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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                      to                     

Commission file number 1-13806

REWARDS NETWORK INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (312) 521-6767

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

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.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act).    Yes  x    No  ¨

Based on the closing sale price of the registrant’s common stock as of June 30, 2004, the aggregate market value of the common stock held by non-affiliates of the registrant was approximately $177,384,000.

The number of shares of Registrant’s common stock outstanding as of March 10, 2005 was 25,761,390.

DOCUMENTS INCORPORATED BY REFERENCE:    Filings made by companies with the Securities and Exchange Commission (SEC) sometimes “incorporate information by reference.” This means that the company is referring you to information that either was previously filed or will be filed with the SEC, and this information is considered to be part of the document you are reading. Information contained in our Proxy Statement to be filed for the Annual Meeting of Stockholders to be held on May 25, 2005 is incorporated herein by reference in response to Items 10, 11, 12, 13 and 14.

FORWARD-LOOKING STATEMENTS

You should read the following discussion together with our 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) our dependence on our relationships with airlines and other reward program partners for a significant number of members, (ii) the concentration of a significant amount of our rewards currency in one industry group, the airline industry, (iii) our inability to attract and retain merchants and members, (iv) our inability to maintain an appropriate balance between the number of members and the number of participating merchants in each market, (v) changes to card association rules and practices, (vi) our dependence upon our relationships with transaction processors, presenters and aggregators, (vii) network interruptions or processing errors, (viii) our susceptibility to a changing regulatory environment, (ix) increased operating costs due to privacy concerns of our marketing partners, payment card processors and the public, (x) the failure of our security measures, (xi) our susceptibility to restaurant credit risk, (xii) economic changes, (xiii) an adverse change in our loss experience related to Marketing Credits, (xiv) adverse consequences of changes in our programs that affect the rate of rewards received by members, (xv) our inability to generate sufficient profit margin on expanded restaurant product offerings, (xvi) the loss of key personnel, (xvii) adverse determination of lawsuits in which we are a defendant, (xviii) increasing competition, (xix) our inability to obtain sufficient cash, (xx) the failure of our program offering members rewards for patronizing select hotels,(xxi) the failure of our retail rewards program, (xxii) the failure of our expansion into Canada, (xxiii) our control by Samstock, L.L.C. and its affiliates, (xxiv) the ability of our board of directors to issue shares of our preferred stock without stockholder approval, (xxv) possible future sales of restricted and other shares, (xxvi) the price of our common stock could be volatile, and (xxvii) anti-takeover provisions that could delay or prevent a change in our control even if the change in control would be beneficial to our stockholders. 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. See the cautionary statements included as Exhibit 99.1 to this annual report on Form 10-K 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.

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PART I

Item 1. Business

Overview

We market and administer loyalty rewards programs that bring our participating merchants and members together. We do this by marketing our participating restaurants to members and offering benefits in the form of cash credits to the member’s payment card account, which we refer to as Cashback Rewards^SM savings, airline frequent flier miles and other currencies to members who patronize our participating merchants and pay their bills using a payment card that they have registered with us.

Our participating merchants are principally restaurants and hotels. We attract participating restaurants by purchasing Marketing Credits for food and beverages, which we then use when members dine at the participating restaurant, and by providing Marketing Services that market to members the participating restaurants and offer benefits to members for dining at the participating restaurants. Previously, the Marketing Credits Program was called the Dining Credits Purchase Plan and Marketing Credits were referred to as Rights to Receive, RTR or Dining Credits. Also, our Marketing Services Program was previously referred to as the Revenue Management Plan. We have made these terminology changes to better align the terms with the services provided. Both our Marketing Credits Program and Marketing Services Program are designed to generate incremental business from new and existing customers. We attract participating hotels by providing Marketing Services that market the participating hotels to members, offer benefits to members and are designed to fill empty hotel rooms and generate business from members.

We obtain members through our relationships with airlines and other loyalty program providers, directly through our website, through corporate clients who participate in our corporate program, and through our relationships with payment card issuers. We are able to provide frequent flier miles and other currencies as benefits to members through our relationships with these airlines, payment card issuers and other loyalty program providers.

Shares of our common stock are traded on the American Stock Exchange under the symbol IRN.

Participating Merchants

Restaurants

As of December 31, 2004, we had approximately 10,514 participating restaurants in more than 45 U.S. states and in Canada. We primarily offer two programs for our participating restaurants—the Marketing Credits Program and the Marketing Services Program.

In June 2004, we launched our Marketing Credits Program and Marketing Services Program in Canada in the provinces of Ontario and British Columbia. As of December 31, 2004, we had approximately 92 participating restaurants in Canada.

Marketing Credits Program. Under this program, we purchase food and beverage credits, which we refer to as Marketing Credits, from a participating restaurant, typically for cash, at a discount from the retail price for which the restaurant sells the food and beverages. We then market the participating restaurant to members and offer to members benefits in the form of Cashback Rewards savings, frequent flier miles and other currencies for dining at the participating restaurant. The amount of benefits offered to members may vary by the day of week. When a member dines at a restaurant that participates in the Marketing Credits Program and pays the bill with a payment card registered with us, we are entitled to receive from the participating restaurant a percentage of the total transaction amount (including food, beverages, tax and tip), which we generally debit from the participating restaurant’s bank account. We then reduce the amount of Marketing Credits outstanding with the participating restaurant by an amount equal to the amount that we receive from the participating restaurant.

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Marketing Services Program. Under this program, we provide Marketing Services to a participating restaurant by marketing the participating restaurant to members and offering to members Cashback Rewards savings, frequent flier miles and other benefits for dining at the participating restaurant. The amount of benefits offered to members may vary by the day of week. Under the Marketing Services Program, we receive a marketing fee from the participating restaurant only when a member dines at the participating restaurant and pays the bill with a payment card registered with us. The marketing fee is equal to a percentage of the total transaction amount. We generally debit the marketing fee from the participating restaurant’s bank account.

The percentage of the transaction amount that we receive under the Marketing Services Program is less than the percentage of the transaction amount that we receive under the Marketing Credits Program, and as a result, our revenue per transaction in the Marketing Services Program is less than under the Marketing Credits Program. However, the Marketing Services Program does not require us to commit capital through the purchase of any Marketing Credits from the participating restaurant.

Hotels

Since the second quarter of 2003, we have offered a Marketing Services Program for hotels. We market participating hotels to members and offer members reduced rates and Cashback Rewards savings, frequent flier miles and other benefits if they make their reservations at participating hotels through our website or call center.

Our participating hotels include independent hotels, which typically do not have their own loyalty programs, and major hotel chains. Participating hotels either enter into agreements directly with us or participate in the Marketing Services Program through our relationship with Travelweb LLC, a travel distribution company, which has enabled us to expand our hotel Marketing Services Program by including additional independent hotels as well as certain major U.S. hotel chains. The number of participating hotels has grown to approximately 11,321 as of December 31, 2004, with participating hotels located throughout the United States and in Canada. As of December 31, 2004, our hotel program was available to approximately 71% of members.

Under our Marketing Services Program for hotels, we receive a marketing fee from a participating hotel when a member pays for a hotel room with a payment card that they have registered with us after making a reservation through our website or call center. The marketing fee is equal to a percentage of the hotel room rate.

Members

As of December 31, 2004, we had approximately 3.8 million active member accounts. We consider a member account to be active if the account has at least one transaction at a participating merchant during the last 12 months. An active member account may consist of more than one payment card and may have more than one person associated with the account, although we consider each member account to be held by one “member.”

We obtain members from a variety of sources and marketing efforts, including through advertising our programs and through our relationships with major airlines, payment card issuers and other loyalty program providers. In our partner programs, members may be solicited for enrollment or may be directly enrolled by our partners. Generally, a member enrolled in one of our programs through a partner remains a member so long as our relationship with the partner continues, and if our relationship with the partner terminates, in most cases our relationship with the member would terminate. Additionally, members enrolled by our partners may also be unenrolled by the partner, and our partner generally has the right to approve all communications between us and the member.

We offer a choice of programs to members. Members who enroll directly in our Cashback Rewards Program generally pay an annual fee, and members who enroll in our programs that provide benefits to members in other currencies, such as airline frequent flier miles, generally do not pay an annual fee. Our membership programs consist of the following:

Loyalty Partner Programs. We partner with various loyalty program providers to offer their members the opportunity to earn awards, such as airline frequent flier miles or award points, through our programs when their

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members patronize our participating merchants. These programs are typically co-branded with our loyalty partner (e.g., SkyMiles Dining by Rewards Network). The loyalty program provider benefits by expanding the earning opportunities for its members and increasing the volume of the loyalty currency it sells. In many cases, we work with the loyalty program provider’s affinity payment card issuer by automatically including our benefit as a feature of the payment card.

Airline frequent flier programs represent the largest number of our member accounts that are part of our loyalty partner programs. As of December 31, 2004, we provided dining benefits to nine major airlines, which we believe makes us the largest provider of dining programs for the airline industry. We are actively working to expand our loyalty partnerships beyond airlines. InterContinental Hotels Group, Upromise, eBay and Electronic Script Incorporated (eScrip) are notable instances of non-airline loyalty program providers for which we provide dining benefits.

Cashback Rewards Program. This is a fee-based program that typically provides between 8% and 20% Cashback Rewards savings on charges for food, beverage, tax and tip at participating restaurants and between 5% and 15% Cashback Rewards savings on charges for room rates at participating hotels. Cashback Rewards savings are a cash credit that we make directly to the member’s payment card account. Some Cashback Rewards Program members may receive airline frequent flier miles instead of Cashback Rewards savings.

Members typically pay an upfront $49 annual fee. Alternatively, members may elect to “earn” their fee. In this case, we retain Cashback Rewards savings until the member has received the amount of the fee in Cashback Rewards savings, after which point the member receives the Cashback Rewards savings and we (by not providing a benefit until the amount of the fee has accumulated) have effectively received a fee.

Members of our Cashback Rewards program tend to be our most engaged and profitable members due to the investment they make in the program by virtue of the fee paid and our direct relationship with the members.

Corporate Program. We offer the Corporate Program as a travel and entertainment expense reduction program to large corporations. In this program, the corporate client enrolls in our program some or all of its corporate payment cards issued to its employees. We typically earn an annual fee by retaining a portion of the benefits for each member account enrolled in the program, and we typically pay the benefits earned by the member accounts directly to the corporate client. In some cases, a portion of the benefit goes to employees in the form of airline frequent flier miles, providing further incentives for employees to direct their spending to participating merchants.

Payment Card Issuer Programs. We work with various issuers of general purpose credit, debit and other charge cards to provide a Cashback Rewards program to certain payment card portfolios. Our program is a differentiating feature of the card and provides cardholders with additional opportunities to earn benefits through the payment card’s loyalty program. In some cases, the payment card issuer pays us a fee for their cardholders’ access to our program. As of December 31, 2004, our card issuer partners included Bank of America, Diners Club International, Royal Bank of Canada and JPMorgan Chase.

Registered Card Platform

A critical part of the administration of our programs is our registered card platform. Members enrolled in our programs have a major payment card registered with us and then present that registered payment card while transacting at a participating merchant. Based on our agreements with various processors and presenters throughout the country, we receive data regarding all payment card transactions at our participating merchants. We aggregate this transaction data and then match these data to a file containing members’ registered payment card information, enabling us to determine which transactions were made by members. The transaction data that we receive is encrypted during transmission. We also receive files from some processors where the data is encrypted in a manner that allows us to read transactional data of members only. Members’ transactions are qualified via business rules to determine whether they are eligible for a benefit.

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We use the data regarding qualified transactions to provide Cashback Rewards savings, airline frequent flier miles and other benefits to members, depending on the program in which the member is enrolled. We also use these data to invoice and collect our Marketing Services fees from participating merchants and reduce the amount of outstanding Marketing Credits at restaurants that participate in our Marketing Credits Program.

Member Benefits

We provide the vast majority of benefits to members in the form of Cashback Rewards savings, which are a direct cash credit to their payment card account, a dollar-denominated award to their loyalty program account, or a mileage credit to their frequent flier account. Cashback Rewards savings typically represent between 8% and 20% of the member’s total transaction amount with participating restaurants and typically between 5% and 15% of the member’s room rate with participating hotels. Members of our partners’ loyalty programs and payment card issuer programs may receive benefits either as Cashback Rewards savings or in alternative currencies, such as airline frequent flier miles, depending on the particular loyalty program. Members receiving airline frequent flier miles generally earn between five and ten miles for each dollar spent at participating restaurants and between five miles and ten miles for each room rate dollar spent at participating hotels, provided that they make the hotel reservation through us.

We communicate benefit opportunities to members via a variety of communication tools, including email, our website, newsletters, directories, toll-free numbers, fax back services and personal digital assistants.

Marketing

Member Acquisition

We acquire members through the following four channels: Loyalty Partner, Cashback Rewards, Corporate and Payment Card Issuer Programs. We recruit members to our Cashback Rewards Program through marketing and through commission arrangements with third parties which typically involve a commission equal to a portion of the annual fee paid or earned by the member. The table below sets forth for each channel the number of active member accounts as of, and sales for the years ended, December 31, 2004, 2003 and 2002. Active member accounts represent accounts with at least one qualified transaction with one of our participating merchants within the last 12 months. An active member account may consist of more than one payment card and may have more than one person associated with the account, although we consider each member account to be held by one “member.”

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Member Communications, Activation and Sustained Utilization

We market participating restaurants to members using a variety of tools, including email, our website, newsletters, directories, toll-free numbers, fax back services and personal digital assistants. Marketing to members who take part in our Loyalty Partner, Payment Card Issuer and Corporate Programs is subject to review and approval by our program partners. Our relationship with our Cashback Rewards Program members is direct and we have complete control over communications with these members.

Our Corporate Program terms typically require our corporate clients to promote the program among their employees and encourage its use, and we work with our corporate clients to develop and deliver marketing and promotional materials to their employees. In some cases, a portion of the benefit goes to employees in the form of airline frequent flier miles, providing further incentives for employees to direct their spending to participating merchants.

In 2004, we continued to expand and improve our data collection infrastructure to target members for marketing communications, gather and analyze member account data and manage direct marketing campaigns in an effort to increase the effectiveness of our member marketing communications. We also hired employees to focus on improving the utilization of our member database for marketing purposes.

Also in 2004, we retained a new service provider for our email marketing efforts, allowing for increased targeting and customization capabilities, which we believe has increased the effectiveness of our member marketing. In addition to marketing benefits, this initiative has created greater efficiencies related to member marketing costs.

In 2004, we launched a pilot “Preferred Member Program”. The objective of this program is to reward our most active members by providing them with targeted communications and member benefits greater than the benefits provided to our less active members. While results show a positive influence on behavior within certain member segments, the increased activity was not consistent across all member groups tested. We continue to evaluate the results of this program to help determine effective program changes.

Website Marketing and Operations

In 2004, we launched a completely redesigned Rewards Network website. We believe that the new website provides significantly improved usability and functionality for members. Our website has a search engine leading

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to information relating to participating restaurants and hotels, including restaurant and hotel descriptions, third-party reviews, menus, maps, photos and featured benefits offered by participating merchants. We strive to continually improve the content of our website with the goal to further influence measurable dining and hotel decisions.

In conjunction with the website redesign, we also established an Online Mall with over 250 retailers. Our Cashback Rewards Program members can earn Cashback Rewards savings by shopping at the Online Mall.

In addition to our website, as of December 31, 2004, we hosted and managed more than 26 different websites on behalf of our partners and corporate clients. These 26 websites allow us to host 112 unique website addresses for our partner and corporate websites. These websites are co-branded with our partners and corporate clients. In 2005, we expect to begin a website redesign on the hosted sites of our major partner programs similar to that which we completed for the Rewards Network website.

Merchant Marketing—Program Awareness and Establishing Brand Recognition

As part of our on-going marketing efforts to merchants, we focus on developing sales support materials that include brochures and inserts. Additionally, our marketing efforts include a national, regional and local print media placement, trade-show participation, industry lectures and speaking engagements.

We introduced Merchant Value Proposition reporting, which we refer to as MVP reporting, in 2004. MVP reports provide information for an individual merchant regarding the merchant’s business and members’ transactions at the merchant’s business. We designed MVP reports to help our merchants measure member behavior and the impact of our marketing efforts.

In the interest of improving the retention and recruitment of participating restaurants, we are continually developing new marketing program variations that are designed to meet the needs of restaurants at various stages of the growth cycle. This includes developing alternative offers to meet off-peak or real-time needs of the restaurant operators and developing alternative value propositions that are intended to appeal to the multi-unit restaurant sector.

Dependence on Loyalty Program Partners and Processors

We depend on our relationships with our airline and other partners for a significant number of members and a significant portion of our revenue. We are particularly dependent on our relationships with our airline partners. For the year ended December 31, 2004, approximately 57% of our sales were derived from members enrolled in our programs through airline frequent flier programs. As of December 31, 2004, we had contracts or relationships with nine major airlines and approximately 2.3 million of our approximately 3.8 million active member accounts were enrolled through airline frequent flier programs. In addition, member accounts enrolled through two of our partners jointly accounted for approximately 41% of our active member accounts and approximately 34% of our sales for the year ended December 31, 2004. Members of each of the United Airlines and Upromise, Inc. programs separately accounted for approximately 18% and 17% of our sales for the year ended December 31, 2004, respectively. We have a written agreement with United Airlines that that has been extended until April 30, 2005 while we negotiate a new multi-year agreement with United Airlines. We cannot provide assurances that we will be able to agree to a new multi-year agreement with United Airlines. We have a written agreement with Upromise, Inc. that continues until June 30, 2006.

We depend on our relationship with First Data Merchant Services Corporation to obtain transaction data for approximately 38% of our members’ qualified transactions for the year ended December 31, 2004. We have a written agreement with First Data Merchant Services Corporation that continues until March 24, 2007.

Competition

We compete with a variety of companies and programs for both members and merchants. Our competitors include major payment card companies that offer discount and rewards programs, various loyalty program

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providers and companies that offer discounted travel services to consumers or marketing programs to merchants. There are numerous small companies that offer services that may compete with the services currently offered or to be offered in the future by us. We also compete with various finance companies to address the liquidity needs of restaurant merchants. We anticipate continued growing competition from companies that use the Internet for marketing purposes and discount programs. Certain of our competitors or potential competitors have substantially greater financial resources and expend considerably larger sums than we do for new product development and marketing. Further, we must compete with many larger and better-established companies for the hiring and retention of qualified sales and marketing personnel.

We believe that we have designed our programs to compete effectively for members and merchants. We believe that we have built the largest multi-payment card loyalty platform in the dining sector. Features that make our programs unique include: (1) the ability to market our participating merchants to a significant number of potential customers; (2) our marketing to members to drive increased business to our participating merchants from new and existing customers; (3) our programs provide substantial savings and benefits to members without the need for a member to present discount coupons or a separate card when paying for a meal or hotel stay; and (4) we provide restaurants that participate in our Marketing Credits Program with cash in advance of customer transactions because of our purchase of Marketing Credits.

Employees

As of December 31, 2004, we had approximately 431 employees of whom approximately 401 are full time. We believe that our relationships with our employees are good. None of our employees are represented by a labor union.

Executive Officers of the Registrant

The following table sets forth certain information concerning our executive officers as of March 4, 2005:

George S. Wiedemann has been a director since 1998 and became President and Chief Executive Officer in September 2002. From October 2000 to September 2002, Mr. Wiedemann was the Chairman of the Board and Chief Executive Officer of Responsys Inc., a provider of online direct marketing technology. Prior to that, Mr. Wiedemann was Chairman of the Board and Chief Executive Officer of GreyDirect Marketing Group, Inc., a direct marketing agency he founded in 1979 that specializes in multimedia direct response advertising. Mr. Wiedemann served as Chairman of the Board of the Direct Marketing Association in 1999.

Bryan R. Adel became Vice President, General Counsel, Secretary and Chief Privacy Officer in April 2003 and became a Senior Vice President in April 2004. For the previous ten years, Mr. Adel held various positions at McDonald’s Corporation, the world’s leading food service retailer, most recently Managing Counsel, International Legal. From January 2001 to February 2003, Mr. Adel served on the board of directors of Chipotle Mexican Grill, Inc., a company that operates quick-service eateries that is majority owned by McDonald’s Corporation.

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Gerald J. Hughes became Executive Vice President, Product Management in January 2005. From January 2004 to January 2005, he was Chief Operating Officer, Dining; from July 2003 to January 2004, he was Executive Vice President, Business Development; and from November 2000 to July 2003, Mr. Hughes was Senior Vice President, Business Development. Prior to that, he served as Vice President of Business Development for our subsidiary iDine.com, Inc.

David M. Marks became Executive Vice President, Membership Management in January 2005. Prior to that, commencing in April 2003, he served as Senior Vice President & Chief Operating Officer, Travel. From March 2000, Mr. Marks served as Vice President Online Marketplace and Supplier Technology Sales for StarCite, Inc., an industry leader in the corporate meetings and events procurement market.

Kenneth R. Posner became Senior Vice President, Finance and Administration, in August 2003 and Chief Financial Officer in October 2003. From August 2002 until December 2004, Mr. Posner served as President and Chief Executive Officer of Angelo and Maxie’s, Inc., a company that operated steakhouses. From April 2001 to July 2003, Mr. Posner served as President and Chief Financial Officer of Angelo and Maxie’s, Inc., and from April 1999 to July 2000, he was Executive Vice President and Chief Financial Officer of Lodgian, Inc., an owner and operator of full-service hotels. For 18 years prior to that, he was Senior Vice President of Finance and Treasurer of H Group Holdings, Inc., a diversified company with interests in the hotel, gaming and real estate industries. He has also served on the boards of directors for most business units of H Group Holdings, Inc. and as a trustee of all of its employee benefit programs.

Gregory J. Robitaille became Executive Vice President, Corporate Development in January 2005. Prior to that, he served as Executive Vice President, Corporate Development starting in February 2001. From April 2000 to January 2001, Mr. Robitaille managed our Marketing Services and web site projects, and from September 1995 to March 2000, he was a managing director for Equity Group Investments, L.L.C., a private investment firm affiliated with Samstock, L.L.C., and our largest stockholder.

Available Information

Our principal executive offices are located at Two North Riverside Plaza, Suite 950, Chicago, Illinois 60606, and our telephone number is (312) 521-6767. Our website is www.rewardsnetwork.com. We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with or furnish such material to the SEC. You may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 2. Properties

The following table sets forth certain information regarding our principal facilities as of December 31, 2004:

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In addition to the properties listed above, we have fourteen sales offices throughout the United States and Canada. We believe our properties are generally in good condition and adequate for our needs. Furthermore, we believe that suitable additional or replacement space will be available when and if needed.

Item 3. Legal Proceedings

On May 25, 2004, a complaint was filed in the Los Angeles County Superior Court against us and certain of our subsidiaries by Bistro Executive, Inc., Westward Beach Restaurant Holdings, LLC and MiniBar Lounge, all of which were participants in our Dining Credits Purchase Program (the “Dining Plan”), and their respective owners.

The complaint purports to be a class action brought by the named plaintiffs on behalf of a class consisting of all restaurants located in California who participated in the Dining Plan and all persons in California who provided personal guaranties of obligations under the Dining Plan. The complaint claims that amounts we paid under the Dining Plan constituted loans, and asserts claims for damages and equitable and injunctive relief for violations of California usury laws and the California Unfair Business Practices Act and declaratory relief. The complaint seeks, among other relief, disgorgement of all purported “interest” and profits earned by us from the Dining Plan in California, which plaintiffs allege to be a significant portion of an amount in excess of $300 million, and treble damages for all purported “interest” paid within one year prior to the filing of the complaint.

On June 25, 2004, the action was removed to the United States District Court for the Central District of California. We believe that the complaint is without merit and intend to vigorously defend against it. The ultimate cost to us from this action is not possible to predict and may not be determined for a number of years.

On October 1, 2004, a complaint was filed in the United States District Court for the Eastern District of Texas against us by Source Inc. The complaint claims that we are infringing four patents owned by Source Inc. The complaint seeks among other relief, treble damages due to willful infringement and equitable relief. We are investigating the claims asserted by Source Inc. and we believe that the complaint is without merit. We intend to vigorously defend against these claims. The ultimate cost to us from this action is not possible to predict and may not be determined for a number of years.

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

No matters were submitted to a vote of stockholders during the three-month period ended December 31, 2004.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Our common stock is listed on the American Stock Exchange. The following table sets forth, for the periods presented, the high and low sales prices per share of our common stock, as reported on the American Stock Exchange.

The number of holders of record of our common stock as of March 4, 2005 was approximately 280.

We have not paid cash dividends on our common stock in our two most recent fiscal years. We do not expect to pay any cash dividends on our common stock in the foreseeable future.

Item 6. Selected Financial Data (dollars in thousands except for per share data)

We changed our fiscal year end to December 31 from September 30, effective the three-month period ended December 31, 2001. The financial information for the three-months ended December 31, 2001 and 2000 (unaudited) is provided for comparative purposes.

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The selected financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the notes to those financial statements, which are included in this annual report on Form 10-K.