uWink Expansion in Full Swing

Jun.28.07 | About: uWink, Inc. (UWKI)

Last November, I profiled a new restaurant concept called uWink (UWNK.OB). Though open only a few weeks at the time, this brainchild of Nolan Bushnell (of Atari and Chuck E. Cheese fame) had great aspirations to become the next big restaurant chain. A great deal has transpired concerning uWink in the seven plus months since I wrote that article, so I felt an update was in order...

The stock experienced a temporary pop in mid-November when uWink was featured on CNBC. It is rare for a company on the Over-The-Counter exchange to be the subject of a CNBC story but Bushnell articulated to Jane Wells uWink's vision of social gaming and targeting women with casual video games. Momentum traders stampeded in and out of the stock but the exposure the restaurant received was priceless.

In January, uWink launched "24" nights. Jack Bauer fans congregated at uWink every Monday night to watch their hero save the world again. The TV show was projected on the walls throughout the restaurant and customers played 24 trivia at their table's touchscreens during commercial breaks in a bid to win free desserts and t-shirts.

April brought a new full-featured website and another first for the ground-breaking restaurant: Touchscreen computers at 20 patio tables enabling outside ordering. Additionally, new media pioneer Liz Heller joined uWink's Board of Directors during the month. Buzztone, the marketing company Heller founded, specializes in cutting-edge online and off-line word-of-mouth promotion techniques.

May began with a bang with announcements of 2 new company-owned locations in California. First, the company has signed a letter of intent to open a location at the Promenade at Howard Hughes Center in Los Angeles by early 2008. A week later, uWink signed a letter of intent to open a 6,500 square foot location at the Hollywood & Highland Center in Hollywood during the same timeframe. The illustrious center is home to Grauman's Chinese Theater and the Kodak Theatre where The Academy Awards ceremonies are held annually.

By the end of May, uWink had strengthened their management team with the appointment of John Blake as Director of Restaurant Operations. Blake joins fellow California Pizza Kitchen alum John Kaufman (who was promoted to Chief Restaurant and Development Officer) at uWink. Blake was Regional Director of Operations at the pizza chain, charged with restaurant management and training of franchisees. He worked closely with franchisees during openings of new California Pizza Kitchen locations. Furthermore, uWink CEO Nolan Bushnell joined the board of directors at NeoEdge Networks, a developer of ad-supported casual video game delivery networks, during the month. A strategic partnership between these 2 complementary companies is certainly a possibility.

In June, uWink announced their first franchise area development agreement. OCC Partners, LLC agreed to open up to 3 franchised uWink restaurants in Miami-Dade county, Florida, over the next 4 years. Of note, the restaurants will be the first to implement the chain's multilingual capabilities. The touchscreen computers at each table in their restaurants will feature bilingual menus in both English and Spanish. This was followed by the announcement of the creation of uWink Canada in partnership with Canadian venture capital firm Jefferson Partners. The 50-50 joint venture is expected to open its first restaurant in Canada by early spring 2008.

Moreover, uWink announced their plan to undergo a 1-for-4 reverse split of their stock. Now I know what you're thinking: "A reverse split is a sign a company is in trouble!" Not necessarily. In many cases that is true. Those situations are typically failing companies whose stock price has dropped significantly. The companies resort to a reverse split (typically ranging from 1-for-10 to 1-for-100) as a stopgap measure to prop up their stock price. In comparison, stocks who undergo a 1-for-4 or smaller reverse split have a much higher rate of successful price performance post-split.

uWink is targeting a modest 1-for-4 reverse split with the aim of listing their stock on a better exchange. The company has announced their plans to apply for listing on the AMEX, a move that will enable the company to attract the interest of large institutions and mutual fund managers. The reverse split will likely peg the price of uWink's stock in the $5 - $6 range, well in excess of the $2 minimum for listing on the American Stock Exchange.

Most recently, uWink just announced a follow-on offering valued at up to $15 million. They have also announced their intention to reincorporate in Delaware. These steps are necessary to more quickly achieve their goals of rapid expansion. Establishing a first-mover advantage is paramount to uWink as imitators will eventually crop up once uWink's unique touchscreen ordering and entertainment system gains traction.

In summary, uWink appears to be firing on all cylinders while making the housekeeping moves necessary to facilitate their next stage of growth in both company-owned and franchised locations. Prospective investors may initially be put off by the forthcoming follow-on offering and reverse split. Time will tell if these were the right steps to transform uWink into the next restaurant mega-chain. However I, for one, am not going to be left on the sidelines as this compelling growth story unfolds.

Disclosure: Author is still long UWNK.

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