<PAGE>

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


                                 Amendment No. 2

                                       To

                                  FORM 10-QSB/A


(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, 2006

[ ]      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)


              (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 [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]


The number of shares of common stock outstanding as of December 31, 2006 was
25,179,215.


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

Documents incorporated by reference:  None.

<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, 2006 (the
"Original Report") to present amended and restated financial statements and
related financial information for the three and nine months ended September 30,
2006.

In our unaudited quarterly financial statements for 2006 as originally filed we
had, in consultation with our external auditors, interpreted and applied EITF
00-19 to treat the fair value of financing warrants as a cost of raising equity
with a corresponding amount debited to additional paid-in capital. In letters to
us dated November 9, 2006 and January 5, 2007, the Securities and Exchange
Commission raised questions as to our interpretation of EITF 00-19 as it relates
to our accounting treatment of financing warrants issued during 2006. In
consultation with our external auditors, on December 1, 2006 our Chief Executive
Officer and Chief Financial Officer determined to amend and restate the
financial statements and information for the three and nine months ended
September 30, 2006 to recognize expense for the fair value of the financing
warrants issued during the period and to book a corresponding amount as short
term warrant liability on the balance sheet at September 30, 2006. Furthermore,
on January 17, 2007, our Chief Executive Officer and Chief Financial Officer
determined, in consultation with our external auditors, to further amend and
restate the financial statements and information for the three and nine months
ended September 30, 2006 to reflect the change in the fair value of the warrant
liability as of September 30, 2006.

Further information on the restatement can be found in Note 2 to the Unaudited
Consolidated Financial Statements.

We are further amending the Original Report to include additional disclosure
information as requested by the Securities and Exchange Commission in the letter
to us dated November 9, 2006. We have amended our disclosure in Part I, Item 2
and Part II, Item 2 of this report. In addition, we have amended the statement
of cash flows for the nine months ended September 30, 2006 presented in the
financial statements included in the Original Report to present separately
proceeds from the issuance of related party and non-related party debt and
repayment of related party and non-related party debt. We have also amended our
disclosure in Notes 1, 2, 5, 8, 9, 11, 12, 13 and 14 to the financial statements
presented in the Original Report.

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.

<PAGE>

                                   UWINK, INC.
                                      INDEX

                                                                            Page
                                                                          Number
                                                                          ------
PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements

           Consolidated Balance Sheet as of September 30, 2006 (unaudited)    2

           Consolidated Statements of Operations for the three and nine
           month periods ended September 30, 2006 and 2005 (unaudited)        3

           Consolidated Statements of Cash Flows for the three and nine month
           periods ended September 30, 2006 and 2005 (unaudited)              4

           Notes to Consolidated Financial Statements (unaudited)             5

Item 2.    Management's Discussion and Analysis or Plan of Operations        30

Item 3.    Controls and Procedures                                           42

PART II.   OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds       43

Item 6.    Exhibits                                                          45

SIGNATURES                                                                   46


                                        1

<PAGE>


PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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


                                                                               SEPTEMBER 30
                                                                                   2006
                                                                                (RESTATED)
                                                                               ------------

                                  ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                                 $    876,569
     Account receivable, net of allowance for doubtful accounts of $72,265            2,281
     Inventory, net of obsolescence reserve of $295,730                              61,362
     Prepaid expenses and other current assets                                       51,687
                                                                               ------------
TOTAL CURRENT ASSETS                                                                991,899
                                                                               ------------

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $294,267                 866,022

INTANGIBLE ASSETS, net of accumulated amortization of $10,000                        50,000

LONG TERM DEPOSIT                                                                     2,300
                                                                               ------------
                                                                               $  1,910,221
                                                                               ============


                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
     Accounts payable                                                          $  1,116,084
     Accrued expenses                                                               161,941
     Accrued payroll and related benefits                                           217,317
     Due to related parties                                                         100,000
     Notes Payable                                                                  152,696
     Advances from customers                                                         24,980
     Warrant Liability                                                            6,583,902
                                                                               ------------
TOTAL CURRENT LIABILITIES                                                         8,356,920
                                                                               ------------

COMMITMENTS AND CONTINGENCIES                                                            --

STOCKHOLDERS' EQUITY
     Common stock, $0.001 par value; 50,000,000 shares
        authorized; 24,496,207 shares issued and outstanding                         24,496
     Additional paid-in capital                                                  26,974,441
     Accumulated deficit                                                        (33,485,210)
     Shares to be issued                                                             90,574
     Subscriptions Receivable                                                       (51,000)
                                                                               ------------
TOTAL STOCKHOLDERS' DEFICIT                                                      (6,446,699)
                                                                               ------------
                                                                               $  1,910,221
                                                                               ============

                    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
                                                          2006               2005               2006               2005
                                                        (RESTATED)         (RESTATED)        (RESTATED)          (RESTATED)
                                                      -------------      -------------      -------------      -------------

NET SALES                                             $      35,720      $     (76,290)     $     145,771      $     577,199

COST OF SALES                                                 5,250             52,350            147,373            475,848
                                                      -------------      -------------      -------------      -------------
GROSS PROFIT (LOSS)                                          30,470           (128,640)            (1,601)           101,351
                                                      -------------      -------------      -------------      -------------

OPERATING EXPENSES
     Selling, general and administrative expenses           863,845            343,958          2,046,714          2,253,699
     Research and development                                    --                 --                 --                 --
     Impairment Loss                                             --             86,330                 --             86,330
                                                      -------------      -------------      -------------      -------------
TOTAL OPERATING EXPENSES                                    863,845            430,288          2,046,714          2,340,029
                                                      -------------      -------------      -------------      -------------

LOSS FROM OPERATIONS                                       (833,375)          (558,928)        (2,048,315)        (2,238,679)
                                                      -------------      -------------      -------------      -------------

OTHER INCOME (EXPENSE)
     Other income                                             1,656                 52             11,962                496
     Beneficial conversion of debt                          (22,500)           (10,066)           (47,500)           (30,198)
     Gain on settlement of debt                               2,497                 --              5,873             10,256
     Interest expense                                       (11,347)           (33,044)           (53,788)          (127,203)
     Equipment Stolen                                            --             (8,117)                --             (8,117)
     Fair value of warrant liability                     (6,238,218)                --         (6,583,902)
                                                      -------------      -------------      -------------      -------------
TOTAL OTHER INCOME (EXPENSE)                             (6,267,912)           (51,175)        (6,667,355)          (154,766)
                                                      -------------      -------------      -------------      -------------


NET LOSS                                              $  (7,101,287)     $    (610,103)     $  (8,715,670)     $  (2,393,444)
                                                      =============      =============      =============      =============

NET LOSS PER COMMON SHARE - BASIC & DILUTED           $       (0.38)     $       (0.05)     $       (0.53)     $       (0.21)
                                                      =============      =============      =============      =============

WEIGHTED AVERAGE COMMON SHARES
     OUTSTANDING - BASIC & DILUTED                       18,845,519         12,398,544         16,582,185         11,460,592
                                                      =============      =============      =============      =============


              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
                                                                          2006             2005
                                                                       (RESTATED)       (RESTATED)
                                                                      -----------      -----------

CASH FLOW FROM OPERATING ACTIVITIES:
    Net loss                                                          $(8,715,670)     $(2,393,444)
    Adjustment to reconcile net loss to net cash
      used in operating activities:
        Amortization of debt discount on convertible note payable          47,500           30,198
        Nominal Stock Option Expense                                      365,309           76,000
        Depreciation and amortization expense                              17,805           94,131
        Impairment Loss                                                        --           94,447
        Bad debt allowance                                                 (3,728)         (38,237)
        Issuance of warrants for debt                                      16,828               --
        Issuance of common stock for services                             217,642        1,152,340
        Issuance of common stock for accrued interest                       8,063           42,500
        Inventory obsolescence reserve                                     78,275         (281,853)
        Provision for sales returns                                            --         (150,000)
        Gain on forgiveness of debt                                        (5,873)         (10,256)
        Fair value of warrant liability                                 6,583,902               --
      Changes in operating assets and liabilities:
        Accounts receivable                                                 1,448          476,569
        Inventory                                                         115,708          355,885
        Deposits                                                           66,398          267,768
        Prepaid expenses and other current assets                         (12,805)           1,275
        Accounts payable                                                  219,468           76,719
        Accrued expenses                                                  (14,826)          (5,917)
        Accrued payroll and related benefits                              125,071          (66,215)
        Advances from Customers                                                --          (50,020)
        Provision for sales returns                                            --         (150,000)
                                                                      -----------      -----------
      Net cash used in operating activities                              (889,485)        (478,112)
                                                                      -----------      -----------

CASH FLOW FROM INVESTING ACTIVITIES:
      Payment for property and equipment                                 (914,747)          (2,650)
        Deposits - Gameworks                                                   --          615,000
                                                                      -----------      -----------
      Net cash provided by (used in) investing activities                (914,747)         612,350
                                                                      -----------      -----------

CASH FLOW FROM FINANCING ACTIVITIES:
        Proceeds from debt                                                     --          100,000
        Debt repayment                                                   (178,959)        (615,000)
        Proceeds from advances from related parties                            --          104,955
        Repayments of advances from related parties                      (100,000)        (149,000)
        Proceeds from issuance of common stock                          2,936,002          368,402
                                                                      -----------      -----------
      Net cash provided by (used in) financing activities               2,657,043         (190,643)
                                                                      -----------      -----------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                 852,811          (56,405)

CASH AND CASH EQUIVALENTS, Beginning of period                             23,759           57,342
                                                                      -----------      -----------

CASH AND CASH EQUIVALENTS, End of period                              $   876,569      $       937
                                                                      ===========      ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    Interest paid                                                     $     3,049      $        --
                                                                      ===========      ===========
    Income taxes paid                                                 $        --      $        --
                                                                      ===========      ===========

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES

    Conversion of debt into common stock                              $   123,000      $   192,500
                                                                      ===========      ===========


 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" or "we"), 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,
2005 included in the Company's Annual Report on Form 10-KSB. The results of the
nine months ended September 30, 2006 are not necessarily indicative of the
results to be expected for the full year ending December 31, 2006.


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 $8,715,670 for the nine months ended September 30, 2006,
and as of September 30, 2006, the Company had an accumulated deficit of
$33,485,210. 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.

We expect to need to raise additional amounts of capital through the sale of our
equity or debt securities within the next 2 to 3 months because we do not expect
to have sufficient funds remaining following completion of the build out of our
first restaurant to fund our corporate overhead and expenses; and we do not
expect the cash flow from our first restaurant location to be sufficient to
cover our corporate overhead and expenses. As of the date of this report, we
have no commitments for the sale of our securities nor can we assure you that
such funds will be available on commercially reasonable terms, if at all. Should
we be unable to raise the required funds, our ability to finance our operations
and 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. As of September 30, 2006, there is no amortization
related to software development cost as the cost has been fully amortized as of
December 31, 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, the fees are fixed or determinable, and collectibility of payments is
probable. Included with the purchase of the touch screen terminals are licenses
to use the games loaded on the terminals. The licenses for the games are in
perpetuity, the Company has no obligation to provide upgrades or enhancements to
the customer, and the customer has no right to any other future deliverables.
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. The
Company earned no revenue from post sale support during the periods presented.

Geographic Areas and Major Customers

For the nine months ended September 30, 2006, the Company generated $51,600 in
revenue, amounting to 35% of total revenue, from one customer located in the
United States.

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. As of September
30, 2006, there is no impairment related to long-lived assets.

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,
2006, advances from customers relating to licensing fees amounted to $24,980.

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.

NOTE 2 - RESTATEMENT


In our unaudited quarterly financial statements for 2006 as originally filed the
Company had, in consultation with its external auditors, interpreted and applied
EITF 00-19 to treat the fair value of financing warrants as a cost of raising
equity with a corresponding amount debited to additional paid-in capital. In
letters to the Company dated November 9, 2006 and January 5, 2007, the
Securities and Exchange Commission raised questions as to the Company's
interpretation of EITF 00-19 as it relates to the accounting treatment of
financing warrants issued during 2006. In consultation with its external
auditors, on December 1, 2006 the Company's Chief Executive Officer and Chief
Financial Officer determined to amend and restate the financial statements and
information for the three and nine months ended September 30, 2006 to recognize
expense for the fair value of the financing warrants issued during 2006 and to
book a corresponding amount as short term warrant liability on the balance sheet
at September 30, 2006. Furthermore, on January 17, 2007, the Company's Chief
Executive Officer and Chief Financial Officer determined, in consultation with
its external auditors, to further amend and restate the financial statements and
information for the three and nine months ended September 30, 2006 to reflect
the change in the fair value of the warrant liability as of September 30, 2006.

As originally filed, the $3,139,769 fair value (as calculated as of the issuance
dates) of certain warrants issued during the nine months ended September 30,
2006 was accounted for as a cost of raising equity with a corresponding amount
debited to additional paid-in capital.


                                       8

<PAGE>

A provision in the Securities Purchase Agreements governing the Company's
private placement transactions completed on March 3, 2006, May 9, 2006, June 12,
2006 and September 18, 2006 requires the Company to file a registration
statement with the Securities and Exchange Commission covering the resale of the
shares of common stock and shares of common stock underlying the warrants
purchased by the investors in those transactions as promptly as possible and
that, if the registration statement is not declared effective by the SEC within
180 days of the closing date of the transaction, or if the Company fails to keep
the registration statement continuously effective until all the shares (and
shares underlying warrants) are either sold or can be sold without restriction
under Rule 144(k), that the Company pay the investors monthly liquidated damages
equal to 1.5% of their investment until the registration statement is declared
and kept effective or all the shares have been sold or can be sold without
restriction under Rule 144(k) (in the case of a failure to keep the registration
statement continuously effective). In connection with the March 3, 2006
transaction, the Company issued 450,000 immediately-exercisable, three-year
warrants to a placement agent. The warrants issued to the placement agent are
not subject to this registration rights/liquidated damages for failure to
register provision.

The fair value of the warrants issued to the investors in these transactions, as
calculated as of September 30, 2006, was $6,583,902. In accordance with EITF
00-19, the Company has determined to amend and restate the financial statements
for the three and nine months ended September 30, 2006 to recognize expense of
$6,583,902 for the fair value of the warrants, as calculated as of September 30,
2006, issued to the investors in these transactions and to record a
corresponding short term warrant liability of $6,583,902 on the September 30,
2006 balance sheet. Because the placement agent's warrants are not subject to
registration rights/liquidated damages for failure to register, the fair value
of the 450,000 warrants issued to the placement agent of $90,080 was accounted
for as cost of raising equity with a corresponding amount debited to additional
paid-in capital.


                                       9

<PAGE>

The following presents the effect on the Company's previously issued financial
statements for the nine months ended September 30, 2006. THE TABLES SET FORTH
BELOW ONLY PRESENT THOSE ACCOUNTS THAT WERE AFFECTED BY THE RESTATEMENT.

Balance sheet at September 30, 2006:

<TABLE>
                                                                                 Previously        Increase
                                                                                  Reported        (Decrease)       Restated

CURRENT LIABILITIES
<S>                                                                                               <C>              <C>
Warrant Liability                                                                       --        6,583,902        6,583,902
TOTAL CURRENT LIABILITIES                                                        1,773,018        6,583,902        8,356,920

STOCKHOLDERS' EQUITY
Accumulated deficit                                                            (26,901,309)      (6,583,902)     (33,485,210)
TOTAL STOCKHOLDERS' EQUITY                                                         137,202       (6,583,902)      (6,446,699)


Statement of operations for the nine months ended September 30, 2006:


                                                                                 Previously        Increase
                                                                                  Reported        (Decrease)       Restated

OTHER INCOME (EXPENSE)
Fair value of warrant liability                                                         --       (6,583,902)      (6,583,902)
TOTAL OTHER INCOME (EXPENSE)                                                       (83,453)      (6,583,902)      (6,667,355)
NET LOSS                                                                        (2,131,768)      (6,583,902)      (8,715,670)
NET LOSS PER COMMON SHARE - BASIC & DILUTED                                          (0.13)           (0.40)           (0.53)

Statement of cash flows for the nine months ended September 30, 2006:

CASH FLOW FROM OPERATING ACTIVITIES:
Net loss                                                                        (2,131,768)      (6,583,902)      (8,715,670)

Adjustment to reconcile net loss to net cash used in operating activities:
Fair value of warrant liability                                                         --        6,583,902        6,583,902

</TABLE>

The net effect of the restatement is an increase of $6,583,902 in total other
expense for the nine months ended September 30, 2006 and an increase of
$6,583,902 in net loss for the nine months ended September 30, 2006. As a
result, basic and diluted net loss per share increased by $0.40 per share for
the nine months ended September 30, 2006.

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, 2006 and 2005 because the effect
would have been anti-dilutive:


                                       10

<PAGE>

                                                          2006           2005
                                                       ----------     ----------
        Shares to be issued upon conversion
         of convertible note                                  --        128,573
        Stock options issued to employees                383,936      1,048,169
        Warrants issued to consultants and finders       322,628        390,349
        Warrants issued for financing                  1,838,993      2,111,525
                                                       ----------     ----------
                                                       2,545,557      3,678,616
                                                       ==========     ==========

The weighted average number of dilutive shares has not been presented because
the effect of dilutive securities is anti dilutive.


NOTE 4 - ACCOUNTS RECEIVABLE

Accounts Receivable at September 30, 2006 were marked down to net realizable
value, as reflected by an increase in the allowance for doubtful accounts of
$9,392.


Accounts Receivable at September 30, 2006                            $  74,546
Less:  allowance for doubtful accounts                                  72,265
                                                                     ----------
                                                                     $   2,281
                                                                     ==========


NOTE 5 - INVENTORY

Inventory has been reviewed for obsolescence and stated at lower of cost or
market as of September 30, 2006, determined on a first in first out basis.
During 2005, the Company made a strategic decision to reposition itself as an
entertainment restaurant company, to wind down its SNAP! and Bear Shop
manufacturing and sales operations and to liquidate its remaining inventory. As
a result, all inventory at September 30, 2006 is treated as finished goods
inventory.

Finished Goods Inventory at September 30, 2006                       $ 357,092
Less: obsolescence reserve                                             295,730
                                                                     ----------
                                                                     $  61,362
                                                                     ==========


NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment at September 30, 2006, consists of the following:

                  Computer equipment and related software             $ 416,200
                  Office furniture and equipment                         17,926
                  Leasehold improvements                                 84,849
                  Machinery and equipment                                82,603
                  Construction in Progress                              558,711


                  Less accumulated depreciation and amortization       (294,267)
                                                                      ----------
                                                                      $ 866,022
                                                                      ==========


                                       11

<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, 2006, the Company had
cash and cash equivalent balances totaling $675,045 in financial institutions,
which were in excess of federally insured amounts.


NOTE 8 - COMPONENTS OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The major components of selling, general and administrative expenses for the
nine months ended September 30, 2006 consisted of the following:

Professional fees           $ 239,331
Rent                          102,126
Product development           177,364
Salary expense                639,729
Employee stock option expense 365,309
Inventory reserve expense     117,489
Pre-opening expenses           89,767
Other                         315,599
                            ----------
                            $2,046,714
                            ==========

The major components of selling, general and administrative expenses for the
nine months ended September 30, 2005 consisted of the following:

Financial consulting         $958,346
Professional fees             271,138
Rent                           85,605
Engineering consulting         86,593
Salary expense                407,251
Employee stock option expense  76,000
Inventory reserve expense      85,797
Other                         282,969
                            ----------
                            $2,253,699
                            ==========

NOTE 9 - 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, 2006 consisted of the
following:

Convertible Note payable to Mr. Bradley Rotter, a member of the Company's board
of directors. This note (the "2006 Rotter Note") is due October 19, 2006,
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 2006 Rotter 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 100,000 shares of common
stock of the Company at an exercise price of $0.345.

Principal Amount                                                       $ 100,000


                                       12

<PAGE>

The Company recognized $20,000 of beneficial conversion feature expense relating
to this note as of September 30, 2006. There is no unamortized beneficial
conversion feature expense relating to this note as of September 30, 2006.

On October 25, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Rotter, in respect of this note. Pursuant to the Rotter
Letter Agreement, effective October 25, 2006:

         1.       Mr. Rotter agreed to convert the $100,000 principal amount and
                  $5,685 in accrued interest outstanding under the note into
                  shares of common stock at a conversion price of $1 per share.
                  In accordance with the terms of the note, Mr. Rotter is
                  entitled to receive an additional 20% of such amount in shares
                  of common stock upon conversion into any offering of our
                  securities that results in gross proceeds to the Company of at
                  least $3,000,000. The note was due on October 19, 2006. Rather
                  than repay the note in cash, we agreed with Mr. Rotter that he
                  would be entitled to receive this additional 20% upon the
                  conversion of the note into shares of common stock even though
                  the conversion was not in connection with any such offering.
                  As a result, the total amount to be converted is $126,822. As
                  such, Mr. Rotter accepted 126,822 shares of common stock of
                  the Company, together with the warrants set forth below, in
                  full and final satisfaction of the Company's obligations under
                  the note.

         2.       In accordance with the terms of the note, the Company also
                  issued to Mr. Rotter three-year immediately exercisable
                  warrants to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share.

In connection with a private placement of our equity securities completed on
September 18, 2006, the Company converted $62,500 of debt and $8,062 of accrued
interest due to Nancy Bushnell, the wife of our CEO Nolan Bushnell (including
the assignment to Ms. Bushnell of a $39,000 note (plus $4,485 in accrued
interest) held by the brother-in-law of our CEO), and $60,500 of debt due to Dan
Lindquist, our Vice President of Operations, into shares of common stock and
warrants on the same terms as the third party investors who participated in the
transaction. Ms. Bushnell received 235,207 shares of common stock and warrants
to purchase 117,603 shares of common stock at $0.345 per share, and Mr.
Lindquist received 201,667 shares of common stock and warrants to purchase
100,833 shares of common stock at $0.345 per share. These issuances were made
pursuant to the exemption from registration provided by SEC Rule 506 promulgated
under Regulation D of the Securities Act of 1933. The common stock and warrants
issued as part of this conversion are on the same terms as the common stock and
warrants issued to the other investors and are subject to the September 18, 2006
Securities Purchase Agreement, including the registration rights provision
thereof. As a result, these warrants are included in the calculation of, and
accounting for, the short term warrant liability as of September 30, 2006.
Because the Company issued securities on conversion of Ms. Bushnell's and Mr.
Lindquist's debt that have identical terms to the securities issued to the third
party investors for cash in the September 2006 private placement, the securities
issued to Ms. Bushnell and Mr. Lindquist represented the market value equivalent
of the debt. Therefore, there is no gain or loss recognized on conversion of
debt.

During the nine month period ended September 30, 2006, we accrued $13,861 in
interest on amounts due to related parties and paid $11,162 in interest on
amounts due to related parties.


                                       13

<PAGE>

NOTE 10 - NOTES PAYABLE

Notes payable outstanding at September 30, 2006 consisted of the following:

<TABLE>
<S>                                                                                     <C>
Loan payable to the Company's former Vice President of Marketing issued on
various dates in 2004 and 2005, 12% interest secured by inventory and
receivables of the Company, due February 15, 2007. The loan payable to the
Company's Vice President of Marketing was reclassified from "Due to Related
Parties" to "Notes Payable" on the December 31, 2005 balance sheet following the
termination of the holder's employment with the Company. Accrued interest of
$85,966 outstanding on this note as of September 30, 2006 is included under
accrued expenses on the balance sheet as of September 30, 2006. On August 1, 2006,
we credited a total of $28,959 in receivables owed to the Company by the holder
of the note against the principal amount of this note.                                 $  52,885

On June 15, 2006, we entered into an amended promissory note with Elite Cabinet
Corporation ("ECC") in relation to trade payables previously owing to ECC. The
principal amount of this note is $10,177.75 and the note accrues interest at 8%.
We are required to pay $300 per month on this note from June 15, 2006 to January
15, 2007, at which time the entire unpaid balance plus accrued interest is due
and payable. During the three months ended September 30, 2006, we repaid $900 of
this note.                                                                             $  8,978

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. $10,833 of this
discount is amortized as of September 30, 2006.

Principal Amount                                                                        $ 100,000
Less Discount                                                                             (9,167)
                                                                                        ---------
                                                                                        $  90,833
                                                                                        ---------

Total                                                                                   $ 152,696
                                                                                        =========
</TABLE>


On October 26, 2006, we entered into a letter agreement (the "Hines Letter
Agreement") with Dr. William Hines, the holder of this note. Pursuant to the
Hines Letter Agreement, effective October 26, 2006:

Dr. Hines agreed to convert the $100,000 principal amount and $11,555 in accrued
interest outstanding under the note into shares of common stock of the Company
at a conversion price of $1 per share. In accordance with the terms of the note,
Dr. Hines is entitled to receive an additional 20% of such amount in shares of
common stock upon conversion into any offering of our securities that results in
gross proceeds to the Company of at least $3,000,000. While the note was not yet
due, we believed it advantageous to the Company to remove the Hines note from
the balance sheet, particularly because the Hines note was secured by assets of
the Company. As such, we agreed with Dr. Hines that he would be entitled to
receive this additional 20% upon the conversion of the Hines note into shares of
common stock even though the conversion was not in connection with any such
offering. As a result, the total amount to be converted is $133,866. As such,
Dr. Hines accepted 133,866 shares of common stock of the Company in full and
final satisfaction of the Company's obligations under the note.


                                       14

<PAGE>


NOTE 11 - EQUITY

Common Stock

During the nine-month period ended September 30, 2006, the Company:

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. These shares were part of shares to be issued as of December
31, 2005;

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. These shares were part of shares to be
issued as of December 31, 2005;

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. These shares were part of
shares to be issued as of December 31, 2005;

issued 434,453 shares of common stock to various service providers valued at
$122,076, based on the closing price of our common stock on the date of the
relevant agreement. 189,026 of these shares valued at $59,708 were reflected as
shares to be issued on the balance sheet at March 31, 2006;

issued 33,333 shares of common stock valued at $10,000, based on the closing
price of our common stock on the date of the agreement, to Cody Management in
exchange for financial consulting services rendered;

issued 241,582 shares of common stock to various service providers valued at
$63,134, based on the closing price of our common stock on the date of the
relevant agreement;

issued 100,000 shares of common stock valued at $36,000 upon the exercise of
stock options;

On March 3, 2006, 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 of $590,524 (as calculated as of the issuance date)
was calculated using the Black Scholes option pricing model using the following
assumptions: stock price of $0.30, 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 issued to the investors of $500,444 (as calculated as of the
issuance date) was recognized as an expense at March 31, 2006 with a
corresponding amount booked as a short term liability. The fair value of the
warrants issued to the placement agent of $90,080 was accounted for as a cost of
raising equity with a corresponding amount debited to additional paid-in
capital. In accordance with EITF 00-19, at the end of each reporting period, the
fair value of the warrants is recalculated, and changes to the warrant liability
and related gain or loss are booked appropriately.


                                       15

<PAGE>

As of June 30, 2006, the fair value of the warrant liability relating to the
2,500,000 warrants issued to the investors was $338,010, as calculated using the
Black Scholes option pricing model using the following assumptions: stock price
of $0.28, risk free rate of return of 7.5%, volatility of 78.43%, expected life
of 2.75 years and dividend yield of 0%. In accordance with EITF 00-19, the
Company reduced the short term warrant liability relating to these warrants as
of June 30, 2006 by $162,424 to reflect the fair value as of June 30, 2006 and
recognized fair value of warrant liability income (other income) of $162,434 in
the statement of operations for the six months ended June 30, 2006.

As of September 30, 2006, the fair value of the warrant liability relating to
the 2,500,000 warrants issued to the investors was $3,104,000, as calculated
using the Black Scholes option pricing model using the following assumptions:
stock price of $1.42, risk free rate of return of 7.5%, volatility of 123%,
expected life of 2.5 years and dividend yield of 0%. In accordance with EITF
00-19, the Company increased the short term warrant liability relating to these
warrants as of September 30, 2006 by $2,765,990 to reflect the fair value as of
September 30, 2006 and recognized fair value of warrant liability expense (other
expense) of $2,765,990 in the statement of operations for the nine months ended
September 30, 2006;

On May 9, 2006 and June 12, 2006, sold a total of 108,333 shares of common stock
to 2 investors for gross proceeds of $32,500. These investors also received
immediately exercisable, three-year warrants to purchase an aggregate of 54,167
shares of common stock at $0.345 per share. The fair value of the warrants of
$8,920 (as calculated as of the issuance dates) was calculated using the Black
Scholes option pricing model using the following assumptions: stock price of
$0.30 for the May 9 warrants and $0.28 for the June 12 warrants, risk free rate
of return of 7.5%, volatility of 86%, expected life of three years and dividend
yield of 0%. As of June 30, 2006, the fair value of these warrants was $7,674,
as calculated using the Black Scholes option pricing model using the following
assumptions: stock price of $0.28, risk free rate of return of 7.5%, volatility
of 78.43%, expected life of 3 years and dividend yield of 0%. The fair value of
these warrants of $7,674, as calculated as of June 30, 2006, was recognized as a
fair value of warrant liability expense (other expense) with a corresponding
amount booked as a short term warrant liability as of June 30, 2006. The shares
of common stock issued to these investors are reflected as shares to be issued
on the June 30, 2006 balance sheet. We issued these shares on July 24, 2006.

As of September 30, 2006, the fair value of the warrant liability relating to
the 54,167 warrants issued to the investors was $67,947, as calculated using the
Black Scholes option pricing model using the following assumptions: stock price
of $1.42, risk free rate of return of 7.5%, volatility of 123%, expected life of
2.75 years and dividend yield of 0%. In accordance with EITF 00-19, the Company
increased the short term warrant liability relating to these warrants as of
September 30, 2006 by $60,272 to reflect the fair value as of September 30, 2006
and recognized fair value of warrant liability expense (other expense) of
$60,272 in the statement of operations for the nine months ended September 30,
2006; and

On September 18, 2006, completed the sale of a total of 5,001,333 shares of
common stock to 51 investors for cash proceeds of $1,500,400. These investors
also received immediately-exercisable, three-year warrants to purchase an
aggregate of 2,500,667 shares of common stock priced at $0.345 per share. In
addition, we converted $70,562 of debt and accrued interest due to Nancy
Bushnell, the wife of our CEO Nolan Bushnell, and $60,500 of debt due to Dan
Lindquist, our Vice President of Operations, into shares of common stock and
warrants on the same terms as the investors in the transaction. Ms. Bushnell
received 235,207 shares of common stock and warrants to purchase 117,603 shares
of common stock at $0.345 per share, and Mr. Lindquist received 201,667 shares
of common stock and warrants to purchase 100,833 shares of common stock at
$0.345 per share.

The fair value of the warrants of $2,630,405 (as calculated as of the date of
issuance) was calculated using the Black Scholes option pricing model using the
following assumptions: stock price of $1.12, risk free rate of return of 3.93%,
volatility of 123%; expected life of 3 years and dividend yield of 0%. The fair
value of these warrants, as calculated as of September 30, 2006, was $3,411,955,
as calculated using the Black Scholes option pricing model using the following
assumptions: stock price of $1.42, risk free rate of return of 3.93%, volatility
of 123%; expected life of 3 years and dividend yield of 0%. The September 30,
2006 fair value of the warrants of $3,411,955 was recognized as an expense with
a corresponding amount booked as a short term warrant liability. These issuances
were made pursuant to the exemption from registration provided by SEC Rule 506
promulgated under Regulation D of the Securities Act of 1933.


                                       16

<PAGE>

A provision in the Securities Purchase Agreements governing the Company's sales
of common stock and warrants on March 3, 2006, May 9, 2006, June 12, 2006 and
September 18, 2006 requires the Company to file a registration statement with
the Securities and Exchange Commission covering the resale of the shares of
common stock and shares of common stock underlying the warrants sold as promptly
as possible and that, if the registration statement is not declared effective by
the SEC within 180 days of the closing date of the transaction, or if the
Company fails to keep the registration statement continuously effective until
all the shares (and shares underlying warrants) are either sold or can be sold
without restriction under Rule 144(k), that the Company pay the investors
monthly liquidated damages equal to 1.5% of their investment until the
registration statement is declared and kept effective or all the shares have
been sold or can be sold without restriction under Rule 144(k) (in the case of a
failure to keep the registration statement continuously effective). Because the
warrants are subject to registration rights with liquidated damages for failure
to register, under EITF 00-19, the fair value of the warrants is accounted for
as a liability and, at the end of each reporting period, the fair value of the
warrants is recalculated, and changes to the warrant liability and related gain
or loss are booked appropriately. On August 25, 2006, the investors in the March
3, 2006 transaction waived this liquidated damages provision for an additional
three-month period, as it relates to the registration statement becoming
effective by September 3, 2006. On December 3, 2006, the investors in each of
the 2006 transactions agreed, without additional consideration, to permanently
waive their right to registration of the warrants and shares of common stock
underlying the warrants issued in these transactions as well as their right to
liquidated damages for our failure to register the shares issued or issuable in
these transactions. As a result, the warrant liability will be reclassified to
equity as of December 3, 2006.

Shares to be Issued

At September 30, 2006, Shares to be Issued consisted of:

    o    204,786 shares valued at $70,431 to be issued for consulting services
         rendered during 2006.

    o    27,442 shares valued at $20,143 remaining unissued in connection with
         the Company's capital raising transactions in 2004. These shares
         remained unissued at September 30, 2006 for ministerial reasons.

NOTE 12 - STOCK OPTIONS AND WARRANTS

Stock Options

The Company adopted SFAS No. 123 (Revised 2004), SHARE BASED PAYMENT ("SFAS No.
123R"), under the modified-prospective transition method on January 1, 2006.
SFAS No. 123R requires companies to measure and recognize the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value. Share-based compensation recognized under the
modified-prospective transition method of SFAS No. 123R includes share-based
compensation based on the grant-date fair value determined in accordance with
the original provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, for all share-based payments granted prior to and not yet vested
as of January 1, 2006 and share-based compensation based on the grant-date
fair-value determined in accordance with SFAS No. 123R for all share-based
payments granted after January 1, 2006. SFAS No. 123R eliminates the ability to
account for the award of these instruments under the intrinsic value method
proscribed by Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and allowed under the original provisions of SFAS No.
123. Prior to the adoption of SFAS No. 123R, the Company accounted for its stock
option plans using the intrinsic value method in accordance with the provisions
of APB Opinion No. 25 and related interpretations.


                                       17

<PAGE>

Primarily as a result of adopting SFAS No. 123R, the Company recognized $365,309
in share-based compensation expense for the nine months ended September 30,
2006. The impact of this share-based compensation expense on the Company's basic
and diluted earnings per share was $0.02 per share. The fair value of our stock
options was estimated using the Black-Scholes option pricing model.

For periods presented prior to the adoption of SFAS No. 123R, pro forma
information regarding net income and earnings per share as required by SFAS No.
123 has been determined as if we had accounted for our employee stock options
under the original provisions of SFAS No. 123. The fair value of these options
was estimated using the Black-Scholes option pricing model. For purposes of pro
forma disclosure, the estimated fair value of the options is amortized to
expense over the option's vesting period. During the nine months ended September
30, 2005, the Company recorded $76,000 as the stock based compensation expense.

                                                                       2005
                                                                   ------------
             Net loss as reported                                  $(2,393,444)
             Compensation recognized under APB 25                       76,000
             Compensation recognized under SFAS 123                   (260,070)
                                                                   ------------
             Pro forma                                             $(2,577,514)
                                                                   ============

             Basic and diluted loss per common share as reported   $     (0.21)
             Pro forma                                             $     (0.23)


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. As of September 30, 2006, there are
59,321 shares available for issuance under this plan.

In 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. As of September 30, 2006,
there are 27,165 shares available for issuance under this plan.

In 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. As of September 30, 2006,
there are 35,000 shares available for issuance under this plan.

On June 8, 2006, the Company's Board of Directors approved the uWink, Inc. 2006
Equity Incentive Plan (the "2006 Plan"). The 2006 Plan provides for the issuance
of up to 1,000,000 incentive stock options, non-qualified stock options,
restricted and unrestricted stock awards and stock bonuses to employees,
officers, directors, and consultants of the Company. As of September 30, 2006,
there are 273,965 shares available for issuance under this plan.


                                       18

<PAGE>

Awards granted under the 2006 Plan vest as determined by the Board of Directors,
provided that:

       o      no option granted under the 2006 Plan may be exercisable after ten
              years from its date of grant and no ISO granted to a person who
              owns more than ten percent of the total combined voting power of
              all classes of stock of the Company will be exercisable after five
              years from the date of grant; and

       o      an option granted to a participant who is an officer or director
              may become fully exercisable, subject to reasonable conditions
              such as continued employment, at any time or during any period
              established by the Board of Directors.

Pursuant to the Stock Option Plans, during the twelve months ended December 31,
2004, the Company granted 352,835 stock options to employees that remain
outstanding as of September 30, 2006. 312,500 of these options were issued on
July 15, 2004 (150,000 of these options were issued at an exercise price of
$2.64, the remainder were issued at $2.40); 23,751 were issued on December 16,
2004 (10,000 of these options were issued at an exercise price of $1.60, the
remainder were issued at $1.45); and 16,584 were issued on December 31, 2004
(10,000 of these options were issued at an exercise price of $1.38, the
remainder were issued at $1.25). All these options vest in 36 equal monthly
installments with the initial one-sixth vesting after six months. All options
issued during 2004 were issued at exercise prices equal to or in excess of the
fair value of the shares on the date of grant with the exception of the 16,584
options issued on December 31, 2004. The fair value of the shares as reflected
by the closing price of the stock on December 31, 2004 was $1.45.

During the twelve months ended December 31, 2005, the Company granted 1,385,000
stock options to employees and directors that remain outstanding as of September
30, 2006. 420,000 of these options were granted on July 25, 2005 at an exercise
price of $0.36, which was equal to the fair value of the shares on that date.
350,000 of these options were granted on August 29, 2005 at an exercise price of
$0.43 per share, which was equal to the fair value of the shares on that date.
350,000 of these options were granted on September 15, 2005 at an exercise price
of $0.57 per share, which was equal to the fair value of the shares on that
date. 165,000 of these options were granted on October 21, 2005 at an exercise
price of $0.40 per share, which was equal to the fair value of the shares on
that date. 100,000 of these options were granted on November 11, 2005 at an
exercise price of $0.45 per share, which was equal to the fair value of the
shares on that date. All these options vest in 36 equal monthly installments
with the initial one-sixth vesting after 6 months.

On February 10, 2006, the Company granted 400,000 stock options to our Chief
Technology Officer, Paul Dumais, at an exercise price of $0.30 per share. These
options vest in 36 equal monthly installments with the initial one-sixth vesting
after 6 months.

On May 12, 2006, the Company granted 500,000 stock options to our CEO, Nolan
Bushnell, at an exercise price of $0.33 per share. These options vest in 36
equal monthly installments with the initial one-sixth vesting after 6 months.

On July 5, 2006, the Company granted 125,000 stock options to an employee at an
exercise price of $0.28 per share. These options vest in 36 equal monthly
installments with the initial one-sixth vesting after 6 months.

On August 4, 2006, the Company granted 100,000 stock options to an employee at
an exercise price of $0.26 per share. These options vest in 36 equal monthly
installments with the initial one-sixth vesting after 6 months.


                                       19

<PAGE>

On August 10, 2006, the Company granted 150,000 stock options to an employee at
an exercise price of $0.28 per share. These options vest in 36 equal monthly
installments with the initial one-sixth vesting after 6 months.

On August 24, 2006, the Company granted a total of 100,000 stock options to
three employees at an exercise price of $0.55 per share. These options vest in
36 equal monthly installments with the initial one-sixth vesting after 6 months.

On September 1, 2006, the Company granted 70,000 stock options to an employee at
an exercise price of $0.60 per share. These options vest in 36 equal monthly
installments with the initial one-sixth vesting after 6 months.

On September 22, 2006, the Company granted 400,000 stock options to our Director
of Restaurant Operations, John Kaufman, at an exercise price of $1.17 per share.
50,000 of these options will vest in a lump sum after 3 months. The remaining
350,000 options will vest over a thirty-six month period, with the initial
one-sixth vesting after six months.

Following is a summary of the stock option activity for the nine months ended
September 30, 2006:

<TABLE>
<S>     <C>
                                                                                    Weighted
                                                                                    Average
                                                                      Options       Exercise      Aggregate
                                                                    outstanding      Price     Intrinsic Value
                                                                  -------------   -----------  ---------------
                Outstanding, December 31, 2005                       2,400,411       $0.88       $ 1,454,081
                Granted                                              1,845,000       $0.52
                Forfeited                                              435,679       $1.05
                Exercised                                              100,000       $0.36       $  (102,000)
                                                                  ------------
                Outstanding, September 30, 2006                      3,709,732       $0.69       $(2,705,146)
                Exercisable, September 30, 2006                        961,169       $1.05       $  (354,934)

</TABLE>

Following is a summary of the status of options outstanding at September 30,
2006:

                               Outstanding Options
                             -------------------
                                                    Average
                                                   Remaining
                  Exercise                        Contractual
                   Price           Number             Life          Exercisable
                   -----           ------             ----          -----------


                   $0.26           100,000            9.85                  0
                   $0.28           275,000            9.82                  0
                   $0.30           400,000            9.37             84,750
                   $0.32            79,212            6.12             79,212
                   $0.33           500,000            9.62                  0
                   $0.36           420,000            8.82            165,699
                   $0.40           165,000            9.06             51,836
                   $0.43           350,000            8.91            126,895
                   $0.45           100,000            9.12             29,498
                   $0.55           100,000            9.91                  0
                   $0.57           350,000            8.96            121,461
                   $0.60            70,000            9.93                  0
                   $1.17           400,000            9.99                  0
                   $1.25             6,584            8.25              3,836
                   $1.38            10,000            8.25              5,826
                   $1.45            13,751            8.21              8,200
                   $1.60            10,000            8.21              5,963
                   $2.37            28,516            5.50             28,516
                   $2.40           162,500            7.80            119,760
                   $2.64           150,000            7.80            110,548
                   $3.16            19,169            3.22             19,169

                                 3,709,732                            961,169


                                       20

<PAGE>

For options granted during the nine months ended September 30, 2006, the
weighted-average fair value of such options was $0.46.

During the nine months ended September 30, 2006 we received $36,000 from the
exercise of 100,000 stock options at an exercise price of $0.36 per share.

The total weighted-average remaining contractual term of the options outstanding
at September 30, 2006 is 9.1 years.

The total weighted-average remaining contractual term of the options exercisable
at September 30, 2006 is 8.23 years.

The Company recognized expense of $365,309 for the fair value of the options
vested during the nine months ended September 30, 2006.

The total compensation expense not yet recognized relating to unvested options
at September 30, 2006 is $1,385,862 and the weighted average period over which
this expense will be recognized is 2.4 years.

The assumptions used in calculating the fair value of options granted using the
Black-Scholes option pricing model are as follows:

For the 400,000 options granted on February 10, 2006:

           Risk-free interest rate                                        7.75%
           Expected life of the options                             10.00 years
           Expected volatility                                             109%
           Expected dividend yield                                            0


For the 500,000 options granted on May 12, 2006:

           Risk-free interest rate                                        7.75%
           Expected life of the options                             10.00 years
           Expected volatility                                           85.78%
           Expected dividend yield                                            0

For the 125,000 options granted on July 5, 2006:

           Risk-free interest rate                                        4.29%
           Expected life of the options                             10.00 years
           Expected volatility                                           70.62%
           Expected dividend yield                                            0

For the 100,000 options granted on August 4, 2006:

           Risk-free interest rate                                        4.29%
           Expected life of the options                             10.00 years
           Expected volatility                                           70.62%
           Expected dividend yield                                            0


For the 150,000 options granted on August 10, 2006:

           Risk-free interest rate                                        4.29%
           Expected life of the options                             10.00 years
           Expected volatility                                           70.37%
           Expected dividend yield                                            0

For the 100,000 options granted on August 24, 2006:

           Risk-free interest rate                                        4.29%
           Expected life of the options                             10.00 years
           Expected volatility                                           70.37%
           Expected dividend yield                                            0


                                       21

<PAGE>

For the 70,000 options granted on September 1, 2006:

           Risk-free interest rate                                        4.29%
           Expected life of the options                             10.00 years
           Expected volatility                                           104.80%
           Expected dividend yield                                            0


For the 400,000 options granted on September 22, 2006:

           Risk-free interest rate                                        4.29%
           Expected life of the options                             10.00 years
           Expected volatility                                           122.77%
           Expected dividend yield                                            0


Warrants
--------

Following is a summary of the warrant activity for the nine month period ended
September 30, 2006.

                                                                   Weighted-
                                                                    Average
                                                                   Exercise
                                                     Warrants       Price
                                                    ----------     --------
Balance, December 31, 2005                           2,435,337     $  3.09
Granted                                              5,823,271     $  0.35
Exercised                                                   --          --
Cancelled                                              273,716     $  4.87
Balance September 30, 2006                           7,984,892     $  1.03


During the nine month period ended September 30, 2006, the Company issued:

on March 3, 2006, 2,500,000 immediately-exercisable, three-year warrants at an
exercise price of $0.345 to 22 investors and 450,000 immediately-exercisable,
three-year warrants at an exercise price of $0.345 to a placement agent. The
fair value of the warrants of $590,524 was calculated, as of the date of
issuance, using the Black Scholes option pricing model using the following
assumptions: stock price of $0.30, risk free rate of return of 7.5%, volatility
of 109%, expected life of 3 years and dividend yield of 0%;

on May 9, 2006 and June 12, 2006, 54,167 immediately-exercisable, three-year
warrants to 2 investors at an exercise price of $0.345. The fair value of the
warrants of $8,920 was calculated, as of the date of issuance, using the Black
Scholes option pricing model using the following assumptions: stock price of
$0.30 for the May 9 warrants and $0.28 for the June 12 warrants, risk free rate
of return of 7.5%, volatility of 86%, expected life of three years and dividend
yield of 0%; and

on September 18, 2006, 2,719,104 immediately-exercisable, three-year warrants to
51 investors at an exercise price of $0.345. The fair value of the warrants of
$2,630,405 was calculated, as of the date of issuance, using the Black Scholes
option pricing model using the following assumptions: stock price of $1.12, risk
free rate of return of 3.93%, volatility of 123%; expected life of 3 years and
dividend yield of 0%.


                                       22

<PAGE>

A provision in the Securities Purchase Agreements governing these transactions
requires the Company to file a registration statement with the Securities and
Exchange Commission covering the resale of the shares of common stock and shares
of common stock underlying the warrants purchased by the investors as promptly
as possible and that, if the registration statement is not declared effective by
the SEC within 180 days of the closing date of the transaction, or if the
Company fails to keep the registration statement continuously effective until
all the shares (and shares underlying warrants) are either sold or can be sold
without restriction under Rule 144(k), that the Company pay the investors
monthly liquidated damages equal to 1.5% of their investment until the
registration statement is declared and kept effective or all the shares have
been sold or can be sold without restriction under Rule 144(k) (in the case of a
failure to keep the registration statement continuously effective). The warrants
issued to the placement agent are not subject to this registration
rights/liquidated damages for failure to register provision.

Because the warrants are subject to registration rights with liquidated damages
for failure to register, under EITF 00-19, the fair value of the warrants is
accounted for as a liability and, at the end of each reporting period, the fair
value of the warrants is recalculated, and changes to the warrant liability and
related gain or loss are booked appropriately. On August 25, 2006, the investors
in the March 3, 2006 transaction waived this liquidated damages provision for an
additional three-month period, as it relates to the registration statement
becoming effective by September 3, 2006. On December 3, 2006, the investors in
each of the 2006 transactions agreed, without additional consideration, to
permanently waive their right to registration of the warrants and shares of
common stock underlying the warrants issued in these transactions as well as
their right to liquidated damages for our failure to register the shares issued
or issuable in these transactions. As a result, the warrant liability will be
reclassified to equity as of December 3, 2006.

In accordance with EITF 00-19, the $500,444 fair value of the 2,500,000 warrants
issued to the investors in the March 3, 2006 transaction was recognized as an
expense in the March 31, 2006 statement of operations with a corresponding
amount booked as short term warrant liability on the March 31, 2006 balance
sheet. As of June 30, 2006, the fair value of the warrant liability relating to
the 2,500,000 warrants issued to the investors was $338,010, as calculated using
the Black Scholes option pricing model using the following assumptions: stock
price of $0.28, risk free rate of return of 7.5%, volatility of 78.43%, expected
life of 2.75 years and dividend yield of 0%. In accordance with EITF 00-19, the
Company reduced the short term warrant liability relating to these warrants as
of June 30, 2006 by $162,424 to reflect the fair value at June 30, 2006 and
recognized fair value of warrant liability income (other income) of $162,434 in
the statement of operations for the six months ended June 30, 2006. As of
September 30, 2006, the fair value of the warrant liability relating to the
2,500,000 warrants issued to the investors in the March 3, 2006 transaction was
$3,104,000, as calculated using the Black Scholes option pricing model using the
following assumptions: stock price of $1.42, risk free rate of return of 7.5%,
volatility of 123%, expected life of 2.5 years and dividend yield of 0%. In
accordance with EITF 00-19, the Company increased the short term warrant
liability relating to these warrants as of September 30, 2006 by $2,765,990 to
reflect the fair value as of September 30, 2006 and recognized fair value of
warrant liability expense (other expense) of $2,765,990 in the statement of
operations for the nine months ended September 30, 2006. Because the warrants
issued to the placement agent in the March 3, 2006 transaction are not subject
to registration rights/liquidated damages for failure to register, the issuance
date fair value of the 450,000 warrants issued to the placement agent of $90,080
(along with the placement agent's commission and expenses) was accounted for as
a cost of raising equity with a corresponding amount debited to additional
paid-in capital.

As of June 30, 2006, the fair value of the 54,167 warrants issued in May and
June 2006 was $7,674, as calculated using the Black Scholes option pricing model
using the following assumptions: stock price of $0.28, risk free rate of return
of 7.5%, volatility of 78.43%, expected life of 3 years and dividend yield of
0%. The fair value of these warrants of $7,674, as calculated as of June 30,
2006, was recognized as fair value of warrant liability expense (other expense)
in the statement of operations for the six month ended June 30, 2006, with a
corresponding amount booked as a short term warrant liability as of June 30,
2006. As of September 30, 2006, the fair value of the warrant liability relating
to the 54,167 warrants issued to the investors was $67,947, as calculated using
the Black Scholes option pricing model using the following assumptions: stock
price of $1.42, risk free rate of return of 7.5%, volatility of 123%, expected
life of 2.75 years and dividend yield of 0%. In accordance with EITF 00-19, the
Company increased the short term warrant liability relating to these warrants as
of September 30, 2006 by $60,272 to reflect the fair value as of September 30,
2006 and recognized fair value of warrant liability expense (other expense) of
$60,272 in the statement of operations for the nine months ended September 30,
2006.


                                       23

<PAGE>

The fair value of the 2,719,104 warrants issued in the September 18, 2006
transaction, as calculated as of September 30, 2006, was $3,411,955, as
calculated using the Black Scholes option pricing model using the following
assumptions: stock price of $1.42, risk free rate of return of 3.93%, volatility
of 123%; expected life of 3 years and dividend yield of 0%. The September 30,
2006 fair value of these warrants of $3,411,955 was recognized as fair value of
warrant liability expense (other expense) with a corresponding amount booked as
a short term warrant liability as of September 30, 2006.

During this period, the Company also issued 100,000 immediately-exercisable,
three-year warrants to Mr. Bradley Rotter, a director of the Company, at an
exercise price of $0.345 in connection with the partial repayment and partial
extension of a $200,000 convertible note. The fair value of the warrants of
$16,828 was calculated using the Black Scholes option pricing model using the
following assumptions: risk free rate of return of 7.5%, volatility of 86%,
expected life of 3 years and dividend yield of 0%. The fair value of the
warrants was accounted for as interest expense with a corresponding amount
debited to additional paid-in capital.

The Company recognized interest expense for the nine months ended September 30,
2006 of $16,828 in respect of the 100,000 warrants issued to Bradley Rotter
discussed above. In addition, the Company recognized $6,583,902 of expense in
the statement of operations relating to the financing warrants issued during the
period. Of this $6,583,902 expense, $3,139,769 reflects expense related to the
issuance date fair value of the warrants and $3,444,133 reflects net expense
related to the change in the fair value of the warrants.


Following is a summary of the status of warrants outstanding at September 30,
2006:

                         Outstanding Warrants
                         --------------------

                                         Average
     Exercise                           Remaining
       Price           Number        Contractual Life      Exercisable
     --------          ------        ----------------      -----------

      $0.345         5,823,271            2.68             5,823,271

       $1.50           533,458            3.62               533,458

       $1.58            22,180            1.29                22,180

       $1.75            85,000            3.00                85,000

       $2.00           245,000            2.55               245,000

       $2.37           234,995            0.48               234,995

       $3.50           890,988            3.00               890,988

       $5.00            50,000            2.50                50,000

       $7.00            50,000            2.50                50,000

       $9.00            50,000            2.50                50,000

                     7,984,892                             7,984,892


                                       24

<PAGE>


NOTE 13 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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. Management believes that this statement will not have
a significant impact on the financial statements.

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.

    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.


                                       25

<PAGE>

In September 2006, FASB issued SFAS 157 `Fair Value Measurements'. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practice. This Statement is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Management is currently
evaluating the effect of this pronouncement on financial statements.

In September 2006, FASB issued SFAS 158 `Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans--an amendment of FASB Statements
No. 87, 88, 106, and 132(R)' This Statement improves financial reporting by
requiring an employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted net assets
of a not-for-profit organization. This Statement also improves financial
reporting by requiring an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. An employer with publicly traded equity securities is required to
initially recognize the funded status of a defined benefit postretirement plan
and to provide the required disclosures as of the end of the fiscal year ending
after December 15, 2006. An employer without publicly traded equity securities
is required to recognize the funded status of a defined benefit postretirement
plan and to provide the required disclosures as of the end of the fiscal year
ending after June 15, 2007. However, an employer without publicly traded equity
securities is required to disclose the following information in the notes to
financial statements for a fiscal year ending after December 15, 2006, but
before June 16, 2007, unless it has applied the recognition provisions of this
Statement in preparing those financial statements:

a. A brief description of the provisions of this Statement

b. The date that adoption is required

c. The date the employer plans to adopt the recognition provisions of this
Statement, if earlier.

The requirement to measure plan assets and benefit obligations as of the date of
the employer's fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. Management is currently evaluating
the effect of this pronouncement on financial statements.


NOTE 14 - 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, 2006, 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.

On August 14, 2006, the Company received a demand for arbitration from
Stonefield Josephson, the Company's former auditors, seeking $36,850 for past
audit work. The Company disputed this claim. On November 6, 2006, the Company
entered into a release and settlement agreement with Stonefield Josephson,
pursuant to which Stonefield has withdrawn its claim and has released the
Company from any and all claims relating to Stonefield's provision of services
to the Company. In return, the Company released Stonefield from any and all
claims the Company may have against Stonefield relating to such services.


                                       26

<PAGE>

Leases

Effective May 31, 2006, we terminated the lease agreement at our former
corporate offices at 12536 Beatrice Street, Los Angeles, California 90066. In
consideration for the early termination of the lease, we agreed to allow the
landlord to retain $20,000 of the security deposit held by the landlord under
the lease.

Effective June 1, 2006, we entered into a lease agreement relating to our new
corporate offices at 16106 Hart Street, Van Nuys, California 91406. This
property consists of approximately 2,200 square feet of office and warehouse
space at the base rental rate of $2,300 per month.

Effective as of April 10, 2006, we secured an approximately 10 year lease on the
planned location for our first uWink restaurant in Woodland Hills, California,
located at 6100 Topanga Canyon Boulevard, Woodland Hills, California 91367. The
underlying lease agreement between Nolan Bushnell, our CEO, in his personal
capacity, and Promenade LP, the landlord, is as of February 3, 2006. Effective
as of April 10, 2006, the Company, Mr. Bushnell and Promenade L.P. entered into
an assignment agreement pursuant to which Mr. Bushnell assigned his rights under
the lease to the Company (but without relieving Mr. Bushnell of his liability
for the performance of the lease). In connection with this assignment, we agreed
with Mr. Bushnell that, should we fail to perform under the lease and Mr.
Bushnell become obligated under the lease as a result, Mr. Bushnell will have
the right to operate the leased premises in order to satisfy his obligations
under the lease.

This location consists of 5,340 square feet. The minimum annual rent payments
under the lease are $176,220 from rental commencement through January 31, 2009;
$181,507 from February 1, 2009 to January 31, 2010; $186,952 from February 1,
2010 to January 31, 2011; $192,560 from February 1, 2011 to January 31, 2012;
$198,337 from February 1, 2012 to January 31, 2013; $204,287 from February 1,
2013 to January 31, 2014; $210,416 from February 1, 2014 to January 31, 2015;
and $216,728 from February 1, 2015 to January 31, 2016.


                                       27

<PAGE>

If our gross sales from this location exceed certain annual thresholds, we are
obligated to pay additional percentage rent over and above the minimum annual
rent described above. Our percentage rent obligation is equal to 5% of gross
sales in excess of the following thresholds:

         Rental commencement to January 31, 2009: $3,524,400;
         February 1, 2009 to January 31, 2010: $3,630,132;
         February 1, 2010 to January 31, 2011: $3,739,036;
         February 1, 2011 to January 31, 2012: $3,851,207;
         February 1, 2012 to January 31, 2013: $3,966,743;
         February 1, 2013 to January 31, 2014: $4,085,745;
         February 1, 2014 to January 31, 2015: $4,208,318; and
         February 1, 2015 to January 31, 2016: $4,334,567.

Our obligation to pay rent under this lease commences on the earlier of the date
we open for business and October 5, 2006.

Total rent expense for the nine months ended September 30, 2006 is $102,000.
Total rent expense for the nine months ended September 30, 2005 as $85,605.

Effective September 15, 2006, we entered into a license agreement with SNAP
Leisure LLC, a company owned and operated by our former Vice President of
Marketing. Pursuant to this agreement, we licensed our SNAP intellectual
property, including the games featured on SNAP in the form they currently run on
SNAP (we have made significant enhancements to our games for display in our
restaurant and SNAP Leisure LLC has no right to those enhancements or any future
enhancements or new games we develop), to SNAP Leisure LLC for use in the "pay
to play" amusements market worldwide (the "pay to play" amusements market is
generally considered to be the coin operated video game machine market). The
agreement provides that we are to receive royalties calculated per SNAP machine
sold ($200 royalty per machine for the first 300 machines sold; $80 per machine
royalty for the next 700 machines sold; and $50 per machine royalty for any
additional machines sold thereafter). The agreement further provides that SNAP
Leisure LLC cannot affix the name "uWink" to any new product sold under the
license following the first anniversary of the agreement and must remove all
references to uWink from all products sold under the agreement within a 5 year
period. We have no obligation to provide any support or software maintenance,
upgrades or enhancements under this agreement.

NOTE 15 - SUBSEQUENT EVENTS

On October 26, 2006, we entered into a letter agreement (the "Hines Letter
Agreement") with Dr. William Hines in respect of the $100,000 Convertible
Promissory Note, dated September 8, 2005 and due September 8, 2007, from the
Company to Dr. Hines (the "Hines Note"). Pursuant to the Hines Letter Agreement,
effective October 26, 2006:

Dr. Hines agreed to convert the $100,000 principal amount and $11,555 in accrued
interest outstanding under the Hines Note into shares of common stock of the
Company at a conversion price of $1 per share. In accordance with the terms of
the Hines Note, Dr. Hines is entitled to receive an additional 20% of such
amount in shares of common stock upon conversion into any offering of our
securities that results in gross proceeds to the Company of at least $3,000,000.
While the Hines Note was not yet due, we believed it advantageous to the Company
to remove the Hines Note from the balance sheet, particularly because the Hines
Note was secured by assets of the Company. As such, we agreed with Dr. Hines
that he would be entitled to receive this additional 20% upon the conversion of
the Hines Note into shares of common stock even though the conversion was not in
connection with any such offering. As a result, the total amount to be converted
is $133,866. As such, Dr. Hines accepted 133,866 shares of common stock of the
Company in full and final satisfaction of the Company's obligations under the
Hines Note.


                                       28

<PAGE>

On October 25, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Bradley Rotter, a member of our board of directors, in
respect of the $100,000 Convertible Promissory Note, dated April 19, 2006 and
due October 19, 2006, from the Company to Mr. Rotter (the "Rotter Note").
Pursuant to the Rotter Letter Agreement, effective October 25, 2006:

         1.       Mr. Rotter agreed to convert the $100,000 principal amount and
                  $5,685 in accrued interest outstanding under the Rotter Note
                  into shares of common stock at a conversion price of $1 per
                  share. In accordance with the terms of the Rotter Note, Mr.
                  Rotter is entitled to receive an additional 20% of such amount
                  in shares of common stock upon conversion into any offering of
                  our securities that results in gross proceeds to the Company
                  of at least $3,000,000. The note was due on October 19, 2006.
                  Rather than repay the note in cash, we agreed with Mr. Rotter
                  that he would be entitled to receive this additional 20% upon
                  the conversion of the Rotter Note into shares of common stock
                  even though the conversion was not in connection with any such
                  offering. As a result, the total amount to be converted is
                  $126,822. As such, Mr. Rotter accepted 126,822 shares of
                  common stock of the Company, together with the warrants set
                  forth below, in full and final satisfaction of the Company's
                  obligations under the Rotter Note.

         2.       In accordance with the terms of the Rotter Note, the Company
                  also issued to Mr. Rotter three-year immediately exercisable
                  warrants to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share.

On August 14, 2006, we received a demand for arbitration from Stonefield
Josephson, our former auditors, seeking $36,850 for past audit work. We disputed
this claim. On November 6, 2006, we entered into a release and settlement
agreement with Stonefield Josephson, pursuant to which Stonefield has withdrawn
its claim and has released us from any and all claims relating to Stonefield's
provision of services to us. In return, we released Stonefield from any and all
claims we may have against Stonefield relating to such services.


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<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, 2005 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.

Over several years of operation, we have invested substantial time and capital
in the construction of a uniform development platform. We have used this
platform to develop over 70 short-form video games (the "uWink Game Library")
and interactive entertainment and vending products.

For the past two years we have derived our revenue from the sale of our SNAP!
countertop game platforms (and its predecessor platforms) and the Bear Shop (aka
Boxter Bear, hereinafter "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.

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.

In 2005, we made a strategic decision to reposition the Company as an
entertainment restaurant company. Given our perception of the market opportunity
in combining dining with short form, social video gaming/entertainment and our
management team's experience in the digital entertainment and restaurant
industries (our CEO, Nolan Bushnell, founded both Atari and Chuck E. Cheese and
our Director of Restaurant Operations, John Kaufman, is the former Vice
President of Operations for California Pizza Kitchen), we determined that the
restaurant project is the most cost effective way to monetize our investment in
technology.

As a result, we are winding down our SNAP! and Bear Shop manufacturing and sales
operations and we have decided not to enter the 2006 marketing cycle of
tradeshows and advertising for SNAP! and Bear Shop. This decision also allowed
us to reduce staff and liquidate inventory and product-related receivables. We
are seeking to license our SNAP! and the Bear Shop intellectual property to 3rd
party manufacturers in exchange for licensing fees. Effective September 15,
2006, we entered into a license agreement with SNAP Leisure LLC, a company owned
and operated by our former Vice President of Marketing. Pursuant to this
agreement, we licensed our SNAP intellectual property, including the games
featured on SNAP in the form they currently run on SNAP (we have made
significant enhancements to our games for display in our restaurant and SNAP
Leisure LLC has no right to those enhancements or any future enhancements or new
games we develop), to SNAP Leisure LLC for use in the "pay to play" amusements
market worldwide (the "pay to play" amusements market is generally considered to
be the coin operated video game machine market). The agreement provides that we


                                       30

<PAGE>

are to receive royalties calculated per SNAP machine sold ($200 royalty per
machine for the first 300 machines sold; $80 per machine royalty for the next
700 machines sold; and $50 per machine royalty for any additional machines sold
thereafter). The agreement further provides that SNAP Leisure LLC cannot affix
the name "uWink" to any new product sold under the license following the first
anniversary of the agreement and must remove all references to uWink from all
products sold under the agreement within a 5 year period. We have no obligation
to provide any support or software maintenance, upgrades or enhancements under
this agreement. We are currently in discussions with a party regarding the
licensing of our Bear Shop intellectual property but, as of the date of this
report, we have not entered into any definitive agreement for the licensing of
Bear Shop.

Going forward, our strategy is to leverage our network and entertainment
software assets, including the uWink Game Library, to develop an interactive
entertainment restaurant concept, called uWink. The uWink restaurant concept is
designed to allow customers to order food, drinks, and games/media via touch
screens at the table. This concept integrates food and our interactive
entertainment software to provide what we believe to be a new entertainment
dining experience. We opened our first uWink restaurant in the Los Angeles,
California area on October 16, 2006. As of September 30, 2006, we have not yet
generated any revenue from the uWink restaurant concept.

Prominent features of the uWink restaurant concept include:

         AT-THE-TABLE TOUCH SCREEN ORDERING. We offer our guests the ability to
         order food and drinks via touch screens at the table, rather than from
         a waitperson. Orders from the table go straight to the kitchen and, as
         the food is ready, it is delivered by runners from the kitchen to the
         table.

         AT-THE-TABLE ENTERTAINMENT. We provide our guests with at-the-table
         entertainment, including games from the uWink Game Library and other
         digital media via the touch screen terminals.

         DISTINCTIVE CASUAL DINING EXPERIENCE AND VALUE PROPOSITION. We are
         aiming our concept to compete in the "fast-casual dining" segment of
         the restaurant market. We believe our concept combines some of the best
         elements of the fast-casual dining market, including freshly prepared
         food with generous portions at attractive price points and quick
         turnaround times, with innovative at-the-table ordering and
         entertainment to create a new experience for fast-casual dining
         patrons. We are targeting our average check to be $12 to $16 per guest,
         excluding alcoholic beverages; at this price point we believe that we
         provide an attractive and entertaining value proposition for
         fast-casual diners.

Led by Nolan Bushnell, our Chairman and Chief Executive officer and the founder
of both Atari and Chuck E. Cheese, and our Director of Restaurant Operations,
John Kaufman, former Vice President of Operations at California Pizza Kitchen,
we believe we have assembled a management team with the vision and experience to
successfully execute on the uWink restaurant concept.


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<PAGE>

We opened our first restaurant in Woodland Hills, California (Los Angeles area)
at the Westfield Promenade Shopping Center on October 16, 2006. This location is
approximately 5,300 square feet and has seating for approximately 160 guests,
excluding patio seats. We have secured an approximately 10 year lease on this
location.

On March 3, 2006, we raised gross proceeds of $1,500,000 via the private
placement of 5,000,000 shares of common stock to 22 investors. 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.

On May 9, 2006 and June 12, 2006, we sold a total of 108,333 shares of common
stock to 2 investors for gross proceeds of $32,500. These investors also
received immediately-exercisable, three-year warrants to purchase an aggregate
of 54,167 shares of common stock at $0.345 per share. The shares of common stock
issued to these investors are reflected as shares to be issued on the June 30,
2006 balance sheet. We issued these shares on July 24, 2006.

On September 18, 2006, we completed the sale of a total of 5,001,333 shares of
common stock to 51 investors for cash proceeds of $1,500,400. These investors
also received immediately-exercisable, three-year warrants to purchase an
aggregate of 2,500,667 shares of common stock priced at $0.345 per share. In
addition, we converted $70,562 of debt and accrued interest due to Nancy
Bushnell, the wife of our CEO Nolan Bushnell, and $60,500 of debt due to Dan
Lindquist, our Vice President of Operations, into shares of common stock and
warrants on the same terms as the investors in the transaction. Ms. Bushnell
received 235,207 shares of common stock and warrants to purchase 117,603 shares
of common stock at $0.345 per share, and Mr. Lindquist received 201,667 shares
of common stock and warrants to purchase 100,833 shares of common stock at
$0.345 per share.

These issuances were made pursuant to the exemption from registration provided
by SEC Rule 506 promulgated under Regulation D of the Securities Act of 1933.


                                       32

<PAGE>

We used the net proceeds of these financings to fund the capital expenditures,
and provide the operating capital, for our first uWink restaurant, as well as
for general working capital purposes.

We spent approximately $1,000,000 to build out and equip the Woodland Hills
location for our first restaurant, including approximately $400,000 on leasehold
improvements; $375,000 on technology, furniture and fixtures; $150,000 on
certain "pre-opening" expenses (including staffing, staff training and menu
development costs and initial inventory); and $75,000 on licenses.

Our near term strategy is to prove our concept at the Woodland Hills location
and subsequently seek to open 2 to 3 additional company-owned and/or managed
restaurants within the next 3 to 6 months.

Our longer term growth strategy is to open additional company-owned and/or
company-managed restaurants in new markets and to franchise our concept,
focusing on multiple-unit area development agreements with experienced
operators. We are targeting a mix of one-third company-owned restaurants and
two-thirds franchised restaurants. We expect we will also seek to generate
additional revenue through the sale of media equipment to franchisees.

We expect to need to raise additional amounts of capital through the sale of our
equity or debt securities within the next 2 to 3 months because we do not expect
to have sufficient funds remaining following completion of the build out to fund
our corporate overhead and expenses; and we do not expect the cash flow from our
first restaurant location to be sufficient to cover our corporate overhead and
expenses. As of the date of this report, we have no commitments for the sale of
our securities nor can we assure you that such funds will be available on
commercially reasonable terms, if at all. Should we be unable to raise the
required funds, our ability to finance our operations and growth will be
materially adversely affected.


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
$8,715,670 for the nine months ended September 30, 2006, and as of September 30,
2006, we had an accumulated deficit of $33,485,210. 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.



                                       33

<PAGE>

RESULTS OF OPERATIONS

Nine months ended September 30, 2006 compared with the nine months ended
September 30, 2005.

Net sales for the nine months ended September 30, 2006 decreased by $431,428
(75%) from $577,199 for the nine months ended September 30, 2005 to $145,771 for
the nine months ended September 30, 2006. The decrease in revenue is largely
attributable to our decision to wind down our SNAP! and Bear Shop manufacturing
and sales operations and reposition the Company as an entertainment restaurant
company. The revenue generated during the first nine month of 2006 is largely
attributable to the liquidation of part of our remaining SNAP! and Bear Shop
inventories. There was no revenue associated with our entertainment restaurant
operations for the nine months ended September 30, 2006. In addition, we
generated licensing revenue of $37,600 (25.7% of total revenue) in the first
nine months of 2006, as compared to $75,000 (13% of total revenue) for the first
nine months of 2005. In 2005, we generated $100,000 from the licensing of some
of our games to Bluetorch Games. This license had a one year term and,
accordingly, we recorded licensing revenue of $25,000 per quarter in 2005. In
2006, we generated $21,600 in licensing fees from the sale of SNAP machines by
SNAP Leisure LLC under our license agreement with SNAP Leisure and $16,000 in
licensing fees for some of our games from Mondobox LLC.

Cost of sales for the nine months ended September 30, 2006 decreased by $328,476
(69%) from $475,848 for the nine months ended September 30, 2005 to $147,373 for
the nine months ended September 30, 2006. The decrease in cost of sales is
attributable to lower SNAP! and Bear Shop sales volume resulting from our
decision to wind down our SNAP! and Bear Shop operations. During the nine months
ended September 30, 2006, we wrote off $66,398 of uncollectible advances to
suppliers to cost of good sold, resulting in negative gross profit of $1,601 for
the nine months ended September 30, 2006, as compared to $101,351 of gross
profit for the nine months ended September 30, 2005.

Selling, general and administrative expenses for the nine months ended September
30, 2006 decreased by $206,986 (9.2%) from $2,253,699 for the nine months ended
September 30, 2005 to $2,046,714 for the nine months ended September 30, 2006.
The decrease is attributable to an approximately $900,000 reduction in financial
consulting expense from $958,346 in the first nine months of 2005 to $41,000 in
the first nine months of 2006. In the first nine months of 2005 we issued in
excess of $800,000 worth of shares of our common stock in exchange for outside
investor relations and financial consulting services. The decrease in financial
consulting expense was partially offset by higher salary expense ($639,730 in
2006 as compared to $407,252 in 2005) and $89,767 of non-salary pre-opening
expenses relating to our first restaurant in Woodland Hills in 2006, together
with higher nominal stock option expense in 2006 resulting from the expensing of
options granted to employees based on the fair market value of the options
($365,309 of expense in 2006 versus $76,000 of expense in 2005). In 2005, we
recorded expense only for those options that were issued at an exercise price
below the closing price of the stock on the date of grant.


                                       34

<PAGE>

As a result, our loss from operations for the nine months ended September 30,
2006 was reduced by $190,364 (8.5%) to $2,048,315, from a loss of $2,238,679 for
the nine months ended September 30, 2005.


Total other expense for the nine months ended September 30, 2006 increased by
$6,512,589 (4,208%) from $154,766 for the nine months ended September 30, 2005
to $6,667,355 for the nine months ended September 30, 2006. This increase was
primarily attributable to $6,583,902 of expense relating to the issuance of
financing warrants in the first three quarters of 2006, partially offset by an
approximately $73,000 reduction in interest expense from $127,203 for the first
nine months of 2005 to $53,788 for the first nine months of 2006. The reduction
in interest expense is attributable to lower levels of debt in 2006 resulting
from the conversion and repayment of convertible notes in late 2005 and early
2006 and the repayment in 2005 of amounts borrowed to fund our pursuit of the
assets of Sega Gameworks out of bankruptcy. In December 2004, we made a bid to
acquire the assets of Sega Gameworks out of bankruptcy. In connection with that
bid, we borrowed $615,000 to fund the payment of an earnest money deposit
required by the bankruptcy court. After SS Entertainment USA, a subsidiary, of
Sega Corporation, was determined to be the winning bidder, this deposit was
returned to us in the first quarter of 2005 and we used those funds to repay the
$615,000 in loans. In addition, on April 19, 2006, we issued 100,000
immediately-exercisable, three-year warrants to Mr. Bradley Rotter, a director
of the Company, at an exercise price of $0.345 in connection with the partial
repayment and partial extension of a $200,000 convertible note. The fair value
of the warrants of $16,828 was calculated using the Black Scholes option pricing
model using the following assumptions: risk free rate of return of 7.5%,
volatility of 86%, expected life of 3 years and dividend yield of 0%. The fair
value of the warrants was accounted for as interest expense with a corresponding
amount debited to additional paid-in capital.

As a result, our net loss for the nine months ended September 30, 2006 increased
by $6,322,226 (264%) to $8,715,670, from a net loss of $2,393,444 for the nine
months ended September 30, 2005.


LIQUIDITY AND CASH RESOURCES


As of September 30, 2006, our cash position was $876,569 and we had negative
working capital of $7,365,021. Working capital represents our current assets
minus our current liabilities and is related to our ability to pay short term
debt as it becomes due.


On March 3, 2006, we raised gross proceeds of $1,500,000 via the private
placement of 5,000,000 shares of common stock to 22 investors. 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.

On May 9, 2006 and June 12, 2006, we sold a total of 108,333 shares of common
stock to 2 investors for gross proceeds of $32,500. These investors also
received immediately-exercisable, three-year warrants to purchase an aggregate
of 54,167 shares of common stock at $0.345 per share. The shares of common stock
issued to these investors are reflected as shares to be issued on the June 30,
2006 balance sheet. We issued these shares on July 24, 2006.


                                       35

<PAGE>

On September 18, 2006, we completed the sale of a total of 5,001,333 shares of
common stock to 51 investors for cash proceeds of $1,500,400. These investors
also received immediately-exercisable, three-year warrants to purchase an
aggregate of 2,500,667 shares of common stock priced at $0.345 per share. In
addition, we converted $70,562 of debt and accrued interest due to Nancy
Bushnell, the wife of our CEO Nolan Bushnell, and $60,500 of debt due to Dan
Lindquist, our Vice President of Operations, into shares of common stock and
warrants on the same terms as the investors in the transaction. Ms. Bushnell
received 235,207 shares of common stock and warrants to purchase 117,603 shares
of common stock at $0.345 per share, and Mr. Lindquist received 201,667 shares
of common stock and warrants to purchase 100,833 shares of common stock at
$0.345 per share.

We are using the net proceeds from these private placements to fund the capital
expenditures, and provide the operating capital, required to open our first
uWink restaurant, and for general working capital purposes.

On March 16, 2006, we repaid a $120,000 convertible note together with $7,000 of
accrued interest.

On April 19, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Bradley Rotter, a member of our board of directors, in
respect of the $200,000 Convertible Promissory Note, dated October 10, 2005 and
due April 10, 2006, from the Company to Mr. Rotter (the "2005 Rotter Note").
Pursuant to the Rotter Letter Agreement, effective April 19, 2006, we:

         1.       Repaid $100,000 of the principal amount of, together with
                  $10,356 of accrued interest on, the 2005 Rotter Note;

         2.       Issued immediately-exercisable, three-year warrants to Mr.
                  Rotter to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share. The fair value of the
                  warrants of $16,828 was calculated using the Black Scholes
                  option pricing model using the following assumptions: risk
                  free rate of return of 7.5%, volatility of 86%, expected life
                  of 3 years and dividend yield of 0%. The fair value of the
                  warrants was accounted for as interest expense with a
                  corresponding amount debited to additional paid-in capital;
                  and

         3.       Issued a new $100,000, six-month note to Mr. Rotter, described
                  below, in respect of the unpaid balance of $100,000 on the
                  2005 Rotter Note. Upon repayment of this note, Mr. Rotter will
                  receive additional warrants to purchase 100,000 shares of
                  common stock of the Company at an exercise price of $0.345.


On October 25, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Rotter, in respect of the $100,000 note due October 19,
2006. Pursuant to the Rotter Letter Agreement, effective October 25, 2006:

         1.       Mr. Rotter agreed to convert the $100,000 principal amount and
                  $5,685 in accrued interest outstanding under the note into
                  shares of common stock at a conversion price of $1 per share.
                  In accordance with the terms of the note, Mr. Rotter is
                  entitled to receive an additional 20% of such amount in shares
                  of common stock upon conversion into any offering of our
                  securities that results in gross proceeds to the Company of at
                  least $3,000,000. The note was due on October 19, 2006. Rather
                  than repay the note in cash, we agreed with Mr. Rotter that he
                  would be entitled to receive this additional 20% upon the
                  conversion of the note into shares of common stock even though
                  the conversion was not in connection with any such offering.
                  As a result, Mr. Rotter accepted 126,822 shares of common
                  stock of the Company, together with the warrants set forth
                  below, in full and final satisfaction of the Company's
                  obligations under the note.


                                       36

<PAGE>

         2.       In accordance with the terms of the note, the Company also
                  issued to Mr. Rotter three-year immediately exercisable
                  warrants to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share.

On June 13, 2006, we repaid $30,000 of the principal amount of the loan payable
to our former Vice President of Marketing described below. In addition, on
August 1, 2006, we credited a total of $28,959 in receivables owed to the
Company by the holder of this loan against the principal amount of this loan.

Our debt at September 30, 2006 consisted of the following:

A $100,000 convertible note payable to Mr. Bradley Rotter, a member of the
Company's board of directors. This note is due October 19, 2006, 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 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 100,000 shares of common stock of the Company at an
exercise price of $0.345.

On October 25, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Rotter, in respect of this note. Pursuant to the Rotter
Letter Agreement, effective October 25, 2006:

         1.       Mr. Rotter agreed to convert the $100,000 principal amount and
                  $5,685 in accrued interest outstanding under the note into
                  shares of common stock at a conversion price of $1 per share.
                  In accordance with the terms of the note, Mr. Rotter is
                  entitled to receive an additional 20% of such amount in shares
                  of common stock upon conversion into any offering of our
                  securities that results in gross proceeds to the Company of at
                  least $3,000,000. The note was due on October 19, 2006. Rather
                  than repay the note in cash, we agreed with Mr. Rotter that he
                  would be entitled to receive this additional 20% upon the
                  conversion of the note into shares of common stock even though
                  the conversion was not in connection with any such offering.
                  As a result, the total amount to be converted is $126,822. As
                  such, Mr. Rotter accepted 126,822 shares of common stock of
                  the Company, together with the warrants set forth below, in
                  full and final satisfaction of the Company's obligations under
                  the note.

         2.       In accordance with the terms of the note, the Company also
                  issued to Mr. Rotter three-year immediately exercisable
                  warrants to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share.

A $100,000 convertible note issued on September 8, 2005 issued to Dr. William
Hines. 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.


                                       37

<PAGE>

On October 26, 2006, we entered into a letter agreement (the "Hines Letter
Agreement") with Dr. Hines in respect of this note. Pursuant to the Hines Letter
Agreement, effective October 26, 2006:

Dr. Hines agreed to convert the $100,000 principal amount and $11,555 in accrued
interest outstanding under the note into shares of common stock of the Company
at a conversion price of $1 per share. In accordance with the terms of the note,
Dr. Hines is entitled to receive an additional 20% of such amount in shares of
common stock upon conversion into any offering of our securities that results in
gross proceeds to the Company of at least $3,000,000. While the note was not yet
due, we believed it advantageous to the Company to remove the Hines note from
the balance sheet, particularly because the Hines note was secured by assets of
the Company. As such, we agreed with Dr. Hines that he would be entitled to
receive this additional 20% upon the conversion of the note into shares of
common stock even though the conversion was not in connection with any such
offering. As a result, the total amount to be converted is $133,866. As such,
Dr. Hines accepted 133,866 shares of common stock of the Company in full and
final satisfaction of the Company's obligations under the note.

A $52,885 loan payable to the Company's former Vice President of Marketing
issued on various dates in 2004 and 2005, 12% interest secured by inventory and
receivables of the Company, due February 15, 2007. Accrued interest of $85,966
outstanding on this note as of September 30, 2006 is included under accrued
expenses on the balance sheet as of September 30, 2006. On August 1, 2006, we
credited a total of $28,959 in receivables owed to the Company by the holder of
the note against the principal amount of this note.

On June 15, 2006, we entered into an amended promissory note with Elite Cabinet
Corporation ("ECC") in relation to trade payables previously owing to ECC. The
principal amount of this note is $10,177.75 and the note accrues interest at 8%.
We are required to pay $300 per month on this note from June 15, 2006 to January
15, 2007 at which time the entire unpaid balance plus accrued interest is due
and payable. As of September 30, 2006, we have repaid $1,200 of this note, such
that the amount remaining outstanding at September 30, 2006 is $8,977.

In connection with a private placement of our equity securities completed on
September 18, 2006, we converted $62,500 of debt and $8,062 of accrued interest
due to Nancy Bushnell, the wife of our CEO Nolan Bushnell (including the
assignment to Ms. Bushnell of a $39,000 note (plus $4,485 in accrued interest)
held by the brother-in-law of our CEO), and $60,500 of debt due to Dan
Lindquist, our Vice President of Operations, into shares of common stock and
warrants on the same terms as the third party investors who participated in the
transaction. Ms. Bushnell received 235,207 shares of common stock and warrants
to purchase 117,603 shares of common stock at $0.345 per share, and Mr.
Lindquist received 201,667 shares of common stock and warrants to purchase
100,833 shares of common stock at $0.345 per share.

As of the date of this report, we are not in default on any material debt
obligation. We have filed as exhibits with the SEC all of our material financing
arrangements.

As of the date of this report, we do not have any definitive plans to undertake
any material commitments for capital expenditures. In order for us to open
additional company-owned restaurants in furtherance of our growth plans, we
will, in all likelihood, need to raise additional capital. As of the date of
this prospectus, we do not have any commitments for equity or debt financing.

We expect that we can currently satisfy our cash requirements for the next 2 to
3 months. We expect to need to raise additional amounts of capital through the
sale of our equity or debt securities within the next 2 to 3 months because we
do not expect to have sufficient funds remaining following completion of the
build out to fund our corporate overhead and expenses and growth; and we do not
expect the cash flow from our first restaurant location to be sufficient to
cover our corporate overhead and expenses. As of the date of this report, we
have no commitments for the sale of our securities nor can we assure you that
such funds will be available on commercially reasonable terms, if at all. Should
we be unable to raise the required funds, our ability to finance our operations
and growth will be materially adversely affected.


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<PAGE>

CASH POSITION AND USES OF CASH

Our cash and cash equivalents position as of September 30, 2006 was $876,569.

During the nine months ended September 30, 2006, net cash used in operations was
$889,485, as compared to using cash of $478,112 for the nine months ended
September 30, 2005.

Our net loss for the nine months ended September 30, 2006 was $8,715,670, but,
due to a number of non-cash transactions reflected largely in our selling,
general and administrative and other expenses, we used $889,485 in cash for
operations. Our major uses of cash in operations were to pay cash employee
compensation of approximately $443,000; cash payments to outside engineering
contractors of approximately $150,000; cash rent expense of approximately
$102,000; $90,000 of non-salary "pre-opening" expenses for first restaurant; and
approximately $120,000 of outside auditor, legal counsel and SEC filing fees.
The major source of operating cash during the period was the sale of inventory
valued at approximately $115,000. The non-cash transactions that reduced cash
used in operations relative to our net loss included: $6,583,902 of non-cash
expense related to the expensing of the fair value of financing warrants issued
in the first three quarters of 2006; $365,309 of non-cash expense relating to
employee stock options, the write off to cost of goods sold of $66,000 of
uncollectible inventory deposits, the use of $217,462 worth of shares of common
stock to pay for services rendered to the Company; and an increase in our
accounts payable of $219,468.

Our net loss for the nine months ended September 30, 2005 was $2,393,444 but,
due to a number of non-cash transactions reflected largely in our selling,
general and administrative expenses, we used $478,112 in cash for operations.
Our major uses of cash in operations were to pay cash employee compensation of
approximately $407,000; cash rent expense of approximately $85,000; cash
payments to outside engineering consultants of approximately $86,000; and net
additions to inventory of approximately $106,000 (the gross reduction in
inventory amounted to $355,885, offset by a non-cash reduction in gross
inventory of $461,941 resulting from the write down of inventory previously
reserved for). The major source of cash during the period was the net cash
collection of $151,392 of accounts receivable (gross accounts receivable were
reduced by $476,569, $325,177 of this reduction was non-cash: $150,000 resulted
from the reversal of a $150,000 provision for sales returns booked in 2004 and
$175,177 resulted from the write down of gross accounts receivable previously
reserved for). The non-cash transactions that reduced cash used in operations
relative to our net loss included: $76,000 of non-cash expense relating to
employee stock options, the write off to cost of goods sold of $267,000 of
inventory deposits ($250,000 upon receipt and concurrent sale of the related
inventory items and $17,000 as uncollectible), the use of $1,152,340 worth of
shares of common stock to pay for services rendered to the Company; and an
increase in our accounts payable of $76,719.

During the nine months ended September 30, 2006, we used $914,747 in our
investing activities, as compared to generating $612,350 in 2005. In the first
nine months of 2006, we invested in computers, third party software,
construction costs and other equipment relating to the build out of the Woodland
Hills location for our first restaurant. In 2005, we invested only $2,650 in
plant, property and equipment, in line with our reduced levels of staffing and
operations during that period. 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. In December 2004, we borrowed $615,000 to
fund a deposit related to our pursuit of the assets of Sega Gameworks out of
bankruptcy. This deposit was returned to us in cash during the first three
months of 2005, following the conclusion of the bankruptcy proceeding, and we
used these proceeds to repay the $615,000 in loans.


                                       39

<PAGE>

During the nine months ended September 30, 2006, our financing activities
provided cash in the amount of $2,657,043 as compared to using cash of $190,643
for the nine months ended September 30, 2005. The increase is primarily due to a
$2,567,600 increase in net proceeds from the issuance of common stock in 2006 as
compared to 2005, and lower levels of debt repayment in the first nine months of
2006, as compared to the first nine months of 2005. In the first nine months of
2006, we repaid $178,959 of loans to unrelated parties and made net repayment of
$100,000 on amounts due to related parties. In the first nine months of 2005, we
repaid $615,000 borrowed in 2004 relating to our pursuit of the assets of Sega
Gameworks out of bankruptcy (partially offset by borrowing an additional
$100,000 in September 2005) and made net repayment of $44,045 on amounts due to
related parties.


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.

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.


                                       40

<PAGE>

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, the fees are fixed or determinable, and collectibility of payment is
probable. Included with the purchase of the touch screen terminals are licenses
to use the games loaded on the terminals. The licenses for the games are in
perpetuity, the Company has no obligation to provide upgrades or enhancements to
the customer, and the customer has no right to any other future deliverables.
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. The
Company earned no revenue from post sale support during the periods presented.


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, 2005.

Each forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our company and our
business made elsewhere in this report as well as other pubic reports filed with
the United States Securities and Exchange Commission. You should not place undue
reliance on any forward-looking statement as a prediction of actual results or
developments. We are not obligated to update or revise any forward-looking
statement contained in this report to reflect new events or circumstances unless
and to the extent required by applicable law.


                                       41

<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 the Company's disclosure controls and procedures were effective.

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.


                                       42




<PAGE>

PART II.   OTHER INFORMATION


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


During the nine months ended September 30, 2006, we sold or issued unregistered
shares of our equity securities in the following transactions:

On January 10, 2006, we issued 500,012 shares of common stock valued at $150,003
to 4 accredited, individual investors on conversion of $125,003 principal amount
of convertible notes plus $25,000 of accrued interest. These issuances were made
pursuant to the exemption from registration provided by SEC Rule 506 promulgated
under Regulation D of the Securities Act of 1933.

On March 3, 2006, we sold 5,000,000 shares of common stock to 22 investors (one
accredited institutional investor and 21 accredited, individual 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 These
issuances were made pursuant to the exemption from registration provided by SEC
Rule 506 promulgated under Regulation D of the Securities Act of 1933.

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. This issuance was made
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.

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 (an accredited, individual investor) of a $120,000 convertible note
in consideration for the holder extending the maturity date of the note from
November 2005 to March 2006. This issuance was made pursuant to the exemption
from registration provided by SEC Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

On April 19, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Bradley Rotter, a member of our board of directors, in
respect of the $200,000 Convertible Promissory Note, dated October 10, 2005 and
due April 10, 2006, payable to Mr. Rotter (the "2005 Rotter Note"). Pursuant to
the Rotter Letter Agreement, effective April 19, 2006, we:

         1.       Repaid $100,000 of the principal amount of, together with
                  $10,356 of accrued interest on, the 2005 Rotter Note;

         2.       Issued immediately-exercisable, three-year warrants to Mr.
                  Rotter to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share; and

         3.       Issued a new convertible note (the "2006 Rotter Note") payable
                  to Mr. Rotter, in respect of the unpaid balance of $100,000 on
                  the 2005 Rotter Note. This note is due October 19, 2006,
                  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 2006 Rotter 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 additional
                  warrants to purchase 100,000 shares of common stock of the
                  Company at an exercise price of $0.345.


                                       43

<PAGE>

These issuances were made pursuant to the exemption from registration provided
by SEC Rule 506 promulgated under Regulation D of the Securities Act of 1933.

On June 8, 2006, we issued 33,333 shares of common stock valued at $10,000,
based on the closing price of our common stock on the date of the agreement, to
Cody Management in exchange for financial consulting services rendered. This
issuance was made pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.

On May 9, 2006 and June 12, 2006, we sold a total of 108,333 shares of common
stock to 2 accredited, individual investors for gross proceeds of $32,500. These
investors also received immediately-exercisable, three-year warrants to purchase
an aggregate of 54,167 shares of common stock priced at $0.345 per share. These
shares remained unissued at June 30, 2006 for ministerial reasons and are
reflected as shares to be issued on the June 30, 2006 balance sheet. We issued
these shares on July 24, 2006. These issuances were made pursuant to the
exemption from registration provided by SEC Rule 506 promulgated under
Regulation D of the Securities Act of 1933.

On September 18, 2006, we completed the sale of a total of 5,001,333 shares of
common stock to 51 accredited, individual investors for cash proceeds of
$1,500,400. These investors also received immediately-exercisable, three-year
warrants to purchase an aggregate of 2,500,667 shares of common stock priced at
$0.345 per share. In addition, we converted $70,562 of debt and accrued interest
due to Nancy Bushnell, the wife of our CEO Nolan Bushnell, and $60,500 of debt
due to Dan Lindquist, our Vice President of Operations, into shares of common
stock and warrants on the same terms as the investors in the transaction. Ms.
Bushnell received 235,207 shares of common stock and warrants to purchase
117,603 shares of common stock at $0.345 per share, and Mr. Lindquist received
201,667 shares of common stock and warrants to purchase 100,833 shares of common
stock at $0.345 per share. These issuances were made pursuant to the exemption
from registration provided by SEC Rule 506 promulgated under Regulation D of the
Securities Act of 1933.

On October 25, 2006, we entered into a letter agreement (the "Rotter Letter
Agreement") with Mr. Bradley Rotter, a member of our board of directors, in
respect of the $100,000 Convertible Promissory Note, dated April 19, 2006 and
due October 19, 2006, from the Company to Mr. Rotter (the "Rotter Note").
Pursuant to the Rotter Letter Agreement, effective October 25, 2006:

         1.       Mr. Rotter agreed to convert the $100,000 principal amount and
                  $5,685 in accrued interest outstanding under the Rotter Note
                  into shares of common stock at a conversion price of $1 per
                  share. In accordance with the terms of the Rotter Note, Mr.
                  Rotter is entitled to receive an additional 20% of such amount
                  in shares of common stock upon conversion into any offering of
                  our securities that results in gross proceeds to the Company
                  of at least $3,000,000. The note was due on October 19, 2006.
                  Rather than repay the note in cash, we agreed with Mr. Rotter
                  that he would be entitled to receive this additional 20% upon
                  the conversion of the Rotter Note into shares of common stock
                  even though the conversion was not in connection with any such
                  offering. As a result, the total amount to be converted is
                  $126,822. As such, Mr. Rotter accepted 126,822 shares of
                  common stock of the Company, together with the warrants set
                  forth below, in full and final satisfaction of the Company's
                  obligations under the Rotter Note.

         2.       In accordance with the terms of the Rotter Note, the Company
                  also issued to Mr. Rotter three-year immediately exercisable
                  warrants to purchase 100,000 shares of common stock at an
                  exercise price of $0.345 per share.

These issuances were made pursuant to the exemption from registration
provided by SEC Rule 506 promulgated under Regulation D of the Securities Act of
1933.


                                       44

<PAGE>

On October 26, 2006, we entered into a letter agreement (the "Hines Letter
Agreement") with Dr. William Hines in respect of the $100,000 Convertible
Promissory Note, dated September 8, 2005 and due September 8, 2007, from the
Company to Dr. Hines (the "Hines Note"). Pursuant to the Hines Letter Agreement,
effective October 26, 2006:

Dr. Hines agreed to convert the $100,000 principal amount and $11,555 in accrued
interest outstanding under the Hines Note into shares of common stock of the
Company at a conversion price of $1 per share. In accordance with the terms of
the Hines Note, Dr. Hines is entitled to receive an additional 20% of such
amount in shares of common upon conversion into any offering of our securities
that results in gross proceeds to the Company of at least $3,000,000. While the
Hines Note was not yet due, we believed it advantageous to the Company to remove
the Hines Note from the balance sheet, particularly because the Hines Note was
secured by assets of the Company. As such, we agreed with Dr. Hines that he
would be entitled to receive this additional 20% upon the conversion of the
Hines Note into shares of common stock even though the conversion was not in
connection with any such offering. As a result, the total amount to be converted
is $133,866. As such, Dr. Hines accepted 133,866 shares of common stock of the
Company in full and final satisfaction of the Company's obligations under the
Hines Note.

This issuance was made pursuant to the exemption from registration
provided by SEC Rule 506 promulgated under Regulation D of the Securities Act of
1933.



ITEM 6.  EXHIBITS

(a) Exhibits

      REGULATION
      S-B NUMBER                          EXHIBIT
      ----------                          -------

         4.1      Form of uWink, Inc. Warrant, dated September 2006
                  (incorporated by reference to the Company's Current Report on
                  Form 8-K filed on September 11, 2006).

         10.1     Securities Purchase Agreement, dated September 2006 between
                  uWink, Inc. and Investors (incorporated by reference to the
                  Company's Current Report on Form 8-K filed on September 11,
                  2006).

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

         31.2     Rule 13a-14(a) Certification of Chief Financial Officer and
                  Chief Accounting Officer.*

         32.1     Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as Adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.*

         32.2     Certification of Chief Financial Officer and Chief Accounting
                  Officer pursuant to 18 U.S.C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

*Filed herewith.


                                       45

<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.



January 18, 2007                                 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


                                       46