Playlogic Entertainment (PLGC) 10QSB/A 2006 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, 2006

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)

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).o Yesþ No

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 September 30, 2006
Common Stock, par value $.001 per share	24,593,733 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 21, 2006 (the “Original Fling”) for the quarterly period ended September 30, 2006.

Restatements

The quarterly report on Form 10-QSB was filed by the Company with the SEC on November 21, 2006, without auditors’ review. Following completion of the auditors’ review, the Company is filing this amendment Form 10-QSB for the quarterly period ended September 30, 2006. This amendment includes (i) certain restatements to the Company’s financial statements as of and for the nine months ended September 30, 2006 described below and (ii) enhanced disclosure, in accordance with the provisions of SFAS No. 154, relative to restatement of prior periods. The September 30, 2006 restatement reflect the Company’s determination that its accounting for revenues and associated costs of goods sold and interest expense during the third quarter of 2006 had not properly been reflected in the financial statements contained in the Original Filing in accordance with the revenue recognition criteria as set forth in the accounting policies as included in the Notes to the Financial Statements and in accordance with the conditions per certain loan agreements.

The corrections to this error resulted in both the reversal of revenues and associated costs of goods sold previously recognized and the recognition of additional interest expense. The restatements contained in this Form 10-QSB/A were made in accordance with the provisions of SFAS 154 for correction of errors.

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, 2006:

Part I Financial Information
Item 1 — Financial Statements
               Unaudited Consolidated Financial Statements
               Note B Basis of presentation and restatements
               Note L Subsequent events
Item 2 — Management’s Discussion and Analysis or Plan of Operations
               Restatements
Item 3 — Controls and Procedures
Part II Other Information
Item 6 — Exhibits
Certifications

Primarily these amendments are to reflect the Company’s revenues and associated costs of goods sold, which were initially recognized and then reversed after further evaluation of the revenue recognition criteria applied as well as certain interest expenses which were initially not recognized and than additionally recognized after further evaluation of the conditions per certain loan agreements. 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 amendments to the Original Filing. Revenues were restated from $1,702,951 per the Original Filing to $1,461,194 in the three months ended September 30, 2006. The impact of the revenue amendment resulted in decreasing Gross Profit by $ $68,251. The Interest expenses were restated from $1,457,577 per the Original Filing to $1,682,115 in the three months ended September 30, 2006. The accumulated impact of the amendments resulted in

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increasing Net Loss for the three months ended September 30, 2006 by $322.558, and increasing the stockholders’ deficit by $297,009 as of September 30, 2006. Consequently these restatements did affect certain items in the Company’s consolidated statement of cash flows for the three months ended September 30, 2006. These restatements did not affect cash at the end of the period.

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.

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PLAYLOGIC ENTERTAINMENT, INC.

FORM 10-QSB/A

CONTENTS

	Page No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements	5
Item 2. Management’s Discussion and Analysis	21
Item 3. Controls and Procedures	27
PART II — OTHER INFORMATION
Item 6. Exhibits	29
Signatures	30
Exhibit Index
Certifications
EX-31.1: CERTIFICATIONS
EX-31.2: CERTIFICATIONS
EX-32.1: CERTIFICATIONS
EX-32.2: CERTIFICATIONS
EX-31.1: CERTIFICATIONS
EX-31.2: CERTIFICATIONS
EX-32.1: CERTIFICATIONS
EX-32.2: CERTIFICATIONS

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Part I — FINANCIAL INFORMATION

Item 1. Financial statements

PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

September 30, 2006

(Unaudited)

ASSETS
Current Assets
Cash	$	2,577
Accounts receivable
Trade, net of allowance for doubtful accounts		1,704,635
Value Added Taxes from foreign governments		445,234
Prepaid expenses and other		600,816
Total current assets		2,753,262
Net property and equipment		845,891
Other assets
Capitalized software development costs		4,771,855
Restricted cash		147,786
Total other assets		4,919,641
Total Assets	$	8,518,794
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilites
Bank line of credit	$	1,065,140
Short-term debts		379,740
Warrant derivatives		8,800
Current maturities of long-term debt		37,974
Accounts payable — trade		3,341,432
Other accrued liabilities		5,547,853
Deferred revenues		1,269,730
Loan from shareholders		4,015,911
Total current liabilities		15,666,580
Long-term debt, less current maturities		237,338
Total Liabilities		15,903,918
Shareholders’ Deficit
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. 24,593,733 shares issued and outstanding		24,594
Additional paid-in capital		41,965,811
Accumulated currency translation adjustments reserve		(1,893,009	)
Accumulated deficit		(47,482,520	)
Total shareholders’ deficit		(7,385,124	)
Total Liabilities and Shareholders’ Deficit	$	8,518,794

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

5

PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)

	Three months			Three months			Nine months			Nine months
	ended			ended			ended			ended
	September 30,			September 30,			September 30,			September 30,
	2006			2005 (restated)			2006			2005 (restated)
Revenues
Game software	$	1,461,194		$	542,579		$	4,593,865		$	1,288,361
Cost of sales
Direct costs of production		(664,582	)		(206,199	)		(2,592,495	)		(351,827	)
Gross profit		796,612			336,380			2,001,370			936,534
Operating expenses
Research and development		975,810			(3,322	)		2,262,975			474,323
Selling and marketing		330,392			263,623			1,068,394			758,742
General and administrative		1,170,223			1,034,985			3,961,870			2,894,518
Depreciation		72,127			(5,033	)		226,490			196,293
Asset impairment charges		785,494			—			1,123,439			—
Total operating expenses		3,334,046			1,290,253			8,643,168			4,323,876
Loss from operations		(2,537,434	)		(953,873	)		(6,641,798	)		(3,387,342	)
Other income/(expense)
Interest expense		(439,715	)		(59,477	)		(611,804	)		(256,297	)
Loan penalty expense		(1,242,400	)		—			(1,242,400	)		—
Realized and unrealized exchange losses		(360,471	)		—			(49,305	)		—
Reorganization expenses		—			(255,155	)		—			(912,681	)
Income/(Loss) before provision for income taxes		(4,580,020	)		(1,268,505	)		(8,545,307	)		(4,556,320	)
Provision for Income Taxes		—			—			—			612,934
Net loss		(4,580,020	)		(1,268,505	)		(8,545,307	)		(3,943,386	)
Other comprehensive income/(loss)
Foreign currency adjustment		364			2,252,114			(460,639	)		3,945,130
Comprehensive Income/(Loss)	$	(4,579,656	)	$	983,609		$	(9,005,946	)	$	1,744
Net loss per weighted-average share of common stock outstanding, computed on Net Loss
- basic and fully diluted		(0.19	)		(0.05	)		(0.35	)		(0.17	)
Weighted-average number of shares of common stock outstanding
- basic and fully diluted		24,593,733			23,098,429			24,445,768			22,914,595

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

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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2006 and 2005
(Unaudited)

	Nine months			Nine months
	ended			ended
	September 30,			September 30,
	2006			2005 (restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(8,545,307	)	$	(3,943,386	)
Adjustments to reconcile net loss to net cash used in operating activities
Realized and unrealized exchange losses		49,305			—
Depreciation		226,490			196,293
Asset impairment charge		1,123,439			—
Bad debt expense		67,558			—
Expense charges for stock options		186,147			—
Expense related to common stock issuances at less than “fair value”		—			153,000
Deferred income taxes		—			(584,741	)
Non-cash interest charge related to fair value of warrants issued in conjunction with debt		123,760			—
Warrant derivatives		8,800
Loan penalty expense		1,242,400			—
Management fees contributed as capital		75,000			—
Increase (decrease) in cash attributable to changes in operating assets and liabilities
Accounts receivable — trade and other		(994,093	)		(561,803	)
Prepaid expenses and other		805,339			(2,141,098	)
Cash overdraft		—			4,534
Accounts payable – trade		580,874			91,302
Other accrued liabilities		642,274			647,051
Deferred revenues		998,784			—
Net cash used in operating activities		(3,409,230	)		(6,138,848	)
CASH FLOWS FROM INVESTING ACTIVITIES
Restricted cash		—			(147,642	)
Cash paid for software development		(1,854,507	)		(1,919,927	)
Cash paid to acquire property and equipment		(269,357	)		(206,476	)
Net cash used in investing activities		(2,123,864	)		(2,274,045	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank line of credit		(562,632	)		(349,198	)
Net activity on short term notes		372,733			(197,273	)
Principal payments on long-term debt		(27,955	)		(41,104	)
Proceeds from loans from shareholder		3,970,713			(4,688,041	)
Payments on loans to shareholder		(75,091	)		—
Proceeds from sales of common stock		823,759			13,938,534
Collections on stock subscriptions receivable		1,229,344			(29,344	)
Net cash provided by financing activities		5,730,871			8,633,574
Effect of foreign exchange on cash		(334,960	)		(242,907	)
Decrease in Cash		(137,183	)		(22,226	)
Cash at beginning of period		139,760			22,226
Cash at end of period	$	2,577		$	(0	)
Supplemental disclosures of interest and income taxes paid
Interest paid during the period	$	74,534		$	256,297
Supplemental disclosures of non-cash investing and financing activities
Common stock issued to repay notes payable	$	737,700		$	—
Cost of acquiring capital paid with issuance of common stock	$	13,200		$	—

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

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PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE A — ORGANIZATION AND DESCRIPTION OF BUSINESS

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

On June 30, 2005, pursuant to a Securities and Exchange Agreement (Exchange Agreement) by and among PEI, a “shell company” at the time, and Playlogic International N.V. (Playlogic N.V.), a corporation formed under the laws of The Netherlands in April 2002, and the shareholders of Playlogic N.V., the Playlogic N.V. shareholders exchanged 100.0% of the issued and outstanding ordinary shares and preferred shares of Playlogic N.V. for an aggregate 21,836,930 shares of PEI’s common stock. As a result of the Exchange Agreement, Playlogic N.V. became PEI’s wholly-owned subsidiary. Playlogic N.V. Shareholders control approximately 91.0% of the outstanding common stock of PEI, post-transaction.

Playlogic N.V. publishes interactive entertainment products, such as video game software and other digital entertainment products such as video games 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 “the Company”.

NOTE B — BASIS OF PRESENTATION AND RESTATEMENTS

Basis of presentation

During interim periods, the Company follows the accounting policies set forth in its annual audited consolidated financial statements filed with the U. S. Securities and Exchange Commission on its Annual Report on Form 10-KSB for the year ended December 31, 2005. The information presented within these condensed consolidated interim financial statements have been prepared in accordance with instructions to Form 10-QSB and Article 10 of Regulation S-X and therefore condense or do not include all disclosures required by generally accepted accounting principles. 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 unaudited condensed consolidated interim financial statements, prepared in accordance with the U. S. Securities and Exchange Commission’s instructions for Form 10-QSB, contain all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation. 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, 2006.

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

These condensed financial statements reflect the books and records of PEI (formerly Donar Enterprises, Inc.), Playlogic N.V. (a corporation domiciled in The Netherlands) and Playlogic N.V.’s wholly-owned subsidiary Playlogic Game Factory B.V. All significant inter-company balances and transactions have been eliminated in consolidation.

Restatements

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 not included in 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 the recognition of expenses in connection with the Share Exchange Agreement as well as 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.

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The impact for the consolidated statement of operations and comprehensive loss for the periods ending June 30, 2005, September 30, 2005 and December 31, 2005, is as follows:

				Nine months ended
	Six months ended			September 30			Year ended
	June 30, 2005			,2005			December 31, 2005
Net loss, as previously reported	$	(1,559,438	)	$	(2,212,068	)	$	(7,967,316	)
(Increase)/Decrease in Net Loss by financial statement line item:
Operating expenses
Recognition of previously unrecorded reorganization expenses		(668,757	)		(912,681	)		(899,697	)
Recognition of previously unrecorded selling expenses		—			(189,685	)		(186,987	)
Recognition of previously unrecorded general and administrative expenses		(468,670	)		(628,952	)		(620,004	)
Total effect of changes on
Loss from Operations and Net Loss		(1,137,427	)		(1,731,318	)		(1,706,688	)
Net loss, as restated	$	(2,696,865	)	$	(3,943,386	)	$	(9,674,004	)
Earnings per share, as previously reported	$	(0.07	)	$	(0.10	)	$	(0.30	)
Total effect of changes	$	(0.05	)	$	(0.08	)	$	(0.07	)
Earnings per share, as restated	$	(0.12	)	$	(0.18	)	$	(0.37	)

The impact on the consolidated balance sheet for the six months ended June 30, 2005, is as follows:

							Six months
	Six months						ended June 30,
	ended June 30,						2005,
	2005			Restatement			Restated
Other assets
Accounts receivable shareholder	$	694,419		$	(603,300	)	$	91,119
Total assets	$	6,046,249		$	(603,300	)	$	5,442,949
Stockholders’ deficit
Additional paid-in capital	$	32,127,823		$	534,127		$	32,661,950
Accumulated deficit	$	(32,066,783	)	$	(1,137,427	)	$	(33,204,210	)
Total Stockholders’ deficit	$	1,255,825		$	(603,300	)	$	652,525

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The impact on the consolidated balance sheet for the nine months ended September 30, 2005, is as follows:

							Nine months
	Nine months						ended September
	ended September						30,2005,
	30,2005			Restatement			Restated
Current liabilities
Due to shareholders	$	646,237		$	603,200		$	1,249,437
Total current liabilities	$	6,187,146		$	603,200		$	6,790,346
Total liabilities	$	6,449,538		$	603,200		$	7,052,738
Stockholders’ deficit
Additional paid-in capital	$	32,326,016		$	1,147,120		$	33,473,136
Currency translation adjustments	$	1,172,460		$	(19,002	)	$	1,153,458
Accumulated deficit	$	(32,719,411	)	$	(1,731,318	)	$	(34,450,729	)
Total Stockholders’ deficit	$	802,165		$	(603,200	)	$	198,965

The impact on the consolidated balance sheet for the year ended December 31, 2005, is as follows:

							Year ended
	Year ended						December 31,
	December 31,						2005
	2005			Restatement			Restated
Current liabilities
Due to shareholders	$	163,091		$	591,450		$	754,541
Total current liabilities	$	7,699,076		$	591,450		$	8,290,526
Total liabilities	$	7,947,485		$	591,450		$	8,538,935
Stockholders’ deficit
Additional paid-in capital	$	37,549,545		$	1,147,120		$	38,696,665
Currency translation adjustments	$	(1,499,641	)	$	(31,882	)	$	(1,531,523	)
Accumulated deficit	$	(37,230,526	)	$	(1,706,688	)	$	(38,937,214	)
Total Stockholders’ deficit	$	109,804		$	(591,450	)	$	(481,646	)

The impact on the consolidated balance sheet for the three months ended March 31, 2006, is as follows:

							Three months
	Three months						ended March
	ended March						31,2006,
	31,2006			Restatement			Restated
Current liabilities
Due to shareholders	$	48,908		$	605,100		$	654,008
Total current liabilities	$	8,656,314		$	605,100		$	9,261,414
Total liabilities	$	8,910,456		$	605,100		$	9,515,556
Stockholders’ deficit
Additional paid-in capital	$	38,361,250		$	1,147,121		$	39,508,371
Currency translation adjustments	$	(1,607,260	)	$	(45,532	)	$	(1,652,792	)
Accumulated deficit	$	(38,428,032	)	$	(1,706,689	)	$	(40,134,721	)
Total Stockholders’ deficit	$	41,260		$	(605,100	)	$	(563,840	)

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The impact on the consolidated balance sheet for the six months ended June 30, 2006, is as follows:

							Six months
	Six months						ended June 30,
	ended June 30,						2006,
	2006			Restatement			Restated
Current liabilities
Due to shareholders	$	50,852		$	605,100		$	655,952
Total current liabilities	$	11,934,409		$	605,100		$	12,539,509
Total liabilities	$	12,182,312		$	605,100		$	12,787,412
Stockholders’ deficit
Additional paid-in capital	$	38,600,034		$	1,147,121		$	39,747,155
Currency translation adjustments	$	(1,960,638	)	$	(45,532	)	$	(2,006,170	)
Accumulated deficit	$	(41,195,811	)	$	(1,706,689	)	$	(42,902,500	)
Total Stockholders’ deficit	$	(2,664,046	)	$	(605,100	)	$	(3,269,146	)

The impact for the consolidated balance sheet for the nine months ended September 30, 2006, is as follows:

	Nine months ended						Nine months ended
	September 30,						September 30,
	2006			Restatement			2006 Restated
Other assets
Capitalized software development costs	$	4,598,348		$	173,507		$	4,771,855
Total assets	$	8,345,287		$	173,507		$	8,518,794
Current liabilities
Warrant derivatives	$	—		$	8,800		$	8,800
Other accrued liabilities	$	5,319,094		$	228,759		$	5,547,853
Deferred revenues	$	1,027,973		$	241,757		$	1,269,730
Loan from shareholders	$	4,024,711		$	(8,800	)	$	4,015,911
Total current liabilities	$	15,196,064		$	470,516		$	15,666,580
Total liabilities	$	15,433,402		$	470,516		$	15,903,918
Stockholders’ deficit
Additional paid-in capital	$	41,997,831		$	(32,020	)	$	41,965,811
Currency translation adjustments	$	(1,956,046	)	$	63,037		$	(1,893,009	)
Accumulated deficit	$	(47,154,494	)	$	(328,026	)	$	(47,482,520	)
Total Stockholders’ deficit	$	(7,088,115	)	$	(297,009	)	$	(7,385,124	)

The impact for the consolidated statement of operations and comprehensive loss for the period ending September 30, 2006, is as follows:

	Nine months ended						Nine months ended
	September 30,						September 30,
	2006			Restatement			2006 Restated
(Increase)/Decrease in revenues, cost of sales
Revenues	$	4,835,622		$	(241,757	)	$	4,593,865
Cost of sales	$	(2,766,002	)	$	173,507		$	(2,592,495	)
Gross profit	$	2,069,620		$	(68,250	)	$	2,001,370
(Increase)/Decrease in operating expenses
General and administrative expenses	$	3,932,100		$	29,770		$	3,961,870
Total operating expenses	$	8,613,398		$	29,770		$	8,643,168
(Increase)/Decrease in other income/(expenses)
Interest expense	$	(1,629,665	)	$	1,017,861		$	(611,804	)
Loan penalty expense	$	—		$	(1,242,400	)	$	(1,242,400	)
Total other income/(expense)	$	(1,678,970	)	$	(224,539	)	$	(1,903,509	)
Net loss	$	(8,222,748	)	$	(322,559	)	$	(8,545,307	)
Earnings per share	$	(0.34	)	$	(0.01	)	$	(0.35	)

The restated numbers have been included in the consolidated statement of operations.

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The restated numbers have been included in the consolidated statement of operations.

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 C — GOING CONCERN UNCERTAINTY

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. At September 30, 2006, the Company had an accumulated deficit of approximately $47.5 million, a shareholders’ deficit of approximately $7.4 million and a working capital deficit of approximately $12.9 million. During the nine months ended September 30, 2006, the Company incurred a net loss and negative operating cash flows of approximately $8.5 million and $3.4 million, respectively. During the fourth quarter of 2006, these trends have continued. Further, the Company is currently negotiating the terms of its bank line of credit and certain shareholder loans. These conditions raise uncertainties about the Company’s ability to continue as a going concern.

While the Company has contracts in place with several third-party developers and is developing titles through its Playlogic Game Factory B.V. subsidiary, and anticipates successful debuts of such titles; the market for interactive entertainment software is characterized by short product lifecycles and frequent introduction of new products. Many software titles do not achieve sustained market acceptance or do not generate a sufficient level of sales to offset the costs associated with product development. A significant percentage of the sales of new titles generally occur within the first three months following their release. Therefore, the Company’s profitability depends upon the Company’s ability to develop and sell new, commercially successful titles and to replace revenues from titles in the later stages of their lifecycles. Any competitive, financial, technological or other factor which delays or impairs the Company’s ability to introduce and sell the Company’s software could adversely affect future operating results.

The Company’s continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis and its ability to raise debt and/or equity financing.

The Company anticipates future sales of equity securities to raise working capital to support and preserve the integrity of the corporate entity. However, there is no assurance that the Company will be able to obtain additional funding through the sales of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.

While the Company is of the opinion that good faith estimates of the Company’s ability to secure additional capital in the future to reach the Company’s goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement any future business plan steps.

No adjustment has been made in the accompanying financial statements to the amounts and classification of assets and liabilities which could result should the Company be unable to continue as a going concern.

NOTE D — SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS

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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 condensed consolidated financial statements have been converted into US Dollar equivalents.

The Company complies with Statement of Financial Accounting Standards (“SFAS”) No. 52, “Foreign Currency Translation”. For balance sheet purposes, at the end of any accounting cycle, the exchange rate at the balance sheet date is used for all assets and liabilities. Resulting translation adjustments are included in Accumulated currency translation adjustments reserve. The utilized conversion rates are:

September 30, 2006:	$	1.26580
September 30, 2005:	$	1.20640

For revenues, expenses, gains and losses during a respective reporting period, a 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, 2006:	$	1.24244
September 30, 2005:	$	1.26457

2.Software development costs

Capitalized software development costs include payments made in the form of milestone payments 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 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 against future revenues. 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 charges to operations any amounts that are deemed unrecoverable. During the three and nine months ended September 30, 2006, the Company recognized impairment charges of approximately $785,000 and $1,123,000, respectively. During the three and nine months ended September 30, 2006, the Company recognized amortization charges of approximately $708,000 and $537,000 respectively.

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.

3.Earnings (loss) per share

SFAS No. 128, “Earnings Per Share”, requires dual presentation of basic and diluted income per share for all periods presented. Basic income per share excludes dilution and is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

Unexercised stock options to purchase 540,000 and 40,000 shares of the Company’s common stock as of September 30, 2006 and 2005, respectively, were not included in the computation of diluted earnings per share because the exercise of the stock options would be anti-dilutive to earnings per share.

Unexercised warrants to purchase 940,631 shares of the Company’s common stock as of September 30, 2006, were not included in the computation of diluted earnings per share because the exercise of the warrants would be anti-dilutive to earnings per share. The 1,000,000 warrants issued in connection with a loan as per note G are excluded from the computation as they are used as collateral for the loan. As of September 30, 2005 there were no warrants to purchase shares of the Company’s common stock outstanding.

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4.New Accounting Pronouncements

In September 2006, the SEC issued Staff Accounting Bulletin, or SAB, No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.SAB No. 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB No. 108 is effective for fiscal years ending on or after November 15, 2006. The Company is currently in the process of evaluating the impact of SAB No. 108 on our financial position and results of operations

In September 2006, the Financial Accounting Standards Board, or FASB, issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The Company is currently in the process of evaluating the impact of SFAS No. 157 on our financial position and results of operations.

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently in the process of evaluating the impact of FIN 48 on our financial position and results of operations.

5.Reclassifications

Certain 2005 amounts have been reclassified to conform to the 2006 presentation.

NOTE E — BANK LINE OF CREDIT AND SHORT-TERM DEBT

Bank line of credit

On March 10, 2006, the Company entered into a credit facility with ABN-AMRO Bank N.V. in the amount of€1,250,000, or approximately $1.6 million. This credit facility bears interest at 7.0% and was due on October 15, 2006. As the credit facility is in default, the Company is currently negotiating extension of the repayment terms. Under the terms of this credit facility, the Company entered into a negative pledge arrangement on the Intellectual Property owned by the Company. Additionally, the Company’s CEO Mr. Willem M. Smit has issued a personal guarantee to ABN AMRO Bank N.V. for this credit facility.

Short-term debt

On May 3, 2006, the Company entered into a loan agreement with a lender based in the Netherlands, pursuant to which the Company borrowed the principal amount of€300,000, or approximately $375,000. This loan bears compound interest at a rate of 60% per annum, and repayment of principal and interest was due on August 4, 2006, which due date was extended for an indefinite period of time under the same terms and conditions.

NOTE F — OTHER ACCRUED LIABILITIES

As of September 30, 2006, other accrued liabilities can be specified as follows:

Payroll taxes payable	$	2,351,187
Loan penalty expense		1,242,440
Accrued interest		375,197
Royalties to be paid		558,886
Deferred Rent		370,703
Accrued wages and related personnel costs		342,934
Board remuneration to be paid		110,758
Other		195,748
	$	5,547,853

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NOTE G — LOANS FROM SHAREHOLDERS

On July 22, 2005, the Company entered into a loan agreement with a lender based in Spain, pursuant to which the Company borrowed the principal amount of€500,000, or approximately $625,000. This loan bears compound interest at a rate of 6% per annum, and repayment of principal and interest was due on December 31, 2005. The Company extended the maturity date of this loan to December 31, 2006 under the same terms and conditions.

On May 24, 2006, the Company entered into a loan agreement with a lender based in the Netherlands, pursuant to which the Company borrowed the principal amount of€100,000, or approximately $125,000. This loan bears compound interest at a rate of 60% per annum, and repayment of principal and interest was due on August 24, 2006. Under this loan agreement, the Company pledged as a collateral any income generated by the Company publishing agreement with XIM Inc. On August 7, 2006, the Company extended the maturity date of this loan for an indefinite period of time under the same terms and conditions.

Since June 30, 2006, a lender based in Andorra has advanced loans to the Company in an aggregate principal amount of€40,000, or approximately $48,000. These loans bear interest at a rate of 4.0% per annum, and the repayment of the principal and interest was due in August 2006. The Company extended the maturity date of this loan until January 1, 2007 under the same terms and conditions.

Concurrent with the extension of this loan under an agreement dated September 1, 2006, the Company issued to this lender, warrants convertible into 40,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The warrants, fair valued at $0.88, may be exercised starting on September 1, 2007 and expire on September 1, 2009. A non cash interest charge of $35,000 was recorded in the consolidated financial statements in relation to this.

Loans from a lender based in the Netherlands

The Company entered into three loan agreements with a lender based in the Netherlands, and its director. On June 17, 2006 the company entered into a first agreement (the “First Loan”) pursuant to which the Company borrowed a principal amount of€600,000, or approximately $750,000 from this lender. The First Loan bears compound interest at a rate of 20% per annum, payable at maturity. The repayment of the principal and interest was due on August 17, 2006.

Concurrent with entering into the loan agreement on June 17, 2006, the Company issued to this lender warrants convertible into 100,000 shares of the Company’s common stock at an exercise price of $5.00 per share. The warrants, fair valued at $0.88, may be exercised starting on November 1, 2006 and expire on October 31, 2009. A non cash interest charge of $88,000 was recorded in the consolidated financial statements in relation to this.

On August 16, 2006 the Company entered into a second loan agreement (the “Second Loan”), pursuant to which the Company extended the maturity date of the First Loan to November 1, 2006, and also borrowed an additional principal amount of€1,000,000, or approximately $1,250,000. The second loan bears compound interest at a rate of 20% per annum, payable at maturity. The repayment of the principal and interest was due on October 31, 2006. As a condition to the Second Loan, the Company pledged all the Company’s intellectual property rights (second after the ABN-AMRO credit line) as security and collaterized its accounts receivables to the lender. The Company has the option to extend the maturity date of the First and Second Loan to December 1, 2006, provided that the Company shall pay a total amount of principal and interest of€1,600,000, or approximately $2 million on the extended maturity date plus an amount of€1,600,000, or approximately $2 million as premium. In addition, the Company has the option to further extend the maturity date of the First and Second Loan beyond December 1, 2006, as discussed below.

Concurrent with entering into the second loan agreement the Company issued to this lender warrants convertible into 400,000 shares of the Company’s common stock at an exercise price of $2.50 per share. The warrants, fair valued at $0.017 may be exercised starting on November 1, 2006 and expire on October 31, 2009. A liability and debt discount of $6,800 has been recorded associated with these warrants as these warrants were issued as collateral until October 31, 2006. In accordance with the Second loan, the warrants would be returned to the Company for consideration of 500,000 or approximately $ 625,000 if received by October 31, 2006.

On September 5, 2006 the Company entered into a third loan agreement (the “Third Loan”), pursuant to which the Company borrowed a principal amount of€500,000, or approximately $625,000. The Third Loan bears compound interest at a rate of 20% per annum, payable at maturity. The repayment of the principal and interest was due on October 31, 2006. The Company has the option to extend the maturity date of the Third Loan to December 1, 2006, provided that the Company shall pay a total amount of principal and interest of€1,000,000,

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or approximately $1,250,000 on the extended maturity date. In addition, the Company has the option to further extend the maturity date of the First, Second and Third Loan beyond December 1, 2006, as discussed below.

Concurrent with entering into the second and third loan agreement the Company issued to this lender warrants convertible into 500,000 shares of the Company’s common stock at an exercise price of $3.50 per share. The warrants, fair valued at $0.004 per warrant, may be exercised starting on November 1, 2006 and expire on October 31, 2009. A liability and debt discount of $2,000 has been recorded associated with these warrants as these warrants were issued as collateral until October 31, 2006. In accordance with the Second loan, the warrants would be returned to the Company for consideration of 500,000 or approximately $ 625,000 if received by October 31, 2006.

On September 29, 2006 the Company borrowed an additional principal amount of€500,000, or approximately $625,000 (the “Fourth Loan”) from the lender who provided the First, Second and Third Loan. No agreement has been signed yet. The Fourth Loan bears a compound interest at a rate of 20% per annum, payable at maturity. The repayment of the principal and interest was due on October 31, 2006. The Company has the option to extend the maturity date of the Fourth Loan to December 1, 2006, provided that the Company shall pay a total amount of principal and interest of€1,000,000, or approximately $1,250,000 on the extended maturity date. In addition, the Company has the option to further extend the maturity date of the First, Second, Third and Fourth Loan beyond December 1, 2006, provided that the Company pays a premium of€60,000, or approximately $75,000 per month.

Both the terms and conditions of the Second, Third and Fourth Loan as well as issuance of the warrants in connection with the Second and Third loan did not get the approval of the Board of Directors of the Company. Consequently, no written agreement was signed for the Fourth loan although the Company has received the loans. Management is currently negotiating amendment of the terms and conditions of these loans including extension of the repayment and a waiver of the penalty interest terms and a waiver of the issuance of warrants. However, there is no assurance that such negotiation will lead to any results or results favorable to the Company.

Loans from shareholder at September 30, 2006 are comprised of the following:

Loan with a lender based in Spain	$	632,900
Loan with a lender based in the Netherlands		126,580
Loan with a lender based in Andorra		50,632
Loan with a lender based in the Netherlands		3,214,599
		4,024,711
Less: unamortized debt discount		(8,800	)
Loans from shareholder, less unamortized debt discount	$	4,015,911

NOTE H — LONG-TERM DEBT

Long-term debt consists of a note payable to a landlord for leasehold improvements, payable in quarterly installments of approximately $8,871 through 2013. This note does not bear interest. As of September 30, 2006, this can be specified as follows:

Note payable	$	275.312
Less current maturities		37.974
Long term debt, less current maturities	$	237.338

NOTE I — SHAREHOLDER’S EQUITY TRANSACTIONS

Common stock

On January 31, 2006, the Company exchanged 38,586 shares of its common stock to an accredited investor based in the Netherlands for the repayment of a loan payable in the amount of approximately $ 96,000, or approximately $2.50 per share. The exchange was made pursuant to the terms of a Subscription Agreement, dated as of January 31, 2006, which agreement contained confidentiality and non-disclosure agreements and covenants. Furthermore, on February 12, 2006, the Company sold 72,462 shares of its common stock to this

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investor at $2.50 per share for a total cash consideration of $181,155. These sales were 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 the sense that they are marked with a legend with reference to Rule 144. The Company did not utilize an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with this sale.

Concurrent with the January 31, 2006 debt conversion, the Company issued warrants convertible into 19,299 shares of the Company’s common stock at a price of $5.00 per share. The warrants, fair valued at $0.305 each, may be exercised starting February 1, 2007 and expire on January 31, 2009. Concurrent with the February 12, 2006 stock sale, the Company issued warrants to purchase 36,243 shares of the Company’s common stock at an exercise price of $5 per share. These warrants may be exercised starting February 1, 2007 and expire on January 31, 2009.

On January 31, 2006, the Company sold 184,178 shares of its common stock to an accredited investor based in the Netherlands at $2.50 per share for a total cash consideration of $460,445. The sale was made pursuant to the terms of a Subscription Agreement, dated as of January 31, 2006. This 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 the sense that they are marked with a legend with reference to Rule 144. The Company did not utilize an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with this sale.

Concurrent with the January 31, 2006 stock sale, the Company issued warrants to purchase 92,089 shares of the Company’s common stock at an exercise price of $5.00 per share. The warrants may be exercised starting on February 1, 2007 and expire on January 31, 2009.

On March 17, 2006, the Company sold 53,300 shares of its common stock to an accredited investor based in the Netherlands at $3.75 per share for a total cash consideration of $200,000. The sale was made pursuant to the terms of a Subscription Agreement, dated as of March 28, 2006, This 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 the sense that they are marked with a legend with reference to Rule 144. The Company did not utilize an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with this sale.

Concurrent with the first March 17, 2006 stock sales the Company issued warrants to purchase 25,000 shares of the Company’s common stock at a price of $5.00 per share. These warrants may be exercised starting on March 1, 2007 and expire on February 28, 2009.

On March 17, 2006, the Company sold 30,000 shares of its common stock to a second accredited investor based in the Netherlands at $4.00 per share for total cash consideration of approximately $120,000. The sale was made pursuant to the terms of a Subscription Agreement, dated as of March 28, 2006, This 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 the sense that they are marked with a legend with reference to Rule 144. The Company did not utilize an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with this sale.

Concurrent with the second March 17, 2006 stock sales the Company issued warrants to purchase 15,000 shares of common stock at an exercise price of $5.00 per share. These warrants may be exercised starting on March 1, 2007 and expire on February 28, 2009.

On March 17, 2006, the Company sold 30,000 shares of its common stock to a third accredited investor based in the Netherlands at $4.00 per share for total cash consideration of approximately $120,000. The sale was made pursuant to the terms of a Subscription Agreement, dated as of March 28, 2006, This 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 the sense that they are marked with a legend with reference to Rule 144. The Company did not utilize an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with this sale.Concurrent with the third March 17, 2006 stock sales, the Company issued to warrants to purchase 15,000 shares of common stock at an exercise price of $5.00 per share. These warrants may be exercised starting on March 1, 2007 and expire on February 28, 2009.

On June 1, 2006, the Company sold 128,000 of its common stock to an accredited investor based in the Netherlands at $3.00 per share for total cash consideration of approximately $384,000. The sale was made pursuant to the terms of a Subscription Agreement, dated as of June 1, 2006. This 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 the sense that they are marked with a legend with reference to

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Rule 144. The Company did not utilize an underwriter for this offering of its securities and no sales commissions were paid to any third party in connection with this sale.

Concurrent with the June 1, 2006 stock sales, the Company issued warrants to purchase 128,000 shares of common stock at an exercise price of $5.00 per share. The warrants may be exercised starting on June 2, 2007 and expire on June 1, 2009. The weighted average exercise price of all issued and outstanding warrants at September 30, 2006 is approximately $5.00.

Option grants

On June 27, 2006 the Company granted to Willy J. Simon, the Company’s Chairman and Non Executive Director, 56,250 options to purchase shares of the Company’s common stock at an exercise price of $2.90 per share. A total of 18,750 shares of these options will vest on June 27, 2008, and the remaining options will vest in two equal installments on June 27, 2009, June 27, 2010.

On June 27, 2006 the Company granted to George M. Calhoun, one of the Company’s Non Executive Directors, 46,875 options to purchase shares of the Company’s common stock at an exercise price of $2.90 per share. A total of 15,625 shares of these options will vest on June 27, 2008, and the remaining options will vest in two equal installments on June 27, 2009, June 27, 2010.

On June 27, 2006 the Company granted to Erik L.A. van Emden, one of the Company’s Non Executive Directors, 46,875 options to purchase shares of the Company’s common stock at an exercise price of $2.90 per share. A total of 15,625 shares of these options will vest on June 27, 2008, and the remaining options will vest in two equal installments on June 27, 2009, June 27, 2010.

On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based payment” (SFAS No. 123R”), that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R eliminates the ability to account for share-based compensation transactions, as the Company formerly did, using the intrinsic value method as prescribed by Accounting Principles Board (“APB”), Opinion No. 25, “Accounting for Stock Issued to Employees”, and generally requires that such transactions be accounted for using a fair-value-based method and recognized as an expense in the Company’s Consolidated Statements of Operations.

The implementation of SFAS No. 123R has the following effect on the statement of operations for the three and nine months period ended September 30, 2006:

	Three Months Ended			Nine Months Ended
	September 30, 2006			September 30, 2006
Net loss before stock option expense	$	(4,498,662	)	$	(8,359,160	)
Less stock option expense		81,358			186,147
Net loss as reported	$	(4,580,020	)	$	(8,545,307	)

The following table illustrates the effect on the net loss and loss per share as if the Company had applied the fair value recognition provisions of FAS No. 123R for the three and nine months ended September 30, 2005.

	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2005 (restated)			2005 (restated)
Net loss applicable to common shareholders, as reported	$	(1,268,505	)	$	(3,943,386	)
Deduct: total stock-based compensation expense under fair Value method for awards, net of related tax effect		(2,315	)		(2,315	)
Net loss applicable to common shareholders, pro forma	$	(1,270,820	)	$	(3,945,701	)
Loss per share:
Basic and diluted loss, as reported	$	(0.05	)	$	(0.17	)
Basic and diluted loss, pro forma	$	(0.05	)	$	(0.17	)

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NOTE J — OTHER RELATED PARTY TRANSACTIONS

Willem M. Smit, the Company’s Chief Executive Officer, has agreed to not receive any cash compensation until such time that the Company achieves positive cash flows from operations. However, the Company does reimburse Mr. Smit for his business related expenses and provides him with an automobile. As Mr. Smit provides executive management and oversight services to the Company, an amount of $100,000 per annum is imputed as the value of his services and recorded as additional contributed capital to the Company.

Furthermore Mr. Willem M. Smit has a current account with the Company. As of 30 September 2006 the balance of this account amounts to some $75,000 (payable to the Company) which is included in the Loans from shareholders

NOTE K —COMMITMENTS AND CONTINGENCIES

Litigation

On December 15, 2005, Playlogic International N.V. (plaintiff) filed a motion to institute proceedings against Digital Concepts DC Studios Inc., of Montreal (“DC Studios”) (defendant) and South Peak Interactive LLC, of North Carolina (“South Peak”) (defendant) with the Superior Court of the Province of Quebec District of Montreal Canada. Playlogic claims damages in the amount of Canadian $9,262,640 (or approximately $ 8.2 million using September 30, 2006 exchange rates) in view of the alleged unlawful termination by DC Studios of a Letter of Intent under which DC Studios granted the Company exclusive worldwide publishing rights of State of Emergency 2, a title that was released in the first half of 2006. The Company sued South Peak in these proceedings as the second defendant because South Peak, in alleged violation of a clear letter of demand issued by the plaintiff to the defendants, has entered into a publishing agreement with DC Studios with respect to the State of Emergency 2. The Company reached a settlement out of court in August 2006. Under this settlement the Company agreed to withdraw its action in Court while defendants renounced to claim against the Company taxable costs related to the proceedings and all parties to this settlement agreement mutually gave each other a complete full and final release and forever mutually discharged each other.

The Company is involved in a number of minor legal actions incidental to its ordinary course of business.

With respect to the above matters, the Company believes that it has adequate legal claims or defenses and/or provided adequate accruals for related costs such that the ultimate outcome will not have a material adverse effect on the Company’s future financial position or results of operations.

Other matters

In the second quarter of 2006, the Company received termination notices from Rebellion Interactive Ltd and Rival Technologies LLC for development and license of PRISM. Currently the Company is in discussion with both parties to agree on new terms for the development and license of PRISM. As of September 30, 2006, an amount of approximately $500,000 has been capitalized for this title. An amount of approximately $ 235,000 has been expensed due to impairment.

NOTE L —SUBSEQUENT EVENTS

On October 13, 2006, the Company signed a settlement agreement with TDK Recording Media Europe S.A. related to the economic effects of a delayed delivery of “Gold Master” media for duplication and the subsequent delayed releases on the market of the video games “World Racing 2”, “Knights of the Temple II” and “Gene Troopers” for both the European and North American markets. The liability for this settlement has been reflected in the Company’s financial statements since the earliest measurement date in accordance with the terms and conditions of the original contract. The Company is currently in breach of the provisions of the settlement agreement but in ongoing discussions to fix a payment plan under the settlement.

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Employment Agreements

The Company and its Chief Financial Officer, Jan Willem Kohne, amicably agreed on Mr. Kohne’s resignation on October 31, 2006. Effective November 1, 2006, the employment agreement between the Company and Mr. Kohne was terminated. The Company did not pay early termination penalties in connection with the termination of this agreement. The 90,000 shares of common stock of the Company owned by Mr. Kohne were sold back to the Company at par value. Additionally, Mr. Kohne’s outstanding options to purchase 250,000 shares of common stock of the Company at an exercise price of $3.50 per share were forfeited on November 1, 2006.

The Company appointed its controller, Wilbert Knol, as the interim Chief Financial Officer, effective November 1, 2006. Mr. Knol is a party to a previously existing employment agreement with the Company dated November 28, 2005. The agreement is for an indefinite period, but can be terminated by the Company upon two months notice or by Mr. Knol upon one month’s notice. Mr. Knol’s current salary is€10,083 per month, or approximately $12,603. The Company has granted Mr. Knol options to purchase 60,000 shares of common stock of the Company at an exercise price of $ 2.50. Mr. Knol is also subject to confidentiality, non-competition and invention assignment requirements.

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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 themselves 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 quarterly 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.

Our Business

     Playlogic is a publisher of interactive entertainment products, such as video game software and other digital entertainment products. We publish for most major interactive entertainment hardware platforms, like Sony’s PlayStation2, Microsoft’s Xbox and Nintendo’s Game Cube, PCs, next generation consoles and handheld (such as Nintendo DS, and PSP) and mobile devices.

     Our principal sources of revenue are derived from publishing operations. Publishing revenues are derived from the sale of our digital entertainment products. We own most of the intellectual properties of our products, which we believe positions us to maximize profitability.

     As a publisher, we are responsible for publishing, sales and marketing of our products. We sell our products to distributors, who sell to retail. Furthermore, we sell directly to consumers through online distribution channels, at least two months after the product was made available at retail.

     We seek to publish high quality products developed both by our in-house studio in Breda, The Netherlands, called Playlogic Game Factory, and by external developers with whom we have contractual relationships.

     Those other independent studios — based in various countries — develop games for Playlogic under development contracts. These development contracts generally provide that we pay the studio an upfront payment, which is an advance on future royalties earned and a payment upon achievement of various milestones. In addition, we license the rights of existing titles to other studios who then develop those titles for other platforms.

     Different studios and developers frequently contact us requesting financing and publishing their games. We evaluate each of these offers based on several factors, including sales potential (primarily based on past performance by the studio or developer), technology used, track record and human resources of the studio, game play, graphics and sounds.

     We select which games we develop, based on our analysis of consumer trends and behavior and our experience with similar or competitive products. Once we select a game to develop, we then assign a development studio, based upon its qualifications, previous experience and prior performance. Once developed, we distribute our games in both the U.S. and abroad through existing distribution channels with experienced distributors. We generally aim to release our titles simultaneously across a range of hardware formats in order to spread development risks and increase sales potential, with a minimum increase in development time and resources.

     We believe that greater online functionality and the expanded artificial intelligence capabilities of the new platforms will improve game play and help our industry grow. In addition, according to DFC Intelligence, new revenue opportunities from wireless gaming, online console gaming, and in-game advertising are expected to grow from $1 billion in 2005 to $5 billion in 2009.

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Release Schedule

			Expected release
Game	Studio	Platform	date to retail
Completed Games
Alpha Black Zero	Khaeon (NL)	PC	Released
Airborne Troops	Widescreen Games (F)	PS2, PC	Released
Cyclone Circus	Playlogic Game Factory (NL)	PS2	Released
Xyanide	Overloaded (NL)	Mobile Phones	Released
World Racing 2	Synetic (D)	PS2, Xbox, PC	Released
Knights of the Temple 2	Cauldron (SK)	PS2, Xbox, PC	Released 1
Gene Troopers	Cauldron (SK)	PS2, Xbox, PC	Released 1
Xyanide	Playlogic Game Factory (NL)	Xbox	Released
Age of Pirates: Caribbean Tales	Akella (Russia)	PC	Released
Under Development
Ancient Wars: Sparta	World Forge (Russia)	PC	Q1 2007
Infernal	Metropolis	PC	Q1 2007
Xyanide Resurrection	Playlogic Game Factory (NL)	PSP	Q1 2007
Age of Pirates: Captain Blood	Akella	PC & Next Gen	Q2/Q3 2007
Red Bull Break Dance Game	JGI Games	Various	Q3 2007
Infernal	Metropolis	Next Gen	Q3/Q4 2007 2
Voodoo Nights	Mindware	PC & Next Gen	Q4 2007 2
P.R.I.S.M. — Threat Level: Red	Rebellion (UK)	PC	To be announced

1	Released in Europe only.
2	Final decision on Next Generation options to be made.

The following planned release dates were postponed:

The release of Infernal and Ancient Wars: Sparta has been postponed, following distribution contract negotiations.

Currently Playlogic is mainly focusing on PC titles. Some major publishers have posted higher losses than the previous year recently. These losses are primarily caused by their high investments in games for the next generation consoles. Playlogic has intentionally focused on publishing PC titles during the transition period, since the installed base of the Xbox 360 is too low for Playlogic to make sufficient return on investments. Playlogic intends to start publishing for the next generation consoles in the second half of 2007.

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, since Microsoft introduced it’s Xbox 360 in November 2005 and because consumers anticipate the next generation of consoles of Sony and Nintendo (most likely fourth quarter of 2006), unit volumes often decrease. In response to the current business environment during the industry transition and our assessment of market conditions, we have been focusing on PC games in the past year, while PC and handheld titles will form a substantial part of the line-up for the coming six to nine months. PC games are less expensive to develop, easier to get on the shelves or retailers and will benefit from online distribution channels.

     We believe that the market for interactive entertainment software will expand over the next several years as a result of the introduction of the next generation console platforms. Therefore, as of approximately the second half of 2007, we will shift our focus away from PC and start publishing next generation titles.

     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

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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.Hit 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, the technology needed to develop titles becomes more complex, 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.

     Uncertainties and Other Risk Factors that May Affect our Future Results and Financial Condition

     In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-KSB for the year ended December 31, 2005 and any updates in the subsequent quarterly report, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-KSB are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results. The risk factor below was disclosed on the Form 10-KSB and has been updated in connection with this Form 10-QSB filing.

     We are dependent on financing by third parties, and if we are not able to obtain the necessary financing for our operations, our business will be significantly harmed, and we may need to cease operations.

     The Company’s management believes that in order to satisfy its working capital requirements through the fourth quarter of 2006, it will need to obtain additional financing from third parties. If the Company does not obtain any necessary financing in the future, we may need to cease operations. There can be no assurance that sufficient funds will be available to us to allow us to cover the expenses related to such activities.

     A significant portion of our revenues is derived from a limited number of titles. If we fail to develop new, commercially successful titles, our business may be harmed. Our future titles may not be commercially viable. We also may not be able to release new titles within scheduled release times or at all. If we fail to continue to develop and sell new, commercially successful titles, our revenues and profits may decrease substantially and we may incur losses.

Critical Accounting Policies

General

     The unaudited condensed consolidated financial statements of the company have been prepared in accordance with the instructions to Article 10 of Regulation S-X. 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.

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Software Development Costs

     Capitalized software development costs include payments made in the form of milestone payments 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.

     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 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.

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New Accounting Pronouncements

In September 2006, the SEC issued Staff Accounting Bulletin, or SAB, No. 108,Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.SAB No. 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year’s financial statements are materially misstated. SAB No. 108 is effective for fiscal years ending on or after November 15, 2006. We are currently in the process of evaluating the impact of SAB No. 108 on our financial position and results of operations

In September 2006, the Financial Accounting Standards Board, or FASB, issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. We are currently in the process of evaluating the impact of SFAS No. 157 on our financial position and results of operations.

In July 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently in the process of evaluating the impact of FIN 48 on our financial position and results of operations.

Restatements

The following discussion and analysis gives effect to the restatements described in Note B to the unaudited consolidated financial statements for the quarterly period ended September 30, 2006 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, 2006 , the unaudited consolidated statement of operations for the three and nine ended September 30, 2006 and the consolidated statements of cash flows for the nine months ended September 30, 2006, present the effect of changes in our unaudited consolidated financial statement caused by the restatements.

Results of Operations

Three and NineMonthsEnded September 30, 2006 Compared to Three and Nine Months Ended September 30, 2005.

     Net sales.

Net sales for the three months ended September 30, 2006 were $1,461,194 as compared to $542,579 for the three months ended September 30, 2005. This represents an increase of $918,615, which is mainly due to the release of the PC game Age of Pirates: Caribbean Tales.

     Net sales for the nine months ended September 30, 2006 were $4,593,865 as compared to $1,288,361 for the nine months ended September 30, 2005. The significant increase of $3,305,504 can be explained by the release of four new games since the end of 2005 and partly by the revenues derived from a third party development contract between Playlogic and Sony.

     Gross Profit.

Gross profit totaled $796,612 for the three months ended September 30, 2006. For the three months ended September 30, 2005, gross profit totaled $336,380. This represents an increase of $460,232 and is related to increase in revenues.

     Gross profit totaled $2,001,370 for the nine months ended September 30, 2006. For the nine months ended September 30, 2005, gross profit totaled $936,534. This represents an increase of $1,064,836 and this increase was caused by the increase in revenues

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     Selling, Marketing, General and Administrative Expenses.

Selling, marketing, general and administrative expenses totaled $1,500,615 for the three months ended September 30, 2006. For the three months ended September 30, 2005, selling, general and administrative expenses totaled $1,298,608. This represents an increase of $202,007. This increase is in line with the growth of the company, the current line-up and related cost of personnel.

     Selling, marketing, general and administrative expenses totaled $5,030,264 for the nine months ended September 30, 2006. For the nine months ended September 30, 2005, selling, general and administrative expenses totaled $3,653,260. This represents an increase of $1,377,004. This increase in selling, general and administrative is in line with the growth of the company, the current line-up and related cost of personnel. Next to that in 2006 company had additional costs related to its efforts to get a NASDAQ listing.

     Research and Development.

Research and development expenses totaled $975,810 for the three months ended September 30, 2006. For the three months ended September 30, 2005, research and development totaled $(3,322). This represents an increase of $979,132. This increase is due to the fact that a lower portion of our research and development expenses was capitalized. Additional capitalization has not been considered given our estimated conservative prognoses for recoverability. An amount of $1,123,439 has been written off due to impairment of capitalized research and development expenses.

Research and development expenses totaled $2,262,975 for the nine months ended September 30, 2006. For the nine months ended September 30, 2005, research and development totaled $474,323. This represents an increase of $1,788,652. This increase is due to the above mentioned reasons.

     Interest expense.

Interest expense totaled $439,715 for the three months ended September 30, 2006. For the three months ended September 30, 2005, interest expense totaled $59,477. The increase in interest expense of $380,238 was related to the bank line of credit and several short term loans of which the terms are disclosed in item 5 of this document and also includes a non cash interest charge of $123,000 representing the fair value of warrants issued in conjunction with debt. Furthermore, in other income and expense, as a separate line, an amount of $1,242,400 is included relating to bonus interest of bridge loans.

Interest expense totaled $611,804 for the nine months ended September 30, 2006. For the nine months ended September 30, 2005, interest expense totaled $256,297. The increase in interest expense of $355,507 was related to the bank line of credit and several short term bridge loans for which the terms are disclosed in item 5 of this document and also includes a non cash interest charge of $123,000 representing the fair value of warrants issued in conjunction with debt.

     Net Loss.

Our net loss was $4,580,020 for the three months ended September 30, 2006. For the three months ended September 30, 2005, net loss totaled $1,268,505.The increase of the net loss of $3,311,515 is related to the individual factors discussed above.

     Our net loss was $8,545,307 for the nine months ended September 30, 2006. For the nine months ended September 30, 2005, net loss totaled $4,556,320. This represents an increase of $3,988,987. The increase of the net loss is related to the individual factors discussed above.

     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 $364 for the three months ended September 30, 2006 and $2,252,114 for the three months ended September 30, 2005.

     The change in currency translation adjustments was $(460,639) for the nine months ended September 30, 2006 and $3,945,130 for the nine months ended September 30, 2005.

Liquidity and Capital Resources

September 30,2006

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     As of September 30, 2006, we had $2,577 cash on hand and $147,786 restricted cash in bank.

     In order to cover its working capital requirements through the third quarter of 2006, the Company needs to obtain additional financing from third parties. The cash flow from operating activities could not be sufficient to cover the existing commitments and the development costs for both externally and internally developed games.

     Until date the company has been financed mainly by common stock subscriptions of capital to informal investors. The Company is looking for a capital raise with institutional investors and is currently in negotiation with several professional parties in that respect. In the meantime the company is looking for funding via loans and additional common stock subscriptions.

     If the Company does not obtain the necessary financing in future periods to support day-to-day operations, as well as satisfy our existing commitments; we may need to significant curtail or, at worst, cease operations.

     We expect our capital requirements to increase over the next several years as we continue to increase our line-up and 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.

     The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

     Based upon their evaluation as of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, the Company’s disclosure controls and procedures are not effective to ensure that information required to be included in the Company’s periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

     A material weakness is a significant deficiency or a combination of significant deficiencies that result in a more than remote likelihood than a material misstatement of the annual or interim financial statements will not be prevented or detected.

     Rothstein, Kass & Company, P.C., our independent registered public accounting firm, has advised management and the Board of Directors that it has identified the following material weaknesses in our internal controls:

     A material weakness exists as of September 30, 2006, with regard to limitations in the capacity of the Company’s accounting resources to identify and react in a timely manner to non-routine, complex and related party transactions as well as the adequate understanding of the disclosure requirements relating to these transactions.

     A material weakness exists as of Sept 30, 2006, with regard to the fact that the Chief Executive Officer has on occasion entered into financing transactions prior to obtaining the approval of the Board of Directors. On one occasion, a financing transaction was later modified to address objections raised by the outside Directors, and certain provisions of the initial agreement were modified or eliminated in order to overcome these objections.

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     In order to remediate these material weaknesses in our internal control over financial reporting, management is in the process of designing and implementing and continuing to enhance controls to aid in the correct preparation, review, presentation and disclosures of our Consolidated Financial Statements. We are continuing to monitor, evaluate and test the operating effectiveness of these controls.

     Other than indicated above, there were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

     Limitations on the Effectiveness of Controls

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may deteriorate.

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PART II. OTHER INFORMATION

Item 6. Exhibits.

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

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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. SmitWillem M. Smit
		Chief Executive Officer

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PLAYLOGIC ENTERTAINMENT, INC.

EXHIBIT INDEX

Exhibit
Number	Description
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