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 April 1, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
OF 1934
For the transition period from ________________ to _______________
0-29873
(Commission file number)
UWINK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0412110
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
|
16106 HART STREET, VAN NUYS, CALIFORNIA 91406
(Address of principal executive offices)
(818) 909 6030
(Registrant's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [X]
|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares of common stock outstanding as of May 14, 2008 was
12,671,534.
UWINK, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Consolidated Balance Sheets as of April 1, 2008 (unaudited)
and January 1, 2008 2
Unaudited Consolidated Statements of Operations for the three month
periods ended April 1, 2008 and April 3, 2007 3
Unaudited Consolidated Statements of Cash Flows for the three month
periods ended April 1, 2008 and April 3, 2007 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
Item 4T. Controls and Procedures 21
PART II. OTHER INFORMATION 22
Item 6. Exhibits 22
SIGNATURES 23
1
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UWINK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 1, 2008 JANUARY 1, 2008
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,330,037 $ 7,294,019
Restricted cash 60,155 -
Account receivable, net of allowance for doubtful accounts
of $72,265 and $72,265, respectively 11,832 49,481
Inventory, net of reserve for obsolescence 22,345 19,547
Prepaid expenses and other current assets 40,221 38,447
--------------- ---------------
TOTAL CURRENT ASSETS 5,464,591 7,401,493
PROPERTY AND EQUIPMENT, NET 1,924,040 943,938
LONG TERM DEPOSIT 67,158 40,238
--------------- ---------------
TOTAL ASSETS $ 7,455,789 $ 8,385,669
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 907,633 $ 891,124
Accrued expenses 78,990 130,313
Accrued payroll and related benefits 94,358 79,492
Advances from customers 74,980 24,980
--------------- ---------------
TOTAL CURRENT LIABILITIES 1,155,961 1,125,909
--------------- ---------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value; 25,000,000 shares authorized;
12,671,534 shares issued and outstanding as of April 1, 2008
and January 1, 2008, respectively 12,672 12,672
Additional paid-in capital 48,040,493 47,717,957
Accumulated deficit (41,763,480) (40,481,011)
Shares to be issued 10,142 10,142
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 6,299,827 7,259,760
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,455,789 $ 8,385,669
=============== ===============
The accompanying notes are an integral part of these unaudited consolidated financial statements
2
|
UWINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTH PERIODS ENDED
-----------------------------------
APRIL 1, 2008 APRIL 3, 2007
--------------- ---------------
NET SALES $ 545,193 $ 578,876
COST OF SALES 165,407 198,128
--------------- ---------------
GROSS PROFIT 379,787 380,748
--------------- ---------------
OPERATING EXPENSES
Selling, general and administrative expenses 1,700,372 1,658,794
--------------- ---------------
TOTAL OPERATING EXPENSES 1,700,372 1,658,794
--------------- ---------------
LOSS FROM OPERATIONS (1,320,585) (1,278,046)
--------------- ---------------
OTHER INCOME (EXPENSE)
Other income 38,917 -
Interest expense - (12,031)
--------------- ---------------
TOTAL OTHER INCOME (EXPENSE) 38,917 (12,031)
--------------- ---------------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,281,669) (1,290,077)
PROVISION FOR INCOME TAXES 800 1,379
--------------- ---------------
NET LOSS $ (1,282,469) $ (1,291,456)
=============== ===============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.10) $ (0.20)
=============== ===============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC AND DILUTED 12,671,534 6,427,613
=============== ===============
Weighted average number of shares for dilutive securities has not been calculated
because the effect is anti-dilutive
The accompanying notes are an integral part of these unaudited consolidated financial statements
3
|
UWINK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTH PERIODS ENDED
-----------------------------------
APRIL 1, 2008 APRIL 3, 2007
------------- -------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (1,282,469) $ (1,291,456)
Adjustment to reconcile net loss to net cash used in operating activities:
Employee stock option expense 322,536 253,779
Depreciation and amortization expense 86,622 79,298
Issuance of common stock for payroll - 18,750
Issuance of common stock for services - 53,121
Inventory obsolescence reserve - (48,000)
Changes in operating assets and liabilities:
Accounts receivable 37,649 (24,571)
Inventory (2,798) 44,008
Deposits (26,920) -
Prepaid expenses and other current assets (1,775) (27,203)
Accounts payable 16,509 (88,184)
Accrued expenses (51,322) 9,947
Accrued payroll and related benefits 14,866 51,121
Advances from customers 50,000 -
------------- -------------
Net cash used in operating activities (837,102) (969,390)
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquistion of property and equipment (1,066,725) (59,833)
Restricted cash deposit securing letter of credit (60,155) -
------------- -------------
Net cash used in investing activities (1,126,880) (59,833)
------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from debt securities - 782,000
Repayment of debt - (22,920)
Proceeds from advances from related parties - 50,000
Proceeds from exercise of warrants - 183,713
Proceeds from exercise of options - 86,490
------------- -------------
Net cash provided by financing activities - 1,079,283
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,963,982) 50,061
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,294,019 55,006
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,330,037 $ 105,067
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ - $ -
============= =============
Income taxes paid $ - $ -
============= =============
The accompanying notes are an integral part of these unaudited consolidated financial statements
4
|
UWINK, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared by uWink,
Inc. (the "Company", "we" or "us"), pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished herein reflects
all adjustments (consisting of normal recurring accruals and adjustments) which
are, in the opinion of management, necessary to fairly present the operating
results for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended January 1,
2008 included in our Annual Report on Form 10-KSB. The results of the three
months ended April 1, 2008 are not necessarily indicative of the results to be
expected for the full year ending December 30, 2008.
STOCK SPLIT
Effective July 26, 2007, we effected a four-for-one reverse stock split. All per
share amounts and share numbers presented herein have been retroactively
restated for this adjustment.
FISCAL YEAR END
In 2006, with the commencement of restaurant operations, we adopted a 52/53-week
fiscal year ending on the Tuesday closest to December 31st and fiscal quarters
ending on the Tuesday closest to March 31, June 30 and September 30, as
applicable, for financial reporting purposes. As a result, our 2006 fiscal year
ended on January 2, 2007, our 2007 fiscal first quarter ended on April 3, 2007,
our 2008 fiscal year ended on January 1, 2008 and our 2008 fiscal first quarter
ended on April 1, 2008.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
uWink, Inc. and our subsidiary, uWink California, Inc. and its wholly owned
subsidiary, uWink Franchise Corporation. The accompanying consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States of America. All inter-company accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard (SFAS) No. 107, Disclosures About
Fair Value of Financial Instruments, requires us to disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value. For certain of
our financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and unearned revenue, the
carrying amounts approximate fair value due to their short maturities. Amounts
shown for convertible debentures and notes payable also approximate fair value
because current interest rates and terms offered to us for similar debt are
substantially the same.
REVENUE RECOGNITION
Restaurant revenue from food, beverage and merchandise sales is recognized when
payment is tendered at the point of sale. We record gift card sales as a short
term liability in the period in which a gift card is issued and proceeds are
received. As gift cards are redeemed, this liability is reduced and revenue is
recognized.
Franchise revenue is recognized when we have performed substantially all of our
obligations as franchisor. Our area development fee consists of a one-time
payment in consideration for the services we perform in preparation of executing
each area development agreement. Substantially all of these services which
include, but are not limited to, conducting market and trade area analysis, a
meeting with our executive team, and performing potential franchise background
investigation, are completed prior to our execution of the area development
agreement and receipt of the corresponding area development fee. As a result, we
recognize the non-refundable portion of this fee in full upon receipt. We also
charge a $5,000 franchise application fee, in consideration of the services we
perform in evaluating the franchise application, which are completed
5
concurrently with receiving the application. As a result, we recognize the
non-refundable portion of this fee in full upon receipt. Refundable franchise
fees received are recorded as a short-term liability until such time as the fee
becomes non-refundable.
We recognize revenue related to software licenses in compliance with the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position No. 97-2, "Software Revenue Recognition." Revenue is recognized when we
deliver our touch screen terminals and related software to our customer and we
believe that persuasive evidence of an arrangement exits, the fees are fixed or
determinable and collectibility of payment is probable. Included with the
purchase of the touch screen terminals and related software are licenses to use
the games loaded on the terminals. The licenses for the games are in perpetuity,
we have no obligation to provide upgrades or enhancements to the customer, and
the customer has no right to any other future deliverables. We deliver the
requested terminals and/or software for a fixed price either under agreements
with customers or pursuant to purchase orders received from customers. We do not
have any contractual obligations to provide post sale support of our products.
We provide such support on a case by case basis and the costs of providing such
support are expensed as incurred. We earned no revenue from post sale support
during the periods presented.
ADVANCES FROM CUSTOMERS
We record advances from customers as a liability and recognize these amounts as
revenue over the period of the related agreement. As of April 1, 2008,
advances from customers relating to licensing fees amounted to $74,980.
SALES TAXES
Restaurant revenue is presented net of sales taxes. The obligation is included
in accrued expenses until the taxes are remitted to the appropriate taxing
authorities. The sales tax payable as of April 1, 2008 was $16,977.
REPORTING SEGMENTS
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131), which superseded SFAS No. 14, Financial Reporting
for Segments of a Business Enterprise, establishes standards for the way that
public enterprises report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements regarding products and
services, geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performances. Currently, SFAS 131 has no effect on our financial statements as
substantially all of our operations are conducted in one industry segment.
RECLASSIFICATIONS
Certain comparative amounts have been reclassified to conform to the current
period presentation.
RELATED PARTIES
During the three months ended April 1, 2008 and April 3, 2007, salary amounting
to $79,998 and $67,500, respectively, was paid to employees related to the CEO.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject us to a concentration of credit
risk are cash and cash equivalents. We currently maintain substantially all of
our day-to-day operating cash balances with major financial institutions. At
times during the year, and at April 1, 2008, cash balances were in excess of
Federal Depository Insurance Corporation insurance limits.
RESTRICTED CASH
Restricted cash of $60,155 at April 1, 2008 reflects amounts deposited into a
restricted bank account securing a letter of credit (see Note 11).
NOTE 2 - LOSS PER SHARE
We report loss per share in accordance with SFAS No. 128, "Earnings per Share."
Basic loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares available. Diluted
loss per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and
if the additional common shares were dilutive. The following potential common
shares have been excluded from the computation of diluted net loss per share for
the three months ended April 1, 2008 and April 3, 2007 because the effect would
have been anti-dilutive:
2008 2007
---------- ----------
Stock options issued to employees 811,130 357,630
Warrants issued to consultants and finders -- 7,525
Warrants issued for financing 6,883,931 499,547
---------- ----------
7,695,061 864,702
========== ==========
|
6
Diluted earnings (loss) per share has not been presented because the assumed
conversion of options and warrants to purchase common shares would have an
anti-dilutive effect.
NOTE 3 - ACCOUNTS RECEIVABLE
Accounts receivable consists of restaurant credit card payments still in
process. No allowance for doubtful accounts has been recorded for these
receivables as collection is considered probable. The allowance for doubtful
accounts of $72,265 at each of April 1, 2008 and January 1, 2008 is to cover the
accounts receivable from non-restaurant activities.
NOTE 4 - INVENTORY
Inventory has been reviewed for obsolescence and stated at lower of cost or
market as of April 1, 2008 and January 1, 2008, determined on a first in first
out basis. During 2005, the Company made a strategic decision to reposition
itself as an entertainment restaurant company, to wind down its SNAP! and Bear
Shop manufacturing and sales operations and to liquidate its remaining
inventory. As a result, all non-restaurant inventory at April 1, 2008 and
January 1, 2008 is treated as finished goods inventory. The obsolescence reserve
at April 1, 2008 and January 1, 2008 relates solely to non-restaurant inventory.
Restaurant inventory consists of food, beverages and merchandise available for
sale in the restaurant.
Inventory at April 1, 2008 and January 1, 2008 consisted of the following:
APRIL 1, 2008 JANUARY 1, 2008
--------------- -----------------
Finished Goods $ 291,887 $ 291,887
Restaurant 22,345 19,547
Less: obsolescence reserve (291,887) (291,887)
--------------- ------------------
Total $ 22,345 $ 19,547
|
NOTE 5 - PROPERTY AND EQUIPMENT
The cost of property and equipment at April 1, 2008 and January 1, 2008
consisted of the following:
APRIL 1, 2008 JANUARY 1, 2008
--------------- -----------------
Computer equipment $ 889,182 $ 670,686
Office furniture and equipment 17,926 17,926
Restaurant Furniture and Fixtures 656,492 656,492
Leasehold improvements 84,849 84,849
Machinery and equipment 82,603 82,603
Construction in progress 912,917 64,689
--------------- -----------------
2,643,969 1,577,245
Less accumulated depreciation (719,929) (633,307)
--------------- -----------------
Total $ 1,924,040 $ 943,938
|
Depreciation expense for the three months ended April 1, 2008 and April 3, 2007
was $86,622 and $64,298, respectively.
NOTE 6 - LONG TERM DEPOSITS
Long term deposits at April 1, 2008 and January 1, 2008 consisted of the
following:
APRIL 1, 2008 JANUARY 1, 2008
--------------- -----------------
Lease Deposits $ 42,158 $ 40,238
Deposit for developing gaming software 25,000 -
--------------- -----------------
Total $ 67,158 $ 40,238
--------------- -----------------
|
NOTE 7 - COMPONENTS OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The major components of selling, general and administrative expenses for the
three months ended April 1, 2008 consisted of the following:
Professional fees $ 125,562
Rent 79,676
Restaurant operating expenses 135,490
Product development 110,478
Salary expense 668,384
Employee stock option expense 322,536
Depreciation and amortization 86,622
Other 171,624
----------
$1,700,372
==========
|
7
The major components of selling, general and administrative expenses for the
three months ended April 3, 2007 consisted of the following:
Professional fees $ 123,099
Rent 81,729
Restaurant operating expenses 157,412
Product development 81,980
Salary expense 761,068
Employee stock option expense 253,779
Other 199,727
----------
$1,658,794
==========
|
NOTE 8 - EQUITY
PREFERRED STOCK
We have authorized 5,000,000 shares of preferred stock. Our board of directors
is authorized to establish, from the authorized shares of preferred stock, one
or more classes or series of shares, to designate each such class and series,
and to fix the rights and preferences of each such class and series. Without
limiting the authority of our board of directors, each such class or series of
preferred stock shall have such voting powers (full or limited or no voting
powers), such preferences and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions as shall be stated
and expressed in the resolution or resolutions providing for the issue of such
class or series of preferred stock as may be adopted from time to time by the
board of directors prior to the issuance of any shares thereof. Fully-paid stock
is not liable to any further call or assessment.
COMMON STOCK
Effective July 26, 2007, we effected a four-for-one reverse stock split. All per
share amounts and share numbers presented herein have been retroactively
restated for this adjustment.
Effective July 23, 2007, the authorized number of shares of our common stock was
increased from 12,500,000 shares (post-split) to 25,000,000 shares (post-split).
We issued no shares of unrestricted common stock during the three month period
ended April 1, 2008.
SHARES TO BE ISSUED
At each of April 1, 2008 and January 1, 2008, shares to be issued consisted of:
4,159 shares valued at $10,142 that remained unissued in connection with our
capital raising transactions in 2004. These shares remain unissued for
ministerial reasons.
NOTE 9 - STOCK OPTIONS, RESTRICTED STOCK AWARDS AND WARRANTS
Effective July 26, 2007, we effected a four-for-one reverse stock split. All per
share amounts and share numbers presented herein have been retroactively
restated for this adjustment.
We adopted SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS No. 123R"),
under the modified-prospective transition method on January 1, 2006. SFAS No.
123R requires companies to measure and recognize the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value. Share-based compensation recognized under the modified-prospective
transition method of SFAS No. 123R includes share-based compensation based on
the grant-date fair value determined in accordance with the original provisions
of SFAS No. 123, Accounting For Stock-Based Compensation, for all share-based
payments granted prior to and not yet vested as of January 1, 2006 and
share-based compensation based on the grant-date fair-value determined in
accordance with SFAS No. 123R for all share-based payments granted after January
1, 2006. SFAS No. 123R eliminates the ability to account for the award of these
instruments under the intrinsic value method proscribed by Accounting Principles
Board ("APB") Opinion No. 25, Accounting For Stock Issued To Employees, and
allowed under the original provisions of SFAS No. 123. Prior to the adoption of
SFAS No. 123R, we accounted for our stock option plans using the intrinsic value
method in accordance with the provisions of APB Opinion No. 25 and related
interpretations.
Primarily as a result of adopting SFAS No. 123R, we recognized $322,536 in
share-based compensation expense for the three months ended April 1, 2008. The
impact of this share-based compensation expense on our basic and diluted
earnings per share was $0.03 per share. The fair value of our stock options was
estimated using the Black-Scholes options pricing model.
We assumed the uWink.com, Inc. 2000 Employee Stock Option Plan (the "2000 Plan")
pursuant to our acquisition of uWink California. The 2000 Plan provides for the
issuance of up to 170,305 (after giving effect to a 3.15611 reverse stock split
in connection with the acquisition of uWink California and to the four-for-one
reverse stock split effective July 26, 2007) incentive and non-qualified stock
options to our employees, officers, directors and consultants. Options granted
under the 2000 Plan vest as determined by the Board of Directors, provided that
any unexercised options will automatically terminate on the tenth anniversary of
the date of grant. As of April 1, 2008 there are 4,200 shares available for
issuance under this plan.
8
In 2004, our Board of Directors approved the uWink, Inc. 2004 Stock Incentive
Plan (the "2004 Plan"). The 2004 Plan provides for the issuance of up to 300,000
incentive stock options, non-qualified stock options, restricted stock awards
and performance stock awards to our employees, officers, directors and
consultants. Awards granted under the 2004 Plan vest as determined by the Board
of Directors, provided that no option or restricted stock award granted under
the 2004 Plan may be exercisable prior to six months from its date of grant and
no option granted under the 2004 Plan may be exercisable after 10 years from its
date of grant. As of April 1, 2008, there are 5,000 shares available for
issuance under this plan.
In 2005, our Board of Directors approved the uWink, Inc. 2005 Stock Incentive
Plan (the "2005 Plan"). The 2005 Plan provides for the issuance of up to 500,000
incentive stock options, non-qualified stock options, restricted stock awards
and performance stock awards to our employees, officers, directors, and
consultants. Awards granted under the 2005 Plan vest as determined by the Board
of Directors, provided that no option or restricted stock award granted under
the 2005 Plan may be exercisable prior to six months from its date of grant and
no option granted under the 2005 Plan may be exercisable after 10 years from its
date of grant. As of April 1, 2008, there are 63,496 shares available for
issuance under this plan.
On June 8, 2006, our Board of Directors approved the uWink, Inc. 2006 Equity
Incentive Plan (the "2006 Plan"). The 2006 Plan, as subsequently amended on
November 14, 2006, provides for the issuance of up to 625,000 incentive stock
options, non-qualified stock options, restricted and unrestricted stock awards
and stock bonuses to our employees, officers, directors, and consultants. As of
April 1, 2008, there are 36,495 shares available for issuance under this plan.
On June 21, 2007, our Board of Directors approved the uWink, Inc. 2007 Equity
Incentive Plan (the "2007 Plan"). The 2007 Plan provides for the issuance of up
to 250,000 incentive stock options (ISO's), non-qualified stock options,
restricted and unrestricted stock awards and stock bonuses to our employees,
officers, directors, and consultants. As of April 1, 2008, there are 30,000
shares available for issuance under the 2007 Plan.
Awards granted under both the 2006 Plan and the 2007 Plan vest as determined by
the Board of Directors, provided that:
o no option granted under the 2006 Plan or the 2007 Plan may be
exercisable after ten years from its date of grant and no ISO
granted to a person who owns more than ten percent of the total
combined voting power of all classes of stock of the Company
will be exercisable after five years from the date of grant; and
o an option granted to a participant who is an officer or director
may become fully exercisable, subject to reasonable conditions
such as continued employment, at any time or during any period
established by the Board of Directors.
On January 2, 2008, we issued 5,000 options to an employee at an exercise
price of $1.30 per share.
On February 19, 2008, we issued 10,000 options to an employee at an exercise
price of $1.34 per share.
On March 10, 2008, we issued 25,000 options to an employee at an exercise
price of $1.42 per share.
On March 19, 2008, we issued 5,000 options to an employee at an exercise
price of $1.45 per share.
All these options are subject to 3 year cliff vesting.
On February 18, 2008, we issued 100,000 options to an employee at an exercise
price of $1.26 per share. 20,000 of these options vest after one year; an
additional 20,000 vest after two years; and the remaining 60,000 vest after
three years.
9
Following is a summary of the stock option activity for the three months ended
April 1, 2008:
Weighted
Average
Options Exercise Aggregate
outstanding Price Intrinsic Value
----------- -------- ---------------
Outstanding, January 1, 2008 1,012,648 $3.91 $ 38,314
Granted 145,000 $1.30
Forfeited 10,500 $3.07
Exercised -- --
---------- ---------- ----------
Outstanding, April 1, 2008 1,147,148 $3.59 $ 60,134
Exercisable, April 1, 2008 664,547 $3.76 $ 23,805
|
Following is a summary of the status of options outstanding at April 1, 2008:
Exercise Options Average Remaining Exercisable
Price Outstanding Contractual Life
$1.00 - $1.99 616,643 8.20 350,396
$2.00 - $2.99 119,375 7.75 90,382
$4.00 - $4.99 99,750 8.58 41,259
$5.00 - $5.99 27,584 8.45 13,593
$6.00 - $6.99 53,750 8.94 18,912
$7.00 - $7.99 100,000 8.67 44,566
$8.00 - $8.99 42,500 8.75 17,893
$9.00 - $9.99 45,254 5.93 45,254
$10.00 - $10.99 37,500 6.29 37,500
$12.00 - $12.99 4,792 1.72 4,792
-------------------------------------------------------------
1,147,148 8.11 664,547
=============================================================
|
For options granted during the three months ended April 1, 2008, the
weighted-average fair value of such options was $1.01.
During the three months ended April 1, 2008, we received no proceeds from the
exercise of stock options.
The total weighted-average remaining contractual term of the options outstanding
at April 1, 2008 is 8.11 years.
The total weighted-average remaining contractual term of the options exercisable
at April 1, 2008 is 7.56 years.
We recognized expense of $240,046 for the fair value of the options vested
during the three months ended April 1, 2008.
The total compensation expense not yet recognized relating to unvested options
at April 1, 2008 is $1,497,571 and the weighted-average period over which this
expense will be recognized is 1.86 years.
The assumptions used in calculating the fair value of options granted during the
period, using the Black-Scholes options pricing model are as follows:
Risk-free interest rate 4.29%
Expected life of the options 10.00 years
Expected volatility 67.8%-71.3%
Expected dividend yield 0
|
Restricted Stock Awards
Restricted stock awards are grants that entitle the holder to shares of common
stock as the award vests. Our restricted stock awards generally vest in 24 or 36
equal monthly installments, as noted below. The fair value of our restricted
stock awards is estimated using the Black-Scholes options pricing model.
10
On January 3, 2008, we granted 25,000 shares of restricted stock, vesting in 24
equal month installments, with a fair value of $33,250 to Mr. Bradley Rotter, as
compensation for serving as the chairman of the audit committee of our board of
directors. Also on January 3, 2008, we granted 50,000 shares of restricted stock
to an employee that vest in 36 equal monthly installments, with a fair value of
$66,500.
Following is a summary of the restricted stock award activity for the three
months ended April 1, 2008.
Weighted-
Average
Grant Date Aggregate
Shares Fair Value Intrinsic value
-------- ---------- ---------------
Non-vested balance January 1, 2008 94,618 $5.05 $132,465
Granted 75,000 $1.33
Vested 21,875 $3.77
Forfeited -- --
---------- --------- ----------
Non-vested balance April 1, 2008 147,743 $3.35 $209,795
|
For awards granted during the three months ended April 1, 2008, the
weighted-average fair value of such awards was $1.33.
The total weighted-average remaining contractual term of the awards outstanding
at April 1, 2008 is 1.96 years.
We recognized expense of $82,490 for the fair value of the awards vested during
the three months ended April 1, 2008.
The total compensation expense not yet recognized relating to unvested awards at
April 1, 2008 is $494,976 and the weighted average period over which this
expense will be recognized is 1.96 years.
The assumptions used in calculating the fair value of awards granted during the
period, using the Black-Scholes option pricing model are as follows:
Risk-free interest rate 4.29%
Expected life of the award 2-3 years
Expected volatility 68.11%
Expected dividend yield 0
|
Warrants
Following is a summary of the warrant activity for the three months ended April
1, 2008.
Weighted-
Average
Exercise Aggregate
Warrants Price Intrinsic Value
---------- -------- -----------------
Balance January 1, 2008 8,182,586 $ 2.77 $ 25,862
Granted -- $ --
Exercised -- $ --
Cancelled 5,545 $ 6.32
---------- ---------- ----------
Balance April 1, 2008 8,177,041 $ 2.77 $ 51,724
|
During the three months ended April 1, 2008, we issued no warrants and
recognized no expense relating to warrants.
Following is a summary of the status of warrants outstanding at April 1, 2008:
Outstanding Warrants
--------------------
Average
Exercise Remaining
Price Number Contractual Life Exercisable
-------- ------ ---------------- -----------
$1.38 1,293,110 1.17 1,293,110
$2.40 6,441,153 4.61 6,441,153
$6.00 100,031 2.12 100,031
$7.00 21,250 1.50 21,250
$8.00 61,250 1.05 61,250
$14.00 222,747 2.50 222,747
$20.00 12,500 1.00 12,500
$28.00 12,500 1.00 12,500
$36.00 12,500 1.00 12,500
-----------------------------------------------------------------------
8,177,041 3.90 8,177,041
-----------------------------------------------------------------------
|
11
NOTE 10 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements", which is an amendment of Accounting Research
Bulletin ("ARB") No. 51. This statement clarifies that a noncontrolling interest
in a subsidiary is an ownership interest in the consolidated entity that should
be reported as equity in the consolidated financial statements. This statement
changes the way the consolidated income statement is presented, thus requiring
consolidated net income to be reported at amounts that include the amounts
attributable to both parent and the noncontrolling interest. This statement is
effective for the fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Based on current conditions, the
Company does not expect the adoption of SFAS 160 to have a significant impact on
its results of operations or financial position.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations." This statement replaces FASB Statement No. 141, "Business
Combinations." This statement retains the fundamental requirements in SFAS 141
that the acquisition method of accounting (which SFAS 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This statement defines the acquirer as
the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. This statement requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the statement. This statement applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company does not expect the adoption of SFAS 141 to have
a significant impact on its results of operations or financial position.
In March 2008, the FASB issued FASB Statement No. 161, "Disclosures about
Derivative Instruments and Hedging Activities". The new standard is intended to
improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their
effects on an entity's financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The new standard also improves transparency about the location and
amounts of derivative instruments in an entity's financial statements; how
derivative instruments and related hedged items are accounted for under
Statement 133; and how derivative instruments and related hedged items affect
its financial position, financial performance, and cash flows. FASB Statement
No. 161 achieves these improvements by requiring disclosure of the fair values
of derivative instruments and their gains and losses in a tabular format. It
also provides more information about an entity's liquidity by requiring
disclosure of derivative features that are credit risk-related. Finally, it
requires cross-referencing within footnotes to enable financial statement users
to locate important information. Based on current conditions, the Company does
not expect the adoption of SFAS 161 to have a significant impact on its results
of operations or financial position.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, we are generally subject to claims,
complaints, and legal actions. As of April 1, 2008, management believes that
we are not a party to any action which would have a material impact on our
financial condition, operations, or cash flows.
Bauer Industrial Group, Inc. and Thomas Bannister v. uWink, Inc., Case No. 07-
C-1001, was filed against us on November 13, 2007 in the federal district court
for the Eastern District of Wisconsin. Plaintiffs allege that we refused to pay
compensation for services rendered, which we deny. The complaint alleges claims
for breach of contract, breach of the implied covenant of good faith and fair
dealing, promissory estoppel, unjust enrichment, intentional misrepresentation,
strict responsibility misrepresentation, negligent misrepresentation, and
fraudulent representation, and seeks compensatory damages of not less than
$500,000, punitive damages, treble damages under a Wisconsin statute, and costs
of suit. We have answered the complaint by denying any wrongdoing and asserting
a number of affirmative defenses, including plaintiffs' breach of contract,
which we believe negates plaintiffs' right to any compensation under the
agreements. We have also moved to dismiss the complaint for lack of personal
jurisdiction and improper venue or, alternatively, to change venue to the
Central District Court in California.
12
Leases
Effective June 1, 2006, we entered into a lease agreement relating to our new
corporate offices at 16106 Hart Street, Van Nuys, California 91406. This
property consists of approximately 2,200 square feet of office and warehouse
space at the base rental rate of $2,300 per month. Effective January 22, 2008,
we entered into a lease agreement relating to an additional 1,650 square feet of
office and warehouse space contiguous to our corporate offices at 16106 Hart
Street, Van Nuys, California 91406 at a base rental rate of $2,442 per month.
Effective as of April 10, 2006, we secured an approximately 10 year lease on the
planned location for our first uWink restaurant in Woodland Hills, California,
located at 6100 Topanga Canyon Boulevard, Woodland Hills, California 91367. The
underlying lease agreement between Nolan Bushnell, our CEO, in his personal
capacity, and Promenade LP, the landlord, is as of February 3, 2006. Effective
as of April 10, 2006, we, Mr. Bushnell and Promenade L.P. entered into an
assignment agreement pursuant to which Mr. Bushnell assigned his rights under
the lease to us (but without relieving Mr. Bushnell of his liability for the
performance of the lease). In connection with this assignment, we agreed with
Mr. Bushnell that, should we fail to perform under the lease and Mr. Bushnell
become obligated under the lease as a result, Mr. Bushnell will have the right
to operate the leased premises in order to satisfy his obligations under the
lease.
This location consists of 5,340 square feet. The minimum annual rent payments
under the lease are $176,220 from rental commencement through January 31, 2009;
$181,507 from February 1, 2009 to January 31, 2010; $186,952 from February 1,
2010 to January 31, 2011; $192,560 from February 1, 2011 to January 31, 2012;
$198,337 from February 1, 2012 to January 31, 2013; $204,287 from February 1,
2013 to January 31, 2014; $210,416 from February 1, 2014 to January 31, 2015;
and $216,728 from February 1, 2015 to January 31, 2016.
If our gross sales from this location exceed certain annual thresholds, we are
obligated to pay additional percentage rent over and above the minimum annual
rent described above. Our percentage rent obligation is equal to 5% of gross
sales in excess of the following thresholds:
Rental commencement to January 31, 2009: $3,524,400;
February 1, 2009 to January 31, 2010: $3,630,132;
February 1, 2010 to January 31, 2011: $3,739,036;
February 1, 2011 to January 31, 2012: $3,851,207;
February 1, 2012 to January 31, 2013: $3,966,743;
February 1, 2013 to January 31, 2014: $4,085,745;
February 1, 2014 to January 31, 2015: $4,208,318; and
February 1, 2015 to January 31, 2016: $4,334,567.
Our obligation to pay rent under this lease commenced on October 5, 2006.
On October 25, 2007, we entered into a definitive agreement and sublease to
acquire the leasehold interest of a formerly operating restaurant located at 401
Castro Street, Mountain View, CA 94041. This location consists of 6,715 square
feet. The annual rent payment under the lease is $228,000, subject to annual
adjustment based on increases in the consumer price index capped at 5%. We are
also obligated pay our pro-rata share of the property's operating expenses. The
lease expires on November 30, 2022. Our obligation to make operating expense
payments under this lease commenced on February 1, 2008 and our obligation to
make base rent payments commenced on May 1, 2008.
On December 17, 2007, we entered into a definitive lease agreement with CIM/H&H
Retail, L.P. to open a new restaurant location in the Hollywood & Highland
Center located at 6801 Hollywood Boulevard, Hollywood, California 90028. This
location consists of 7,314 square feet. The minimum annual rent payment under
the lease is $182,850, subject to annual 3% increases. The lease expires on July
31, 2018. If our gross sales from this location exceed certain annual
thresholds, we are obligated to pay additional percentage rent over and above
the minimum annual rent described above. Our percentage rent obligation is equal
to 8% of gross sales in excess of $5,000,000, with this threshold being subject
to 3% annual increases. We are also obligated pay our pro-rata share of the
property's operating expenses. We expect that our obligation to pay rent under
this lease will commence in May 2008.
13
Total rent expense for the three months ended April 1, 2008 was $79,676. Total
rent expense for the three months ended April 3, 2007 was $81,729.
Licensing Agreements
Effective September 15, 2006, we entered into a license agreement with SNAP
Leisure LLC, a company owned and operated by our former Vice President of
Marketing. Pursuant to this agreement, we licensed our SNAP intellectual
property, including the games featured on SNAP in the form they currently run on
SNAP (we have made significant enhancements to our games for display in our
restaurant and SNAP Leisure LLC has no right to those enhancements or any future
enhancements or new games we develop), to SNAP Leisure LLC for use in the "pay
to play" amusements market worldwide (the "pay to play" amusements market is
generally considered to be the coin operated video game machine market). The
agreement provides that we are to receive royalties calculated per SNAP machine
sold ($200 royalty per machine for the first 300 machines sold; $80 per machine
royalty for the next 700 machines sold; and $50 per machine royalty for any
additional machines sold thereafter). The agreement further provides that SNAP
Leisure LLC cannot affix the name "uWink" to any new product sold under the
license following the first anniversary of the agreement and must remove all
references to uWink from all products sold under the agreement within a 5 year
period. We have no obligation to provide any support or software maintenance,
upgrades or enhancements under this agreement.
On January 26, 2007, we entered into an Inventory Purchase Agreement, a License
Agreement and a Non-Competition Agreement with Interactive Vending Corporation
("IVC"). Pursuant to these agreements, we agreed to sell our remaining Bear Shop
machine inventory (at $2,000 per complete machine, payable in 2 installments)
and accessories inventory (at our cost) to IVC. In addition, we granted IVC an
exclusive, worldwide license to our Bear Shop intellectual property (excluding
any intellectual property relating to the name "uWink" or any derivation
thereof), including US Patent # 6,957,125,(except that we retain the right of
use in the restaurant industry subject to the limitations in the Non-Competition
Agreement) in exchange for royalties based on the revenue generated by IVC from
the licensed intellectual property, ranging from 5% of revenue in the first year
of the agreement to 3% of revenue in years seven, eight, nine and ten of the
agreement. We have no obligation to provide any support or software maintenance,
upgrades or enhancements under these agreements. We also entered into a
Non-Competition Agreement with IVC, pursuant to which we agreed not to engage in
the business of interactive vending, other than in the restaurant industry to
the extent the interactive vending is integrated into the operations of the
restaurant, for as long as IVC is obligated to make royalty payments under the
License Agreement.
Letter of Credit
On February 11, 2008, Wells Fargo Bank issued on our behalf an irrevocable
documentary letter of credit in the amount of $58,970 securing our purchase
obligation for certain plush toy merchandise to be used in our restaurants. This
letter of credit remains outstanding as of April 1, 2008. We deposited $60,155
into a restricted bank account as security for this letter of credit. This
amount has been recorded as restricted cash on the balance sheet at April 1,
2008.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
our consolidated financial statements and related footnotes for the fiscal year
ended January 1, 2008 included in our Annual Report on Form 10-KSB. The
discussion of results, causes and trends should not be construed to imply any
conclusion that such results or trends will necessarily continue in the future.
OVERVIEW
We are an entertainment and hospitality software company. We also develop
and operate an interactive restaurant concept named "uWink" that incorporates
and showcases our entertainment and hospitality software. The uWink restaurant
concept was designed to create a fun, casual atmosphere where customers can
enjoy freshly prepared, reasonably priced meals while interacting with our
media, games and entertainment platform through our tabletop touch interface.
Over the past three years, we have invested substantial time and capital
in the development of our touch-based interactive digital content
operating/display system and real-time, multi-player game platform, as well as
our uWink Game Library, which comprises over 70 single and multi-player
short-form video games.
Our technology is designed to allow users to intuitively and easily use
touch to access and interact with various forms of digital content and custom
applications including menus, games, videos and music. Our software also allows
patrons to take control of many aspects of the dining experience, including self
check-in/checkout and food/drink ordering using our tabletop touch interface.
The centerpiece of our entertainment offering is our uWink Game Library of
single and multi-player casual, "social" games aimed at all ages, particularly
women ages 21-35 and families. We believe these demographics to be historically
neglected, but growing and important, segments of the video game market.
Our real-time, multi-player game platform supports venue-wide,
head-to-head and team game play, facilitates in-person tournament and
multi-player prize games and is designed to eventually support venue-to-venue
game play and simultaneous in-venue and online game play.
Our software assets include:
o HOSPITALITY ORDERING: we offer a customer-facing, touch-based
user interface that allows guests to self-order all of their
food and drink via touch screen terminals at each table. We
have integrated our ordering system with a commercial
point-of-sale system, providing seamless transaction billing,
processing and accounting.
o SELF CHECK-IN/CHECKOUT: our software allows restaurant
customers to self-check in at the table using a credit card or
prepaid debit card and to self-pay and checkout by swiping a
card at the table.
o UWINK GAME LIBRARY: we feature a library of over 70 single and
multi-player short-form, casual and "social" video games,
including TRIVIA LIVE, TRUTH OR DARE, UWINK SCENE
INVESTIGATION (our riff on the popular CSI television series),
XINGO (a mashup of bowling and bingo) and PICTURE PERFECT (a
"find the differences" game).
o MULTIPLAYER GAME PLATFORM: allows patrons throughout the venue
to play digital games against one another in real time,
including real-time scoring, either head-to-head individually
or in teams.
o "MICRO-TRANSACTION" GAME PLAY MONETIZATION SOFTWARE: allows
for game "credit" purchasing, tracking and redemption,
facilitating game/media purchases ($0.25 to $1.00 value per
play).
15
o MEDIA DISPLAY SYSTEM: our system allows for the display and
interaction with virtually all forms of web-based digital
content. Our system also features large wall projections that
exhibit revolving dynamic imagery, allowing the venue to
change its "look and feel" at a moment's notice. The
projection system is also used for venue-wide group gaming and
for the display of customized "special event" digital media,
including for corporate presentations and meetings as well as
birthday parties.
Our software is built using standardized "Web 2.0" technologies, including
RESTful API, Flash, XML, Java, and Linux, which we believe facilitates
resource-efficient internal software development and integration with
third-party software partners and content developers.
Over the past 18 months we have spent significant time and effort
developing and refining our technology, a process aided greatly by real-time
customer feedback and stress testing in our 200+ seat prototype uWink restaurant
in Woodland Hills, California.
Based on this experience, we believe that our hospitality and
entertainment technology:
o is a differentiator, increasing customer traffic;
o provides unique revenue streams;
o increases transaction speed and order accuracy;
o increases customer loyalty;
o increases average check; and
o significantly reduces labor costs and enhances labor
efficiency.
We also believe that the software platforms and touch screen terminals we
have developed, and are continuing to develop, can be deployed more broadly in
the hospitality and public-space markets including in hotels, casual/fast food
restaurants, bars, apartments, universities, stadiums, theme parks, casinos, and
golf and ski resorts.
We opened our first uWink restaurant in Woodland Hills, California in
October 2006. We are currently in the process of opening two additional
company-owned restaurants: one at the Hollywood & Highland Center in Hollywood,
California (expected to open in late May/early June 2008) and the other in
downtown Mountain View, California (expected to open in late June/early July
2008). We intend to use the proceeds of our November 7, 2007 $10.4 million
registered equity offering to complete the development of these new restaurant
sites, and to continue implementing our growth strategy. We believe these
high-profile, high-visibility locations will greatly increase the value and
recognition of our technology assets and the uWink brand.
Going forward, our strategy is to leverage our experience and software
assets to operate and franchise the uWink interactive entertainment restaurant
concept, as well as to license our technology to other hospitality and
public-space operators. Following the opening of our two new company-owned uWink
restaurant locations (described above), we expect to emphasize franchising and
technology licensing over the development of additional company-owned uWink
restaurants.
16
In connection with the implementation of our growth strategy to franchise
the uWink concept, we have formed a subsidiary, uWink Franchise Corporation, to
enter into agreements with our franchisees. On June 8, 2007, uWink Franchise
Corporation entered into an area development agreement with OCC Partners, LLC
for our first planned franchised restaurants. This agreement contemplates the
opening of three franchised uWink restaurants in Miami-Dade County, Florida over
the next four years.
In furtherance of the technology licensing component of our growth
strategy, in December 2007 we announced plans to develop and market self-service
technology solutions for the hospitality industry in conjunction with
hospitality software provider Volante Systems. Also, in February 2008, we
entered into a software licensing and development agreement with a California
real-estate developer to provide our touch-based technology for the senior
housing market. Under the agreement, we will receive an initial $50,000
licensing fee and a minimum of $25,000 in custom development fees during the
first year of the agreement. Any third party licensing revenue from software
applications custom developed under the agreement will be shared 50-50 between
the real-estate developer and us after appropriate deductions for reasonable
sale, delivery, installation, support and/or maintenance costs.
BASIS OF PRESENTATION
In 2006, with the commencement of restaurant operations, we adopted a
52/53-week fiscal year ending on the Tuesday closest to December 31st, and
fiscal quarters ending on the Tuesday closest to March 31, June 30 and September
30, as applicable, for financial reporting purposes. As a result, our 2006
fiscal year ended on January 2, 2007, our 2007 fiscal year ended on January 1,
2008, our first fiscal quarter of 2007 ended on April 3, 2007 and our first
fiscal quarter of 2008 ended on April 1, 2008. For purposes of the following
discussion, the three month periods ended April 1, 2008 and April 3, 2007 are
sometimes referred to as fiscal quarters.
RESULTS OF OPERATIONS
Fiscal first quarter 2008 compared with fiscal first quarter 2007.
Net sales for the three months ended April 1, 2008 decreased by $33,683
(6%) to $545,193 from $578,876 for the three months ended April 3, 2007. Revenue
from our Woodland Hills restaurant amounted to $545,073 (99.99% of total first
quarter 2008 revenue), a decrease of $12,834 (2.3%) from the $557,907 (96% of
total first quarter 2007 revenue) recorded for the three months ended April 3,
2007. The other first quarter 2007 revenue of $20,969 was generated through the
liquidation of part of our remaining SNAP! and Bear Shop inventories.
Cost of sales for the first quarter of 2008 totaled $165,407, compared to
$198,128 for the first quarter of 2007, representing a decrease of $32,722
(17%). Cost of sales for our Woodland Hills restaurant amounted to $165,407 (30%
of restaurant revenue) in the first three months of 2008, compared to $195,903
(35% of restaurant revenue) in the three months ending April 3, 2007. As our
restaurant matures and we continue to optimize our menu and menu cost structure,
we expect that our restaurant cost of sales will drop to the 23%-27% (of
restaurant revenue) range. Non-restaurant cost of sales amounted to $2,225 for
the first quarter of 2007. We sold 16 Bear Shop machines in the first quarter of
2007 for $16,000. There was no cost of sales associated with these machines, as
they had been fully reserved for in prior periods. As a result, our
non-restaurant gross margin was 89% for the first quarter of 2007.
17
Selling, general and administrative (SG&A) expenses for the three months
ended April 1, 2008 totaled $1,700,372, compared to $1,658,794 for the three
months ended April 3, 2007, representing an increase of $41,578 (3%). Restaurant
SG&A (including restaurant salaries) amounted to $422,464 in the first quarter
of 2008 as compared to $496,469 in the first quarter 2007; corporate salaries
were approximately $450,000 in the first quarter of 2008 versus approximately
$420,000 in the first quarter of 2007; engineering consulting expense was
approximately $110,000 in the first quarter of 2008 versus $82,000 in the first
quarter of 2007; and professional fees were approximately $125,000 in the first
quarter of 2008 compared to approximately $123,000 in the first quarter of 2007.
Nominal stock option expense was $322,536 in the first quarter 2008 as compared
to $253,779 in the first quarter of 2007, with the increase resulting from the
continued amortization of fair value expense of options issued prior to 2008,
coupled with the recording of expense relating to the issuance of restricted
stock in 2007 and 2008.
As a result, our loss from operations for the three months ended April 1,
2008 was $1,320,585, compared to a loss of $1,278,046 for the three months ended
April 3, 2007, representing an increase of $42,539 (3%).
Total other income for the first quarter of 2008 consisted of interest
income of $38,917. Total other expense for the first quarter of 2007 consisted
of interest expense of $12,031.
As a result, our net loss for the first quarter of 2008 totaled
$1,282,469, compared to a net loss of $1,291,456 for the first quarter of 2007,
representing a decrease of $8,987 (1%).
LIQUIDITY AND CAPITAL RESOURCES
As of April 1, 2008, our cash position was $5,330,037 and we had working
capital of $4,308,630. Working capital represents our current assets minus our
current liabilities and is related to our ability to pay short term debt as it
becomes due.
On November 7, 2007 we raised approximately $9.3 million of net proceeds
pursuant to a registered offering of our equity securities. We are using the
proceeds from this transaction for new restaurant development and working
capital purposes. We expect that we can currently satisfy our cash requirements
for the next twelve months.
As of the date of this report, we expect to expend an aggregate of
approximately $2,000,000 (net of landlord tenant improvement allowances) on the
build out and opening of our planned Hollywood, California and Mountain View,
California uWink restaurants (approximately $1,000,000 per restaurant). As of
the date of this report, we have expended approximately $1,000,000 of this
amount.
As of the date of this report, we have no material debt obligations and
are not in default on any material debt obligation. We have filed as exhibits
with the SEC all of our material financing arrangements.
CASH POSITION AND SOURCES AND USES OF CASH
For the first quarter of 2008, we used $837,102 of cash for operations, as
compared to a use of $969,390 for the first quarter of 2007. Our major uses of
operating cash in the first quarter of 2008 were to pay salaries of
approximately $668,000 ($450,000 of corporate salaries and $218,000 of
restaurant salaries), $110,000 of product development expenses (largely outside
software engineering consultants) and $125,000 of professional fees. We
generated operating cash in 2008 of $50,000 from prepaid licensing fees relating
to our licensing of software to a senior living facility developer. This payment
was booked as an advance from customer liability until the delivery and
installation of the licensed software is complete. Our major uses of cash in
operations in the first quarter of 2007 were to pay salaries of approximately
$700,000 ($420,000 of corporate salaries and $280,000 of restaurant salaries),
product development expenses of $82,000 and professional fees of $123,000.
18
During the first three months of 2008, we used $1,126,880 in investing
activities, largely reflecting investments in leaseholds and technology for our
new Hollywood and Mountain View restaurants, as well as $60,155 deposited into a
restricted bank account as security for a letter of credit for the purchase of
plush toy merchandise inventory for our restaurants. During the three months
ended April 3, 2007, we used $59,833 in our investing activities, largely
related to equipping the outside patio area of our Woodland Hills restaurant.
During the first quarter of 2008, we had no financing activities. During
the three months ended April 3, 2007, our financing activities provided cash in
the amount of $1,079,283. Net proceeds from debt issuance amounted to $809,080
in the first quarter of 2007, largely due to the sale of $832,000 of convertible
notes to 18 investors (including $50,000 from the brother-in-law of our CEO). In
addition, we received cash proceeds of $270,203 from the exercise of warrants
and options in the first quarter of 2007.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our consolidated financial condition and
results of operations are based upon our consolidated financials statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to allowance for doubtful
accounts, inventory reserves, and value of our stock and options/warrants issued
for services. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions; however, we believe that our estimates, including those for the
above-described items, are reasonable.
SOFTWARE DEVELOPMENT COSTS
Software development costs related to computer games and network and
terminal operating systems developed by us are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of software development costs begins upon the establishment of
technological feasibility and is discontinued when the product is available for
sale. When the software is a component part of a product, capitalization begins
when the product reaches technological feasibility. The establishment of
technological feasibility and the ongoing assessment for recoverability of
capitalized software development costs require considerable judgment by
management with respect to the completion of all planning, designing, coding and
testing activities necessary to establish that the product can be produced to
meet its design specifications and certain external factors including, but not
limited to, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalized software development
costs are comprised primarily of salaries and direct payroll related costs and
the purchase of existing software to be used in the our products.
Amortization of capitalized software development costs is provided on a
product-by-product basis on the straight-line method over the estimated economic
life of the products (not to exceed three years). Management periodically
compares estimated net realizable value by product with the amount of software
development costs capitalized for that product to ensure the amount capitalized
is not in excess of the amount to be recovered through revenues. Any such excess
of capitalized software development costs to expected net realizable value is
expensed at that time.
REVENUE RECOGNITION
We recognize revenue related to software licenses in compliance with the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position No. 97-2, "Software Revenue Recognition." Revenue is recognized when we
deliver our touch screen terminals and related software to our customer and we
believe that persuasive evidence of an arrangement exits, the fees are fixed or
determinable, and collectibility of payment is probable. Included with the
purchase of the touch screen terminals are licenses to use the games loaded on
the terminals. The licenses for the games are in perpetuity, we have no
obligation to provide upgrades or enhancements to the customer, and the customer
has no right to any other future deliverables. We deliver the requested
terminals for a fixed price either under agreements with customers or pursuant
to purchase orders received from customers.
19
We do not have any contractual obligations to provide post sale support of
our products. We do provide such support on a case by case basis and the costs
of providing such support are expensed as incurred. We earned no revenue from
post sale support during the periods presented.
Restaurant revenue from food, beverage and merchandise sales is recognized
when payment is tendered at the point of sale. Revenue from the sale of gift
cards is deferred and recognized upon redemption.
Franchise revenue is recognized when we have performed substantially all
of our obligations as franchisor. Our area development fee consists of a
one-time payment in consideration of the services we perform in preparation of
executing each area development agreement. Substantially all of these services,
which include, but are not limited to, conducting market and trade area
analysis, a meeting with our executive team, and performing potential franchise
background investigation, are completed prior to our execution of the area
development agreement and receipt of the corresponding area development fee. As
a result, we recognize the non-refundable portion of this fee in full upon
receipt. We recognize the non-refundable portion of franchise application fees
in full upon receipt as these fees are in consideration of the services we
perform in evaluating the franchise application, which are completed
concurrently with receiving the application. Refundable franchise fees received
are recorded as a short-term liability until such time as the fee becomes
non-refundable.
FORWARD-LOOKING STATEMENTS
In this report we make a number of statements, referred to as
"FORWARD-LOOKING STATEMENTS", which are intended to convey our expectations or
predictions regarding the occurrence of possible future events or the existence
of trends and factors that may impact our future plans and operating results.
These forward-looking statements are derived, in part, from various assumptions
and analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as "SEEK", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT",
"INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY
RESULT", and similar expressions. When reading any forward looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, including those
relating to:
o whether or not markets for our products and services develop
and, if they do develop, the pace at which they develop;
o our ability to attract the qualified personnel to implement
our growth strategies;
o the accuracy of our estimates and projections;
o our ability to fund our short-term and long-term financing
needs;
o changes in our business plan and corporate strategies; and
o other risks and uncertainties discussed in greater detail
under "Risk Factors" in our Annual Report on Form 10-KSB for
the fiscal year ended January 1, 2008.
20
Each forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our company and our
business made elsewhere in this report as well as other pubic reports filed with
the United States Securities and Exchange Commission. You should not place undue
reliance on any forward-looking statement as a prediction of actual results or
developments. We are not obligated to update or revise any forward-looking
statement contained in this report to reflect new events or circumstances unless
and to the extent required by applicable law.
ITEM 4T. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
The management of uWink, Inc. is responsible for establishing and maintaining
adequate internal control over financial reporting as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f). uWink's internal control over
financial reporting was designed to provide reasonable assurance to the
Company's management and Board of Directors regarding the preparation and fair
presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Under the supervision and participation of the Company's Chairman and Chief
Executive Officer and the Chief Operating Officer, management conducted an
evaluation of the effectiveness of the Company's internal control over financial
reporting as of April 1, 2008, based on the framework established by the
Committee of Sponsoring Organizations of the Treadway Commission in INTERNAL
CONTROL -- INTEGRATED FRAMEWORK (commonly referred to as the COSO framework).
Based on its evaluation, management concluded that the Company's internal
control over financial reporting was effective as of April 1, 2008, based on the
criteria outlined in the COSO framework.
(b) Limitations on Controls
Management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will prevent or detect all error and
fraud. Any control system, no matter how well designed and operated, is based
upon certain assumptions and can provide only reasonable, not absolute,
assurance that its objectives will be met. Further, no evaluation of controls
can provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
Company have been detected. There has not been any change in our internal
control over financing reporting (as defined in Rule 13a-15(f) under the
Exchange Act) during the quarter ended April 1, 2008 that has materially
affected, or is likely to materially affect, our internal control over financial
reporting.
21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
REGULATION
S-B NUMBER EXHIBIT
---------- -------
31.1 Rule 13a-14(a) Certification of Chief Executive Officer.*
31.2 Rule 13a-14(a) Certification of Chief Financial Officer and
Chief Accounting Officer.*
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32.2 Certification of Chief Financial Officer and Chief Accounting
Officer pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
*Filed herewith.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UWINK, INC.
May 15, 2008 By: /s/ NOLAN K. BUSHNELL
------------------------
Nolan K. Bushnell
Chief Executive Officer
By: /s/ PETER F. WILKNISS
------------------------
Peter F. Wilkniss
Chief Operating Officer
Chief Financial Officer
Chief Accounting Officer
|
23
UWink (CE) (USOTC:UWKI)
Historical Stock Chart
From Dec 2024 to Jan 2025
UWink (CE) (USOTC:UWKI)
Historical Stock Chart
From Jan 2024 to Jan 2025
