uWink: Worth the Risk at This Price

Sep. 8.08 | About: uWink, Inc. (UWKI)

uWink Logo

I’ve been biding my time with uWink (NASDAQ: UWKI.OB) for the last few months or so as the price has plummeted from around $1.40 per share to the now bargain basement price of $0.55 per share.

There has been little news coming out of uWink other than their last quarterly earnings release that I wrote about extensively, which was not a pretty picture.

As I explained in my breakdown, the results need to be taken into context, and not overblown or exaggerated in their nature.

Chief among those observations is the fact that uWink is not really a restaurant company, although to this point, that’s the only way we’ve had to value them.

It seems that valued in that context alone, some out there, and for sure the culprits of the recent stock decline, have taken it upon themselves to bail on the company right at the cusp of their acceleration as a software development company.

That, I believe, is a big mistake.

In fact, the recent stock price provides us with such a compelling risk/reward scenario that it is simply too good to pass up, and needless to say, uWink definitely qualifies for my Double Thesis.

Apparently I’m not the only one that feels this way as the CFO has just purchased more shares on the open market, and both the CFO and CEO have received a generous amount of new preferred stock in exchange for some of their underwater options.

There are other reasons why I feel this is a great time to purchase shares of uWink or further cost average your position if you already have one, and I’ll go into those in detail further below.

I am initiating the Fourth (4) BUY recommendation of uWink at or around $0.55 per share.

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.

uWink’s CEO is Nolan Bushnell, who also founded Atari Inc. (OTC: ATAR.PK) and Chuck E. Cheese’s, now known as CEC Entertainment (NYSE: CEC).

uWink Looking Mighty Attractive

Several upcoming catalysts should bring more attention to the stock

This is the perfect time to buy shares of uWink whether you are new to the story, or already own shares and are looking to cost average your position.

Here are my reasons for purchasing more shares in the company:

  • Stock Price, Risk/Reward: At around $0.55 per share, uWink is trading at bargain basement levels reserved for a company on the verge of bankruptcy.

Even though, as I wrote about previously, uWink does need to secure some software and licensing deals quickly to ensure their future and to make sure that they don’t need to tap the equity markets for cash within the next 12 months, today’s price places the company on its death bed much too soon.

Currently, uWink has about $3.2 million in cash in the bank with no debt, or about $.25 per share.

This gives uWink a current market cap of about $6.7 million, so you are basically getting the entire uWink business and their future prospects for only $3.5 million, including all intellectual property, 3 currently operating, or soon to be operating, fully-staffed restaurants, as well as the management team and future software and licensing deals that are yet to be announced.

It’s easy to see that at these levels, the selling in uWink has been a wee bit overdone, and provides us with a perfect opportunity to purchase shares in the company on the cheap, with nice downside risk protection.

The bottom line is that you are essentially getting uWink’s assets and cash on hand, for $.30 per share and giving little to no premium at all for the potential of the business.

This to me seems heavily weighted in our favor.

  • New Location Opening: uWink is about to open their 3rd and possibly final, restaurant location in Mountain View, California sometime within the next week or so.

This will bring more attention and press coverage to the company, especially with this location being in the heart of Silicon Valley, a notorious tech-geek mecca, the perfect audience for uWink’s highly interactive restaurant concept.

In fact once this location is open to the public, I’ll be writing about it extensively since it sits right down the street from me.

On another note, once this locations is up and running at full steam, management can now fully focus their attention away from restaurants, and fully on ramping up uWink’s next phase of existence: that of a software development company that uses its restaurants to showcase its technology.

You can read more about that here.

  • Insider Purchases/ Restricted Stock Grants: From August 25th-29th, CFO Peter Wilkniss purchased 40,025 shares of uWink stock for a total purchase of $27,500.

Also, on August 26th, the CFO and the CEO Nolan Bushnell, were granted 125,000, and 185,000 shares of restricted stock respectively, replacing options that they had been previously granted and that had vested that were under water.

This essentially kept their stakes the same in terms of overall ownership in the company’s stock.

While no one likes restricted stock grants, as it pretty much let’s insiders off the hook in terms of stock options being underwater while the rest of us squirm, I don’t necessarily have a problem in this case with it seeing as uWink’s stock has fallen so much in the last few months and keeping management interested and vested is important with any business.

CFO Peter Wilkniss now owns about 2.3% of the company, while CEO Nolan Bushnell owns about 7.7% of the shares outstanding, or about 10% combined.

So while the buying was not quite what I would have liked to see in terms of pure dollar amounts, it does show some confidence in the company.

Even though it was only $27,000 worth of stock, if you couple that with the CFO and CEO’s previous purchases in uWink’s follow on offering, they have a lot of skin in the game, and many options at much higher prices than where the stock sits now.

Like the saying goes, insiders sell stock for many different reasons, but usually only purchase it for one: they think the stock is undervalued and is poised to go higher.

If I had an inkling that my company was headed for ruin, I wouldn’t put one dime into it knowing I would probably never see that money again.

Now we all have a little skin in the game.

  • Upcoming Business Announcements/Deals: While uWink has been busy opening their last two restaurant locations, they have also been on the prowl for some deal-making for their software and licensing business.

The management team at uWink knows and understands full well what is at stake in terms of their future business prospects as well as the ability for uWink to continue as an ongoing concern and to stay solvent.

I believe that now that uWink’s 3rd, and most likely final, company-owned location opens in about a week, we’ll start to hear more about the latest deals that are being cooked up with other partners that will begin to test and potentially utilize uWink’s software for the hospitality industry.

It’s taken uWink about 2 years to test and perfect their software, add features, take away the ones that don’t work, and get all the bugs out.

It is now ready to implement across a whole spectrum of business segments for use in increasing margins, and serving customers better such as: hotels, universities, stadiums, theme parks, casinos, casual/fast food chains, and golf and ski resorts.

If you can think of an application that can benefit from the uWink platform, tailored to their business of course, it can be implemented.

In fact, uWink surprised many in the spring when they signed their first software and licensing deal with a retirement home community that would utilize the uWink terminals for the senior citizens that lived there to make their lives easier and more enjoyable.

You can read about that deal here.

Bottom Line

Risky but extremely attractive

Don’t let the fact that uWink’s one restaurant that was able to report a full year’s worth of data is not doing so hot fool you.

uWink never intended on being a restaurant company.

For uWink, breaking even on their restaurants, which they already are, was all they intended to do, while focusing their attention more on the software side of their business.

I believe that this side of their business will now become a primary focus, and we’ll start hearing about some deals, and the system being tested out possibly by several well known companies, in the next few months or so.

This is the reason to be in uWink.

The restaurants might be convenient and fun, or they might scare you to death because of their perceived impersonal nature, but one thing remains true: the technology behind the restaurants (ordering food from a touch screen monitor, playing interactive games with those at your table or other tables, etc.), is what the story is really about.

With the current stock price reaching the lowest levels EVER, if you were waiting for a good “entry” point, now is the time to dip your warm toes into the somewhat icy water.

I will reiterate that uWink is NOT for the faint of heart, the risk averse, or those that don’t understand the full story and how it will play out.

But if you understand the real uWink, and are looking for some tastiness to go along with your bland and boring mutual funds and “safe” stocks, it’s time to pack up the kids and head to uWink for a night of fun, games and never having to speak to a waiter!

Oh, and while you’re there, go ahead and pick up some nice and tasty shares of the company’s stock too.

New to the uWink story?

Click to enlarge
  • Start: with my initial buy recommendation and company overview here,
  • OR: read how uWink is NOT a restaurant company, but instead intends to license their software platform to other businesses here.