<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-QSB/A
                                 Amendment No. 1
(Mark One)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED September 30, 2005

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

       For the transition period from ________________ to _______________

                                     0-29873
                            (Commission file number)

                                   UWINK, INC.
        (Exact name of small business issuer as specified in its charter)

                    UTAH                                 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 (Issuer's
                                telephone number)

                                       N/A
             (Former name, former address and former fiscal year, if
                           changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 [ ]

The number of shares of common stock outstanding as of July 27, 2006 was
18,716,419.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]




<PAGE>


                                   UWINK, INC.
                                      INDEX

                                                                            Page
                                                                          Number
                                                                          ------

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Consolidated Balance Sheet as of September 30, 2005 (unaudited)      2

        Consolidated Statements of Operations for the three and nine
        months ended September 30, 2005 and 2004 (unaudited)                 3

        Consolidated Statements of Cash Flows for the nine months ended
        September 30, 2005 and 2004 (unaudited)                              4

        Notes to Consolidated Financial Statements (unaudited)               5

Item 2. Management's Discussion and Analysis or Plan of Operations          26

Item 3. Controls and Procedures                                             31

PART II.OTHER INFORMATION                                                   32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds         32

Item 6. Exhibits                                                            33

SIGNATURES                                                                  34





<PAGE>

EXPLANATORY NOTE

uWink, Inc. (referred to in this discussion as "we", "us" or "our") is amending
its Quarterly Report on Form 10-QSB for the period ended September 30, 2005 (the
"Original Report") for the purpose of correcting certain errors in the financial
statements.

This Quarterly Report on Form 10-QSB/A for the three and nine months ended
September 30, 2005 amends and restates the financial statements and related
financial information for all periods presented herein. The determination to
restate the financial statements was made as a result of management's
identification of certain errors in the financial statements included in the
Original Report. Further information on the restatement can be found in Note 2
to the Unaudited Consolidated Financial Statements.

The disclosures in this Form 10-QSB/A continue to speak as of the date of the
Original Report, and do not reflect events occurring after the filing of the
Original Report. Accordingly, this Form 10-QSB/A should be read in conjunction
with our other filings made with the Securities and Exchange Commission
subsequent to the filing of the Original Report, including any amendments to
those filings. The filing of this Form 10-QSB/A shall not be deemed an admission
that the Original Report when made included any untrue statement of a material
fact or omitted to state a material fact necessary to make a statement not
misleading.


                                       1



<PAGE>

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

<TABLE>
<S>     <C>
                                 UWINK, INC. AND SUBSIDIARY
                                 CONSOLIDATED BALANCE SHEET
                                         (UNAUDITED)


                                                                                SEPTEMBER
                                                                                 30, 2005
                                                                                (RESTATED)
                                                                               ------------
      ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                                 $        937
     Account receivable, net of allowance for doubtful accounts of $57,545          143,678
     Inventory, net of obsolescence reserve of $88,546                              445,638
     Deposits                                                                        85,425
     Prepaid expenses and other current assets                                       49,116
                                                                               ------------
TOTAL CURRENT ASSETS                                                                724,794
                                                                               ------------

PROPERTY AND EQUIPMENT, net of accumulated
      depreciation of $278,019                                                       25,722
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of
     accumulated amortization of $886,264                                           143,798
                                                                               ------------
TOTAL ASSETS                                                                   $    894,314
                                                                               ============


              LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable                                                          $    891,080
     Accrued expenses                                                               132,402
     Accrued payroll and related benefits                                            14,205
     Due to related parties                                                         423,094
     Convertible note payable net of discount of $6,707                             168,296
     Advances from Customers                                                         49,980
                                                                               ------------
TOTAL CURRENT LIABILITIES                                                         1,679,057
                                                                               ------------

LONG-TERM LIABILITIES
     Convertible note payable net of discount of $20,000                             80,000

STOCKHOLDERS' DEFICIT
     Common stock, $0.001 par value; 50,000,000 shares
        authorized; 12,441,689 shares issued and outstanding                         12,442
     Additional paid-in capital                                                  22,949,598
     Accumulated deficit                                                        (23,926,437)
     Shares to be issued                                                             99,654
                                                                               ------------
       TOTAL STOCKHOLDERS' DEFICIT                                                 (864,743)
                                                                               ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                    $    894,314
                                                                               ============


                 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                     UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                       2



<PAGE>

                              UWINK, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


                                                  THREE MONTH PERIODS ENDED           NINE MONTH PERIODS ENDED
                                                         SEPTEMBER 30                       SEPTEMBER 30
                                                    2005              2004             2005              2004
                                                 (RESTATED)        (RESTATED)       (RESTATED)        (RESTATED)
                                                ------------      ------------     ------------      ------------
NET SALES                                       $    (76,290)     $    474,929     $    577,199      $  1,103,997

COST OF SALES                                         52,350            58,371          475,848           832,280
                                                ------------      ------------     ------------      ------------
GROSS PROFIT (LOSS)                                 (128,640)          416,559          101,351           271,716
                                                ------------      ------------     ------------      ------------

OPERATING EXPENSES
   Selling, general and administrative expenses      318,625         1,316,141        2,175,229         3,788,091
     Research and development                             --            29,391               --           291,389
     Impairment Loss                                  86,330                --           86,330                --
                                                ------------      ------------     ------------      ------------
TOTAL OPERATING EXPENSES                             404,955         1,345,532        2,261,559         4,079,480
                                                ------------      ------------     ------------      ------------

LOSS FROM OPERATIONS                                (533,595)         (928,974)      (2,160,209)       (3,807,764)
                                                ------------      ------------     ------------      ------------

OTHER INCOME (EXPENSE)
     Other income                                         52                 3              496               478
     Beneficial conversion of debt                   (10,066)               --          (30,198)         (169,798)
     Nominal stock option expense                    (25,333)          (47,493)         (76,000)         (144,159)
     Gain on settlement of debt                           --            34,939           10,256           336,779
     Interest expense                                (33,044)           (7,247)        (127,203)          (24,152)
     Equipment Stolen                                 (8,117)               --           (8,117)               --
                                                ------------      ------------     ------------      ------------
TOTAL OTHER EXPENSE                                  (76,508)          (19,798)        (230,766)             (852)
                                                ------------      ------------     ------------      ------------

NET LOSS                                        $   (610,103)     $   (948,771)    $ (2,393,444)     $ (3,808,616)
                                                ============      ============     ============      ============

NET LOSS PER COMMON SHARE - BASIC & DILUTED     $      (0.05)     $      (0.10)    $      (0.21)     $      (0.42)
                                                ============      ============     ============      ============

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - BASIC & DILUTED                12,398,544         9,790,309       11,460,592         9,032,615
                                                ============      ============     ============      ============


                            THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                                UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                                   3



<PAGE>

                                    UWINK, INC. AND SUBSIDIARY
                              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (UNAUDITED)



                                                                           NINE MONTH PERIODS ENDED
                                                                                SEPTEMBER 30
                                                                             2005            2004
                                                                          (RESTATED)      (RESTATED)
                                                                         -----------      -----------
CASH FLOW FROM OPERATING ACTIVITIES:
   Net loss                                                              $(2,393,444)      (3,808,616)
   Adjustment to reconcile net loss to net cash
     Provided by (used in) operating activities:
       Amortization of debt discount on convertible note payable              30,198          169,798
       Amortization of options issued below market price                      76,000          144,159
       Depreciation and amortization expense                                  94,131          115,863
       Impairment Loss                                                        94,447               --
       Bad debt allowance                                                    (38,237)          95,782
       Issuance of warrants for services                                          --          474,215
       Issuance of common stock for payroll                                       --          108,710
       Issuance of common stock for accrued interest                          42,500               --
       Issuance of common stock for services                               1,152,340          466,270
       Issuance of common stock on conversion of prepaid license fee              --          125,000
       Inventory obsolescence reserve                                       (281,853)         319,149
       Provision for sales returns                                          (150,000)              --
       Gain on forgiveness of debt                                           (10,256)        (336,779)
   Changes in operating assets and liabilities:
     Accounts receivable                                                     476,569         (335,179)
     Inventory                                                               355,885         (616,369)
     Deposits - inventory                                                    267,768         (260,600)
     Deposits - Gameworks                                                         --               --
     Deposits                                                                     --               --
     Prepaid expenses and other current assets                                 1,275          (74,976)
     Accounts payable                                                         76,719          272,749
     Accrued expenses                                                         (5,917)          67,339
     Accrued payroll and related benefits                                    (66,215)        (225,063)
     Advances from Customers                                                 (50,020)        (159,722)
     Provision for Sales Returns                                            (150,000)              --
                                                                         -----------      -----------
Net cash used in operating activities                                       (478,112)      (3,458,268)
                                                                         -----------      -----------

CASH FLOW FROM INVESTING ACTIVITIES:
   Payment for property and equipment                                         (2,650)         (88,256)
   Payment for capitalized product development costs                              --         (240,429)
     Deposits - Gameworks                                                    615,000               --
                                                                         -----------      -----------
Net cash provided by (used in) investing activities                          612,350         (328,685)
                                                                         -----------      -----------

CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds (repayments) from issuance of debt                              (515,000)              --
   Proceeds (repayments) from advances from related parties                  (44,045)          26,868
   Proceeds from issuance of common stock                                    368,402        2,988,722
   (Payment) of offering costs                                                    --         (382,642)
                                                                         -----------      -----------
Net cash provided by (used in) financing activities                         (190,643)       2,632,948
                                                                         -----------      -----------

NET DECREASE IN CASH AND
   CASH EQUIVALENTS                                                          (56,405)      (1,154,005)

CASH AND CASH EQUIVALENTS, Beginning of period                                57,342        1,156,170
                                                                         -----------      -----------

CASH AND CASH EQUIVALENTS, End of period                                 $       937            2,165
                                                                         ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

   Interest paid                                                         $        --           24,152
                                                                         ===========      ===========
   Income taxes paid                                                     $        --              800
                                                                         ===========      ===========
   Conversion of debt into shares of common stock                        $   192,500          237,133
                                                                         ===========      ===========


                       THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                           UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


                                                 4
</TABLE>



<PAGE>

NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN

The unaudited consolidated financial statements have been prepared by uWink,
Inc. (the "Company"), 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 December 31,
2004 included in the Company's Annual Report on Form 10-KSB. The results of the
nine months ended September 30, 2005 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2005.

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred a net loss of $2,393,444 for the nine months ended September 30, 2005,
and as of September 30, 2005, the Company had an accumulated deficit of
$23,926,437. These conditions raise substantial doubt as to the Company's
ability to continue as a going concern. These unaudited consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. These unaudited consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.

The Company will need additional working capital to fund its operations over the
next 12 months. The Company believes that it will need at least an additional $3
million of working capital to fund operations and construction of an
entertainment center/restaurant for the deployment of our technology and, if
necessary, to finance future losses from operations. We have not yet allocated
specific amounts for these purposes. The Company plans to obtain the additional
working capital through the private placement sale of its equity securities. As
of the date of this report, there are no commitments for the sale of the
Company's securities. Should the Company be unable to raise additional funds,
its ability to finance its continued growth will be materially adversely
affected.


                                        5



<PAGE>

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
uWink, Inc. and its subsidiary, uWink California, Inc. 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 No. 107, Disclosures about fair value
of financial instruments, requires that the Company 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
the Company's 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. The
amounts shown for convertible debentures and notes payable also approximate fair
value because current interest rates and terms offered to the Company for
similar debt are substantially the same.

Cash and Cash Equivalents

Cash and cash equivalents include cash in hand and cash in time deposits,
certificates of deposit and all highly liquid debt instruments with original
maturities of three months or less.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk include accounts receivable. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses, as required.

Research and Development

Research and development costs are charged to expense as incurred until
technological feasibility has been established. These costs consist primarily of
salaries and direct payroll related costs.


                                        6





<PAGE>

Software Development Costs

Software development costs related to computer games and network and terminal
operating systems developed by the Company 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 Company's 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.

Amortization of capitalized software development costs was $59,894 for the nine
months ended September 30, 2005.

Revenue Recognition

The Company recognizes 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
the Company delivers its touch screen pay-for-play game terminals to its
customer and the Company believes that persuasive evidence of an arrangement
exits and the fees are fixed or determinable. Included with the purchase of the
touch screen terminals are licenses to use the games loaded on the terminals.
The Company delivers the requested terminals for a fixed price either under
agreements with customers or pursuant to purchase orders received from
customers.

The Company does not have any contractual obligations to provide post sale
support of its products. The Company does provide such support on a case by case
basis and the costs of providing such support are expensed as incurred.

Impairment of Long-Lived Assets

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.


                                        7





<PAGE>

30, "Reporting the Results of Operations for a Disposal of a Segment of a
Business." The Company periodically evaluates the carrying value of long-lived
assets to be held and used in accordance with SFAS 144. SFAS 144 requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amounts. In
that event, a loss is recognized based on the amount by which the carrying
amount exceeds the fair market value of the long-lived assets. Loss on
long-lived assets to be disposed of is determined in a similar manner, except
that fair market values are reduced for the cost of disposal. For the nine
months ended September 30, 2005, impairment loss on obsolete Snap! tooling
amounted to $86,330, as described in Note 6 below.

Advances from Customers

The Company records advances from customers as a liability and recognizes these
amounts as revenue over the period of the related agreement. As of September 30,
2005, advances from customers relating to licensing fees amounted to $49,980.

Returns

The Company does not offer customers a contractual right to return products sold
by the Company. The Company does accept product returns from time to time on a
case by case basis.

Advertising and Marketing Costs

The Company expenses costs of advertising and marketing as incurred.

Income Taxes

The Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred income taxes are recognized for the
tax consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each period end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.


                                       8



<PAGE>

Stock Options
-------------

The Company has adopted only the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." It applies Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its Stock Option Plan. It recognizes an expense in accordance
with APB No. 25 when the exercise price is less than the fair market value at
the date of grant of the stock. When the exercise price is the same as the fair
market value at the date of grant of the stock the Company does not recognize
compensation expense for its Stock Option Plan other than for restricted stock
and options issued to outside third parties. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date for
awards under the Stock Option Plan consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be increased to
the pro forma amounts indicated below for the nine months ended September 30,
2005 and 2004:

                                                        2005            2004
                                                     ------------   ------------
         Net loss
           As reported                               $ (2,393,444) $ (3,808,616)
           Compensation recognized under APB 25            76,000       144,159
           Compensation recognized under SFAS 123        (260,070)     (343,977)

                                                     ------------   ------------
                      Pro forma                      $ (2,577,514) $ (4,008,434)

                                                     ============   ============

         Basic and diluted loss per common share
           As reported                               $     (0.21)   $     (0.42)
           Pro forma                                 $     (0.23)   $     (0.44)


This option valuation model requires input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of fair value of its employee stock options.

For purposes of computing the pro forma disclosures required by SFAS No. 123,
the fair value for options granted in 2002 was estimated at the date of grant in
2002 using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 3.5%; dividend yield of
0%; volatility factor of the expected market price of the Company's common stock
of 223%; and a weighted average expected life of the option of 10 years.

For purposes of computing the pro forma disclosures required by SFAS No. 123,
the fair value for options granted in 2004 was estimated at the date of grant in
2004 using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 3.5%; dividend yield of
0%; volatility factor of the expected market price of the Company's common stock
of 36%; and a weighted average expected life of the option of 10 years.

For purposes of computing the pro forma disclosures required by SFAS No. 123,
the fair value for options granted in 2005 was estimated at the date of grant in
2005 using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk-free interest rate of 7.25%; dividend yield
of 0%; volatility factor of the expected market price of the Company's common
stock of 105.93%; and a weighted average expected life of the option of 10
years.


                                       9



<PAGE>

The Company assumed the uWink.com, Inc. 2000 Employee Stock Option Plan pursuant
to its acquisition of uWink California. The 2000 Plan provides for the issuance
of up to 681,218 (after giving effect to a 3.15611 reverse stock split in
connection with the acquisition of uWink California) incentive and non-qualified
stock options to employees, officers, directors and consultants of the Company.
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.

On February 24, 2004, the Company's Board of Directors approved the uWink, Inc.
2004 Stock Incentive Plan (the "2004 Plan"). The 2004 Plan provides for the
issuance of up to 1,200,000 incentive stock options, non-qualified stock
options, restricted stock awards and performance stock awards to employees,
officers, directors, and consultants of the Company. 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.

On September 9, 2005, the Company's Board of Directors approved the uWink, Inc.
2005 Stock Incentive Plan (the "2005 Plan"). The 2005 Plan provides for the
issuance of up to 2,000,000 incentive stock options, non-qualified stock
options, restricted stock awards and performance stock awards to employees,
officers, directors, and consultants of the Company. 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.

The following table summarizes the options outstanding as of September 30, 2005.

                                                                     Weighted
                                                   Stock             Average
                                                  Option             Exercise
                                                   Plans               Price
                                                ----------         ------------
Balance December 31, 2004                       1,401,181           $  1.81
Granted                                         1,340,000              0.45
Exercised                                          19,010           $  0.32
Canceled                                          493,920           $  1.75
Balance September 30, 2005                      2,228,251           $  1.02
Exercisable September 30, 2005                    598,158           $  1.50


During the nine months ended September 30, 2005, we granted 50,000 options to
employees at an exercise price of $0.74 per share; 590,000 options to employees
at an exercise price of $0.36 per share; 350,000 options to employees at an
exercise price of $0.43 per share; and 350,000 options to employees at an
exercise price of $0.57 per share.

The weighted average remaining contractual life of options outstanding issued
under the plans is 9.1 years at September 30, 2005. The exercise prices for the
options outstanding under the plans at September 30, 2005 ranged from $0.32 to
$6.31.


                                       10



<PAGE>

Reclassifications

Certain comparative amounts have been reclassified to conform to the current
presentation.

NOTE 2 - RESTATEMENT

On March 7, 2006, the Company's Chief Executive Officer
concluded that its previously issued financial statements for the fiscal year
ended December 31, 2004 and the first three quarters of 2004 and 2005 should not
be relied upon because of errors in those financial statements. As discussed
below, the Company has restated its fiscal year 2004 financial statements and
filed the restated fiscal year 2004 financial statements in the Form 10-KSB for
the 2005 fiscal year filed on April 17, 2006. In addition, these errors require
the Company to restate its financial statements for the first three quarters of
2004 and 2005.

Subsequent to the issuance of the Company's financial
statements as of and for the year ended December 31, 2004, as reported in the
Company's Form 10-KSB filed on March 31, 2005, the Company engaged in a
comprehensive re-audit of its financial condition and results of operations as
of and for the year ending December 31, 2004.

Pursuant to this re-audit, the Company discovered a number of errors in its 2004
financial statements, as originally filed. As a result, the Company restated its
2004 financial statements and presented the restated 2004 financial statements
in the Form 10-KSB for the 2005 fiscal year filed by the Company on April 17,
2006.

The material errors discovered by the Company during the re-audit of its 2004
financial statements are set forth below.

In respect of its revenue for the fiscal year ended December 31, 2004, the
Company determined that $200,200 was incorrectly recorded as revenue. This
$200,200 related to the potential licensing of Bear Shop technology to
Bell-Fruit Games of the United Kingdom. The revenue was booked prematurely prior
to the entry into definitive documentation relating to the transaction. The
transaction was subsequently finalized in early 2005 as a licensing transaction
with a $24,980 advance against royalty payments based on future sales. The
$24,980 payment received in 2005 was booked as an advance from customers on the
December 31, 2005 balance sheet. In addition, the Company, in consultation with
its external auditors, determined that, given the software problems associated
with the original Microsoft Windows version of the Bear Shop machines sold in
2004, a $150,000 provision for sales returns should have been recorded at
December 31, 2004. The Company also discovered that $62,249 of Snap! and Bear
Shop machines shipped to distributors on consignment was incorrectly recorded as
revenue and should have been recorded as consignment inventory. The Company also
determined to reduce revenue by an additional $10,114 to properly record
customer credits in 2004 rather than 2005. As a result, the Company restated its
2004 financial statements to reverse the amounts incorrectly booked as revenue
and to record the provision for sales returns. The effect of this restatement is
to reduce revenue by $422,563 and cost of goods sold by $44,845 (including
approximately $6,000 of vendor credits recorded in 2004 rather than 2005); and
to increase inventory by $39,223. These adjustments, combined with a reduction
in the bad debt reserve of $44,848 resulting from the lower, restated level of
accounts receivable, also resulted in a reduction in accounts receivable of
$377,741.


                                       11



<PAGE>

The Company also determined that the market price used to value shares of its
common stock issued for certain services in 2004 was incorrect and that, as a
result, the expense relating to such services was undervalued by $90,000. In
addition, the Company, in consultation with its external auditors, determined
that 150,000 warrants to purchase common stock issued to a public relations firm
in 2004 were issued for services rather than in connection with a financing and
that, as a result, financial consulting expense of $474,216 based on the Black
Scholes value of those warrants should be recorded. In addition, the Company
determined that the calculation of 2004 nominal stock option expense was
incorrect and, in consultation with its external auditors, determined that
nominal stock option expense was more properly classified as an administrative
expense under selling, general and administrative expenses rather than other
expense. As a result, the Company restated its 2004 financial statements to
record the additional expense and to restate and reclassify nominal stock option
expense as selling, general and administrative expenses. The effect of this
restatement, together with certain additional adjustments to selling, general
and administrative expenses and other income (expense), is to increase selling,
general and administrative expenses by $805,030 and increase other income
(expense) by $186,406.

Furthermore, the Company determined that there was
insufficient documentation to support recording a gain on the settlement of debt
in respect of certain of its accounts payable in 2004. As a result, the Company
determined to restate gain on settlement of debt income for 2004. The effect of
this restatement is to reduce gain on settlement of debt income by $38,961.


                                        12




<PAGE>

The Company also determined that the beneficial conversion feature on $225,003
of convertible notes issued in November and December 2004 was overstated by
$182,144 as a result of an incorrect conversion price being used in the
beneficial conversion feature calculation and that a $50,000 convertible note
issued to a director of the Company was a related party transaction and,
therefore, should be reclassified from convertible notes to due to related
parties. As a result, the Company determined to restate convertibles notes and
due to related parties on the balance sheet as of December 31, 2004 and to
restate debt discount amortization expense for 2004. The effect of this
restatement is to increase convertible notes by $119,348; increase due to
related parties by $50,000; and reduce debt discount expense by $12,797.

The $90,000 increase in the value of common stock issued for services, the
recording of $474,216 in expense relating to warrants issued for services, the
restatement of nominal stock option expense ($44,599 effect on additional paid
in capital) and the $182,144 correction of the beneficial conversion feature on
$225,003 of convertible notes, each described above, resulted in an increase in
the additional paid in capital account of $426,691 (taking into account $21 of
additional adjustments). In addition, the Company determined that common stock
certificates relating to $176,808 of equity capital previously received were
still to be issued as of December 31, 2004 and, as a result, the Company
reclassified $176,808 of additional paid in capital to the shares to be issued
account in the stockholder's deficit section of the balance sheet at December
31, 2004 (shares to be issued amounted to $176,930 on the restated balance
sheet, taking into account an additional reclassification of $120 from the
common stock account). The foregoing adjustments resulted in a restatement of
additional paid in capital to the effect of increasing additional paid in
capital by an aggregate of $249,883.

The Company also determined that the weighted average
common shares outstanding calculation for 2004 was incorrect. As a result, the
Company restated the weighted average common shares outstanding for 2004. The
effect of this restatement is to reduce the weighted average common shares
outstanding for 2004 by 1,662,706.

Finally, the Company, in consultation with its external auditors, determined
that the cash invested in a deposit relating to the Company's pursuit of the
assets of Sega Gameworks out of bankruptcy was more properly classified as an
investing activity rather than an operating activity. As a result, the Company
determined to reclassify the cash effect of Deposits - Sega Gameworks to cash
flow from investing activities from cash flow from operating activities. As a
result, cash flow from operating activities was increased by $615,000 and cash
flow from investing activities was reduced by $615,000 on the restated 2004
statement of cash flows.

The following presents the effect on the Company's
previously issued financial statements for the year ended December 31, 2004. THE
TABLES SET FORTH BELOW ONLY PRESENT THOSE ACCOUNTS THAT WERE AFFECTED BY THE
RESTATEMENT. FOR A FULL COMPARISON OF THE 2004 FINANCIAL STATEMENTS AS
ORIGINALLY FILED AND AS RESTATED, PLEASE REFER TO THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB FOR THE 2005 FISCAL YEAR FILED ON APRIL 17, 2006.


                                       13



<PAGE>
<TABLE>
<S> <C>
Balance sheet at December 31, 2004:


                                                                             PREVIOUSLY          INCREASE
                                                                              REPORTED           (DECREASE)         RESTATED
                                                                            -------------------------------------------------

     Cash and cash equivalents                                              $     58,307              (965)           57,342
     Account receivable,
     net of allowance for doubtful accounts of $140,630 and $95,782              659,751          (377,741)          282,010
     Inventory, net of obsolescence reserve of $370,400 and $370,400             480,447            39,223           519,670
     Prepaid expenses and other current assets                                    72,890           (22,500)           50,391
                                                                            -------------------------------------------------
TOTAL CURRENT ASSETS                                                           2,239,588          (361,982)        1,877,606
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
     DEPRECIATION OF $400,478 AND $400,478, RESPECTIVELY                         151,450              (494)          150,956
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, NET OF
     ACCUMULATED AMORTIZATION OF $830,617 AND $826,370, RESPECTIVELY             225,289           (24,092)          201,197
                                                                            -------------------------------------------------
TOTAL ASSETS                                                                $  2,616,327          (386,568)        2,229,759
                                                                            =================================================

CURRENT LIABILITIES
     Accounts payable                                                       $    821,996             2,621           824,617
     Accrued expenses                                                            128,477             7,130           135,608
     Due to related parties                                                      417,139            50,000           467,139
     Convertible note payable, net of discounts of $206,253 and $36,905          168,750           119,348           288,098
                                                                            -------------------------------------------------
TOTAL CURRENT LIABILITIES                                                      2,331,781           179,102         2,510,882
                                                                            -------------------------------------------------

STOCKHOLDERS' DEFICIT
     Common stock                                                                 10,736              (120)           10,616
     Additional paid-in capital                                               20,814,442           249,883        21,064,324
     Accumulated deficit                                                     (20,540,633)         (992,360)      (21,532,993)
     Shares to be Issued                                                              --           176,930           176,930
                                                                            -------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT                                                      284,545          (565,668)         (281,123)
                                                                            -------------------------------------------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                 $  2,616,327          (386,568)        2,229,759
                                                                            =================================================


                                            14



<PAGE>
Statement of operations for the year ended December 31, 2004:


                                                        PREVIOUSLY          INCREASE
                                                         REPORTED           (DECREASE)        RESTATED
                                                       -------------------------------------------------

NET SALES                                              $  1,819,978          (422,563)        1,397,415
COST OF SALES                                             1,179,576           (44,845)        1,134,731
                                                       -------------------------------------------------
GROSS PROFIT                                                640,402          (377,718)          262,684
                                                       -------------------------------------------------
OPERATING EXPENSES
      Selling, general and administrative expenses        4,027,205           805,030         4,832,235
      Research and development                              355,315            (3,984)          351,332
                                                       -------------------------------------------------
TOTAL OPERATING EXPENSES                                  4,382,520           801,047         5,183,567
                                                       -------------------------------------------------
LOSS FROM OPERATIONS                                     (3,742,118)       (1,178,766)       (4,920,883)
                                                       -------------------------------------------------
OTHER INCOME (EXPENSE)
      Debt discount expense                                (157,469)           12,797          (144,672)
      Nominal Stock Option Expense                         (221,236)          221,236                --
      Gain on settlement of debt                            397,256           (38,961)          358,295
      Interest expense                                      (65,226)           (8,666)          (73,892)
                                                       -------------------------------------------------
TOTAL OTHER INCOME (EXPENSE)                                (24,082)          186,406           162,324
                                                       -------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES                   (3,766,200)         (992,399)       (4,758,599)
NET LOSS                                               $ (3,769,322)         (992,360)       (4,761,682)
NET LOSS PER COMMON SHARE - BASIC AND DILUTED          $      (0.35)            (0.17)            (0.52)
                                                       =================================================

WEIGHTED AVERAGE COMMON SHARES
      OUTSTANDING - BASIC                                10,737,051        (1,662,706)        9,074,345


                                                   15




<PAGE>

Statement of cash flows for the year ended December 31, 2004:


                                                                                     PREVIOUSLY        INCREASE
                                                                                      REPORTED         (DECREASE)       RESTATED
                                                                                    --------------------------------------------

CASH FLOW FROM OPERATING ACTIVITIES:
    Net loss                                                                        $(3,769,322)        (992,360)   $(4,761,682)
    Adjustment to reconcile net loss to net cash used in operating activities:
        Amortization of debt discount on convertible note payable                       157,469           10,389         167,858
        Amortization of options issued below market price                               129,066           44,599         173,665
        Depreciation and amortization expense                                           168,414           (4,247)        164,167
        Bad debt allowance                                                              140,630          (44,848)         95,782
        Issuance of warrants for services                                                    --          474,216         474,216
        Issuance of common stock for payroll and exercise of options                         --          144,975         144,975
        Issuance of common stock for services                                           456,963           56,150         513,113
        Inventory obsolescence reserve                                                  319,149            1,250         320,400
    Changes in operating assets and liabilities:
      Accounts receivable net of provision for sales returns of $150,000
         as restated                                                                   (668,961)         423,326       (245,635)
      Inventory                                                                        (301,311)        (359,623)      (660,934)
      Deposits-Sega Gameworks                                                          (615,000)         615,000             --
      Deposits                                                                          (23,403)          22,500           (903)
      Prepaid expenses and other current assets                                         (27,270)            (686)       (27,956)
      Accounts payable                                                                  147,726          (95,476)         52,250
      Accrued expenses                                                                  (61,673)         128,666          66,993
      Advances from Customers                                                           (59,722)         125,000          65,278
                                                                                    --------------------------------------------
Net cash used in operating activities                                                (4,512,706)         548,832     (3,963,874)
                                                                                    --------------------------------------------

CASH FLOW FROM INVESTING ACTIVITIES:
    Payment for property and equipment                                                  (88,750)             494        (88,256)
    Payment for capitalized product development costs                                  (275,294)          28,339       (246,955)
    Deposits - Sega Gameworks                                                                --         (615,000)      (615,000)
                                                                                    --------------------------------------------
Net cash used in investing activities                                                  (364,044)        (586,167)      (950,211)
                                                                                    --------------------------------------------

CASH FLOW FROM FINANCING ACTIVITIES:
    Proceeds from debt, net of conversion into common stock                           1,069,574         (279,574)        790,000
    Proceeds from advances from related parties                                         132,000          277,727         409,727
    Proceeds from issuance of common stock                                            2,977,672           20,498       2,998,170
    Payment of offering costs                                                          (400,360)          17,718       (382,642)
                                                                                    --------------------------------------------
Net cash provided by financing activities                                             3,778,886           36,369       3,815,255
                                                                                    --------------------------------------------

NET DECREASE IN CASH AND CASH EQUIVALENT                                             (1,097,863)            (967)    (1,098,830)


CASH AND CASH EQUIVALENTS, END OF PERIOD                                            $    58,307             (965)     $   57,342
                                                                                    ==============================================

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES

    Issuance of common stock for services                                           $   481,963           31,150      $  513,113
                                                                                    ==============================================


The net effect of the restatement is an increase of $1,178,766 in loss from
continuing operations, and an increase of $992,360 in net loss for the fiscal
year ended December 31, 2004. As a result, basic and diluted loss per share from
continuing operations increased by $0.19 per share, and basic and diluted net
loss per share increased by $0.17 per share for the fiscal year ended December
31, 2004.

As a result of the above adjustments to the 2004 financial statements, the
Company has restated the affected balances for the quarter ended September 30,
2005. The following presents the effect on the Company's previously issued
financial statements for the quarter ended September 30, 2005. The Tables set
forth below only present those accounts that were affected by the Restatement.
The restated financial statements also include certain reclassifications made
purely for presentation purposes.


                                                   16




<PAGE>

Balance sheet at September 30, 2005:

                                                                                           Previously      Increase
                                                                                            Reported       (Decrease)      Restated


CURRENT ASSETS
    Cash and cash equivalents                                                                   981            (44)           937
    Account receivable, net of allowance for doubtful accounts of $57,545                   205,927        (62,249)       143,678
    Inventory, net of obsolescence reserve of $88,546                                       406,415         39,223        445,638
    Prepaid expenses and other current assets                                                51,610         (2,494)        49,116
TOTAL CURRENT ASSETS                                                                        750,358        (25,564)       724,794
PROPERTY AND EQUIPMENT, net of accumulated
    depreciation of $528,858 and $278,019, respectively                                     26,026           (304)        25,722
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of
              accumulated amortization of $890,511 and $886,264, respectively               137,056          6,742        143,798
TOTAL ASSETS                                                                                913,440        (19,126)       894,314
CURRENT LIABILITIES
    Accounts payable                                                                        568,750        322,330        891,080
    Accrued expenses                                                                        171,072        (38,670)       132,402
    Accrued payroll and related benefits                                                        400         13,805         14,205
    Due to related parties                                                                  373,094         50,000        423,094
    Convertible note payable net of discount of $37,500 and $6,707, respectively            187,503        (19,207)       168,296
    Advances from Customers                                                                  25,000         24,980         49,980
TOTAL CURRENT LIABILITIES                                                                 1,325,819        353,238      1,679,057
LONG-TERM LIABILITIES
    Convertible note payable net of discount of $0 and $20,000, respectively                100,000        (20,000)        80,000
TOTAL LIABILITIES                                                                         1,425,819        333,238      1,759,057
STOCKHOLDERS' DEFICIT
    Common stock, $0.001 par value; 50,000,000 shares
                authorized; 12,441,689 shares issued and outstanding                         12,472            (30)        12,442
    Additional paid-in capital                                                           22,298,192        651,406     22,949,598
    Accumulated deficit                                                                 (22,837,003)    (1,089,434)   (23,926,437)
    Shares to be issued                                                                      13,960         85,694         99,654
       TOTAL STOCKHOLDERS' DEFICIT                                                         (512,379)      (352,364)      (864,743)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                 913,440        (19,126)       894,314



Statement of operations for the nine months ended September 30, 2005:

                                                                                           Previously      Increase
                                                                                            Reported       (Decrease)      Restated

NET SALES                                                                                   427,199        150,000        577,199
COST OF SALES                                                                               362,773        113,075        475,848
GROSS PROFIT (LOSS)                                                                          64,426         36,925        101,351
OPERATING EXPENSES
    Selling, general and administrative expenses                                          2,232,022        (56,793)     2,175,229
    Impairment Loss                                                                              --         86,330         86,330
TOTAL OPERATING EXPENSES                                                                  2,232,022         29,537      2,261,559
LOSS FROM OPERATIONS                                                                     (2,167,596)         7,387     (2,160,209)
OTHER INCOME (EXPENSE)
    Beneficial conversion of debt                                                          (168,753)       138,555        (30,198)
    Nominal stock option expense                                                             17,972        (93,972)       (76,000)
    Gain on settlement of debt                                                              160,256       (150,000)        10,256
    Equipment Stolen                                                                             --         (8,117)        (8,117)
TOTAL OTHER EXPENSE                                                                        (117,232)      (113,534)      (230,766)
LOSS BEFORE PROVISION FOR INCOME TAXES                                                   (2,284,828)      (106,146)    (2,390,974)
NET LOSS                                                                                 (2,287,298)      (106,146)    (2,393,444)
NET LOSS PER COMMON SHARE - BASIC & DILUTED                                                   (0.20)         (0.01)         (0.21)
WEIGHTED AVERAGE COMMON SHARES
    OUTSTANDING - BASIC & DILUTED                                                        11,567,873       (107,281)    11,460,592


                                                   17


<PAGE>


Statement of cash flows for the nine months ended September 30, 2005:

                                                                                           Previously      Increase
                                                                                            Reported       (Decrease)      Restated

CASH FLOW FROM OPERATING ACTIVITIES:
    Net loss                                                                             (2,287,298)      (106,146)    (2,393,444)
    Adjustment to reconcile net loss to net cash
         Provided by (used in) operating activities:
              Amortization of debt discount on convertible note payable                     168,753       (138,555)        30,198
              Amortization of options issued below market price                             (17,972)        93,972         76,000
              Depreciation and amortization expense                                         188,274        (94,143)        94,131
              Impairment Loss                                                                    --         94,447         94,447
              Bad debt allowance                                                            (83,085)        44,848        (38,237)
              Issuance of common stock for accrued interest                                      --         42,500         42,500
              Issuance of common stock for services                                         988,937        163,403      1,152,340
              Provision for sales returns                                                        --       (150,000)      (150,000)
              Gain on forgiveness of debt                                                  (160,256)       150,000        (10,256)
    Changes in operating assets and liabilities:
         Accounts receivable                                                                527,506        (50,937)       476,569
         Deposits - Gameworks                                                               615,000       (615,000)            --
         Deposits                                                                            17,092        (17,092)            --
         Prepaid expenses and other current assets                                            3,450         (2,175)         1,275
         Accounts payable                                                                   (63,194)       139,913         76,719
         Accrued expenses                                                                    12,430        (18,347)        (5,917)
         Accrued payroll and related benefits                                               (53,631)       (12,584)       (66,215)
         Advances from Customers                                                            (75,000)        24,980        (50,020)
         Provision for Sales Returns                                                             --       (150,000)      (150,000)
         Shares to be issued                                                                 13,960        (13,960)            --
Net cash used in operating activities                                                       136,767       (614,879)      (478,112)
CASH FLOW FROM INVESTING ACTIVITIES:
              Payment for property and equipment                                             (3,450)           800         (2,650)
                          Deposits - Gameworks                                                   --        615,000        615,000
Net cash provided by (used in) investing activities                                          (3,450)       615,800        612,350
CASH FLOW FROM FINANCING ACTIVITIES:
              Proceeds (repayments) from issuance of debt                                   100,000       (615,000)      (515,000)
              Proceeds (repayments) from advances from related parties                     (659,045)       615,000        (44,045)
NET DECREASE IN CASH AND
              CASH EQUIVALENTS                                                              (57,326)           921        (56,405)
CASH AND CASH EQUIVALENTS, Beginning of period                                               58,307           (965)        57,342
CASH AND CASH EQUIVALENTS, End of period                                                        981            (44)           937
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
              Interest paid                                                                 127,203       (127,203)            --


NOTE 3 - LOSS PER SHARE

The Company reports 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 nine months ended September 30, 2005 and 2004 because the effect
would have been anti-dilutive:


                                       18



<PAGE>

                                                                           2005           2004
                                                                        ----------     ----------
              Shares to be issued upon conversion
               of convertible note                                         128,573         94,937
              Stock options issued to employees                          1,048,169         67,647
              Warrants issued to consultants and finders                   390,349        313,271
              Warrants issued for financing                              2,111,525        687,074
                                                                        ----------     ----------
                                                                         3,678,616      1,162,929
                                                                        ==========     ==========
</TABLE>


NOTE 4 - ACCOUNTS RECEIVABLE

During the three months ended September 30, 2005, gross receivables previously
reserved for were written down by $175,177 and a corresponding reduction was
made to the allowance for doubtful accounts. Excess allowance for doubtful
accounts in the amount of $111,503 was reversed to reflect the net realizable
value of remaining receivables.


Accounts Receivable at September 30, 2005                            $ 201,223
Less:  allowance for doubtful accounts                                 (57,545)
                                                                     ----------
                                                                     $ 143,678
                                                                     ==========
NOTE 5 - INVENTORY

Inventory has been reviewed for obsolescence and stated at lower of cost or
market as of September 30, 2005, determined on a first in first out basis.
During the three months ended September 30, 2005, obsolete inventory previously
reserved for was written down by $461,941 and a corresponding reduction was made
to the obsolescence reserve. The remaining inventory was marked down to its net
realizable value, as reflected by an increase in the obsolescence reserve of
$117,651.


Inventory at September 30, 2005                                      $ 534,184
Less: obsolescence reserve                                             (88,546)
                                                                     ----------
                                                                     $ 445,638
                                                                     ==========

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2005, consists of the following:

                  Computer equipment and related software             $ 169,284
                  Office furniture and equipment                         17,926
                  Leasehold improvements                                 84,849
                  Machinery and equipment                                31,682
                                                                      ----------

                  Less accumulated depreciation and amortization       (278,019)
                                                                      ----------
                                                                      $  25,722
                                                                      ==========

At September 30, 2005, Snap! tooling assets with a gross value of $159,517 were
fully impaired. As a result, the gross value of property and equipment was
reduced by $159,517, accumulated depreciation was reduced by $73,187 and
impairment loss was increased by $86,330.



                                       19



<PAGE>

NOTE 7 - CONCENTRATION OF CASH

The Company considers all liquid investments with an original maturity of three
months or less to be cash equivalents. As of September 30, 2005, the Company had
no cash and cash equivalent balances in financial institutions, which were in
excess of federally insured amounts.

NOTE 8 - DUE TO RELATED PARTIES

Due to related parties consists of amounts advanced to the Company by certain
related parties, specifically its employees and their family members and
directors of the Company.

Due to related parties outstanding at September 30, 2005 consisted of the
following:

<TABLE>
<S>     <C>

Convertible note payable to Kevin McLeod, a director of the Company, issued on
December 6, 2004. The note bears interest at 20% per annum and is due one year
from the date of issuance. The note can be converted immediately from the date
of issuance, at the option of the holder, to shares of the Company's common
stock at $1.75 per share.                                                               $  50,000

Loan payable to the Company's Vice President of Marketing issued on various
dates in 2004 and 2005, 12% interest
secured by inventory and receivables of the Company, due upon demand.                     253,094

Loan payable to the brother-in-law of the President and CEO received in April 2005,
6% interest, unsecured, due upon demand.                                                   39,000

Loan payable to the wife of the President and CEO issued on various dates in
2004, 8% interest unsecured, due upon demand.                                              20,500

Loan payable to the Company's Vice President of Operations issued on various
dates in 2004 and 2005, 8% interest unsecured, due upon demand.                            60,500
                                                                                        ---------

Total                                                                                   $ 423,094
                                                                                        ---------
During the three months ended September 30, 2005 borrowed an additional $9,955
from our Vice President of Marketing. During the three months ended September
30, 2005, we accrued $12,423 of interest on amounts due to related parties and
repaid $613 of interest due to related parties.

                                       20





<PAGE>

NOTE 9 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable outstanding at September 30, 2005 consisted of the
following:


During the fourth quarter of 2004, the Company issued four convertible
promissory notes totaling $175,003. The notes bear interest at 20% per annum and
are due one year from the date of issuance. The notes can be converted
immediately from the date of issuance, at the option of the holder, to shares of
the Company's common stock at $1.75 per share. The market value on the dates of
issuance ranged from $2.00 - $2.55. In accordance with EITF 00-27 "Application
of Issue No. 98-5 to Certain Convertible Instruments", the Company determined
the preferential conversion feature of the convertible promissory notes on the
date of issuance to be equal to $42,859. The amount allocated to the
preferential conversion feature of $42,859 was recorded as a discount on the
convertible notes payable and as additional paid-in capital. The discounts on
the convertible notes payable will be amortized over the one year term of the
convertible notes payable. For the three months ended September 30, 2005,
$10,066 was amortized to expense.



Principal Amount                                                                        $ 175,003
Less Discount                                                                              (6,707)
                                                                                        ---------
                                                                                        $ 168,296
                                                                                        =========


NOTE 10 - LONG TERM CONVERTIBLE NOTE PAYABLE

Long term convertible note payable outstanding at September 30, 2005 consisted
of the following:

Convertible note issued on September 8, 2005. The note is due September 8, 2007,
accrues interest at 10%, and is mandatorily convertible into the same securities
issued by the Company in (and on the same terms and conditions pari passu with
the investors in) any offering of its securities that results in gross proceeds
to the Company of at least $3,000,000. Upon conversion, the holder will receive
as a conversion bonus additional securities equal to 20% of the aggregate
principal value plus accrued interest converted. A portion of the value of this
note was recorded as a preferential conversion feature and recorded as discount
of $20,000 to be amortized over the term of the note, 2 years.

                                                                                          $100,000
Principal Amount                                                                           (20,000)
Less Discount                                                                             $ 80,000

</TABLE>


NOTE 11 - EQUITY

Preferred Stock of uWink

The Company has authorized 5,000,000 shares of Preferred Stock. The 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 the Board of Directors granted hereby, 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 of the Company shall not be liable to any
further call or assessment.


                                       21






<PAGE>

Common Stock


During the three months beginning July 1 and ended September 30, 2005, the
Company:

         o        issued 87,710 shares of common stock to a number of service
                  providers in exchange for services valued at $43,030, based on
                  the stock price on the date of the agreement.



                                       22




<PAGE>

Stock Warrants

The Company has issued warrants to consultants and finders for services rendered
and to investors in connection with raising capital.

The following table summarizes the warrants outstanding as of September 30,
2005.

                                                                  Weighted-
                                                                   Average
                                                                   Exercise
                                                     Warrants       Price
                                                    ---------      -------
Balance, December 31, 2004                           1,976,338     $ 3.48
Granted                                                533,458     $ 1.50
Exercised                                                   --         --
Cancelled                                                7,922     $ 2.05
Balance September 30, 2005                           2,501,874     $ 3.06
Exercisable September 30, 2005                       2,501,874     $ 3.06


NOTE 12 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2003, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104 supersedes
SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary
purpose is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superseded as a result of the issuance of
EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
Additionally, SAB 104 rescinds the SEC's Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers ("the FAQ") issued with SAB
101 that had been codified in SEC Topic 13, Revenue Recognition. Selected
portions of the FAQ have been incorporated into SAB 104. While the wording of
SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue
recognition principles of SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. The adoption of SAB 104 did not
impact the consolidated financial statements.

In March 2004, the Financial Accounting Standards Board (FASB) approved the
consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." The objective of this Issue is to provide guidance for identifying
impaired investments. EITF 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. The accounting
provisions of EITF 03-1 are effective for all reporting periods beginning after
June 15, 2004, while the disclosure requirements for certain investments are
effective for annual periods ending after December 15, 2003, and for other
investments such disclosure requirements are effective for annual periods ending
after June 15, 2004. The Company has evaluated the impact of the adoption of
EITF 03-1 and does not believe the impact will be significant to the Company's
overall results of operations or financial position.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." This statement applies to all voluntary changes in accounting
principle and requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless this would be
impracticable. This statement also makes a distinction between "retrospective
application" of an accounting principle and the "restatement" of financial
statements to reflect the correction of an error. This statement is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005.

In February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of SFAS No. 133, establishes a
requirement to evaluate interest in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company's first fiscal year that begins
after September 15, 2006.

In March 2006, FASB issued SFAS 156 "Accounting for Servicing of Financial
Assets" this Statement amends FASB Statement No. 140, ACCOUNTING FOR TRANSFERS
AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. This Statement:

    1.   Requires an entity to recognize a servicing asset or servicing
         liability each time it undertakes an obligation to service a financial
         asset by entering into a servicing contract.


                                       23




<PAGE>

    2.   Requires all separately recognized servicing assets and servicing
         liabilities to be initially measured at fair value, if practicable.

    3.   Permits an entity to choose "Amortization method" or "Fair value
         measurement method" for each class of separately recognized servicing
         assets and servicing liabilities.

    4.   At its initial adoption, permits a one-time reclassification of
         available-for-sale securities to trading securities by entities with
         recognized servicing rights, without calling into question the
         treatment of other available-for-sale securities under Statement 115,
         provided that the available-for-sale securities are identified in some
         manner as offsetting the entity's exposure to changes in fair value of
         servicing assets or servicing liabilities that a servicer elects to
         subsequently measure at fair value.

    5.   Requires separate presentation of servicing assets and servicing
         liabilities subsequently measured at fair value in the statement of
         financial position and additional disclosures for all separately
         recognized servicing assets and servicing liabilities.

This Statement is effective as of the beginning of the Company's first fiscal
year that begins after September 15, 2006. Management believes that this
statement will not have a significant impact on the financial statements.

In December 2004, the FASB issued FASB Statement No. 123R, "Share-Based Payment,
an Amendment of FASB Statement No. 123" ("FAS No. 123R"). FAS No. 123R requires
companies to recognize in the statement of operations the grant- date fair value
of stock options and other equity-based compensation issued to employees. FAS
No. 123R is effective beginning in the Company's first quarter of fiscal 2006.

In June 2005, the EITF reached consensus on Issue No. 05-6, Determining the
Amortization Period for Leasehold Improvements ("EITF 05-6.") EITF 05-6 provides
guidance on determining the amortization period for leasehold improvements
acquired in a business combination or acquired subsequent to lease inception.
The guidance in EITF 05-6 will be applied prospectively and is effective for
periods beginning after June 29, 2005. EITF 05-6 is not expected to have a
material effect on its consolidated financial position or results of operations.

The Company believes that the adoption of these standards will have no material
impact on its financial statements.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Other Litigation

In the ordinary course of business, the Company is generally subject to claims,
complaints, and legal actions. As of September 30, 2005, management believes
that the Company is not a party to any action which would have a material impact
on its financial condition, operations, or cash flows.

Leases

Our offices are located at 12536 Beatrice Street, Los Angeles, California 90066,
and consist of 8,500 square feet of office and warehouse space at the rate of
$10,200 per month. The term of this lease, which commenced May 1, 2005, is three
years.

                                       24





<PAGE>

NOTE 14 - SUBSEQUENT EVENTS

In October 2005, the Company received cash proceeds (net of transaction fees) of
$195,000 from the issuance of a $200,000 Convertible Note to Mr. Bradley Rotter.
This convertible note has a six month term, accrues interest at 10%, and is
convertible, at the option of Mr. Rotter, into the same securities issued by the
Company in (and on the same terms and conditions pari passu with the investors
in) any offering of its securities that results in gross proceeds to the Company
of at least $3,000,000. Upon conversion, Mr. Rotter will receive as a conversion
bonus additional securities equal to 20% of the aggregate principal value plus
accrued interest converted. The convertible note is mandatorily repayable
immediately following the consummation of any offering of securities that
results in gross proceeds to the Company of at least $3,000,000. Upon such
repayment, or upon repayment at maturity, Mr. Rotter will receive warrants to
purchase 200,000 shares of common stock of the Company at an exercise price of
$0.59.

Mr. Rotter has been appointed to the Board of Directors of the Company as of
November 11, 2005.

In October 2005, we issued 27,099 shares of our common stock to various service
providers, in exchange for services rendered on behalf of the Company.

In November 2005, we issued 6,500 shares of common stock to a former employee
for services rendered on behalf of the Company.

On January 10, 2006, we issued 500,012 shares of common stock valued at $150,003
to 4 investors on conversion of $125,003 principal amount of convertible notes
plus $25,000 of accrued interest.

On February 10, 2006, we issued 400,000 employee stock options at an exercise
price of $0.30 per share.

On March 3, 2006, we sold 5,000,000 shares of common stock to 22 investors for
gross proceeds of $1,500,000. The investors in the transaction also received
immediately exercisable, three-year warrants to purchase an aggregate of
2,500,000 shares of common stock priced at $0.345 per share. Merriman Curhan
Ford & Co. acted as sole placement agent for this transaction. We paid to
Merriman Curhan Ford & Co, as placement agent, a commission of $75,000 (equal to
5% of the aggregate offering price) plus $5,000 in expenses. Merriman also
received an additional 450,000 immediately exercisable, three-year warrants to
purchase common stock at $0.345 per share as part of this fee arrangement. The
fair value of the warrants was calculated using the Black Scholes option pricing
model using the following assumptions: risk free rate of return of 7.5%,
volatility of 109%, expected life of 3 years and dividend yield of 0%. The fair
value of the warrants and the placement agent's commission and expenses were
accounted for as cost of raising equity with a corresponding amount debited to
additional paid-in capital.

On March 31, 2006, we issued 115,000 shares of common stock, valued at $65,550
based on the closing price of the common stock on the date of the agreement, to
Ms. Alissa Bushnell, daughter of our CEO Nolan Bushnell, in payment for public
relations services provided to the Company during 2005.

On March 31, 2006, we issued 50,000 shares of common stock valued at $21,000,
based on the closing price of the common stock on the date of the agreement, to
the holder of a $120,000 convertible note in consideration for the holder
extending the maturity date of the note from November 2005 to March 2006.

                                       25




<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

GENERAL

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related footnotes for the year ended
December 31, 2004 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

uWink, Inc. ("uWink", "we", "us", or the "Company") is a digital entertainment
company, based in Los Angeles, California, that designs and develops interactive
entertainment software and platforms for restaurants, bars, and mobile devices.
We are currently planning a new entertainment dining experience called uWink
Media Bistro that leverages our network and entertainment software.

We have spent more than $10 million over the last 4 years to build our
entertainment vending platform and our Entertainment Systems Network, including
SNAP!, Bear Shop (also known as Boxter Bear) and our video game library. We own
software and hardware components that we believe can be used in multiple
products, thereby reducing the cost of development, the time to market, and the
integration of existing software into additional hardware and software
applications.

We derive our revenue from the sale of our SNAP! countertop game platforms and
Bear Shop entertainment vending platform, products the entertainment vending
platform dispenses, such as plush bears and related clothing, and software
licensing fees.

SNAP!, our countertop video game terminal, enables customers to play over 70
short form video games from the uWink Game Library. SNAP! can be operated either
as a standalone or networked unit. Connected via the uWink Entertainment Network
System, networked units provide nationwide competitions as well as new game
downloads and updated trivia.

Our entertainment vending platform, Bear Shop, offers animated point of purchase
vending. The Bear Shop product allows customers to pick outfits and accessories
for a plush/stuffed bear using an interactive touch screen resulting in
thousands of combinations. The foundation of the Bear Shop product is an
interactive entertainment-vending platform that we believe can be leveraged to
create various vending solutions. Sale of the plush bears, clothing, and themed
accessory items provide a long-term revenue stream.

We sell our products globally with the majority of our sales being generated in
Asia.

Our current product customers are established domestic and international
distributors of coin-operated amusement products. Sales to distributors
accounted for more than 95% of our sales for the nine months ended September 30,
2005. We also sell to the owners and operators of establishments who place our
products into their own businesses. Our end users are individuals who play video
games and make impulse purchases of novelty items in public amusement places.

We are currently in the process of winding down our SNAP! and Bear Shop
manufacturing operations and, going forward, are seeking to license our SNAP!
and Bear Shop intellectual property to 3rd party manufacturers in exchange for
licensing fees.

By leveraging our technology assets, we are developing the uWink Media Bistro,
an interactive entertainment restaurant concept. uWink Media Bistro is designed
to allow customers to order food, drinks, and games/media at their table through
touch screen terminals. This idea integrates food and our interactive
entertainment software to provide what we believe will be a new entertainment
dining experience.

uWink Media Bistro is designed to address a young adult and family market of
broad economic makeup. uWink Media Bistro will offer touch screen ordering as
well as at-the-table entertainment, such as games, edutainment, select Internet
fun, and movie trailers, all via touch screen terminals. The uWink Media Bistro
business model is designed to increase revenue through the media/game charges
and to better control labor costs.

For the nine months ended September 30, 2005, there were no revenues associated
with the uWink Media Bistro.

We believe that we have assembled a management team with an in-depth
understanding of the video game, entertainment and restaurant industries,
providing what we believe is the combination needed to execute on the uWink
Media Bistro concept.


                                       26




<PAGE>

BASIS OF PRESENTATION

The accompanying consolidated financial statements, included elsewhere in this
Quarterly Report on Form 10-QSB, have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation as a going concern. We have incurred a net loss of
$2,393,444 for the nine months ended September 30, 2005, and as of September 30,
2005, we had an accumulated deficit of $23,926,437. These conditions raise
substantial doubt as to our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should we be unable to continue as a going
concern.

RESULTS OF OPERATIONS

Nine months ended September 30, 2005 compared with the nine months ended
September 30, 2004.

Net sales for the nine months ended September 30, 2005 decreased by $526,798
(47.7%) from $1,103,997 for the nine months ended September 30, 2004 to $577,199
for the nine months ended September 30, 2005, reflecting the winding down of our
SNAP! and Bear Shop manufacturing operations. Negative net sales of $76,290 for
the three months ended September 30, 2005 were the result
of credits issued to customers for returned merchandise. Licensing revenue for
the first nine months of 2005 amounted to $75,000 or approximately 13% of total
revenue, as compared to $34,722 (3% of total revenue) for the nine months ended
September 30, 2004.

Cost of sales for the nine months ended September 30, 2005 decreased by $356,432
(43%) from $832,280 for the nine months ended September 30, 2004 to $475,848 for
the nine months ended September 30, 2005. The decline in cost of goods sold is
primarily attributable to the winding down of our SNAP! and Bear Shop
manufacturing
operations. Our gross profit percentage for the nine months ended September 30,
2005 was 17.6%, as compared to 24.6% for the first nine months of 2004.

Selling, general and administrative expenses for the nine months ended September
30, 2005 decreased by $1,612,862 (43%) from $3,788,091 for the nine months ended
September 30, 2004 to $2,175,229 for the nine months ended September 30, 2005.
The decrease is primarily attributable to an approximately $900,000 reduction in
salary expense; an approximately $340,000 reduction in marketing and sales
expenses; and an approximately $200,000 reduction in shareholder relations
expenses (as well as reductions in various other operating expenses), as we cut
operating expenses in line with our capital constraints in 2005 and our
expectations of lower levels of product sales going forward.

Research and development expense for the nine months ended September 30, 2005
decreased by $291,389 (100%) from $291,389 for the nine months ended September
30, 2004 to $0 for the nine months ended September 30, 2005. The decrease is
attributable to the shift of our engineering resources to the development of the
uWink Media Bistro.

Impairment loss increased to $86,330 in 2005 from $0 in 2004. In 2005, we
impaired $86,330 in Snap! tooling, moulds and dyes, as a result of our decision
to wind down our Snap! and Bear Shop operations.

Gain on the settlement of debt for the nine months ended September 30, 2005
decreased by $326,522 (97%) from $336,779 for the nine months ended September
30, 2004 to $10,256 for the nine months ended September 30, 2005. During 2004,
we were able to settle certain trade payables for amounts less than originally
invoiced relating to over-billed amounts or amounts billed in error. In
particular, we settled a trade payable to MCI Worldcom at a gain of $127,023
relating to inflated network usage invoices. We also settled a legal bill from
outside counsel at a gain of $15,649. We also recorded a $137,500 gain on the
settlement of a $137,500 payable to DeAmertek Corporation upon receiving written
acknowledgment from DeAmertek that the Company had no obligation to DeAmertek,
and recorded a $34,395 gain on the settlement of a trade payable to our former
auditors Stonefield Josephson relating to accounting services. In 2005, we
recorded a gain of $9,728 relating to a discount from a vendor on the
outstanding balance upon issuance of final payment in accordance with the
settlement agreement.

Amortization of debt discounts for the nine months ended September 30, 2005
decreased by $139,600 (82%) from $169,798 for the nine months ended September
30,
2004 to $30,198 for the nine months ended September 30, 2005. In 2004, we
recognized debt discount expense of $125,000 relating to the issuance of
warrants to Scientific Games in connection with the conversion by Scientific
Games of a prepaid licensing fee into shares of common stock.


                                       27




<PAGE>

Interest expense for the nine months ended September 30, 2005 increased by
$103,052 (426%) from $24,152 for the nine months ended September 30, 2004 to
$127,203 for the nine months ended September 30, 2005. The increase in interest
expense is primarily attributable to interest accruals on higher levels of debt
obligations entered into after September 30, 2004, as well as the recognition of
interest costs associated with our pursuit of the assets of Sega Gameworks.
Certain lenders involved in that transaction required substantial interest as
compensation to induce them into providing financial support for the
transaction.

As a result, net loss for the nine months ended September 30, 2005 decreased by
$1,415,172 (37%) from a net loss of $3,808,616 for the nine months ended
September 30, 2004 to a net loss of $2,393,444 for the nine months ended
September 30, 2005.

LIQUIDITY AND CASH RESOURCES

As of September 30, 2005, our cash position was $937 and we had negative working
capital of $954,263. 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.

During the second quarter of 2005, we sold 533,458 shares of common stock for
cash in a private placement offering for gross proceeds of $293,402. We have
used the proceeds of the offering to fund the ongoing development of the uWink
Media Bistro and our products.

In September 2005, we received cash proceeds (net of transaction fees) of
$95,000 from the issuance of a $100,000 Convertible Note. These proceeds were
used for working capital purposes.

In October 2005, we received cash proceeds (net of transaction fees) of $195,000
from the issuance of a $200,000 Convertible Note. These proceeds were used for
working capital purposes.

Our debt outstanding at September 30, 2005, consisted of the following:

A $50,000 convertible note payable to Kevin McLeod, a director of the Company,
issued on December 6, 2004. The note bears interest at 20% per annum and is due
one year from the date of issuance. The note can be converted immediately from
the date of issuance, at the option of the holder, into shares of the Company's
common stock at $1.75 per share.

A $253,094 loan payable to the Company's Vice President of Marketing issued on
various
dates in 2004 and 2005 bearing 12% interest and secured by inventory and
receivables of the Company; due upon demand.

A $39,000 loan payable to the brother-in-law of the President and CEO received
in April 2005, 6% interest, unsecured, due upon demand.

A $20,500 loan payable to the wife of our CEO issued on various dates in 2004,
bearing 8% interest, unsecured, and due upon demand.

A $60,500 loan payable to the Company's Vice President of Operations issued on
various dates in 2004 and 2005, bearing 8% interest, unsecured, and due upon
demand.

Four convertible promissory notes totaling $175,003 issued during November and
December of 2004. The notes bear interest at 20% per annum and are due one year
from the date of issuance. The notes can be converted immediately from the date
of issuance, at the option of the holder, into shares of the Company's common
stock at $1.75 per share.

A $100,000 convertible note issued on September 8, 2005. The note is due
September 8, 2007, accrues interest at 10%, and is mandatorily convertible into
the same securities issued by the Company in (and on the same terms and
conditions pari passu with the investors in) any offering of its securities that
results in gross proceeds to the Company of at least $3,000,000. Upon
conversion, the holder will receive as a conversion bonus additional securities
equal to 20% of the aggregate principal value plus accrued interest converted.

During the three months ended September 30, 2005, we borrowed an additional
$9,955 from our Vice President of Marketing.

During the nine month period ended September 30, 2005, we repaid a total of
$615,000 in 8% unsecured short term loans which we used to fund the $615,000
deposit required for us to participate in the auction of the assets of Sega
Gamesworks, LLC held on December 15, 2004. Following the completion of the
auction, this deposit was returned to us and we used that cash to repay the
loans.


                                       28



<PAGE>

We will need additional working capital to fund our operations over the next 12
months. We believe that we will need at least an additional $3 million of
working capital to pay salaries and operating expenses; to fund the construction
of a restaurant; and, if necessary, to finance future losses from operations. We
have not yet allocated specific amounts for these purposes. We plan to obtain
the additional working capital through the private placement sale of our equity
securities. As of the date of this report, there are no commitments for the sale
of the Company's securities nor can there be any assurance that such funds will
be available on commercially reasonable terms. Should we be unable to raise the
required additional funds, our ability to finance our continued growth will be
materially adversely affected.

CASH POSITION AND USES OF CASH

Our cash and cash equivalents position as of September 30, 2005 was $937.

During the nine months ended September 30, 2005, net cash used in operations was
$478,112, as compared to a use of $3,458,268 for the nine months ended September
30, 2004. The decrease is primarily attributable to our scaling back of
operations and development activity in line with our capital constraints and the
winding down of our Snap! and Bear Shop operations. In particular, our operating
loss was reduced by $1,415,172 in the nine months ended September 30, 2005, as
compared to the nine months ended September 30, 2004. In addition, we generated
$1,100,223 in cash from accounts receivable, inventory and inventory deposits in
2005, as compared to using cash of $1,212,148 in 2004.

During the nine months ended September 30, 2005, we generated cash of $612,350
from investing activities, as compared to a use of $328,685 for the nine months
ended September 30, 2004. In 2005, we invested only $2,650 in plant, property
and equipment, in line with our reduced levels of staffing and operations, as
compared to investing $88,256 in 2004. As described above, in December 2004, we
invested $615,000 in a deposit related to our pursuit of the assets of Sega
Gameworks out of bankruptcy. We liquidated this deposit during the first three
months of 2005, resulting in net positive cash from investing activities of
$612,350 for the nine months ended September 30, 2005. We used the cash
generated from liquidating this deposit to repay loans totaling $615,000 which
were made to fund the deposit.

During the nine months ended September 30, 2005, our financing activities used
cash in the amount of $190,643 as compared to providing $2,632,948 for the nine
months
ended September 30, 2004. Gross cash generated from sales of our equity
securities was $368,402 in the first three quarters of 2005 as compared to
$2,988,722 ($2,606,080 net of offering costs) in the first three quarters of
2004. As noted above, in 2005 we also repaid loans of $615,000 used to fund a
deposit relating to our participation in the auction of the assets of Sega
Gameworks in December 2004 and issued a $100,000 two-year convertible note.
Furthermore, we made net repayment of $44,045 of amounts due to related parties
in the first three quarters of 2005.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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, impairment of long-lived assets and intangibles,
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.


                                       29



<PAGE>

Software Development Costs

Software development costs related to computer games and network and terminal
operating systems developed by the Company 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 Company's 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

The Company recognizes 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
the Company delivers its touch screen pay-for-play game terminals to its
customer and the Company believes that persuasive evidence of an arrangement
exits and the fees are fixed or determinable. Included with the purchase of the
touch screen terminals are licenses to use the games loaded on the terminals.
The Company delivers the requested terminals for a fixed price either under
agreements with customers or pursuant to purchase orders received from
customers.

The Company does not have any contractual obligations to provide post sale
support of its products. The Company does provide such support on a case by case
basis and the costs of providing such support are expensed as incurred.

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 year ended December 31, 2004.

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 (the "SEC"). 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.


                                       30


<PAGE>


ITEM 3.    CONTROLS AND PROCEDURES

Under the supervision and with the participation of its senior management,
including the Chief Executive Officer, the Company conducted an evaluation of
the effectiveness of the design and operation of its disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act,
as of the end of the period covered by this report (the "Evaluation Date").
Based on this evaluation, the Company's CEO concluded as of the Evaluation Date
that certain of the Company's disclosure controls and procedures were not
effective, as evidenced by the following failures:

Failure to timely file the financial statements and proforma financial
information in connection with our acquisition of our wholly owned subsidiary
uWink California. This filing was due on February 19, 2004 and was not made
until May 18, 2004.

Failure to file a report on Form 8-K regarding our sale, on May 15, 2005, of
533,458 shares of common stock for cash to 6 investors for $293,402.

As set forth in our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2005 and our Current Report on Form 8-K filed on May 2, 2006,
during a re-audit of our 2004 financial results we discovered a number of
accounting errors that required the restatement of our financial statements for
the fiscal year ended December 31, 2004.

Changes in Internal Control Over Financial Reporting

The Company intends to address the ineffective controls and procedures, and to
take appropriate action to correct the deficiencies identified. The Board of
Directors is performing oversight of the implementation of enhancements and
improvements to its internal controls.

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.


                                       31



<PAGE>

PART II.   OTHER INFORMATION


ITEM 2.  CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
         SECURITIES

During the three months ended September 30, 2005, we sold or issued unregistered
shares of our equity securities in the following transactions:

On August 3, 2005, we issued 10,000 shares to Mr. James Stepanian
valued at $6,000, based on the stock price on the date of the agreement, as a
financial penalty for failing to register common stock held by Mr. Stepanian.
This issuance was made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.

On September 12, 2005, we issued 50,000 shares to Friedland Capital in
exchange for consulting services valued at $22,500, based on the stock price on
the date of the agreement. This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.

On September 8, 2005, we received cash proceeds (net of transaction fees) of
$95,000 from the issuance of a $100,000 Convertible Note to Mr. William Hines.
These proceeds were used for working capital purposes. This Convertible Note has
a two year term, accrues interest at 10%, and is mandatorily convertible into
the same securities issued by the Company in (and on the same terms and
conditions pari passu with the investors in) any offering of its securities that
results in gross proceeds to the Company of at least $3,000,000. Upon
conversion, the holder will receive as a conversion bonus additional securities
equal to 20% of the aggregate principal value plus accrued interest converted.
This issuance was made pursuant to the exemption from registration provided by
Rule 506 under the Securities Act of 1933.


                                       32



<PAGE>

ITEM 6.  EXHIBITS

(a) Exhibits

REGULATION
S-B NUMBER                                    EXHIBIT




       4.1  Convertible Promissory Note, dated September 8, 2005.*

       4.2  Convertible Promissory Note, dated October 10, 2005.**

      10.1  2005 Stock Incentive Plan (incorporated by reference to our Current
            Report on Form 8-K filed on September 15, 2005).

      10.2  Employment Agreement, dated as of August 29, 2005, between the
            Company and Peter F. Wilkniss (incorporated by reference to our
            Quarterly Report on Form 10-QSB for the Quarter ended September 30,
            2005).

      31.1  Rule 13a-14(a) Certification of Chief Executive Officer

      31.2  Rule 13a-14(a) Certification of Chief Financial Officer

      32.1  Certification of Chief Executive Officer and Chief Financial 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

*Incorporated by reference to Exhibit 4.4 of our Annual Report on Form 10-KSB
for the year ended December 31, 2005, filed on April 17, 2006.

**Incorporated by reference to Exhibit 4.5 of our Annual Report on Form 10-KSB
for the year ended December 31, 2005, filed on April 17, 2006.


                                       33



<PAGE>

                                   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.


August 1, 2006                                     By: /s/ NOLAN K. BUSHNELL
                                                       ------------------------
                                                       Nolan K. Bushnell
                                                       Chief Executive Officer


                                                   By: /s/ PETER F. WILKNISS
                                                       ------------------------
                                                       Peter F. Wilkniss
                                                       Chief Financial Officer
                                                       Chief Accounting Officer


                                       34