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TheTable followingof 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. Contents

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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~~September 30, 2010

¨	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.

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~~November 3, 2010, there were 8,~~808~~815,~~094~~599 shares of the registrant’s common stock, par value $0.02 per share, outstanding.

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 Balance Sheets—September 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 Operations—Three and nine months ended September 30, 2010 and 2009 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows—Three and six months ended June 30, 2010 and 2009 (unaudited)	5
	Condensed Consolidated Statements of Cash Flows—Three and nine months ended September 30, 2010 and 2009 (unaudited)		5
	Notes to Unaudited Condensed Consolidated Financial Statements	~~6-9~~	6-9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~10-24~~	10-24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25	25
Item 4.	Controls and Procedures	25	25
PART II. OTHER INFORMATION
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits		26
Item 6.	Exhibits	27
SIGNATURES			28
SIGNATURES		28

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
	September 30,2010			December 31,2009
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	12,~~308~~110		$	12,665
Accounts receivable, net of allowance for doubtful accounts of $1,304 and $1,773, respectively		4,167			5,011
Accounts receivable, net of allowance for doubtful accounts of $1,288 and $1,773, respectively		4,065			5,011
Dining credits, net of allowance for unredeemable dining credits of $9,708, and $11,448, respectively		59,359			57,299
Dining credits, net of allowance for unredeemable dining credits of $9,247 and $11,448, respectively		66,055			57,299
Deferred income taxes		34,~~784~~149			5,152
Prepaid expenses		21,~~125~~663			1,573
Income taxes receivable		43,~~939~~455			3,913
Total current assets		8691,~~682~~497			85,613
Property and equipment, net of accumulated depreciation and amortization of $26,972 and $24,440, respectively		8,560			8,231
Property and equipment, net of accumulated depreciation and amortization of $28,150 and $24,440, respectively		8,153			8,231
Other assets		~~362~~316			282
Goodwill		8,117			8,117
Deferred income taxes		~~380~~115			597
Total assets	$	~~104~~108,~~101~~198		$	102,840
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable—dining credits	$	34,~~058~~354		$	4,598
Accounts payable—member benefits		57,~~873~~396			6,171
Accounts payable—trade		1,~~396~~461			1,079
Accrued compensation		2,~~289~~638			3,470
Other current liabilities		2,~~525~~054			2,139
Deferred membership fee income		~~363~~334			432
Total liabilities		1518,~~504~~237			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
Common stock, par value $0.02 per share; authorized 25,000 shares; issued 9,149 shares; outstanding 8,815 and 8,673 shares, respectively		183			183
Additional paid-in capital		68,~~541~~659			69,280
Accumulated other comprehensive income:
Foreign currency translation, net of income taxes		~~439~~534			440
Retained earnings		2223,~~630~~707			19,546
Treasury stock, at cost (342 and 476 shares, respectively)		(3,196	)		(4,498	)
Treasury stock, at cost (334 and 476 shares, respectively)		(3,122	)		(4,498	)
Total stockholders’ equity		8889,~~597~~961			84,951
Total liabilities and stockholders’ equity	$	~~104~~108,~~101~~198		$	102,840

See accompanying notes to unaudited condensed consolidated financial statements.

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,

Three Months EndedSeptember 30,

Nine Months EndedSeptember 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

Revenues (gross amounts billed of $50,866, $52,784, $154,919 and $161,329, respectively)

27,346

27,523

82,145

80,311

Membership fees

~~252~~239

~~278~~261

~~515~~754

~~543~~804

Total revenues

2827,~~891~~585

27,~~554~~784

5582,~~314~~899

5381,~~331~~115

Direct expenses:

Member benefits

8,~~415~~431

78,~~880~~164

1523,~~175~~606

1321,~~734~~898

Provision for losses

~~990~~1,074

21,~~011~~811

12,~~777~~851

57,~~438~~249

Processing fees

~~303~~287

~~287~~277

~~568~~855

~~504~~781

Total direct expenses

9,~~708~~792

10,~~178~~252

1727,~~520~~312

1929,~~676~~928

Gross profit

1917,~~183~~793

17,~~376~~532

3755,~~794~~587

3351,~~655~~187

Operating expenses:

Salaries and benefits

54,~~014~~438

4,~~733~~749

1014,~~083~~521

914,~~450~~199

Sales commissions and expenses

5,~~364~~084

4,~~981~~932

1116,~~016~~100

1015,~~093~~025

Professional fees

~~921~~979

~~662~~546

12,~~508~~487

1,~~260~~806

Member and restaurant marketing

~~797~~686

~~599~~637

12,~~485~~171

1,~~275~~912

Depreciation and amortization

1,~~228~~159

1,~~315~~233

23,~~531~~690

24,~~818~~051

General and administrative

32,~~331~~860

2,~~799~~454

68,~~072~~932

58,~~570~~024

Total operating expenses

1615,~~655~~206

1514,~~089~~551

3247,~~695~~901

3045,~~466~~017

Operating income

2,~~528~~587

2,~~287~~981

57,~~099~~686

36,~~189~~170

Other income (expense):

Interest and other income

—

1017

Interest expense and financing costs

(3031

)

(2022

)

(6293

)

(6082

)

Income before income tax provision

2,~~498~~556

2,~~272~~966

57,~~038~~594

36,~~139~~105

Income tax provision

~~941~~1,479

~~992~~1,059

13,~~954~~433

13,~~972~~031

Net income

1,~~557~~077

1,~~280~~907

34,~~084~~161

13,~~167~~074

Earnings per share of common stock:

Basic

0.1712

0.1422

0.3547

0.1334

Diluted

0.1712

0.1421

0.3446

0.1334

Weighted average number of common and common equivalent shares outstanding:

Basic

8,~~946~~953

8,~~912~~764

8,~~893~~913

98,~~033~~941

Diluted

9,~~107~~057

8,~~948~~924

9,~~055~~045

9,~~094~~119

See accompanying notes to unaudited condensed consolidated financial statements.

REWARDS NETWORK INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six Months EndedJune 30,
	Nine Months Ended September 30,
	(Unaudited)
	2010			2009
Cash flows from operating activities:
Net income	$	34,~~084~~161		$	13,~~167~~074
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		23,~~531~~690			24,~~818~~051
Provision for losses		12,~~777~~851			57,~~438~~249
Stock-based compensation		1,~~333~~565			~~804~~1,208
Deferred income taxes		1,~~586~~485			45,~~206~~286
Changes in assets and liabilities:
Accounts receivable		~~562~~373			~~471~~43
Dining credits including accounts payable—dining credits		(511,~~096~~247	)		13,~~605~~675
Prepaid expenses		(~~552~~90	)		(~~393~~55	)
Income taxes receivable		~~(1,027~~456	)		(3,~~547~~644	)
Other assets		(8034	)		~~125~~154
Accounts payable—member benefits		~~(298~~1,223	)		(~~1,271~~989	)
Accounts payable—trade		(~~787~~737	)		29(746	)
Accrued compensation		(~~1,180~~832	)		(~~1,999~~989	)
Other liabilities		~~291~~(227	)		(~~279~~520	)
Litigation and related accruals		—			(3,164	)
Deferred membership fee income		(6997	)		(93237	)
Net cash provided by operating activities		2,~~075~~540			1724,~~917~~396
Cash flows from investing activities:
Additions to property and equipment		(23,~~861~~614	)		(12,~~506~~275	)
Net cash used in investing activities		(23,~~861~~614	)		(12,~~506~~275	)
Cash flows from financing activities:
Common stock repurchased		(153	)		(4,138	)
Proceeds from the exercise of stock options		10			—13
Tax benefit from the issuance of stock awards and exercise of stock options		~~572~~591			—
Net cash provided by (used in) financing activities		~~429~~448			(4,~~138~~125	)
Effect of exchange rate on cash and cash equivalents		—71			(~~267~~81	)
Net (decrease) increase in cash and cash equivalents		(~~357~~555	)		1217,~~006~~915
Cash and cash equivalents:
Beginning of the period		12,665			9,008
End of the period	$	12,~~308~~110		$	2126,~~014~~923
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	—		$	—
Income taxes	$	825		$	1,~~667~~670

See accompanying notes to unaudited condensed consolidated financial statements.

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~~September 30, 2010, the ~~unaudited~~results ~~condensed consolidated statements~~ of operations of the Company for the three and nine ~~six~~ months ended ~~June~~September 30, 2010 and 2009 and the ~~unaudited condensed consolidated statements of~~ cash flows of the Company for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 have been made. Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2010 are not necessarily indicative of the results to be expected for the full year. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission on March 16, 2010. The condensed consolidated balance sheet as of December 31, 2009 is derived from the Company’s audited consolidated financial statements.

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

The Company offers two programs to restaurants — the Marketing Services Program and the Marketing Credits Program. In both the Marketing Credits Program and Marketing Services Program, the Company markets participating restaurants principally through its internet, email and mobile smartphone applications as well as various social media outlets. The Company’s programs are designed to increase the frequency of dining and the amount spent by members at participating restaurants by providing incentives to dine at these restaurants, including airline miles, college savings rewards, reward program points, and cash back benefits. As members spend more at participating restaurants, the amount of incentives they receive for dining increases. The Company also offers reporting and customer feedback to participating restaurants and provides aggregate data regarding members’ activity and feedback through comments and ratings gathered from surveys. 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.

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

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

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~~143 and $~~137~~139 for the three months ended ~~June~~September 30, 2010 and 2009, respectively, and $~~282~~424 and $~~275~~413 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively, under this agreement.

The Company has entered into ~~two~~three storage space lease agreements with Equity Office Properties Management Corp., the agent for Two North Riverside Plaza Joint Venture Limited Partnership, ~~one~~ dated ~~November~~May 26, ~~2005~~2010, October 27, 2006 and ~~one dated~~ October 2722, ~~2006~~2003. The leases provide for an aggregate of 1,~~171~~424 square feet of storage space at Two North Riverside Plaza, Chicago, Illinois. The term of both leases is month-to-month. The Company paid rent of $5 ~~and $8~~ for each of the three months ended ~~June~~September 30, 2010 and 2009, ~~respectively~~ and $914 and $1621 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively.

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

Remaining two quarters of 2010	$	287
Remaining quarter of 2010	$	144
Year ending December 31, 2011		386
Thereafter		—
Total minimum lease payments	$	~~673~~530

Note 3 – Basic and Diluted Net Income per Share

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

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2010		2009		2010		2009
Net income	$	1,077	$	1,907	$	4,161	$	3,074

Weighted average number of shares of common stock and common stock equivalents outstanding
Basic		8,953		8,764		8,913		8,941
Stock options and restricted stock		104		160		132		178

Diluted		9,057		8,924		9,045		9,119


Earnings per share
Basic	$	0.12	$	0.22	$	0.47	$	0.34

Diluted	$	0.12	$	0.21	$	0.46	$	0.34

	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

Note 4 – Business and Credit Concentrations

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

Note 4 – Business and Credit Concentrations


	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Airlines		59.8	%		60.2	%		59.7	%		59.2	%

All partners that each represent 10% or more of sales		65.5	%		56.8	%		65.6	%		58.3	%

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~~ minimum obligations with respect to each partner and vendor will be satisfied and records a liability for any estimated shortfall. There were no such liabilities recorded at September 30, 2010. The Company has minimum purchase obligations with these partners and vendors as follows:

Remaining two quarters of 2010	$	9,024
Remaining quarter of 2010	$	4,585
2011		5,950
2012		360
2013		180
Thereafter		—
Total minimum partner and vendor obligations	$	1511,~~514~~075

Note 6 – Comprehensive Income

The Company’s comprehensive income was as follows:

	Three Months EndedJune 30,						Six Months EndedJune 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
Net income	$	1,~~557~~077		$	1,~~280~~907		$	34,~~084~~161		$	13,~~167~~074
Other comprehensive loss:
Other comprehensive income:
Foreign currency translation adjustment		~~(142~~95	)		~~(162~~252	)		(194	)		~~(198~~54	)
Total comprehensive income	$	1,~~415~~172		$	12,~~118~~159		$	34,~~083~~255		$	~~969~~3,128

Note 7 – Cash and Cash Equivalents

Cash and cash equivalents of $12,~~308~~110 and $12,665 at ~~June~~September 30, 2010 and December 31, 2009, respectively, include overnight repurchase agreements and money market funds with an initial term of less than three months. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.

Note 8 – Stock Awards

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


	Shares			Weighted Average Grant-Date Fair 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 September 30, 2010		266		$	12.51

	Shares		WeightedAverage Grant-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 September 30, 2010, approximately $776 of total unrecognized compensation costs related to restricted stock unit awards are expected to be recognized over a weighted-average period of approximately 11 months. The vesting period of the 2008 and 2009 grants and the associated stock compensation expense will be accelerated if there is a change in control of the Company as contemplated by the Agreement and Plan of Merger with EGI Acquisition Parent, L.L.C., as discussed in Note 10 of this Quarterly Report on Form 10-Q. The Company recorded $180 and $1,408 of stock compensation expense during the three and nine months ended September 30, 2010, respectively, and $381 and $1,208 of stock compensation expense during the three and nine months ended September 30, 2009 relating to restricted stock units.

~~Restricted~~In ~~stock~~addition, ~~unit~~the ~~awards~~Company ~~granted~~established ~~during 2009 and 2010 contain~~ a ~~combination~~pool of aadditional ~~performance condition~~paid-in ~~linked~~capital related to the ~~Company’s~~tax ~~performance~~effects ~~and~~of aemployee ~~service condition, or a performance~~ and ~~market~~director ~~condition~~share-based compensation ~~linked~~(“APIC toPool”) ~~the performance~~ of ~~the~~$6 ~~Company’s~~and ~~stock~~$576 ~~price.~~during ~~The~~the ~~performance~~three and ~~service~~nine ~~conditions~~months ~~vest~~ended ~~over~~September 30, a2010, ~~one~~respectively. toThe ~~three~~APIC ~~year service~~pool ~~period~~is ~~subject~~available to ~~the~~absorb ~~achievement~~any offuture ~~the~~recognized ~~performance~~tax ~~condition~~deficiencies. The ~~component~~Company ~~containing~~calculated the ~~performance~~APIC ~~and~~Pool ~~market~~by tracking ~~conditions~~each ~~may~~award ~~vest~~grant ~~over~~on aan ~~period~~individual-by-individual ofand upgrant-by-grant basis to ~~three~~determine ~~years.~~if ~~The~~there ~~vesting~~is ~~related~~an toexcess ~~the~~tax ~~performance~~benefit ~~and~~or ~~market~~tax ~~conditions~~deficiency for ~~the 2009~~such ~~grants were met in 2010 upon achievement of the market condition~~award. The ~~stock~~Company ~~based~~then ~~compensation~~compared ~~expense for~~ the ~~2009~~fair ~~and~~value ~~2010~~expense ~~grants are being recognized over a one~~ to ~~three~~the ~~year~~tax ~~period.~~deduction ~~Restricted~~received ~~stock~~for each ~~unit~~grant ~~awards~~and ~~granted~~aggregated ~~during~~the ~~2008~~benefits ~~generally vest~~ and ~~settle~~deficiencies ~~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~~establish ~~stock~~and ~~unit~~maintain ~~awards are expected to be recognized over~~ the ~~weighted-average~~ ~~period~~APIC ~~of approximately 14 months~~Pool. The Company ~~recorded~~groups ~~$679 and $1,228 of stock compensation expense during~~ the ~~three~~excess ~~and~~tax ~~six~~benefits ~~months~~from ~~ended~~both ~~June 30,~~employee ~~2010, respectively~~ and ~~$623~~director ~~and $761 of~~ stock ~~compensation~~awards ~~expense~~into ~~during~~a ~~the three~~single ~~and~~APIC ~~six months ended June 30, 2009 relating to restricted stock units~~pool.

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~~nine ~~month~~months ended ~~June~~September 30, 2010, the Company repurchased 15 shares for $153 pursuant to a 10b5-1 trading plan. The Company purchased a total of 505 shares for $4,790 since the repurchase authorization. Repurchases ~~are~~were dependent on market conditions and other factors. The purchases were funded from cash and cash equivalents and the repurchased shares are maintained as treasury shares for possible future use. The 10b5-1 trading plan was terminated effective June 9, 2010.

Note 10 – ~~Indications~~Subsequent ofEvent ~~Interest~~

On ~~June~~October 928, 2010, the Company ~~announced~~entered ~~that~~into itan ~~has~~Agreement ~~received~~and ~~non-binding~~Plan ~~indications~~ of ~~interest~~Merger ~~from~~with ~~parties~~EGI ~~potentially~~Acquisition ~~interested~~Parent, ~~in pursuing~~L.L.C., a ~~strategic~~Delaware ~~transaction~~limited ~~with~~liability ~~the~~company ~~Company~~(“Parent”), and EGI Acquisition, L.L.C., Aa ~~special~~Delaware ~~committee~~limited ofliability ~~independent~~company ~~directors~~and a wholly owned subsidiary of ~~the~~Parent ~~Board~~(“Purchaser”). Each of ~~Directors~~Parent and Purchaser are affiliates of Equity Group Investments, L.L.C., a Delaware limited liability company. Under the ~~Company~~Agreement and isPlan ~~evaluating~~of ~~these~~Merger, ~~indications~~Purchaser will offer to acquire all shares of ~~interest~~Company ~~and~~common ~~other~~stock ~~strategic~~not ~~alternatives~~owned by Purchaser through a cash tender offer for $13.75 ~~The~~per ~~special~~share. ~~committee~~Purchaser ~~has~~intends ~~engaged~~to commence the tender offer on or before November 8, 2010. The ~~advisors~~tender ~~and~~offer ~~counsel~~will toexpire ~~assist~~20 inbusiness ~~evaluating~~days after the ~~indications~~date it commences unless it is extended. Following the expiration of ~~interest~~the ~~received~~tender tooffer, ~~date~~if ~~and~~Purchaser owns at least 90% of the outstanding shares of Company common stock, Purchaser intends to complete ~~pursue~~the aacquisition ~~broader~~of ~~exploration~~the Company through the short-form procedure under Delaware law. In the merger, each outstanding share of ~~strategic~~Company ~~alternatives~~common stock not tendered and purchased in anthe ~~effort~~tender offer will be converted into the right to ~~enhance~~receive ~~shareholder~~the same ~~value~~consideration provided in the tender offer.

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.

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~~three quarters of 2010, we continued to be focused strategically on evolving into the leading provider of marketing services to the restaurant industry while managing the risks in our dining credits portfolio. We sought to improve our marketing services by opening our network to increase interaction among members, restaurants and partners. We believe that opening the network and focusing more aggressively on marketing services will provide us with more opportunities for growth and client retention. As a result of these efforts, as of ~~June~~September 30, 2010, we increased the number of ~~Marketing~~ Marketing Services Program restaurants by 1951,~~075,~~ or 2218.13%, as compared to ~~June~~September 30, 2009. During the same period, we increased our active member base by 86.20%, increased the ~~average spend per member by 8.6%, increased the~~ number of completed surveys by 83 39.3% and increased the number of email addressable members by 810.02%. 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~~growth in ~~our~~the ~~marketing~~Marketing ~~efforts~~Services ~~have~~Program ~~contributed~~has tobeen ~~the~~driven ~~consistent~~by ~~growth~~increased sales focus on this program and improved product features. We remain focused on continuous improvement in ~~our~~the Marketing Services Program because we expect it to be the primary vehicle to drive future revenue and profitability growth. Marketing Services Program revenues for the three months ended ~~June~~September 30, 2010 were 3915.46% higher than in the same period in the prior year. ~~Total~~While Marketing Services Program revenues ~~increased~~increase, 4total revenues decreased 0.97% for the three months ended ~~June~~ September 30, 2010 compared to the same period in the prior year due to a ~~$3,159~~9.5% ~~increase~~decrease in ~~revenues in~~ the Marketing ~~Services~~Credits Program revenues. The growth in the Marketing Services Program is attractive because it does not require us to put capital at risk and we believe the opportunity to grow this product line is greater than the market opportunity for the Marketing Credits Program.

Our Marketing Credits Program continues to be a significant part of our business. InWe ~~the~~continually ~~second~~evaluate ~~quarter~~our dining credits purchasing policies by monitoring the performance of ~~2010,~~our ~~Marketing~~dining ~~Credits~~credits portfolio ~~Program~~and ~~revenues~~observing ~~declined~~current 9economic trends facing the restaurant industry.3% asWe ~~compared~~began to observe the ~~same~~amount ~~period~~of inmember ~~the~~spend ~~prior~~at ~~year,~~participating ~~reflecting~~restaurants stabilize during the ~~fact~~second ~~that~~quarter weof ~~purchased~~2009 ~~fewer~~through ~~dining~~the ~~credits~~first ~~under~~half ~~the~~of ~~more~~2010. ~~conservative~~Based ~~dining~~on our ~~credits~~observations ~~purchasing~~regarding ~~policies~~member ~~that~~spending weat ~~adopted~~our ~~during~~restaurants ~~mid-2008~~and inour ~~light~~analysis of the ~~significant~~performance ~~economic~~of ~~challenges~~individual ~~and~~restaurants ~~the~~in ~~credit~~our ~~uncertainty~~dining ~~facing~~credits ~~both~~portfolio, ~~the~~we ~~restaurant~~modified ~~industry~~our ~~and~~approach ~~consumers.~~to ~~These~~purchasing ~~more~~dining ~~conservative~~credits ~~policies~~in ~~were~~the ~~aimed~~first athalf ~~scrutinizing~~of 2009 and again in the ~~quality~~second ~~and~~quarter ~~reducing~~of 2010 to increase the amount of dining credits we ~~purchased~~purchase from ~~individual~~ restaurants ~~and~~that ~~the~~meet ~~estimated~~certain ~~months~~criteria relating to ~~consume~~risk, ~~the~~sales volume and length of time in our program. As a result, our net dining credits ~~purchased~~portfolio increased to $66,055 ~~which~~as weof ~~refer~~September 30, to2010 from $57,299 as ~~the~~of ~~usage~~December 31, ~~period~~2009 and $55,125 as of September 30, 2009. ~~These~~The ~~policies~~number ~~resulted~~of inMarketing ~~fewer~~Credits Program restaurants decreased by 351, or 7.1%, as of September 30, 2010 from ~~participating~~September 30, in2009 ~~the~~and Marketing Credits Program ~~and~~revenues adeclined ~~smaller~~9.5% during the third quarter of 2010 as compared to the prior year period, despite the increase in the net dining credits balance. ~~through~~Although ~~mid-2009~~we have fewer merchants in the portfolio than in the prior year, we believe that these merchants are generally more credit worthy merchants than merchants in the prior year period. We believe that our dining credits portfolio substantially reflects our more conservative policies as evidenced by the reduction in the provision for losses expense.

We ~~continually~~adjust ~~evaluate~~ our ~~dining~~approach ~~credits~~to purchasing ~~policies by monitoring the performance of our~~ dining credits ~~portfolio~~in response ~~and~~to ~~observing current~~ economic trends ~~facing the restaurant industry~~. WeIf 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~~continue ~~approach~~ to ~~purchasing~~purchase ~~dining~~more ~~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~~we ~~certain~~identify ~~criteria~~as ~~relating~~acceptable to risk, ~~sales~~it ~~volume~~could ~~and~~result ~~length of time~~ in ~~our~~an ~~program.~~increase Asin athe ~~result,~~size of 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~~use as of ~~June 30, 2009~~cash. ~~The~~If ~~number~~we ofbecome ~~Marketing Credits Program restaurants~~more ~~decreased~~conservative byit ~~731,~~would orlikely ~~13.7%,~~result asin ofa ~~June 30,~~further ~~2010~~decrease ~~from June 30, 2009, despite the increase~~ in the ~~net~~size ~~dining credits balance. The composition~~ of our dining credits portfolio ~~has~~and ~~changed~~lower ~~over~~future ~~time~~revenues. asOur ~~dining~~allowance ~~credits~~for ~~that~~unredeemable ~~we purchased under previous purchasing policies are consumed and replaced by~~ dining credits ~~purchased~~may ~~under~~also ~~our~~increase ~~more~~or ~~conservative~~decrease ~~policies.~~as Wea ~~believe~~result ~~that~~of ~~our~~the ~~dining~~performance ~~credits~~of our portfolio ~~substantially~~and ~~reflects~~of our ~~more~~assessment ~~conservative~~of ~~policies as evidenced by~~ the ~~reduction in the provision for losses expense~~economy.

WeOperating ~~expect~~expenses toduring ~~continue to grow~~ the ~~dining~~nine ~~credits~~months ~~portfolio~~ended ~~but~~September 30, ~~dining credits purchases~~2010 ~~must~~increased ~~continue~~as compared to ~~meet~~the ~~our~~same ~~disciplined~~period ~~purchasing~~in ~~policies.~~the Weprior ~~adjust~~year ~~our~~as ~~approach~~we continued to ~~purchasing~~invest ~~dining credits~~ in ~~response~~opportunities to ~~economic~~accelerate ~~trends.~~growth, Ifincluding wean ~~continue~~increase toin ~~purchase~~headcount, ~~more~~and ~~dining~~the ~~credits~~development ~~from~~and ~~restaurants~~testing ~~that~~of wea ~~identify~~new asdaily ~~acceptable~~specials ~~risk,~~product ~~it could~~in ~~result~~two inmetropolitan markets. anIn ~~increase~~addition, inwe ~~the~~incurred ~~size~~$467 ofand ~~our~~$879 ~~dining~~for ~~credits~~the ~~portfolio~~three and ~~use~~nine ofmonths ~~cash.~~ended IfSeptember 30, we2010, ~~become~~respectively, ~~more~~in ~~conservative~~expenses itrelated ~~would~~to ~~likely~~the ~~result~~previously inannounced aprocess ~~further~~implemented ~~decrease~~by in the ~~size~~Board of ~~our~~Directors ~~dining~~of ~~credits~~the ~~portfolio~~Company ~~and~~to ~~lower future revenues. Our allowance~~evaluate ~~for~~indications ~~unredeemable~~of ~~dining~~interest ~~credits~~received ~~may~~from ~~also~~parties ~~increase~~potentially orinterested ~~decrease~~in aspursuing a ~~result~~strategic oftransaction with the ~~performance~~Company ~~of our portfolio~~ and ofother ~~our~~strategic ~~assessment of the economy~~alternatives.

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

~~Operating~~During ~~expenses during~~ the ~~first~~fourth quarter ~~half~~ of ~~2010~~2009, ~~increased as compared to the same period in the prior year as~~ we ~~continued~~revised ~~to invest in opportunities to accelerate growth, including an increase in~~ our ~~investment~~revenue inpresentation ~~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~~statement ~~quarter~~ of ~~2009~~operations ~~and~~from ~~the~~reporting ~~first~~gross ~~half~~revenues ~~of 2010 and invested in sales force productivity tools in an effort~~ to ~~increase~~presenting ~~restaurant count and~~ revenues innet ~~both~~ of ~~our products. While we see~~ the ~~current environment~~redemption ~~as challenging, we also see an opportunity to continue to add more restaurants to our programs. We increased the total number~~ of ~~restaurants~~dining ~~in our program to 10~~credits,~~541~~ ~~at June 30, 2010,~~ as ~~compared~~described tofurther ~~10,197 at June 30, 2009. We believe that the increase~~ in ~~restaurants~~Note is2 ~~an indicator~~ of ~~our~~the ~~improved~~notes ~~marketing~~to ~~and~~consolidated ~~improved~~financial statements ~~sales~~included ~~force productivity, driven~~ in ~~part by the maturity of~~ our ~~sales~~Annual ~~force~~Report ason ~~well~~Form as10-K ~~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~~year ~~and six months~~ ended ~~June~~December 3031, 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 alternatives2009.

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~~or that members will not dine at the restaurant as frequently as we expect or indeed enough to use all of the dining credits that we purchased. There is no term to our agreement with the restaurant and if members do not dine at the restaurant, we have no recourse to the restaurant for recovery of the dining credits. In addition, a restaurant may repurchase from us at any time the dining credits at their original cost. If the financial condition of our restaurant base were to deteriorate beyond our expectations, resulting in participating restaurants’ inability to provide food, beverage, goods and services to members and thereby reducing the redemption of dining credits, if restaurants are unwilling or otherwise ~~unable~~ 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~~allowances for unredeemable dining credits and doubtful accounts receivable may be required.

We apply a reserve rate to dining credits based upon certain characteristics, such as whether the account has been referred for legal collection, the date of the last payment received, whether our attempt to debit the restaurant’s bank account for payments due to us has been rejected and whether such rejected debit has been resolved, the restaurant owner’s ~~commercial~~personal credit score, and the expected usage period of the dining credits. The reserve rate for each account is based upon historical charge-off ~~rates~~experience ofwith 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~~the restaurant ~~base~~ to our members. Subsequent to the account being written off, we may continue to pursue recovery efforts.

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

Deferred Tax Assets Valuation Allowance

We record a valuation allowance to reduce our deferred tax assets to reflect the amount that we believe is more likely than not to be realized. We consider future taxable income and available tax planning strategies in assessing the need for a valuation allowance. In the event we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period in which such determination is made. As of September 30, 2010, we believe that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax asset.

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~~apply ~~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~~September 30, 2010 was $8,117.

Revenue Recognition

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

RESULTS OF OPERATIONS – COMPARISON OF THE THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2010 AND 2009

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

	Percentage of Revenuesfor the Three Months EndedJune 30,
	Percentage of Revenuesfor the Three Months EndedSeptember 30,
	2010		~~2009~~	2009
Total revenues	~~100.0~~	100.0	~~100.0~~		100.0
Member benefits	~~29.1~~	30.6	~~28.6~~		29.4
Provision for losses	~~3.4~~	3.9	~~7.3~~		6.5
Processing fees	~~1.1~~	1.0	~~1.0~~		1.0
Gross profit	~~66.4~~	64.5	~~63.1~~		63.1
Salaries and benefits	~~17.3~~	16.1	~~17.2~~		17.1
Sales commission and expenses	~~18.6~~	18.4	~~18.1~~		17.8
Professional fees	~~3.2~~	3.6	~~2.4~~		2.0
Member and restaurant marketing expenses	~~2.8~~	2.5	~~2.2~~		2.3
Depreciation and amortization	~~4.2~~	4.2	~~4.8~~		4.4
General and administrative expenses	~~11.5~~	10.4	~~10.2~~		8.8
Total operating expenses	~~57.6~~	55.1	~~54.8~~		52.4
Operating income	~~8.8~~	9.4	~~8.3~~		10.7
Other expense, net	~~(0.1~~	)0.1	~~(0.1~~	)	0.1
Income before income tax provision	~~8.7~~	9.3	~~8.2~~		10.7
Income tax provision	~~3.3~~	5.4	~~3.6~~		3.8
Net income	~~5.4~~	3.9	~~4.6~~		6.9

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,
	For The Three Months Ended September 30,
	2010												2009
	MarketingCredits Program			MarketingServices Program			MembershipFees			Total			MarketingCredits Program			MarketingServices Program			MembershipFees			Total
	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
Restaurant count as of September 30, 2010 and 2009, respectively		4,569			6,152						10,721			4,920			5,201						10,121
Number of qualified transactions(1)		1,~~327~~290			1,~~648~~719						23,~~975~~009			1,~~396~~311			1,~~177~~436						2,~~573~~747
Average transaction amount(1)	$	4544.4035		$	4644.3079					$	4544.9060		$	44.1960		$	4546.5369					$	4445.8070
Qualified transaction amount(1)	$	6057,~~246~~208		$	76,~~300~~995					$	~~136~~134,~~546~~203		$	6158,~~683~~473		$	5367,~~583~~053					$	~~115~~125,~~266~~526
Rewards Network percentage share of qualified transaction amount(1) (2)		7169.13	%		14.6	%					3937.69	%		7573.57	%		1514.05	%					4742.31	%
Rewards Network share of qualified transaction amount and membership fees(1)	$	4239,~~859~~646		$	11,~~168~~219		$	~~251~~239		$	5451,~~278~~104		$	4643,~~546~~082		$	89,~~009~~702		$	~~278~~261		$	5453,~~833~~045
Redemption of dining credits(1)	$	2523,~~387~~519		$	—		$	—		$	2523,~~387~~519		$	2725,~~279~~261		$	—		$	—		$	2725,~~279~~261
Total revenues	$	1716,~~472~~127		$	11,~~168~~219		$	~~251~~239		$	2827,~~891~~585		$	1917,~~267~~821		$	89,~~009~~702		$	~~278~~261		$	27,~~554~~784
Revenue as a percentage of qualified transaction amount(1) (2)		2928.02	%		14.6	%					2120.04	%		3130.25	%		14.95	%					2321.79	%
Member benefits	$	2,~~418~~791		$	3,~~003~~025		$	—		$	5,~~421~~816		$	32,~~411~~410		$	2,~~677~~795		$	—		$	65,~~088~~205
Bonus rewards	$	~~795~~634		$	~~1,011~~838		$	—		$	1,~~806~~472		$	~~351~~830		$	~~302~~986		$	—		$	~~653~~1,816
Partner commissions	$	~~557~~520		$	~~631~~623		$	—		$	1,~~118~~143		$	~~626~~563		$	~~513~~580		$	—		$	1,~~139~~143
Total member benefits	$	3,~~770~~945		$	4,~~645~~486		$	—		$	8,~~415~~431		$	43,~~388~~803		$	34,~~492~~361		$	—		$	78,~~880~~164
Provision for losses	$	~~990~~1,074		$	—		$	—		$	~~990~~1,074		$	21,~~011~~811		$	—		$	—		$	21,~~011~~811
Processing fees	$	~~146~~130		$	157		$	—		$	~~303~~287		$	~~152~~128		$	~~135~~149		$	—		$	~~287~~277
Gross profit	$	1210,~~566~~978		$	6,~~366~~576		$	~~251~~239		$	1917,~~183~~793		$	12,~~716~~079		$	45,~~382~~192		$	~~278~~261		$	17,~~376~~532
Gross profit as a percentage of total revenues		71.9	%		57.0	%		100.0	%		66.4	%		66.0	%		54.7	%		100.0	%		63.1	%
Gross profit as a percentage of total revenues(1)		68.1	%		58.6	%		100.0	%		64.5	%		67.8	%		53.5	%		100.0	%		63.1	%

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

⁽²⁾	Total percentages exclude membership fees.

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

Ending restaurant count as of ~~June~~September 30, 2010 was 10,~~541~~721 compared to 10,~~197~~121 as of ~~June~~September 30, 2009, an increase of 35.49%. The increase in total restaurant count was driven by aan 2218.23% increase in Marketing Services Program restaurants to 56,~~929~~152 restaurants, partially offset by a ~~13.~~7.1% decrease in Marketing Credits Program restaurants to 4,~~612~~569 restaurants.

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

The ~~decline~~composition inof the ~~number of Marketing Credits Program restaurants is due to our continued application of disciplined~~ dining credits ~~purchasing~~portfolio ~~policies~~has ~~and~~shifted ~~credit~~since ~~standards. As a result,~~ the ~~composition~~third quarter of ~~the~~2008 ~~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~~third quarter of 2010, our net dining credits portfolio balance grew with purchases from restaurants that ~~meet~~met our risk standards and we retained restaurants that performed well in our program.

We continually evaluate our dining credits purchasing policies by monitoring the performance of our dining credits portfolio and observing current economic trends facing the restaurant industry. Based on our analysis of economic trends and the performance of individual restaurants in our dining credits portfolio, we adjusted our dining credits purchasing policies beginning the second quarter of 2009 ~~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 78.04 months as of ~~June~~September 30, 2010 from 6.25 as of ~~June~~September 30, 2009. In addition, the disciplined management and the performance of the dining credits portfolio has resulted in a significant reduction in the provision for losses expense. As a result of the increased usage period and our targeted effort in 2010 to increase the level of dining credits we purchase, our net dining credits balance as of ~~June~~September 30, 2010 increased by $36,~~240~~696 from ~~March~~June 3130, 2010 and by $28,~~060~~756 from December 31, 2009 to $5960,~~359~~055.

Qualified transaction ~~amounts~~amount at our participating restaurants increased $218,~~280~~677, or 186.59%, to $~~136~~134,~~546~~203 for the three months ended ~~June~~September 30, 2010 ~~compared~~from to$125,526 for the same period in the prior year as a result of the increase in restaurant count, and an increase in the number of qualified transactions, ~~and~~partially anoffset ~~increase~~by a decrease in average transaction amount. The number of qualified transactions increased ~~402~~262 or 159.65% for the three months ended ~~June~~September 30, 2010 compared to the same period in the prior year. Average transaction amount ~~increased~~decreased by $1.10, or 2.54%, to $4544.90 60 for the three months ended ~~June~~September 30, 2010 from $4445.8070 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.

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

Rewards Network share of qualified transaction amount and membership fees for three months ended September 30, 2010 decreased 3.7% to $51,104 for the three months ended September 30, 2010 compared to $53,045 for the same period in the prior year, primarily due to a $3,436 or 8.0% decrease in Marketing Credits Program share of qualified transaction amount, partially offset by a $1,517 or 15.6% increase in the Marketing Services Program share of qualified transaction amount. Marketing Credits Program share of qualified transaction amount decreased as a result of fewer Marketing Credits Program restaurants participating in our program and a decline in average transaction amount. Membership fees, which relate to our proprietary cash back program, iDine, decreased 8.4% due to a decline in fee paying members and the impact of an earn-your-dues dining program in which members earn their annual fees through the reduction of their cash back rewards savings. Beginning in mid-2008, we introduced a new membership program that eliminated fees for certain members. We expect membership fees to decline as more members enroll in the no-fee program. However, we also expect the member benefits paid to these iDine members to decline as a result of changes made to the program. Marketing Services Program share of qualified transaction amount increased as a result of a higher number of Marketing Services Program restaurants. This was partially offset by a decrease in average transaction amount and product price decreases.

Redemption of dining credits as a percent of Rewards Network ~~percentage~~ share of qualified transaction amount and membership fees decreased to 3946.60% for the three months ended ~~June~~September 30, 2010, compared to 47.36% for the ~~three~~same ~~months~~period ~~ended~~in ~~June 30,~~the ~~2009~~prior ~~due~~year. This decrease was due to a ~~higher~~shift ~~proportion~~towards of restaurants participating in the Marketing Services Program, aswhich ~~well~~has asno aredemption ~~decrease in percentages~~ of ~~both~~dining ~~programs~~credits. ~~The Marketing~~Redemption ~~Services Program percentage share~~ of ~~qualified~~dining ~~transaction~~credits ~~amount~~as ~~decreased~~a topercent ~~14.6%~~of ~~for~~Rewards ~~the~~Network ~~three~~share ~~months~~of ~~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~~ transactions amount ~~decreased~~increased to 7159.13% ~~during~~for the three months ended ~~June~~September 30, 2010, compared to 7558.56% for the ~~same~~three ~~period~~months inended ~~the~~September 30, ~~prior year as we shortened the usage period through mid-~~2009. WeThe ~~began~~increase ~~increasing the usage period~~ in ~~the later~~redemption ~~half~~ of ~~2009 and through the first half of 2010. Shortening the~~ dining credits ~~usage~~compared ~~period~~to ~~for such~~ Marketing Credits Program ~~transactions,~~share asof wequalified transaction ~~did~~amount inwas ~~2009,~~due ~~reduces~~to ~~our~~lower ~~risk~~prices ~~exposure~~on ~~with~~the ~~respect~~Marketing toCredits ~~that~~Program. ~~deal,~~We ~~but~~believe ~~also typically decreases~~ the ~~share~~reduction ofin ~~qualified~~risk ~~transaction~~and ~~amount~~increase ~~that~~in weusage ~~may~~period ~~realize~~outweighs ~~from~~the ~~that~~decrease ~~deal~~in ~~because~~price weas ~~generally~~evidenced ~~purchase~~by ~~those~~the ~~dining~~decline ~~credits~~in atthe ~~less~~provision offor ~~a discount~~losses.

~~Rewards~~Total ~~Network~~revenues ~~share~~decreased ~~of qualified transaction amount and membership fees for three months ended June 30, 2010 of~~ $~~54,278~~199 ~~decreased 1.~~or 0.7% asto ~~compared with~~ $5427,~~833~~585 for the three months ended ~~June~~September 30, ~~2009,~~2010 ~~primarily~~compared ~~due~~ to athe ~~7.9%~~same ~~decrease~~period in ~~Marketing~~the prior ~~Credits~~year ~~Program~~primarily ~~share~~as ofa ~~qualified~~result ~~transaction~~of ~~amount, partially offset by~~ a ~~39.4%~~decrease ~~increase~~ in the ~~Marketing~~number ~~Services Program share~~ of ~~qualified transaction amount.~~ Marketing Credits Program ~~share~~restaurants ofand ~~qualified transaction amount decreased as~~ a ~~result~~decrease ofaverage ~~fewer~~transaction ~~Marketing Credits Program restaurants participating in our program~~amount, 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~~restaurant 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 decreasescount.

~~Redemption~~Revenues ~~of dining credits~~ as a ~~percent~~percentage of qualified ~~transactions~~transaction amount decreased to 4620.84% ~~of our share of qualified transaction amount~~ for the three months ended ~~June~~September 30, 2010, ~~compared~~from ~~to 49~~21.79% for ofthe ~~our~~same ~~share~~period ofin ~~qualified transaction amount for~~ the ~~three~~prior ~~months ended June 30, 2009~~year. The decrease ~~in redemption of dining credits compared to our share of qualified transaction amount~~ was primarily due to a shift ~~towards restaurants participating~~ in ~~the~~mix ~~Marketing~~towards ~~Services Program, which has no redemption of dining credits. Redemption of dining credits as a percent of~~ our ~~share of the~~ Marketing ~~Credits~~Services Program ~~qualified~~and ~~transactions~~fewer ~~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~~restaurants ofparticipating ~~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~~our ~~and increase in usage period outweighs the decrease in price as evidenced by the decline in the provision for losses~~program.

~~Total~~Member ~~revenues~~benefits expense increased ~~$1,337~~to ~~or 4~~30.96% toof ~~$28,891~~total revenues for the three months ended ~~June~~September 30, 2010 compared towith 29.4% of total revenues for the same period in the prior year. ~~primarily~~The increase in member benefit expense as a ~~result~~percentage of antotal ~~increase~~revenues inwas ~~the~~primarily ~~number~~due ofto a shift towards Marketing Services Program ~~restaurants~~revenues. ~~and~~The anMarketing ~~increase~~Services inProgram ~~qualified~~has ~~transaction~~a ~~amount~~higher member inbenefit expense as a percentage of revenues. Member benefit expense for the Marketing Services Program as a percentage of Marketing Services Program revenues decreased to 40.0% for the three months ended September 30, ~~partially~~2010 ~~offset~~from by44.9% afor the ~~decline~~same period in the prior year. Member benefit expense for the Marketing Credits Program as a percentage of Marketing Credits Program revenues increased to 24.5% for the three months ended September 30, 2010 as compared with 21.3% for the ~~restaurant~~same ~~count~~period in the prior year. We have leveraged our member incentives to influence enrollment, obtain more email addresses and completed surveys and increase dining frequency and spend. As a result, during the three months ended September 30, 2010 we increased the number of active members by 6.0%, increased the number of completed surveys by 39.3% and increased the number of email addressable members by 10.2% over the prior year period.

~~Revenues~~The asprovision afor ~~percentage~~losses ofexpense ~~qualified~~decreased ~~transaction~~to ~~amount~~$1,074 ~~decreased~~or to3.9% 21of total revenues and 6.07% of Marketing Credits Program revenues for the three months ended ~~June~~ September 30, 2010 ~~from~~compared 23with $1,811 or 6.75% of total revenues and 10.2% of Marketing Credits Program revenues for the same period in the prior year. The ~~decrease~~allowance ~~was~~for ~~primarily~~unredeemable ~~due~~dining tocredits as a ~~shift~~percentage of the gross dining credits balance decreased to 12.3% as of September 30, 2010 from 16.7% as of December 31, 2009 and 19.9% as of September 30, 2009. The decline in ~~mix~~the ~~towards~~allowance for unredeemable dining credits as a percentage of the gross dining credits balance is a reflection of our ~~Marketing~~disciplined ~~Services~~management ~~Program~~of ~~and~~the ~~fewer~~dining ~~Marketing~~credits ~~Credits~~portfolio. ~~Program~~We have focused our dining credits purchases towards restaurants ~~participating~~that inwe 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 ~~program~~estimates for unredeemable dining credits.

~~Member~~Processing ~~benefits~~fees ~~expense~~slightly increased to ~~29.~~$287 or 1.0% of total revenues for the three months ended ~~June~~September 30, 2010 ~~compared~~from ~~with~~$277 28or 1.60% 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~~Processing ~~Marketing~~fees ~~Services~~are ~~Program~~driven ~~has~~by ~~a higher member benefit expense as a percentage of revenues. Member benefit expense for~~ the ~~Marketing~~number ~~Services Program as a percentage~~ of ~~Marketing~~credit ~~Services~~card ~~Program~~transactions ~~revenues~~at ~~decreased~~participating ~~to 41~~restaurants.6% ~~for~~Processing ~~the~~fees ~~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~~qualified ~~Credits~~transaction ~~Program revenues also decreased to 21.6% for the three months ended June 30, 2010 as compared with 22.8% for the same period~~amount inremained ~~the~~consistent ~~prior~~between ~~year.~~periods Weat ~~have leveraged our member incentives to influence enrollment, obtain more email addresses and completed surveys and increase dining frequency and spend~~0. ~~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.~~

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

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~~decreased $~~281~~311 or 56.95% to $54,~~014~~438 for the three months ended ~~June~~September 30, 2010 from $4,~~733~~ 749 for the same period in the prior year primarily due to ana ~~increase~~reduction in ~~management~~incentive ~~bonus~~and ~~accrual~~stock ~~and~~compensation anexpenses, ~~increase~~partially inoffset ~~average~~by ~~general~~an ~~and~~increase ~~administrative~~in ~~salaries~~headcount.

Sales commissions and expenses include sales force salaries and benefits, commissions, travel costs and training. Sales commissions and expenses increased to 18.64% of total revenues for the three months ended ~~June~~September 30, 2010 compared to 1817.18% of total revenues for the same period in the prior year primarily due to an increase in sales headcount and an increase in sales commissions, partially offset by a reduction in incentive compensation expense. We added additional sales employees during the fourth quarter of 2009 and the first half of 2010. Newly hired sales employees typically take ~~six~~nine months to achieve normal productivity. In addition, sales commissions are based on the profitability of the account and ~~revenues and~~ gross profit improved during the three months ended ~~June~~September 30, 2010 as compared to the same period in the prior year.

Professional fees increased $~~259~~433, or 3979.13%, to $~~921~~979 for the three months ended ~~June~~September 30, 2010 as compared to $~~662~~546 for the same period in the prior year. As previously announced on June 9, 2010, a special committee of independent directors of the Board of Directors is evaluating indications of interest received from parties potentially interested in pursuing a strategic transaction with the Company and other strategic alternatives. We incurred $~~316~~467 in expenses related to this process during the three months ended ~~June~~September 30, 2010. There was no such expense during the three months ended ~~June~~September 30, 2009.

Member and restaurant marketing expenses increased $~~198~~49 or 337.17% for the three months ended ~~June~~September 30, 2010 compared to the same period in the prior year mainly as a result of the development and implementation of a new daily specials product in two metropolitan markets, found at www.idinedeals.com,. asThis wewas ~~continue~~partially tooffset ~~invest~~by a reduction in ~~opportunities~~other togeneral ~~accelerate~~marketing ~~growth~~expenses.

Depreciation and amortization costs decreased $8774 or 6.60% for the three months ended ~~June~~September 30, 2010 as compared to ~~the~~ the same period in the prior year as certain investments in technology supporting the automation of internal processes and general information technology investments ~~matured~~became fully depreciated.

General and administrative expenses increased by $~~532~~406 or 1916.05% for the three months ended ~~June~~September 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 administrative headcount, increased rent expense from the upgrade of our disaster recovery facility, increased telephone expense and an increase in severance expense.

Other Income and Expense

There was no interest and other income recorded during the three months ended ~~June~~September 30, 2010 as compared to $57 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 $109 to $3031 due to an increase in our line of credit fees.

Income tax provision

Our effective tax rate for the three months ended ~~June~~September 30, 2010 was 3757.79% compared with 4335.7% for the same period in the prior year primarily due to the impact of ~~state~~a ~~and~~change in our annual election relating to foreign taxes. ~~between~~Based ~~periods~~on our estimated foreign source income, we elected to take a foreign tax deduction rather than a foreign tax credit as in the prior year period. In addition, the three months ended September 30, 2010 includes an adjustment relating to this change in election as a result of filing the 2009 tax return.

Net income

Net income ~~was~~decreased $830 to $1,~~557~~077 for the three months ended ~~June~~September 30, 2010 compared with $1,~~280~~907 for the ~~three~~same ~~months~~period ~~ended~~in ~~June 30,~~the ~~2009~~ prior year primarily due to an increase in ~~gross~~operating ~~profit~~expenses inand ~~the~~a higher ~~Marketing~~effective ~~Services~~tax ~~Program~~rate, ~~and~~partially offset by a ~~reduction~~decrease in the provision for losses ~~expense~~.

Basic weighted average number of shares outstanding increased to 8,~~946~~953 for the three months ended ~~June~~September 30, 2010 compared to 8,~~912~~ 764 for the same period in the prior year. Diluted weighted average shares outstanding increased to 9,~~107~~057 for the three months ended ~~June~~ September 30, 2010 compared to 8,~~948~~924 for the same period in the prior year. The increase in the basic and weighted average number of shares outstanding was due to the issuance of shares upon vesting of restricted stock unit awards, partially offset by the repurchase of shares during ~~2009 and~~ 2010.

~~RESULTS~~18 ~~OF OPERATIONS – COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009~~

	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

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

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


	Percentage of Revenues for the Nine Months Ended September 30,
	2010		2009
Total revenues		100.0		100.0
Member benefits		28.5		27.0
Provision for losses		3.4		8.9
Processing fees		1.0		1.0

Gross profit		67.1		63.1

Salaries and benefits		17.5		17.5
Sales commission and expenses		19.4		18.5
Professional fees		3.0		2.2
Member and restaurant marketing expenses		2.6		2.4
Depreciation and amortization		4.5		5.0
General and administrative expenses		10.8		9.9

Total operating expenses		57.8		55.5

Operating income		9.3		7.6

Other expense, net		0.1		0.1


Income before income tax provision		9.2		7.5

Income tax provision		4.1		3.7

Net income		5.0		3.8

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,
	For The Nine Months Ended September 30,
	2010												2009
	MarketingCredits Program			MarketingServices Program			MembershipFees			Total			MarketingCredits Program			MarketingServices Program			MembershipFees			Total
	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
Restaurant count as of September 30, 2010 and 2009, respectively		4,569			6,152						10,721			4,920			5,201						10,121
Number of qualified transactions(1)		23,~~581~~871			34,~~095~~814						58,~~676~~685			24,~~894~~205			23,~~040~~476						47,~~934~~681
Average transaction amount(1)	$	4544.3199		$	4645.5290					$	45.9749		$	43.3372		$	45.4898					$	44.2274
Qualified transaction amount(1)	$	~~116~~174,~~949~~157		$	~~143~~220,~~972~~967					$	~~260~~395,~~921~~124		$	~~125~~183,~~384~~857		$	92159,~~773~~826					$	~~218~~343,~~157~~683
Rewards Network percentage share of qualified transaction amount(1) (2)		7170.15	%		14.5	%					39.92	%		7574.38	%		1514.29	%					4946.89	%
Rewards Network share of qualified transaction amount and membership fees(1)	$	83122,~~127~~773		$	2032,~~926~~145		$	~~515~~754		$	~~104~~155,~~568~~672		$	94137,~~465~~547		$	1423,~~080~~782		$	~~543~~804		$	~~109~~162,~~088~~133
Redemption of dining credits(1)	$	4972,~~254~~773		$	—		$	—		$	4972,~~254~~773		$	5581,~~757~~018		$	—		$	—		$	5581,~~757~~018
Total revenues	$	3350,~~873~~000		$	2032,~~926~~145		$	~~515~~754		$	5582,~~314~~899		$	3856,~~708~~529		$	1423,~~080~~782		$	~~543~~804		$	5381,~~331~~115
Revenue as a percentage of qualified transaction amount(1) (2)		2928.07	%		14.5	%					2120.08	%		30.97	%		1514.29	%					2423.24	%
Member benefits	$	47,~~752~~543		$	58,~~564~~589		$	—		$	1016,~~316~~132		$	68,~~159~~569		$	47,~~206~~001		$	—		$	1015,~~365~~570
Bonus rewards	$	1,~~151~~785		$	12,~~434~~272		$	—		$	24,~~585~~057			~~658~~1,488			~~484~~1,470		$	—			12,~~142~~958
Partner commissions	$	1,~~086~~606		$	1,~~188~~811		$	—		$	23,~~274~~417			1,~~305~~868			~~922~~1,502		$	—			23,~~227~~370
Total member benefits	$	610,~~989~~934		$	812,~~186~~672		$	—		$	1523,~~175~~606		$	811,~~122~~925		$	59,~~612~~973		$	—		$	1321,~~734~~898
Provision for losses	$	12,~~777~~851		$	—		$	—		$	12,~~777~~851		$	57,~~438~~249		$	—		$	—		$	57,~~438~~249
Processing fees	$	~~255~~385		$	~~313~~470		$	—		$	~~568~~855		$	~~289~~417		$	~~215~~364		$	—		$	~~504~~781
Gross profit	$	2435,~~852~~830		$	1219,~~427~~003		$	~~515~~754		$	3755,~~794~~587		$	2436,~~859~~938		$	813,~~253~~445		$	~~543~~804		$	3351,~~655~~187
Gross profit as a percentage of total revenues		73.4	%		59.4	%		100.0	%		68.3	%		64.2	%		58.6	%		100.0	%		63.1	%
Gross profit as a percentage of total revenues(1)		71.7	%		59.1	%		100.0	%		67.1	%		65.3	%		56.5	%		100.0	%		63.1	%

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

⁽²⁾	Total percentages exclude membership fees.

Ending restaurant count as of ~~June~~September 30, 2010 was 10,~~541~~721 compared to 10,~~197~~121 as of ~~June~~September 30, 2009, an increase of 35.49%. The increase in total restaurant count was driven by aan 2218.13% increase in Marketing Services Program restaurants to 56,~~929~~152 restaurants, partially offset by a ~~13.~~7.1% decrease in Marketing Credits Program restaurants to 4,~~612~~569 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.

~~Rewards~~Qualified ~~Network~~transaction amount ~~percentage~~at ~~share~~our ofparticipating ~~qualified~~restaurants ~~transaction~~increased ~~amount~~$51,441, ~~decreased~~or ~~to 39~~15.90%, to $395,124 for the ~~six~~ nine months ended ~~June~~September 30, 2010 compared to ~~49.8%~~$343,683 for the same period in the prior year ~~due~~as to a ~~higher~~result ~~proportion~~ of ~~restaurants~~the ~~participating~~increase in ~~the~~restaurant ~~Marketing~~count, ~~Services~~an increase ~~Program~~in asthe ~~well~~number asof aqualified ~~decrease~~transactions inand ~~percentages~~an ofincrease ~~both~~in ~~programs~~average transaction amount. The ~~Marketing~~ ~~Services~~number ~~Program percentage share~~ of qualified ~~transaction~~transactions ~~amount~~increased ~~decreased~~1,004 toor 1413.51% for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to ~~15.2% for~~ the same period in the prior year. asAverage wetransaction ~~lowered~~amount ~~the~~increased ~~pricing~~by of$0.75, ~~this~~or ~~product to accommodate the needs of restaurants in this difficult economic environment during 2009~~1.7%, ~~The Marketing Credits Program percentage share of qualified transaction amount decreased~~ to 71$45.1%49 ~~during~~for the ~~six~~nine months ended ~~June~~September 30, 2010 ~~compared~~from ~~to 75~~$44.3%74 ~~for the same period~~ in the prior year. asWe webelieve ~~shortened~~that the ~~usage~~improvement ~~period~~in ~~through~~qualified ~~mid-2009.~~transactions Weand ~~began~~average ~~increasing~~transaction ~~the~~amount ~~usage~~is ~~period~~a result inof ~~the~~an ~~later~~improved ~~half~~consumer ofspending ~~2009~~environment ~~and~~during ~~through~~ the first half of 2010. ~~Shortening~~and ~~the~~an ~~dining~~increase ~~credits~~in ~~usage~~restaurant ~~period~~count ~~for~~as ~~such Marketing~~compared ~~Credits~~to ~~Program~~the ~~transactions,~~prior asyear. ~~we did in 2009~~However, ~~reduces~~we ~~our~~remain ~~risk~~cautious ~~exposure~~about ~~with~~the ~~respect~~current toconditions ~~that~~in ~~deal,~~the ~~but~~restaurant ~~also~~industry ~~typically~~as ~~decreases~~we ~~the~~saw average ~~share of qualified~~ transaction amount ~~that~~decline weduring ~~may~~the ~~realize~~third ~~from~~quarter ~~that deal because we generally purchase those dining credits at less~~ of ~~a discount~~2010.

Rewards Network percentage share of qualified transaction amount ~~and~~decreased ~~membership~~to ~~fees~~39.2% for ~~six~~ the nine months ended ~~June~~September 30, 2010 ofcompared ~~$104,568~~to ~~decreased 4~~46.19% ~~as compared with $109,088~~ for the same period in the prior year, ~~primarily~~ due to a ~~12.0%~~higher ~~decrease~~proportion inof ~~Marketing~~restaurants ~~Credits~~participating ~~Program~~in ~~share~~the ofMarketing ~~qualified~~Services ~~transaction~~Program ~~amount,~~as ~~partially~~well ~~offset~~as by a ~~48.6%~~decrease ~~increase~~ in ~~the~~percentages ~~Marketing Services Program share~~ of ~~qualified~~both ~~transaction amount~~programs. The Marketing ~~Credits~~Services Program percentage share of qualified transaction amount decreased asto a14.5% ~~result~~for ofthe ~~fewer~~nine ~~Marketing~~months ~~Credits~~ended ~~Program restaurants participating in our program~~September 30, ~~partially~~2010 ~~offset~~compared byto ~~an increase in average transaction amount~~14.9% ~~Membership~~for ~~fees~~the ~~decreased~~same ~~slightly~~period ~~due to a decline~~ in ~~fee~~the ~~paying~~prior ~~members~~year ~~and~~as we lowered the ~~impact~~pricing of anthis ~~earn-your-dues~~product ~~dining~~to ~~program~~accommodate ~~in which members earn their annual fees through~~ the ~~reduction~~ needs of ~~their~~restaurants ~~cash back rewards savings. Beginning~~ in ~~mid-2008,~~this wedifficult ~~introduced~~economic aenvironment ~~membership~~during ~~program that eliminated fees for certain members~~2009. WeThe ~~expect membership fees to decline as more members enroll in the no-fee program.~~ Marketing ~~Services~~ Credits Program percentage share of qualified transaction amount ~~increased~~decreased asto a70.5% ~~result~~during ofthe anine months ~~higher~~ended ~~number~~September 30, of2010 ~~Marketing~~compared ~~Services~~to ~~Program~~74.8% ~~restaurants~~for ~~and~~the ansame ~~increase~~period in ~~average~~the ~~transaction~~prior ~~amount,~~year ~~partially~~as ~~offset~~we bypurchased ~~product~~dining ~~price~~credits ~~decreases~~at less of a discount.

~~Redemption~~Rewards ofNetwork ~~dining~~share ~~credits as a percent~~ of qualified ~~transactions~~transaction amount ~~decreased~~and tomembership ~~47.1%~~fees ~~of our share of qualified transaction amount~~ for ~~the~~nine ~~six~~ months ended ~~June~~September 30, 2010, ~~compared~~of to$155,672 51decreased 4.10% as compared with $162,133 for the same period in the prior year., ~~The~~primarily ~~decrease~~due into ~~redemption~~a of10.7% ~~dining~~decrease ~~credits~~in ~~compared~~Marketing toCredits ~~our~~Program share of qualified transaction amount, ~~was~~partially ~~due~~offset toby a ~~shift~~35.2% ~~towards~~increase ~~restaurants participating~~ in the Marketing Services Program, ~~which~~share ~~has~~of noqualified ~~redemption~~transaction ofamount. ~~dining~~Marketing ~~credits.~~Credits ~~Redemption~~Program share of ~~dining~~qualified ~~credits~~transaction amount decreased as a ~~percent~~result of ~~our~~fewer ~~share of~~ Marketing Credits Program ~~qualified~~restaurants ~~transactions~~participating ~~amount~~in ~~increased~~our toprogram, ~~59.3%~~partially ~~for~~offset ~~the~~by ~~six~~an ~~months~~increase ~~ended June 30,~~in ~~2010,~~average ~~compared~~transaction amount. Membership fees decreased $50 due to ~~59.0%~~a ~~for~~decline in fee paying members and the ~~same~~impact ~~period~~of an earn-your-dues dining program in which members earn their annual fees through the ~~prior~~reduction ~~year.~~of ~~The~~their ~~increase~~cash back rewards savings. Beginning in ~~redemption~~mid-2008, ofwe ~~dining~~introduced ~~credits~~a ~~compared~~membership program that eliminated fees for certain members. We expect membership fees to decline as more members enroll in the no-fee program. Marketing ~~Credits~~Services Program share of qualified transaction amount ~~was~~increased ~~due~~as toa anresult ~~increase~~of ina ~~better~~higher ~~credit~~number ~~quality~~of Marketing Services Program ~~restaurant~~restaurants ~~clients~~and onan ~~the~~increase ~~Marketing~~in ~~Credits~~average ~~Program~~transaction atamount, apartially ~~lower~~offset by product price decreases.

~~Total~~Redemption ~~revenues~~of ~~increased~~dining credits ~~$1,983~~as ora 3percent of qualified transactions amount decreased to 46.7% toof ~~$55,314~~Rewards Network share of qualified transaction amount for the ~~six~~nine months ended ~~June~~September 30, 2010, compared to 50.0% for the same period in the prior year. ~~primarily~~The decrease asin aredemption ~~result~~of dining credits compared to Rewards Network share of anqualified ~~increase~~transaction amount was due to a shift towards restaurants participating in the ~~number~~Marketing Services Program, which has no redemption of dining credits. Redemption of dining credits as a percent of our share of Marketing ~~Services~~Credits Program ~~restaurants~~qualified ~~and~~transactions anamount increased to 59.3% for the nine months ended September 30, 2010, compared to 58.9% for the same period in the prior year. The increase in redemption of dining credits compared to Marketing Credits Program share of qualified transaction amount inwas due to lower prices on the Marketing ~~Services~~ Credits Program,. ~~partially~~We ~~offset~~believe bythe areduction ~~decline~~in risk and increase in usage period between periods outweighs the ~~Marketing~~decrease ~~Credits~~in ~~Program~~price ~~restaurant~~as ~~count~~evidenced by the decline in the provision for losses.

~~Revenues~~Total asrevenues aincreased ~~percentage~~$1,784 or of2.2% ~~qualified transaction amount decreased~~ to ~~21.0%~~$82,899 for the ~~six~~nine months ended ~~June~~September 30, 2010 ~~from~~compared ~~24.2%~~to ~~for~~ the same period in the prior year. ~~The~~primarily ~~decrease~~as ~~was~~a ~~primarily~~result ~~due~~of toan aincrease ~~shift~~ in ~~mix~~the ~~towards~~number ~~our~~of Marketing Services Program ~~and~~restaurants, ~~fewer~~an increase in qualified transaction amount in the Marketing ~~Credits~~Services Program ~~restaurants~~and ~~participating~~an increase in ~~our~~average ~~program~~transaction amount, partially offset by a decline in the Marketing Credits Program restaurant count.

~~Member~~Revenues ~~benefits~~as ~~expense~~a ~~increased~~percentage of qualified transaction amount decreased to 2720.48% ~~of total revenues~~ for the ~~six~~nine months ended ~~June~~September 30, 2010 ~~compared~~from ~~with 25~~23.84% ~~of total revenues~~ for the same period in the prior year. The ~~increase~~decrease ~~in member benefit expense as a percentage of total revenues~~ was primarily due to a shift ~~towards~~in ~~Marketing~~mix ~~Services Program~~towards ~~revenues~~our ~~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~~and afewer ~~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 asrestaurants aparticipating ~~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~~program.

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

The provision for losses expense decreased to $2,851 or 3.24% of total revenues and 5.27% of Marketing Credits Program revenues for the ~~six~~nine months ended ~~June~~September 30, 2010 compared with 10$7,249 or 8.29% of total revenues and 1412.08% 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~~855 or 1.0% of total revenues for the ~~six~~nine months ended ~~June~~September 30, 2010 from $~~504~~781 or 01.90% of total revenues for the same period in the prior year. The increase was primarily due to a shift towards Marketing Services Program revenues. Processing fees are driven by the number of credit card transactions at participating restaurants. Processing fees as a percentage of qualified transaction amount remained consistent between periods at 0.2%.

Gross profit increased to 6867.31% of total revenues for the ~~six~~nine months ended ~~June~~September 30, 2010 as compared to 63.1% of total revenues for the same period in the prior year. The increase in gross profit as a percentage of total revenues was ~~mainly~~ due to improved profitability of our Marketing Services Program and ~~our~~a ~~Marketing Credits Program related to the~~ decrease in the provision for losses expense. Gross profit increased $4,~~139~~400 or 128.36% to $3755,~~794~~587 for the ~~six~~nine months ended ~~June~~September 30, 2010 as compared to $3351,~~655~~187 for the same period in the prior year mainly due to an increase in Marketing Services Program revenue and the reduction in loss provision expense.

Operating Expenses

Salaries and benefits increased $~~633~~322 or 62.73% to $1014,~~083~~521 for the ~~six~~nine months ended ~~June~~September 30, 2010 from $914,~~450~~ 199 for the same period in the prior year primarily due to an increase in stock compensation expense and an increase in headcount, partially offset by a decline in incentive compensation expense.

Sales commissions and expenses include sales force salaries and benefits, commissions, travel costs and training. Sales commissions and expenses increased to 19.94% of total revenues for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to 18.95% of total revenues for the same period in the prior year due to an increase in sales headcount and an increase in sales commissions, partially offset by a decrease in incentive compensation expense. AsDuring ofthe ~~June 30,~~fourth ~~2010,~~quarter weof ~~increased~~2009 through the ~~number~~first half of ~~sales~~2010 ~~employees~~we byhired 23additional ~~since~~sales ~~June 30,~~account ~~2009~~executives. Newly hired sales employees typically take ~~six~~nine months to achieve normal productivity. In addition, sales commissions are based on the profitability of the account and revenues and gross profit improved during the ~~six~~nine months ended ~~June~~September 30, 2010 as compared to the same period in the prior year.

Professional fees increased $~~248~~681, or 1937.7%, to $12,~~508~~487 for the ~~six~~nine months ended ~~June~~September 30, 2010 as compared to $1,~~260~~806 for the ~~same~~ same period in the prior year, primarily due to ~~approximately~~ $~~400~~879 in expenses related to the process implemented by the Board of Directors for evaluating strategic alternatives as described above.

Member and restaurant marketing expenses increased by $~~210~~259 or 1613.5% for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to the ~~same~~ same period in the prior year mainly as a result of increased marketing towards restaurants, increased web marketing and the development and ~~implementation~~testing 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~~361 or 108.29% for the ~~six~~nine months ended ~~June~~September 30, 2010 as compared to the same period in the prior year as certain investments in technology supporting the automation of internal processes and general information technology investments ~~matured~~became fully depreciated.

General and administrative expenses increased by $~~502~~908 or 911.03% for the ~~six~~nine months ended ~~June~~ September 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 and travel expense from the increase in ~~sales~~ headcount, ~~and~~ increased rent expense from the upgrade of our disaster recovery facility. and increased severance expense.

Other Income and Expense

Interest and other income decreased $916 to $1 for the ~~six~~nine months ended ~~June~~September 30, 2010 compared with the same period in the prior year as we changed our bank account to a noninterest bearing account to lower bank fees as the difference is more cost beneficial. Interest expense and financing costs increased $211 to $6293 due to an increase in our line of credit fees, partially offset by the amortization of the discounted cash flow recorded during the ~~six~~nine months ended ~~June~~September 30, 2009 relating to the California class action lawsuit as discussed in our previously filed Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and some of the Current Reports on Form 8-K.

Income tax provision

Our effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2010 was 3845.82% compared with 6249.86% for the same period in the prior year. The income tax provision for the ~~six~~nine months ended ~~June~~ September 30, 2009 included a tax expense of $573, or $0.06 per share, relating to the distribution of employee and director stock awards. We previously recognized a tax benefit relating to such distributions based on the fair value at the date of grant. Upon distribution of the shares, the tax benefit is limited to the fair value of the awards at the date of distribution. As such, we recorded additional tax expense equal to the amount of the deferred tax asset from the cumulative compensation cost that exceeded the actual tax benefit previously recorded.

Net income

Net income was $34,~~084~~161 for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to $13,~~167~~074 for the ~~six~~nine months ended ~~June~~September 30, 2009. The increase in net income between periods was primarily due to an increase in gross profit in the Marketing Services Program and a reduction in the provision for losses expense, partially offset by an increase in operating expenses as we invested in our sales force and sales force productivity tools, the development and implementation of the new daily specials product and we incurred expenses associated with the process implemented by the Board of Directors for evaluating strategic alternatives.

Basic weighted average number of shares outstanding decreased to 8,~~893~~913 for the ~~six~~nine months ended ~~June~~ September 30, 2010 compared to 98,~~033~~941 for the same period in the prior year. Diluted weighted average shares outstanding decreased to 9,~~055~~045 for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to 9,~~094~~119 for the same period in the prior year. The decreases in the basic and diluted weighted average number of shares outstanding was due to the repurchase of shares during 2009 and the ~~six~~nine months ended ~~June~~September 30, 2010, partially offset by the issuance of shares upon vesting of restricted stock unit awards.

LIQUIDITY AND CAPITAL RESOURCES

General

Cash and cash equivalents were $12,~~308~~110 as of ~~June~~ September 30, 2010, a decrease of $~~357~~555 from December 31, 2009. During the ~~six~~nine months ended ~~June~~September 30, 2010, net cash provided by operating activities was $2,~~075~~540 compared to $1724,~~917~~396 during the same period in the prior year. Net cash provided by operating activities during the ~~six~~nine months ended ~~June~~September 30, 2010 was primarily due to net income and noncash adjustments to reconcile net income to cash from operations, partially offset by an increase in dining credit purchases. Net cash provided by operating activities during the ~~six~~nine months ended ~~June~~September 30, 2009 was primarily due to a decrease in the dining credits portfolio and net income. We implemented disciplined dining credits purchasing ~~policies~~ 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~~nine month ended ~~June~~September 30, 2009. During the last several ~~quarters~~ 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~~credits purchases during the ~~six months~~nine months ended ~~June~~September 30, 2010. We continue to monitor patterns in consumer spending and economic and credit ~~uncertainties~~conditions in the restaurant industry and adjust our dining credits purchasing polices accordingly. We intend to continue to utilize our ~~cash~~ cash by purchasing dining credits while adhering to our purchasing and credit policies.

Net cash used in investing activities ~~was~~ was $23,~~861~~614 and $12,~~506~~275 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively, from our investments in capital expenditures. Capital expenditures consisted principally of continued development of our websites, investments in technology supporting the automation of internal processes and sales force productivity, and general information technology investments. We intend to continue investing in capital expenditures to support member and merchant marketing, customer feedback through member comments and ratings, to ensure ongoing data security and privacy, and to improve our internal processes and operating efficiency.

Net cash provided by financing activities for the ~~six~~nine months ended ~~June~~September 30, 2010 was $~~429~~448 due to the tax benefit from the issuance of stock awards of $~~572~~591 and exercise of stock options of $10, partially offset by the purchase of a portion of our common stock of $153 at an average price of $10.47 per share. As discussed in Note 8 of this Quarterly Report on Form 10-Q, ~~we established~~the antax ~~APIC~~benefit from the issuance of stock awards was due to the APIC Pool established during the ~~six~~nine months ended ~~June~~September 30, 2010 relating to the excess tax benefits from employee and director stock awards. Net cash used in financing activities for the ~~six~~nine months ended ~~June~~September 30, 2009 was $4,138 due to 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~~ other available means. The 10b5-1 trading plan under which these purchases were made was terminated on June 9, 2010.

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~~September 30, 2010:

	Payments Due by Period
Contractual Obligations and Commitments	Total		~~RemainingTwoQuarters of2010~~	RemainingQuarter of2010		~~2011~~		2011	~~2012~~		~~2013~~2012		~~2014~~	2013		~~Thereafter~~		Thereafter
Vendor contracts	$	1511,~~514~~075	$	~~9,024~~$	4,585	$	~~5,950~~	$	$5,950	~~360~~	$	~~180~~360	$	—$	180	$	—	$	—
Operating leases		2,186		~~668~~	355		~~895~~		1,031	~~423~~		~~200~~564		—	236		—		—
Revolving credit facility		~~141~~109		63	31		78		78	—		—		—	—		—		—
Total	$	1713,~~841~~370	$	~~9,755~~$	4,971	$	~~6,923~~	$	$7,059	~~783~~	$	~~380~~924	$	—$	416	$	—	$	—

Revolving Line of Credit

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

The credit facility has financial covenants that we will maintain a minimum ratio of debt to cash flow, fixed charges to borrowed amounts and certain ratios related to our dining credits portfolio. The credit facility contains customary representations, warranties and covenants and includes customary events of default, including a change of control provision. We can offer no assurances that we will be in compliance with all conditions precedent and all representations and warranties at a time when we would like to borrow under the credit facility. Further, we may not be able to borrow the full amount under the credit facility if our dining credits portfolio or adjusted earnings before interest expense, income taxes, depreciation and amortization, as defined in the credit facility, decreases substantially. These limitations currently apply as a result of the size of our dining credits portfolio. At ~~June~~September 30, 2010, $1924,~~683~~394 was available under the terms of the credit facility. The amount of availability under the credit facility may be further limited if we become more conservative in our dining credits purchases in light of current economic conditions and the performance of restaurants on our program or if our earnings decline.

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

Dining Credits

Net dining credits less accounts payable-dining credits was $5661,~~301~~701 at ~~June~~September 30, 2010, an increase of $39,~~600~~000 from December 31, 2009. Accounts payable-dining credits represent the unfunded portion of the total commitments. The increase between periods in dining credits funded is due primarily to an increase in the purchases of dining credits, a decline in the allowance for doubtful accounts and a decline in the accounts payable-dining credits. As previously discussed, based on our analysis of the performance of individual merchants in our dining credits portfolio, we adjusted our dining credits purchasing policies in the first half of 2009 and again in the ~~second~~first ~~quarter~~half of 2010 to increase the amount of dining credits we purchase from restaurants that meet certain credit guidelines relating to risk, sales volume and length of time in our program and as a result we have seen an increase in our net dining credits balance. In addition, as a result of our disciplined management of our dining credits portfolio, our allowance for unredeemable dining credits has decreased since year end. As we identify merchants that meet our credit guidelines, we have liquidity to grow the dining credits portfolio. We believe that the purchase of future dining credits can generally be funded from cash generated from operations or from the utilization of our revolving credit facility.

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~~September 30, 2010, there was no ~~outstanding~~ 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.

PART II—OTHER INFORMATION

Item 2 6. ~~Unregistered~~Exhibits ~~Sales of Equity Securities and Use of Proceeds.~~


Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of October 28, 2010, by and among Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. is incorporated herein by reference to Exhibit 2.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on October 28, 2010.

3.1		Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.’s Registration Statement on Form S-3 (File No. 333-111390), filed on December 19, 2003.

3.2		Amendment to Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 3.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 333-111390), filed on July 6, 2009.

3.3		By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 12, 2004.

4.1		Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.

4.2		Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert M. Steiner, as trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.’s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.

4.3		Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the former members and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.

10.1		Form of Change in Control Bonus Letter Agreement is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.

10.2		Change in Control Bonus Letter Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.

10.3		Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated February 19, 2008 is incorporated herein by reference to Exhibit 10.3 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.

10.4		Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated March 31, 2009 is incorporated herein by reference to Exhibit 10.4 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.

10.5		Amendment No. 2 to the Rewards Network Inc. 2006 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.5 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.

10.6		Form of Director Indemnification Agreement is incorporated herein by reference to Exhibit 10.6 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.

10.7*		Amendment No. 1 to the Rewards Network Inc. 2010 Incentive Compensation Plan.

10.8*		Amendment No. 3 to the Rewards Network Inc. 2006 Non-Employee Director Awards Program.

10.9*		Amendment No. 2 to Employment Agreement, dated August 16, 2010, between Rewards Network Inc. and Ronald L. Blake.

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.

Item 6. Exhibits


Exhibit No.		Description
10.10*		Amendment No. 2 to Offer Letter, dated August 16, 2010, between Rewards Network Inc. and Roya Behnia.

10.11*		Amendment No. 2 to Severance Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke.

10.12*		Amendment No. 2 to Severance, Proprietary Interest Protection and Non-Solicitation Agreement, dated August 16, 2010, between Rewards Network Inc. and Megan E. Flynn.

10.13*		Offer Letter, dated August 15, 2010, between Rewards Network Inc. and Andre L. Zardini.

10.14*		Second Amendment to Agreement, dated as of October 1, 2010, by and between Rewards Network Services LLC and American Express Travel Related Services Company, Inc. Portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.

10.15		Tender and Support Agreement, dated as of October 28, 2010, by and among Samstock, L.L.C., EGI-Fund (00) Investors, L.L.C., EGI-Fund (05-07) Investors, L.L.C., and EGI-Fund (08-10) Investors, L.L.C., Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on October 28, 2010.

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1*		Section 1350 Certification of Chief Executive Officer

32.2*		Section 1350 Certification of Chief Financial Officer

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

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

Exhibit Index

Exhibit No.		Description
2.1		Agreement and Plan of Merger, dated as of October 28, 2010, by and among Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. is incorporated herein by reference to Exhibit 2.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on October 28, 2010.
3.1		Restated Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 4.1 to Rewards Network Inc.’s Registration Statement on Form S-3 (File No. 333-111390), filed on December 19, 2003.
3.2		Amendment to Certificate of Incorporation of Rewards Network Inc. is incorporated herein by reference to Exhibit 3.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 333-111390), filed on July 6, 2009.
3.3		By-Laws of Rewards Network Inc., as amended, are incorporated herein by reference to Exhibit 3.2 to Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on March 12, 2004.
4.1		Letter Agreement, dated as of June 12, 2002, between iDine Rewards Network Inc. and Samstock, L.L.C. is incorporated herein by reference to Exhibit 4.11 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
4.2		Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C. and Robert M. Steiner, as trustee, is incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to Transmedia Network Inc.’s Registration Statement on Form S-2 (File No. 333-84947), filed on October 5, 1999.
4.3		Amendment, dated February 5, 2003, to the Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among iDine Rewards Network Inc., Samstock, L.L.C., and the former members and distributees of EGI-Transmedia Investors, L.L.C., is incorporated herein by reference to Exhibit 4.13 to Amendment No. 1 to iDine Rewards Network Inc.’s Annual Report on Form 10-K (File No. 001-13806), filed on October 7, 2003.
10.1		~~Rewards~~Form ~~Network~~of ~~Inc.~~Change ~~2010~~in ~~Incentive~~Control ~~Compensation~~Bonus ~~Plan~~Letter Agreement is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on ~~April~~August 118, 2010.
10.2		~~Form~~Change ofin ~~Restricted~~Control ~~Stock~~Bonus ~~Unit~~Letter ~~Award~~ Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke is incorporated herein by reference to Exhibit 10.2 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on ~~April~~August 118, 2010.
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
10.3		Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated February 19, 2008 is incorporated herein by reference to Exhibit 10.3 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
10.4		Form of Amendment No. 1 to the Rewards Network Inc. Restricted Stock Unit Award Agreements dated March 31, 2009 is incorporated herein by reference to Exhibit 10.4 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.
32.1*		Section 1350 Certification of Chief Executive Officer
10.5		Amendment No. 2 to the Rewards Network Inc. 2006 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.5 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.
32.2*		Section 1350 Certification of Chief Financial Officer
10.6		Form of Director Indemnification Agreement is incorporated herein by reference to Exhibit 10.6 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on August 18, 2010.
10.7*		Amendment No. 1 to the Rewards Network Inc. 2010 Incentive Compensation Plan.
10.8*		Amendment No. 3 to the Rewards Network Inc. 2006 Non-Employee Director Awards Program.
10.9*		Amendment No. 2 to Employment Agreement, dated August 16, 2010, between Rewards Network Inc. and Ronald L. Blake.
10.10*		Amendment No. 2 to Offer Letter, dated August 16, 2010, between Rewards Network Inc. and Roya Behnia.


Exhibit No.		Description
10.11*		Amendment No. 2 to Severance Agreement, dated August 16, 2010, between Rewards Network Inc. and Christopher J. Locke.

10.12*		Amendment No. 2 to Severance, Proprietary Interest Protection and Non-Solicitation Agreement, dated August 16, 2010, between Rewards Network Inc. and Megan E. Flynn.

10.13*		Offer Letter, dated August 15, 2010, between Rewards Network Inc. and Andre L. Zardini.

10.14*		Second Amendment to Agreement, dated as of October 1, 2010, by and between Rewards Network Services LLC and American Express Travel Related Services Company, Inc. Portions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment.

10.15		Tender and Support Agreement, dated as of October 28, 2010, by and among Samstock, L.L.C., EGI-Fund (00) Investors, L.L.C., EGI-Fund (05-07) Investors, L.L.C., and EGI-Fund (08-10) Investors, L.L.C., Rewards Network Inc., EGI Acquisition Parent, L.L.C. and EGI Acquisition, L.L.C. is incorporated herein by reference to Exhibit 10.1 to Rewards Network Inc.’s Current Report on Form 8-K (File No. 001-13806), filed on October 28, 2010.

31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1*		Section 1350 Certification of Chief Executive Officer

32.2*		Section 1350 Certification of Chief Financial Officer

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