Playlogic Entertainment (PLGC) 10QSB/A 2005 Q3 Quarterly report (small business) (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB/A

Amendment No. 1

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended:September 30, 2005

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number:0-49649

PLAYLOGIC ENTERTAINMENT, INC.

(Exact name of small business issuer as specified in its charter)

Delaware	23-3083371
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
Concertgebouwplein 13, 1071 LL Amsterdam, The Netherlands	1071 LL
(Address of principal executive offices)	(Zip Code)

(011) 31-20-676-0304
(Issuer’s telephone number)

Check whether the issuer (1) has 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.þ Yeso No

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.o Yeso No

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

Class	Outstanding at November 10, 2005
Common Stock, par value $.001 per share	23,099,994 shares

Transitional Small Business Disclosure Format (check one): Yeso Noþ

EXPLANATORY NOTE

RESTATEMENT OF FINANCIAL STATEMENTS

This Amendment No. 1 on Form 10-QSB/A amends and restates the items identified below with respect to the quarterly report on Form 10-QSB filed by Playlogic Entertainment, Inc. (“we” or “the Company”) with the Securities and Exchange Commission (the “SEC”) on November 14, 2005 (the “Original Fling”) for the quarterly period ended September 30, 2005.

Restatements

As described in the current report on Form 8-K filed by the Company with the SEC on November 20, 2006, as amended, the Company announced it would restate its unaudited financial statements for the quarterly period ended September 30, 2005. The restatements reflect the Company’s determination that its accounting for the reimbursement of certain expenses incurred during the second and third quarters of 2005 in connection with the share exchange transaction had not been properly reflected in the financial statements contained in the Original Filing in accordance with the generally accepted accounting principles of the United States. Certain operating expenses and transaction costs related to the Company’s share exchange transaction entered into in June 2005, which were initially paid by the Company and reimbursed by certain shareholders, were omitted from the Company’s consolidated statement of operations for each of the six and three months ended June 30, 2005, the nine and three months ended September 30, 2005 and the fiscal year ended December 31, 2005. The corrections to this error resulted in either the recognition of additional contributed capital and/or a reduction in amounts due from shareholders for unrelated advances made prior to the share exchange transaction. The restatements contained in this Form 10-QSB/A were made in accordance with the provisions of SFAS 154 for correction of errors. The Company is also restating its unaudited financial statements for the three months ended June 30, 2005 contained in the quarterly report on Form 10-QSB filed with the SEC on August 19, 2005, audited financial statements for the fiscal year ended December 31, 2005 contained in its annual report on Form 10-KSB filed with the SEC on May 5, 2006, unaudited financial statements for the three months ended March 31, 2006 contained in its quarterly report on Form 10-QSB filed with the SEC on May 22, 2006 and unaudited financial statements for the three months ended June 30, 2006 contained in its quarterly report on Form 10-QSB filed with the SEC on August 14, 2006.

Changes Reflected in this Form 10-QSB/A

This Form 10-QSB/A only amends and restates certain information in the following items related to the quarterly period ended September 30, 2005:

Part I Financial Information

Item 1 – Financial Statements

Unaudited Consolidated Financial Statements

Note D Summary of Significant Accounting Policies

Note E Correction of an Error

Note H Common Stock Transactions

Item 2 – Management’s Discussion and Analysis or Plan of Operations

Restatements

Results of Operations

Liquidity and Capital Resources

Item 3 – Controls and Procedures

Part II Other Information

Item 6 – Exhibits

Certifications

Primarily these amendments are to reflect the Company’s certain operating expenses and transaction costs incurred in connection with the share exchange transaction in June 2005, which were initially paid by the

Company and then reimbursed by certain shareholders and were omitted from the unaudited financial statements in the Original Filing. Other non-material revisions were also made in order to clarify certain disclosure in the Original Filling and to enhance the presentation.

The application of the foregoing has resulted in certain significant amendments to the Original Filing. Revenues were not restated from the Original Filing and remained at $542,579 in the three months ended September 30, 2005. The impact of the amendments resulted however, in a net loss of $1,268,505 in the three months ended September 30, 2005, as opposed to a net loss of $655,511, as reported in the Original Filing. These restatements are primarily due to the reorganization expenses of $255,155 for the three months ended September 30, 2005, which were omitted in the Original Filing, an increase in sales and marketing expenses from $73,937 as stated in the Original Filing to $263,623 for the three months ended September 30, 2005, and an increase of general and administrative expenses from $803,832 as stated in the Original Filing to $1,034,985 for the three months ended September 30, 2005. These restatements reflect the originally omitted operating expenses and transaction costs related to the share exchange transaction in June 2005. Such operating expenses and transaction costs have the effect of increasing total current liabilities by $603,200 and decreasing the stockholders’ equity by the same amount as of September 30, 2005. These restatements affected some of the items within the Company’s consolidated statement of cash flows for the three months ended September 30, 2005, but did not impact cash at the end of the period.

Except for the amended and restated information, this Form 10-QSB/A continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events. Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that have occurred or facts that have become known to us after the date of the Original Filing (other than this restatement), and such forward-looking statements should be read in their historical context. This Form 10-QSB/A should be read in conjunction with the Company’s filings made with the SEC subsequent to the Original Filing, including any amendments to those filings.

PLAYLOGIC ENTERTAINMENT, INC.
FORM 10-QSB/A
CONTENTS

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	1
Consolidated Balance Sheet at September 30, 2005 (unaudited)	1
Consolidated Statements of Operations and Comprehensive Income (unaudited) for the nine months ended September 30, 2005 and September 30, 2004 and for three months ended September 30, 2005 and 2004	2
Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2005 and 2004	3
Notes to Consolidated Financial Statements	4
Item 2. Management’s Discussion and Analysis	13
Item 3. Controls and Procedures	18
PART II — OTHER INFORMATION
Item 6. Exhibits	19
Signatures
Exhibit Index
Certifications
EX-10.7: EXECUTIVE CONTRACT
EX-31.1: CERTIFICATIONS
EX-31.2: CERTIFICATIONS
EX-32.1: CERTIFICATIONS
EX-32.2: CERTIFICATIONS

 i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Playlogic International, Inc. and Subsidiaries

Balance Sheet
September 30, 2005

(Unaudited)

	(RESTATED)
	September 30,
	2005
ASSETS
CURRENT ASSETS
Cash on hand and in bank	$	143,108
Accounts receivable
Trade, net of allowance for doubtful accounts		561,802
Taxes		551,570
Affiliated entities		361,817
Prepaid expenses		2,084,207
Deferred tax asset		584,740
TOTAL CURRENT ASSETS		4,287,154
SOFTWARE DEVELOPMENT COSTS		2,419,088
PROPERTY AND EQUIPMENT — AT COST, NET OF ACCUMULATED DEPRECIATION		516,117
TOTAL ASSETS	$	7,222,359
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Bank overdraft	$	514,855
Short term loans from third parties		—
Software development financing		241,280
Accounts payable — trade		3,043,282
Accrued salaries, wages and related payroll taxes		1,254,217
Other accrued liabilities		487,275
Loans from shareholders for working capital		1,249,437
TOTAL CURRENT LIABILITIES		6,790,346
LONG-TERM LIABILITIES
Long-term debt, net of current maturities		262,392
TOTAL LIABILITIES		7,052,738
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Preferred stock — $0.001 par value. 20,000,000 shares authorized. None issued and outstanding		—
Common stock — $0.001 par value. 100,000,000 shares authorized: 23,099,994 shares issued and outstanding		23,100
Additional paid-in capital		33,473,136
Currency translation adjustment		1,153,458
Accumulated deficit		(34,450,729	)
		198,965
Stock subscription receivable		(29,344	)
TOTAL SHAREHOLDERS’ EQUITY		169,621
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	7,222,359

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

1

Playlogic International, Inc. and Subsidiaries

Statements of Operations and Comprehensive Income
Nine and Three months ended September 30, 2005 and 2004

(Unaudited)

	(RESTATED)							(RESTATED)
	Nine months				Nine months			Three months			Three months
	ended				ended			ended			ended
	September 30,				September 30,			September 30,			September 30,
	2005				2004			2005			2004
Revenues	$	1,288,361			$	—		$	542,579		$	—
Cost of Sales		351,827				—			206,199			—
Gross Profit		936,534				—			336,380
Expenses
Reorganization expenses		912,681				—			255,155			—
Research and development costs		474,323				1,464,631			(3,322	)		(340,474	)
Sales and marketing expenses		758,742				428,726			263,623			41,961
General and administrative expenses		2,894,518				11,134,091			1,034,985			782,332
Depreciation		196,293		��		237,248			(5,033	)		82,897
Total operating expenses		5,236,557				13,264,696			1,545,408			566,716
Loss from operations		(4,300,023	)			(12,710,611	)		(1,209,028	)		(566,716	)
Other Income (Expense)
Impairment of capitalized software development costs		—				(367,389	)		—			(365,153	)
Interest expense		(256,297	)			(1,603,002	)		(59,477	)		(846,421	)
Loss before Income Taxes		(4,556,320	)			(15,235,087	)		(1,268,505	)		(1,778,290	)
Provision for Income Tax Benefit		612,934				—			—			—
Net Loss		(3,943,386	)			(15,235,087	)		(1,268,505	)		(1,778,290	)
Other comprehensive income
Change in foreign currency translation		3,945,130				(10,725	)		2,252,114			198,138
Comprehensive Income (Loss)	$	1,744			$	(15,224,362	)	$	983,609		$	(1,580,152	)
Loss per weighted-average share of common stock outstanding, computed on Net Loss — basic and fully diluted	$	(0.17	)		$	(0.67	)	$	(0.05	)	$	(0.09	)
Weighted-average number of shares of common stock outstanding		22,914,595				22,718,351			23,098,429			22,801,894

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

2

Playlogic International, Inc. and Subsidiaries

Statements of Cash Flows
Nine months ended September 30, 2005 and 2004

(Unaudited)

	(RESTATED)
	Nine months			Nine months
	ended			ended
	September 30,			September 30,
	2005			2004
Cash Flows from Operating Activities
Net Loss	$	(3,943,386	)	$	(15,235,087	)
Adjustments to reconcile net income to net cash provided by operating activities
Currency translation adjustment		3,945,130			(10,725	)
Depreciation		196,293			237,248
Expenses paid by affiliated entity		1,162,938			—
Imputed expense related to common stock issuances at less than “fair value”		153,000			—
Cash expenditures prior to reverse merger transaction		(44,641	)		—
(Increase) Decrease in
Accounts receivable — trade		(561,802	)		178
Value added taxes receivable		(551,570	)		(371,629	)
Prepaid expenses		(1,811,389	)		(597,545	)
Deferred tax asset		(584,740	)		—
Increase (Decrease) in
Accounts payable — trade		(144,311	)		1,396,273
Other current liabilities		206,984			1,399,832
Net cash used in operating activities		(1,977,494	)		(13,181,455	)
Cash Flows from Investing Activities
Cash paid for software development		(1,244,691	)		(1,165,411	)
Cash advanced to affiliated entities		(639,043	)		(157,226	)
Cash paid to acquire property and equipment		—			(341,910	)
Cash received from disposition of property and equipment		9,062			—
Net cash used in investing activities		(1,874,672	)		(1,664,547	)
Cash Flows from Financing Activities
Increase in cash overdraft		(418,162	)		736,126
Principal payments on short term notes to third parties		(65,328	)		—
Principal payments on long-term debt		(213,018	)		(23,558	)
Cash advanced or repaid to shareholder		(5,981,705	)		4,685,516
Proceeds from sales of common stock		10,625,148			9,414,969
Cash contributed by shareholder to support operations		45,341			—
Cash aid to acquire capital		(19,318	)		—
Net cash provided by financing activities		3,972,958			14,813,053
Increase (Decrease) in Cash and Cash Equivalents		120,792			(32,949	)
Cash and cash equivalents at beginning of period		22,226			81,711
Cash and cash equivalents at end of period	$	143,018		$	48,762
Supplemental Disclosures of Interest and Income Taxes Paid
Interest paid during the period	$	256,297		$	1,603,002
Income taxes paid (refunded)	$	—		$	—

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

The accompanying notes are an integral part of these consolidated financial statements.

3

Playlogic International, Inc. and Subsidiaries

Notes to Restated Consolidated Financial Statements
September 30, 2005 and 2005

Note A — Organization and Description of Business

Playlogic International, Inc. (PII) was incorporated on May 25, 2001 in accordance with the Laws of the State of Delaware as Donar Enterprises, Inc.

PII’s initial business plan was to provide the conversion and filing of various documents prepared in accordance with either the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, for small to mid-sized public companies with the U.S. Securities and Exchange Commission (SEC) electronically through EDGAR, the SEC’s Electronic Data Gathering, Analysis, and Retrieval system. The Company has never been affiliated with the SEC in any manner.

On February 27, 2002, PII’s Registration Statement on Form SB-2 (SEC File No. 333-68702), registering 2,000,000 pre-reverse split shares to be sold at a price of $0.05 per share, was declared effective. Between July and December 2002, PII sold an aggregate 656,000 pre-reverse split shares of stock under this Registration Statement.

In June 2004 and December 2004, respectively, PII experienced separate changes in control and abandoned its business plan related to providing electronic filing services for small to mid-sized public companies and began a search to seek a suitable reverse acquisition candidate through acquisition, merger or other suitable business combination method.

On June 30, 2005, pursuant to a Securities and Exchange Agreement (Exchange Agreement) by and among the Company and Playlogic International N.V., a corporation formed under the laws of The Netherlands (Playlogic), and the shareholders of Playlogic (Playlogic Shareholders); the Playlogic Shareholders exchanged 100.0% of the issued and outstanding ordinary shares and preferred shares of Playlogic for an aggregate 21,836,924 shares of the Company’s common stock. As a result of this transaction, Playlogic became the Company’s wholly-owned subsidiary, now represents all of the Company’s commercial operations, and the Playlogic Shareholders control approximately 91.0% of the outstanding common stock of the Company, post-transaction.

Playlogic International N.V. was incorporated in the Netherlands in May 2002. Playlogic publishes interactive entertainment software for video game consoles, personal computers (PCs) and other handheld and mobile electronic devices developed by its internal studio and by third parties.

In subsequent notes, the consolidated entity is referred to as “Company”.

Note B — Preparation of Financial Statements

The acquisition of Playlogic International N. V. on June 30, 2005, by Playlogic International, Inc. (formerly Donar Enterprises, Inc.) effected a change in control and was accounted for as a “reverse acquisition” whereby Playlogic N. V. is the accounting acquiror for financial statement purposes. Accordingly, for all periods subsequent to the June 30, 2005, the financial statements of the Company reflect the historical financial statements of Playlogic N. V. since it’s inception and the operations of Playlogic Entertainment (formerly Donar) subsequent to the June 30, 2005.

The Company follows the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America and has a year-end of December 31.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

4

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note B — Preparation of Financial Statements — Continued

Management acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented

For segment reporting purposes, the Company operated in only one industry segment during the periods represented in the accompanying financial statements and makes all operating decisions and allocates resources based on the best benefit to the Company as a whole.

During interim periods, the Company follows the accounting policies set forth in its annual audited financial statements filed with the U. S. Securities and Exchange Commission on its Current Report on Form 8-K as filed on July 15, 2005 containing the Playlogic financial statements as of and for the year ended December 31, 2004. The information presented within these interim financial statements may not include all disclosures required by generally accepted accounting principles and the users of financial information provided for interim periods should refer to the annual financial information and footnotes when reviewing the interim financial results presented herein.

In the opinion of management, the accompanying interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission’s instructions for Form 10-QSB, are unaudited and contain all material adjustments, consisting only of normal recurring adjustments necessary to present fairly the financial condition, results of operations and cash flows of the Company for the respective interim periods presented. The current period results of operations are not necessarily indicative of results which ultimately will be reported for the full fiscal year ending December 31, 2005.

These financial statements reflect the books and records of Playlogic International, Inc. (formerly Donar Enterprises, Inc.), Playlogic International N.V. (a corporation domiciled in The Netherlands) and its 100%-subsidiary Playlogic Game Factory B.V. All significant intercompany transactions have been eliminated in combination. The consolidated entities are referred to as Company.

Note C — Going Concern Contingency

The Company’s management believes that the current cash on hand and additional cash expected from operations will be sufficient order to cover its working capital requirements through the end of 2005. Since inception, the Company has been continually obtaining capital through the sale of common stock, loans from shareholders and other related entities and unrelated third parties. Management anticipates that additional capital will be required through the end of the third quarter of 2006 at which time, it is anticipated that sufficient cash flows from the sales of computer games will be able to support the Company’s operations. If at any time prior to achieving sufficient internally generated cash flows and the Company does not obtain any necessary financing, the Company may either severely modify it’s business plan or cease operations.

Note D — Summary of Significant Accounting Policies

1.	Currency translation
	The Company incurs expenses in both US Dollar and Euro transaction accounts. The Euro is the functional currency of the Company’s operating subsidiaries domiciled in The Netherlands. All transactions reflected in the accompanying financial statements have been converted into US Dollar equivalents.

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

5

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note D — Summary of Significant Accounting Policies — Continued

1.	Currency translation — continued
	For balance sheet purposes, at the end of any accounting cycle, the exchange rate at the balance sheet is used for all assets and liabilities. The utilized conversion rates are:

September 30, 2004:	$	1.23800
December 31, 2004:	$	1.36450
June 30, 2005:	$	1.20640

For revenues, expenses, gains and losses during a respective reporting period, an weighted average exchange rate for the respective reporting period is used to translate those elements. The Company’s management considers the Euro to be a stable currency. Accordingly, the Company calculates the weighted average exchange rate using the first day of the period being converted, the 15th of each respective month and the last day of each respective month in the reporting period. The exchange rates used for all revenues, expenses, gains and losses during the year-to-date periods ended, as noted, are:

September 30, 2004:	$	1.22463
December 31, 2004:	$	1.24829
September 30, 2005:	$	1.26457

2.	Cash and cash equivalents
	The Company considers all cash on hand and in banks, certificates of deposit and other highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
	Cash overdrafts may occur from time-to-time depending upon management’s cash management policies.

3.	Accounts receivable — trade
	The Company’s current customers are located principally within Europe. The Company typically makes sales to most of its retailers and some distributors on unsecured credit, with terms that vary depending upon the customer’s credit history, solvency, credit limits and sales history. From time to time, distributors and retailers in the interactive entertainment software industry have experienced significant fluctuations in their business operations and a number of them have failed. The insolvency or business failure of any significant Company customer could have a material negative impact on the Company’s business and financial results.
	Because of the credit risk involved, management has provided an allowance for doubtful accounts which reflects its opinion of amounts which will eventually become uncollectible. In the event of complete non-performance, the maximum exposure to the Company is the recorded amount of trade accounts receivable shown on the balance sheet at the date of non-performance.

4.	Property and equipment
	Property and equipment is recorded at cost and is depreciated on a straight-line basis, over the estimated useful lives (generally 3 to 10 years) of the respective asset. Major additions and betterments are capitalized and depreciated over the estimated useful lives of the related assets. Maintenance, repairs, and minor improvements are charged to expense as incurred.

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

6

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note D — Summary of Significant Accounting Policies — Continued

5.	Software development costs
	Capitalized software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. The Company accounts for software development costs in accordance with Statement of Financial Accounting Standards No. 86 — “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable. The Company utilizes both internal development teams and third-party software developers to develop its products. The Company also capitalizes internal software development costs and other content costs subsequent to establishing technological feasibility of a title. Amortization of such costs as a component of cost of sales is recorded on a title-by-title basis based on the greater of the proportion of current year sales to the total of current and estimated future sales for the title or the straight-line method over the remaining estimated useful life of the title. At each balance sheet date, the company evaluates the recoverability of capitalized software costs based on undiscounted future cash flows and charge to cost of sales any amounts that are deemed unrecoverable. The Company’s agreements with third-party developers generally provide it with exclusive publishing and distribution rights and require it to make advance payments that are recouped against royalties due to the developer based on the contractual amounts of product sales, adjusted for certain costs.
6.	Prepaid royalties
	The Company capitalizes external software development costs (prepaid royalties) and other content costs subsequent to establishing technological feasibility of a title. Advance payments are amortized as royalties in cost of sales on a title-by-title basis based on the greater of the proportion of current year sales to the total of current and estimated future sales for that title or the contractual royalty rate based on actual net product sales as defined in the respective agreements. At each balance sheet date, the company evaluates the recoverability of advanced development payments and unrecognized minimum commitments not yet paid to determine the amounts unlikely to be realized through product sales. Advance payments are charged to cost of sales in the amount that management determines is unrecoverable in the period in which such determination is made or if management determines that it will cancel a development project.
7.	Organization and reorganization costs
	The Company has adopted the provisions of AICPA Statement of Position 98-5, “Reporting on the Costs of Start-Up Activities” whereby all organizational and reorganizational costs incurred with either the initial formation and capitalization of the Company or the reorganization of the Company pursuant to the June 2005 Share Exchange Agreement were charged to operations as incurred.
8.	Research and development expenses
	Research and development expenses are charged to operations as incurred.
9.	Advertising expenses
	The Company does not utilize direct solicitation advertising. All other advertising and marketing expenses are charged to operations as incurred.

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

7

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note D — Summary of Significant Accounting Policies — Continued

10.	Income Taxes
	The Company utilizes the asset and liability method of accounting for income taxes. At September 30, 2005 and 2004, the deferred tax asset and deferred tax liability accounts, as recorded when material, are entirely the result of temporary differences. Temporary differences represent differences in the recognition of assets and liabilities for tax and financial reporting purposes, primarily accumulated depreciation and amortization and the anticipated utilization of net operating loss carryforwards to offset current taxable income..
11.	Share-Based Payments
	The Company utilizes the fair-value method of accounting for the payment for goods and/or services with the issuance of equity shares in lieu of cash.
12.	Earnings (loss) per share
	Basic earnings (loss) per share is computed by dividing the net income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the respective period presented in our accompanying financial statements.
	Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of common stock equivalents (primarily outstanding options and warrants).
	Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income (loss) position at the calculation date.
	As of September 30, 2005 and 2004, the Company has no outstanding stock options and the Company’s outstanding stock warrants are anti-dilutive due to the Company’s net operating loss position.
13.	Revenue recognition
	The Company evaluates the recognition of revenue based on the criteria set forth in SOP 97-2, “Software Revenue Recognition”, as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” and Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, as revised by SAB 104, “Revenue Recognition”. The Company evaluates revenue recognition using the following basic criteria:

*	Evidence of an arrangement: The Company recognizes revenue when it has evidence of an agreement with the customer reflecting the terms and conditions to deliver products.
*	Delivery: Delivery is considered to occur when the products are shipped and risk of loss has been transferred to the customer.
*	Fixed or determinable fee: If a portion of the arrangement fee is not fixed or determinable, the Company recognizes that amount as revenue when the amount becomes fixed or determinable.
*	Collection is deemed probable: At the time of the transaction, the Company conducts a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer. Collection is deemed probable if the Company expects the customer to be able to pay amounts under the arrangement as those amounts become due. If the Company determines that collection is not probable, it recognizes revenue when collection becomes probable (generally upon cash collection).

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

8

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note D — Summary of Significant Accounting Policies — Continued

14.

New accounting pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” which revised Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation”. This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based compensation transactions using APB 25 and requires that the compensation costs relating to such transactions be recognized in the condensed consolidated statement of operations. The revised statement is effective as of the first fiscal year beginning after June 15, 2005. Although the Company is currently analyzing the method of adoption and impact of the adoption of this standard, effective January 1, 2006, it is expected to have an impact on the Company’s consolidated financial statements similar to the pro forma disclosure under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”).

Note E — Correction of an Error

During the course of preparing the unaudited financial statements for the three months ended September 30, 2006, Management of the Company determined that the Company’s accounting for the reimbursement of certain expenses incurred during the second and third quarter of 2005 had not been properly reflected in accordance with U.S. generally accepted accounting principles. Certain operating expenses and transaction costs associated with the Company’s Share Exchange Agreement entered into in June 2005, which were initially paid by the Company and reimbursed by certain shareholders, were omitted from the Company’s consolidated statements of operations for each of the six and three months ended June 30, 2005, the nine and three months ended September 30, 2005 and the year ended December 31, 2005. The corrections to this situation resulted in either the recognition of additional contributed capital and/or a reduction in amounts due from shareholder(s) for unrelated advances made prior to the aforementioned Share Exchange Agreement.

	Nine months
	ended
	September 30,
	2005
Net Loss,as previously reported	$	(2,212,068	)
Effect of the correction of an error
(Increase) Decrease in Net Loss by financial statement line item:
Operating expenses:
Recognition of previously unrecorded reorganization expenses		(912,681	)
Recognition of previously unrecorded selling expenses		(189,685	)
Recognition of previously unrecorded general and administrative expenses		(628,952	)
Total effect of changes on Loss from Operations and Net Loss		(1,731,318	)
Net Loss,as restated	$	(3,943,386	)
Earnings per share,as previously reported	$	(0.10	)
Total effect of changes		(0.08	)
Earnings per share,as restated	$	(0.18	)

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

9

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note E — Correction of an Error — Continued

These restatements to the Company’s financial statements were, in part, caused by a material weakness in the Company’s internal control over financial reporting due to the limitations in the capacity of the Company’s accounting resources to appropriately identify and react in a timely manner to non-routine, complex and related party transactions and communicate said occurrences to it’s independent auditors, as well as the adequate understanding of the disclosure requirements relating to these types of transactions. In order to remediate this material weaknesses, Management of the Company is in the process of designing and implementing improvements to it’s internal controls over financial reporting and to better define the most appropriate protocols to enhance the preparation, review, presentation and disclosures of the Company’s financial statements.

Note F — Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.

Interest rate risk is the risk that the Company’s earnings are subject to fluctuations in interest rates on either investments or on debt and is fully dependent upon the volatility of these rates. The Company does not use derivative instruments to moderate its exposure to interest rate risk, if any.

Financial risk is the risk that the Company’s earnings are subject to fluctuations in interest rates or foreign exchange rates and are fully dependent upon the volatility of these rates. The company does not use derivative instruments to moderate its exposure to financial risk, if any.

Note G — Concentrations of Credit Risk

The Company maintains its United States based cash accounts in a financial institution subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, the Company is entitled to aggregate coverage of $100,000 per account type per separate legal entity per financial institution. Through June 30, 2005, the Company maintained deposits in various financial institutions with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses as a result of any unsecured bank balance through September 30, 2005 or subsequent thereto.

The Company is exposed to currency risks. The Company is particularly exposed to fluctuations in the exchange rate between the U.S. Dollar and the Euro, as it incurs manufacturing costs and prices its products in the Euro (the Company’s operating subsidiary’s functional currency) while a portion of its revenue is denominated in U.S. Dollars. A substantial portion of the company’s assets, liabilities and operating results are denominated in Euros, and a minor portion of its assets, liabilities and operating results are denominated in currencies other than the Euro. The Company’s consolidated financial statements are expressed in US Dollars. Accordingly, its results of operations are exposed to fluctuations in various exchange rates. As of the applicable balance sheet dates, the exposure was very limited, hence, no hedging activities were deemed necessary by management. In the Company’s exchange rate agreements, it uses fixed interest rates.

(Remainder of this page left blank intentionally)

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

10

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note H — Common Stock Transactions

On February 21, 2005, by written consent in lieu of meeting, stockholders representing 78.9% of the issued and outstanding shares of our common stock approved a recommendation of our Board of Directors to effect a one share for ten shares reverse stock split of our common stock, par value $.001 per share, with all fractional shares rounded down to the nearest whole share. The reverse split became effective on April 15, 2005. As a result of the reverse split, the total number of issued and outstanding shares of our common stock decreased from 9,289,647 shares to 928,964 shares, after giving effect to rounding for fractional shares. In the reverse split calculation, all fractional shares were rounded down to the nearest whole share. Holders of less than ten shares, prior to the reverse split, shall receive $0.30 per share as compensation. The effect of this action is reflected in the Company’s financial statements as of the first day of the first period.

In conjunction with the above discussed reverse stock split, all share references in the following paragraphs reflect the post-April 15, 2005 reverse split action.

On June 30, 2005, pursuant to a Securities and Exchange Agreement (Exchange Agreement) by and among the Company and Playlogic International N.V., a corporation formed under the laws of The Netherlands (Playlogic), and the shareholders of Playlogic (Playlogic Shareholders); the Playlogic Shareholders exchanged 100.0% of the issued and outstanding ordinary shares and preferred shares of Playlogic for an aggregate 21,836,924 shares of the Company’s common stock. As a result of this transaction, Playlogic became the Company’s wholly-owned subsidiary, now represents all of the Company’s commercial operations, and the Playlogic Shareholders control approximately 91.0% of the outstanding common stock of the Company, post-transaction.

On March 10, 2004, the Company issued 32,080 shares of restricted, unregistered common stock to Michael Tay, son of then-President and controlling shareholder, William Tay, as compensation for various services provided to the Company. This transaction was valued at approximately $16,040 (or $0.50 per reverse split share). The Company relied upon the exemptions provided by Section 4(2) of the Securities Act of 1933, as amended, for this transaction.

On April 22, 2004, the Company issued an aggregate 184,618 shares of common stock to William Tay as consideration of approximately $85,000 in accrued, but unpaid, officer compensation, reimbursement of trade accounts payable paid by Mr. Tay on behalf of the Company and in repayment of approximately $7,000 in unsecured advances made to the Company for working capital. The Company relied upon the exemptions provided by Section 4(2) of the Securities Act of 1933, as amended, for this transaction.

As a result of the December 15, 2004 change in control and in consideration for agreeing to serve as an officer and director of the Company, Timothy P. Halter was granted a stock warrant to purchase up to 100,000 post-reverse split shares of the Company’s restricted, unregistered common stock at an effective price of $0.60 per share, in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. Mr. Halter may exercise the warrants, in whole or in part, at any time after the issuance of the warrants and prior to the expiration of the warrants on December 15, 2007. On June 1, 2005, Mr. Halter exercised all of the outstanding warrants for $60,000 cash.

The following table presents warrant activity through June 30, 2005:

				Weighted
				Average
	Number of			Exercise
	Shares			Price
Balance at December 31, 2004		100,000		$	0.60
Issued		—
Exercised		(100,000	)
Balance at June 30, 2005		—

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

11

Playlogic International, Inc. and Subsidiaries
Notes to Restated Consolidated Financial Statements — Continued
September 30, 2005 and 2004

Note H — Common Stock Transactions — Continued

On June 28, 2005, the Company sold 162,100 shares of its common stock to Johannes Wilhelmus Kluijtmans for aggregate consideration of $608,000, or approximately $3.75 per share. The sale was made pursuant to the terms of a Subscription Agreement, dated as of June 28, 2005, which agreement contained confidentiality and non-disclosure agreements and covenants. The sale was made without registration in reliance upon the exemption afforded by Section 4(2) of the Securities Act of 1933, as amended. The shares are “restricted securities” in that they are legended with reference to Rule 144. The Company never utilized an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with the above-referenced sale.

On July 5, 2005, the Company sold 36,000 shares of its common stock to C. J. W. A. Komen for total consideration of $135,000, or approximately $3.75 per share. The sale was made pursuant to the terms of a Subscription Agreement, dated as of July 5, 2005, which agreement contained confidentiality and non-disclosure agreements and covenants. This transaction was valued at less than the closing price of the Company’s common stock on the date of the transaction and resulted in a charge to operations of approximately $63,000. The sale was made without registration in reliance upon the exemption afforded by Section 4(2) of the Securities Act of 1933, as amended. The shares are “restricted securities” in that they are legended with reference to Rule 144. The Company never utilized an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with the above-referenced sale. As of September 30, 2005, approximately $29,344 of the subscription remains unpaid.

Note I — Commitments and Contingencies

Security agreement

Playlogic Game Factory B.V., on August 31, 2004, signed a security agreement in favor of the Dutch Tax Authorities for the amount $98,394 concerning Engine Software B.V.

Transactions with related parties

In 2004, Sloterhof Investments N.V. and Castilla Investments B.V., entities owned and controlled by members of the Company’s current management were previously granted a stock option right to acquire up to a total of 8,609,189 shares in Playlogic International N. V. with an exercise price at par value of €0.05. The intrinsic value of this option right was charged to operations upon it’s grant during 2004.

Sloterhof Investments N.V. agreed with the company to reimburse the company for certain expenses incurred in connection with the reverse-share exchange transaction with Playlogic International, Inc., previously discussed.

(Remainder of this page left blank intentionally)

The financial information presented herein has been prepared by management
without audit by independent certified public accountants.

12

Item 2. Management’s Discussion and Analysis

Forward-Looking Statements

The Information in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information about them so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements, other than statements of historical fact, made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Management’s Overview of Historical and Prospective Business Trends

Increased Console Installed Base. As consumers purchase the current generation of consoles, either as first time buyers or by upgrading from a previous generation, the console installed base increases. As the installed base for a particular console increases, we believe we will generally be able to increase our unit volume. However, as consumers anticipate the next generation of consoles, unit volumes often decrease. In March 2004, Microsoft reduced the retail price of its Xbox consoles in the US, and in May and December 2004, Sony did the same with its PlayStation2 consoles. As price reductions drive sales of consoles and the related installed base of these current generation consoles increases during fiscal 2005, we believe that our unit sales of current generation titles are likely to be increased.

Software Prices. As current generation console prices decrease, we expect more value-oriented consumers to become part of the interactive entertainment software market. We believe that hit titles will continue to be launched at premium price points and will maintain those premium price points longer than less popular games. However, as a result of a more value-oriented consumer base, and a greater number of software titles being published, we expect average software prices to gradually come down, which we expect to negatively impact our gross margin. To offset this, as the installed base increases, total volume of software sales are expected to increase, compensating for the lower margins on software sales.

Increasing Cost of Titles. Game titles have become increasingly more expensive to produce and market as the platforms on which they are played continue to advance technologically and consumers demand continual improvements in the overall game play experience. We expect this trend to continue as we require larger production teams to create our titles and the technology needed to develop titles becomes more complex. With the recent hiring of several industry experts with large networks, we have access to quality titles for a competitive price and are therefore capable to cope with this trend. We continue to develop and expand the online gaming capabilities included in our products and we develop new methods to distribute our content via the Internet. Any increase in the cost of licensing third-party intellectual property used in our products would also make these products more expensive to publish.

13

Critical Accounting Policies

General

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with the instructions to Regulation S-B. Accordingly, the financial statements do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America. In the opinion of management, the financial statements reflect all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for any interim periods are not necessarily indicative of the results for the full year. The unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto contained in this prospectus.

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 the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reporting periods. The most significant estimates and assumptions relate to the recoverability of prepaid royalties, capitalized software development costs and intangibles, inventories, realization of deferred income taxes and the adequacy of allowances for doubtful accounts. Actual amounts could differ significantly from these estimates.

Accounts receivable

Accounts receivable are shown after deduction of a provision for bad and doubtful debts where appropriate.

Software Development Costs

Capitalized software development costs include payments made to independent software developers under development agreements, as well as direct costs incurred for internally developed products. We account for software development costs in accordance with SFAS No. 86 “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”. Software development costs are capitalized once technological feasibility of a product is established and such costs are determined to be recoverable.

We utilize both internal development teams and third-party software developers to develop our products.

We capitalize internal software development costs and other content costs subsequent to establishing technological feasibility of a title. Amortization of such costs as a component of cost of sales is recorded on a title-by-title basis based on the greater of the proportion of current year sales to the total of current and estimated future sales for the title or the straight-line method over the remaining estimated useful life of the title. At each balance sheet date, we evaluate the recoverability of capitalized software costs based on undiscounted future cash flows and charge to cost of sales any amounts that are deemed unrecoverable. Our agreements with third-party developers generally provide us with the intellectual property rights and exclusive publishing and distribution rights and require us to make advance payments that are recouped against royalties due to the developer based on the contractual amounts of product sales, adjusted for certain costs.

Prepaid royalties

We capitalize external software development costs (prepaid royalties) and other content costs subsequent to establishing technological feasibility of a title.

Advance payments are amortized as royalties in cost of sales on a title-by-title basis based on the greater of the proportion of current year sales to the total of current and estimated future sales for that title or the contractual royalty rate based on actual net product sales as defined in the respective agreements. At each balance sheet date, we evaluate the recoverability of advanced development payments and unrecognized minimum commitments not yet paid to determine the amounts unlikely to be realized through product sales. Advance payments are

14

charged to cost of sales in the amount that management determines is unrecoverable in the period in which such determination is made or if management determines that it will cancel a development project.

Revenue Recognition

We evaluate the recognition of revenue based on the criteria set forth in SOP 97-2, “Software Revenue Recognition”, as amended by SOP 98-9, “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions” and Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, as revised by SAB 104, “Revenue Recognition”. We evaluate revenue recognition using the following basic criteria:

• Evidence of an arrangement: We recognize revenue when we have evidence of an agreement with the customer reflecting the terms and conditions to deliver products.

• Delivery: Delivery is considered to occur when the products are shipped and risk of loss has been transferred to the customer.

• Fixed or determinable fee: If a portion of the arrangement fee is not fixed or determinable, we recognize that amount as revenue when the amount becomes fixed or determinable.

• Collection is deemed probable: At the time of the transaction, we conduct a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer.

• Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable, we recognize revenue when collection becomes probable (generally upon cash collection).

Product Revenue

Product revenue, including sales to resellers and distributors, is recognized when the above criteria are met. We reduce product revenue for estimated customer returns by distributing our products through experienced distributors with whom we had previously worked.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (R), “Share-Based Payment” which revised Statement of Financial Accounting Standards No. 123 (R), “Accounting for Stock-Based Compensation”. This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based compensation transactions using APB 25 and requires that the compensation costs relating to such transactions be recognized in the condensed consolidated statement of operations. The revised statement is effective as of the first fiscal year beginning after June 15, 2005.

Although we are currently analyzing the method of adoption and impact of the adoption of this standard, effective January 1, 2006, we expect it will have an impact on our condensed consolidated financial statements similar to the pro forma disclosure under Statement of Financial Accounting Standards No. 123 (R), “Accounting for Stock-Based Compensation” (“SFAS 123 (R)”).

Restatements

The following discussion and analysis gives effect to the restatements described in Note E to the unaudited consolidated financial statements for the quarterly period ended September 30, 2005 contained in this report. Accordingly, certain of the data set forth in this section are not comparable to discussions and data in our previously filed quarterly report for corresponding period. The unaudited consolidated balance sheet as of September 30, 2005, the unaudited consolidated statements of operations for each of the three and nine months ended September 30, 2005 and the unaudited consolidated statements of cash flow for each of the three and nine

15

months ended September 30, 2005 present the effect of changes in our unaudited consolidated financial statement caused by the restatements.

Results of Operations

Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004.

     Net sales.Net sales for the three months ended September 30, 2005 were $542,579, as compared to $0 for the three months ended September 30, 2004. This increase in revenue is primarily the result of starting sales of Playlogic’s games in the fourth quarter of 2004. $542,579 of the revenues for the three months ended September 30, 2005 was from Europe, and $0 was from the US. All of these revenues were derived from Playlogic’s game distributors.

     Gross Profit.Gross profit totaled approximately $336,380 for the three months ended September 30, 2005. For the three months ended September 30, 2004, gross profit totaled $0. This increase in gross profit is primarily the result of an increase in net sales.

     Reorganization expenses.Reorganization expenses totaled $255,155 for the three months ended September 30, 2005 compared to $0 for the three months ended September 30, 2004. These expenses related to the June 2005 share exchange transaction.

     Research and development Expenses.Research and development expenses totaled $(3,322) for the three months ended September 30, 2005. For the three months ended September 30, 2004, research and development totaled $(340,474). This represents an increase of $337,152, of 99%. This increase was due to a lower amount of our research and development expenses being capitalized.

     Selling, Marketing, General and Administrative Expenses.Selling, marketing, general and administrative expenses totaled $1,298,608, for the three months ended September 30, 2005. For the three months ended September 30, 2004, selling, general and administrative expenses totaled $824,923. This represents an increase of $473,685, or 57%. The increase relates to expenses was due to our stock exchange listing application.

     Depreciation.Depreciation expenses totaled $5,033 for the three months ended September 30, 2005. For the three months ended September 30, 2004, the depreciation expense totaled $82,897. The decrease of $87,930 or 106.1% was caused by adjustments on items carrying a negative book value and fixed assets being fully depreciated that were not yet replaced.

     Impairment of capitalized software development costs.Impairment costs totaled $0 for the three months ended September 30, 2005. For the three months ended September 30, 2004, impairment costs totaled $365,153. This decrease in impairment costs is due to less capitalized software development costs being impaired.

     Interest Expense.Interest expense totaled $59,477 for the three months ended September 30, 2005. For the three months ended September 30, 2004, interest expense totaled $846,421. This represents a decrease of $786,944, or 92.9%. This decrease in interest expense is primarily the result of Playlogic’s debt holders converting their loans into ordinary shares of Playlogic.

     Net Loss.Our net loss was $1,268,505 for the three months ended September 30, 2005. For the three months ended September 30, 2004, net loss totaled $1,788,290. The decrease of the net loss is primarily the result of lower interest expenses and starting sales of Playlogic’s games in the fourth quarter of 2004 and related increased gross profit.

     Other comprehensive income.Other comprehensive income represents the change of the Currency Translation Adjustments balance during the reporting period. The Currency Translation Adjustments balance that appears in the stockholders’ equity section is cumulative in nature and is a consequence from translating all assets and liabilities at current rate whereas the stockholders’ equity accounts are translated at the appropriate historical rate and revenues and expenses being translated at the weighted-average rate for the reporting period. The Change in currency translation adjustments was $5,945 for the three months ended September 30, 2005 and $(477,461) for the three months ended September 30, 2004.

16

Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004.

     Net sales.Net sales for the nine months ended September 30, 2005 were $1,288,361, as compared to $0 for the nine months ended September 30, 2004. This increase in revenue is primarily the result of increased sales of our games. $946,270 of the revenues for the nine months ended September 30, 2005 were from Europe and $342,091 were from the US. All of these revenues were derived from our game distributors.

     Gross Profit.Gross profit totaled $936,534 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, gross profit totaled $0. This increase in gross profit is primarily the result of an increase in net sales.

     Reorganization expenses.Reorganization expenses totaled $912,681 for the nine months ended September 30, 2005 compared to $0 for the nine months ended September 30, 2004. These expenses related to the June 2005 share exchange transaction.

     Selling, Marketing, General and Administrative Expenses.Selling, marketing, general and administrative expenses totaled $3,653,260 for the nine months ended September 30, 2005. For the nine months ended September 30, 3004, selling, general and administrative expenses totaled $11,562,817. This represents a decrease of $7,909,557 or 68%. This decrease in selling, general and administrative expenses is primarily the result of a one-time charge of granted options to certain stock holders in 2004.

     Research and development Expenses.Research and development expenses totaled $474,323 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, research and development expenses totaled $1,464,631. This represents a decrease of $990,308 or 68%. This decrease is due to less research and development expenses being capitalized.

     Depreciation.Depreciation expense totaled $196,293 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, depreciation expense totaled $237,248. The decrease of $40,955, or 17% was caused by adjustments on items carrying a negative book value and fixed assets being fully depreciated that were not yet replaced.

     Impairment of capitalized software development costs.Impairment costs totaled $0 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, impairment costs totaled $367,389. This decrease in impairment costs is due to less capitalized software development costs being impaired.

     Interest Expense.Interest expense totaled $256,297 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, interest expense totaled $1,603,002. This represents a decrease of $1,346,705, or 84%. This decrease in interest expense is primarily the result of our debt holders converting their loans into ordinary shares of Playlogic.

     Benefit from income taxes.Benefit from income taxes totaled $612,934 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, benefit from income taxes totaled $0. This increase was caused by recognition of deferred tax income in 2005, whereas in 2004 the recognition criteria were not met.

     Net Loss.Our net loss was $3,943,386 for the nine months ended September 30, 2005. For the nine months ended September 30, 2004, net loss totaled $15,235,087. This was primarily due to a one-time charge related to the grant of stock options to certain stockholders in 2004, recognition of benefits from income taxes, increased gross profit, lower interest expenses and lower research and development costs, although the Company incurred expenses relating to the share exchange transaction.

     Other comprehensive income.Other comprehensive income represents the change of the Currency Translation Adjustments balance during the reporting period. The Currency Translation Adjustments balance that appears in the stockholders’ equity section is cumulative in nature and is a consequence from translating all assets and liabilities at current rate whereas the stockholders’ equity accounts are translated at the appropriate historical rate and revenues and expenses being translated at the weighted-average rate for the reporting period. The Change in currency translation adjustments was $3,964,132 for the nine months ended September 30, 2005 and $(10,725) for the nine months ended September 30, 2004. This increase is due to the $/(euro) exchange rate decreasing from 1,3655 per end of December 2004 to 1.2064 per end of September 2005.

17

Liquidity and Capital Resources

September 30, 2005

As of September 30, 2005, we had $143,108 of cash on hand.

The Company’s management believes that it will not yet be profitable by year end 2005. In order to cover its working capital requirements through the fourth quarter of 2005 it will need to obtain additional financing from third parties. The Company is currently in negotiation with several parties in this respect. If the Company does not obtain any necessary financing in the future, it may need to cease operations.

We expect our capital requirements to increase over the next several years as we continue to develop new products both internally and through our third-party developers, increase marketing and administration infrastructure, and embark on in-house business capabilities and facilities. Our future liquidity and capital funding requirements will depend on numerous factors, including, but not limited to, the cash generation from the released games, the cost of hiring and training production personnel who will produce our titles, the cost of hiring and training additional sales and marketing personnel to promote our products, and the cost of hiring and training administrative staff to support current management.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Item 3. Controls and Procedures

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

The certifying officers of this Form 10-QSB/A, Willem Smit, our Chief Executive Officer, and Wilbert Knol, our interim Chief Financial Officer, have reconsidered the adequacy of the Company’s internal controls over financial reporting in light of the revisions to the unaudited financial statements contained in the Original Filing and have determined that the Company’s internal controls are not effective to ensure that information required to be included in the Company’s periodic SEC filings is recorded, possessed, summarized, and reported within the time periods specified in the SEC rules and forms. These restatements to the Company’s financial statements were, in part, caused by a material weakness in the Company’s internal control over financial reporting due to the limitations in the capacity of the Company’s accounting resources to appropriately identify and react in a timely manner to non-routine, complex and related party transactions, communicate said occurrences to its independent auditors, and adequately understand the disclosure requirements relating to these types of transactions. In order to remediate these material weaknesses, the management of the Company is in the process of designing and implementing improvements to its internal controls and to better define the most appropriate protocols to enhance the preparation, review, presentation and disclosures of the Company’s financial statements.

Part II Other Information

18

Item 6. Exhibits

The exhibits are listed in the Exhibit Index appearing on the page following the signature page.

19

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.

Playlogic Entertainment, Inc.
(Registrant)

Date: December 21, 2006	By:	/s/ Willem M. Smit
		Willem M. Smit
		Chief Executive Officer

Date: December 21, 2006	By:	/s/ Wilbert Knol
		Wilbert Knol
		Interim Chief Financial Officer (Principal Financial and Accounting Officer)

PLAYLOGIC ENTERTAINMENT, INC.

EXHIBIT INDEX

Exhibit Number	Description
2.1	Share Exchange Agreement, dated June 30, 2005 between the Registrant and the Shareholders of Playlogic International N.V. (incorporated by reference to the Registrant’s Form 8-K filed July 1, 2005)
3.1	Certificate of Incorporation of the Registrant, as filed with the Secretary of State of the State of Delaware (incorporated by reference to the Registrant’s form SB-2/A filed September 5, 2001)
3.2	Amendment to the Certificate of Incorporation of the Registrant, as filed with the Secretary of State of the State of Delaware (incorporated by reference to the Registrant’s Form 8-K dated April 15, 2005)
3.3	Bylaws of the Registrant (incorporated by reference to the Registrant’s form SB-2/A filed September 5, 2001)
10.1	Lease for Office Space between Kantoren Fonds Nederland B.V., as the Lessor, and Playlogic Game Factory B.V. as the Lessee dated March 11, 2002 (incorporated by reference from the Registrant’s Registration Statement on Form SB-2 previously filed with the Commission on July 20, 2005)
10.2	Lease for Office Accommodation between Fortis Vastgoed B.V., as the Landlord, and Playlogic International N.V. as the Tenant dated April 25, 2005 (incorporated by reference from the Registrant’s Registration Statement on Form SB-2 previously filed with the Commission on July 20, 2005)
10.3	Lease for Office Space between Pr. Dr. D. Valerio, as the Lessor, and Mr. W.M. Smit company director, handling in the function of president of the company Playlogic International N.V., as the Lessee dated March 12, 2002 (incorporated by reference from the Registrant’s Registration Statement on Form SB-2 previously filed with the Commission on July 20, 2005)
10.4	Lease for Office Space between Neglinge B.V., as the Lessor, and Playlogic Game Factory B.V. as the Lessee dated April 23, 2003 (incorporated by reference from the Registrant’s Registration Statement on Form SB-2 previously filed with the Commission on July 20, 2005)
10.5	Employment Contract between Playlogic International, N.V. and Stefan Layer dated January 12, 2005 (incorporated by reference from the Registrant’s Registration Statement on Form SB-2 previously filed with the Commission on July 20, 2005)
10.6	Employment Contract between Playlogic International, N.V. and Rogier Smit dated July 1, 2005 (incorporated by reference from the Registrant’s Registration Statement on Form SB-2 previously filed with the Commission on July 20, 2005)

Exhibit Number	Description
10.7	Employment Contract between Playlogic International, N.V. and Jan Willem Kohne dated September 29, 2005
31.1	Certifications of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certifications of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications 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	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002