Playlogic Entertainment 10Q 2009 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2009
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 Registrant as Specified in Its Charter)

Delaware		23-3083371
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Strawinskylaan 1041, WTC Amsterdam, C-Tower, 10th floor		1077 XX
(Address of principal executive offices)		(Zip Code)

Registrant's Telephone Number, Including Area Code: + 31-20-676-0304

Indicate by check mark whether the registrant: (1) 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. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T(Section 232.405 of this chapter) during the preceding 12 months(or such shorter period that the registrant was required to submit and post such files. Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

(Do not check if a smaller reporting company)

Smaller reporting company ý

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

As of September 30, 2009, there were 47,139,635 shares of the Registrant's Common Stock outstanding.

PLAYLOGIC ENTERTAINMENT, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION			Page No.

	Item 1.	Financial Statements	4

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23

	Item 4	Controls and Procedures	24

PART II -- OTHER INFORMATION

	Item 1.	Legal Proceedings	24

	Item 1A.	Risk Factors	24
		��
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 3.	Defaults Upon Senior Securities	24

	Item 4.	Submission of Matters to a Vote of Security Holders	24

	Item 5.	Other Information	24

	Item 6.	Exhibits	25

	Signatures		26

	Exhibit Index		27

	Certifications		Attached

- 2 -

PART I -- FINANCIAL INFORMATION

Item 1 - Financial Statements

PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2009			December 31, 2008 (Derived from audited financial statements)
	(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents	$	775,416		$	81,978
Receivables
Trade, net of allowance for doubtful accounts		4,736,634			380,993
Officers		178,297			109,876
Value Added Taxes from foreign governments		122,083			71,783
Current portion of software development costs		10,761,777			5,179,976
Inventory finished product		774,941			812,020
Intellectual property licenses		1,905,947			1,905,947
Prepaid expenses and other receivables		3,084,948			560,765

Total current assets		22,340,043			9,103,338


Property and equipment, net of accumulated depreciation		1,297,035			1,226,134

Other assets
Software development costs, net of current portion		2,722,945			3,401,058
Restricted cash		219,825			210,000

Total other assets		2,942,770			3,611,058

Total Assets	$	26,579,848		$	13,940,530

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current Liabilites
Accounts and notes payable
Accounts payable	$	7,622,897		$	5,453,262
Other current liabilities
Current maturities of long-term debt		4,843,965			3,342,000
Accrued liabilities		1,671,496			1,896,466
Deferred revenues		1,813,153			-
indebtedness to related party		18,928,513			3,794,000

Total current liabilities		34,880,024			14,485,728


Long-term debt, less current maturities		982,621			2,146,338

Total Liabilities		35,862,645			16,632,066

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. 47,139,635 and 46,391,275 shares issued and outstanding, respectively		47,140			46,392
Additional paid-in capital		62,597,662			61,229,130
Deferred Compensation-Employee Stock Options		717,213			580,572
Accumulated other comprehensive loss		(5,402,609	)		(3,955,083	)
Accumulated deficit		(66,944,974	)		(60,220,690	)
Total Shareholders' Deficit of the Company		(8,985,568	)		(2,319,679	)

Non Controlling Interest		(297,229	)		(371,857	)
Total Shareholders' Deficit		(9,282,797	)		(2,691,536	)


Total Liabilities and Shareholders' Deficit	$	26,579,848		$	13,940,530

See accompanying notes to unaudited condensed consolidated financial statements

- 3 -

PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



	Three months ended September 30,						Nine months ended September 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net revenues
Sales, net of returns and allowances	$	2,019,382		$	1,068,377		$	6,701,682		$	9,418,489

Cost of sales
Direct costs and license fees		(938,482	)		(405,806	)		(2,929,667	)		(2,656,048	)
Amortization of software development costs		(1,047,792	)		(397,642	)		(2,034,383	)		(2,120,432	)
		(1,986,274	)		(803,448	)		(4,964,050	)		(4,776,480	)

Gross profit		33,108			264,929			1,737,632			4,642,009

Operating expenses
Research and development		307,698			125,589			404,442			301,031
Selling and marketing		922,155			166,399			1,865,581			573,585
General and administrative		1,596,275			1,683,894			4,780,033			4,123,612
Depreciation		93,628			127,829			301,098			284,234
Asset impairment charges		-			1,000,000			-			1,000,000
Total operating expenses		2,919,756			3,103,711			7,351,154			6,282,462

Loss from operations		(2,886,648	)		(2,838,782	)		(5,613,522	)		(1,640,453	)

Other income/(expense)
Interest expense		(493,069	)		(142,172	)		(999,971	)		(259,890	)
Non cash Interest expense on discounted debt		(288,847	)		(49,000	)		(483,091	)		(98,000	)
Realized and unrealized exchange profit		407,849			35,653			446,927			44,848

Loss before provision for income taxes		(3,260,715	)		(2,994,301	)		(6,649,657	)		(1,953,495	)

Equity in non controlling interest		(123,837	)		-			(74,627	)		-

Provision for Income Taxes		-			-			-			-


Net Loss		(3,384,552	)		(2,994,301	)		(6,724,284	)		(1,953,495	)

Net loss per weighted-average share of common stock outstanding, computed on Net Loss
- basic		(0.07	)		(0.07	)		(0.14	)		(0.05	)
- fully diluted		(0.06	)		(0.07	)		(0.11	)		(0.05	)

Weighted-average number of shares of common stock outstanding
- basic		47,139,635			42,437,055			47,037,497			41,522,821
- fully diluted		58,614,563			42,437,055			58,512,425			41,522,821

See accompanying notes to unaudited condensed consolidated financial statements

- 4 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT Unaudited

					Additional							Accumulated Other Comprehensive Loss			40% non controlling
	Common stock				Paid-in		Deferred Compensation		Accumulated						interest in
	Shares		Par Value		Capital		Deferred Compensation		deficit						PlayV Ltd			Total

Balances at December 31, 2008		46,391,275		46,392		61,229,130		580,572		(60,220,690	)		(3,955,083	)		(371,857	)		(2,691,536	)

Non Controlling interest in Joint-Venture																74,628			74,628
Common stock issued for cash		643,360		643															643
Common stock issued for services		105,000		105															105
Capital contributed to support operations						75,000													75,000
Issuing costs																			-
Stock options issued pursuant to Employee Compensation Plan								136,641											136,641
Discount on debt					$	1,293,532													1,293,532
Change in currency translation adjustment													(1,447,526	)					(1,447,526	)
Net result for the year										(6,724,284	)								(6,724,284	)
Balances at September 30, 2009		47,139,635	$	47,140	$	62,597,662	$	717,213	$	(66,944,974	)	$	(5,402,609	)	$	(297,229	)	$	(9,282,797	)

See accompanying notes to unaudited condensed consolidated financial statements

- 5 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	9 months ended September 30,
	2009			2008
	(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(6,724,284	)	$	(1,953,495	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		301,098			284,234
Amortization of software development		2,034,383			2,120,432
Impairment of software development		-			1,000,000
Bad debt expense		-			19,893
Expense charges for stock options		136,641			163,767
Management fees contributed as capital		75,000			75,000
Non-cash interest charge on warrants		483,091			98,000
Change in capitalized software development costs		(6,938,071	)		(6,267,998	)
(Increase)/ Decrease in cash attributable to changes in operating assets and liabilities
Restricted cash		(4,287	)		(227,852	)
Accounts receivable - trade and other		(4,224,708	)		(1,691,741	)
Inventory finished product		104,585			-
Prepaid expenses and other		(2,467,082	)		(363,140	)
Increase / (Decrease) in
Deferred revenues		1,737,155			(153,344	)
Accounts payable - trade		1,393,708			(557,807	)
Payroll taxes payable		(224,761	)		(932,348	)
Other current liabilities		175,908			170,974
Net cash used in operating activities		(14,141,625	)		(8,215,425	)

CASH FLOWS FROM INVESTING ACTIVITIES

Cash paid to acquire property and equipment		(323,809	)		(826,784	)
Net cash used in investing activities		(323,809	)		(826,784	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank line of credit		-			(1,089,186	)
Cash repaid on short term notes		-			(410,133	)
Principal payments on long-term debt		(247,219	)		(22,785	)
Cash received from shareholder loans		15,214,955			8,209,281
Cash repaid on shareholder loans		-			(3,850,500	)
Proceeds from sales of common stock		643			6,536,568
Net cash provided by financing activities		14,968,379			9,373,245

Effect of foreign exchange on cash		190,494			(373,941	)

Increase/(Decrease) in Cash		693,439			(42,905	)
Cash at beginning of period		81,978			349,464

Cash at end of period		775,417			306,559

Supplemental disclosures of interest and income taxes paid
Interest paid during the period		-			-
Income taxes paid (refunded)		-			-

Supplemental disclosures of non-cash investing and financing activities
Common stock issued to repay notes payable		-			-
Cost of acquiring capital paid with issuance of common stock		-			-

See accompanying notes to unaudited condensed consolidated financial statements

- 6 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying condensed consolidated balance sheet as of December 31, 2008 has been derived from audited financial statements and the accompanying unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes for complete consolidated financial statements as required by GAAP. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

The results of operations for the three and nine months ended September 30, 2009 and 2008 presented are not necessarily indicative of the results to be expected for the year.

There is no provision for dividends for the quarter to which this quarterly report relates.

Description of business

Playlogic Entertainment, Inc. (“Playlogic,” the “Company” or “we”) develops and publishes interactive software games designed for video game consoles, handheld platforms and personal computers. We currently offer our products primarily in versions that operate on the Sony PlayStation 2 (“PS2”), Sony PlayStation 3 (“PS3”), Nintendo Wii (“Wii”), and Microsoft Xbox 360 (“Xbox360”) console systems, Nintendo Game Boy Advance (“GBA”), Sony PlayStation Portable (“PSP”), and Nintendo Dual Screen (“NDS”) hand-held devices, and the personal computer (“PC”).

We develop and publish action/adventure, racing, simulation, first-person action, and other software games for casual players, game enthusiasts, children, adults, and mass-market consumers. Our principal sources of revenue are derived from publishing operations. Publishing revenues are derived from the sale of internally developed software titles or software titles developed by third parties. Our publishing business involves the development, marketing, and sale of products directly through distributors or through licensing arrangements, under which we receive royalties.

We sell our products worldwide.

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

Going concern

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. At September 30, 2009, the Company had an accumulated deficit of approximately $66.9 million. During the nine months ended September 30, 2009, the Company incurred a net loss of $6.7 million and negative operating cash flows of approximately $14.1 million. These circumstances 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 to six 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.

- 7 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

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.

If no additional operating capital is received during the next twelve months, the Company will be forced to rely on existing cash in the bank and upon additional funds loaned by management and/or significant stockholders to preserve the integrity of the corporate entity at this time. In the event, the Company is unable to acquire advances from management and/or significant stockholders, the Company’s ongoing operations would be negatively impacted to the point that all operating activities are ceased.

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.

Principles of consolidation

The consolidated financial statements include the consolidated financial statements of Playlogic Entertainment, Inc. a Delaware corporation, Playlogic International N.V. (a corporation domiciled in The Netherlands), its wholly-owned subsidiary Playlogic Game Factory B.V. (a corporation domiciled in The Netherlands). Furthermore, we have 60% controlling interest in a joint-venture founded in the United Kingdom. All inter-company accounts and transactions have been eliminated in consolidation.

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

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.

Currency translation

The accompanying unaudited condensed consolidated financial statements are reported in U.S. Dollars. Accounts of foreign operations are translated into U.S. dollars using exchange rates for assets and liabilities at the balance sheet date and average prevailing exchange rates for the period for revenue and expense accounts. Adjustments resulting from translation are included in other comprehensive income (loss). Realized and unrealized transaction gains and losses are included in income in the period in which they occur, except on inter-company balances considered to be long term. Transaction gains and losses on inter-company balances considered to be long term are recorded in other comprehensive income.

Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. The Company’s items of other comprehensive income (loss) are foreign currency translation adjustments, which relate to investments that are permanent in nature and therefore do not require tax adjustments.

- 8 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The Euro is the functional currency of our operating subsidiaries domiciled in The Netherlands. We translate Euro into US Dollars, in accordance with the following table:

Financial statement element		Applicable rate

Assets		Balance sheet date *
Liabilities		Balance sheet date *
Equity		Historical
Revenues		Annual average**
Expenses		Annual average**
Gains		Annual average**
Losses		Annual average**

____________

* $1.46550 and $ 1.4000 at September 30, 2009 and December 31, 2008, respectively.

** Average for the 9 months ended September 30, 2009 was $1.3718

Average for the 9 months ended September 30, 2008 was $1.5190

Earnings/(Loss) Per Share .

Basic earnings/(loss) per common share is computed by dividing net income(loss) by the weighted-average number of shares of common stock outstanding for the period. Basic earnings per share excludes the impact of unvested shares of restricted stock issued under the Company’s incentive stock compensation plan. Diluted earnings per share reflects the potential impact of common stock options and unvested shares of restricted stock issued under the Company’s incentive stock compensation plan, and outstanding common stock purchase warrants. Diluted and basic earnings per share for the three and nine months ended September 30, 2009 and 2008 are the same because the impact of shares issuable under the incentive stock compensation plan and common stock purchase warrants is anti-dilutive after applying the treasury stock method, as is required by FASB ASC 260 Earnings per Share ..

Recently Issued Accounting Pronouncements

In 2008, the Securities and Exchange Commission (the “SEC”) adopted rule amendments that replace the category of “Small Business Issuers” with a broader category of “Smaller Reporting Companies.” Under these rules, a “Smaller Reporting Company” is a company with a public float less than $75,000,000 (measured at end of June). Companies that meet this definition are able to elect “scaled disclosure standards” on an item-by-item or “a-la-carte” basis. With this change, the SEC has streamlined and simplified reporting for many companies, and has not added any significant disclosure requirements.

In February 2007, the FASB issued Statement ASC 825, “The Fair Value Option for Financial Assets and Financial Liabilities”, or SFAS 159. SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. It is expected to expand the use of fair value measurements which is consistent with the Financial Accounting Standards Board’s long-term measurement objectives for accounting for financial instruments. The Company adopted this Statement as of January 1, 2009 but has not applied the fair value option to any eligible assets or liabilities as such. There was no impact to our financial condition or results of operations from the adoption of this Statement.

In December 2007, the FASB issued ASC 805, Business Combinations. This Statement provides greater consistency in the accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business combination. ASC 805 is effective for all fiscal years beginning after December 15, 2008 (January 1, 2009 for the Company) and interim periods within those years, with earlier adoption prohibited. We are evaluating the impact that the adoption of ASC 805 will have on our consolidated financial position, cash flows and results of operations. The effect will be dependent upon acquisitions at that time.

In December 2007, the FASB issued ASC 810, "Noncontrolling Interests in Consolidated Financial Statements--An Amendment of ARB No. 51, or ASC 810". FASB ASC 810 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FASB ASC 810 is effective for fiscal years beginning on or after December 15, 2008. The Company believes that FASB ASC 810 should not have a material impact on the consolidated financial position or results of operations.

- 9 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In March 2008, the FASB issued ASC 815, "Disclosures about Derivative Instruments and Hedging Activities" ("ASC 815"). ASC 815 requires companies with derivative instruments to disclose information that should enable financial-statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.

Also in May 2008, the FASB issued ASC 944, "Accounting for Financial Guarantee Insurance Contracts--an interpretation of FASB Statement No. 60" ("ASC 944"). ASC 944 interprets Statement 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. ASC 944 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended December 31, 2009. The Company is currently evaluating the impact of ASC 944 on its financial statements but does not expect it to have an effect on the Company's financial position, results of operations or cash flows.

In May 2008, the FASB issued ASC 470, "Accounting for Convertible Debt Instruments that may be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("ASC 470"). ASC 470 applies to convertible debt securities that, upon conversion, may be settled by the issuer fully or partially in cash. ASC 470 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity's nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. ASC 470 is effective for financial statements issued for fiscal years after December 15, 2008, and must be applied on a retrospective basis. Early adoption is not permitted. The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.

In June 2008, the FASB issued ASC 260, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities" ("ASC 260"). ASC 260 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the earnings allocation in computing earnings per share under the two-class method as described in ASC 260, Earnings per Share. Under the guidance of ASC 260, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings-per-share pursuant to the two-class method. ASC 260 is effective for financial statements issued for fiscal years beginning after December 15, 2008 and all prior-period earnings per share data presented shall be adjusted retrospectively. Early application is not permitted. The Company is assessing the potential impact of this ASC on the earnings per share calculation.

In June 2008, the FASB ratified ASC 815, "Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock" ("ASC 815"). ASC 815provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. ASC 815is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early application is not permitted. The Company is assessing the potential impact of this ASC 815on the financial condition and results of operations.

In April 2009, the FASB issued ASC 805, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination thatArise from Contingencies , which requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, if fair value can be determined during the measurement period. ASC 805 specifies that an asset or liability should be recognized at time of acquisition if the amount of the asset or liability can be reasonably estimated and that it is probable that an asset existed or that a liability had been incurred at the acquisition date. ASC 805 is effective for all fiscal years beginning after December 15, 2008 (31 December 2009 for the Company). The adoption of this statement is not expected to have a material effect on the Company's future financial position or results of operations.

In May 2009, the FASB issued ASC 855, Subsequent Events which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855 is effective for interim or annual financial periods ending after June 15, 2009 (the Company's second quarter ended June 30, 2009). The implementation of this standard did not have a material impact on the Company's financial statements. Subsequent events were evaluated through the date of issuance of these consolidated financial statements on November 18, 2009 at the time this Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission.

- 10 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

In June 2009, the FASB issued ASC 105 which replaces SFAS No. 162 , The Hierarchy of Generally Accepted Accounting Principles, to establish the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in preparation of financial statements in conformity with generally accepted accounting principles in the United States. ASC 105 is effective for interim and annual periods ending after September 15, 2009 (the Company's third quarter ended September 30, 2009). We do not expect the adoption of this standard to have an impact on our financial position or results of operations.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements . This guidance modifies the fair value requirements of FASB ASC subtopic 605-25, Revenue Recognition-Multiple Element Arrangements , by allowing the use of the “best estimate of selling price” in addition to vendor specific objective evidence and third party evidence for determining the selling price of a deliverable. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence, (b) third-party evidence, or (c) estimates. In addition, the residual method of allocating arrangement consideration is no longer permitted. ASU 2009-13 is effective for fiscal years beginning on or after June 15, 2010. We do not expect the adoption of ASU 2009-13 to have a material impact on our Condensed Consolidated Financial Statements.

In October 2009, the FASB issued ASU 2009-14, Software (Topic 985) – Certain Revenue Arrangements that Include Software Elements . This guidance modifies the scope of FASB ASC subtopic 965-605, Software-Revenue Recognition , to exclude from its requirements non-software components of tangible products and software components of tangible products that are sold, licensed, or leased with tangible products when the software components and non-software components of the tangible product function together to deliver the tangible product’s essential functionality. ASU 2009-14 is effective for fiscal years beginning on or after June 15, 2010. We do not expect the adoption of ASU 2009-14 to have a material impact on our Condensed Consolidated Financial Statements.

NOTE B - SOFTWARE DEVELOPMENT COSTS

The following table provides the details of software development costs as of September 30, 2009 and for the year ended December 31, 2008:

	September 30, 2009			December 31, 2008 (derived from audited statements)
	(Unaudited)

Beginning balance	$	8,581,034		$	7,285,353
Additions		6,938,071			8,032,832
		15,519,105			15,318,185

Less: Amortization		(2,034,383	)		(2,237,151	)
Less: Impairment charge		0			(4,500,000	)
		(2,034,383	)		(6,737,151	)

Total software development costs		13,484,722			8,581,034

Less: current portion		(10,761,777	)		(5,179,976	)
Non-current portion	$	2,722,945			3,401,058

The amount of software development costs resulting from advance payments and guarantees to third-party developers was approximately $7.4 million at September 30, 2009. In addition, software development costs at September 30, 2009 included an amount of $9.8 million related to titles that have not been released yet.

The non-current portion of the capitalized software development costs is expected to be amortized starting Q4 2010 and further.

- 11 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE C – RELATED PARTY TRANSACTIONS

Common stock

On February 10, 2009, the Company sold 200,185 shares of its common stock to an accredited investor based in the Netherlands at nominal value of $0.001 per share or gross proceeds of $200, pursuant to the terms of a subscription agreement dated February 10, 2009.

On February 10, 2009, the Company sold 61,000 shares of its common stock to an accredited investor based in the Netherlands at nominal value of $0.001 per share or gross proceeds of $61, pursuant to the terms of a subscription agreement dated February 10, 2009.

On February 13, 2009, the Company sold 30,000 shares of its common stock to an accredited investor based in the Netherlands at nominal value of $0.001 per share or gross proceeds of $30, pursuant to the terms of a subscription agreement dated February 13, 2009.

On June 1, 2009, the Company issued 105,000 shares of its common stock for services provided by the PR and Marketing company the Company hired. This PR and Marketing company is based in the United States. The shares have a par value of $0.001 per share.

Stock option plan

On January 23, 2009, the Board of Directors has agreed to grant 1,322,500 options to key employees. This grant is in accordance with the 2006 approved Employee Stock Option Plan. The options have an exercise price of $0.60 per share. These options vest ratably over three years and will expire in 4 years. The fair value of the options totaled $47,610 or $0.04 per share, of which $11,462 was recorded during the nine months ended September 30, 2009. The stock price on the day of grant amounted to $0.25.

The fair value of options granted was estimated at the grant date using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The following table summarizes the assumptions and variables used to compute the weighted average fair value of stock option grants:

Risk-free interest rate	1.3%
Dividend yield	0%
Volatility factor	47.5%
Weighted-average expected life	4 Years

Loans from shareholders

Loan agreement 1

On January 23, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €1,500,000 (€750,000 each) or $ 2,200,000 ($1,100,000 each)). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid on December 31, 2009. Under this loan agreement, the Company pledged as a collateral all Intellectual Property owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 1,500,000 (750,000 each) shares of the Company’s common stock at an exercise price of $0.50 per share. The warrants may be exercised starting January 23, 2009 and expire on January 22, 2013.

Loan agreement 2

On March 16, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €250,000 (€125,000 each) or $ 365,000 ($182,500 each). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amount was initially to be repaid before the end of June 2009. As of July 31, 2009 this loan agreement has been renewed and the repayment date has been extended to September 1, 2009. Under this loan agreement, the Company pledged as a collateral all Intellectual Property and receivables owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 318,182 (159,091 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants may be exercised starting July 31, 2009 and expire on July 31, 2013. Upon exercise, the warrants will be settled cashless.

In accordance with the contracts, the Company has issued additional 318,182 (159,091 each) cashless warrants at the same conditions as the Company has not repaid the principle amount to the loan provider on or before September 1, 2009. The Company has a verbal agreement with the loan providers to extend the term of the loan to April 1, 2010, and parties are currently working on renewal of the contract.

- 12 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Loan agreement 3

On June 12, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €3,900,000 (€1,950,000 each) or $ 5,700,000 ($2,850,000 each)). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid on September 1, 2009. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 4,963,636 (2,481,818 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants may be exercised starting April 7, 2009 and expire on April 7, 2013. Upon exercise, the warrants will be settled cashless.

In accordance with the contracts, the Company has issued an additional 4,963,636 cashless warrants at the same conditions as the Company has not repaid the principle amount to the loan provider on or before September 1, 2009. The Company has a verbal agreement with the loan providers to extend the term of the loan to April 1, 2010, and parties are currently working on renewal of the contract.

Loan agreement 4

On July 30, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €1,800,000 (€ 900,000 each) or $ 2,638,000 ($1,319,000 each)). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid on September 1, 2009. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 2,290,908 (1,145,454 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants may be exercised starting July 30, 2009 and expire on July 30, 2013. Upon exercise, the warrants will be settled cashless.

In accordance with the contracts, the Company has issued an additional 2,290,908 cashless warrants at the same conditions as the Company has not repaid the principle amount to the loan provider on or before September 1, 2009. The Company has a verbal agreement with the loan providers to extend the term of the loan to April 1, 2010, and parties are currently working on renewal of the contract.

Loan agreement 5

On August 19, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €1,000,000 (€ 500,000 each) or $ 1,465,500 ($ 732,750 each)). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid on September 1, 2009. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 1,272,728 (636,364 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants may be exercised starting August 19, 2009 and expire on August 19, 2013. Upon exercise, the warrants will be settled cashless.

In accordance with the contracts, the Company has issued an additional 1,272,728 cashless warrants at the same conditions as the Company has not repaid the principle amount to the loan provider on or before September 1, 2009. The Company has a verbal agreement with the loan providers to extend the term of the loan to April 1, 2010, and parties are currently working on renewal of the contract.

Loan agreement 6

On September 22, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €1,550,000 (€ 775,000 each) or $ 2,271,525 ($ 1,135,763 each)). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid on April 1, 2010. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 1,972,726 (986,363 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants may be exercised starting September 22, 2009 and expire on September 22, 2013. Upon exercise, the warrants will be settled cashless.

In accordance with APB 14, we allocated the debt proceeds between the debt and detachable stock purchase warrants based on relative fair values. We have recognized a total discount of all the debts (loans 1 to 6) amounting to approximately $1,293,532 which will be amortized over the term of the loan. During the 9 months ended September 30, 2009, $482,671 was amortized as interest expense in the accompanying consolidated financial statements.

On July 30, 2009, the Company renewed the terms of six bridge loans that were in default.

Two bridge loans with a total principle amount of €800,000 (€400,000 each), initially signed on November 7, 2008, had a repayment date of April 1, 2009. As the Company is in default the Company agreed to renew the contract and change the repayment date to September 1, 2009. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 500,000 (250,000 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants have a cashless exercise and have a 4 year term.

- 13 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Two bridge loans with a total principle amount of €1,200,000 (€600,000 each), initially signed on December 11, 2008, had a repayment date of May 1, 2009. As the Company is in default the Company agreed to renew the contract and change the repayment date to April 1, 2010. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 700,000 (350,000 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants have a cashless exercise and have a 4 year term.

Two bridge loans with a total principle amount of €250,000 (€125,000 each), initially signed on March 16, 2009, had a repayment date of June 30, 2009. As the Company is in default the Company agreed to renew the contract and change the repayment date to September 1, 2009. Under this loan agreement, the Company pledged as collateral all Intellectual Property and accounts receivable owned by the Company. Concurrent with these loan agreements, the Company issued to these shareholders warrants to purchase 318,182 (159,091 each) shares of the Company’s common stock at an exercise price of $0.40 per share. The warrants may be exercised starting July 31, 2009 and expire on July 31, 2013. Upon exercise, the warrants will be settled cashless.

In accordance with the contracts, the Company needs to issue an additional 318,182 (159,091 each) cashless warrants at the same conditions if the Company has not repaid the principle amount to the loan provider on or before September 1, 2009.

The total amount of bridge loans outstanding as of September 30, 2009 amounts to €13,800,000 (or $20,200,000). An amount €11,100,000 (or $ 16,250,000) of this total has been received during the first nine months of 2009. The total number of warrants issued in connection with these 2009 loans is 22,763,636. The warrants all have a four year term and have exercise prices of $0.40 and $0.50.

SUBSEQUENT EVENTS

On October 1, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of €1,600,000 (€800,000 each) or $2,344,800 ($1,172,400 each). An amount of €1,100,000 (or $1,612,000) of this loan has been received in September 2009 and is therefore included in the balance sheet. These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid before April 1, 2010. Under this loan agreement, the Company pledged as a collateral all Intellectual Property and receivables owned by the Company. Concurrent with these loan agreements, the Company will adjust current outstanding warrants with an exercise price higher than $0.60 to an exercise price of $0.60 per share. This will be done for warrants to purchase 870,000 (435,000 each) shares of the Company’s common stock The warrants may be exercised starting October 1, 2009 and expire on October 1, 2013. Upon exercise, the warrants will be settled cashless.

On October 16, 2009, the Company entered into two bridge loan agreements with two principal shareholders based in the Netherlands, pursuant to which the Company borrowed a principal amount of € 470,000 (€235,000 each) or $ 688,785 ($344,393 each). These loans bear an interest of 10% per annum and will be paid on a monthly basis. The principle amounts have to be repaid before April 1, 2010. Under this loan agreement, the Company pledged as a collateral all Intellectual Property and receivables owned by the Company. Concurrent with these loan agreements, the Company will adjust current outstanding warrants with an exercise price higher than $0.60 to an exercise price of $0.60 per share. This will be done for warrants to purchase 870,000 (435,000 each) shares of the Company’s common stock The warrants may be exercised starting October 16, 2009 and expire on October 16, 2013. Upon exercise, the warrants will be settled cashless.

Contributed capital

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 (or $25,000 per quarter) is imputed as the value of his services and recorded as additional contributed capital to the Company.

Receivables due from officers

Effective January 1, 2006 the Company entered into a service agreement with Altaville Investments B.V., a company beneficially owned by its CEO Willem M. Smit. The Company pays for certain service among others housekeeping and cleaning services provided by Altaville to the Company an annual aggregate amount of approximately $50,000 which is paid in 4 quarterly installments.

- 14 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE D - - COMMITMENTS AND CONTINGENCIES

Litigation

The Company is involved in a few 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 consolidated financial position or results of operations .

Office leases

The Company has entered into a lease agreement with the World Trade Center in Amsterdam for a period of 5 years ending July 31, 2013. The lease requires annual payments of approximately $400,000 (€ 291,500) for the offices and $28,250 (€20,600) for parking spaces at the building, all payable in quarterly installments. The offices total approximately 8,000 square feet (or 900 square meter). This lease agreement contains an extension option, which if exercised by the Company, will extend the expiration date to July 31, 2018. The Company has negotiated a rent-free period with the WTC for the period up to December 31, 2008. First payments have started in January 2009. The Company has accrued for the rent free period and will release the accrual over the term of the lease.

Our wholly-owned subsidiary, Playlogic Game Factory, B. V., leases offices located at Hambroeklaan 1 in Breda from Neglinge BV pursuant to a lease agreement which expires on October 1, 2013. This lease agreement contains an extension option, which if exercised, will extend the expiration date to October 1, 2018. At the execution of this lease agreement, the landlord committed itself to invest approximately $410,000 (€300,000) in leasehold improvements which are scheduled to be repaid by Playlogic Game Factory B.V. over a 10 year period. The lease requires annual payments of approximately $410,000 (€300,000) per year, payable in quarterly installments.

Future minimum non-cancelable lease payments on the above leases for office space are as follows:

September 30,
2009	$	202,500
2010		820,000
2011		820,000
2012		820,000
2013		405,000
Thereafter		-
Total	$	3,067,500

Transportation leases

The Company leases 9 automobiles for certain officers and employees pursuant to the terms of their individual employment agreements under operating lease agreements. These agreements are for terms of 3 to 4 years. The leases require monthly aggregate payments of approximately $12,000.

Future minimum non-cancelable lease payments on the above transportation leases are as follows:

September 30,
2009	$	12,000
2010		48,000
2011		34,000
2012		-
2013		-
Thereafter		-
Total	$	94,000

Software development contracts

The Company has entered into five (5) separate software development contracts with unrelated entities. These contracts require periodic payments of agreed-upon amounts upon the achievement of certain developmental milestones, as defined in each individual contract. All of these contracts have completion deadlines of less than one (1) year from the contract execution and will require an aggregate funding liability of approximately $1.5 million through completion.

- 15 -

PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE E - - SEGMENT INFORMATION AND REVENUE CONCENTRATIONS

The Company sells its products to wholesale distributors in various domestic and foreign markets. The following table shows the Company’s gross revenue composition:

	For the nine months ended September 30,
	2009				2008
	(Unaudited)				(Unaudited)


Europe and United Kingdom
Customer A *		1,533,670	22.9	%		2,117,511	25.4	%
Customer C		1,535,320	22.9	%		1,354,465	16.2	%
Customer D		102,953	1.5	%		440,823	5.3	%
Customer E		40,257	0.6	%		1,416,842	17.0	%
Customer F		42,487	0.6	%		599,642	7.2	%
Others		569,777	8.5	%		1,673,494	20.0	%
		3,824,464	57.1	%		7,602,777	91.1	%
Asia
Others		0	0.0	%		32,970	0.4	%
		0	0.0	%		32,970	0.4	%

United States & Canada
Customer G		61,875	0.9	%		714,365	8.6	%
Customer H		2,815,343	42.0	%			0.0	%
others		0	0.0	%			0.0	%
		2,877,218	42.9	%		714,365	8.6	%


Total		6,701,682	100.0	%		8,350,112	100.0	%

- 16 -

Item 2. Management’s Discussion and Analyses of Financial Condition and Results of Operation

CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS

The statements contained herein which are not historical facts are considered forward-looking statements under federal securities laws and may be identified by words such as "anticipates," "believes," "estimates," "expects," "intends," "plans," "potential," "predicts," "projects," "seeks," "will," or words of similar meaning and include, but are not limited to, statements regarding the outlook for the Company's future business and financial performance. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may vary materially from these forward-looking statements based on a variety of risks and uncertainties including those contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, in the section entitled "Risk Factors," and the Company's other periodic filings with the SEC. All forward- looking statements are qualified by these cautionary statements and apply only as of the date they are made. The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise.

Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the

accompanying condensed consolidated financial statements and footnotes to assist readers in understanding our results of operations, financial

condition and cash flows. The following discussion should be read in conjunction with the MD&A included in our annual consolidated financial statements and the notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

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 PlayStation 3,and Playstation2, Microsoft’s Xbox 360 and Nintendo’s Wii, PCs and handheld devices (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, production, localization, QA and testing, PR and marketing, manufacturing and sales of our products. Playlogic’s products are sold to distributors who supply retailers worldwide. Furthermore, we sell directly to consumers through online distribution channels with various partners.

Development studios throughout the world help create the games which are published by Playlogic. One of these studios is our fully owned subsidiary, Playlogic Game Factory B.V., located in The Netherlands. Other independent studios in various countries develop our games under Software Development Agreements (SDA). These development contracts generally provide that we pay an advance on future royalties earned upon achievement of milestones successfully completed and delivered. In addition, we license the rights of existing Playlogic IP to other development studios who then adapt these products to the specifications and abilities of other (console) platforms.

Studios and developers contact us daily requesting financing and publishing of their games or concepts. We evaluate each of these offers based on several factors, including sales potential of concept or product, technology & tools used, track record and project management of the studio.

We select which games we develop based on our analysis of consumer buying 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 worldwide through existing distribution channels with global or local distributors. When appropriate we have the ability to release our titles simultaneously across a range of hardware formats to maximize overall sales for a particular product with a minimum augmentation in development time and resources.

We believe that greater online functionalities, applications and digital distribution on the new platforms will improve revenue margins and encourage further industry growth. In addition, according to DFC Intelligence, new sales potential, revenue opportunities from wireless gaming, online console gaming, and in-game advertising are expected to grow substantially.

Industry Overview

Over the past two decades, the video game industry has advanced and become a valuable contributor to the entertainment consumption business. The estimated break-down of gamers in US households is 61% male and 39% female, with 47% of gamers between 13 and 24 years old, 30% between 25 and 39 years old; and 23% over 40 years old.

- 17 -

Worldwide, the video game market is projected to increase from $26.2 billion in 2004 to $46.5 billion in 2010, growing at an 11.4 percent compound annual rate. Asia Pacific, the largest market at $9.6 billion in 2004, is projected to maintain its dominance, growing at a 12.3 percent compound annual rate through 2010 to reach $17.4 billion. The United States has the second largest market and is expected to grow from $8.4 billion in 2005 to $13.0 billion in 2010, an 8.9 percent compounded annual according to Company Annual Reports of Crandell & Sidak. (WedBush Morgan).

The video game market reflects consumer spending on console games (including handheld games), personal computer (PC) games, online games, and wireless games. The category excludes spending on the hardware and accessories used to play the games.

With the launch of the Nintendo Wii and Sony PlayStation 3, the gaming industry had a record-breaking year in 2006. According to NPD Group's industry tracking sales figures, overall profits are up 19 percent, and the combined hardware, software, and accessories sales reached $12.5 billion in the U.S. alone, making it the highest grossing year in the video game industry to date.

Market Trends – Worldwide

The fastest-growing segment during the next five years, global video game spending is expected to increase significantly over the next years. By 2009, online and wireless will be major distribution channels, spurred by broadband penetration and new mobile phones that will be used as much for entertainment as for communication. The PC game market will shrink, and console game spending will grow as next generation consoles are introduced.

The video game market was in a transition year in 2005, awaiting the introduction of the next-generation consoles. Growth slumped to 3.3 percent, the slowest increase during the past five years. The next generation of consoles and recently introduced handheld games will spur the console/handheld market in the U.S., EMEA, Asia Pacific, and Canada, while PC games will continue to decline or see little growth in the U.S. and EMEA. The introduction of new wireless phones capable of downloading games will boost the wireless game market in the U.S., EMEA, Asia Pacific, and Canada. Overall, the video game market will expand at an 11.4 percent CAGR to $46 billion in 2010 from $27 billion in 2005.

Console Installed Base

Since the introduction of PlayStation 2 in 2000, the console has sold over 140 million units worldwide according to games industry. biz. The PlayStation 3 has been introduced to the market in the second half of 2006. Microsoft introduced its next generation console, the Xbox 360, in November 2005. Playlogic will continue development of PlayStation2 titles, because of their large installed base of over 140 million units.

Microsoft’s Xbox360 has sold 32 million units so far. As of September 30, 2009, Sony has shipped approximately 26 million Playstation 3 units worldwide. Nintendo’s next generation console, called ‘Wii’ has sold more than 55 million units so far.

Nintendo Dual Screens (‘Nintendo DS’) and PlayStation Portable (‘PSP’) were both successfully introduced to the market. The sales volume of the Nintendo DS reached 110 million units by September 30, 2009, and PSP reached the sales volume of 50 million units sold.

PC Games

Playlogic will continue to also release PC games since, in comparison to next generation consoles games, these products are less expensive to develop, address a very wide target audience and contribute significant better margins. Furthermore Playlogic will focus on new successful platforms like the Nintendo DSi and Nintendo Wii.

Consumer Facts

Thirty percent of most frequent game players are under eighteen years old while twenty-six percent of most frequent game players are between 18 and 35 years old. Forty-four percent of most frequent game players are over 35 years old. Forty percent of most frequent console game players are under eighteen years old while thirty-five percent of most frequent game players are between 18 and 35 years old. Twenty-five percent of most frequent console game players are over 35 years old. Thirty-eight percent of game players are women. Women age 18 or older represent a significantly greater portion of the game-playing population (30%) than boys age 17 or younger (23%).The average adult woman plays games 7.4 hours per week. The average adult man plays 7.6 hours per week. Though males spend more time playing than do females, the gender/time gap has narrowed significantly.

Females are being significantly attracted to playing certain online multi-user video games that offer a more communal experience, and a small hardcore group of young females are playing aggressive games that are usually thought of as being "traditionally male" games. The most loyal fan-base is reported to be for large role-playing games (Nielsen Active Gamer Study).

According to the ESRB almost 41% of video and PC gamers are women.

- 18 -

We believe the demographics of game players will widen, and be a major source of the growth of the industry. The first generation gamers are now in their 30s and are still playing games and new consumers enter the market, including children at the age of 6 to 8 and an increasing number of women players.

			(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 (G)	PS2, Xbox, PC	Released
Knights of the Temple 2	Cauldron (SK)	PS2, Xbox, PC	Released
Gene Troopers	Cauldron (SK)	PS2, Xbox, PC	Released
Xyanide	Playlogic Game Factory (NL)	Xbox	Released (1)
Age of Pirates: Caribbean Tales	Akella (Russia)	PC	Released Q3 2006
Infernal	Metropolis (Poland)	PC	Released Q1 2007
Ancient Wars: Sparta	World Forge (Russia)	PC	Released Q2 2007
Xyanide Resurrection	Playlogic Game Factory (NL)	PSP	Released Q3 2007
Evil Days Of Luckless John	3A Entertainment (Great Britain)	PC	Released Q3 2007
Xyanide: Resurrection	Playlogic Game Factory (NL)	PS2	Released Q3 2007
Obscure 2	Hydravision (F)	PC	Released Q3 2007
Obscure 2	Hydravision (F)	PS2	Released Q3 2007
Obscure 2	Hydravision (F)	Wii	Released Q1 2008
Xyanide: Resurrection	Playlogic Game Factory (NL)	PC	Released Q1 2008
Dragon Hunters	Engine software (NL)	DS	Released Q1 2008
Aggression 1914	Buka (Russia)	PC	Released Q1 2008
Dimensity	Dagger Studio (Bulgaria)	PC	Released Q2 2008
Red Bull Break Dancing	Smack Down Productions (F)	DS	Released Q2 2008
Simon the Sorcerer 4	RTL /Silverstyle Studio (GER)	PC	Released Q2 2008
Worldshift	RTL Games (Germany)	PC	Released Q2 2008
Stateshift	Engine Software (NL)	PC	Released Q2 2008
Building & Co	Electrogames (F)	PC	Released Q3 2008
Vertigo	Icon Games Entertainment Ltd (GB)	PC, Wii	Released Q1 2009
Pool Hall Pro	Icon Games Entertainment Ltd (GB)	PC, Wii	Released Q1 2009
Age of Pirates 2: City of Abandoned Ships	Akella (Russia)	PC	Released Q1 2009
Sudoku Ball Detective	White Bear (NL)	Wii/PC/DS	Released Q2 2009
Infernal returns	Metropolis (Poland)	Xbox360	Released Q2 2009
Obscure 2	Hydravision (F)	PSP	Released Q3 2009
Aliens in the Attic	Engine Software (NL)	DS	Released Q3 2009
Aliens in the Attic	Revisotronic	PC, PS2, Wii,	Released Q3 2009
Aliens in the Attic	Engine Software (NL)	DS	Released Q3 2009

- 19 -

Under Development
Fairytale Fights	Playlogic Game Factory (NL)	PS3, Xbox360, PC	Q4 2009
Crazy Garage	White Birds	Wii, PSN, PC	Q1 2010
The Strategist	Humagade/Canada	Wii, PSN, XBLA, PC	Q1 2010
Zooloretto	White Bear (NL)	PC, Wii, DS	Q1 2010
Young Archeologist	White birds	Wii, PC	Q1 2010
Obscure 2	Hydravision (F)	DSi	Q1 2010
Undisclosed Title	TBA	PS3, Xbox360, PC	Q3/Q4 2010
Undisclosed Title	TBA	PS3, Xbox360, PC	Q3/Q4 2010

_______________

1 Released in the US only

The games industry is currently in a transition period. The current and Next Gen consoles (Xbox360, PlayStation 3, Wii) and DS platforms have broadened the market, appealing to an even larger mass consumer audience than ever before, providing increased publishing opportunities. The investments in next generation platforms are however larger than for the previous generation platforms. Playlogic has created a healthy balance between games available for the current and the next generation platforms.

Material agreements

During the nine months ended September 30, 2009, the Company entered into a number of publishing and distribution agreements.

Critical Accounting Policies and Estimates

Our most critical accounting policies, which are those that require significant judgment, include: capitalization and recognition of software development costs and licenses; share-based compensation and revenue recognition. In-depth descriptions of these can be found in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”). There have been no material changes in our existing accounting policies from the disclosures included in our 2008 Form 10-K.

Recently Issued Accounting Pronouncements

- 20 -

In May 2009, the FASB issued ASC 855, Subsequent Events which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, SFAS 165 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. ASC 855is effective for interim or annual financial periods ending after June 15, 2009 (the Company's second quarter ended June 30, 2009). The implementation of this standard did not have a material impact on the Company's financial statements. Subsequent events were evaluated through the date of issuance of these consolidated financial statements on November 18, 2009 at the time this Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission.

- 21 -

Results of Operations

Three and nine months ended September 30, 2009 compared to three and nine months ended September 30, 2008

Net sales . Net sales for the nine months ended September 30, 2009 were $6,701,682 as compared to $9,418,489 for the nine months ended September 30, 2008. This decrease of $2,716,807 or 28% in revenue is primarily related to the release of fewer number of titles compared to 2008. For the three months ended September 30 the net revenue was $2,019,382 in 2009 compared to $1,068,377 in the same period 2008. This increase of $951,005 or 89% is caused by the fact that we have released more titles in the third quarter of 2009 than the third quarter of 2008.

Gross Profit .Gross profit totaled $1,737,632 for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, gross profit totaled $4,642,009. This decrease is caused by the fact that gross profit as a percentage of sales can vary significantly from period to period due to the sales mix and the type of sales deals included. Furthermore, the Company has shortened the lifecycle per game on which the amortization is calculated. Therefore in some cases straight line amortization could exceed the percentage of sales amortization for a certain period. For the three months ended September 30 the gross profit was $33,108 in 2009 compared to $264,929 in the same period 2008. The decrease of $231,821 is also due to the fact described above.

Selling, Marketing, General and Administrative Expenses. Selling, marketing, general and administrative expenses totaled $6,645,614, for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, selling, general and administrative expenses totaled $4,697,197. This represents an increase of $1,948,417 or 42%. This increase in selling, general and administrative expenses is due to higher spending in marketing expenses, such as trade shows, but also game by game marketing. We presented our 2009 line up at the E3 trade show in Los Angeles in June 2009 and at the GamesCom in Cologne in August 2009. In the three months ended September 30, 2009 the Selling, Marketing, General & Administrative expenses amounted to $2,518,430 compared to $1,850,293 in 2008. This represents an increase of $668,137 compared to prior year. This is due to the reason mentioned above.

Research and Development . Research and development expenses totaled $404,442 for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, research and development totaled $301,031. This represents an increase of $103,411 or 34%. This increase is due to the fact that our in-house studio is focusing on the development of a game to be released in Q2 2011. For the three months ended September 30, 2009, the Research and Development expenses amounted to $307,698 compared to $125,589 in the same period 2008. This increase is also due to the fact that one in-house studio is focusing on the development of a game to be released in Q2 2011. Furthermore, the studio is investing time in the development of future downloadable content.

Depreciation . Depreciation expenses totaled $301,098 for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, the depreciation expense totaled $284,234. The increase is due to new investments made due to the move of the Company’s headquarters during 2008. Mainly investments in leasehold improvement and furniture have been made. For the three months ended September 30, 2009 the depreciation amounted $93,628 compared to $127,829 in the same period 2008. This decrease is due to the fact that some fixed assets of our in-house studio have been fully depreciated during the third quarter of 2009.

- 22 -

Interest Expense .Interest expense totaled $999,971 for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, interest expense totaled $259,890. This represents an increase of $740,081. This increase in interest expense is primarily due to the increase of interest bearing short term loans during the year. Also, the Company issued warrants in connection with these loans. The amortization of the debt discount is recorded as interest expense (expenses amount to $483,091 for the first nine months of 2009 compared to $98,000 for the same period in 2008. These expenses are shown on a separate line in the P&L). For the three months ended September 30, 2009 the interest expense amounted to $493,069 compared to $191,172 in the same period 2008. This increase is caused by the same facts as described above.

Net Result. Our net loss was $6,724,284 for the nine months ended September 30, 2009. For the nine months ended September 30, 2008, the net loss totaled $1,953,495. The decrease in the net result is due to the lower sales in the first nine months of 2009 as disclosed above. Furthermore, the need to spend more money on PR and Marketing of the products has led to higher costs. For the three months ended September 30, 2009 the net loss amounted to $3,384,552 compared to a net loss of $2,994,301 in the same period 2008. The decrease in the result is due to increased expenses in PR and Marketing as well as a lower gross margin due to higher cost of goods due to console games as opposed to PC titles.

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 $(1,447,527) for the nine months ended September 30, 2009 and $(975,302) for the nine months ended September 30, 2008. For the three months ended September 30, 2009 the comprehensive income amounted to $(1,082,831) compared to $(104,667) in the same period 2008. The amounts are relatively high this year due to the sharp fluctuations of the US Dollar compared to the EURO.

Liquidity and Capital Resources

As of September 30, 2009 our cash balance was $775,416.

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

Our net accounts receivable, after providing an allowance for doubtful accounts, at September 30, 2009 was $4,736,634.

Fluctuations in Quarterly Operating Results and Seasonality

We have experienced fluctuations in quarterly operating results as a result of the timing of the introduction of new titles; variations in sales of titles developed for particular platforms; market acceptance of our titles; development and promotional expenses relating to the introduction of new titles; sequels or enhancements of existing titles; projected and actual changes in platforms; the timing and success of title introductions by our competitors; product returns; changes in pricing policies by us and our competitors; the accuracy of retailers’ forecasts of consumer demand; the size and timing of acquisitions; the timing of orders from major customers; and order cancellations and delays in product shipment. Quarterly comparisons of operating results are not necessarily indicative of future operating results.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We transact business in foreign currencies and are exposed to risks resulting from fluctuations in foreign currency exchange rates. Accounts relating to foreign operations are translated into United States dollars using prevailing exchange rates at the relevant quarter end. Translation adjustments are included as a separate component of stockholders’ equity. For the nine months ended September 30, 2009, our accumulated foreign currency translation adjustment loss was approximately $5.4 million.

- 23 -

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) were effective as of September 30, 2009 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of 2009, which were identified in connection with management’s evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In June 2007, Playlogic Entertainment Inc. was sued in class action before the US district court in Manhattan, with respect to alleged damage as a result of copy protection software included in Age of Pirates – Caribbean Tales. We do not foresee any liability in this matter, as plaintiffs have clearly sued the wrong company and the wrong entity. Playlogic acts only as a publisher of the game and therefore is not liable for possible faults in production or distribution. Moreover, as far as any claim could be brought against Playlogic, it would be the Dutch subsidiary Playlogic International NV, with its statutory seat in Amsterdam, The Netherlands, that would have to be sued. As a consequence, the pending case should fail on both grounds and any new action against the Dutch subsidiary would have to be brought before the Dutch courts that are even more likely than the US courts to reject class actions like this.

Except as referred to above there were no new material legal proceedings or material developments to the pending legal proceedings that have been previously reported in Part I, Item 3 of our 2008 Form 10-K. A full discussion of our pending legal proceedings is also contained in Part I, Item 1, “Notes to Unaudited Condensed Consolidated Financial Statements” of this Report.

Item 1A. Risk Factors

There have been no material changes to the Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008.

Item 2 - Changes in Securities.

No response required.

Item 3 - Defaults Upon Senior Securities.

No response required.

Item 4 - Submission of Matters to a Vote of Security Holders.

No response required.

Item 5 - Other Information.

No response required.

- 24 -

Item 6. Exhibits

Exhibits :

31.1		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

- 25 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Playlogic International, Inc.

Date: November 18, 2009	By:	/s/ Willem M. Smit
		Willem M. Smit Chief Executive Officer

- 26 -

Exhibit Index

Exhibits

31.1		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

- 27 -

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Playlogic Entertainment (PLGC) Inactive 10-Q2009 Q3 Quarterly report

Content analysis