On December 5th, 2008, uWink (NASDAQ: UWKI.OB) made an “odd lot” tender offer to purchase all shares of its common stock held by persons owning 99 shares or fewer on the close of business as of December 1, 2008.
The offer was designed to reduce the number of total shareholders of uWink’s stock to under 500, whereby uWink would then deregister their stock from the OTC/Bulletin board and spin off their technology licensing business as a dividend to existing stockholders.
Well, it turns out that uWink was successful in this endeavor and that it will deregister with the Securities and Exchange Commission on or about January 30, 2009.
As I wrote recently, uWink has serious liquidity issues and is taking an unprecedented step to take themselves out of the stock market, and make the company look more attractive for possible investment for the two separate entities that they will become: one a restaurant company, and one a software and licensing company.
As a result of this tender offer’s success and the fact that uWink will essentially no longer be a publicly traded company, there will be a different CEO, and uWink shares are practically worthless, I am removing uWink from my coverage universe and downgrading shares to Sell, although this is only a symbolic gesture.
New to the uWink story?
uWink is an entertainment and hospitality software development company that develops casual, interactive, social games, in addition to licensing the rights to those games and their proprietary touch-screen ordering and gaming interface to restaurants, entertainment venues and the hospitality industry.
uWink also owns and operates three restaurants under the uWink brand name that utilize this technology.
- Start: with my recent post about uWink’s tender offer to go private here.
- OR: Read my last post regarding uWink’s future as a stand alone company here.
- OR: read about uWink’s latest deal to test their terminals at a Chili’s Too Margarita Grill, and possible expansion plans to other Chili’s restaurants here.
So Long uWink, It Was Nice Knowing Ya!
uWink delisting all but ends company’s high profile existence
I wrote extensively when it was announced what uWink’s tender offer meant for shareholders of the company’s stock, and what should be done if you still owned shares of uWink.
You can read that post in its entirety by clicking here. There still is time if you want to sell your uWink shares for a pittance.
In a nutshell, uWink wanted to diminish the number of shareholders so that they could in essence take the company private, delist from the public markets, and then spin off shares of their company into 2 entities: a software licensing company that dealt with their touch screen ordering and gaming terminals, and a stand alone restaurant company that dealth with their 3 restaurant locations.
With uWink’s announcement on Friday January 16th that they succeeded in getting enough people to tender them their shares to make this a reality, the company now plans to stop any and all public filings which are required as a listed company, and then delist their shares on the public markets by January 30th, 2009 and become a “non-reporting” company.
What does “non-reporting” company mean?
For us it means we will have little to no transparency on what’s going on with uWink behind the scenes because they will not be required to tell us as shareholders anything of substance because they are no longer a publicly traded company.
My sinking suspicion is that more than to save costs, uWink is taking this step because they don’t want the intense scrutiny that investors have them under, as well as their inability to raise funds as a public company.
This essentially gets uWink off the hook in terms of having to answer questions about declining sales, what they are doing, and when their pilot projects are going to be coming online in the future, etc.
Private investors will have an easier time because of liquidity constraints in getting shares of uWink or investing in the company than they ever would on the public markets.
Finally, uWink’s stock may be quoted in the Pink Sheets Electronic Quotation System once the shares are deregistered.
uWink stated in their filing that they cannot predict whether or when this will occur or that an active trading market will exist for their common stock after they deregister.
As a result, it may be more difficult for remaining stockholders to sell their shares.
What this does is essentially lock in shareholders now who might want to sell uWink’s stock in the future.
Special Dividend for Existing Shareholders
1-1 stock dividend of uWink’s software licensing business
Once uWink becomes a non-reporting company, they intend to spin-off their Technology Licensing business via a stock dividend to shareholders as a separate non-reporting company.
Current shareholders will receive one share of the new company for each share of uWink that they currently own.
From uWink’s past 13E3 filing:
We are still in the early stages of the development of each of our operating businesses and our Board of Directors believes that spinning off our Technology Licensing business, and eliminating the costs associated with being a reporting company for each of our operating businesses, will improve the prospects for raising growth capital (because technology companies and restaurant companies appeal to different sets of investors and because our overall cost structure for each of our operating businesses will be lower once we eliminate the costs of being a reporting company), as well as allow each of our operating businesses to compete more effectively in its markets.
Most of our competitors in the interactive hospitality software market are non-reporting companies and thus are not subject to the expenses and other burdens of being a public reporting company. Of those few that are reporting companies, virtually all have much larger revenue bases and are thus better able to bear the expenses and other burdens of being a public reporting company.
Similarly, most of our restaurant competitors are either reporting companies with much larger revenue bases or non-reporting companies that operate free of public reporting company costs.
As part of the spin-off, uWink intends on changing the legal and trade names of the spin-off company to something other than “uWink”.
In addition, uWink’s current President/COO, Peter Wilkniss, will become the CEO (with responsibility for all financial and accounting matters) of the spin-off company, while Nolan Bushnell will remain as Chairman, but only be CEO for the restaurant business.
For the spin-off company, uWink expects that their operating cash needs will be approximately $1.4 million for calendar 2009.
The funds for this new company are not yet in place, and as a result of the spin-off, uWink believes that they will be able to secure funding because investors will view the stand-alone software licensing business more favorably than the restaurant side of the business, and thus the thought process is that they will receive higher multiples for the business while giving up less equity to those investors.
At the same time uWink does not anticipate needing any additional capital for their restaurant side of the business and will not be seeking additional capital.
uWink Stock Essentially Worthless
CEO pursuing other endeavors, writing on the wall
This is all crazy stuff, and certainly nothing that I have ever experienced as a shareholder in any company that I have ever owned.
Essentially, this comes with the territory, and is one of the many risk factors involved when dealing with a company like uWink, and one that is precariously close to running out of funding, at least in its current form.
By deregistering its shares, uWink is essentially going to be a worthless stock, inclusive of the 1-1 stock deal whereby current shareholders, such as myself, will get 1 share in the new software and licensing company for every share we already own of uWink, plus we keep our existing uWink shares.
So why does this mean uWink is worthless when we are getting something?
Because quite frankly, the uWink shares that we already own, which will become the restaurant company, are worthless as the restaurants are barely operating at break even, and are deteriorating fast in this economy and market.
It is highly unlikely that the restaurants will be able to continue in their current form, aside from my past talks with management about how they are cash flow even and don’t need additional funding, without some type of merger, additional cash infusion, etc.
So, that makes those shares practically worthless as already evidenced by the $.07 per share price.
Now if we turn our attention to the shares we will be getting on a 1-1 basis of the new software and licensing business, which will deal with licensing uWink’s technology to other restaurants and businesses in the hospitality industry, those shares as of right now are also worthless as they will not be publicly traded, may never be, and in the mean time are worth whatever the company says they are worth.
Sure, it’s quite possible that sometime down the line, say years not months, we might get something out of those shares if the “new” uWink operates flawlessly, executes their new business model and strategy, and signs up a whole host of deals, but that would be a long time in coming.
If that occurred, then we could possibly see a very nice return on our investment as the company gets additional funding (which would, by the way, dilute us further), and perhaps come public again at a much higher share price which would make our return highly lucrative.
Now mind you, this is a long shot, at least the way I see it, so I would basically count all the shares of uWink that I now hold as entirely worthless, with a 5-10% gambler’s chance of making something on the software shares one day.
CEO Stepping Down?
What hasn’t really been talked about much in all of this is the fact that Nolan Bushnell is mighty bored right now, and is more interested in moving on to his latest pet project than remaining on at uWink in any material capacity.
In fact, in uWink’s filings announcing the tender offer, it was stated that the CEO of the “new” uWink would be the current CFO Peter Wilkniss, who to be honest, was the acting CEO of the “old” uWink for the last few years anyway.
Nolan Bushnell was never anything more than a figurehead, and a poor one at that in my estimation.
So what’s the bottom line?
This one’s easy: my first stock for all intents and purposes to go to $0 per share.
That’s quite an accomplishment actually as it is very difficult for a stock to go entirely to $0. (dripping with sarcasm…)
At any rate, I will no longer be covering uWink, unless there is some Earth shattering news to talk about, and will add this investment to the quiet little “loss” pile.
It was fun while it lasted, and I never hid the risk factors of owning this stock, and that owning shares was a pure gamble on the technology becoming wide spread and highly adopted.
That still might take place, but it’s too late for us as investors to capitalize on that now unless you owned stock before December 1st.
Rather, we should look upon uWink as a nice try by a management team that never quite got things right in time to make a difference, and a CEO that always had other pet projects going on that he could jump to should things not pan out with uWink, which is exactly what is transpiring now.
Since I never allocated much of my portfolio to shares of uWink, there isn’t much remorse or regret on my part other than the fact that I spent so much time researching the company and advocated shares for the “gambling” portion of your portfolio.
I now see that perhaps there were other “gambles” that were more worth taking, and I’ll be on the lookout for those in the coming months, as, true to the doctrine and discipline of this website, I deal in high-risk, high reward stocks.
What happened with uWink is the nature of the beast, and should be a good example to all of us as to the perils of investing in penny stocks with stars in our eyes.