 5,873   |   |                  |   | 6,171   |  
|Accounts payabletrade                                                                                                                   |  |              | 1,396   |   |                  |   | 1,079   |  
|Accrued compensation                                                                                                                     |  |              | 2,289   |   |                  |   | 3,470   |  
|Other current liabilities                                                                                                                |  |              | 2,525   |   |                  |   | 2,139   |  
|Deferred membership fee income                                                                                                           |  |              | 363     |   |                  |   | 432     |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                                                        |  |              | 15,504  |   |                  |   | 17,889  |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                    |  |              |         |   |                  |   |         |  
|Common stock, par value $0.02 per share; authorized 25,000 shares; issued 9,149 shares; outstanding 8,807 and 8,673 shares,
respectively |  |              | 183     |   |                  |   | 183     |  
|Additional paid-in capital                                                                                                               |  |              | 68,541  |   |                  |   | 69,280  |  
|Accumulated other comprehensive income:                                                                                                  |  |              |         |   |                  |   |         |  
|Foreign currency translation, net of income taxes                                                                                        |  |              | 439     |   |                  |   | 440     |  
|Retained earnings                                                                                                                        |  |              | 22,630  |   |                  |   | 19,546  |  
|Treasury stock, at cost (342 and 476 shares, respectively)                                                                               |  |              | (3,196  | ) |                  |   | (4,498  | )
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                               |  |              | 88,597  |   |                  |   | 84,951  |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                               |  | $            | 104,101 |   |                  | $ | 102,840 |  
|                                                                                                                                         |  |              |         |   |                  |   |         |  

See accompanying notes to unaudited condensed consolidated financial statements.



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REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)



|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                         |  | Three Months EndedJune 30, |        |   | Six Months EndedJune 30, |  
|                                                                                         |  | 2010                       |        |   | 2009                     |   |        | 2010 |  |   | 2009   |  
|Operating revenues:                                                                      |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Revenues (gross amounts billed of $54,026, $54,555, $104,053 and $108,545, respectively) |  | $                          | 28,639 |   |                          | $ | 27,276 |      |  | $ | 54,799 |   |  | $ | 52,788 |  
|Membership fees                                                                          |  |                            | 252    |   |                          |   | 278    |      |  |   | 515    |   |  |   | 543    |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total revenues                                                                           |  |                            | 28,891 |   |                          |   | 27,554 |      |  |   | 55,314 |   |  |   | 53,331 |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Direct expenses:                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Member benefits                                                                          |  |                            | 8,415  |   |                          |   | 7,880  |      |  |   | 15,175 |   |  |   | 13,734 |  
|Provision for losses                                                                     |  |                            | 990    |   |                          |   | 2,011  |      |  |   | 1,777  |   |  |   | 5,438  |  
|Processing fees                                                                          |  |                            | 303    |   |                          |   | 287    |      |  |   | 568    |   |  |   | 504    |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total direct expenses                                                                    |  |                            | 9,708  |   |                          |   | 10,178 |      |  |   | 17,520 |   |  |   | 19,676 |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Gross profit                                                                             |  |                            | 19,183 |   |                          |   | 17,376 |      |  |   | 37,794 |   |  |   | 33,655 |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Operating expenses:                                                                      |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Salaries and benefits                                                                    |  |                            | 5,014  |   |                          |   | 4,733  |      |  |   | 10,083 |   |  |   | 9,450  |  
|Sales commissions and expenses                                                           |  |                            | 5,364  |   |                          |   | 4,981  |      |  |   | 11,016 |   |  |   | 10,093 |  
|Professional fees                                                                        |  |                            | 921    |   |                          |   | 662    |      |  |   | 1,508  |   |  |   | 1,260  |  
|Member and restaurant marketing                                                          |  |                            | 797    |   |                          |   | 599    |      |  |   | 1,485  |   |  |   | 1,275  |  
|Depreciation and amortization                                                            |  |                            | 1,228  |   |                          |   | 1,315  |      |  |   | 2,531  |   |  |   | 2,818  |  
|General and administrative                                                               |  |                            | 3,331  |   |                          |   | 2,799  |      |  |   | 6,072  |   |  |   | 5,570  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Total operating expenses                                                                 |  |                            | 16,655 |   |                          |   | 15,089 |      |  |   | 32,695 |   |  |   | 30,466 |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Operating income                                                                         |  |                            | 2,528  |   |                          |   | 2,287  |      |  |   | 5,099  |   |  |   | 3,189  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Other income (expense):                                                                  |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Interest and other income                                                                |  |                            |       |   |                          |   | 5      |      |  |   | 1      |   |  |   | 10     |  
|Interest expense and financing costs                                                     |  |                            | (30    | ) |                          |   | (20    | )    |  |   | (62    | ) |  |   | (60    | )
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Income before income tax provision                                                       |  |                            | 2,498  |   |                          |   | 2,272  |      |  |   | 5,038  |   |  |   | 3,139  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Income tax provision                                                                     |  |                            | 941    |   |                          |   | 992    |      |  |   | 1,954  |   |  |   | 1,972  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Net income                                                                               |  | $                          | 1,557  |   |                          | $ | 1,280  |      |  | $ | 3,084  |   |  | $ | 1,167  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Earnings per share of common stock:                                                      |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                    |  | $                          | 0.17   |   |                          | $ | 0.14   |      |  | $ | 0.35   |   |  | $ | 0.13   |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                  |  | $                          | 0.17   |   |                          | $ | 0.14   |      |  | $ | 0.34   |   |  | $ | 0.13   |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|                                                                                         |  |                            |        |  
|Weighted average number of common and common equivalent shares outstanding:              |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                    |  |                            | 8,946  |   |                          |   | 8,912  |      |  |   | 8,893  |   |  |   | 9,033  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                                                  |  |                            | 9,107  |   |                          |   | 8,948  |      |  |   | 9,055  |   |  |   | 9,094  |  
|                                                                                         |  |                            |        |   |                          |   |        |      |  |   |        |   |  |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)



|                                                                                  |  |                          |        |   |      |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                                                                                  |  | Six Months EndedJune 30, |       
|                                                                                  |  | (Unaudited)              |       
|                                                                                  |  | 2010                     |        |   | 2009 |  
|Cash flows from operating activities:                                             |  |                          |        |   |      |   |        |  
|Net income                                                                        |  | $                        | 3,084  |   |      | $ | 1,167  |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |        |   |      |   |        |  
|Depreciation and amortization                                                     |  |                          | 2,531  |   |      |   | 2,818  |  
|Provision for losses                                                              |  |                          | 1,777  |   |      |   | 5,438  |  
|Stock-based compensation                                                          |  |                          | 1,333  |   |      |   | 804    |  
|Deferred income taxes                                                             |  |                          | 1,586  |   |      |   | 4,206  |  
|                                                                                  |  |                         
|Changes in assets and liabilities:                                                |  |                          |        |   |      |   |        |  
|Accounts receivable                                                               |  |                          | 562    |   |      |   | 471    |  
|Dining credits including accounts payabledining credits                          |  |                          | (5,096 | ) |      |   | 13,605 |  
|Prepaid expenses                                                                  |  |                          | (552   | ) |      |   | (393   | )
|Income taxes receivable                                                           |  |                          | (1,027 | ) |      |   | (3,547 | )
|Other assets                                                                      |  |                          | (80    | ) |      |   | 125    |  
|Accounts payablemember benefits                                                  |  |                          | (298   | ) |      |   | (1,271 | )
|Accounts payabletrade                                                            |  |                          | (787   | ) |      |   | 29     |  
|Accrued compensation                                                              |  |                          | (1,180 | ) |      |   | (1,999 | )
|Other liabilities                                                                 |  |                          | 291    |   |      |   | (279   | )
|Litigation and related accruals                                                   |  |                          |       |   |      |   | (3,164 | )
|Deferred membership fee income                                                    |  |                          | (69    | ) |      |   | (93    | )
|                                                                                  |  |                          |        |   |      |   |        |  
|Net cash provided by operating activities                                         |  |                          | 2,075  |   |      |   | 17,917 |  
|                                                                                  |  |                          |        |   |      |   |        |  
|                                                                                  |  |                         
|Cash flows from investing activities:                                             |  |                          |        |   |      |   |        |  
|Additions to property and equipment                                               |  |                          | (2,861 | ) |      |   | (1,506 | )
|                                                                                  |  |                          |        |   |      |   |        |  
|Net cash used in investing activities                                             |  |                          | (2,861 | ) |      |   | (1,506 | )
|                                                                                  |  |                          |        |   |      |   |        |  
|                                                                                  |  |                         
|Cash flows from financing activities:                                             |  |                          |        |   |      |   |        |  
|Common stock repurchased                                                          |  |                          | (153   | ) |      |   | (4,138 | )
|Proceeds from the exercise of stock options                                       |  |                          | 10     |   |      |   |       |  
|Tax benefit from the issuance of stock awards and exercise of stock options       |  |                          | 572    |   |      |   |       |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Net cash provided by (used in) financing activities                               |  |                          | 429    |   |      |   | (4,138 | )
|                                                                                  |  |                          |        |   |      |   |        |  
|                                                                                  |  |                         
|Effect of exchange rate on cash and cash equivalents                              |  |                          |       |   |      |   | (267   | )
|                                                                                  |  |                          |        |   |      |   |        |  
|Net (decrease) increase in cash and cash equivalents                              |  |                          | (357   | ) |      |   | 12,006 |  
|                                                                                  |  |                         
|Cash and cash equivalents:                                                        |  |                          |        |   |      |   |        |  
|Beginning of the period                                                           |  |                          | 12,665 |   |      |   | 9,008  |  
|                                                                                  |  |                          |        |   |      |   |        |  
|End of the period                                                                 |  | $                        | 12,308 |   |      | $ | 21,014 |  
|                                                                                  |  |                          |        |   |      |   |        |  
|                                                                                  |  |                         
|Supplemental disclosures of cash flow information:                                |  |                          |        |   |      |   |        |  
|Cash paid during the period for:                                                  |  |                          |        |   |      |   |        |  
|Interest                                                                          |  | $                        |       |   |      | $ |       |  
|                                                                                  |  |                          |        |   |      |   |        |  
|Income taxes                                                                      |  | $                        | 825    |   |      | $ | 1,667  |  
|                                                                                  |  |                          |        |   |      |   |        |  

See accompanying notes to unaudited condensed consolidated financial statements.



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REWARDS NETWORK INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

(amounts in thousands, except per share data)

Note 1  Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these interim financial statements in
conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments that are of a normal recurring nature necessary to fairly present the unaudited condensed consolidated financial
position of Rewards Network Inc. and its subsidiaries (collectively, the Company) at June 30, 2010, the unaudited condensed consolidated statements of operations of the Company for the three and six months ended June 30, 2010
and 2009 and the unaudited condensed consolidated statements of cash flows of the Company for the six months ended June 30, 2010 and 2009 have been made. Operating results for the three and six months ended June 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. In addition to these two programs, the Company is currently developing additional marketing services products to serve the restaurant industry. For example, the
Company recently launched a daily specials product, offering 50% off or more on dines in two metropolitan markets, found at www.idinedeals.com.

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.



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

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

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 $141 and $137 for the three months ended June 30, 2010 and 2009, respectively and $282 and $275 for the six months ended June 30, 2010 and 2009, respectively, under this agreement.

The Company has entered into two storage space lease agreements with Equity Office Properties Management Corp., the agent for Two North
Riverside Plaza Joint Venture Limited Partnership, one dated November 2, 2005 and one dated October 27, 2006. The leases provide for an aggregate of 1,171 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 and $8 for each of the three months ended June 30, 2010 and 2009, respectively and $9 and $16 for the six months ended June 30, 2010 and 2009, respectively.

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



|                               |  |   |    
|------------------------------ |  | - | ---
|Remaining two quarters of 2010 |  | $ | 287
|Year ending December 31, 2011  |  |   | 386
|Thereafter                     |  |   |   
|                               |  |   |    
|Total minimum lease payments   |  | $ | 673
|                               |  |   |    

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. There were no shares excluded from the weighted average number of common stock equivalents for any of the periods presented.

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



|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|------------------------------------------------------------------------------------------ |  | -------------------------- | ----- | ------------------------ | - | ----- |  | ---- | ----- |  | - | -----
|                                                                                           |  | Three Months EndedJune 30, |       | Six Months EndedJune 30,
|                                                                                           |  | 2010                       |       | 2009                     |   | 2010  |  | 2009
|Net income                                                                                 |  | $                          | 1,557 |                          | $ | 1,280 |  | $    | 3,084 |  | $ | 1,167
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|Weighted average number of shares of common stock and common stock equivalents outstanding |  |                            |       |                          |   |       |  |      |       |  |   |      
|Basic                                                                                      |  |                            | 8,946 |                          |   | 8,912 |  |      | 8,893 |  |   | 9,033
|Stock options and restricted stock                                                         |  |                            | 161   |                          |   | 36    |  |      | 162   |  |   | 61   
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|Diluted                                                                                    |  |                            | 9,107 |                          |   | 8,948 |  |      | 9,055 |  |   | 9,094
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|Earnings per share                                                                         |  |                            |       |                          |   |       |  |      |       |  |   |      
|Basic                                                                                      |  | $                          | 0.17  |                          | $ | 0.14  |  | $    | 0.35  |  | $ | 0.13 
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      
|Diluted                                                                                    |  | $                          | 0.17  |                          | $ | 0.14  |  | $    | 0.34  |  | $ | 0.13 
|                                                                                           |  |                            |       |                          |   |       |  |      |       |  |   |      



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Note 4  Business and Credit Concentrations

As of June 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 six months ended June 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 six months ended
June 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 six months ended June 30, 2009. The following table
illustrates the Companys partner revenues concentration as a percentage of total revenues.



|                                                      |  |                            |   |  |                           |   |  |      |   |  |      |  
|----------------------------------------------------- |  | -------------------------- | - |  | ------------------------- | - |  | ---- | - |  | ---- | -
|                                                      |  | Three Months EndedJune 30, |   |  | Six Months EndedJune 
30, |  
|                                                      |  | 2010                       |   |  | 2009                      |   |  | 2010 |   |  | 2009 |  
|Airlines                                              |  | 59.9                       | % |  | 59.0                      | % |  | 59.6 | % |  | 58.7 | %
|                                                      |  |                            |   | 
|All partners that each represent 10% or more of sales |  | 66.0                       | % |  | 58.5                      | % |  | 65.6 | % |  | 59.0 | %

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. The Company has minimum purchase obligations with these partners and vendors as follows:



|                                             |  |   |       
|-------------------------------------------- |  | - | ------
|Remaining two quarters of 2010               |  | $ | 9,024 
|2011                                         |  |   | 5,950 
|2012                                         |  |   | 360   
|2013                                         |  |   | 180   
|Thereafter                                   |  |   |      
|                                             |  |   |       
|Total minimum partner and vendor obligations |  | $ | 15,514
|                                             |  |   |       

Note 6  Comprehensive Income

The Companys comprehensive income was as follows:



|                                        |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|--------------------------------------- |  | --------------------------- | ----- | - | ------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                        |  | Three Months EndedJune 
30, |       |   | Six Months
EndedJune 30, |  
|                                        |  | 2010                        |       |   | 2009                     |   |       | 2010 |  |   | 2009  |  
|Net income                              |  | $                           | 1,557 |   |                          | $ | 1,280 |      |  | $ | 3,084 |   |  | $ | 1,167 |  
|Other comprehensive loss:               |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Foreign currency translation adjustment |  |                             | (142  | ) |                          |   | (162  | )    |  |   | (1    | ) |  |   | (198  | )
|                                        |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  
|Total comprehensive income              |  | $                           | 1,415 |   |                          | $ | 1,118 |      |  | $ | 3,083 |   |  | $ | 969   |  
|                                        |  |                             |       |   |                          |   |       |      |  |   |       |   |  |   |       |  

Note 7  Cash and Cash Equivalents

Cash and cash equivalents of $12,308 and $12,665 at June 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 six months ended
June 30, 2010.



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|                               |  |        |   |  |                                     |      
|------------------------------ |  | ------ | - |  | ----------------------------------- | -----
|                               |  | Shares |   |  | WeightedAverageGrant-DateFair Price
|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 June 30, 2010     |  | 266    |   |  | $                                   | 12.51
|                               |  |        |   |  |                                     |      

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 June 30, 2010, approximately $1,476 of total unrecognized compensation costs related to restricted stock unit awards are expected to be recognized over the
weighted-average period of approximately 14 months. The Company recorded $679 and $1,228 of stock compensation expense during the three and six months ended June 30, 2010, respectively and $623 and $761 of stock compensation expense during the
three and six months ended June 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 $570 during the six months ended June 30, 2010 and used $8 during the three months ended June 30, 2010.
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 six month ended June 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 are 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  Indications of Interest

On June 9, 2010 the Company announced that it has received non-binding indications of interest from parties potentially interested in
pursuing a strategic transaction with the Company. A special committee of independent directors of the Board of Directors of the Company is evaluating these indications of interest and other strategic alternatives. The special committee has engaged
advisors and counsel to assist in evaluating the indications of interest received to date and to pursue a broader exploration of strategic alternatives in an effort to enhance shareholder value.



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|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. Furthermore, in the second quarter we developed our own daily specials product, which we launched in July, offering 50% off or more
on dines in two metropolitan markets, found at www.idinedeals.com.

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.



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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 two 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 June 30, 2010, we increased the number of Marketing
Services Program restaurants by 1,075, or 22.1% as compared to June 30, 2009. During the same period, we increased our active member base by 8.2%, increased the average spend per member by 8.6%, increased the number of completed surveys by
83.3% and increased the number of email addressable members by 8.0%. 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. In addition to these two programs, the Company is developing additional marketing services products to serve the restaurant industry.

The improvements in our marketing efforts have contributed to the consistent growth in our Marketing Services Program. Marketing Services
Program revenues for the three months ended June 30, 2010 were 39.4% higher than in the same period in the prior year. Total revenues increased 4.9% for the three months ended June 30, 2010 compared to the same period in the prior year due
to a $3,159 increase in revenues in the Marketing Services Program. 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. In the second quarter of 2010, Marketing Credits Program revenues declined 9.3% as compared to the same period in the prior year, reflecting the fact that we purchased fewer dining credits under the more conservative dining
credits purchasing policies that we adopted during mid-2008 in light of the significant economic challenges and the credit uncertainty facing both the restaurant industry and consumers. These more conservative policies were aimed at scrutinizing the
quality and reducing the amount of dining credits we purchased from individual restaurants and the estimated months to consume the dining credits purchased, which we refer to as the usage period. These policies resulted in fewer restaurants
participating in the Marketing Credits Program and a smaller dining credits balance through mid-2009.

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 current period. 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 $59,359 as of June 30, 2010 from $57,299 as of December 31, 2009 and $56,618 as of June 30, 2009. The number of Marketing Credits Program restaurants
decreased by 731, or 13.7%, as of June 30, 2010 from June 30, 2009, despite the increase in the net dining credits balance. The composition of our dining credits portfolio has changed over time as dining credits that we purchased under
previous purchasing policies are consumed and replaced by dining credits purchased under our more conservative policies. 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 expect to continue to grow the dining credits portfolio but dining credits purchases
must continue to meet our disciplined purchasing policies. 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.



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Operating expenses during the first half of 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 our investment in our sales force and the development and implementation of a new daily specials product in two metropolitan markets. We added
additional sales account executives in the fourth quarter of 2009 and the first half of 2010 and invested in sales force productivity tools in an effort to increase restaurant count and revenues in both of our products. While we see the current
environment as challenging, we also see an opportunity to continue to add more restaurants to our programs. We increased the total number of restaurants in our program to 10,541 at June 30, 2010, as compared to 10,197 at June 30, 2009. We
believe that the increase in restaurants is an indicator of our improved marketing and improved sales force productivity, driven in part by the maturity of our sales force as well as the contributions from the new sales account executives hired in
the fourth quarter of 2009. In addition, we incurred approximately $300 million and $400 million for the three and six months ended June 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 our results indicate 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.

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 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 and 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 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 allowance 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, the
restaurants commercial credit score, and the expected usage period of the dining credits. The reserve rate for each account is based upon historical charge-off rates of accounts with similar characteristics. We also provide for specifically
identified accounts and for dining credit balances that are large or slow moving. 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 our restaurant base to our members. Subsequent to the account being written off, we may continue to pursue recovery efforts.



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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 and have modified periodically since then in response to trends that we observe from analyzing our data and data on the
restaurant industry generally. This approach continued through the first half of 2010. We will continue to monitor these trends and review our reserve rates.

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 the valuation allowance. In the event we determine that we would not be able to realize all or part of our net deferred tax asset in the
future, an adjustment to the deferred tax asset would be charged to income in the period in which such determination is made. As of June 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.

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 comply with 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 June 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.



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##### Table of Contents

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

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



|                                         |  |                                                           |   |  |       |  
|---------------------------------------- |  | --------------------------------------------------------- | - |  | ----- | -
|                                         |  | Percentage of Revenuesfor the Three Months 
EndedJune 30, |  
|                                         |  | 2010                                                      |   |  | 2009  |  
|Total revenues                           |  | 100.0                                                     |   |  | 100.0 |  
|Member benefits                          |  | 29.1                                                      |   |  | 28.6  |  
|Provision for losses                     |  | 3.4                                                       |   |  | 7.3   |  
|Processing fees                          |  | 1.1                                                       |   |  | 1.0   |  
|                                         |  |                                                           |   |  |       |  
|Gross profit                             |  | 66.4                                                      |   |  | 63.1  |  
|                                         |  |                                                          
|Salaries and benefits                    |  | 17.3                                                      |   |  | 17.2  |  
|Sales commission and expenses            |  | 18.6                                                      |   |  | 18.1  |  
|Professional fees                        |  | 3.2                                                       |   |  | 2.4   |  
|Member and restaurant marketing expenses |  | 2.8                                                       |   |  | 2.2   |  
|Depreciation and amortization            |  | 4.2                                                       |   |  | 4.8   |  
|General and administrative expenses      |  | 11.5                                                      |   |  | 10.2  |  
|                                         |  |                                                           |   |  |       |  
|Total operating expenses                 |  | 57.6                                                      |   |  | 54.8  |  
|                                         |  |                                                           |   |  |       |  
|Operating income                         |  | 8.8                                                       |   |  | 8.3   |  
|                                         |  |                                                          
|Other expense, net                       |  | (0.1                                                      | ) |  | (0.1  | )
|                                         |  |                                                           |   |  |       |  
|                                         |  |                                                          
|Income before income tax provision       |  | 8.7                                                       |   |  | 8.2   |  
|                                         |  |                                                          
|Income tax provision                     |  | 3.3                                                       |   |  | 3.6   |  
|                                         |  |                                                           |   |  |       |  
|Net income                               |  | 5.4                                                       |   |  | 4.6   |  
|                                         |  |                                                           |   |  |       |  



14



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##### 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 June 30, |       
|                                                                             |  | 2010                                |        |   | 2009                     |  
|                                                                             |  | MarketingCreditsProgram             |        |   | MarketingServicesProgram |   |        | MembershipFees |  |   | Total |   |  | MarketingCreditsProgram |         |   | MarketingServicesProgram |   |        | MembershipFees |  |   | Total  |  
|Restaurant count as of June 30, 2010 and 2009, respectively                  |  |                                     | 4,612  |   |                          |   | 5,929  |                |  |   |       |   |  |                         | 10,541  |   |                          |   | 5,343  |                |  |   | 4,854  |   |  |   |       |   |  |   | 10,197  |  
|Number of qualified
transactions(1)                                          |  |                                     | 1,327  |   |                          |   | 1,648  |                |  |   |       |   |  |                         | 2,975   |   |                          |   | 1,396  |                |  |   | 1,177  |   |  |   |       |   |  |   | 2,573   |  
|Average transaction
amount(1)                                                |  | $                                   | 45.40  |   |                          | $ | 46.30  |                |  |   |       |   |  | $                       | 45.90   |   |                          | $ | 44.19  |                |  | $ | 45.53  |   |  |   |       |   |  | $ | 44.80   |  
|                                                                             |  |                                     |        |   |                          |   |        |               
|Qualified transaction
amount(1)                                              |  | $                                   | 60,246 |   |                          | $ | 76,300 |                |  |   |       |   |  | $                       | 136,546 |   |                          | $ | 61,683 |                |  | $ | 53,583 |   |  |   |       |   |  | $ | 115,266 |  
|Rewards Network percentage share of qualified transaction
amount(1) (2)      |  |                                     | 71.1   | % |                          |   | 14.6   | %              |  |   |       |   |  |                         | 39.6    | % |                          |   | 75.5   | %              |  |   | 15.0   | % |  |   |       |   |  |   | 47.3    | %
|Rewards Network share of qualified transaction amount and membership
fees(1) |  | $                                   | 42,859 |   |                          | $ | 11,168 |                |  | $ | 251   |   |  | $                       | 54,278  |   |                          | $ | 46,546 |                |  | $ | 8,009  |   |  | $ | 278   |   |  | $ | 54,833  |  
|Redemption of dining
credits(1)                                              |  | $                                   | 25,387 |   |                          | $ |       |                |  | $ |      |   |  | $                       | 25,387  |   |                          | $ | 27,279 |                |  | $ |       |   |  | $ |      |   |  | $ | 27,279  |  
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Total revenues                                                               |  | $                                   | 17,472 |   |                          | $ | 11,168 |                |  | $ | 251   |   |  | $                       | 28,891  |   |                          | $ | 19,267 |                |  | $ | 8,009  |   |  | $ | 278   |   |  | $ | 27,554  |  
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Revenue as a percentage of qualified transaction
amount(1) (2)               |  |                                     | 29.0   | % |                          |   | 14.6   | %              |  |   |       |   |  |                         | 21.0    | % |                          |   | 31.2   | %              |  |   | 14.9   | % |  |   |       |   |  |   | 23.7    | %
|                                                                             |  |                                     |        |   |                          |   |        |               
|Member benefits                                                              |  | $                                   | 2,418  |   |                          | $ | 3,003  |                |  | $ |      |   |  | $                       | 5,421   |   |                          | $ | 3,411  |                |  | $ | 2,677  |   |  | $ |      |   |  | $ | 6,088   |  
|Bonus rewards                                                                |  | $                                   | 795    |   |                          | $ | 1,011  |                |  | $ |      |   |  | $                       | 1,806   |   |                          | $ | 351    |                |  | $ | 302    |   |  | $ |      |   |  | $ | 653     |  
|Partner commissions                                                          |  | $                                   | 557    |   |                          | $ | 631    |                |  | $ |      |   |  | $                       | 1,118   |   |                          | $ | 626    |                |  | $ | 513    |   |  | $ |      |   |  | $ | 1,139   |  
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Total member benefits                                                        |  | $                                   | 3,770  |   |                          | $ | 4,645  |                |  | $ |      |   |  | $                       | 8,415   |   |                          | $ | 4,388  |                |  | $ | 3,492  |   |  | $ |      |   |  | $ | 7,880   |  
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Provision for losses                                                         |  | $                                   | 990    |   |                          | $ |       |                |  | $ |      |   |  | $                       | 990     |   |                          | $ | 2,011  |                |  | $ |       |   |  | $ |      |   |  | $ | 2,011   |  
|Processing fees                                                              |  | $                                   | 146    |   |                          | $ | 157    |                |  | $ |      |   |  | $                       | 303     |   |                          | $ | 152    |                |  | $ | 135    |   |  | $ |      |   |  | $ | 287     |  
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|                                                                             |  |                                     |        |   |                          |   |        |               
|Gross profit                                                                 |  | $                                   | 12,566 |   |                          | $ | 6,366  |                |  | $ | 251   |   |  | $                       | 19,183  |   |                          | $ | 12,716 |                |  | $ | 4,382  |   |  | $ | 278   |   |  | $ | 17,376  |  
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  
|Gross profit as a percentage of total revenues                               |  |                                     | 71.9   | % |                          |   | 57.0   | %              |  |   | 100.0 | % |  |                         | 66.4    | % |                          |   | 66.0   | %              |  |   | 54.7   | % |  |   | 100.0 | % |  |   | 63.1    | %
|                                                                             |  |                                     |        |   |                          |   |        |                |  |   |       |   |  |                         |         |   |                          |   |        |                |  |   |        |   |  |   |       |   |  |   |         |  



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

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



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##### Table of Contents

In analyzing revenues, we consider our share of qualified transaction amount, which
represents the amount we retain from each transaction. In reviewing our share of qualified transaction amount, we focus on the following key metrics: restaurant count, qualified transaction amount, our 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. Our 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, our 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 June 30, 2010 was 10,541 compared to 10,197 as of June 30, 2009, an increase of 3.4%. The
increase in total restaurant count was driven by a 22.2% increase in Marketing Services Program restaurants to 5,929 restaurants, partially offset by a 13.7% decrease in Marketing Credits Program restaurants to 4,612 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 decline in the number of
Marketing Credits Program restaurants is due to our continued application of disciplined dining credits purchasing policies and credit standards. As a result, the composition of the dining credits portfolio has shifted 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. In addition, more conservative dining credits purchasing policies
implemented during 2008 and 2009 resulted in the purchase of fewer dining credits from fewer restaurants, which caused some restaurants to complete the program more quickly than in the past. While the number of Marketing Credit restaurants declined,
during the second quarter of 2010, our net dining credits portfolio balance grew with purchases from restaurants that meet 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 through the current period 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 7.0 months as of June 30, 2010 from 6.2 as of June 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 June 30, 2010 increased by $3,240 from March 31, 2010 and by
$2,060 from December 31, 2009 to $59,359.

Qualified transaction amounts at our participating restaurants increased
$21,280, or 18.5%, to $136,546 for the three months ended June 30, 2010 compared to 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 402 or 15.6% for the three months ended June 30, 2010 compared to the same period in the prior year. Average transaction amount increased by $1.10, or 2.5%, to $45.90
for the three months ended June 30, 2010 from $44.80 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 and an increase in
restaurant count as compared to the prior year. However, we remain cautious about the current conditions in the restaurant industry.



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Rewards Network percentage share of qualified transaction amount decreased to 39.6% for the
three months ended June 30, 2010 compared to 47.3% the three months ended June 30, 2009 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 14.6% for the three months ended June 30, 2010 compared to 15.0% for the same period in the prior year. The Marketing Credits Program percentage share of
qualified transaction amount decreased to 71.1% during the three months ended June 30, 2010 compared to 75.5% for the same period in the prior year as we shortened the usage period through mid-2009. We began increasing the usage period in the
later half of 2009 and through the first half of 2010. Shortening the dining credits usage period for such Marketing Credits Program transactions, as we did in 2009, reduces our risk exposure with respect to that deal, but also typically decreases
the share of qualified transaction amount that we may realize from that deal because we generally purchase those dining credits at less of a discount.

Rewards Network share of qualified transaction amount and membership fees for three months ended June 30, 2010 of $54,278 decreased
1.0% as compared with $54,833 for the three months ended June 30, 2009, primarily due to a 7.9% decrease in Marketing Credits Program share of qualified transaction amount, partially offset by a 39.4% 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, which relate to our proprietary cash back program, iDine, decreased 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 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 46.8% of our share of qualified transaction amount for the three months ended June 30, 2010, compared to 49.7% of our share of qualified transaction amount for the three months
ended June 30, 2009. The decrease in redemption of dining credits compared to our 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 the Marketing Credits Program qualified transactions amount increased to 59.2% for the three months ended June 30, 2010, compared to 58.6% for the three months ended
June 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 better credit quality restaurant clients 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 increased $1,337 or 4.9% to $28,891 for the three months ended June 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 and an increase in qualified transaction amount in the Marketing Services Program, partially offset by a decline in the Marketing Credits Program
restaurant count.

Revenues as a percentage of qualified transaction amount decreased to 21.0% for the three months ended
June 30, 2010 from 23.7% 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 29.1% of total revenues for the three months ended June 30, 2010 compared with 28.6% 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 41.6% for the three months ended June 30, 2010 from 43.6% 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 21.6% for the three months ended June 30, 2010 as compared with 22.8% 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 June 30, 2010 we increased
the number of active members by 8.2%, increased average spend of members by 8.6%, increased the number of completed surveys by 83.3% and increased the number of email addressable members by 8.0% over the prior year period.



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##### Table of Contents

The provision for losses expense decreased to 3.4% of total revenues and 5.7% of Marketing
Credits Program revenues for the three months ended June 30, 2010 compared with 7.3% of total revenues and 10.4% of Marketing Credits Program revenues for the three months ended June 30, 2009. The allowance for unredeemable dining credits
as a percentage of the gross dining credits balance decreased to 14.1% as of June 30, 2010 from 16.7% as of December 31, 2009 and 22.3% as of June 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 increased to $303 or 1.1% of total revenues for the three months ended June 30, 2010 from $287 or 1.0% of total
revenues for the same period in the prior year. The increase was primarily due a shift towards Marketing Services Program revenues.

Gross profit increased to 66.4% of total revenues for the three months ended June 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 mainly due to improved profitability of the Marketing Services Program and of our Marketing Credits Program related to the decrease in the
provision for losses expense. Gross profit increased $1,807 or 10.4% to $19,183 for the three months ended June 30, 2010, as compared to $17,376 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 $281 or 5.9% to $5,014 for the three months ended June 30, 2010 from $4,733 for the same period in
the prior year primarily due to an increase in management bonus accrual and an increase in average general and administrative salaries.

Sales commissions and expenses include sales force salaries and benefits, commissions, travel costs and training. Sales commissions and
expenses increased to 18.6% of total revenues for the three months ended June 30, 2010 compared to 18.1% of total revenues for the same period in the prior year due to an increase in sales headcount and an increase in sales commissions. We
added additional sales employees during the fourth quarter of 2009 and the first half of 2010. Newly hired sales employees typically take six 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 three months ended June 30, 2010 as compared to the same period in the prior year.

Professional fees increased $259, or 39.1%, to $921 for the three months ended June 30, 2010 as compared to $662 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 $316 in expenses related to this process during the three months ended June 30, 2010. There was no such expense during the three months ended June 30, 2009.

Member and restaurant marketing expenses increased $198 or 33.1% for the three months ended June 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, as we continue to invest in opportunities to accelerate growth.

Depreciation and amortization costs decreased $87 or 6.6% for the three months ended June 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 matured.

General and administrative expenses increased by $532 or 19.0% for the three months ended June 30, 2010 as compared to the same
period in the prior year primarily due to investments in sales force productivity tools, increased recruiting expenses from the increase in sales headcount and increased rent expense from the upgrade of our disaster recovery facility.

Other Income and Expense

There was no interest and other income recorded during the three months ended June 30, 2010 as compared to $5 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 $10 to $30 due to an increase in our line of credit fees.



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##### Table of Contents

Income tax provision

Our effective tax rate for the three months ended June 30, 2010 was 37.7% compared with 43.7% for the same period in the prior year
primarily due to the impact of state and foreign taxes between periods.

Net income

Net income was $1,557 for the three months ended June 30, 2010 compared with $1,280 for the three months ended June 30, 2009
primarily due to an increase in gross profit in the Marketing Services Program and a reduction in the provision for losses expense.

Basic weighted average number of shares outstanding increased to 8,946 for the three months ended June 30, 2010 compared to 8,912
for the same period in the prior year. Diluted weighted average shares outstanding increased to 9,107 for the three months ended June 30, 2010 compared to 8,948 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 2009 and 2010.

RESULTS OF OPERATIONS  COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

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



|                                         |  |                                                         |   |  |       |  
|---------------------------------------- |  | ------------------------------------------------------- | - |  | ----- | -
|                                         |  | Percentage of 
Revenuesfor the Six Months EndedJune 30, |  
|                                         |  | 2010                                                    |   |  | 2009  |  
|Total revenues                           |  | 100.0                                                   |   |  | 100.0 |  
|Member benefits                          |  | 27.5                                                    |   |  | 25.8  |  
|Provision for losses                     |  | 3.2                                                     |   |  | 10.2  |  
|Processing fees                          |  | 1.0                                                     |   |  | 0.9   |  
|                                         |  |                                                         |   |  |       |  
|Gross profit                             |  | 68.3                                                    |   |  | 63.1  |  
|                                         |  |                                                        
|Salaries and benefits                    |  | 18.2                                                    |   |  | 17.7  |  
|Sales commission and expenses            |  | 19.9                                                    |   |  | 18.9  |  
|Professional fees                        |  | 2.7                                                     |   |  | 2.4   |  
|Member and restaurant marketing expenses |  | 2.7                                                     |   |  | 2.4   |  
|Depreciation and amortization            |  | 4.6                                                     |   |  | 5.3   |  
|General and administrative expenses      |  | 11.0                                                    |   |  | 10.4  |  
|                                         |  |                                                         |   |  |       |  
|Total operating expenses                 |  | 59.1                                                    |   |  | 57.1  |  
|                                         |  |                                                         |   |  |       |  
|Operating income                         |  | 9.2                                                     |   |  | 6.0   |  
|                                         |  |                                                        
|Other expense, net                       |  | (0.1                                                    | ) |  | (0.1  | )
|                                         |  |                                                         |   |  |       |  
|                                         |  |                                                        
|Income before income tax provision       |  | 9.1                                                     |   |  | 5.9   |  
|                                         |  |                                                        
|Income tax provision                     |  | 3.5                                                     |   |  | 3.7   |  
|                                         |  |                                                         |   |  |       |  
|Net income                               |  | 5.6                                                     |   |  | 2.2   |  
|                                         |  |                                                         |   |  |       |  



19



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##### 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 Six Months Ended June 30, |        
|                                                                             |  | 2010                              |         |   | 2009                     |  
|                                                                             |  | MarketingCreditsProgram           |         |   | MarketingServicesProgram |   |         | MembershipFees |  |   | Total |   |  | MarketingCreditsProgram |         |   | MarketingServicesProgram |   |         | MembershipFees |  |   | Total  |  
|Restaurant count as of June 30, 2010 and 2009, respectively                  |  |                                   | 4,612   |   |                          |   | 5,929   |                |  |   |       |   |  |                         | 10,541  |   |                          |   | 5,343   |                |  |   | 4,854  |   |  |   |       |   |  |   | 10,197  |  
|Number of qualified
transactions(1)                                          |  |                                   | 2,581   |   |                          |   | 3,095   |                |  |   |       |   |  |                         | 5,676   |   |                          |   | 2,894   |                |  |   | 2,040  |   |  |   |       |   |  |   | 4,934   |  
|Average transaction
amount(1)                                                |  | $                                 | 45.31   |   |                          | $ | 46.52   |                |  |   |       |   |  | $                       | 45.97   |   |                          | $ | 43.33   |                |  | $ | 45.48  |   |  |   |       |   |  | $ | 44.22   |  
|                                                                             |  |                                   |         |   |                          |   |         |               
|Qualified transaction
amount(1)                                              |  | $                                 | 116,949 |   |                          | $ | 143,972 |                |  |   |       |   |  | $                       | 260,921 |   |                          | $ | 125,384 |                |  | $ | 92,773 |   |  |   |       |   |  | $ | 218,157 |  
|Rewards Network percentage share of qualified transaction
amount(1) (2)      |  |                                   | 71.1    | % |                          |   | 14.5    | %              |  |   |       |   |  |                         | 39.9    | % |                          |   | 75.3    | %              |  |   | 15.2   | % |  |   |       |   |  |   | 49.8    | %
|Rewards Network share of qualified transaction amount and membership
fees(1) |  | $                                 | 83,127  |   |                          | $ | 20,926  |                |  | $ | 515   |   |  | $                       | 104,568 |   |                          | $ | 94,465  |                |  | $ | 14,080 |   |  | $ | 543   |   |  | $ | 109,088 |  
|Redemption of dining
credits(1)                                              |  | $                                 | 49,254  |   |                          | $ |        |                |  |   |       |   |  | $                       | 49,254  |   |                          | $ | 55,757  |                |  | $ |       |   |  |   |       |   |  | $ | 55,757  |  
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  
|Total revenues                                                               |  | $                                 | 33,873  |   |                          | $ | 20,926  |                |  | $ | 515   |   |  | $                       | 55,314  |   |                          | $ | 38,708  |                |  | $ | 14,080 |   |  | $ | 543   |   |  | $ | 53,331  |  
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  
|Revenue as a percentage of qualified transaction
amount(1) (2)               |  |                                   | 29.0    | % |                          |   | 14.5    | %              |  |   |       |   |  |                         | 21.0    | % |                          |   | 30.9    | %              |  |   | 15.2   | % |  |   |       |   |  |   | 24.2    | %
|                                                                             |  |                                   |         |   |                          |   |         |               
|Member benefits                                                              |  | $                                 | 4,752   |   |                          | $ | 5,564   |                |  |   |       |   |  | $                       | 10,316  |   |                          | $ | 6,159   |                |  | $ | 4,206  |   |  |   |       |   |  | $ | 10,365  |  
|Bonus rewards                                                                |  |                                   | 1,151   |   |                          |   | 1,434   |                |  |   |       |   |  |                         | 2,585   |   |                          |   | 658     |                |  |   | 484    |   |  |   |       |   |  |   | 1,142   |  
|Partner commissions                                                          |  |                                   | 1,086   |   |                          |   | 1,188   |                |  |   |       |   |  |                         | 2,274   |   |                          |   | 1,305   |                |  |   | 922    |   |  |   |       |   |  |   | 2,227   |  
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  
|Total member benefits                                                        |  | $                                 | 6,989   |   |                          | $ | 8,186   |                |  |   |       |   |  | $                       | 15,175  |   |                          | $ | 8,122   |                |  | $ | 5,612  |   |  |   |       |   |  | $ | 13,734  |  
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  
|Provision for losses                                                         |  | $                                 | 1,777   |   |                          | $ |        |                |  |   |       |   |  | $                       | 1,777   |   |                          | $ | 5,438   |                |  | $ |       |   |  |   |       |   |  | $ | 5,438   |  
|Processing fees                                                              |  | $                                 | 255     |   |                          | $ | 313     |                |  |   |       |   |  | $                       | 568     |   |                          | $ | 289     |                |  | $ | 215    |   |  |   |       |   |  | $ | 504     |  
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  
|                                                                             |  |                                   |         |   |                          |   |         |               
|Gross profit                                                                 |  | $                                 | 24,852  |   |                          | $ | 12,427  |                |  | $ | 515   |   |  | $                       | 37,794  |   |                          | $ | 24,859  |                |  | $ | 8,253  |   |  | $ | 543   |   |  | $ | 33,655  |  
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  
|Gross profit as a percentage of total revenues                               |  |                                   | 73.4    | % |                          |   | 59.4    | %              |  |   | 100.0 | % |  |                         | 68.3    | % |                          |   | 64.2    | %              |  |   | 58.6   | % |  |   | 100.0 | % |  |   | 63.1    | %
|                                                                             |  |                                   |         |   |                          |   |         |                |  |   |       |   |  |                         |         |   |                          |   |         |                |  |   |        |   |  |   |       |   |  |   |         |  



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

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

Ending restaurant count as of June 30, 2010 was 10,541 compared to 10,197 as of June 30, 2009, an increase of 3.4%. The
increase in total restaurant count was driven by a 22.1% increase in Marketing Services Program restaurants to 5,929 restaurants, partially offset by a 13.7% decrease in Marketing Credits Program restaurants to 4,612 restaurants.

Qualified transaction amounts at our participating restaurants increased $42,764, or 19.6%, to $260,921 for the six months ended
June 30, 2010 compared to 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 742 or 15.0% for the six months ended June 30, 2010 compared to the same period in the prior year. Average transaction amount increased by $1.75, or 4.0%, to $45.97 for the six months ended June 30, 2010 from $44.22 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 and an increase in restaurant count as compared to the prior year. However, we remain cautious
about the current conditions in the restaurant industry.



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##### Table of Contents

Rewards Network percentage share of qualified transaction amount decreased to 39.9% for the
six months ended June 30, 2010 compared to 49.8% 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 six months ended June 30, 2010 compared to 15.2% 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 71.1% during the six months ended June 30, 2010 compared to
75.3% for the same period in the prior year as we shortened the usage period through mid-2009. We began increasing the usage period in the later half of 2009 and through the first half of 2010. Shortening the dining credits usage period for such
Marketing Credits Program transactions, as we did in 2009, reduces our risk exposure with respect to that deal, but also typically decreases the share of qualified transaction amount that we may realize from that deal because we generally purchase
those dining credits at less of a discount.

Rewards Network share of qualified transaction amount and membership fees for six
months ended June 30, 2010 of $104,568 decreased 4.1% as compared with $109,088 for the same period in the prior year, primarily due to a 12.0% decrease in Marketing Credits Program share of qualified transaction amount, partially offset by a
48.6% 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, partially offset by an increase in average transaction amount. Membership fees decreased slightly 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 47.1% of our share of qualified transaction
amount for the six months ended June 30, 2010, compared to 51.1% for the same period in the prior year. The decrease in redemption of dining credits compared to our 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 six months ended
June 30, 2010, compared to 59.0% 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 an increase in better credit quality
restaurant clients on the Marketing Credits Program at a lower price.

Total revenues increased $1,983 or 3.7% to $55,314 for
the six months ended June 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 and an increase in qualified transaction amount in the Marketing
Services Program, partially offset by a decline in the Marketing Credits Program restaurant count.

Revenues as a percentage
of qualified transaction amount decreased to 21.0% for the six months ended June 30, 2010 from 24.2% 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 27.4% of total
revenues for the six months ended June 30, 2010 compared with 25.8% 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 relating to the double benefits offered to certain members who dined on Monday, Tuesday and Wednesday and completed a survey. 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 39.1% for the six months ended June 30, 2010 from 39.9% 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 20.6% for the six months ended June 30, 2010 as compared with 21.0% 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.



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The provision for losses expense decreased to 3.2% of total revenues and 5.2% of Marketing
Credits Program revenues for the six months ended June 30, 2010 compared with 10.2% of total revenues and 14.0% 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 $568 or 1.0% of total
revenues for the six months ended June 30, 2010 from $504 or 0.9% of total revenues for the same period in the prior year. The increase was primarily due to a shift towards Marketing Services Program revenues.

Gross profit increased to 68.3% of total revenues for the six months ended June 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 mainly due to improved profitability of our Marketing Services Program and our Marketing Credits Program related to the decrease in the
provision for losses expense. Gross profit increased $4,139 or 12.3% to $37,794 for the six months ended June 30, 2010 as compared to $33,655 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 $633 or 6.7% to $10,083 for the six months ended June 30, 2010 from $9,450 for the same period in the
prior year primarily due to an increase in stock compensation expense.

Sales commissions and expenses include sales force
salaries and benefits, commissions, travel costs and training. Sales commissions and expenses increased to 19.9% of total revenues for the six months ended June 30, 2010 compared to 18.9% of total revenues for the same period in the prior year
due to an increase in sales headcount and an increase in sales commissions. As of June 30, 2010, we increased the number of sales employees by 23 since June 30, 2009. Newly hired sales employees typically take six 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 six months ended June 30, 2010 as compared to the same period in the prior year.

Professional fees increased $248, or 19.7%, to $1,508 for the six months ended June 30, 2010 as compared to $1,260 for the same
period in the prior year, primarily due to approximately $400 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 $210 or 16.5% for the six months ended June 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 implementation of a new daily specials product in two metropolitan markets. This deal-of-the-day dining program
currently offers daily specials of 50% off or more at restaurants in the Houston and Cleveland markets.

Depreciation and
amortization costs decreased $287 or 10.2% for the six months ended June 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 matured.

General and administrative expenses increased by $502 or 9.0% for the six months ended
June 30, 2010 as compared to the same period in the prior year. The increase was primarily due to investments in sales force productivity tools, increased recruiting expenses from the increase in sales headcount and increased rent expense from
the upgrade of our disaster recovery facility.

Other Income and Expense

Interest and other income decreased $9 to $1 for the six months ended June 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 $2 to $62 due to an increase in our line of credit fees, partially offset by
the amortization of the discounted cash flow recorded during the six months ended June 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 six months ended June 30, 2010 was 38.8% compared with 62.8% for the same period in the prior year.
The income tax provision for the six months ended June 30, 2009 included a tax expense of $573, or $0.06 per share, relating to the distribution of employee and director stock awards. 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.



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Net income

Net income was $3,084 for the six months ended June 30, 2010 compared to $1,167 for the six months ended June 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 expenses associated with the process implemented by the Board of Directors for evaluating strategic alternatives.

Basic weighted average number of shares outstanding decreased to 8,893 for the six months ended June 30, 2010 compared
to 9,033 for the same period in the prior year. Diluted weighted average shares outstanding decreased to 9,055 for the six months ended June 30, 2010 compared to 9,094 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 six months ended June 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 $12,308 as of June 30, 2010, a decrease of $357 from December 31, 2009. During the six months ended June 30, 2010, net cash provided by operating activities was $2,075 compared to $17,917 during the same period
in the prior year. Net cash provided by operating activities during the six months ended June 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 six months ended June 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 six month ended June 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 credit purchases during the six
months ended June 30, 2010. We continue to monitor patterns in consumer spending and economic and credit uncertainties 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 $2,861 and $1,506 for the six months ended June 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 six months ended June 30, 2010 was $429 due to the tax benefit from the issuance
of stock awards of $572 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, we
established an APIC Pool during the six months ended June 30, 2010 relating to the excess tax benefits from employee and director stock awards. Net cash used in financing activities for the six months ended June 30, 2009 was $4,138 due to
the repurchase of a portion of our common stock at an average price of $9.33 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.



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##### 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 June 30, 2010:



|                                        |  |                        |        |                             |   |       |  |      |       |      |   |      |  |            |     |  |   |   |  |   |  
|--------------------------------------- |  | ---------------------- | ------ | --------------------------- | - | ----- |  | ---- | ----- | ---- | - | ---- |  | ---------- | --- |  | - | - |  | - | -
|                                        |  | Payments Due by Period
|Contractual Obligations and Commitments |  | Total                  |        | RemainingTwoQuarters of2010 |   | 2011  |  | 2012 |       | 2013 |   | 2014 |  | Thereafter
|Vendor contracts                        |  | $                      | 15,514 |                             | $ | 9,024 |  | $    | 5,950 |      | $ | 360  |  | $          | 180 |  | $ |  |  | $ | 
|Operating leases                        |  |                        | 2,186  |                             |   | 668   |  |      | 895   |      |   | 423  |  |            | 200 |  |   |  |  |   | 
|Revolving credit facility               |  |                        | 141    |                             |   | 63    |  |      | 78    |      |   |     |  |            |    |  |   |  |  |   | 
|                                        |  |                        |        |                             |   |       |  |      |       |      |   |      |  |            |     |  |   |   |  |   |  
|Total                                   |  | $                      | 17,841 |                             | $ | 9,755 |  | $    | 6,923 |      | $ | 783  |  | $          | 380 |  | $ |  |  | $ | 
|                                        |  |                        |        |                             |   |       |  |      |       |      |   |      |  |            |     |  |   |   |  |   |  

Revolving Line of Credit

On November 6, 2007, we entered into a $25,000 senior secured revolving credit facility with RBS Business Capital (the
Lender). We amended this credit facility on August 11, 2008 to, among other matters, increase the amount we may borrow under the credit facility to a maximum of $40,000. The facility was further amended on June 1,
2009, to carve out the $5,000 stock repurchase from covenant testing, redefine certain covenants and 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 June 30, 2010, $19,683 was available under the terms of the credit facility. The amount of availability under the credit
facility may be further limited if we become more conservative in our dining credits purchases in light of current economic conditions and the performance of restaurants on our program or if our earnings decline.

We do not currently have any borrowings outstanding under this credit facility and we were in compliance with all of the covenants under
this facility as of June 30, 2010.

Dining Credits

Net dining credits less accounts payable-dining credits was $56,301 at June 30, 2010, an increase of $3,600 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 second quarter 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



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##### 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 June 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.



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##### Table of Contents

PART IIOTHER INFORMATION



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



| | (c) | Purchases of Equity Securities by the Issuer
| | --- | --------------------------------------------

The following table provides information about our repurchases of our common stock during the three months ended June 30, 2010:



|                       |  |                                             |  |                                          |       |                                                                                            |     |                                                                                                                         |   |    
|---------------------- |  | ------------------------------------------- |  | ---------------------------------------- | ----- | ------------------------------------------------------------------------------------------ | --- | ----------------------------------------------------------------------------------------------------------------------- | - | ---
|Period                 |  | (a) TotalNumber ofShares(or Units)Purchased |  | (b) AveragePrice Paid perShare (or Unit) |       | (c) Total Number ofShares (or Units)Purchased as Partof
PubliclyAnnounced Plans orPrograms |     | (d) MaximumNumber (orApproximate DollarValue) of Shares (orUnits) that May
YetBe Purchased Underthe Plans orPrograms(1)
|June 1  June 30, 2010 |  | 15                                          |  | $                                        | 10.47 |                                                                                            | 474 |                                                                                                                         | $ | 220
|                       |  |                                             |  |                                          |       |                                                                                            |     |                                                                                                                         |   |    



|(1) | Included shares that were purchased by us pursuant to a stock repurchase program approved by our Board of Directors and announced on April 22, 2009 that authorized
us to repurchase up to $5,000 of our outstanding 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. The purchases were funded
from cash and cash reserves and repurchased shares were deposited into treasury and retained for possible future use.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

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



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|3.1         |  | Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.s Registration Statement on Form S-3
(File No. 333-111390), filed on December 19, 2003.                                                                                                                                                                                                         
|            | 
|3.2         |  | Amendment to Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 3.1 to Rewards Network Inc.s Current Report on Form 8-K (File
No. 333-111390), filed on July 6, 2009.                                                                                                                                                                                                                  
|            | 
|3.3         |  | By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806),
filed on March 12, 2004.                                                                                                                                                                                                                                     
|            | 
|4.1         |  | Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine
Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.                                                                                                                                                   
|            | 
|4.2         |  | Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert
M. Steiner, as trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.                                                  
|            | 
|4.3         |  | Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the
former members and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7,
2003.
|            | 
|10.1        |  | Rewards Network Inc. 2010 Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No.
001-13806), filed on April 1, 2010.                                                                                                                                                                                                                             
|            | 
|10.2        |  | Form of Restricted Stock Unit Award Agreement is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806),
filed on April 1, 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



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##### Table of Contents

SIGNATURES

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



|               |  |                                                                                                                                     
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------
|               |  | REWARDS NETWORK INC.                                                                                                                
|               | 
|August 5, 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



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##### Table of Contents

Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|3.1         |  | Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.s Registration Statement on Form S-3
(File No. 333-111390), filed on December 19, 2003.                                                                                                                                                                                                         
|            | 
|3.2         |  | Amendment to Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 3.1 to Rewards Network Inc.s Current Report on Form 8-K (File
No. 333-111390), filed on July 6, 2009.                                                                                                                                                                                                                  
|            | 
|3.3         |  | By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806),
filed on March 12, 2004.                                                                                                                                                                                                                                     
|            | 
|4.1         |  | Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine
Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.                                                                                                                                                   
|            | 
|4.2         |  | Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert
M. Steiner, as trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.                                                  
|            | 
|4.3         |  | Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the
former members and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.s Annual Report on Form 10-K (File No. 001-13806), filed on October 7,
2003.
|            | 
|10.1        |  | Rewards Network Inc. 2010 Incentive Compensation Plan is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.s Current Report on Form 8-K (File No.
001-13806), filed on April 1, 2010.                                                                                                                                                                                                                             
|            | 
|10.2        |  | Form of Restricted Stock Unit Award Agreement is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.s Current Report on Form 8-K (File No. 001-13806),
filed on April 1, 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                                                                                                                                                                                                                                                                                                                                                                                    



29