<PAGE>

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

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

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

                FOR THE QUARTERLY PERIOD ENDED March 31, 2005

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

       For the transition period from ________________ to _______________

                                     0-29873
                            (Commission file number)

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

                    UTAH                                 87-0412110
        (State or other jurisdiction                    (IRS Employer
      of incorporation or organization)              Identification No.)

                  16106 Hart Street, Van Nuys, California 91406
                    (Address of principal executive offices)

                            (818) 909 6030 (Issuer's
                                telephone number)

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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

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





<PAGE>


                                   UWINK, INC.
                                      INDEX

                                                                            Page
                                                                          Number
                                                                          ------

PART I.    FINANCIAL INFORMATION

Item 1.    Financial Statements                                              3

           Consolidated Balance Sheet as of March 31, 2005 (unaudited)       3

           Consolidated Statements of Operations for the three
           months ended March 31, 2005 and 2004 (unaudited)                  4

           Consolidated Statements of Cash Flows for the three months
           ended March 31, 2005 and 2004 (unaudited)                         5

           Notes to Consolidated Financial Statements (unaudited)            6

Item 2.    Management's Discussion and Analysis or Plan of Operations       27

Item 3.    Controls and Procedures                                          34

PART II.   OTHER INFORMATION                                                36

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      36

Item 6.    Exhibits                                                         37

SIGNATURES                                                                  37


                                        1

<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 March 31, 2005 (the
"Original Report") for the purpose of correcting certain errors in the financial
statements.

This Quarterly Report on Form 10-QSB/A for the three months ended March 31, 2005
amends and restates the financial statements and related financial information
for all periods presented herein. The determination to restate the financial
statements was made as a result of management's identification of certain errors
in the financial statements included in the Original Report. Further information
on the restatement can be found in Note 2 to the Unaudited Consolidated
Financial Statements.

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


                                       2
<PAGE>

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

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


                                                                                      MARCH 31
                                                                                        2005
                                                                                     (RESTATED)
                                                                                    ------------
                                           ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                                      $    143,161
     Account receivable, net of allowance for doubtful accounts of $269,226              118,955
     Inventory, net of obsolescence reserve of $370,400                                  514,562
     Deposits                                                                            320,159
     Prepaid expenses and other current assets                                           216,154
                                                                                    ------------
TOTAL CURRENT ASSETS                                                                   1,312,992
                                                                                    ------------

PROPERTY AND EQUIPMENT, net of accumulated
      depreciation of $413,443                                                           137,992
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of
     accumulated amortization of $849,311                                                178,256
                                                                                    ------------
TOTAL  ASSETS                                                                       $  1,629,240
                                                                                    ============


                            LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable                                                               $    938,725
     Accrued expenses                                                                     78,867
     Accrued payroll and related benefits                                                 59,643
     Due to related parties                                                              440,139
     Convertible note payable, net of discounts of $26,839                               148,164
     Advances from Customers                                                              99,980
                                                                                    ------------
TOTAL CURRENT LIABILITIES                                                              1,765,519
                                                                                    ------------


STOCKHOLDERS' DEFICIT
     Common stock, $0.001 par value; 50,000,000 shares
        authorized; 11,530,253 shares issued and outstanding                              11,530
     Additional paid-in capital                                                       22,217,052
     Accumulated deficit                                                             (22,577,509)
     Shares to be issued                                                                 212,649
                                                                                    ------------
TOTAL STOCKHOLDERS' DEFICIT                                                             (136,278)
                                                                                    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                         $  1,629,240
                                                                                    ============


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

                                               3
<PAGE>

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


                                                             THREE MONTH PERIODS ENDED
                                                                     MARCH 31
                                                               2005              2004
                                                            (RESTATED)        (RESTATED)
                                                           ------------      ------------

NET SALES                                                  $    341,904      $    334,891

COST OF SALES                                                   187,293           223,757
                                                           ------------      ------------
GROSS PROFIT                                                    154,610           111,134
                                                           ------------      ------------

OPERATING EXPENSES
      Selling, general and administrative expenses            1,105,350           714,289
      Research and development                                       --           133,104
                                                           ------------      ------------

TOTAL OPERATING EXPENSES                                      1,105,350           895,726
                                                           ------------      ------------

LOSS FROM OPERATIONS                                           (950,740)         (784,592)
                                                           ------------      ------------

OTHER INCOME (EXPENSE)
      Other income                                                  267               129
      Beneficial conversion of debt                             (10,066)          (31,079)
      Nominal stock option expense                              (23,305)          (48,333)
      Gain on settlement of debt                                  9,728           142,673
      Interest expense                                          (70,400)           (8,452)
                                                           ------------      ------------
TOTAL OTHER INCOME (EXPENSE)                                    (93,777)           54,938
                                                           ------------      ------------

NET LOSS                                                   $ (1,044,516)     $   (681,321)
                                                           ============      ============

NET LOSS PER COMMON SHARE - BASIC & DILUTED                $      (0.10)     $      (0.08)
                                                           ============      ============

WEIGHTED AVERAGE COMMON SHARES
      OUTSTANDING - BASIC & DILUTED                          10,928,621         8,692,821
                                                           ============      ============


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


                                           4
<PAGE>

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


                                                                            THREE MONTH PERIODS ENDED
                                                                                     MARCH 31
                                                                              2005              2004
                                                                           (RESTATED)        (RESTATED)
                                                                          ------------      ------------

CASH FLOW FROM OPERATING ACTIVITIES:
    Net loss                                                              $ (1,044,516)     $   (681,321)
    Adjustment to reconcile net loss to net cash
      Provided by (used in) operating activities:
        Amortization of debt discount on convertible note payable               10,066            31,079
        Amortization of options issued below market price                       23,305            48,333
        Depreciation and amortization expense                                   35,905            30,419
        Bad debt allowance                                                     173,444                --
        Issuance of common stock for services and accrued payroll              893,750           108,709
        Issuance of common stock for accrued interest                           42,500                --
        Provisions for Sales Returns                                          (150,000)               --
        Gain on forgiveness of debt                                             (9,728)         (142,673)
        Changes in operating assets and liabilities:
        Accounts receivable                                                    139,612          (171,636)
        Inventory                                                                5,108          (121,211)
        Deposits - inventory                                                    33,034                --
        Prepaid expenses and other current assets                             (165,764)          (21,935)
        Accounts payable                                                       123,836          (204,831)
        Accrued expenses                                                       (51,936)          128,530
        Accrued payroll and related benefits                                   (20,777)         (204,511)
        Advances from Customers                                                    (20)           (4,166)
                                                                          ------------      ------------
      Net cash provided by (used in) operating activities                       37,819        (1,205,213)
                                                                          ------------      ------------

CASH FLOW FROM INVESTING ACTIVITIES:
      Payment for property and equipment                                            --           (57,670)
      Deposits - Gameworks                                                     615,000                --
                                                                          ------------      ------------
      Net cash provided by (used in) investing activities                      615,000           (57,670)
                                                                          ------------      ------------

CASH FLOW FROM FINANCING ACTIVITIES:
      Proceeds (repayments) from issuance of debt                             (615,000)               --
      Proceeds (repayments) from advances from related parties                 (27,000)               --
      Proceeds from issuance of common stock                                    75,000         1,439,050
      (Payment) of offering costs                                                   --          (190,865)
                                                                          ------------      ------------
      Net cash provided by (used in) financing activities                     (567,000)        1,248,185
                                                                          ------------      ------------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                            85,819           (14,698)

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

CASH AND CASH EQUIVALENTS, End of period                                  $    143,161      $  1,141,472
                                                                          ============      ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    Interest paid                                                         $         --      $         --
                                                                          ============      ============
    Income taxes paid                                                     $         --      $         --
                                                                          ============      ============
    Conversion of debt into 121,986 shares of common stock                $    192,500      $         --
                                                                          ============      ============


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


                                                5
</TABLE>

<PAGE>

NOTE 1 - BASIS OF PRESENTATION AND GOING CONCERN

The unaudited consolidated financial statements have been prepared by uWink,
Inc. (the "Company"), pursuant to the rules and regulations of the Securities
and Exchange Commission. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) which are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes for the year ended December 31,
2004 included in the Company's Annual Report on Form 10-KSB. The results of the
three months ended March 31, 2005 are not necessarily indicative of the results
to be expected for the full year ending December 31, 2005.

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. The Company has
incurred a net loss of $1,044,516 for the three months ended March 31, 2005, and
as of March 31, 2005, the Company had an accumulated deficit of $22,577,509.
These conditions raise substantial doubt as to the Company's ability to continue
as a going concern. These unaudited consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
These unaudited consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.

The Company will need additional working capital to fund its operations over the
next 12 months. The Company believes that it will need at least an additional
$2.5 million of working capital to fund inventory and accounts receivable
resulting from the demand for its Snap! and Bear Shop products and to construct
an entertainment center/restaurant for the deployment of our technology and, if
necessary, to finance future losses from operations. We have not yet allocated
specific amounts for these purposes. The Company plans to obtain the additional
working capital through the private placement sale of its equity securities. As
of the date of this report, there were no commitments for the sale of the
Company's securities. Should the Company be unable to raise additional funds,
its ability to finance its continued growth will be materially adversely
affected.


                                       6
<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.


                                       7
<PAGE>

Software Development Costs

Software development costs related to computer games and network and terminal
operating systems developed by the Company are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of software development costs begins upon the establishment of
technological feasibility and is discontinued when the product is available for
sale. When the software is a component part of a product, capitalization begins
when the product reaches technological feasibility. The establishment of
technological feasibility and the ongoing assessment for recoverability of
capitalized software development costs require considerable judgment by
management with respect to the completion of all planning, designing, coding and
testing activities necessary to establish that the product can be produced to
meet its design specifications and certain external factors including, but not
limited to, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalized software development
costs are comprised primarily of salaries and direct payroll related costs and
the purchase of existing software to be used in the Company's products.

Amortization of capitalized software development costs is provided on a
product-by-product basis on the straight-line method over the estimated economic
life of the products (not to exceed three years). Management periodically
compares estimated net realizable value by product with the amount of software
development costs capitalized for that product to ensure the amount capitalized
is not in excess of the amount to be recovered through revenues. Any such excess
of capitalized software development costs to expected net realizable value is
expensed at that time.

Amortization of capitalized software development costs
was $22,941 for the three months ended March 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 and the fees are fixed or determinable. Included with the purchase of the
touch screen terminals are licenses to use the games loaded on the terminals.
The Company delivers the requested terminals for a fixed price either under
agreements with customers or pursuant to purchase orders received from
customers.

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

Impairment of Long-Lived Assets

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


                                       8
<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.

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 March 31,
2005, advances from customers relating to licensing fees amounted to $99,980.

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.

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

The Company has adopted only the disclosure provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." It applies Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its Stock Option Plan. It recognizes an expense in accordance
with APB No. 25 when the exercise price is less than the fair market value at
the date of grant of the stock. When the exercise price is the same as the fair
market value at the date of grant of the stock the Company does not recognize
compensation expense for its Stock Option Plan other than for restricted stock
and options issued to outside third parties. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date for
awards under the Stock Option Plan consistent with the methodology prescribed by
SFAS No. 123, the Company's net loss and loss per share would be increased to
the pro forma amounts indicated below for the three months ended March 31,
2005 and 2004:

                                                        2005            2004
                                                     ------------   ------------
         Net loss
           As reported                               $(1,044,516)   $  (681,321)
           Compensation recognized under APB 25           23,305         48,333
           Compensation recognized under SFAS 123        (80,047)      (113,518)

                                                     ------------   ------------
                      Pro forma                      $(1,101,258)   $  (746,506)

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

         Basic and diluted loss per common share
           As reported                               $     (0.10)   $     (0.08)
           Pro forma                                 $     (0.10)   $     (0.09)


                                       9
<PAGE>

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

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

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

The Company assumed the uWink.com, Inc. 2000 Employee Stock Option Plan pursuant
to its acquisition of uWink California. The 2000 Plan provides for the issuance
of up to 681,218 (after giving effect to a 3.15611 reverse stock split in
connection with the acquisition of uWink California) incentive and non-qualified
stock options to employees, officers, directors and consultants of the Company.
Options granted under the 2000 Plan vest as determined by the Board of
Directors, provided that any unexercised options will automatically terminate on
the tenth anniversary of the date of grant.

On February 24, 2004, the Company's Board of Directors approved the uWink, Inc.
2004 Stock Incentive Plan (the "2004 Plan"). The 2004 Plan provides for the
issuance of up to 1,200,000 incentive stock options, non-qualified stock
options, restricted stock awards and performance stock awards to employees,
officers, directors, and consultants of the Company. Awards granted under the
2004 Plan vest as determined by the Board of Directors, provided that no option
or restricted stock award granted under the 2004 Plan may be exercisable prior
to six months from its date of grant and no option granted under the 2004 Plan
may be exercisable after 10 years from its date of grant.

The following table summarizes the options outstanding as of March 31, 2005.

                                                                     Weighted
                                                   Stock             Average
                                                  Option             Exercise
                                                   Plans               Price
                                                ----------         ------------
Balance December 31, 2004                       1,401,181            $  1.81
Granted                                                --                 --
Exercised                                           9,505            $  0.32
Canceled                                          381,420            $  1.55
Balance March 31, 2005                          1,010,256            $  1.92
Exercisable March 31, 2005                        452,134            $  1.57


The weighted average remaining contractual life of options outstanding issued
under the plans is 8.53 years at March 31, 2005. The exercise prices for the
options outstanding under the plans at March 31, 2005 ranged from $0.32 to
$6.31.

Reclassifications

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


                                       10
<PAGE>

NOTE 2 - RESTATEMENT

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

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

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

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

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

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


                                       11
<PAGE>

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

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

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

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

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

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


                                       12
<PAGE>

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


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

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

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

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

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


                                                              13

<PAGE>

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


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

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

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


                                                          14

<PAGE>

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


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

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

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

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

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


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

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES

    Issuance of common stock for services                                           $   481,963           31,150      $  513,113
                                                                                    ==============================================
</TABLE>

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


                                       15
<PAGE>

As a result of the above adjustments to the 2004 financial statements, the
Company has restated the affected balances for the quarter ended March 31, 2005.
The following presents the effect on the Company's previously issued financial
statements for the quarter ended March 31, 2005. The Tables set forth below only
present those accounts that were affected by the Restatement. The restated
financial statements also include certain reclassifications made purely for
presentation purposes.

<TABLE>
<S>     <C>
Balance sheet at March 31, 2005:

                                                                                        Previously       Increase
                                                                                         Reported       (Decrease)      Restated

CURRENT ASSETS
            Cash and cash equivalents                                                      153,888        (10,727)        143,161
            Account receivable, net of allowance for doubtful accounts of $269,226         242,572       (123,617)        118,955
            Inventory, net of obsolescence reserve of $370,400                             475,339         39,223         514,562
            Prepaid expenses and other current assets                                       37,913        178,241         216,154
TOTAL CURRENT ASSETS                                                                     1,229,871         83,121       1,312,992
PROPERTY AND EQUIPMENT, net of accumulated
             depreciation of $400,478 and $413,443, respectively                           138,486           (494)        137,992
CAPITALIZED SOFTWARE DEVELOPMENT COSTS, net of
            accumulated amortization of $853,556 and $849,311, respectively                202,348        (24,092)        178,256
TOTAL  ASSETS                                                                            1,570,705         58,535       1,629,240
CURRENT LIABILITIES
            Accounts payable                                                               919,698         19,027         938,725
            Accrued expenses                                                               103,187        (24,320)         78,867
            Accrued payroll and related benefits                                            21,644         37,999          59,643
            Due to related parties                                                         390,139         50,000         440,139
            Convertible note payable, net of discounts of $206,253 and $26,839,
              respectively                                                                  75,001         73,163         148,164
            Advances from Customers                                                         75,000         24,980          99,980
TOTAL CURRENT LIABILITIES                                                                1,584,669        180,850       1,765,519
TOTAL LIABILITIES                                                                        1,584,669        180,850       1,765,519
STOCKHOLDERS' DEFICIT
            Common stock, $0.001 par value; 50,000,000 shares
            authorized; 11,737,906 and 11,530,253 shares issued and
              outstanding, respectively                                                     11,740           (210)         11,530
            Additional paid-in capital                                                  21,855,205        361,847      22,217,052
            Deferred Compensation                                                         (178,240)       178,240               -
            Accumulated deficit                                                        (21,702,669)      (874,840)    (22,577,509)
            Shares to be issued                                                                  -        212,649         212,649
TOTAL STOCKHOLDERS' DEFICIT                                                                (13,964)      (122,314)       (136,278)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                              1,570,705         58,535       1,629,240


                                                                        16
<PAGE>

Statement of operations for the three months ended March 31, 2005:

                                                                                        Previously       Increase
                                                                                         Reported       (Decrease)      Restated

NET SALES                                                                                  243,221         98,683         341,904
COST OF SALES                                                                              186,124          1,169         187,293
GROSS PROFIT                                                                                57,097         97,513         154,610
OPERATING EXPENSES
            Selling, general and administrative expenses                                 1,145,781        (40,431)      1,105,350
TOTAL OPERATING EXPENSES                                                                 1,145,781        (40,431)      1,105,350
LOSS FROM OPERATIONS                                                                    (1,088,684)       137,944        (950,740)
OTHER INCOME (EXPENSE)
            Beneficial conversion of debt                                                  (56,251)        46,185         (10,066)
            Nominal stock option expense                                                    43,305        (66,610)        (23,305)
TOTAL OTHER INCOME (EXPENSE)                                                               (73,352)       (20,425)        (93,777)
LOSS BEFORE PROVISION FOR INCOME TAXES                                                  (1,162,036)       117,520      (1,044,516)
NET LOSS                                                                                (1,162,036)       117,520      (1,044,516)
WEIGHTED AVERAGE COMMON SHARES
            OUTSTANDING - BASIC & DILUTED                                               11,035,872       (107,251)     10,928,621



                                                                        17
<PAGE>

Statement of cash flows for the three months ended March 31, 2005:

                                                                                        Previously       Increase
                                                                                         Reported       (Decrease)      Restated

CASH FLOW FROM OPERATING ACTIVITIES:
            Net loss                                                                    (1,162,036)       117,520      (1,044,516)
            Adjustment to reconcile net loss to net cash
                          Amortization of debt discount on convertible note payable         56,251        (46,185)         10,066
                          Amortization of options issued below market price                      -         23,305          23,305
                          Bad debt allowance                                               128,596         44,848         173,444
                          Issuance of common stock for services and accrued payroll        624,434        269,316         893,750
                          Issuance of common stock for accrued interest                          -         42,500          42,500
                          Provisions for Sales Returns                                           -       (150,000)       (150,000)
                          Gain on forgiveness of debt                                            -         (9,728)         (9,728)
                          Changes in operating assets and liabilities:
                          Accounts receivable                                              417,179       (277,567)        139,612
                          Inventory                                                              -          5,108           5,108
                          Deposits - inventory                                              33,023             11          33,034
                          Deposits - Gameworks                                             615,000       (615,000)              -
                          Deposits                                                          22,500        (22,500)              -
                          Prepaid expenses and other current assets                         34,977       (200,741)       (165,764)
                          Accounts payable                                                  87,974         35,862         123,836
                          Accrued expenses                                                 (25,290)       (26,646)        (51,936)
                          Accrued payroll and related benefits                             (58,776)        37,999         (20,777)
                          Advances from Customers                                          (25,000)        24,980             (20)
                      Net cash provided by (used in) operating activities                  784,737       (746,918)         37,819
CASH FLOW FROM INVESTING ACTIVITIES:
                      Deposits - Gameworks                                                       -        615,000         615,000
                      Net cash provided by (used in) investing activities                        -        615,000         615,000
CASH FLOW FROM FINANCING ACTIVITIES:
                      Proceeds (repayments) from issuance of debt                                -       (615,000)       (615,000)
                      Proceeds (repayments) from advances from related parties            (764,156)       737,156         (27,000)
                      Net cash provided by (used in) financing activities                 (689,156)       122,156        (567,000)
NET INCREASE (DECREASE) IN CASH AND
            CASH EQUIVALENTS                                                                95,581         (9,762)         85,819
CASH AND CASH EQUIVALENTS, Beginning of period                                              58,307           (965)         57,342
CASH AND CASH EQUIVALENTS, End of period                                                   153,888        (10,727)        143,161
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
            Interest paid                                                                   70,400        (70,400)              -
</TABLE>


                                                                        18
<PAGE>

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 three months ended March 31, 2005 and 2004 because the effect
would have been anti-dilutive:



                                       19
<PAGE>

<TABLE>
                                                                           2005           2004
                                                                        ----------     ----------
<S>                                                                      <C>            <C>
              Shares to be issued upon conversion
               of convertible note                                         128,573        174,265
              Stock options issued to employees                            769,454          3,962
              Warrants issued to consultants and finders                   398,271        169,070
              Warrants issued for financing                              1,578,067        616,090
                                                                        ----------     ----------
                                                                         2,874,365        963,387
                                                                        ==========     ==========
</TABLE>


NOTE 4 - ACCOUNTS RECEIVABLE

Accounts Receivable at March 31, 2005                                $ 388,181
Less:  allowance for doubtful accounts                                (269,226)
                                                                     ----------
                                                                     $ 118,955
                                                                     ==========
NOTE 5 - INVENTORY

Inventory has been reviewed for obsolescence and stated at lower of cost or
market as of March 31, 2005, determined on a first in first out basis.

Inventory at March 31, 2005:
Raw materials                                                        $ 279,652
Work in process                                                        259,086
Finished goods                                                         346,224
Less: obsolescence reserve                                            (370,400)
                                                                     ----------
                                                                     $ 514,562
                                                                     ==========


NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment at March 31, 2005, consists of the following:

                  Computer equipment and related software             $246,984
                  Office furniture and equipment                        17,927
                  Leasehold improvements                                84,849
                  Machinery and equipment                              201,675
                                                                      ----------

                  Less accumulated depreciation and amortization      (413,443)
                                                                      ----------
                                                                      $ 137,992
                                                                      ==========


                                       20
<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 March 31, 2005, the Company had
cash and cash equivalent balances totaling $43,603 in financial institutions,
which were in excess of federally insured amounts.

NOTE 8 - DUE TO RELATED PARTIES

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

Due to related parties outstanding at March 31, 2005 consisted of the
following:

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

Loan payable to the Company's Vice President of Marketing issued on various
dates in 2004, 12% interest
secured by inventory and receivables of the Company, due upon demand.                     243,139

Loan payable to the brother-in-law of the President and CEO issued on December
6, 2004, $5,000 interest, unsecured, principal payments and accrued interest due
upon payment by customer of invoice # 60284B.                                             117,000

Loan payable to the wife of the President and CEO issued on various dates in
2004, 8% interest unsecured, due upon demand.                                              25,500

Loan payable to the Company's Vice President of Operations issued on various
dates in 2004, 8% interest unsecured, due upon demand.                                      4,500
                                                                                        ---------

Total                                                                                   $ 440,139
                                                                                        ---------
</TABLE>

During the three months ended March 31, 2005, we repaid $21,500 of the loan
payable to the wife of the President and CEO and repaid $5,500 of the loan
payable to the Company's Vice President of Operations. We accrued interest of
$3,605 on amounts due to related parties during the three month period ended
March 31, 2005.


                                       21
<PAGE>

NOTE 9 - CONVERTIBLE NOTES PAYABLE

Convertible notes payable outstanding at March 31, 2005 consisted of
the following:

During the fourth quarter of 2004, the Company issued four convertible
promissory notes totaling $175,003. The notes bear interest at 20% per annum and
are due one year from the date of issuance. The notes can be converted
immediately from the date of issuance, at the option of the holder, to shares of
the Company's common stock at $1.75 per share. The market value on the dates of
issuance ranged from $2.00 - $2.55. In accordance with EITF 00-27 "Application
of Issue No. 98-5 to Certain Convertible Instruments", the Company determined
the preferential conversion feature of the convertible promissory notes on the
date of issuance to be equal to $42,859. The amount allocated to the
preferential conversion feature of $42,859 was recorded as a discount on the
convertible note payable and as additional paid-in capital. The discounts on the
convertible note payable will be amortized over the one year term of the
convertible note payable. For the three months ended March 31, 2005, $10,066 was
amortized to expense.


Principal Amount                                     $ 175,003
Less Discount                                          (26,839)
                                                     ---------
                                                     $ 148,164
                                                     =========


On March 12, 2002, the Company entered into a $150,000 convertible note with Mr.
Scottie Pippen. The note bears interest at 10%, was due on September 9, 2002 and
is convertible into common stock at $1.58 per share. The Company made repeated
attempts to contact Mr. Pippen's representatives to come to a resolution
regarding the disposition of the note. As a result of a lack of communication
from Mr. Pippen's representatives, we did not reach an agreement with Mr. Pippen
regarding disposition of the note until March 2005, at which point Mr. Pippen
agreed to convert the note into shares of common stock. On May 24, 2005, we
issued 121,986 shares of common stock upon conversion of the principal amount of
this note plus $42,500 in accrued interest. These shares are reflected as shares
to be issued on the March 31, 2005 balance sheet and remained unissued at March
31, 2005 for ministerial reasons.


NOTE 10 - EQUITY

Preferred Stock of uWink

The Company has authorized 5,000,000 shares of Preferred Stock. The Board of
Directors is authorized to establish, from the authorized shares of Preferred
Stock, one or more classes or series of shares, to designate each such class and
series, and to fix the rights and preferences of each such class and series.
Without limiting the authority of the Board of Directors granted hereby, each
such class or series of Preferred Stock shall have such voting powers (full or
limited or no voting powers), such preferences and relative, participating,
optional or other special rights, and such qualifications, limitations or
restrictions as shall be stated and expressed in the resolution or resolutions
providing for the issue of such class or series of Preferred Stock as may be
adopted from time to time by the Board of Directors prior to the issuance of any
shares thereof. Fully-paid stock of the Company shall not be liable to any
further call or assessment.


                                       22
<PAGE>

Common Stock

During the three months ended March 31, 2005, the Company:

     o    issued 12,500 shares of common stock to Falcon Capital for financial
          consulting services valued at $21,875, based on the stock price on the
          date of the agreement;

     o    issued 40,000 shares of common stock to CCRI, Inc. in exchange for
          public relations services valued at $38,000, based on the stock price
          on the date of the agreement;

     o    issued 50,000 shares of common stock to Mr. Paul Abramowitz in
          exchange for financial consulting services valued at $127,500, based
          on the stock price on the date of the agreement;

     o    issued 400,000 shares of common stock to Redwood Consultants, Inc. in
          exchange for investor relations services valued at $444,000, based on
          the stock price on the date of the agreement;

     o    issued 175,000 shares of common stock to Mr. Tom Hemingway in exchange
          for business advisory services valued at $194,250, based on the stock
          price on the date of the agreement;

     o    issued 60,000 shares of common stock to Mr. Jack McConnaughy in
          exchange for business development services valued at $90,000, based on
          the stock price on the date of the agreement; and

     o    sold 100,000 shares of common stock for cash in a private placement
          offering for gross proceeds of $75,000.


                                       23
<PAGE>

Shares to be Issued

At March 31, 2005, shares to be issued consisted of:

     o    21,039 shares valued at $21 still to be issued to original uWink-DE
          (now uWink California) shareholders in connection with the acquisition
          of uWink-DE (now uWink California).

     o    10,787 shares valued at $20,128 to be issued in connection with the
          Company's capital raising transactions. These shares remained unissued
          at March 31, 2005 for ministerial reasons.

     o    121,986 shares of common stock valued at $192,500 to be issued to Mr.
          Scottie Pippen upon conversion of $150,000 in principal and $42,500 in
          accrued interest outstanding on a convertible note payable issued in
          2002. These shares remained unissued at March 31, 2005 for ministerial
          reasons.


Stock Warrants

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

The following table summarizes the warrants outstanding as of March 31, 2005.

                                                                   Weighted-
                                                                   Average
                                                                   Exercise
                                                     Warrants       Price
                                                    ---------      -------
Balance, December 31, 2004                           1,976,338     $ 3.48
Granted                                                     --         --
Exercised                                                   --         --
Cancelled                                                   --         --
Balance March 31, 2005                                1,976,338    $ 3.48
Exercisable March 31, 2005                            1,976,338    $ 3.48



NOTE 11 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

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


                                       24
<PAGE>

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

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

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

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

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

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

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


NOTE 12 - COMMITMENTS AND CONTINGENCIES

Other Litigation

In the ordinary course of business, the Company is generally subject to claims,
complaints, and legal actions. As of March 31, 2005, management
believes that the Company is not a party to any action which would have a
material impact on its financial condition, operations, or cash flows.

Leases

Our executive offices are located at 5443 Beethoven Street, Los Angeles,
California 90066 and consist of 10,000 square feet of office space. We lease
this space pursuant to a month- to-month lease at the rate of $10,000 per month.

Effective May 1, 2005, we entered into a three year lease on new executive
offices at 12536 Beatrice Street, Los Angeles, California 90066. This location
consists of 8,500 square feet of office and warehouse space at the rental rate
of $10,200 per month.


                                       26
<PAGE>

NOTE 13 - SUBSEQUENT EVENTS

Effective May 1, 2005, we entered into a three year lease on new executive
offices at 12536 Beatrice Street, Los Angeles, California 90066. This location
consists of 8,500 square feet of office and warehouse space at the rental rate
of $10,200 per month.

The following sets forth the significant capital raising transactions and equity
issuances engaged in by the Company following March 31, 2005.

On May 15, 2005, we sold 533,458 shares of common stock for cash to 6 investors
for $293,402. In addition, we issued these investors warrants to purchase
533,458 shares of our common stock at $1.50 per share. These warrants are
immediately exercisable and expire on May 15, 2010.

On May 25, 2005, we issued 121,986 shares of common stock to Mr. Scottie Pippen
upon conversion of $150,000 in principal and $42,500 in accrued interest
outstanding on a convertible note issued in 2002. These shares are reflected as
shares to be issued on the balance sheet at March 31, 2005.

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

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

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

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



                                       27
<PAGE>

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

GENERAL

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related footnotes for the year ended
December 31, 2004 included in our Annual Report on Form 10-KSB. The discussion
of results, causes and trends should not be construed to imply any conclusion
that such results or trends will necessarily continue in the future.

OVERVIEW

uWink, Inc. ("uWink", "we", "us", or the "Company") is a digital entertainment
company, based in Los Angeles, California, that designs and develops interactive
entertainment software and platforms for restaurants, bars, and mobile devices.

We design, develop and market entertainment software for touch screen video game
terminals and amusement vending machines. We derive our revenue from the sale of
our game terminals and amusement vending machines, products the vending machines
dispense, and licensing fees on software sales. We sell our products in the
United States and some international markets with the majority of our sales
being generated in Asia. Our core product line includes: Snap!, a
network-capable countertop game terminal offering 60 proprietary short-form
video games; and Bear Shop, a vending machine utilizing interactive and
entertaining software to dispense customized plush teddy bear toys and
accessories.

Our primary customers are established domestic and international distributors of
coin-operated amusement products. Sales to distributors accounted for more than
95% of our sales for the three months ended March 31, 2005. We also sell to the
owners and operators of establishments who place our products into their own
businesses. Our end users are individuals who play games and make impulse
purchases of novelty items in public amusement places.

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 and several interactive
kiosks. We now own extensive software and hardware components that can be used
in multiple products, thereby, we believe, reducing the cost of development, the
time to market, and the integration of existing software into additional
hardware applications.

To continue working towards our goal of integrating our entertainment and
operating systems technology, we are currently in the planning stage of an owned
restaurant. The restaurant can be considered an updated Chuck E. Cheese(TM)
aimed at young adults and families seeking to have an entertainment experience
as well as enjoyable meal. uWink plans to install our technology in the
restaurant within 2005 and plans to open two to three additional locations in
the American Southwest region shortly thereafter. We are also seeking
acquisition opportunities in the restaurant and game room business. For the
three months ended March 31, 2005, there were no revenues or expense associated
with the plans for the restaurant.

Our company was organized as a Utah corporation on October 14, 1982 under the
name Prologue, and was previously engaged in the sales and marketing business.
From 1994 until December 4, 2003, we had no operations or employees and owned no
real estate.

Prior to the reverse merger with uWink California, Inc. described below, our
corporate name was Prologue and we had not generated significant revenues and
were considered a development stage company as defined in Statement of Financial
Accounting Standards No. 7. We were seeking business opportunities or potential
business acquisitions. Pursuant to a Securities Purchase Agreement and Plan of
Reorganization dated November 21, 2003 among Prologue, uWink, Inc., a Delaware
corporation (subsequently renamed uWink California, Inc., "uWink California")
and its stockholders, Prologue acquired substantially all of the issued and
outstanding shares of uWink California's capital stock. Prologue issued one (1)
share of its common stock for every 3.15611 shares of uWink California capital
stock. The stockholders of uWink California received approximately 84% of the
issued and outstanding shares of Prologue and the uWink California management
team and board of directors became the management team and board of directors of
Prologue. Following this transaction, we changed our name to uWink, Inc.


                                       28
<PAGE>

BASIS OF PRESENTATION

The accompanying consolidated financial statements, included elsewhere in this
Quarterly Report on Form 10-QSB, have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation as a going concern. We have incurred a net loss of
$1,044,516 for the three months ended March 31, 2005, and as of March 31, 2005,
we had an accumulated deficit of $22,577,509. These conditions raise substantial
doubt as to our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts, or amounts and classification of liabilities that might
be necessary should we be unable to continue as a going concern.

RESULTS OF OPERATIONS

Three months ended March 31, 2005 compared with three months ended March 31,
2004.

Net sales for the three months ended March 31, 2005 increased by $7,013 (2%)
from $334,891 for the three months ended March 31, 2004 to $341,904 for the
three months ended March 31, 2005. Licensing revenue for the first three months
of 2005 amounted to $25,000 or approximately 7% of total revenue, as compared to
$4,166 (1.2% of total revenue) for the three months ended March 31, 2004.

On a gross basis, sales for the two periods compared were effectively flat. A
number of Snap! and Bear Shop units were returned during this period ($118,669),
but these returns were offset against a provision for sales returns recorded in
2004. In January 2004, we commenced sales of the Snap! unit and sold $315,000 of
this product in the first 60 days after the product launch. Snap! units sales
continue to progress in 2005 in the Australasian marketplaces, with an order
backlog of 200 units, valued at $450,000. Ongoing production problems with our
Chinese manufacturing operation have hindered sales growth for Snap! units in
2005. Bear Shop sales continue to be constrained due to ongoing glitches
associated with the operating software.

In the matter of the Snap! production problems in China, in January 2005 we
engaged the services of Mr. Raymond Chan. A Chinese-born American-educated
mechanical engineer living in Hong Kong and working Shenzhen China, Mr. Chan
serves as our quality control engineer at the manufacturing facility. Since Mr.
Chan's engagement as a consultant we are more involved in the production process
and we believe that we are able to identify any potential production problems as
they arise. We anticipate that the defect rate of future shipments of Snap!
units will be reduced.

In the matter of the Bear Shop software glitches, we have completed Version 2.0
of the Bear Shop software thereby correcting some of the defects of Version 1.0:

     1.   We replaced the operating system.
     2.   We replaced the monolithic architecture with a modular one. We
          anticipate that this will improve our ability to diagnose and repair
          problems and add more features in the future.
     3.   We added additional diagnostics, logs, and other tools to help track
          down problems.

On May 19, 2005, we began shipments of Version 2.0 to distributors for
installation into existing Bear Shop units.

Cost of sales for the three months ended March 31, 2005 decreased by $36,464
(16%) from $223,757 for the three months ended March 31, 2004 to $187,293 for
the three months ended March 31, 2005. The decrease in cost of goods sold is
primarily attributable to lower costs realized from our Chinese manufacturer due
to larger production runs of Snap! units compared to 2004. As a result, and
further due to the increase in licensing revenue in 2005, our gross profit
percentage was 45.2% for the three months ended March 31, 2005, compared to
33.2% for the three months ended March 31, 2004.


                                       29
<PAGE>

Selling, general and administrative expenses for the three months ended March
31, 2005 increased by $391,061 (55%) from $714,289 for the three months ended
March 31, 2004 to $1,105,350 for the three months ended March 31, 2005. The
increase is primarily attributable to higher use of outside financial consulting
and investor and public relations services in 2005. We engaged outside financial
and investor relations consultants in order to more effectively communicate our
business model and plan to our current and potential shareholders. These firms
were paid in stock for their services. The total financial consulting and
investor relations expense paid for in capital stock of the Company for the
three months ended March 31, 2005 was approximately $625,000 (as compared to
$33,000 during the first three months of 2004). In addition, we recorded prepaid
expense of $178,240 at March 31, 2005 relating to business advisory services.
This prepaid expense was also paid in shares of our common stock. Expenses
related to payroll, marketing and other operating expenses declined
approximately $280,000 reflecting a reduced level of operations and headcount.

Research and development expense for the three months ended March 31, 2005
decreased by $133,104 (100%) from $133,104 for the three months ended March 31,
2004 to $0 for the three months ended March 31, 2005. The decrease is
attributable to the termination of research and development activities in order
to concentrate all available engineering resources on the refinement of Bear
Shop software.

Gain on the settlement of debt for the three months ended March 31, 2005
decreased by $132,945 (93%) from $142,673 for the three months ended March 31,
2004 to $9,728 for the three months ended March 31, 2005. During 2004, we were
able to settle certain trade payables for amounts less than originally invoiced
relating to over-billed amounts or amounts billed in error. In particular, we
settled a trade payable to MCI Worldcom at a gain of $127,023 relating to
inflated network usage invoices. We also settled a legal bill from outside
counsel at a gain of $15,649. In 2005, we recorded a gain of $9,728 relating to
a discount from a vendor on the outstanding balance upon issuance of final
payment in accordance with the settlement agreement.

Amortization of debt discounts for the three months ended March 31, 2005
decreased by $21,103 (67%) from $31,079 for the three months ended March 31,
2004 to $10,066 for the three months ended March 31, 2005. In the fourth quarter
of 2004 we issued convertible notes payable in the amount of $175,003 that
included a beneficial conversion feature. As a result, we recorded a discount on
the notes of $42,859 at December 31, 2004, to be amortized to expense over the
life on the notes, one year. The amortization expense relating to this discount
was $10,066 for the three month period ended March 31, 2005.

Interest expense for the three months ended March 31, 2005 increased by $61,948
(733%) from $8,452 for the three months ended March 31, 2004 to $70,400 for the
three months ended March 31, 2005. The increase in interest expense is primarily
attributable to the recognition of costs associated with our pursuit of the
assets of Sega Gameworks. Certain lenders involved in that transaction required
substantial interest as compensation to induce them into providing financial
support for the transaction.

As a result, net loss for the three months ended March 31, 2005 increased by
$363,195 (53%) from a net loss of $681,321 for the three months ended March 31,
2004 to a net loss of $1,044,516 for the three months ended March 31, 2005.


                                       30
<PAGE>

LIQUIDITY AND CASH RESOURCES

As of March 31, 2005, our cash position was $143,161 and we had negative
working capital of $452,527. Working capital represents our current assets minus
our current liabilities and is related to our ability to pay short term debt as
it becomes due.

During the first quarter of 2005 we sold 100,000 shares of common stock for cash
in a private placement offering for gross proceeds of $75,000. We have used the
proceeds of the offering to fund the ongoing development of our products.

Our debt outstanding at March 31, 2005 consists of the following:

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

A $243,139 loan payable to the Company's Vice President of Marketing issued on
various dates in 2004 bearing 12% interest and secured by inventory and
receivables of the Company; due upon demand.

A $117,000 loan payable to the brother-in-law of our CEO issued on December 6,
2004; unsecured and due upon payment by customer of invoice # 60284B.

A $25,500 loan payable to the wife of our CEO issued on various dates in 2004,
bearing 8% interest, unsecured, and due upon demand.

A $4,500 loan payable to the Company's Vice President of Operations issued on
various dates in 2004, bearing 8% interest, unsecured, and due upon demand.

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

On March 12, 2002, we entered into a $150,000 convertible note with Mr. Scottie
Pippen. The note bears interest at 10%, was due on September 9, 2002 and is
convertible into common stock at $1.58 per share. We made repeated attempts to
contact Mr. Pippen's representatives to come to a resolution regarding the
disposition of the note. As a result of a lack of communication from Mr.
Pippen's representatives, we did not reach an agreement with Mr. Pippen
regarding disposition of the note until March 2005, at which point Mr. Pippen
agreed to convert the note into shares of common stock. On May 24, 2005, we
issued 121,986 shares of common stock upon conversion of the principal amount of
this note plus $42,500 in accrued interest. These shares are reflected as shares
to be issued on the March 31, 2005 balance sheet and remained unissued at March
31, 2005 for ministerial reasons.

During the three month period ended March 31, 2005, we repaid a total of
$615,000 in 8% unsecured short term loans which we used to fund the $615,000
deposit required for us to participate in the auction of the assets of Sega
Gamesworks, LLC held on December 15, 2004. Following the completion of the
auction, this deposit was returned to us and we used that cash to repay the
loans.

We will need additional working capital to fund our operations over the next 12
months. We believe that we will need at least an additional $2.5 million of
working capital to fund inventory and accounts receivable resulting from the
projected demand for our Snap! and Bear Shop products and the construction of a
restaurant and, if necessary, to finance future losses from operations. We have
not yet allocated specific amounts for these purposes. We plan to obtain the
additional working capital through the private placement sale of our equity
securities. As of the date of this report, there are no commitments for the sale
of the Company's securities nor there be any assurance that such funds will be
available on commercially reasonable terms. Should we be unable to raise the
required additional funds, our ability to finance our continued growth will be
materially adversely affected.


                                       31
<PAGE>

In May 2005, we sold 533,458 shares of our common stock in a private placement
for gross proceeds of $293,402.

CASH POSITION AND USES OF CASH

Our cash and cash equivalents position as of March 31, 2005 was $143,161.

During the three months ended March 31, 2005, net cash provided by operations
was $37,819, as compared to a use of $1,205,213 for the three months ended March
31, 2005. This decrease is primarily attributable to a $785,041 increase in the
use of common stock to pay for services in 2005 as compared to 2004; a $470,601
increase in cash generated by accounts receivable, inventory and inventory
deposits in 2005 as compared to 2004; and a $328,667 increase in cash generated
by accounts payable in 2005 as compared to 2004.

During the three months ended March 31, 2005, we generated $615,000 in cash from
investing activities, as compared to using cash of $57,670 for the three months
ended March 31, 2004. In 2005 we invested no cash in plant, property and
equipment, as compared to investing $57,670 in 2004. As described above, in
December 2004, we invested $615,000 in a deposit related to our pursuit of the
assets of Sega Gameworks out of bankruptcy. We liquidated this deposit during
the first three months of 2005, resulting in net positive cash from investing
activities of $615,000. We used this cash to repay loans totaling $615,000 which
were made to fund the deposit.

During the three months ended March 31, 2005, our financing activities used cash
in the amount of $567,000 as compared to providing cash of $1,248,185 in the
three months ended March 31, 2004. Gross cash generated from sales of our equity
securities was $75,000 in the first quarter of 2005 as compared to $1,439,050
($1,248,185 net of offering costs) in the first quarter of 2004. As noted above,
in the first quarter of 2005 we also repaid loans of $615,000 used to fund a
deposit relating to our participation in the auction of the assets of Sega
Gameworks in December 2004. Furthermore, we repaid $27,000 of amounts due to
related parties in the first quarter of 2005.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

ESTIMATES - Our discussion and analysis of our consolidated financial condition
and results of operations are based upon our consolidated financials statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates, including those related to allowance for doubtful
accounts, inventory reserves, impairment of long-lived assets and intangibles,
and value of our stock and options/warrants issued for services. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions; however, we believe
that our estimates, including those for the above-described items, are
reasonable.



                                       32
<PAGE>

Software Development Costs

Software development costs related to computer games and network and terminal
operating systems developed by the Company are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Cost of Computer Software to be Sold, Leased, or Otherwise Marketed."
Capitalization of software development costs begins upon the establishment of
technological feasibility and is discontinued when the product is available for
sale. When the software is a component part of a product, capitalization begins
when the product reaches technological feasibility. The establishment of
technological feasibility and the ongoing assessment for recoverability of
capitalized software development costs require considerable judgment by
management with respect to the completion of all planning, designing, coding and
testing activities necessary to establish that the product can be produced to
meet its design specifications and certain external factors including, but not
limited to, anticipated future gross revenues, estimated economic life, and
changes in software and hardware technologies. Capitalized software development
costs are comprised primarily of salaries and direct payroll related costs and
the purchase of existing software to be used in the Company's products.

Amortization of capitalized software development costs is provided on a
product-by-product basis on the straight-line method over the estimated economic
life of the products (not to exceed three years). Management periodically
compares estimated net realizable value by product with the amount of software
development costs capitalized for that product to ensure the amount capitalized
is not in excess of the amount to be recovered through revenues. Any such excess
of capitalized software development costs to expected net realizable value is
expensed at that time.

Revenue Recognition

The Company recognizes revenue related to software licenses in compliance with
the American Institute of Certified Public Accountants ("AICPA") Statement of
Position No. 97-2, "Software Revenue Recognition." Revenue is recognized when
the Company delivers its touch screen pay-for-play game terminals to its
customer and the Company believes that persuasive evidence of an arrangement
exits and the fees are fixed or determinable. Included with the purchase of the
touch screen terminals are licenses to use the games loaded on the terminals.
The Company delivers the requested terminals for a fixed price either under
agreements with customers or pursuant to purchase orders received from
customers.

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

FORWARD-LOOKING STATEMENTS

In this report we make a number of statements, referred to as "FORWARD-LOOKING
STATEMENTS", which are intended to convey our expectations or predictions
regarding the occurrence of possible future events or the existence of trends
and factors that may impact our future plans and operating results. These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as "SEEK", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT",
"INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY
RESULT", and similar expressions. When reading any forward looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, including those
relating to:


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<PAGE>

         o        whether or not markets for our products and services develop
                  and, if they do develop, the pace at which they develop;

         o        our ability to attract the qualified personnel to implement
                  our growth strategies;

         o        the accuracy of our estimates and projections;

         o        our ability to fund our short-term and long-term financing
                  needs;

         o        changes in our business plan and corporate strategies; and

         o        other risks and uncertainties discussed in greater detail
                  under "Risk Factors" in our Annual Report on Form 10-KSB for
                  the year ended December 31, 2004.

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


ITEM 3.    CONTROLS AND PROCEDURES

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

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

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

Changes in Internal Control Over Financial Reporting

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


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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.



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<PAGE>

PART II. OTHER INFORMATION

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

During the three months ended March 31, 2005, we sold or issued unregistered
shares of our securities in the following transactions:

On January 1, 2005, we issued 50,000 shares of common stock to Mr. Paul
Abramowitz in exchange for financial consulting services valued at $127,500,
based on the stock price on the date of the agreement. This issuance was made
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.

On January 14, 2005, we issued 60,000 shares of common stock to Mr. Jack
McConnaughy in exchange for business development services valued at $90,000,
based on the stock price on the date of the agreement. This issuance was made
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.

On January 19, 2005, we issued 12,500 shares of common stock to Falcon Capital
for financial consulting services valued at $21,875, based on the stock price on
the date of the agreement. This issuance was made pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of 1933.

On March 8, 2005, we issued 400,000 shares of common stock to Redwood
Consultants, Inc. in exchange for investor relations services valued at
$444,000, based on the stock price on the date of the agreement. This issuance
was made pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act of 1933.

On March 8, 2005, we issued 40,000 shares of common stock to CCRI, Inc. in
exchange for public relations services valued at $38,000, based on the stock
price on the date of the agreement. This issuance was made pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act of
1933.

On March 14, 2005, we sold 100,000 shares of common stock for cash in a private
placement offering for gross proceeds of $75,000. The shares have not been
registered with the Securities Exchange Commission in reliance on Rule 506 under
the Securities Act of 1933. This issuance was made only to "accredited
investors" within the meaning of Rule 501 under the Securities Act of 1933 who
otherwise meet certain suitability standards.


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ITEM 6.  EXHIBITS

(a) Exhibits

REGULATION
S-B NUMBER                             EXHIBIT

10.1      Lease for office space at 12536 Beatrice Street Los Angeles, CA 90066*

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

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

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

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

*Incorporated by reference to Exhibit 10.7 of our Annual Report on Form 10-KSB
for the year ended December 31, 2005, filed on April 17, 2006.



                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                                   UWINK, INC.


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


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


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