As filed with the Securities and Exchange Commission on September 16, 2005
Registration No. 333-126721
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PLAYLOGIC ENTERTAINMENT, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 7372 23-3083371
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer identification
incorporation or organization) Classification Code Number) number)
Concertgebouwplein 13, 1071 LL Amsterdam, The Netherlands
(011) 31-20-676-0304
(Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices)
_______________________________
Harvard Business Services, Inc.
25 Greystone Manor
Lewes, Delaware 19958
Telephone:(302) 645-7400
Facsimile: (302) 645-1280
(Name, address, including zip code, and telephone number, including area code, of agent for service)
_______________________________
Copies to:
Paul D. Downs
Heller Ehrman LLP
7 Times Square
New York, NY 10036
Telephone: (212) 832-8300
Facsimile: (212) 763-7600
________________
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering.
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box.
CALCULATION OF REGISTRATION FEE
====================================== =================== ========================= ====================== ====================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Securities to Amount to be Aggregate Price Per Aggregate Offering Registration Fee
be Registered Registered Security Price
- -------------------------------------- ------------------- ------------------------- ---------------------- --------------------
Common Stock, par value $.001 6,236,132 $5.00 (1) $31,180,660(1) $3,670(2)
====================================== =================== ========================= ====================== ====================
(1) Estimated solely for the purpose of computing the amount of registration fee pursuant to Rule 457(c) under the
Securities Act of 1933, as amended, based on the average of the bid and asked price reported of the Registrant's
Common Stock on the OTC Bulletin Board on July 13, 2005.
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
PROSPECTUS (Subject to Completion) Dated September 16, 2005
PLAYLOGIC ENTERTAINMENT, INC.
6,236,132 SHARES OF COMMON STOCK
_____________
The selling stockholders identified on page 47 of this prospectus are
offering on a resale basis up to 6,236,132 shares of our common stock. The
selling shareholders may sell their shares from time to time at the prevailing
market price or in negotiated transactions.
The selling stockholders will receive all of the proceeds from the sale of
the shares. We will pay the expenses of registration of the sale of the shares.
Our common stock trades on the Over the Counter (OTC) Bulletin Board(R), an
electronic stock listing service provided by the Nasdaq Stock Market, Inc. under
the symbol "PLGC". On September 15, 2005, the last bid price for the common
stock on the OTC Bulletin Board was $6.00 per share.
The selling stockholders, and any participating broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions or discounts given to any such broker-dealer may be regarded
as underwriting commissions or discounts under the Securities Act. The selling
stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock.
Brokers or dealers effecting transactions in the shares should confirm the
registration of these securities under the securities laws of the states in
which transactions occur or the existence of an exemption from registration.
____________
Beginning on page 6, we have listed several "Risk Factors" which you should
consider. You should read the entire prospectus carefully before you make your
investment decision.
____________
Neither the Securities and Exchange Commission nor state regulatory
authorities has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
____________
The date of this prospectus is September __, 2005
TABLE OF CONTENTS
FORWARD-LOOKING INFORMATION.............................................2
PROSPECTUS SUMMARY......................................................3
THE COMPANY.............................................................3
SUMMARY FINANCIAL AND OPERATING INFORMATION.............................6
RISK FACTORS...........................................................13
USE OF PROCEEDS........................................................22
MARKET PRICE OF OUR COMMON STOCK; DIVIDENDS............................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................23
BUSINESS...............................................................29
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................42
EXECUTIVE COMPENSATION.................................................43
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS............................44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........45
DESCRIPTION OF SECURITIES..............................................46
SELLING STOCKHOLDERS...................................................47
PLAN OF DISTRIBUTION...................................................48
CHANGE IN CERTIFYING ACCOUNTANT........................................49
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS....................50
LEGAL MATTERS..........................................................50
EXPERTS................................................................50
WHERE YOU CAN FIND MORE INFORMATION....................................51
INDEX TO FINANCIAL STATEMENTS.........................................F-1
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell, and
seeking offers to buy, shares of Playlogic Entertainment, Inc. common stock only
in jurisdictions where offers and sales are permitted. The information contained
in this prospectus is accurate only as of the date of this prospectus,
regardless of the time of delivery of this prospectus or of any sale of the
shares.
Conversion from the Euro to the US dollar.
The functional currency of Playlogic International N.V. and its
subsidiaries is the Euro, so where applicable, we have converted amounts shown
in Euros into US dollars at a rate of 1.3645 (for the December 31, 2004
information), 1.2570 (for the December 31, 2003 information), and 1.20660 for
the Balance Sheet and 1.28617 for the Income Statement (for the June 30, 2005
information) US dollar per Euro.
FORWARD-LOOKING INFORMATION
Statements made in this prospectus or in the documents incorporated by
reference herein that are not statements of historical fact are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. A number of risks and
uncertainties, including those discussed under the caption "Risk Factors"
beginning on page 13 and the documents incorporated by reference in this
prospectus could affect such forward-looking statements and could cause actual
results to differ materially from the statements made in this prospectus.
2
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all the information that you should
consider before investing in the common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements, before
making an investment decision.
THE COMPANY
Background
Playlogic Entertainment, Inc. was incorporated in the State of Delaware in
May 2001, when its name was Donar Enterprises, Inc. Initially, our plan was to
engage in the business of converting and filing registration statements,
periodic reports and other forms of small to mid-sized companies with the U.S.
Securities and Exchange Commission electronically through EDGAR. We had limited
operations until June 30, 2005, when we entered into a share exchange agreement
with Playlogic International N.V., a corporation formed under the laws of The
Netherlands that commenced business in 2002, and its shareholders. Pursuant to
this agreement, the former shareholders of Playlogic International became the
owners of over approximately 91% of our common stock, as described below.
Playlogic International has become our wholly-owned subsidiary and represents
all of our commercial operations.
On August 2, 2005, Donar Enterprises merged with and into a wholly owned
subsidiary named Playlogic Entertainment, Inc. pursuant to which Donar's name
was changed to Playlogic Entertainment, Inc. Playlogic Entertainment, Inc. was
formed specifically for the purpose of effecting the name change. When we refer
to "Playlogic Entertainment" in this prospectus, we are also referring to our
company when it was known as Donar Enterprises, Inc.
Acquisition of Playlogic International N.V.
On June 30, 2005, we entered into a share exchange agreement with Playlogic
International N.V. and Playlogic International's shareholders whereby all of the
Playlogic International shareholders exchanged all of their ordinary shares
(which are substantially similar to shares of common stock of a US company) and
priority shares (which are substantially similar to shares of preferred stock of
a US company) of Playlogic International for 21,836,924 shares of Playlogic
Entertainment common stock. Pursuant to the share exchange agreement, the former
stockholders of Playlogic International received approximately 91.0% of the
outstanding common stock of Playlogic Entertainment. Of the 21,836,924 shares of
Playlogic Entertainment issued in the share exchange, 1,399,252 of such shares
were placed in escrow with the Company's stock transfer agent, Securities
Transfer Corporation, as escrow agent. These escrowed shares will be released as
soon as practicable after March 30, 2006 as set forth below:
o In the event that our net income for the twelve months ending March 30,
2006 (the "Actual Net Income") is greater than $7.6 million and less than
$8.4 million, 1,028,965 of our common shares will be distributed to the
former Playlogic International shareholders and 370,287 of our common
shares will be distributed to Halter Financial Group, Inc. and its
affiliates or their assigns.
o In the event that our net income for the twelve months ending March 30,
2006 is greater than $8.4 million, the number of shares that will be
distributed to the former Playlogic International shareholders shall equal
1,028,965 + (1,028,965 x (Actual Net Income - 8.4 million)/16.8 million)
and the remaining escrowed shares, if any, will be delivered to Halter
Financial Group and its affiliates or their assigns.
o In the event that our net income for the twelve months ending March 30,
2006 is less than $7.6 million, the number of shares that will be
distributed to Halter Financial Group and its affiliates or their assigns
shall equal 370,287 + (1,028,965 x (7.6 million - Actual Net Income)/7.6
million) and the remaining escrowed shares, if any, will be delivered to
the former Playlogic International shareholders.
Upon the closing of the share exchange with Playlogic International's
shareholders, Timothy B. Halter, Jr, our sole director, resigned and was
replaced by Willem M. Smit, the President and Chief Executive Officer of
Playlogic International, and our executive officers were replaced by the
Playlogic International executive officers. On July 30, 2005, upon the
expiration of the 10-day period of the filing and/or mailing of an Information
Statement pursuant to Rule 14f-1 under the Securities Exchange Act of 1934 (the
"Exchange Act"), the board of directors was increased to five persons and the
designees of Playlogic International mentioned herein became our directors. Our
board of directors currently has two vacancies.
3
For accounting purposes, the share exchange was treated as a reverse
acquisition with Playlogic International as the acquiror and Playlogic
Entertainment as the acquired party. When we refer in this prospectus to
business and financial information for periods prior to the share exchange, we
are referring to the business and financial information of Playlogic
International.
The acquisition of Playlogic International N. V. on June 30, 2005, by
Playlogic Entertainment, Inc. (formerly Donar Enterprises, Inc.) effected a
change in control and was accounted for as a "reverse acquisition" whereby
Playlogic International N. V. is the accounting acquirer for financial statement
purposes. Accordingly, for all periods subsequent to the June 30, 2005, the
financial statements of the Company reflect the historical financial statements
of Playlogic International N. V. and its subsidiary since it's inception and the
operations of Playlogic Entertainment, Inc. (formerly Donar) subsequent to the
June 30, 2005
Our Business
Playlogic International is the leading Dutch publisher of interactive
entertainment software for consoles, such as Sony's PlayStation2, Microsoft's
Xbox and Nintendo's Game Cube, PCs and handheld, such as Nintendo's Game Boy,
and mobile devices. As a publisher, we are responsible for distribution, sales
and marketing of our products. We seek to publish high quality products
developed both by our own studio in Breda, The Netherlands, called Playlogic
Game Factory, and by external developers with whom we have contractual
relationships.
Wedbush Morgan Securities, a leading investment banking and brokerage firm,
has stated that in 2003, the US market for interactive entertainment was larger
than the U.S. movie industry (based in box office receipts). According to
Wedbush Morgan Securities, in 2003, the global video games market represented a
total value of $25.5 billion and will likely grow to exceed $30 billion in 2005.
According to Computer World magazine, the industry is expected to grow to a
value of more than $100 billion by 2010. According to the NPD Group, a leading
global sales and marketing firm, and the Entertainment Software Association, a
video game trade association, total video game software sales (not including
hardware and accessories) in the US reached a record of $ 7.3 billion in 2004.
According to the Entertainment Software Association, this growth has more than
doubled since 1996 and is expected to continue. We believe that this growth is
likely to be increased by the expected development of new game platforms, the
increasing popularity of games being played on mobile phones and on the Internet
and emerging markets such as China.
According to Screen Digest, a global media market and research firm, total
video game software sales worldwide were more than $18 billion in 2003 and are
expected to exceed $21 billion in 2007. Further, 239.3 million computer or video
games were sold in 2003. According to the Entertainment Software Association,
this number grew to 248 million in 2004, which means almost two games for every
household in the US.
According to the Entertainment Software Association, the average game
player is 30 years old, and the average game buyer is 37 years old. In 2005, 95%
of computer game buyers and 84% of console game buyers were over the age of 18.
Various studios, based in the US and throughout Europe, develop the games
which we publish. One of these studios is our subsidiary, Playlogic Game
Factory, located in The Netherlands. Other independent studios in various
countries develop our games 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 to our existing titles to other
studios who then develop those titles for other platforms.
We have released four games to date:
o Alpha Black Zero, a mission-based tactical shooting game for the PC;
o Airborne Troops, an infiltration action adventure game based on World
War II for PC and PlayStation2;
4
o Cyclone Circus, a racing game for PlayStation2; and
o Xyanide, a "shoot 'em up" adventure game for mobile devices.
On April 22 2005, we signed an agreement with TDK Recording Media Europe
S.A. (Luxembourg) for publishing and transferring to us all of the related
intellectual property rights of the following three games:
o World Racing 2, for PS2, Xbox and PCs;
o Knights of the Temple 2, for PS2, Xbox and PC; and
o Gene Troopers, for PS2, Xbox and PC.
On April 27, 2005 we signed an agreement with Visionvale Ltd. (Nicosia
Cyprus) and Burut Co. (Voronezh, Russia) for publishing and transferring to us
all of the related intellectual property rights of Sparta, Ancient Wars for PC
and additional platforms.
On August 12, 2005 we signed an offer which is subject to contract with DC
Studios Inc. (Montreal, Canada) for publishing State of Emergency 2 for PS2, of
which the previous sold 1.6 million copies (PS2) worldwide in 2002.
On August 15, 2005 we signed an agreement with 1C Europe BV (Amsterdam, The
Netherlands) and Akella Corporation Ltd. (Belize) for publishing and
transferring to us all of the related intellectual property rights of Captain
Blood for Xbox360 and PC.
On August 17, 2005 we signed an agreement with BV (Amsterdam, The
Netherlands) and Akella Corporation Ltd. (Belize) for publishing and
transferring to us all of the related intellectual property rights of Age of
Pirates for PC.
In addition, 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, 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 US and abroad through existing distribution
channels with experienced distributors. We are currently negotiating with a
leading distributor to become the worldwide distributor for our games. 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.
The following table shows expected information about our products (we also
expect to add new products from time to time):
5
Game Studio Platform Release Date
or Expected
Release Date
- ----------------------------- ------------------------------- -------------------------------------- ----------------
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 Playlogic Game Factory (NL) Xbox live Q4 2005
Xyanide Advance Engine Software (NL) GBA Q4 2005
Xyanide Overloaded (NL) Mobile Phone &N-Gage Released
5
Under Development
World Racing 2 Synetic (D) PS2, Xbox, PC Q3/Q4 2005
Knights of the Temple 2 Cauldron (SK) PS2, Xbox, PC Q3/Q4 2005
Gene Troopers Cauldron (SK) PS2, Xbox live, PC Q3/Q4 2005
Age of Pirates Akella PC Q4 2005
State of Emergency2 DC Studios PC2 Q4 2005
Captain Blood Akella Xbox360, PC Q4 2006
StateShift Engine Software (NL) PSP Q1/Q2 2006
Xyanide Playlogic Game Factory (NL) PSP Q2 2006
Xyanide Playlogic Game Factory (NL) PS2 Q3 2006
Wizard of Funk Playlogic Game Factory (NL) PS2's EyeToy Q3 2006
Sparta - Ancient Wars World Forge PC Q3 2006
P.R.I.S.M. Rival Interactive (USA) PC Q3 2006
"Project Delta" Playlogic Game Factory (NL) Next generation, PC Q3/Q4 2006
Alpha Black Zero Mobile Overloaded (NL) Mobile Phone &N-Gage TBD
General
Our principal business office is located at Concertgebouwplein 13, 1071 LL
Amsterdam, The Netherlands, and our telephone number at that address is (011)
31-20-676-0304. We also have offices at 747 Third Avenue, New York, New York
10019.
Our corporate web site is www.playlogicgames.com. The information found on
our web site is not intended to be part of this prospectus and should not be
relied upon by you when making a decision to invest in our common stock.
In this prospectus, "Playlogic Entertainment," the "Company," "we," "us"
and "our" refer to Playlogic Entertainment, Inc. and, unless the context
otherwise indicates, our subsidiary Playlogic International N.V. and/or its
subsidiary Playlogic Game Factory B.V.
SUMMARY FINANCIAL AND OPERATING INFORMATION
The following selected financial information is derived from the financial
statements appearing elsewhere in this prospectus and should be read in
conjunction with the financial statements, including the notes thereto.
Playlogic International and its consolidated subsidiaries' functional currency
is the Euro, so the following information has been converted into US dollars at
a rate of 1.3645 (for the December 31, 2004 information), 1.2570 (for the
December 31, 2003 information), and 1.20660 (for the June 30, 2005) US dollar
per Euro.
6
(euro) / $ rate 1.36450 (euro) / $ rate 1.25700
(In Euro/US$) December 31 December 31 December 31 December 31
(In Euro) (In Euro) (In US$) (In US$)
-------------------- --------------------- -------------------- ----------------------
CONSOLIDATED STATEMENTS OF 2004 2003 2004 2003
OPERATIONS
- --------------------------------------------------------- --------------------- -------------------- ----------------------
Net sales 87,931 - 119,982 -
Product costs 28,836 - 39,347 -
-------------------- --------------------- -------------------- --------------------
Gross profit 59,095 - 80,635 -
Operating expenses:
Selling and marketing 464,382 361,738 633,649 454,704
General and administrative (1) 9,841,126 1,933,362 13,428,216 2,430,238
Research and development 3,638,733 3,285,841 4,965,051 4,130,302
Depreciation
289,765 367,017 395,384 461,340
Impairment goodwill 11,250 3,750 15,351 4,714
-------------------- --------------------- -------------------- ----------------------
Total operating expenses 14,245,256 5,951,708 19,437,651 7,481,298
-------------------- --------------------- -------------------- ----------------------
Loss from operations (14,186,161) (5,951,708) (19,357,016) (7,481,298)
Interest expense (2,007,080) (140,206) (2,738,661) (176,238)
-------------------- --------------------- -------------------- ----------------------
Income before income taxes (16,193,241) (6,091,914) (22,095,677) (7,657,536)
Benefit from income taxes - - - -
-------------------- --------------------- -------------------- ----------------------
Net loss (16,193,241) (6,091,914) (22,095,677) (7,657,536)
-------------------- --------------------- -------------------- ----------------------
Net loss per share:
Basic (2.13) (0.96) (2.90) (1.21)
Diluted (1.06) (0.96) (1.44) (1.21)
Number of shares used in
computation:
Basic 7,614,160 6,330,125 7,614,160 6,330,125
Diluted 15,342,352 6,330,125 15,342,352 6,330,125
(1) General and administrative expenses: includes a one-time expense of (euro)7,200,000 ($9,824,400) related to granted
options to certain stock holders.
7
(euro) / $ rate 1.36450 (euro) / $ rate 1.,25700
CONSOLIDATED BALANCE SHEETS Dec 31, Dec 31, Dec 31, Dec 31,
(in Euro/US$) 2004 2003 2004 2003
(In Euro) (In Euro) (In US$) (In US$)
-------------------- -------------------- -------------------- ---------------------
ASSETS
Current assets:
Cash 16,277 65,005 22,210 81,711
Accounts receivable, net - 9,334 - 11,733
Software development 860,049 393,557 1,173,537 494,701
Prepaid royalties - - - -
Loan to associated companies 65,000 - 88,693 -
Prepaid expenses and other current
assets 199,794 147,771 272,618 185,748
Deferred tax asset - - - -
-------------------- -------------------- -------------------- ---------------------
Total current assets 1,141,120 615,667 1,557,058 773,893
Fixed assets, net 528,357 491,461 720,943 617,766
Investments in affiliates - - - -
Goodwill, net - 11,250 - 14,141
Intangibles, net - - - -
Other assets, net - - - -
-------------------- -------------------- -------------------- ---------------------
TOTAL ASSETS 1,669,477 1,118,378 2,278,001 1,405,800
-------------------- -------------------- -------------------- ---------------------
8
CONSOLIDATED December 31 December 31 December 31 December 31
LIABILITIES AND STOCKHOLDERS' DEFICIT
(in Euro/US$) 2004 2003 2004 2003
(In Euro) (In Euro) (In US$) (In US$)
-------------------- --------------------- -------------------- --------------------
Current liabilities:
Accounts payable 2,334,377 816,596 3,185,258 1,026,461
Bank overdraft 683,278 - 932,333 -
Short term loans from third parties 156,000 212,862 -
Accrued expenses:
Personnel expenses 427,921 241,190 583,898 303,176
Financing software development 435,000 593,558 -
Auditors and advisors 165,000 8,000 225,143 -
Management fee - 150,000 - 188,550
Other 170,883 206,526 233,168 269,659
Loan from stockholder 5,563,622 4,995,148 7,591,562 6,278,900
Wage tax and social securities
payable 101,665 596,502 138,722 749,803
-------------------- --------------------- -------------------- --------------------
Total current liabilities 10,037,746 7,013,962 13,696,504 8,816,549
Long-term liabilities 240,000 262,500 327,480 329,963
-------------------- --------------------- -------------------- --------------------
Total liabilities 10,277,746 7,276,462 14,023,984 9,146,512
Stockholders' Deficit:
Ordinary shares, par value EUR 0.05
per share; 640,177 319,175 873,521 401,203
30.000.000 shares authorized; 12.083.537 and
6.383.497 issued and outstanding at
31 December 2004 and 31 December 2003
respectively
Priority shares, par value EUR 0.05 per share
3 shares issued at 31 December 2004 and
31 December 2003 respectively - - - -
Additional paid-in capital 9,408,138 1,711,638 12,837,404 2,151,529
Subscribed capital 5,725,555 - 7,812,520 -
Accumulated deficit (24,382,139) (8,188,897) (33,269,428) (10,293,444)
-------------------- --------------------- -------------------- --------------------
Total stockholders' Deficit (8,608,269) (6,158,084) (11,745,983) (7,740,712)
-------------------- --------------------- -------------------- --------------------
TOTAL LIABILITIES, AND
STOCKHOLDERS' DEFICIT 1,669,477 1,118,378 2,278,001 1,405,800
-------------------- --------------------- -------------------- --------------------
9
(euro) / $ rate 1.28617 (euro) / $ rate 1.22618
- ----------------------------------------------------------------------------------
CONSOLIDATED Six months ended, Six months ended,
STATEMENTS OF OPERATIONS DATA June 30, June 30,
(in Euro/US$) 2005 (Unaudited) 2004 (Unaudited)
(In US$) (In US$)
- ----------------------------------------------------------------------------------
Net sales $ 736,559 $ -
Product costs 139,769 -
------------------------------------------
Gross profit 596,790 -
Operating expenses:
Selling and marketing 500,585 386,999
General and administrative (1) 1,300,367 10,360,091
Research and development 485.937 1,809,483
Depreciation 204,968 154,038
Compensation expense related to common 90,000 -
stock issuances at less than "fair
value" -------------------------------------------
Total operating expenses 2,581,857 12,710,611
-------------------------------------------
Loss from operations (1,985,067) (12,710,611)
Interest expense (197,775) (752,349)
-------------------------------------------
Income before income taxes (2,182,842) (13,462,960)
Benefit from income taxes 623,404 -
-------------------------------------------
Net loss $ (1,559,438) $ (13,462,960)
-------------------------------------------
Net income (loss):
Basic $ (1,559,438) $ (13,462,960)
Diluted $ (1,559,438) $ (13,462,960)
Net income (loss) per share:
Basic
Diluted
Number of shares used in
computation:
Basic
Diluted
(1) General and administrative expenses: includes a one-time expense of
$8,828,496 related to granted options to certain stockholders (2004).
10
(euro) / $ rate 1.20660 (euro) / $ rate 1.21500
CONSOLIDATED BALANCE SHEETS June 30, June 30,
(in Euro/US$)) 2005 (Unaudited) 2004 (Unaudited)
(In US$) (In US$)
- --------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 144,031 $ 936,505
Accounts receivable - trade net 703,430 91,630
Software development 1,838,512 966,257
Prepaid royalties - -
Loan to associated companies 491,115 -
Taxes receivables 301,740 276,413
Prepaid expenses and other current
assets 784,499 21,258
Deferred tax asset 584,837 -
----------------------------------------------
Total current assets 4,848,164 2,292,063
Fixed assets, net 503,666 783,500
Investments in affiliates - -
Goodwill, net - 13,669
Intangibles, net - -
Loan to stockholder 694,419 -
- -
----------------------------------------------
TOTAL ASSETS $ 6,046,249 $ 3,089,232
----------------------------------------------
11
(euro) / $ rate 1.20660 (euro) / $ rate 1. 21500
CONSOLIDATED
LIABILITIES AND STOCKHOLDERS' DEFICIT June 30, June 30,
(in EURO/US$) 2005 (Unaudited) 2004 (Unaudited)
(In US$) (In US$)
- ---------------------------------------------------------------------------------
Current liabilities:
Accounts payable 2,450,847 1,976,070
Bank overdraft 393,896 1,510,736
Short term loans from third parties 187,023 -
Accrued expenses:
Personnel expenses 155,291 210,598
Financing software development 241,320 -
Other current liabilities 415,339 607,882
Loan from stockholder - 9,219,767
Wage tax and social securities
payable 675,223 1,049,136
--------------------------------------------
Total current liabilities 4,518,939 14,574,189
Long-term liabilities 271,485 300,713
--------------------------------------------
Total long-term liabilities 271,485 300,713
--------------------------------------------
Common Stock 23,064 390,835
Additional paid-in capital 32,127,823 11,113,165
Currency Translation Adjustment 1,171,721 466,735
Accumulated deficit (32,066,783) (23,756,404)
--------------------------------------------
Shareholders' Equity' 1,255,825 (11,785,669)
--------------------------------------------
STOCKHOLDERS' DEFICIT 6,046,249 3,089,232
--------------------------------------------
12
RISK FACTORS
Our shares are speculative and involve a high degree of risk. You should
carefully consider the following risk factors before making an investment
decision.
WE HAVE A LIMITED OPERATING HISTORY, WE HAVE EXPERIENCED SIGNIFICANT LOSSES
IN PRIOR YEARS AND WE MAY NOT BE ABLE TO MAINTAIN PROFITABILITY ON A CONSISTENT
BASIS.
We commenced operations in May 2002. Accordingly, we have a limited
operating history and our business strategy may not be successful. Our failure
to implement our business strategy or an unsuccessful business strategy could
materially adversely affect our business, financial condition and operations.
We had net consolidated losses of (euro)16,193,241 ($22,095,677) in 2004,
(euro)6,091,914 ( $7,657,536) in 2003 and (euro)2,096,983 ($2,199,945) in 2002.
The net consolidated losses of (euro)16,193,241 ($22,095,677) in 2004 include a
one-time expense of (euro)7,200,000 ($9,824,400) related to the grant of options
to some of our stockholders in 2004.
Although we expect to be profitable in the future, we may never achieve
profitability. If we do achieve profitability, we may not be able to maintain
profitability on a consistent basis. The report of Playlogic International's
independent auditors on Playlogic International's December 31, 2004 financial
statements included an explanatory paragraph indicating there is substantial
doubt at year end 2004 about Playlogic International's ability to continue as a
going concern. In 2005, all loans granted to Playlogic International were
redeemed. The amount redeemed was used as payment on the shares issued
therefore. Accordingly, Playlogic International does not have any material loans
outstanding. Nevertheless, if we do not raise additional capital, we may need to
cease operations.
WE ARE DEPENDENT ON FINANCING BY THIRD PARTIES, AND IF WE ARE NOT ABLE TO
ACQUIRE ANY NECESSARY FINANCING FOR OUR OPERATIONS, OUR BUSINESS WILL BE
SIGNIFICANTLY HARMED, AND WE MAY NEED TO CEASE OPERATIONS.
We expect that our current cash balance and cash generated from operations
will be sufficient to cover our working capital costs through the third quarter
of 2005. We will need to obtain additional financing from third parties. We
expect our capital requirements to increase over the next several years as we
continue to develop new products, 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 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. If we do not obtain any necessary financing in the future, we may
need to cease operations.
MANY OF OUR TITLES HAVE SHORT LIFECYCLES AND MAY FAIL TO GENERATE
SIGNIFICANT REVENUES.
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, our
profitability depends upon our 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 our ability to introduce and sell our software could
adversely affect our future operating results.
A SIGNIFICANT PORTION OF OUR REVENUES ARE DERIVED FROM A LIMITED NUMBER OF
TITLES. IF WE FAIL TO DEVELOP NEW, COMMERCIALLY SUCCESSFUL TITLES, OUR BUSINESS
MAY BE HARMED.
For the year ended December 31, 2004, one title, Alpha Black Zero accounted
for 100% of our revenues. We did not have any revenue in 2003 or 2002. 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.
13
OUR BUSINESS IS DEPENDENT ON LICENSING AND PUBLISHING ARRANGEMENTS WITH
THIRD PARTIES, AND IF WE CANNOT CONTINUE TO LICENSE POPULAR PROPERTIES ON
COMMERCIALLY REASONABLE TERMS, OUR BUSINESS WILL BE HARMED.
Our success depends on our ability to identify and exploit new titles on a
timely basis. We have entered into agreements with third parties to acquire the
rights to publish and distribute interactive entertainment software. These
agreements typically require us to make advance payments, pay royalties and
satisfy other conditions. Our advance payments may not be sufficient to permit
developers to develop new software successfully. In addition, software
development costs, promotion and marketing expenses and royalties payable to
software developers have increased significantly in recent years and reduce the
potential profits derived from sales of our software. Future sales of our titles
may not be sufficient to recover advances to software developers and we may not
have adequate financial and other resources to satisfy our contractual
commitments. If we fail to satisfy our obligations under these license
agreements, the agreements may be terminated or modified in ways that may be
burdensome to us. Our profitability depends upon our ability to continue to
license popular properties on commercially feasible terms. Numerous companies
compete intensely for properties and we may not be able to license popular
properties on favorable terms or at all in the future.
ACQUIRING LICENSES TO CREATE GAMES BASED ON MOVIES MAY BE VERY EXPENSIVE.
IF WE SPEND A SIGNIFICANT AMOUNT OF RESOURCES TO ACQUIRE SUCH LICENSES AND THE
RESULTING GAMES ARE NOT SUCCESSFUL, OUR BUSINESS MAY BE MATERIALLY HARMED.
Many current video game titles are based on popular motion pictures. Some
of these games have been successful, but many have not. We do not have any such
games in the development stage as of yet, but we are currently considering
creating a game based on a successful horror movie. We hope to release a game
based on this movie concurrent with the release of the movie's sequel in
theaters which is expected to occur in 2006. In order to create this game, we
will need to acquire a license from the producer of the movie, and it is likely
that this license will be expensive. If the game is not successful due to the
movie's sequel not being popular or for any other reason, our business may be
materially harmed.
WE ARE EXPOSED TO SEASONALITY IN THE PURCHASES OF OUR PRODUCTS AND IF WE
FAIL TO RELEASE PRODUCTS IN TIME DURING PERIODS OF HIGH CONSUMER DEMAND, SUCH AS
THE HOLIDAYS, OUR REVENUES MAY BE NEGATIVELY AFFECTED.
The interactive entertainment software industry is highly seasonal, with
the highest levels of consumer demand occurring during the year-end holiday
buying season. Additionally, in a platform transition period, sales of game
console software products can be significantly affected by the timeliness of the
introduction of game console platforms by the manufacturers of those platforms,
such as Sony, Microsoft and Nintendo. The timing of hardware platform
introduction is also often tied to holidays and is not within our control. If a
hardware platform is released unexpectedly close to the holidays, this would
result in a shortened holiday buying season and could negatively impact the
sales of our products. Delays in development, licensor approvals or
manufacturing can also affect the timing of the release of our products, causing
us to miss key selling periods such as the year-end holiday buying season.
WE CONTINUALLY NEED TO DEVELOP NEW INTERACTIVE ENTERTAINMENT SOFTWARE FOR
VARIOUS OPERATING SYSTEMS AND IF DEVELOPERS OF OPERATING SYSTEMS FACE FINANCIAL
OR OPERATIONAL DIFFICULTIES, WE MAY NOT BE ABLE TO RELEASE OUR TITLES AND MAY
INCUR LOSSES.
We depend on third-party software developers and our internal development
studios to develop new interactive entertainment software within anticipated
release schedules and cost projections. Many of our titles are externally
developed. If developers experience financial difficulties, additional costs or
unanticipated development delays, we will not be able to release titles
according to our schedule and may incur losses.
The development of new interactive entertainment software is a lengthy,
expensive and uncertain process. Considerable time, effort and resources are
required to complete development of our proposed titles. We have in the past and
may in the future experience delays in introducing new titles. Delays, expenses,
technical problems or difficulties could force the abandonment of or material
changes in the development and commercialization of our proposed titles. In
addition, the costs associated with developing titles for use on new or future
platforms may increase our development expenses.
14
TRANSITIONS IN CONSOLE PLATFORMS HAVE A MATERIAL IMPACT ON THE MARKET FOR
INTERACTIVE ENTERTAINMENT SOFTWARE AND DELAYS IN THE LAUNCH, SHORTAGES,
TECHNICAL PROBLEMS OR LACK OF CONSUMER ACCEPTANCE OF THESE PLATFORMS AND NEXT
GENERATION PLATFORMS COULD ADVERSELY AFFECT OUR SALES OF PRODUCTS FOR THESE
PLATFORMS.
When new console platforms are announced or introduced into the market,
consumers typically reduce their purchases of game console entertainment
software products for current console platforms in anticipation of new platforms
becoming available. During these periods, sales of our game console
entertainment software products can be expected to slow down or even decline
until new platforms have been introduced and have achieved wide consumer
acceptance. Each of the three current principal hardware producers launched a
new platform in recent years. Sony made the first shipments of its PlayStation2
console system in North America and Europe in the fourth quarter of calendar
year 2000. Microsoft made the first shipments of its Xbox console system in
North America in November 2001 and in Europe and Japan in the first quarter of
calendar 2002. Nintendo made the first shipments of its GameCube console system
in North America in November 2001 and in Europe in May 2002. Additionally, in
June 2001, Nintendo launched its Game Boy Advance hand-held device. Most
recently, in late 2004 Sony introduced its hand-held gaming device, PlayStation
Portable ("PSP") and Nintendo introduced its Nintendo Dual Screen ("DS"). We
expect that the next hardware transition cycle will commence in late calendar
2005 or calendar 2006. Delays in the launch, shortages, technical problems or
lack of consumer acceptance of these platforms and next generation platforms
could adversely affect our sales of products for these platforms.
DEVELOPING GAMES FOR THE NEXT GENERATION GAME CONSOLES BY SONY, MICROSOFT
AND NINTENDO (WHICH ARE EXPECTED TO BE RELEASED IN THE NEXT FEW YEARS) WILL
LIKELY BE MORE EXPENSIVE AND TIME CONSUMING FOR US AND OUR STUDIOS. IF WE ARE
NOT ABLE TO PRODUCE GAMES FOR THESE CONSOLES IN A COST-EFFECTIVE MANNER, OUR
BUSINESS MAY BE SIGNIFICANTLY HARMED.
Each of Sony, Nintendo and Microsoft are expected to release next
generation game consoles in the next few years. These new consoles will likely
be more powerful, and games for these consoles will have greater graphics and
features. With this increased power and capabilities, there are likely to be
increased costs to develop games and it is likely that each game will need
larger development teams. Budgets for next generation games are likely to be
twice those of games for current consoles and development teams may need to
increase three-fold. The rising costs may make it prohibitively expensive for
small game publishers like us to take the risk of creating new, unproven games.
If we cannot create games for the next generation consoles in a cost effective
manner, our business is likely to be significantly harmed.
WE DEPEND ON SONY, NINTENDO AND MICROSOFT FOR THE MANUFACTURING OF PRODUCTS
THAT WE DEVELOP FOR THEIR HARDWARE PLATFORMS. ACCORDINGLY, ANY OF THEM COULD
CAUSE UNANTICIPATED DELAYS IN THE RELEASE OF OUR PRODUCTS AS WELL INCREASES TO
OUR DEVELOPMENT, MANUFACTURING, MARKETING OR DISTRIBUTION COSTS, WHICH COULD
MATERIALLY HARM OUR BUSINESS AND FINANCIAL RESULTS.
Generally, when we develop interactive entertainment software products for
hardware platforms offered by Sony, Nintendo or Microsoft, the products are
manufactured exclusively by that hardware manufacturer or their approved
replicator. We pay a licensing fee to the hardware manufacturer for each copy of
a product manufactured for that manufacturer's game platform.
The agreements with these manufacturers include certain provisions such as
approval rights over all products and related promotional materials and the
ability to change the fee they charge for the manufacturing of products, that
allow them substantial influence over our costs and the release schedule of our
products. In addition, since each of the manufacturers is also a publisher of
games for its own hardware platforms and manufactures products for all of its
other licensees, a manufacturer may give priority to its own products or those
of our competitors in the event of insufficient manufacturing capacity.
Accordingly, Sony, Nintendo or Microsoft could cause unanticipated delays in the
release of our products as well increase our development, manufacturing,
marketing or distribution costs, which could materially harm our business and
financial results.
15
WE PARTLY DEPEND ON INDEPENDENT DEVELOPERS, AND WE MAKE ADVANCE PAYMENTS TO
THEM PRIOR TO THE COMPLETION OF THE PRODUCT. THERE IS NO ASSURANCE THAT WE CAN
RECOUP THESE PAYMENTS IF WE DO NOT ACCEPT THE PRODUCT FROM A THIRD PARTY
DEVELOPER.
We make advance payments to independent software developers prior to
completion of the games, which are for the development of intellectual property
related to our games. The advance payments become due when the developer meets
agreed milestones.
Upon termination of the contract for any reason prior to the completion of
a game, the advance payments are repayable by the independent software
developers, who then remain the sole owner of the source material and
intellectual property. These advance payments that are due prior and after
completion of the product are partly capitalized and expensed as cost of goods
sold at the higher of the contractual or effective royalty rate based on net
product sales. However, there is no assurance that the independent developer
will return the advance payments to us, and if they do not, our business may
suffer.
WE MAY FAIL TO ANTICIPATE CHANGING CONSUMER PREFERENCES, AND IF WE DO, OUR
RESULTS OF OPERATIONS MAY BE MATERIALLY HARMED.
Our business is speculative and is subject to all of the risks generally
associated with the interactive entertainment software industry, which has been
cyclical in nature and has been characterized by periods of significant growth
followed by rapid declines. Our future operating results will depend on numerous
factors beyond our control, including:
o the popularity, price and timing of new software and hardware platforms
being released and distributed by us and our competitors;
o international, national and regional economic conditions, particularly
economic conditions adversely affecting discretionary consumer spending;
o changes in consumer demographics;
o the availability of other forms of entertainment; and
o critical reviews and public tastes and preferences, all of which change
rapidly and cannot be predicted.
In order to plan for acquisition and promotional activities we must
anticipate and respond to rapid changes in consumer tastes and preferences. A
decline in the popularity of interactive entertainment software or particular
platforms could cause sales of our titles to decline dramatically. The period of
time necessary to develop new game titles, obtain approvals of manufacturers and
produce CD-ROMs or game cartridges is unpredictable. During this period consumer
appeal of a particular title may decrease, causing projected sales to decline.
RAPIDLY CHANGING TECHNOLOGY AND PLATFORM SHIFTS COULD HURT OUR OPERATING
RESULTS.
The interactive software market and the PC and video game industries in
general are associated with rapidly changing technology, which often leads to
software and platform obsolescence and significant price erosion over the life
of a product. The introduction of new platforms and technologies can render
existing software obsolete or unmarketable. We expect that as more advanced
platforms are introduced, consumer demand for software for older platforms will
decline. As a result, our titles developed for such platforms may not generate
sufficient sales to make such titles profitable. Obsolescence of software or
platforms could leave us with increased inventories of unsold titles and limited
amounts of new titles to sell to consumers which would have a material adverse
effect on our operating results.
16
We have devoted and will continue to devote significant development and
marketing resources on products designed for next-generation video game systems,
such as the PlayStation 3 and Xbox360, that have not yet been released. If
PlayStation 3 and/or Xbox360 do not achieve wide acceptance by consumers or
Sony/Microsoft is unable to ship a significant number of PlayStation 3/Xbox360
units in an timely fashion, or if our titles fail to sell through, we will have
spent a substantial amount of our resources for this platform without
corresponding revenues, which would have a material adverse effect on our
business, operating results and financial condition.
We need to anticipate technological changes and continually adapt our new
titles to emerging platforms to remain competitive in terms of price and
performance. Our success depends upon our ability and the ability of third-party
developers to adapt software to operate on and to be compatible with the
products of original equipment manufacturers and to function on various hardware
platforms and operating systems. If we design titles to operate on new
platforms, we may be required to make substantial development investments well
in advance of platform introductions and we will be subject to the risks that
any new platform may not achieve initial or continued market acceptance.
A number of software publishers who compete with us have developed or are
currently developing software for use by consumers over the Internet. Future
increases in the availability of such software or technological advances in such
software or the Internet could result in a decline in platform-based software
and impact our sales. Direct sales of software by major manufacturers over the
Internet would adversely affect our distribution business.
IF OUR PRODUCTS CONTAIN DEFECTS, OUR BUSINESS COULD BE HARMED
SIGNIFICANTLY.
Software products as complex as the ones we publish may contain undetected
errors when first introduced or when new versions are released. Despite
extensive testing prior to release, we cannot be certain that errors will not be
found in new products or releases after shipment which could result in loss of
or delay in market acceptance. This loss or delay could significantly harm our
business and financial results.
RETURNS OF OUR TITLES MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
Our arrangements with retailers for published titles require us to accept
returns for stock balancing, markdowns or defects. We establish a reserve for
future returns of published titles at the time of sales, based primarily on
these return policies and historical return rates and we recognize revenues net
of returns.
Our distribution arrangements with retailers generally do not give them the
right to return titles to us or to cancel firm orders, although we do accept
returns for stock balancing, markdowns and defects. We sometimes negotiate
accommodations to retailers, including price discounts, credits and returns,
when demand for specific titles falls below expectations.
Our sales returns and allowances for the year ended December 31, 2004, they
were (euro)0 ($0). If return rates for our published titles significantly exceed
our estimates, our operating results will be materially adversely affected.
OUR BUSINESS IS HIGHLY COMPETITIVE AND INCREASINGLY "HIT" DRIVEN. IF WE DO
NOT CONTINUE TO DELIVER "HIT" PRODUCTS, OUR SUCCESS WILL BE LIMITED.
Competition in our industry is intense and new products are regularly
introduced. We compete for both licenses to properties and the sale of
interactive entertainment software with Sony, Nintendo and Microsoft, each of
which is the largest developer and marketer of software for its platforms. Sony,
Microsoft and Nintendo currently dominate the industry and have the financial
resources to withstand significant price competition and to implement extensive
advertising campaigns, particularly for prime-time television. These companies
may also increase their own software development efforts or focus on developing
software products for third-party platforms.
In addition, we compete with domestic public and private companies,
international companies, large software companies and media companies. Many of
our competitors have far greater financial, technical, personnel and other
resources than we do and many are able to carry larger inventories, adopt more
aggressive pricing policies and make higher offers to licensors and developers
for commercially desirable properties than we can. Our titles also compete with
other forms of entertainment such as motion pictures, television and audio and
DVDs featuring similar themes, on-line computer programs and forms of
entertainment which may be less expensive or provide other advantages to
consumers.
17
Retailers typically have limited shelf space and promotional resources and
competition is intense among an increasing number of newly introduced
interactive entertainment software titles for adequate levels of shelf space and
promotional support. Competition for retail shelf space is expected to increase,
which may require us to increase our marketing expenditures just to maintain
current levels of sales of our titles. Competitors with more extensive lines and
popular titles frequently have greater bargaining power with retailers.
Accordingly, we may not be able to achieve the levels of support and shelf space
that such competitors receive. Similarly, as competition for popular properties
increases, our cost of acquiring licenses for such properties is likely to
increase, possibly resulting in reduced margins. Prolonged price competition,
increased licensing costs or reduced operating margins would cause our profits
to decrease significantly.
IF OUR COMPETITORS DEVELOP MORE SUCCESSFUL PRODUCTS, OR IF WE DO NOT
CONTINUE TO DEVELOP CONSISTENTLY HIGH-QUALITY PRODUCTS, OUR REVENUE WILL
DECLINE.
Our products are sold internationally through third-party distribution and
licensing arrangements and through our wholly-owned European distribution
subsidiaries. Our sales are made primarily on a purchase order basis without
long-term agreements or other forms of commitments. The loss of, or significant
reduction in sales to, any of our principal retail customers or distributors
could significantly harm our business and financial results.
WE MAY BE BURDENED WITH PAYMENT DEFAULTS AND UNCOLLECTIBLE ACCOUNTS IF OUR
DISTRIBUTORS OR RETAILERS CANNOT HONOR THEIR CREDIT ARRANGEMENTS WITH US.
Distributors and retailers in the interactive entertainment software
industry have from time to time experienced significant fluctuations in their
businesses and a number of them have failed. The insolvency or business failure
of any significant retailer or distributor of our products could materially harm
our business and financial results. We typically make sales to most of our
retailers and some distributors on unsecured credit, with terms that vary
depending upon the customer's credit history, solvency, credit limits and sales
history, as well as whether we can obtain sufficient credit insurance. Although,
as in the case with most of our customers, we have insolvency risk insurance to
protect us against our customers' bankruptcy, insolvency or liquidation, this
insurance contains a significant deductible and a co-payment obligation and the
policy does not cover all instances of non-payment. In addition, although we
maintain a reserve for uncollectible receivables, the reserve may not be
sufficient in every circumstance. As a result, a payment default by a
significant customer could significantly harm our business and financial
results.
WE MAY NOT BE ABLE TO MAINTAIN OUR DISTRIBUTION RELATIONSHIPS WITH KEY
VENDORS, AND IF WE DO NOT, OUR RESULTS OF OPERATIONS MAY BE MATERIALLY HARMED
We distribute interactive entertainment software and hardware products and
provide related services in the Benelux countries, France, Germany, the United
Kingdom, the United States, Canada, and in other European countries for a
variety of entertainment software publishers, many of which are our competitors,
and hardware manufacturers. These services are generally performed under limited
term contracts. Although we expect to use reasonable efforts to retain these
vendors, we may not be successful in this regard. The cancellation or
non-renewal of one or more of these contracts could significantly harm our
business and financial results.
OUR SOFTWARE MAY BE SUBJECT TO LEGAL CLAIMS WHICH COULD BE VERY COSTLY AND
TIME CONSUMING AND CAUSE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
In prior years lawsuits were filed against numerous video game companies by
the families of victims who were shot and killed by teenage gunmen in attacks
perpetrated at schools. In these lawsuits plaintiffs alleged that the video game
companies manufactured and/or supplied these teenagers with violent video games,
teaching them how to use a gun and causing them to act out in a violent manner.
18
Both lawsuits have been dismissed. It is possible, however, that similar,
additional lawsuits may be filed in the future. If such future lawsuits are
filed and ultimately decided against us and our insurance carrier does not cover
the amounts we are liable for, it could have a material adverse effect on our
business and financial results. Payment of significant claims by insurance
carriers may make such insurance coverage materially more expensive or
unavailable in the future, thereby exposing our business to additional risk.
OUR BUSINESS, OUR PRODUCTS AND OUR DISTRIBUTION ARE SUBJECT TO INCREASING
REGULATION IN KEY TERRITORIES OF CONTENT, CONSUMER PRIVACY AND ONLINE DELIVERY.
IF WE DO NOT SUCCESSFULLY RESPOND TO THESE REGULATIONS, OUR BUSINESS MAY SUFFER.
Legislation is continually being introduced that may affect both the
content of our products and their distribution. For example, privacy laws in the
United States and Europe impose various restrictions on our web sites. Those
rules vary by territory although the Internet recognizes no geographical
boundaries. Other countries, such as Germany, have adopted laws regulating
content both in packaged goods and those transmitted over the Internet that are
stricter than current United States laws. In the United States, the federal and
several state governments are considering content restrictions on products such
as ours, as well as restrictions on distribution of such products. Any one or
more of these factors could harm our business by limiting the products we are
able to offer to our customers and by requiring additional differentiation
between products for different territories to address varying regulations. This
additional product differentiation would be costly.
IF WE DO NOT CONSISTENTLY MEET OUR PRODUCT DEVELOPMENT SCHEDULES, WE WILL
EXPERIENCE FLUCTUATIONS IN OUR OPERATING RESULTS.
Product development schedules, particularly for new hardware platforms,
high-end multimedia PCs and the Internet, are difficult to predict because they
involve creative processes, use of new development tools for new platforms and
the learning process, research and experimentation associated with development
for new technologies. We have in the past experienced development delays for
several of our products. Failure to meet anticipated production or "go live"
schedules may cause a shortfall in our revenue and profitability and cause our
operating results to be materially different from expectations. Delays that
prevent release of our products during peak selling seasons may reduce lifetime
sales of those products.
OUR EXPANSION MAY STRAIN OUR OPERATIONS.
We have expanded through internal growth and acquisitions, which has placed
and may continue to place a significant strain on our management,
administrative, operational, financial and other resources. We have released a
number of titles on new platforms, expanded our publishing and distribution
operations, increased our advances to developers and manufacturing expenditures,
enlarged our work force and expanded our presence on international markets. To
successfully manage this growth, we must continue to implement and improve our
operating systems as well as hire, train and manage a substantial and increasing
number of management, technical, marketing, administrative and other personnel.
We may be unable to effectively manage rapidly expanded operations which are
geographically dispersed.
We have acquired rights to various properties and businesses, and we may
pursue opportunities by making selective acquisitions consistent with our
business strategy. We may be unable to successfully integrate any new personnel,
property or business into our operations. If we are unable to successfully
integrate future personnel, properties or businesses into our operations, we may
incur significant charges.
Our publishing and distribution activities require significant amounts of
capital. We may seek to obtain additional debt or equity financing to fund the
cost of expansion. The issuance of equity securities would result in dilution to
the interests of our stockholders.
A LIMITED NUMBER OF CUSTOMERS MAY ACCOUNT FOR A SIGNIFICANT PORTION OF OUR
SALES, AND THE LOSS OF OUR RELATIONSHIPS WITH PRINCIPAL CUSTOMERS OR A DECLINE
IN SALES TO PRINCIPAL CUSTOMERS COULD HARM OUR OPERATING RESULTS.
19
Sales to our three largest customers accounted for approximately 95% of our
revenues for the year ended December 31, 2004. In the first six months of 2005,
sales to our three largest customers accounted for approximately 50% of our
revenues. The loss of our relationships with principal customers or a decline in
sales to principal customers could harm our operating results.
RATING SYSTEMS FOR INTERACTIVE ENTERTAINMENT SOFTWARE, POTENTIAL
LEGISLATION AND CONSUMER OPPOSITION COULD INHIBIT SALES OF OUR PRODUCTS.
The home video game industry requires interactive entertainment software
publishers to provide consumers with information relating to graphic violence or
sexually explicit material contained in software titles. Certain countries have
also established similar rating systems as prerequisites for sales of
interactive entertainment software in such countries. We believe that we comply
with such rating systems and display the ratings received for our titles. Our
software titles generally receive a rating of "G" (all ages), "E10-Plus" (age 10
and over) or "T" (age 13 and over), although certain of our titles receive a
rating of "M" (age 17 and over), which may limit the potential markets for these
titles.
Several proposals have been made for federal legislation to regulate the
interactive entertainment software, motion picture and recording industries,
including a proposal to adopt a common rating system for interactive
entertainment software, television and music containing violence and sexually
explicit material and an inquiry by the Federal Trade Commission with respect to
the marketing of such material to minors. Consumer advocacy groups have also
opposed sales of interactive entertainment software containing graphic violence
and sexually explicit material by pressing for legislation in these areas and by
engaging in public demonstrations and media campaigns. If any groups were to
target our titles, we might be required to significantly change or discontinue a
particular title. In addition, certain retailers, such as US-based retailers
WalMart Stores Inc., Sears Inc., including its Kmart and Sears division, and
Target, a division of Dayton Hudson Corporation, have declined to sell
interactive entertainment software containing graphic violence or sexually
explicit material, which also limits the potential markets for certain of our
games. Such restrictions or impairments may also occur in other geographic
markets and as a result limit the potential for certain of our games in those
markets. Furthermore, because of the content in some of our titles, religious or
other advocacy groups could pressure retailers not to sell or carry our titles
which could impair marketing or sales efforts with certain retailers and as a
consequence limit sales or potential sales for certain of our games in affected
areas.
WE ARE SUBJECT TO RISKS AND UNCERTAINTIES OF INTERNATIONAL TRADE, AND IF
ANY OF THESE RISKS MATERIALIZE, OUR RESULTS OF OPERATIONS MAY BE HARMED.
Sales in international markets, primarily in the United Kingdom, France,
Spain and the Benelux, have accounted for an increasing portion of our revenues.
For the year ended December 31, 2004, sales in international markets accounted
for approximately 99% of our revenues. In the first six months of 2005 sales in
Europe accounted for approximately 50% of our revenues and sales in the United
States for the other 50% of our revenues. We are subject to risks inherent in
foreign trade, including:
o increased credit risks;
o tariffs and duties;
o fluctuations in foreign currency exchange rates;
o shipping delays; and
o international political, regulatory and economic developments, all
of which can have a significant impact on our operating results.
20
WE ARE DEPENDENT UPON OUR KEY EXECUTIVES AND PERSONNEL, AND IF WE FAIL TO
HIRE AND RETAIN NECESSARY PERSONNEL AS NEEDED, OUR BUSINESS WILL BE
SIGNIFICANTLY IMPAIRED.
Our success is largely dependent on the personal efforts of certain key
personnel. The loss of the services of one or more of these key employees could
adversely affect our business and prospects. Our success is also dependent upon
our ability to hire and retain additional qualified operating, marketing,
technical and financial personnel. Competition for qualified personnel in the
computer software industry is intense, and we may have difficulty hiring or
retaining necessary personnel in the future. If we fail to hire and retain
necessary personnel as needed, our business will be significantly impaired.
FLUCTUATIONS IN FOREIGN EXCHANGE RATES AND INTEREST RATES COULD HARM OUR
RESULTS OF OPERATIONS
We are exposed to currency risks and interest rate risks. We are
particularly exposed to fluctuations in the exchange rate between the U.S.
dollar and the Euro, as we incur manufacturing costs and price our systems
predominantly in Euro while a portion of our revenue and cost of sales is
denominated in U.S. dollars.
In addition, a substantial portion of our assets, liabilities and operating
results are denominated in Euros, and a minor portion of our assets, liabilities
and operating results are denominated in currencies other than the Euro and the
U.S. dollar. Our consolidated financial statements are expressed in U.S.
dollars. Accordingly, our results of operations are exposed to fluctuations in
various exchange rates.
Furthermore, a strengthening of the Euro, particularly against the U.S.
dollar could lead to intensified price-based competition in those markets that
account for the majority of our sales, resulting in lower prices and margins and
an adverse impact on our business, financial condition and results of
operations.
We are also exposed to fluctuations in interest rates. As of December 31,
2004 we had a net bank overdraft. An increase of the short-term interest rates
could increase the interest expense on our bank overdraft and adversely
affecting our financial results.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The market price of the common stock may be highly volatile. Disclosures of
our operating results, announcements of various events by us or our competitors
and the development and marketing of new titles affecting the interactive
entertainment software industry may cause the market price of the common stock
to change significantly over short periods of time. Sales of shares under this
prospectus may have a depressive effect on the market price of our common stock.
SOME OF OUR EXISTING SHAREHOLDERS CAN EXERT CONTROL OVER US AND MAY NOT
MAKE DECISIONS THAT ARE IN THE BEST INTERESTS OF ALL SHAREHOLDERS.
As of September 15, 2005, officers, directors, and shareholders holding
more than 5% of our outstanding shares collectively controlled approximately 59%
of our outstanding common stock. As a result, these shareholders, if they act
together, would be able to exert a significant degree of influence over our
management and affairs and over matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. Accordingly, this concentration of ownership may harm the market
price of our ordinary shares by delaying or preventing a change in control of
us, even if a change is in the best interests of our other shareholders.
In addition, the interests of this concentration of ownership may not
always coincide with the interests of other share holders, and accordingly, they
could cause us to enter into transactions or agreements that we would not
otherwise consider.
21
IT MAY BE DIFFICULT TO ENFORCE A US JUDGMENT AGAINST US, OR OUR OFFICERS
AND DIRECTORS.
Service of process upon our directors and officers, all of whom reside
outside the United States, may be difficult to obtain within the United States.
In addition, because substantially all of our assets and all of our directors
and officers are located outside the United States, any judgment obtained in the
United States against us or any of our directors and officers may not be
collectible within the United States.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders.
MARKET PRICE OF OUR COMMON STOCK; DIVIDENDS
Since January 7, 2003, our common stock has been quoted on the
Over-the-Counter ("OTC") Bulletin Board, an electronic stock listing service
provided by The Nasdaq Stock Market, Inc., under the symbol PLGC.OB (our symbol
had been DNRE.OB from January 2003 until May 2005, and it was DNRR.OB from May
2005 until August 2, 2005).
As of September 15, 2005, there were approximately 103 holders of record of
our common stock.
The price range of our common stock during the past two fiscal years is
shown below. High and low prices given here refer to the high and low bid quoted
on the OTC Bulletin Board. These prices reflect our one-for -10 reverse stock
split effective April 15, 2005. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
Fiscal 2003 High Low
First Quarter........................ $3.80 $0.30
Second Quarter....................... $1.00 $0.20
Third Quarter........................ $2.00 $0.30
Fourth Quarter....................... $0.90 $0.50
Fiscal 2004 High Low
First Quarter........................ $0.70 $0.70
Second Quarter....................... $0.80 $0.80
Third Quarter........................ $1.00 $1.00
Fourth Quarter....................... $0.70 $0.70
Fiscal 2005 High Low
First Quarter........................ $3.10 $1.40
Second Quarter $4.00 $2.80
______________
No dividends have been paid on the common stock since our inception, and we
do not anticipate paying any dividends in the foreseeable future.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
The Information in this registration statement 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 registration statement 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.
OVERVIEW
Playlogic Entertainment, Inc. was incorporated in the State of Delaware in
May 2001 when its name was Donar Enterprises, Inc. Initially, our plan was to
engage in the business of converting and filing registration statements,
periodic reports and other forms of small to mid-sized companies with the U.S.
Securities and Exchange Commission electronically through EDGAR. We had limited
operations until June 30, 2005, when we entered into a share exchange agreement
with Playlogic International N.V., a corporation formed under the laws of the
Netherlands that commenced business in 2002, and its shareholders. Pursuant to
this agreement, the former shareholders of Playlogic International became the
owners of over 91% of our common stock. Playlogic International has become our
wholly-owned subsidiary and represents all of our commercial operations.
On August 2, 2005, Donar Enterprises merged with and into a wholly owned
subsidiary named Playlogic Entertainment, Inc. pursuant to which Donar's name
was changed to Playlogic Entertainment, Inc. Playlogic Entertainment, Inc. was
formed specifically for the purpose of effecting the name change. When we refer
to "Playlogic Entertainment" in this prospectus, we are also referring to our
company when it was known as Donar Enterprises, Inc.
Playlogic International is the leading Dutch publisher of interactive
entertainment software for consoles, such as Sony's PlayStation2, Microsoft's
Xbox and Nintendo's Game Cube, PCs and handheld, such as Nintendo's Game Boy,
and mobile devices. As a publisher, we are responsible for distribution, sales
and marketing of our products. We seek to publish high quality products
developed both by our own studio in Breda, The Netherlands, called Playlogic
Game Factory, and by external developers with whom we have contractual
relationships.
Various studios, based in the US and throughout Europe, develop the games
which we publish. One of these studios is our subsidiary, Playlogic Game
Factory, located in The Netherlands. Other independent studios in various
countries develop our games 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 to our existing titles to other
studios who then develop those titles for other platforms.
We have released four games to date:
o Alpha Black Zero, a mission-based tactical shooting game for the PC;
23
o Airborne Troops, an infiltration action adventure game based on
World War II for PC and PlayStation2;
o Cyclone Circus, a racing game for PlayStation2; and
o Xyanide, a "shoot 'em up" adventure game for mobile devices.
On April 22 2005, we signed an agreement with TDK Recording Media Europe
S.A. (Luxembourg) for publishing and transferring to us all of the related
intellectual property rights of the following three games:
o World Racing 2, for PS2, Xbox and PCs;
o Knights of the Temple 2, for PS2, Xbox and PC; and
o Gene Troopers, for PS2, Xbox and PC.
On April 27, 2005 we signed an agreement with Visionvale Ltd. (Nicosia
Cyprus) and Burut Co. (Voronezh, Russia) for publishing and transferring to us
all of the related intellectual property rights of Sparta, Ancient Wars for PC
and additional platforms.
On August 12, 2005 we signed an offer which is subject to contract with DC
Studios Inc. (Montreal, Canada) for publishing State of Emergency 2 for PS2, of
which the previous sold 1.6 million copies (PS2) worldwide in 2002.
On August 15, 2005 we signed an agreement with 1C Europe BV (Amsterdam, The
Netherlands) and Akella Corporation Ltd. (Belize) for publishing and
transferring to us all of the related intellectual property rights of Captain
Blood for Xbox360 and PC.
On August 17, 2005 we signed an agreement with BV (Amsterdam, The
Netherlands) and Akella Corporation Ltd. (Belize) for publishing and
transferring to us all of the related intellectual property rights of Age of
Pirates for PC.
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 able to
increase our unit volume. However, as consumers anticipate the next generation
of consoles, unit volumes often decrease. In March 2004, Microsoft reduced the
retail price of its box consoles in the US, and in May and December 2004, Sony
did the same with its PlayStation2 consoles. As price reductions drive sales of
consoles and the related installed base of these current generation consoles
increases during fiscal 2005, we believe that our unit sales of current
generation titles are likely to be increased.
Software Prices. As current generation console prices decrease, we expect
more value-oriented consumers to become part of the interactive entertainment
software market. We believe that hit titles will continue to be launched at
premium price points and will maintain those premium price points longer than
less popular games. However, as a result of a more value-oriented consumer base,
and a greater number of software titles being published, we expect average
software prices to gradually come down, which we expect to negatively impact our
gross margin. To offset this, as the installed base increases, total volume of
software sales are expected to increase, compensating for the lower margins on
software sales.
Increasing Cost of Titles. 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.
24
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires us 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 returns, price concessions and doubtful accounts. Actual amounts could
differ significantly from these estimates.
Results of Operations
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004.
Net sales. Net sales for the six months ended June 30, 2005 were $736,559,
as compared to $0 for the six months ended June 30, 2004. This increase in
revenue is primarily the result of increased sales of our games. $394,468 of the
revenues for the six months ended June 30, 2005 were from Europe and $342,091
were from the US. All of these revenues were derived from our game distributors.
Gross Profit. Gross profit totaled $596,790 for the six months ended June
30, 2005. For the six months ended June 30, 2004, gross profit totaled $0. This
increase in gross profit is primarily the result of an increase in net sales.
Selling, Marketing, General and Administrative Expenses. Selling,
marketing, general and administrative expenses totaled $1,800,952 for the six
months ended June 30, 2005. For the six months ended June 30, 2004, selling,
general and administrative expenses totaled $10,747,090. This represents a
decrease of $8,946,138, or 83%. This decrease in selling, general and
administrative expenses is primarily the result of a one-time charge of granted
options to certain stock holders in 2004. No options have been granted in the
first six months ended June 30, 2005.
Research and development. Research and development expenses totaled
$485,937 for the six months ended June 30, 2005. For the six months ended June
30, 2004, research and development expenses totaled $1,809,483. This represents
a decrease $1,323,546, or 73%. This decrease is due to our research and
development expenses not being able to be capitalized.
Depreciation. Depreciation expense totaled $204,968 for the six months
ended June 30, 2005. For the six months ended June 30, 2004, depreciation
expense totaled $154,038. The increase of $50,930, or 33% was caused by an
increase in fixed assets that are depreciated on a straight line basis over the
economic life time.
Interest Expense. Interest expense totaled $197,775 for the six months
ended June 30, 2005. For the six months ended June 30, 2004, interest expense
totaled $752,349. This represents a decrease of $554,574, or 74%. This decrease
in interest expense is primarily the result of our debt holders converting their
loans into ordinary shares of Playlogic International.
Benefit from income taxes. Benefit from income taxes totaled $623,404 for
the six months ended June 30, 2005. For the six months ended June 30, 2004,
benefit from income taxes totaled $0. This increase was caused by our entering
into contracts to purchase finished products and for distribution of these
games; therefore deferred tax income has been recognized.
25
Net Loss. Our net loss was $1,559,438 for the six months ended June 30,
2005. For the six months ended June 30, 2004, net loss totaled $13,462,960. This
was primarily due to a one-time charge related to the grant of stock options to
certain stockholders in 2004, recognition of benefits from income taxes,
increased gross profit, lower interest expenses and lower research and
development costs.
Liquidity And Capital Resources
June 30, 2005
As of June 30, 2005, we had $144,031 of cash on hand.
Our management believes that the current cash on hand and additional cash
expected from operations will be sufficient order to cover our working capital
requirements through the third quarter of 2005. After that time, we will need to
obtain additional financing from third parties. We are currently in negotiations
for a revolving credit line for game financing, and we are also seeking bank
financing. In addition, we may raise funds through equity financings. If we do
not obtain any necessary financing in the future, we may need to cease
operations.
We expect our capital requirements to increase over the next several years
as we continue to develop new products both internally and through our
third-party developers, increase marketing and administration infrastructure,
and embark on in-house business capabilities and facilities. Our future
liquidity and capital funding requirements will depend on numerous factors,
including, but not limited to, the 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.
December 31, 2004
December 31, 2004
As of December 31, 2004, our cash balance was (euro)16,277 ($22,210), as
compared to (euro)65,005 ($81,711) at December 31, 2003.
2004 2003 2004 2003
Cash Flows from Operating
activities
---------------- -------------------- ------------------ ---------------
Net cash used in operating activities (eu) (6,216,739) (eu) (3,869,165) $(8,482,740) $ (4,863,540)
---------------- -------------------- ------------------ ---------------
---------------- -------------------- ------------------ ---------------
Cash Flows from investing
activities (326,661) (245,384) (445,729) (308,448)
---------------- -------------------- ------------------ ---------------
Net cash provided by financing 6,494,672 4,133,225 8,861,980 5,195,464
activities ---------------- -------------------- ------------------ ---------------
(eu) 48,728) (eu) 18.676 $(66,489) $23,476
The net cash used in operating activities increased with (euro)2,347,574
($3,619,200). The majority of this increase was caused by more general and
administrative, research and development and interest expenses. The increase in
net cash provided by financing activities was caused by the payment on the
subscribed capital.
Our accounts receivable at December 31, 2004 was (euro)0 ($0), as compared
to (euro)9,334 ($11,733) at December 31, 2003.
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.
26
Contractual Obligations
We have the following contractual obligations associated with its lease
commitments and other contractual obligations per September 15, 2005:
Contractual Obligations Payments Due By Period (in thousands)
Total Less Than 1 1 - 3 Years 3-5 Years More than 5 Years
Year
Long-Term Debt Obligations $271 $41 $82 $82 $66
Capital Lease Obligations - - - - -
Operating lease Obligations
(Including Rent) $5,203 $681 $1,462 $1,325 $1,735
Purchase obligations 4,848 3,151 1,697 - -
Other contractual obligations
- - - - -
Total
$10,378 $3,873 $3,241 $1,407 $1,801
Note
On June 1, 2005, we entered into a lease for new offices at Amstelveenseweg
639-710 in Amstelveen and we plan to move our principal executive officers there
in October 2005. The leased premises spans 1,500 square meters. The lease
amounts to $272.90 ((euro)200) per square meter for rent and $34 ((euro)25) per
square meter for service costs. Payment starts mid July 2006 for each 750 square
meters and by January 1, 2007, we will start paying for the remaining 750 square
meters. Payment of the service costs for each 750 square meter segment is due
immediately upon the start of the lease agreement (June 1, 2005).
27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts receivable
Accounts receivable are shown after deduction of a provision for bad and
doubtful debts where appropriate.
Software Development Costs
Capitalized software development costs include payments made to independent
software developers under development agreements, as well as direct costs
incurred for internally developed products. We account for software development
costs in accordance with SFAS No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed". Software development costs
are capitalized once technological feasibility of a product is established and
such costs are determined to be recoverable.
We utilize both internal development teams and third-party software
developers to develop our products.
We capitalize internal software development costs and other content costs
subsequent to establishing technological feasibility of a title. Amortization of
such costs as a component of cost of sales is recorded on a title-by-title basis
based on the greater of the proportion of current year sales to the total of
current and estimated future sales for the title or the straight-line method
over the remaining estimated useful life of the title. At each balance sheet
date, we evaluate the recoverability of capitalized software costs based on
undiscounted future cash flows and charge to cost of sales any amounts that are
deemed unrecoverable. Our agreements with third-party developers generally
provide us with exclusive publishing and distribution rights and require us to
make advance payments that are recouped against royalties due to the developer
based on the contractual amounts of product sales, adjusted for certain costs.
Prepaid royalties
We capitalize external software development costs (prepaid royalties) and
other content costs subsequent to establishing technological feasibility of a
title.
Advance payments are amortized as royalties in cost of sales on a
title-by-title basis based on the greater of the proportion of current year
sales to the total of current and estimated future sales for that title or the
contractual royalty rate based on actual net product sales as defined in the
respective agreements. At each balance sheet date, we evaluate the
recoverability of advanced development payments and unrecognized minimum
commitments not yet paid to determine the amounts unlikely to be realized
through product sales. Advance payments are 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:
o 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.
o Delivery: Delivery is considered to occur when the products are
shipped and risk of loss has been transferred to the customer.
28
o 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.
o 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).
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (R), "Share-Based Payment"
which revised Statement of Financial Accounting Standards No. 123 (R),
"Accounting for Stock-Based Compensation". This statement supercedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees". The revised statement
addresses the accounting for share-based payment transactions with employees and
other third parties, eliminates the ability to account for share-based
compensation transactions using APB 25 and requires that the compensation costs
relating to such transactions be recognized in the condensed consolidated
statement of operations. The revised statement is effective as of the first
fiscal year beginning after June 15, 2005.
Although we are currently analyzing the method of adoption and impact of
the adoption of this standard, effective January 1, 2006, we expect it will have
an impact on our condensed consolidated financial statements similar to the pro
forma disclosure under Statement of Financial Accounting Standards No. 123 (R),
"Accounting for Stock-Based Compensation" ("SFAS 123 (R)").
BUSINESS
Background
Playlogic Entertainment, Inc. was incorporated in the State of Delaware in
May 2001 when its name was Donar Enterprises, Inc. Initially, our plan was to
engage in the business of converting and filing registration statements,
periodic reports and other forms of small to mid-sized companies with the U.S.
Securities and Exchange Commission electronically through EDGAR. We had limited
operations until June 20, 2005, when we entered into a share exchange agreement
with Playlogic International N.V., a corporation formed under the laws of The
Netherlands that commenced business in 2002, and its shareholders. Pursuant to
this agreement, the former shareholders of Playlogic International became the
owners of over 91% of our common stock. Playlogic International has become our
wholly-owned subsidiary and represents all of our commercial operations.
On August 2, 2005, Donar Enterprises merged with and into a wholly owned
subsidiary named Playlogic Entertainment, Inc. pursuant to which Donar's name
was changed to Playlogic Entertainment, Inc. Playlogic Entertainment, Inc. was
formed specifically for the purpose of effecting the name change. When we refer
to "Playlogic Entertainment" in this prospectus, we are also referring to our
company when it was known as Donar Enterprises, Inc.
We had very limited operations of our own as of the date of the share
exchange. Since the date of the share exchange, all of our commercial operations
are those of Playlogic International.
29
OVERVIEW
We are the leading Dutch publisher of interactive entertainment software
for consoles, such as Sony's PlayStation2, Microsoft's Xbox and Nintendo's Game
Cube, PCs and handheld and mobile devices, such as Nintendo's Game Boy Advance
and Sony's PSP. As a publisher, we are responsible for distribution, sales and
marketing of our products. We seek to publish high quality products developed
both by our own studio in Breda, the Netherlands, called Playlogic Game Factory,
and by external developers with whom we have contractual relationships. We
publish a wide variety of games for all platforms and different genres of games
rather than focusing our development efforts and resources on attempting to
produce the next "hit" title. We believe this strategy decreases our risks
because if one of our titles turns out not to be successful, we still have other
titles that may be successful.
Our Industry
Wedbush Morgan Securities, a leading investment banking and brokerage firm,
has stated that in 2003, the US market for interactive entertainment was larger
than the U.S. movie industry (based in box office receipts). According to
Wedbush Morgan Securities, in 2003, the global video games market represented a
total value of $25.5 billion and will likely grow to exceed $30 billion in 2005.
According to Computer World magazine, the industry is expected to grow to a
value of more than $100 billion by 2010. According to the NPD Group, a leading
global sales and marketing firm, and the Entertainment Software Association, a
video game trade association, total video game software sales (not including
hardware and accessories) in the US reached a record of $ 7.3 billion in 2004.
According to the Entertainment Software Association, this growth has more than
doubled since 1996 and is expected to continue. We believe that this growth is
likely to be increased by the expected development of new game platforms, the
increasing popularity of games being played on mobile phones and on the Internet
and emerging markets such as China.
According to Screen Digest, a global media market and research firm, total
video game software sales worldwide were more than $18 billion in 2003 and are
expected to exceed $21 billion in 2007. Further, 239.3 million computer or video
games were sold in 2003. According to the Entertainment Software Association,
this number grew to 248 million in 2004, which means almost two games for every
household in the US.
According to the Entertainment Software Association, the average game
player is 30 years old, and the average game buyer is 37 years old. In 2005, 95%
of computer game buyers and 84% of console game buyers were over the age of 18.
Products
We have been certified as an official publisher worldwide by Nintendo and
by Sony Computer Entertainment for EMEA (Europe (including Australia), Middle
East and Africa) and Xbox worldwide. We received our official publishers'
license for Microsoft worldwide in April of 2005.
Various studios, based in the US and throughout Europe, develop the games
which we publish. One of these studios is our subsidiary, Playlogic Game
Factory, located in The Netherlands. Other independent studios in various
countries develop our games 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 to our existing titles to other
studios who then develop those titles for other platforms.
To date, we have released four games. They are:
o Alpha Black Zero
30
Alpha Black Zero is a mission-based tactical shooting game set in the
future in which an elite commando group carries out secret missions in
hostile worlds. The player must meet varied objectives through
numerous alternative solutions.
Genre Tactical Shooting
Platform PC
Developer Khaeon (A version for mobile phones and N-Gage will be
developed by Overloaded Pocket Media B.V. We do not yet have an
expected release date for the mobile phone and N-Gage version).
o Airborne Troops
Airborne Troops was released for PCs and PlayStation 2 in the first
quarter of 2005; it is an infiltration action adventure game set
during World War II that is based on historical facts. Characters use
actual weapons used during World War II and face actual World War II
scenarios an environments. The game has three-dimensional graphics and
dramatic music.
Genre Infiltration action-adventure
Platform PlayStation2 and PC
Developer Widescreen Games S.A.R.L.
o Cyclone Circus
Cyclone Circus is an arcade global racing game. Set in the year 2078,
it enables players to take control of a futuristic wind-propelled
vehicle and race in an international league across a range of exotic
locations.
Players can choose from a variety of distinctive characters, each with
their own customized vehicle. The number of characters from which to
choose means there is something for everyone - from a sexy Russian
daredevil to a lunatic Scottish brute.
Cyclone Circus' gameplay introduces the functionality of sail-trim as
a means to control the speed of the vehicle. Mastering sail-trim at
different wind velocities will enable the player to attain maximum
speeds. However, over-trimming, as well as using the sail-trim too
lightly, will result in slower speeds.
Players can check wind speed and direction, as well as their
competitors' progress, through radar in the corner of the screen. They
must execute stunts to earn points and performance bonuses.
Genre Arcade racer
Platform PlayStation2
Developer Playlogic Game Factory B.V.
o Xyanide
Xyanide is an advanced 3D version of an old-school shoot-'em-up,
taking place in the year 2715 on Mardar, a lonely isolated planet,
which has been under the influence of a black hole since the beginning
of time.
Aguira the witch has been sentenced to death by the Judges of Mardar.
The charges: devastation of worlds and civilizations. The sentence:
disintegration by dumping into the Maelstrom (a.k.a. the black hole).
The player takes the role of Drake, the chosen guard, whose role it is
to craft and enforce the execution, but an asteroid hits the execution
craft. The asteroid consists of Xyanide, a substance that instantly
materializes thoughts and Drake sees the instant creation of hostile
worlds between the execution craft and his fighter and realizes what
happens. Aguira tries to use Xyanide to escape and Drake knows he has
only one option: battle his way through the goriest worlds of horror
and destruction and encountering mass enemy attack waves.
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Genre Shoot-'em-up
Platform Mobile devices
Developer Overloaded Pocket Media B.V.
On April 22, 2005, we signed an agreement with TDK Recording Media Europe S.A.
(Luxembourg) for publishing and transferring to us all of the related
intellectual property rights of the following three games:
o World Racing 2, for PS2, Xbox and PC;
o Knights of the Temple 2, for PS2, Xbox and PC; and
o Gene Troopers, for PS2, Xbox and PC.
We expect the following games to be completed and released in the third or
fourth quarter of 2005:
o World Racing 2
World Racing 2 puts the fun of driving at center stage and presents a
challenging racing experience featuring an advanced 3D Landscape
Engine, adjustable driving characteristics, improved technology and an
exciting selection of different cars from various manufacturers. World
Racing 2 is all about fun racing. Players will enjoy better physics,
simplified menus, speed-optimized track layouts and livelier 3D
environments. With more than 40 cars from 16 brands, over 100
challenging tracks, technical and optical tuning plus a huge variety
of licensed accessories and lifestyle products the game is very
authentic and customizable.
Genre Racing
Platform PlayStation2, Xbox, PC
Developer Synetic
o Gene Troopers
In Gene Troopers the player is in the heart of a unique, vibrant and
living universe. The player explores amazing new worlds, develops the
character into a stealth or battle professional, controls supernatural
powers, makes friends with powerful characters and leads them into
battle against the forces of evil. The game's universe is entangled in
the greatest conflict it ever witnessed. A terrifying elite battle
force named Gene Troopers (GT) sets out to mercilessly fulfill its
task: to find, gather and secure life forms. Genetic material is the
new strategic resource. Gene transformation technology changes
suitable individuals into loyal and powerful GT units. The GTs took
away the player's body and daughter, Mareen. But what they couldn't
take away was the player's courage. It is time to fight back!
Genre First Person Shooter
Platform PlayStation2, Xbox, PC
Developer Cauldron
o Knights of the Temple II
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In Knights of the Temple II players will join the ultimate battle of
Paul de Raque, Grand Master of the Order of the Temple and hero of the
first version of the game, against the forces of Hell. Travelling the
lands and kingdoms of 13th century Europe, Paul must unveil the secret
of three mysterious ancient artefacts and fight the demon armies
attacking the world.
Paul has fought many battles in the eternal war between Good and Evil,
but now he faces his greatest challenges yet, evil forces invading the
world, undead beings ravaging the peaceful lands of northern Europe
and a dark menace opening a portal which had closed millennia ago.
Players fight their way through a forgotten Roman city, deadly
dungeons of the Saracen Empire, discover long forgotten islands, ruins
and catacombs on a search for a secret hidden on the ground of an
ancient underwater fortress.
Players test their fighting skills, overcome the hordes of darkness
and discover that victory must be paid with blood, pain and even the
player's very own soul.
Genre Action Adventure
Platform PlayStation2, Xbox, PC
Developer Cauldron
o Xyanide
Xyanide is an advanced 3D version of an old-school shoot-'em-up,
taking place in the year 2715 on Mardar, a lonely isolated planet,
which has been under the influence of a black hole since the beginning
of time.
Aguira, the witch, has been sentenced to death by the Judges of
Mardar. The charges: devastation of worlds and civilizations. The
sentence: disintegration by dumping into the Maelstrom (a.k.a., the
black hole). The player takes the role of Drake, the chosen guard,
whose role is to craft and enforce the execution, but an asteroid hits
the execution craft. The asteroid is made up of Xyanide, a substance
that instantly materializes thoughts, and after the collision, Drake
sees the instant creation of hostile worlds. Aguira tries to use
Xyanide to escape, and Drake knows he has only one option: battle his
way through the goriest worlds of horror and destruction and
encountering mass enemy attack waves.
Genre Shoot-'em-up
Platform Xbox Live
Developer Playlogic Game Factory B.V.
o Age of Pirates
The world of "Age of Pirates" exists on 16 islands and the endless
seas of the Caribbean. The two main characters each have their own
spectacular story. Over 16 types of ships are at the player's
disposal. Features include hiring officers to improve sailing
capabilities and fighters to help boarding and melee encounters. The
players must also fight foreign ships, capture slaves and attack forts
to conquer colonies and develop their own colonies. "Age of Pirates"
embodies the freedom of sailing, trading, fighting, colonization and
the unlimited exploration of the Caribbean.
Genre Role Playing Game/Action Adventure
Platform PC
Developer Akella
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o State of Emergency 2
"State of Emergency 2" takes place 10 years after the original and has
Spanky, Bull and MacNeill again up against the Corporation. This time,
they not only have access to guns but also - for the first time -
helicopters, speedboats, tanks, APCs and new team members.
Genre Action
Platform PS2
Developer DC Studios
We also have six additional games currently in development which are
expected to be released in 2006. They are:
o Xyanide
For the PlayStation2 and PSP, currently under development by Playlogic
Game Factory B.V. The GameBoy Advance version has been developed by
Engine Software.
o StateShift
StateShift is an underground street racing game, which can be played
on the new Sony PlayStation Portable. It takes place in the next
century where the streets are dark and the player drives in a
futuristic and technological world. The game addictively combines
racing, action and strategy. It features advanced extras, such as
offensive and defensive weapon systems. This creates a fun and
absorbing racing experience.
Genre Racing / Action
Platform PlayStation Portable (PSP)
Developer Engine Software
o PRISM
PRISM is a first person shooter game with an exciting blend of stealth
operations and fast action game play. The core PRISM experience
focuses on the unconventional application of new and emerging weapons
and surveillance technologies in the war against terrorism. The
compelling, campaign mode contains scenarios that include attacks on
key US infrastructure such as seaports, airports, museums, shopping
malls and areas along the borders.
The game will take place in the near future with the player becoming
the newest member of a highly secretive homeland defense unit known as
PRISM. PRISM is also an acronym for the Preemptive Reconnaissance and
Identification Security Mainframe, a new computer system that the
government is using to wirelessly hack into video surveillance
equipment across America. When terrorist activities are suspected or
potential targets are identified, players are called into action.
A shorter version of PRISM will be used as a recruitment tool by the
US Army National Guard.
Genre First Person Shooter
Platform PC
Developer Rival Interactive
o Delta
Project Delta is a tactical first-person shooter in which the player
is drawn into an epic story of men against an alien invasion force.
The player will feel for the men and see them grow, developing their
true potential as soldiers and friends, as the player commands,
comforts or threatens them through nerve-wrecking and spectacular
battles set in future earth, alien habitats, and back to the Dark
ages.
34
While investigating a strange, buried structure on a remote island,
the player suddenly is placed in the middle of an invasion by the
Cryzen, a ruthless alien race with fluid-metal bodies. Though the
player fights bravely alongside the local military, but it is only
when a second force, the Dorians, arrives that the tide of battle is
turned. Betrayal mars any celebration, as the player and the other
survivors become prisoners of the Dorians and transported to their
planet.
Escaping with the aid of a local priest, the player becomes
instrumental in unraveling a web of high action intrigue and further
betrayal, in which it becomes increasingly difficult to tell enemies
from allies. When the player finds that the planet he or she is on is
actually Earth, seven hundred years in the future, the player quickly
discovers that the Cryzen and the Dorians both threaten the very
future of humanity.
To save mankind, the player must travel back to the dark ages and in a
final, desperate battle, destroy the alien structure on the island.
Genre Tactical first person shooter
Platform Next Gen Consoles, PC
Developer Playlogic Game Factory
o Wizard of Funk
Wizard of Funk is a game for the Playstation2 with EyeToy cameras
which we believe is much more advanced and compelling than the handful
of games which are currently available for the EyeToy, which has sold
more than 5 million cameras worldwide to date. Most of the currently
available games rely on a combination of mini games, but Wizard of
Funk is a light role playing game (RPG) with a back story, infused
with music, using actual gesture recognition instead of motion
detection without the need for extra peripherals such as gloves of
coloured fingers.
The player becomes a young and clumsy apprentice wizard. As his master
gets wrongfully accused and imprisoned he needs to find out how to
solve this mystery. The player will need to travel through the musical
lands and battle foul monsters and defeat them with musical spells of
all sorts, getting stronger and learning more and more powerful spells
in order to defeat the evil that caused all this.
Genre EyeToy RPG
Platform PlayStation 2/EyeToy
Developer Playlogic Game Factory
o Sparta
In ancient Greece the Spartans were infamously feared warriors. The
battles between mighty ancient Greek tribes were fought with such an
intense power and unknown soldiers became heroes on the battlefield.
Sparta - Ancient Wars will bring this mighty time to new life, where
each player will have the opportunity to bring his own tribe to
health, fame and wealth. We believe that it will be the first real
time strategy game that will deliver new stunning graphics, high level
of detail, complete 3D gameplay, rich economics, no unit limitation, a
physics engine developed solely for the game and many never before
seen features to this genre. The main emphasis is on large-scaled
battles and complex tactical manoeuvres. Furthermore, a new method of
army equipment is represented in the game. Warriors can be equipped
with weapons, shields, put on horses or on chariots and they can be
given special abilities. The player can collect abandoned weapons
after battles or import powerful weapons from other cultures to build
more powerful and different special units. The forces of nature are
very important, because fire, wind and other elements will effect the
whole environment. The economic aspect of the game includes control of
labor force, construction of cities and resources collection. We
believe that Sparta will offer every aspect which real time strategy
gamers like.
35
Genre Real Time Strategy
Platform PC
Developer World Forge
o Captain Blood
A player is supposed to assume the role of the brave and noble pirate
captain, Peter Blood, and follow his intriguing and amazing adventures
in 1685 on the Spanish Main with two game modes - ship at sea and
character on land. Features include subtasks and minigames, use of
various blades and firearms, camera switching between 1st person and
3rd person views. For impressive play one is able to stand on a ship
deck and control cannons and gunnery manually, so the player can
obtain ship upgrades and new fighting techniques.
Genre Action Adventure/Role Playing Game
Platform Xbox360PC
Developer Akella
Product selection and the development process
We select the games to publish based on an analysis of consumer trends and
behavior and the performance of similar titles currently in the market.
Furthermore, besides a commercial analysis and an analysis of the development
team, technical, conceptual, competition and gameplay analyses take place. We
use the combination of these factors as a guideline for the expected sales
potential of each new title.
We select third party developers based on many factors. Initially, we
perform an extensive "due diligence" review of each developer, in which we
examine the capabilities and expertise of the developer's staff, its track
record, budget and expected sales performance. Then, once we approve a
developer, we enter into a definitive agreement, pursuant to which the
production process is governed by a milestones and deliverables schedule. Under
this arrangement, we pay the developers upon the obtaining of different
milestones and delivery of different items to us. Through this milestone
process, we believe we are able to control production time, quality and budget.
Approval by Sony, Microsoft or Nintendo is required before the game can be
published on one of their game consoles. For PC games, no such approval is
required.
Throughout the development of a game, the title is continuously tested on
all possible aspects, such as game play, technical requirements and marketing
materials, including packaging.
After we and Sony, Microsoft or Nintendo approve the final version of the
game, called a Gold Master, the product is sent to a duplicator to produce
finished goods.
We believe the commercial success of a game partly depends on its
marketing. The marketing of our games is usually accomplished through a
co-operation between us, co-publishers and local distributors. Another important
element of marketing the games is public relations and advertising. We believe
consumers base their purchase decision on coverage in the media and word of
mouth. Basing games on known properties, such a movies or prior versions of a
popular game, also enhance the visibility of a game to consumers.
Our Technology
While creating our games, we have developed some very useful technology
tools that we believe other companies in the interactive entertainment software
industry may desire to purchase. Therefore, we are currently considering selling
and/or licensing these tools.
36
Examples of these tools are:
MemAnalyze
MemAnalyze is a multi-platform tool for monitoring an application's memory
behavior. It runs on a PC and communicates with the game console using a network
connection. MemAnalyze tracks the console's memory state in real-time and offers
multiple views on the memory state of the console. Besides instant, real-time
memory debugging, MemAnalyze also offers a powerful recording feature. Visually
represented in a graph, the recording feature allows a user to monitor the
activity of an application's memory behavior. After recording, the memory state
of the console can be played back and debugged off-line.
MudGE
The mud Game Engine, also referred to as mudGE, is a multiplatform game
engine specifically developed for two dimensional and three dimensional games on
current and next generation platforms. Currently working for Windows, Xbox and
PlayStation2, we believe it is one of the very few game engines developed with
each specific platform in mind to get the utmost performance on every platform.
Evolver
Evolver is Playlogic International's in-house version control system. After
evaluation of several third party tools (such as Perforce, SourceSafe,
Alienbrain, Co-Op, AccuRev, Surround, CVS, Subversion, Evolution, VESTA, and
others) we did not find a single tool that was useable by both artists and
developers and we decided to write our own system. We believe Evolver meets
requirements of both artists, developers and testers, and it presents the simple
workflow in a compact user interface. Because of the integration in Windows
Explorer and Visual Studio, it can be used on nearly every computer system.
Logix
Logix, a tool that is currently under development, is a visual, high-level
programming language. It uses a node-based approach with a mixture of techniques
used in tools like Shake, Virtools, Quest3D and Houdini. We believe that Logix
can produce a programming environment that resembles Lego toys. Publishers will
be able to build a game by connecting several building blocks.
Research and Development
In each of 2002 ((euro)52,000/$65,364) and 2004 ((euro)55,000/$75,047), we
received a financial grant from the Dutch government to be used for research and
development (R&D). The grant is called the WBSO and it is a fiscal incentive to
invest in research into and development of technological innovations. It applies
to new products, processes and software that have a direct relationship to an
end product.
Our approach to R&D is systematic. Each of our projects has, in its
development cycle, a research phase. In this phase, we examine the opportunities
and risks of the project and design an approach to exploit new opportunities and
mitigate risks. We define and build a prototype which is intended to prove each
individual technical opportunity and limit the risks.
Our current R&D projects include tool development to improve efficiency and
accuracy during the production phase; research into artificial intelligence and
emotion to revolutionize in game team dynamics and game play immersion and
research into next generation game console hardware, which poses technical
challenges to all game developers in the near future.
Our other research activities focus on technical and scientific research
into simulation and visualization of natural phenomena such as lighting, shadows
and fluids. This research focuses on the laws of physics to generate new
concepts and methodologies for practical application of these phenomena in our
games.
37
Sales and Distribution
Our sales expectations for each game are based mostly upon similar or
competitive products and the success that those products have achieved. We also
work with our distributors to generate realistic unit sales figures and revenues
based upon their experience, and after giving presentations to and consulting
with the retail stores in each of our global territories.
For example, we based our sales expectation for the P.R.I.S.M. game, which
is 1.6 million unit sales across three formats, on two comparative titles,
America's Army from Ubisoft, a PC only title, and Far Cry, a first person
shooter game for PCs. To date, more than 3.3 million units of America's Army
have been manufactured, and players have completed more than 600 million
missions and logged over 60 million hours of playing time. Far Cry, has sold
over 730,000 units. P.R.I.S.M. is similar to both of those games, and we believe
we will sell more units of P.R.I.S.M. than Far Cry, but less than America's
Army. We determined our sales expectation based on this assumption.
Generally, we aim to release our titles simultaneously across a range of
hardware formats, rather than exclusively for one platform. We believe this
allows us to spread the development risk and increase the sales potential, with
only a minimal increase in development time and resources spent.
We seek to increase sales and maximize profit potential of all our games by
reducing the wholesale and recommended retail prices of our products at various
times during the life of a product. Price reductions may occur at anytime in a
product's life cycle, but we expect they will typically occur six to nine months
after a product's initial launch. We also employ various other marketing methods
designed to promote consumer awareness and sales, such as attendance at trade
and consumer shows, and we intend to organize in-store promotions, point of
purchase displays and co-operative advertising.
We use two methods to distribute our products. Under the first distribution
method, our third party pressing plants will deliver fully finished games,
manufactured from the Gold Master which we created, to our third party
distributor partners, and the third party distributor partners then distribute
the games to retail stores. Under this model, we are responsible for all
elements of finalizing and printing the packaging, age rating and certification,
territory specific EAN barcodes and disc replication. We receive income on each
unit sold in the retail stores, based on a royalty report created by the
distributor. We use this model for Alpha Black Zero in Greece and Benelux, and
we expect to use this model for Airborne Troops in France, Italy, Benelux and
Greece and for Cyclone Circus in Benelux.
For our second distribution method, we supply the Gold Master to a
third-party co-publisher who manufactures, finalizes and distributes the
finished games to the retail stores. We receive lower per unit income on retail
sales under this distribution model. We use this model in countries in which we
do not currently have a console publishing license. For example, we use this
distribution process for Alpha Black Zero in the US, UK, France, Italy, Spain
and Russia, and we expect to use it for Airborne Troops in the US.
In both models, we ensure that sufficient inventory quantities of the
titles are stocked by the distributors to provide rapid response to retail
orders.
Seasonality
We expect that a significant percentage of the sales of our games will take
place in the third and fourth quarter of each year due to heightened demand
around Thanksgiving and Christmas. We also believe that there is increased
demand around Easter because many games are given as gifts then. However, we
expect that, over time, seasonality will be less important as consumers are
tending to buy games throughout the year. Also, we may decide not to release new
games during the holiday seasons because of the increased competition in the
market and because we believe that consumers typically buy only one or two games
each over the holidays.
38
Competition
We compete for both licences and game sales with the other international
games publishing houses, including Atari, Electronic Arts, Take Two Interactive,
Activision, THQ and Ubisoft. Many of our competitors have greater financial,
technical and personnel resources than we do and are able to carry larger
inventories and make higher offers to licensors and developers for commercially
desirable properties than we can. Competition in the entertainment software
industry is based on product quality and features, brand name recognition,
access to distribution channels, effectiveness of marketing and price. Further,
many of our competitors, including the ones mentioned above, have the financial
resources to withstand significant price competition and to implement extensive
advertising and marketing campaigns.
Retailers have limited shelf space and promotional resources, and
competition is intense among and increasing number of games titles for adequate
levels of shelf space and promotional support. We expect competition for retail
shelf space to continue to increase, which may require us to increase marketing
expenditures to maintain our current levels of sales.
Competitors with more extensive ranges and popular titles may have greater
bargaining power with retailers. Accordingly, we may not be able to achieve the
levels of support or shelf space that such competitors receive. Similarly, as
competition for popular properties increase, our cost of acquiring licenses for
such properties is also likely to increase, possibly resulting in reduced
margins. Prolonged price competition, increased licensing costs or reduced
margins would cause our profits to decrease.
Intellectual Property
Like other entertainment companies, our business is based on the creation,
acquisition, exploitation and protection of intellectual property. Each of our
products embodies a number of separately protected intellectual properties. Our
products are copyrighted as software, our product names are trademarks of ours
and our products may contain voices and likenesses of third parties or the
musical compositions and performances of third parties. Our products may also
contain other content licensed from third parties, such as trademarks, fictional
characters, storylines and software code.
Our products are susceptible to unauthorized copying. Our primary
protection against unauthorized use, duplication and distribution of our
products is copyright and trademark. We typically own the copyright to the
software code as well as the brand or title name trademark under which our
products are marketed. We register our copyrights worldwide.
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We own all of the trademark and copyrights, through purchase, of the
following games
Games Platform Area
1. a. Alpha Black Zero PC Worldwide
2. Airborne Troops PS2 Worldwide
PC Worldwide
3. StateShift (PSP Racing) PSP Worldwide
4. a. Xyanide Xbox live Worldwide
PSP Worldwide
PS2 Worldwide
b. Xyanide Advance Game Boy Advance Worldwide
c. Xyanide Mobile Mobile Worldwide
5. Cyclone Circus PS2 Worldwide
6. World Racing 2 PS2 Worldwide
Xbox Worldwide
PC Worldwide
7. Knights of the Temple 2 PS2 Worldwide
Xbox Worldwide
PC Worldwide
8. Gene Troopers PS2 Worldwide
Xbox Live Worldwide
PC Worldwide
9. Age of Pirates PC Worldwide
10. State of Emergency2 PC Worldwide
11. Captain Blood Xbox360PC Worldwide
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Employees
As of September 15, 2005, we had 54 full-time employees and no part-time
employees. Substantially all of our employees have executed employment
agreements with us.
Legal Proceedings
None
Properties
We do not own any real property. Currently, we lease properties in Breda
and Amsterdam, the Netherlands.
Our offices located at Hambroeklaan 1 in Breda are leased by our
subsidiary, Playlogic Game Factory, from Neglinge BV pursuant to a lease
agreement which expires on October 1, 2013. Playlogic Game Factory has an option
to extend the lease agreement. If this option is exercised, the lease agreement
will expire on October 1, 2018. The lease property spans 1,600 square meters and
may only be used as office space. At signing of the lease agreement, the lessor
committed itself to invest $409,350 ((euro)300,000) in the lease property which
amount shall be repaid by Playlogic Game Factory B.V. in ten years. Payment is
due on a quarterly basis and amounts to $40,935 ((euro)30,000) per year.
Our offices located at Hoge Mosten 16-24 in Breda are leased by Playlogic
Game Factory from Kantoren Fonds Nederland B.V. pursuant to a lease agreement
which expires on February 28, 2007. The lease property spans 451 square meters
and may only be used as office space. Payment is due on a yearly basis and
amounts to $85,327 ((euro)62,534) per year. As Playlogic Game Factory is no
longer using this location, it decided to terminate the lease agreement as of
February 28, 2007, by an official notice to the landlord. The landlord has
granted us permission to sublease this property, but we have not found an
interested party to date. We have recognized an obligation for the payments
until February 28, 2007.
We lease our offices located at Concertgebouwplein 13 in Amsterdam from Mr.
Prof. Dr. D. Valerio pursuant to a lease agreement which expires on March 31,
2007. We have an option to extend the lease agreement. If this option is
exercised, the lease agreement will expire on March 31, 2012. The lease property
spans 260 square meters and may only be used as office space. Payment is due on
a quarterly basis and amounts to $81,363 ((euro)59,628.52) per year.
On June 1, 2005, we entered into a lease for new offices at Amstelveenseweg
639-710 in Amstelveen, and we plan to move our principal executive officers
there in October 2005. The leased premises spans 1,500 square meters. The lease
amounts to $272.90 ((euro)200) per square meter for rent and $34 ((euro)25) per
square meter for service costs. Payment starts mid July 2006 for 750 square
meters and by January 1, 2007, we will start paying for the remaining 750 square
meters. Payment of the service costs for 750 square meter segment is due
immediately upon the start date of the lease agreement (June 1, 2005).
41
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our directors and executive officers are as follows:
Name Age Position
Willem M. Smit 58 Director and Chief Executive Officer
Willy J. Simon 53 Chairman of the Board of Directors
Erik L.A. van Emden 56 Director
Rogier W. Smit 30 Executive Vice President
Stefan Layer 34 Chief Operating Officer
Leo van de Voort 47 Chief Financial Officer
Dominique Morel 32 Chief Technology Officer
Upon the closing of the share exchange with Playlogic International's
shareholders, Timothy B. Halter, Jr., our sole director, resigned and was
replaced by Willem M. Smit, the Chief Executive Officer of Playlogic
International, and our executive officers were replaced by the Playlogic
International executive officers. On July 30, 2005, upon the expiration of the
10-day period of the filing and/or mailing of an Information Statement pursuant
to Rule 14f-1 under the Exchange Act, the board of directors was increased to
five persons and the persons mentioned below became our directors. Our board of
directors currently has two vacancies.
The principal occupations and brief summary of the background of each
director and executive officer are as follows:
Willem M. Smit has been our Chief Executive Officer since 2001. In 1976, he
founded Datex Software B.V., where he grew the company over nine years from 20
to 900 employees. Datex went public on 1985 and it merged with Getronics in
1987. Since that time, Mr. Smit has been a private investor in various
companies. He is the father of Rogier W. Smit, our Executive Vice President.
Willy J. Simon has been on Playlogic International N.V.'s Supervisory Board
(which is similar to the board of directors of a US company) since 2003. Since
2002 he has been the Director of IMC Holding and Chairman of Bank Oyens & van
Eeghen. From 2001 to 2002, he was an Advisor to the Board of NIB Capital. From
1997-2001, he was a Board member of the Fortis Bank. He also currently serves as
a Non-Executive Director of Redi & Partners, a hedge fund.
Erik L.A. van Emden has been on Playlogic International N.V.'s Supervisory
Board since December 2003. Since 1993 he has been an attorney with Bosselaar &
Strengers. He also currently serves as a Director of several private Dutch
companies.
Rogier W. Smit co-founded Playlogic International N.V. and Playlogic Game
Factory B.V. in 2001. He has worked in various management positions at those two
companies since then. He has been our Executive Vice President since 2002. He is
the son of Willem M. Smit, our Chief Executive Officer.
Stefan Layer has been our Chief Operating Officer since April 2005. From
1999 until joining us, Mr. Layer was the Vice President of Licensing Europe for
Atari Deutschland GmbH where he was responsible for the development of new
markets and European marketing strategy, expansion into Eastern Europe and the
acquisition of third party products.
Leo van de Voort has been our Chief Financial Officer since April 2005.
From 2004 until April 2005 he was the Chief Financial Officer of RDM, Wilton
Feijenoord Holding. From 2001 to 2004, he was Chief Financial officer of Flex
Group Nederland and from 2000 to 2001 he was Director of Corporate Finance of
Kempen & Co.
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Dominique Morel has joined our company as Chief Technology Officer. He has
been working with Atari Europe as Project Evaluation + Business Development
Manager.
EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation for the
fiscal years ended December 31, 2002, 2003 and 2004 received by the individual
who served as our Chief Executive Officer during 2004 and our other most highly
compensated executive officers whose total annual salary and bonus for fiscal
year 2004 exceeded $100,000 (the "Named Officers").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
Awards
Name and Principal Position as of December
31, 2004 Year Salary (euro)/($) Bonus($) Options(#)
Willem M. Smit 2004 (euro) 0 0 0
- ------------------------------------------------- 2003 (euro) 0 0 0
Chief Executive Officer 2002 (euro) 0 0 0
Sloterhof Investments N.V. (of which Mr. Willem 2004 (euro)100,000/$147,096 0 0
M. Smit is the beneficial owner) 2003 (euro)100,000/$135,458 0 0
Managing Director 2002 (euro) 50,000/$63,873 0 0
Rogier W. Smit 2004 (euro)100,000/$147,096 0 0
Executive Vice President 2003 (euro)100,000/$135,458 0 0
2002 (euro) 97,200/$124,170 0 0
Willem M. Smit, our Chief Executive Officer, will not receive any salary
until there are positive cash flows from operations. Currently, we only pay Mr.
Smit for his business related expenses, and we provide him a company car.
Employment Agreements
Effective as from February 1, 2002 we entered into an employment agreement
with Rogier M. Smit, to be executive vice president and managing director of
Playlogic Game Factory B.V. The agreement is for an indefinite period, but can
be terminated by us upon three months notice and one additional month per year
of service or by Mr. Rogier Smit upon three months notice. Mr. Smit's starting
salary was $9,427 ((euro) 7,500) per month. On July 1, 2005, his base salary
increased to $15,009 ((euro)11,000) per month. In addition to his salary, Mr.
Smit is entitled to a company car. Pursuant to the agreement, Mr. Smit is also
subject to confidentiality, non-competition and invention assignment
requirements.
In January 2005, we entered into an employment agreement with Stefan Layer,
our Chief Operating Officer and Vice President Marketing and Sales, effective as
from April 1, 2005. Pursuant to the terms of the agreement, Mr. Layer is
responsible for our marketing, sales and licensing. The agreement is for an
indefinite period, but can be terminated by us upon six months notice or by Mr.
Layer upon three months notice. Mr. Layer's starting salary is $15,009
((euro)11,000) per month. In addition to his salary, Mr. Layer is entitled to an
annual bonus equal to 1% of our net profit of the net consolidated year figures
after taxes. However, during the first two years of his employment (from April
2005 to April 2006 and from April 2006 to April 2007) the amount of profit
sharing to which Mr. Layer is entitled will be no less than $7,641 ((euro)5,600)
per month. Under this agreement, Mr. Layer received 500,000 ordinary shares of
Playlogic International at a nominal value of $0.068 ((euro)0.05) per share
which were exchanged for 364,556 shares of Playlogic Entertainment common stock.
Such shares will be subject to a two year lock up period. After the lock up
period Mr. Layer will be permitted to sell up to 50% of his shares each year. If
Mr. Layer terminates the agreement or is dismissed, the shares he still owns
must be sold back to us at nominal value. Pursuant to the agreement, Mr. Layer
is also subject to confidentiality, non-competition and invention assignment
requirements.
43
In April 2005, we entered into an employment agreement with Leo van de
Voort, our Chief Financial Officer, effective as from May 1, 2005. The agreement
is for an indefinite period, but can be terminated by us upon twelve months
notice or by Mr. Van de Voort upon six months notice. Mr. Van de Voort's
starting salary will be $15,055 ((euro)11,034) per month. Under this agreement,
Mr. Van de Voort received 200,000 ordinary shares of Playlogic International
N.V. at a nominal value of $0.068 ((euro)0.05) per share which were exchanged
for 145,823 shares of Playlogic Entertainment common stock. Such shares will be
subject to a two year lock up period. After the lock up period, Mr. Van de Voort
will be permitted to sell up to 25% of his shares each year. If Mr. Van de Voort
terminates the agreement or is dismissed, the shares he still owns must be sold
back to us at nominal value. Pursuant to the agreement, Mr. Van de Voort is also
subject to confidentiality, non-competition and invention assignment
requirements.
In August 2005, we entered an employment contract with Dominique Morel as
Chief Technology Officer. The agreement is for an indefinite period but can be
terminated by us upon six months notice or by Mr. Morel upon 3 months notice.
Mr. Morel's starting salary will be $14,008.50 ((euro)11,000) per month. Under
this agreement, subject to the approval of our Board of Directors, Mr. Morel
shall be entitled to participate in a long term incentive plan of Playlogic in
force from time to time. Options in the first year consist of a minimum of
100,000 new shares of which the price should be discussed with our tax lawyers
and Supervisory Board. Pursuant to the agreement, Mr. Morel is also subject to
confidentiality, non-competition and invention assignment requirements.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
We do not have a stock option plan or stock appreciation rights plan. We
intend to implement a stock option plan, which will require the prior approval
of at least a majority of our shareholders in 2005.
Directors' Compensation
In 2004, we paid Mr. van Emden $34,113 and Mr. Simon $40,935 for their
service as members of Playlogic International's supervisory board. We expect to
pay the members of our board of directors similar amounts in 2005 and the
future.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a loan agreement dated April 6, 2004 between Playlogic
International and Sloterhof Investments N.V., Sloterhof agreed to loan
$6,481,375 ((euro)4,750,000) to Playlogic International. Our CEO, Willem M. Smit
is the beneficial owner of Sloterhof. We paid Sloterhof $1,058,245
((euro)775,555) as interest on this loan. This loan has subsequently been
redeemed and is no longer outstanding.
In 2004, Sloterhof Investments N.V. and Castilla Investments B.V. were
granted a stock option right for in total 8,609,189 ordinary shares with an
exercise price at par value. The intrinsic value of this option right was
recognized as an expense in 2004.
Sloterhof agreed to reimburse us for approximately (euro)900,000 for
expenses incurred in connection with the share exchange transaction. We are not
obligated to issue Sloterhof any equity in exchange for this reimbursement, and
we are not obligated to repay any amounts to Sloterhof as a result of this
reimbursement.
44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding our outstanding shares
of each class of equity securities beneficially owned as of September 15, 2005
by: (1) each person who is known to us to own beneficially more than five
percent of each class of the outstanding equity securities; (2) each of our
directors; (3) all officers named in the Summary Compensation Table above; and
(4) all directors and executive officers as a group. The information relating to
share ownership is based upon information furnished to us. The number of shares
of common stock shown includes shares subject to warrants or options exercisable
within 60 days after September 15, 2005 as if such shares were outstanding on
September 15, 2005 and assumes that no other person has exercised any
outstanding warrants or options. We believe that the beneficial owners of each
class of equity securities, based on information supplied by such owners, have
sole investment and voting power with respect to the shares of each class of
equity securities shown as being beneficially owned by them, except as otherwise
set forth in the footnotes to the table.
Number
Subject to
Number of Shares Options and Percentage of
of Common Stock Warrants Common Stock
Name and Address (1) Exercisable
Within 60 days
- ----------------------------------------------------------------------------------------
0
Sloterhof Investments N.V. (2) 7,303,357 0 31.72%
Kaya Richard J.
Beaujon Z/N
Curacao, Netherlands Antilles
Castilla Investments B.V. (3) 1,777,496 0 7.72%
Concertgebouwplein 13
1071 LL Amsterdam
The Netherlands
Wind Worth Luxembourg Holding S.A.H (4) 2,138,874 0 9.29%
19 Rue de l'Industrie
8069 Betrange
Luxembourg
Sophia International Holding S.A.H. (5) 1,611,500 0 7.0%
3 Rue de Bains
Luxembourg L-2016
Luxembourg
Willem Smit (6) 7,303,357 0 31.72%
Rogier Smit (7) 1,777,496 0 7.72%
Stefan Layer 364,556 0 1.58%
Leo van de Voort 145,823 0 *
Erik L.A. van Emden 0 0 *
Willy J. Simon 87,494 0 *
All directors and executive officers as
a group (6 persons) ....................
9,678,726 0 41.08%
- ------------------------------------
*Less than 1%
45
(1) Unless otherwise indicated, the address is our address at Concertgebouwplein
13, 1071 LL Amsterdam, The Netherlands.
(2) Willem M. Smit exercises voting and investment control over the shares held
by this entity and, therefore, may be deemed to beneficially own the shares held
by such entity.
(3) Rogier W. Smit exercises voting and investment control over the shares held
by this entity and, therefore, may be deemed to beneficially own the shares held
by such entity.
(4) Luc Voet exercises voting and investment control over the shares of this
entity and, therefore, may be deemed to beneficially own the shares held by such
entity.
(5) Maria Keersmaekers exercises voting and investment control over the shares
of this entity and, therefore, may be deemed to beneficially own the shares held
by such entity.
(6) Includes shares held by Sloterhof Investments N.V.
(7) Includes shares held by Castilla Investments B.V.
DESCRIPTION OF SECURITIES
The following statements are qualified in their entirety by reference to
the detailed provisions of Playlogic Entertainment's Certificate of
Incorporation and Bylaws. The shares registered pursuant to the registration
statement of which this prospectus is a part are shares of common stock, all of
the same class and entitled to the same rights and privileges as all other
shares of common stock.
Common Stock
We are presently authorized to issue 10,000,000 shares of $0.001 par value
common stock. The holders of our common stock are entitled to equal dividends
and distributions, per share, with respect to the common stock when, as and if
declared by the Board of Directors from funds legally available therefor. No
holder of any shares of our common stock has a pre-emptive right to subscribe
for any of our securities nor are any common shares subject to redemption or
convertible into other securities. Upon our liquidation, dissolution or winding
up, and after payment of creditors and preferred stockholders, if any, the
assets will be divided pro-rata on a share-for-share basis among the holders of
the shares of common stock. All shares of common stock now outstanding are fully
paid, validly issued and non-assessable. Each share of common stock is entitled
to one vote with respect to the election of any director or any other matter
upon which shareholders are required or permitted to vote. Holders of our common
stock do not have cumulative voting rights, so that the holders of more than 50%
of the combined shares voting for the election of directors may elect all of the
directors, if they choose to do so and, in that event, the holders of the
remaining shares will not be able to elect any members to the Board of
Directors.
Preferred Stock
We are also presently authorized to issue 2,000,000 shares of $0.001 par
value preferred stock. Under our Certificate of Incorporation, as amended, the
Board of Directors has the power, without further action by the holders of the
common stock, to designate the relative rights and preferences of the preferred
stock, and issue the preferred stock in such one or more series as designated by
the Board of Directors. The designation of rights and preferences could include
preferences as to liquidation, redemption and conversion rights, voting rights,
dividends or other preferences, any of which may be dilutive of the interest of
the holders of the common stock or the preferred stock of any other series. The
issuance of preferred stock may have the effect of delaying or preventing a
change in control without further shareholder action and may adversely effect
the rights and powers, including voting rights, of the holders of common stock.
In certain circumstances, the issuance of preferred stock could depress the
market price of the common stock. The Board of Directors effects a designation
of each series of preferred stock by filing with the Delaware Secretary of State
a Certificate of Designation defining the rights and preferences of each such
series. Documents so filed are matters of public record and may be examined in
accordance with procedures of the Delaware Secretary of State, or copies thereof
may be obtained from us.
46
Options and Warrants
We do not presently have any options or warrants authorized or any
securities that may be convertible into common stock. However, our Board of
Directors may later determine to authorized options and warrants for our
company.
Transfer Agent
The transfer agent for our common stock will be Securities Transfer
Corporation. Its address and telephone number are 2591 Dallas Parkway, Suite 102
Frisco, Texas 75034, (469) 633-0100.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock by the selling stockholders (1) as of September
15, 2005 and (2) as adjusted to reflect the sale by selling stockholders of
shares offered by this prospectus. Except as set forth in the footnotes to the
table, none of the selling stockholders have held any position, office or
material relationship with Playlogic Entertainment or Playlogic International or
any of its affiliates within the past three years. Except as set forth in the
footnotes to the table, each of the selling stockholders received their shares
of Playlogic Entertainment in the share exchange transaction between Playlogic
Entertainment, Playlogic International and the shareholders of Playlogic
International in exchange for shares of Playlogic International on June 30,
2005. No selling shareholder is an affiliate of a registered broker-dealer.
Number of
Shares Number of Percentage
Beneficially shares beneficial
Owned owned Ownership
Before Shares Offered after the after
Holder Offering in Offering offering Offering
Jan Bos 656,201 625,381 30,920 *
BvanB, LLC (1) 158,582 151,110 7,742 *
Wihelm Peter Deegen 826,449 787,507 38,943 *
George L. Diamond (2) 80,000 44,444 35,556 *
DVW Holding S.A.H (3) 601,882 573,522 28,361 *
Kevin B. Halter, Jr. (4) 80,000 44,444 35,556 *
Halter Financial Group, Inc. (5) 288,886 116,048 172,838 *
Johannes Kluijtmans (6) 162,100 162,100 0 *
River Green Capital LLC(7) 269,258 149,588 119,670 *
Sophia International Holding
S.A.H. (8) 1,611,501 1,535,566 75,935 *
Dawn Michelle Titus (9) 15,000 8,333 6,667 *
Wind Worth Luxembourg Holding
S.A.H (10) 2,138,874 2,038,089 100,785 *
* Less than 1.0%
- -----------------------------------------------------------------------------------
47
(1) Gijs van Thiel and Marc der Kinderen exercise voting and investment control
over the shares held by this selling stockholder and, therefore, may be deemed
to beneficially own the shares held by such entity. Mr. van Thiel and Mr. der
Kinderen are members of 747 Capital LLC which provides advisory services to
Playlogic International.
(2) Mr. Diamond served as outside legal counsel for Playlogic Entertainment
prior to the share exchange transaction between Playlogic Entertainment,
Playlogic International and the shareholders of Playlogic International. Mr.
Diamond purchased these shares from Halter Financial Group on May 9, 2005 for
$0.43 per share.
(3) Veronique De Meester exercises voting and investment control over the shares
held by this selling stockholder and, therefore, may be deemed to beneficially
own the shares held by such entity.
(4) Kevin B. Halter, Jr. is the brother of Timothy Halter, who, prior to the
share exchange transaction between Playlogic Entertainment, Playlogic
International and the shareholders of Playlogic International on June 30, 2005,
was President and Chief Executive Officer of Playlogic Entertainment. Kevin B.
Halter, Jr. is the president of Securities Transfer Corporation, the transfer
agent for Playlogic Entertainment. Mr. Halter purchased these shares from Halter
Financial Group on May 9, 2005 for $0.43 per share.
(5) Timothy Halter exercises voting and investment control over the shares held
by this selling stockholder, and, therefore, may be deemed to beneficially own
the shares held by such entity. Prior to the share exchange transaction between
Playlogic Entertainment, Playlogic International and the shareholders of
Playlogic International on June 30, 2005, Timothy Halter was President and Chief
Executive Officer of Playlogic Entertainment. Halter Financial purchased these
shares on December 15, 2004 from Edwin McGusty, who was president and sole
director of Playlogic Entertainment at the time, for approximately $0.04 per
share.
(6) Mr. Kluijtmans purchased these shares from Playlogic Entertainment on June
29, 2005 for $3.75 per share.
(7) Marat Rosenberg exercises voting and investment control over the shares held
by this selling stockholder and, therefore, may be deemed to beneficially own
the shares held by such entity. Mr. Rosenberg is a managing director of Halter
Financial Group, Inc. River Green Capital purchased these shares from Halter
Financial Group on May 9, 2005 for $0.43 per share.
(8) Maria Keersmaekers exercises voting and investment control over the shares
held by this selling stockholder and, therefore, may be deemed to beneficially
own the shares held by such entity.
(9) Ms. Titus is an employee of Halter Financial Group, Inc. Ms. Titus purchased
these shares from Halter Financial Group on May 9, 2005 for $0.43 per share.
(10) Luc Voet, as director of this selling stockholder exercises voting and
investment control over the shares held by this selling stockholder and,
therefore, may be deemed to beneficially own the shares held by such entity.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their
shares of common stock on the OTC Bulletin Board, market or trading
facility on which the shares are traded or in private transactions. These
sales may be at fixed or negotiated prices. The selling stockholders may
use any one or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
48
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for
other broker-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any
broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do not
expect these commissions and discounts to exceed what is customary in the
types of transactions involved.
The selling stockholders may from time to time pledge or grant a
security interest in some or all of the shares of common stock owned by
them and, if they default in the performance of their secured obligations,
the pledge or secured parties may offer and sell the shares of common stock
from time to time under this prospectus, or under an amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the
Securities Act amending the list of selling stockholders to include the
pledgee, transferee or other successors in interest as selling stockholders
under this prospectus.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The selling
stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute the
common stock.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
CHANGE IN CERTIFYING ACCOUNTANT
On June 30, 2005, upon closing of the share exchange transaction, S.W. Hatfield
("SWHCPA") ceased being Playlogic Entertainment's Registered Independent
Certified Public Accounting Firm.
The Report of Registered Independent Certified Public Accounting Firm issued by
SWHCPA for the year ended December 31, 2004 did not contain an adverse opinion
or a disclaimer of opinion or was qualified or modified as to uncertainty, audit
scope or accounting principles, except for a going concern opinion expressing
substantial doubt about the ability of Playlogic Entertainment to continue as a
going concern.
During Playlogic Entertainment's most recent fiscal year (ended December 31,
2004) and from January 1, 2005 to the date of this prospectus, there were no
disagreements with SWHCPA on any matter of accounting principles or practices,
financial disclosure, or auditing scope or procedure, except that SWHCPA's
opinion expressed substantial doubt with respect to Playlogic Entertainment's
ability to continue as a going concern for both fiscal years. Further, there
were no reportable events, as described in Item 304(a)(1)(iv)(B) of Regulation
S-B, during Playlogic Entertainment's most recent fiscal year (ended December
31, 2004) and from January 1, 2005 to the date of this prospectus.
49
SWHCPA has furnished a letter addressed to the SEC stating whether or not it
agreed with the above statements. A copy of such letter, dated June 30, 2005, is
attached as an exhibit to the Form 8-K filed by Playlogic Entertainment on July
1, 2005.
BDO CampsObers has acted as the independent accountants for Playlogic
International N.V. since its formation, and is currently Playlogic International
N.V.'s independent accountants. During the two most recent fiscal years and to
June 30, 2005, Playlogic Entertainment had not consulted with BDO CampsObers
regarding either (I) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on Playlogic Entertainment's financial statements, and either
a written report was provided to Playlogic Entertainment or oral advice was
provided that BDO CampsObers concluded was an important factor considered by
Playlogic Entertainment in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was the subject of a
disagreement and required to be reported under Item 304(a)(1)(iv) of Regulation
S-B and the related instructions thereto.
On August 10, 2005, Playlogic Entertainment re-engaged SWHCPA as Registered
Independent Certified Public Accounting Firm.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of us
pursuant to the above provisions, or otherwise, we have been advised that in the
opinion of the Securities Exchange Commission such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for us by
Heller Ehrman LLP New York, NY, counsel to us in connection with the offering.
EXPERTS
The financial statements of Playlogic International N.V. included in the
Prospectus and in the Registration Statement have been audited by BDO CampsObers
Accountants, independent registered public accounting firm, to the extent and
for the periods set forth in their report (which contains an explanatory
paragraph regarding the company's ability to continue as a going concern)
appearing elsewhere herein and in the Registration Statement, and are included
in reliance on such report, given the authority of said firm as experts in
auditing and accounting.
The financial statements of Donar Enterprises, Inc. included in the
Prospectus and in the Registration Statement have been audited by S.W. Hatfield
CPA, and Mantyla McReynolds, LLC independent registered public accounting firms,
to the extent and for the periods set forth in their reports (which contain an
explanatory paragraph regarding the company's ability to continue as a going
concern) appearing elsewhere herein and in the Registration Statement, and are
included in reliance on such report, given the authority of said firms as
experts in auditing and accounting
50
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly, and current reports, proxy statements and other
documents with the Securities and Exchange Commission. You may read and copy any
document we file at the SEC's public reference room at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington D.C. 20549. You should call
1-800-SEC-0330 for more information on the public reference room. The SEC
maintains an internet site at http://www.sec.gov where certain information
regarding issuers (including Playlogic Entertainment, Inc.) may be found.
This prospectus is part of a registration statement that we filed with the
SEC (Registration No. 333-126721). The registration statement contains more
information than this prospectus regarding Playlogic Entertainment, Inc. and its
common stock, including certain exhibits and schedules. You can obtain a copy of
the registration statement from the SEC at the address listed above or from its
internet site.
51
Playlogic Entertainment, Inc.
INDEX TO FINANCIAL STATEMENTS
Page
Audited Playlogic International N.V. - For the Year Ended December 31, 2004
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as per December 31, 2004 F-3
Consolidated Profit and Loss Account 2004 F-5
Consolidated Cash Flow Statement 2004 F-7
Consolidated Statement of Changes in Stockholders' Deficit F-8
Notes to Consolidated Financial Statements F-9
Unaudited Playlogic Entertainment, Inc. - For the Six Months Ended June 30, 2005
Consolidated Balance Sheets as per June 30, 2005 F-26
Consolidated Profit and Loss Account Six Months and Three Months Ended June 30, 2005 F-27
Consolidated Cash Flow Statement Six Months Ended June 30, 2005 F-28
Consolidated Statement of Changes in Stockholders' Deficit F-26
Notes to Consolidated Financial Statements F-29
Audited Donar Enterprises, Inc. - For the Years Ended December 31, 2003 and December 31, 2004
Report of Independent Registered Public Accounting Firm
S. W. Hatfield, CPA F-37
Mantyla McReynolds, LLC F-38
Balance Sheets
as of December 31, 2004 and 2003 F-39
Statements of Operations and Comprehensive Loss
for the years ended December 31, 2004 and 2003 and
for the period from May 25, 2001 (date of inception)
through December 31, 2004 F-40
Statement of Changes in Shareholders' Equity (Deficit)
for the period from May 25, 2001(date of inception)
through December 31, 2004 F-41
Statements of Cash Flows
for the years ended December 31, 2004 and 2003 and
for the period from May 25, 2001 (date of inception)
through December 31, 2004 F-42
Notes to Financial Statements F-43
F-1
Report of the Independent Registered Public Accounting firm
To the board of directors and shareholders of Playlogic International N.V.
We have audited the accompanying consolidated balance sheets of Playlogic
International N.V., Amsterdam, and its subsidiaries ("the company") as of
December 31, 2004 and December 31, 2003, and the related consolidated statements
of operations, cash flows and changes in stockholders' deficit for each of the
years in the two-year period ended December 31, 2004. These consolidated
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statements
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Playlogic
International N.V., Amsterdam, and its subsidiaries as of December 31, 2004 and
December 31, 2003 and the results of their operations, their cash flows and
their changes in stockholders' deficit for each of the years in the two-year
period ended December 31, 2004, in accordance with United States generally
accepted accounting principles.
The consolidated financial statements referred to above have been prepared
assuming that the company will continue as a going concern. As discussed in the
note to the consolidated financial statements named "Financial position and
continuity", the company has experienced losses from operations, and has a
working capital deficiency and accumulated deficit that raised substantial doubt
at year end 2004 about its ability to continue as a going concern. However, in
2005, all loans granted by stockholders are redeemed. The redemption will be
used as payment on shares to be issued. By doing so, the company will enter the
reverse merger without any material loans. Further new stock has been issued.
Nevertheless new capital has to be raised. Management's plans in regard to these
matters are also described in the note referred to above. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Amstelveen, The Netherlands, 13th July 2005
BDO CampsObers Accountants
/s/ O. van Agthoven RA /s/ H. Kroeze RA
_______________ _____________
O. van Agthoven RA H. Kroeze RA
F-2
Consolidated balance sheet as per December 31, 2004
Playlogic International N.V.
Preliminary Note
The financial statements of Playlogic International N.V. have been prepared in
Euro. The Euro to dollar exchange rate on December 31, 2004 was approximately
1.3645, and the Euro per dollar exchange rate for December 31, 2003 was
approximately 1.2570. Note 33 sets unaudited pro forma financial information as
if the share exchange transaction with Donar Enterprises, Inc. had occurred on
December 31, 2004.
CONSOLIDATED BALANCE SHEETS December 31, December 31,
(in EUR) 2004 2003
---------------------- ----------------------
ASSETS
Current assets:
Cash (euro) 16,277 (euro) 65,005
Accounts receivable, net
- 9,334
Software development 860,049 393,557
Prepaid royalties
- -
Loan to associated companies 65,000
-
Prepaid expenses and other current assets 199,794 147,771
Deferred tax asset
- -
---------------------- ----------------------
Total current assets 1,141,120 615,667
Fixed assets, net 528,357 491,461
Goodwill, net 11,250
-
---------------------- ----------------------
TOTAL ASSETS (euro) 1,669,477 (euro) 1,118,378
F-3
Playlogic International N.V.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT December 31, December 31,
(in EUR) 2004 2003
--------------------------------------------------
Current liabilities:
Accounts payable (euro) 2,334,377 (euro) 816,596
Bank overdraft 683,278
-
Short term loans from third parties 156,000
-
Accrued expenses:
Personnel expenses 427,921 241,190
Financing software development 435,000
Auditors and advisors 165,000 8,000
Management fee 150,000
-
Other 170,883 206,526
Loan from stockholder 5,563,622 4,995,148
Wage tax and social securities payable 101,665 596,502
---------------------- -----------------------
---------------------- -----------------------
---------------------- -----------------------
Total current liabilities 10,037,746 7,013,962
Long-term liabilities 240,000 262,500
Total liabilities 10,277,746 7,276,462
Stockholders' Deficit:
Ordinary Shares, par value EUR 0.05 per share; 640,177 319,175
30.000.000 shares authorized; 12.083.537 and
6.383.497 issued and outstanding at
31 December 2004 and 31 December 2003
Respectively
Priority shares, par value EUR 0.05 per share
3 shares issued at 31 December 2004 and
31 December 2003 respectively
- -
Additional paid-in capital 9,408,138 1,711,638
Subscribed capital 5,725,555
-
Accumulated deficit (24,382,139) (8,188,897)
---------------------- -----------------------
Total stockholders' Deficit (8,608,269) (6,158,084)
---------------------- -----------------------
TOTAL LIABILITIES, AND
STOCKHOLDERS' DEFICIT (euro) 1,669,477 (euro) 1,118,378
F-4
Consolidated Profit and Loss account 2004
Playlogic International N.V. Year Ended December 31,
--------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS 2004 2003
- ------------------------------------------------------ ------------------------------ ----------------------
Net sales (euro) 87,931 (euro)-
Product costs 28,836 -
------------------------------ ----------------------
Gross profit 59,095 -
Operating expenses:
Selling and marketing 464,382 361,738
General and administrative 9,841,126 * 1,933,362
2004 includes an one time expense of (euro)7,200,000 for
granted options)
Research and development 3,638,733 3,285,841
Impairment goodwill 11,250 3,750
Depreciation 289,765 367,017
------------------------------ ----------------------
Total operating expenses 14,245,256 5,951,708
------------------------------ ----------------------
Loss from operations (14,186,161) (5,951,708)
Interest expense (2,007,080) (140,206)
------------------------------ ----------------------
Income before income taxes (16,193,241) (6,091,914)
Benefit from income taxes - -
------------------------------ ----------------------
Net loss (euro) (16,193,241) (euro) (6,091,914)
------------------------------ ----------------------
F-5
Playlogic International N.V. Year Ended December 31,
----------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS 2004 2003
- ------------------------------------------------------ ----------------------------------------------------------
Basic
Net loss (euro) (16,193,241) (euro) (6,091,914)
Priority shares - -
Net loss available to ordinary stockholder (euro) (16,193,241) (euro) (6,091,914)
Diluted
Net loss (euro) (16,193,241) (euro) (6,091,914)
Priority shares - -
Net loss available to ordinary stockholder (euro) (16,193,241) (euro) (6,091,914)
Net loss per share:
Basic (euro) (2,13) (euro) (0,96)
Diluted (euro) (1,06) (euro) (0,96)
Number of shares used in
computation:
Basic 7,614,160 6,330,125
Diluted 15,342,352 6,330,125
F-6
Consolidated Cash Flow Statement 2004
Playlogic International N.V.
CONSOLIDATED CASH FLOW STATEMENT December 31, December 31,
2004 2003
Cash Flows from Operating activities ------------------------- ----------------------
------------------------- ----------------------
Net loss (euro) (16,193,241) (euro) (6,091,914)
Adjustments to reconcile net loss
to net cash provided by operating activities
Add back depreciation 289,765 367,017
Add back impairment goodwill 11,250 3,750
Add back interest accrued into loan from stock holder 1,433,637 141,230
Add back one time expense for granted options 7,200,000 -
Increase/decrease Software development (466,492) (393,557)
Increase/decrease Accounts receivable 9,334 (9,334)
Increase/decrease prepaid royalties (65,000) -
Increase/decrease Prepaid expenses and other current assets (52,024) 785,367
Increase/decrease Accounts payable 1,517,781 527,753
Increase/decrease Wage tax and social securities payable (494,837) 507,899
Increase/decrease Accrued expenses 593,088 300,588
Increase/decrease deferred income taxes - (7,965)
--------------------------------------------------
Net cash used in operating activities (6,216,739) (3,869,166)
--------------------------------------------------
Investing activities
Investment Intangibles - (15,000)
Investment Fixed assets (326,661) (230,384)
--------------------------------------------------
Cash Flows from investing activities (326,661) (245,384)
--------------------------------------------------
Cash Flows from financing activities
Increase/decrease loan from stockholder 4,660,392 3,870,725
Repayment loan from stockholder (5,525,555) -
Increase /decrease Long-term liabilities (22,500) 262,500
Increase /decrease Short-term liabilities 156,000 -
Increase /decrease Bank overdraft 683,278 -
Issuance of new shares 817,502 -
Subscribed capital 5,725,555 -
--------------------------------------------------
Net cash provided by financing activities 6,494,672 4,133,225
--------------------------------------------------
Increase (decrease) in Cash (48,728) 18,675
Cash at beginning of period 65,005 46,330
--------------------------------------------------
Cash at end of period (euro)16,277 (euro)65,005
The net loss includes interest accrued in 2004 on loans aggregating
(euro)2,007,080 and in 2003 on loans aggregating (euro)140,206. In 2004 , the
company paid (euro)146,312 interest (in 2003, the company paid no interest). No
income tax has been paid in 2004 and 2003.
F-7
Consolidated statement of changes in Stockholders' deficit
Playlogic International N.V.
STOCKHOLDERS' Issued capital
DEFICIT (in Euros) Ordinary Additional Subscribed Accumulated
Shares share Paid-in capital capital Deficit Total
par value
December, 31 2002 6,117,000 Eu 305,850 Eu 625,963 Eu (2,096,983) Eu (1,165,170)
Issue of share capital 266,500 13,325 1,085,675 1,099,000
Net loss 2003 (6,091,914) (6,091,914)
_____________________________________________________________________________________________________
At 31 December 2003 6,383,500 Eu 319,175 Eu 1,711,638 - Eu (8,188,897) Eu (6,158,084)
December, 31 2003 6,383,500 Eu 319,175 Eu 1,711,638 - Eu (8,188,897) Eu (6,158,084)
Issue of share capital 6,420,040 321,002 496,500 - - 817,502
Subscribed capital 2,290,222 - - 5,725,555 5,725,555
One time granted option 7,200,000 7,200,000
Net loss 2004 - - - - (16,193,242) (16,193,242)
____________________________________________________________________________________________________
At 31 December 2004 15,093,762 Eu 640,177 Eu 9,408,138 Eu 5,725,555 Eu (24,382,139) Eu (8,608,269)
--------------------------------------------------------------------------------------------------
F-8
Playlogic International International N.V.
Notes to consolidated financial statements
Note 1 Description of the business
Playlogic International N.V. (the "company") was incorporated in the
Netherlands in May 2002. The company publishes interactive entertainment
software for video game consoles, PCs and handheld and mobile devices developed
by its internal studio and by third parties.
Note 2 - General
Currency. The financial statements are prepared in Euros (the functional
currency). The applicable exchange rates of the various currencies against the
Euro were used for the conversion. Exchange differences have been included in
the financial results in the profit and loss account.
Financial Risk Management. The company's vulnerabilities, such as trade
receivables and payables, borrowings and liquid resources arise directly from
its operations. The main purpose of its financial risk management is to keep the
company's exposure at a reasonable level.
Currency and interest risk. The company is exposed to currency risks. The
company is particularly exposed to fluctuations in the exchange rate between the
U.S. dollar and the Euro, as it incurs manufacturing costs and prices its
systems in Euro (the functional currency) while a portion of its revenue is
denominated in U.S. dollars. A substantial portion of the company's assets,
liabilities and operating results are denominated in Euros, and a minor portion
of its assets, liabilities and operating results are denominated in currencies
other than the Euro. The company's consolidated financial statements are
expressed in Euros. Accordingly, its results of operations are exposed to
fluctuations in various exchange rates. As of the applicable balance sheet
dates, the exposure was very limited, hence, no hedging activities were deemed
necessary. In the company's exchange rate agreements, it uses fixed interest
rates.
Credit risk. From time to time distributors and retailers in the
interactive entertainment software industry have experienced significant
fluctuations in their businesses, and a number of them have failed. The
insolvency or business failure of any significant retailer or distributor of our
products could materially harm the company's business and financial results. The
company typically makes sales to most of its retailers and some distributors on
unsecured credit, with terms that vary depending upon the customer's credit
history, solvency, credit limits and sales history. If necessary, a sufficient
reserve will be maintained to attempt to a avoid a detriment to the company's
business and financial results as a result of payment default. As of per
December 31, 2004 this reserve was zero.
Liquidity risk. The company's management believes that the current cash on
hand and additional cash expected from operations will be sufficient order to
cover its working capital requirements through the third quarter of 2005. After
that time, it will need to obtain additional financing from third parties. If it
does obtain any necessary financing in the future, it may need to cease
operations.
Item 3 - Legal proceedings
None.
Item 4 - Accounting Policies
Basis of Presentation
The unaudited condensed consolidated financial statements of the company
have been prepared in accordance with the instructions to 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.
F-9
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of net sales and expenses during the
reporting periods. The most significant estimates and assumptions relate to the
recoverability of prepaid royalties, capitalized software development costs and
intangibles, inventories, realization of deferred income taxes and the adequacy
of allowances for doubtful accounts. Actual amounts could differ significantly
from these estimates.
Accounts receivable
Accounts receivable are shown after deduction of a provision for bad and
doubtful debts where appropriate.
Software Development
Capitalized software development costs include payments made to independent
software developers under development agreements, as well as direct costs
incurred for internally developed products. The company accounts for software
development costs in accordance with 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.
The company utilizes both internal development teams and third-party
software developers to develop its products. It capitalizes internal software
development costs and other content costs subsequent to establishing
technological feasibility of a title. Amortization of such costs as a component
of cost of sales is recorded on a title-by-title basis based on the greater of
the proportion of current year sales to the total of current and estimated
future sales for the title or the straight-line method over the remaining
estimated useful life of the title. At each balance sheet date, the company
evaluates the recoverability of capitalized software costs based on undiscounted
future cash flows and charge to cost of sales any amounts that are deemed
unrecoverable. The company's agreements with third-party developers generally
provide it with exclusive publishing and distribution rights and require it to
make advance payments that are recouped against royalties due to the developer
based on the contractual amounts of product sales, adjusted for certain costs.
Prepaid royalties
The company capitalizes external software development costs (prepaid
royalties) and other content costs subsequent to establishing technological
feasibility of a title. Advance payments are amortized as royalties in cost of
sales on a title-by-title basis based on the greater of the proportion of
current year sales to the total of current and estimated future sales for that
title or the contractual royalty rate based on actual net product sales as
defined in the respective agreements. At each balance sheet date, the company
evaluates the recoverability of advanced development payments and unrecognized
minimum commitments not yet paid to determine the amounts unlikely to be
realized through product sales. Advance payments are charged to cost of sales in
the amount that management determines is unrecoverable in the period in which
such determination is made or if management determines that it will cancel a
development project.
Deferred tax asset
Referred tax assets are recognized for as far as the management believes
that it is more likely than not that the valued deferred tax asset will be
realized.
F-10
Fixed assets
Tangible fixed assets are stated at acquisition cost less depreciation
calculated on a straight-line basis over the estimated useful life. Acquisitions
during the year are written-off from the date of acquisition.
Goodwill
Goodwill arises from investments in subsidiaries and associated companies.
Goodwill is the difference between the purchase price and the company's share in
the amount at which the identifiable assets and liabilities of the acquired
associated company are valued at on initial recognition. Investments in
subsidiaries and associated companies are accounted for by using the equity
method, determined using the same accounting principles as in the companies
accounts. The carrying value of the goodwill will be tested annually for
impairment based on the projected cash flows for the coming years.
Impairment
Impairment is the condition that exists when the carrying amount of a long
lived asset, or group of assets, exceeds its fair value. An impairment loss
shall be recognized only if the carrying amount of the long-lived asset, or
group of assets, is not recoverable and exceeds its fair value. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual disposition
of the asset at the date. The assessment shall be based on the carrying amount
at the date it is tested for recoverability, whether in use or under
development. An impairment loss shall be measured as the amount by which the
carrying amount of a long-lived asset exceeds its fair value.
Fair value of an asset is the amount at which an asset could be bought or
sold in a current transaction between willing parties, that is, other than in a
forced or liquidation sale.
Current liabilities
Current liabilities are stated at cost.
Long-term liabilities
The long-term loans concern loans with a maturity date beyond one year.
Revenue Recognition
The company evaluates the recognition of revenue based on the criteria set
forth in SOP 97-2, "Software Revenue Recognition", as amended by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" and Staff Accounting Bulletin ("SAB") No. 101, "Revenue
Recognition in Financial Statements", as revised by SAB 104, "Revenue
Recognition".
The company evaluates revenue recognition using the following basic criteria:
o Evidence of an arrangement: the company recognizes revenue when it
has evidence of an agreement with the customer reflecting the terms
and conditions to deliver products.
o Delivery: Delivery is considered to occur when the products are
shipped and risk of loss has been transferred to the customer.
o Fixed or determinable fee: If a portion of the arrangement fee is
not fixed or determinable, the company recognizes that amount as
revenue when the amount becomes fixed or determinable.
o Collection is deemed probable: At the time of the transaction, the
company conducts a credit review of each customer involved in a
significant transaction to determine the creditworthiness of the
customer. Collection is deemed probable if the company expects the
customer to be able to pay amounts under the arrangement as those
amounts become due. If the company determines that collection is not
probable, it recognizes revenue when collection becomes probable
(generally upon cash collection).
F-11
Selling and marketing
Selling and marketing expenses are expensed in the period in which the service
has been received.
Depreciation
Depreciation on fixed assets (property, plant and equipment) is calculated at
fixed percentages of cost, based on the estimated useful life of the assets.
Interest expense
Interest income (loss) relates to interest received or due from and paid or due
to third parties, stockholders, subsidiaries and associated companies.
Benefit from (provision for) income taxes
The income taxes on the profit and loss account are deferred taxes. Deferred
income tax is recognized to the extent that it is probable that future taxable
profits will be available against which deductible temporary differences can be
utilized. Deferred tax is calculated at the tax rate that is expected to apply
to the period when the asset is realized or the liability is settled.
Earnings per share
Basic EPS shall be computed by dividing net income available to ordinary
stockholders (the numerator) by the weighted-average number of ordinary shares
outstanding (the denominator) during the period. Shares issued during the period
and shares reacquired during the period shall be weighted for the portion of the
period that they were outstanding.
Stock based compensation
The company accounts for its employees stock based compensation plans in
accordance with APB 25, accounting for stock issued to employees. The company
adopts the intrinsic value method, measured at the grant date and is recognized
over the service period, which is usually the vesting period.
New Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" which revised Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation". This statement supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees". The revised statement
addresses the accounting for share-based payment transactions with employees and
other third parties, eliminates the ability to account for share-based
compensation transactions using APB 25 and requires that the compensation costs
relating to such transactions be recognized in the condensed consolidated
statement of operations. The revised statement is effective as of the first
fiscal year beginning after June 15, 2005.
Although the company is currently analyzing the method of adoption and impact of
the adoption of this standard, effective January 1, 2006, it is expected to have
an impact on the company's condensed consolidated financial statements similar
to the pro forma disclosure under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
F-12
Principles of consolidation and reporting entity.
The consolidated accounts comprise the fully consolidated financial information
for Playlogic International N.V. and its subsidiaries in which Playlogic
International N.V. has majority control. Playlogic International N.V. is
considered to control a company if it has, directly or indirectly, more than 50%
of the voting rights in that company, enabling it to influence the company's
finance and business policies and profit from its activities.
The consolidated accounts comprise the financial statements of Playlogic
International N.V. (having its registered office in Amsterdam, The Netherlands)
as head of the group and its 100%-subsidiary Playlogic Game Factory B.V. based
in Breda, The Netherlands (having its registered office in Amsterdam, The
Netherlands).
The financial statements of the parent and its subsidiaries are combined on a
line by line basis by adding together items like assets, liabilities, equity,
income and expenses. Unrealized intercompany results included in development
costs of games at balance sheet date, resulting from intercompany transactions
and intercompany balances, have been eliminated.
Investments in associated companies
If the value of the identifiable assets and liabilities of the acquired
associate was below zero, this value has been recognized for as far as the
company is obliged to satisfy obligations of the associated company which it has
guaranteed or is otherwise committed to.
Note 5 - Financial position and continuity
The company needs additional capital to fund future operations. Without this
capital, the company will not be able to continue its operations on a stand
alone basis. Through 2005, Playlogic International N.V. secured investment of
approximately (euro) 3.8 million. These investors can be characterized as
informal. They are committed to the long term future of the company.
The company is a global publisher of interactive software games designed for
personal computers, and video game consoles and handheld platforms manufactured
by Sony, Microsoft and Nintendo. Its principal sources of revenue are derived
from publishing and distribution operations. Publishing revenues are derived
from the sale of internally developed software titles or software titles
developed by third parties. Operating margins in its publishing business are
dependent upon its ability to continually release new, commercially successful
products. Operating margins for titles based on licensed properties are affected
by the company's costs to acquire licenses.
The company pursues a growth strategy by capitalizing on the widespread market
acceptance of video game consoles, as well as the growing popularity of
innovative action games that appeal to mature audiences. The company has
established a portfolio of successful proprietary software content for the major
hardware platforms. It expects to continue to become the leader in the mature,
action product category by leveraging its existing franchises and developing new
brands. The company currently anticipates that the release of World Racing 2,
Knights of the Temple 2 and Gene Troopers will generate significant cash flow
from its publishing business in fiscal 2005.
Subsequent Event
On June 30, 2005, the company and its shareholders completed a share exchange
transaction with Donar Enterprises, Inc. ("Donar"), a US company that is listed
on the OTC BB. Following the share exchange transaction, the company became a
wholly-owned subsidiary of Donar and represented all of Donar's operations. The
company's shareholders exchanged all of their shares for shares of Donar in the
share exchange, and the company's former shareholders owned approximately 91% of
the outstanding Donar common stock after the completion of the share exchange.
The share exchange creates the possibility for the company to obtain new capital
through equity financing in the US public market.
The consolidated financial statements have been prepared assuming that the
company will continue as a going concern. The company has experienced losses
from operations, and has a working capital deficiency and accumulated deficit
that raised substantial doubt at year end 2004 about its ability to continue as
F-13
a going concern. However, in 2005 all loans granted by stockholders are
redeemed. The redemption was used as payment on shares to be issued. By doing
so, the company entered into the share exchange without any material loans.
Further, new stock has been issued. Nevertheless new capital needs to be raised.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Note 6 - Cash
Liquidity and capital resources
The company's primary cash requirements are to fund the development and
marketing of its products. Its cash decreased (euro)48,728 during fiscal 2004 as
follows:
Year Ended
December 31 December 31 Increase/
2004 2003 (Decrease)
___________ ____________ _____________
Cash Flows from
Operating Activities Eu (6,216,739) Eu (3,869,166) Eu (2,347,574)
Cash Flows from
Investing Activities (326,661) (245,384) (81,277)
Net Cash provided by
financing activities Eu 6,494,672 Eu 4,133,225 Eu (67,404)
___________ ____________ _____________
Increase (decrease)
in Cash Eu (48,728) Eu 18,675 Eu (67,404)
Financing Needs
The company expects its capital requirements to increase over the next
several years as it continues to develop new products both internally and
through its third-party developers, increase marketing and administration
infrastructure, and embark on in-house business capabilities and facilities. The
company's future liquidity and capital funding requirements will depend on
numerous factors, including, but not limited to, the cost and hiring and
training production personnel who will produce its titles, the cost of hiring
and training additional sales and marketing personnel to promote its products,
and the cost of hiring and training administrative staff to support current
management.
Off Balance Sheet Arrangements.
The company does not have any off balance sheet arrangements that are
reasonably likely to have a current or future effect on its financial condition,
revenues, results of operations, liquidity or capital expenditures.
F-14
Contractual obligations and contingent liabilities and commitments.
The company has the following contractual obligations associated with its
lease commitments and other contractual obligations:
Amounts in thousands Automobiles Rent Total
--------------------------------------------------
2002 (euro) 11 (euro) 52 (euro) 63
2003 (euro) 203 (euro) 352 (euro) 555
2004 (euro) 143 (euro) 322 (euro) 465
2005 (euro) 134 (euro) 491 (euro) 625
2006 (euro) 130 (euro) 660 (euro) 790
2007 (euro) 58 (euro) 569 (euro) 627
2008 (euro) 19 (euro) 546 (euro) 565
2009 (euro) 0 (euro) 546 (euro) 546
Thereafter (euro) 0 (euro) 1,247 (euro) 1,247
---------------------------------------------------
(euro) 698 (euro) 4,785 (euro) 5,483
===================================================
Bank guarantees.
The company is required to renew a bank guarantee for a total of
(euro)38,174, as a security for lease obligations of buildings.
Finance commitment
Playlogic International N.V. finances the production of games from
independent and associated game developers in exchange of the copyrights of
these games. As of December 31, 2004, the company has the obligation to finance
game development for a maximum of (euro)2,266,695. The company is able to
terminate all contracts involved, thereby terminating further finance
commitment.
Accounts receivable
The accounts receivables as per December 31, 2004 are zero, and therefore,
no allowance for doubtful accounts was necessary. This allowance as per December
31, 2003 was also zero.
Note 7 - Software development
At the direction of Playlogic International N.V., Playlogic Game Factory
B.V. has developed games. Research and development costs, which consist
primarily of game development costs, are generally expensed as incurred.
Accounting for the cost of games to be sold, leased or otherwise marketed,
provides for the capitalization of certain game development costs incurred after
certain requirements are met. The company capitalizes internal software
development costs and other content costs subsequent to establishing
technological feasibility of a title.
The expenditures underlying the development costs of games were entered on
the basis of project related records and assessed at the directly related costs
of personnel (including salaries, taxes, social securities and other personnel
related costs, machinery and equipment used in R&D, and costs of facilities, and
other directly related costs to R&D activities). The attribution of directly
related costs of personnel is based on the relative share of capitalized working
hours versus the total amount of working hours. Indirect hours are excluded from
the capitalization.
Changes in the development costs of games are:
2004 2003
Balance at January 1 (euro) 393,557 (euro) 0
Amortized during the year (28,836) 0
Capitalized during the year 495,328 393,557
------------- ------------
Balance at December 31 (euro) 860,049 (euro) 393,557
================== ==============
F-15
It is the expectation that the capitalized games will lead to revenue
within one year and will be recognized as product costs in relation to net
sales. The increase in capitalization is accounted for under the research and
development costs.
Note 8 - Prepaid royalties December 31, December 31,
2004 2003
Prepaid royalties to third party
game developers (euro) 0 (euro) 0
The company capitalizes external software development costs (prepaid
royalties) and other content costs subsequent to establishing technological
feasibility of a title. The future royalties payable to the game developer will
be set off against the prepaid royalties for the game they concern. Repayment
will only take place as far as the royalties to be paid to the developer are
sufficient to repay the prepaid royalties.
Note 9 - Loan to associated companies December 31, December 31,
2004 2003
Prepaid royalties to
associated companies (euro) 65,000 (euro) 0
The associated companies are game developers. The company capitalizes
external software development costs (prepaid royalties) and other content costs
subsequent to establishing technological feasibility of a title. The future
royalties payable to the game developer will be set off against the prepaid
royalties for the game they concern. Repayment will only take place as far as
the royalties to be paid to the developer are sufficient to repay the prepaid
royalties. The financing of the games to associated companies have been expensed
to research and development costs as long as they do not meet the requirements
for capitalization.
The company expects that the games currently under development by the
associated companies will be brought to the market in 2005 and 2006.
Note 10 - Prepaid expenses and
other current assets December 31, December 31,
2004 2003
Value added tax receivable (euro) 99,609 (euro) 82,733
Other 100,185 65,038
(euro) 199,794 (euro) 147,771
Note 11 Deferred tax asset
The taxable loss at December 31, 2004 was approximately (euro)17 million.
The deferred income taxes were calculated using the Dutch nominal tax rate of
31.5%, which is to be applied in the future, as per current Dutch law.
Taxable losses
2002 (euro) 2,096,984
2003 (euro) 4,474,764
2004 (euro) 10,610,391
Total (euro) 17,182,139
The total deferred tax asset is (euro)5,412,374 for which valuation
allowance is made of the same amount.
As of December 31, 2004 the deferred tax asset was valued at zero (in 2003,
it was zero). Recognition of the deferred tax asset will take place as soon the
company will become profitable or when there is substantial likelihood that it
will be profitable thereto based on contracted sales.
F-16
Note 12 - Fixed assets
Movements in fixed assets are:
Machinery Other Fixed Prepayments Total
and equipment assets fixed assets
At January 1, 2004:
Cost 531,339 392,262 43,700 967,301
Accumulated depreciation -245,405 -230,435 0 -475,840
285,934 161,827 43,700 491,461
Changes in 2004:
Acquisitions 33,192 293,469 0 326,661
Transfer 0 43,700 -43,700 0
Depreciation -182,228 -107,537 0 -289,765
-149,036 229,632 -43,700 36,896
At December 31, 2004:
Cost 564,531 729,431 0 1,293,962
Accumulated depreciation -427,633 -337,972 0 -765,605
136,898 391,459 0 528,357
The Machinery and equipment are depreciated in 3 or 5 years. Other fixed
assets (including leasehold improvements) are depreciated in 5 years, or for the
remaining lease term of the leasehold improvements if that is shorter. All the
fixed assets are located in Europe.
Note 13 - Goodwill
The book value of the goodwill on December 31, 2003 has been fully impaired
in 2004 as the investment in the company's associated company (Engine Software
B.V.) is in a continuous net loss situation, and the projected cash flow is
negative. The book value of the goodwill as per December 31, 2004 is therefore
zero.
Note 14 - Bank overdraft
To provide flexibility, the company has the following bank overdraft
facility:
Bank overdraft 7% (fixed) (euro)650,000 (at December 31, 2004)
As of December 31, 2004, the company has exceeded the overdraft facility by
the amount of (euro)33,278.
In view of the fixed interest rate and the overdraft facility in Euros
(functional currency), no hedging activities were deemed necessary.
Note 15 - Accrued expenses
Short term loan from third parties
This average interest rate on this loan is 16%. The maturity of this loan
is one year and will expire on November 19, 2005. The fair value of this loan
equals its carrying value.
F-17
Management fee
The management fee payable to Sloterhof Investments as at December 31, 2003
has been settled. As per December 31, 2004 the management fee payable is zero.
Personnel expenses
Personnel expenses consist of holiday allowances, holiday accruals, wages
and transfer fees to employees.
Note 16 - Loan from stockholder December 31, December 31,
2004 2003
(euro) 5,563,622 (euro) 4,995,148
The average interest rate over the loans is 20% (in 2003, it was 6%). The
interest on this loan was (euro)1,433,637 over 2004 (in 2003, it was
(euro)141,227). The fair value of this loan equals its carrying value.
Note 17 - Long-term liabilities
Redemption
-----------------------------------------------
Within Within Balance at
1 year 2/5 years > 5 years December 31, 2004
Long-term Loans (euro) 30,000 (euro) 120,000 (euro) 120,000 (euro) 270,000
(euro) 30,000 (euro) 120,000 (euro) 120,000 270,000
Short term portion (30,000)
Due on long term (euro) 240,000
The long-term liability represents the net present value of a loan from a
third party, originally amounting to (euro)300,000, concerning leasehold
improvements of the company's offices at Hambroeklaan 1, Breda, The Netherlands.
Payment on this is over 10 years, payable in quarterly installments. The
contracted annual interest on this loan is 0% in conjunction with a lease
agreement of 10 years. The imputed interest is 4%. The short term portion of
(euro)30,000 is part of the accrued expenses "other" under current liabilities.
Note 18 - Issued capital
The authorized capital of the company amounts (euro)1,500,000 and is
divided into 29,999,997 ordinary shares and 3 priority shares with a par value
of (euro)0.05.
During 2004 6,420,040 ordinary shares were issued, leading to a total of
12,803,540 ordinary shares and 3 priority shares at December 31, 2004. From this
part, 5,305,030 common shares are issued to Sloterhof Investments N.V., which
were paid by an offset against amounts owed to Sloterhof Investments N.V. from
2004 loans.
During 2004 the company issued 6,300,040 shares to eight parties against par
value.
In 2004, Sloterhof Investments N.V. and Castilla Investments B.V. have been
granted a stock option right for in total 8,609,189 shares with an exercise
price at par value. The intrinsic value of this option right is recognized as an
expense in 2004.
The priority shares are 6% preferred shares.
The holders of the priority shares (Sloterhof Investments N.V. holds 2 and
Castilla Investments B.V. holds 1) have the following rights:
- The right of approval of transfers of ordinary shares;
F-18
- The right to decide about the size of the executive board and the
supervisory board;
- The right to make an obligatory nomination for members of the executive
board and the supervisory board;
- The right to decide about discharge, suspension and renumeration of
members of the management board;
- To make propositions to the general meeting of stockholders to authorize
another board of the company than the general meeting of stockholders to
issue shares.
The general meeting of stockholders has resolved that the management board
of Playlogic International N.V. shall be the body authorized to issue
shares and to exclude or limit the pre-emptive rights of existing
stockholders. This arrangement will last until July 16, 2007 and is
non-revocable, unless the general meeting of stockholders, at the proposal
of the meeting of priority stockholders, dissolves otherwise.
Note 19 - Additional paid in capital
The additional paid in capital concerns the difference between issue price
(after deduction of the issue costs) and the par value of issued shares.
Note 20 - Subscribed capital
The subscribed capital, to be carried out in 2005, is included in the
stockholders' equity at December 31, 2004. It has been agreed by contract,
dated December 31, 2004, that the loans granted by Sloterhof Investments
have been redeemed at December 31, 2004 and that the concerning redeemed
amount ((euro) 5,725,555) has been paid on the subscribed capital to be
carried out in 2005. The cash was received but the shares had not been
issued pending only notary approval. In lieu for the payment on the loan,
ordinary shares are to be issued in 2005 at a share price of (euro)2.50 per
share.
Share issue in the year 2005
During the first four months of 2005, four transactions were executed with
a total issuance of 730,000 ordinary shares.
Note 21- Net sales
The increase in net sales is attributable to growth in the company's
publishing business. The increase in revenues was primarily attributable to
sales of Alpha Black Zero, which was released in October 2004 and Airborne
Troops, which was released in Europe (PS2) and US (PS2) in February 2005.
Segmentation of net sales
The net sales could be segmented as follows: European market: (euro)87,931
(In 2003, they were (euro)0)
The products have been delivered to game distributors only. The concerning
games are valued at zero as per December 31, 2004.
Note 22 - Product cost
Once software development projects reach technological feasibility (working
model), a substantial portion of the company's research and development
costs are capitalized and subsequently amortized as cost of goods sold
based on estimated lifetime product sales.
F-19
Operating expenses
(In EUR, except per share data) Year Ended December 31,
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS 2004 2003
- --------------------------------------------------------- ------------------
Operating expenses:
Selling and marketing 464,382 361,738
General and administrative 9,841,126 1,933,362
Research and development 3,638,733 3,285,841
Impairment goodwill 11,250 3,750
Depreciation 289,765 367,017
---------------- ------------------
Total operating expenses 14,245,256 5,951,708
---------------- ------------------
Note 23 - Selling and marketing
The selling and marketing expenses consist primarily of costs for promotional
activities of games on trade shows such as the Electronic Entertainment Expo
(E3), which takes place in Los Angeles. Additionally the company was present at
two trade shows in The Netherlands.
Note 24 - General and administrative
This increase in general and administrative expenses is primarily the result of
granted options to Sloterhof and Castilla ((euro)7,200,000), increased number of
employees and related costs. The expense related to this option is a
non-recurring event.
Note 25 - Research and development
Research and development increases are primarily due to the procurement of
development studios, as well as increased personnel costs. Once software
development projects reach technological feasibility, a substantial portion of
the company's research and development costs are capitalized and subsequently
amortized as cost of goods sold based on estimated lifetime product sales.
Part of the research and development consists of game development that meets the
requirements of capitalization. Research and development costs, which consist
primarily of game development costs, are generally expensed as incurred.
Accounting for the cost of games to be sold, leased or otherwise marketed,
provides for the capitalization of certain game development costs incurred after
certain requirements are met. Establishing technological feasibility of the game
and future economic benefit are some of the requirements.
2004 2003
Research and development 4,134,061 3,679,398
Capitalized part software development -495,328 -393,557
Net research and development costs (euro) 3,638,733 (euro) 3,285,841
The company capitalizes internal software development costs and other
content costs subsequent to establishing technological feasibility of a title.
Amortization of such costs as a component of cost of sales is recorded on a
title-by-title basis based on the greater of the proportion of current year
sales to the total of current and estimated future sales for the title or the
straight-line method over the remaining estimated useful life of the title. At
each balance sheet date, the company evaluates the recoverability of capitalized
software costs based on undiscounted future cash flows and charge to cost of
sales any amounts that are deemed unrecoverable.
F-20
Note 26 - Impairment of Goodwill
The book value of the goodwill on December 31, 2003 has been fully impaired in
2004 as the investment in the company's associated company (Engine Software
B.V.) is in a continuous net loss situation and the projected cash flow is
negative. The book value of the goodwill as per December 31, 2004 is therefore
zero.
2004 2003
Impairment of Goodwill (euro) 11,250 (euro) 3,750
Note 27 - Depreciation
The Machinery and equipment are depreciated in 3 or 5 years. Other fixed assets
(including leasehold improvements) are depreciated in 5 years, or for the
remaining lease term of the leasehold improvements if that is shorter. All the
fixed assets are located in Europe.
2004 2003
Other fixed assets 107,537 203,297
Machinery and equipment 182,228 163,720
(euro) 289,765 (euro) 367,017
Note 28 - Interest expense
2004 2003
Loans from stock holder (euro) (1,433,637) (euro) (141,230)
Other loans (296,937) 0
Bank current account (111,266) (2,474)
Exchange differences 0 3,498
Other financing expenses (165,240) 0
(euro) (2,007,080) (euro) (140,206)
The interest concerning the loan from stock holder did not lead to a cash
payment. The interest on the loan from stock holder was accrued until December
31, 2004.
Note 29 - Benefit from income taxes
The Dutch nominal tax rate is 31.5%. Because there have been no income taxes,
recognized the (benefit from) income tax in the profit and loss account is zero.
Taxes on share issue
According to Dutch law, the taxes on issuance of shares are deducted from the
additional paid in capital and not expensed in the profit and loss account.
Note 30 - Other notes
The following company is a wholly - owned subsidiary of Playlogic International
N.V.: Playlogic Game Factory B.V., having its official seat in Amsterdam (The
Netherlands).
F-21
The following company is an associated company of Playlogic Game Factory B.V:
- - Engine Software B.V., having its official seat in Doetinchem (The
Netherlands). The company owns 47.5% of Engine Software B.V. A summary of
the financial information 2004 is as follows:
- - total assets (euro)593,825 (including development costs of games
(euro)541,500)
- - total liabilities (euro)747,942 (including loans from associated companies
(euro)465,100)
- - revenues (euro) 74,412
- - net profit (euro) 14,339
- - current assets (euro)589,394
- - current liabilities (euro)746,408
During 2004 the company has provided Engine Software B.V. financing in the
amount of (euro)285,100.
Security agreement
On August 31, 2004, Playlogic Game Factory B.V. signed a security agreement in
favor of the Dutch Tax Authorities for the amount (euro)81,547 concerning Engine
Software B.V.
Transactions with related parties
In 2004, Sloterhof Investments N.V. and Castilla Investments B.V. were granted a
stock option right for in total 8,609,189 shares with an exercise price at par
value. The intrinsic value of this option right is recognized as an expense in
2004.
Sloterhof Investments N.V. has paid on subscribed capital to be carried out in
2005 (euro)5,525,555 and received (euro)708,080 interest.
Note 31- Relations with affiliated companies and closely related parties
The stockholders with the greatest influence are:
- Sloterhof Investments N.V., Curacao (The Netherlands Antilles)
- Castilla Investments B.V., Amsterdam (The Netherlands)
Sloterhof Investments N.V. has provided loans to the company.
Note 32 - Members of the management board
Executive board
- Sloterhof Investments N.V., Curacao (The Netherlands Antilles), from
2 May 2002. Sloterhof Investments N.V. is represented by Mr. Willem M.
Smit.
Supervisory board
- - Mr. W.J. Simon, Chairman, from December 23, 2003
- - Mr. E.L.A. van Emden, from December 23, 2003
In 2004, the company paid Mr. van Emden (euro)25,000 and Mr. Simon
(euro)30,000 for their service as members of Playlogic International's
supervisory board. Sloterhof and Mr. Smit received no compensation for service
on Playlogic International's executive board.
F-22
Note 33 - : Pro Forma Financial Information
The information below contains pro forma consolidated information of Donar
Enterprises Inc. and Playlogic International N.V. as if the share exchange has
occurred on December 31, 2004. The information is based on the same accounting
principles which apply for the annual report 2004 of Playlogic International
N.V. The US$ amounts below are based on a conversion rate of 1.3645 Euro per
US$. The entities have been added on line by line bases by adding together like
items of assets, liabilities, equity income and expenses.
PRO FORMA CONSOLIDATION
CONSOLIDATED BALANCE SHEETS December 31, December 31, Pro forma December 31,
(in USD) 2004 2004 elimination 2004
Playlogic Donar Combined
International Enterprises
unaudited unaudited unaudited unaudited
------------------ -------------------------------- ------------------
ASSETS
Current assets:
Cash $22,210 - - 22,210
Accounts receivable, net - - -
Software development 1,173,537 - - 1,173,537
Prepaid royalties - - -
Loan to associated companies 88,693 - - 88,693
Prepaid expenses and other current assets 272,618 - - 272,618
Deferred tax asset - - - -
------------------ -------------------------------- ------------------
Total current assets 1,557,058 - - 1,557,058
Fixed assets, net 720,943 - - 720,943
Investments in affiliates - - - -
Goodwill, net - - - -
Intangibles, net - - - -
Other assets, net - - - -
------------------ -------------------------------- ------------------
TOTAL ASSETS $ 2,278,001 $- - $ 2,278,001
------------------ -------------------------------- ------------------
F-23
LIABILITIES AND STOCKHOLDERS' DEFICIT December 31, December 31, Pro forma December 31,
(in EUR) 2004 2004 elimination 2004
unaudited unaudited unaudited unaudited
------------------ -------------------------------- ------------------
Current liabilities:
Accounts payable $ 3,185,258 $ 3,185,258
Bank overdraft 932,333 932,333
Short term loans from third parties 212,862 212,862
Accrued expenses:
-
Personnel expenses 583,898 583,898
Financing software development 593,558 593,558
Auditors and advisors 225,143 225,143
Management fee - -
Other 233,168 233,168
-
Loan from stockholder 7,591,562 7,591,562
Wage tax and social securities payable 138,722 138,722
------------------ -------------------------------- ------------------
Total current liabilities 13,696,504 - 13,696,504
Long-term liabilities 327,480 327,480
------------------ -------------------------------- ------------------
Total liabilities 14,023,984 - 14,023,984
Stockholders' deficit:
Stock holders equity: Donar Enterprises, 873,521 9,200 882,811
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.
9,289,647 shares issued and outstanding.
Additional paid-in capital 12,837,404 469,562 13,306,966
Subscribed capital 7,812,520 7,812,520
Accumulated deficit (33,269,428) (478,852) (33,748,280)
------------------ -------------------------------- ------------------
Total stockholders' deficit (11,745,983) - (11,745,983)
------------------ -------------------------------- ------------------
TOTAL LIABILITIES, AND
STOCKHOLDERS' DEFICIT $ 2,278,001 $ -- $ 2,278,001
------------------ -------------------------------- ------------------
F-24
PROFORMA
CONSOLIDATION Playlogic Donar Enterprises Combined
International
(In USD, except per share data) 2004 2004 2004
unaudited unaudited unaudited
--------------------- -------------------------- -----------------------------
CONSOLIDATED STATEMENTS OF
OPERATIONS
- ---------------------------------- --------------------- -------------------------- -----------------------------
Net sales $119,982 $3,525 $123,507
Product costs 39,347 - 39,347
------------------------------------------------- -----------------------------
Gross profit 80,635 3,525 84,160
Operating expenses:
Selling and marketing 633,649 - 633,649
General and administrative 13,428,216 109,285 13,537,501
Research and development 4,965,051 - 4,965,051
Depreciation 395,384 - 395,384
Impairment goodwill 15,351 - 15,351
------------------------------------------------- -----------------------------
Total operating expenses 19,437,651 109,285 19,546,846
------------------------------------------------- -----------------------------
Loss from operations (19,357,016) (105,760) (19,462,686)
Interest expense (2,738,661) 82 (2,738,579)
------------------------------------------------- -----------------------------
Income before income taxes (22,095,677) (105,678) (22,201,265)
Benefit from income taxes -
------------------------------------------------- -----------------------------
Net loss $(22,095,677) $(105,678) $(22,201,265)
------------------------------------------------- -----------------------------
F-25
Playlogic Entertainment, Inc. and Subsidiaries
Balance Sheets
June 30, 2005
(Unaudited)
June 30, 2005
ASSETS
Current Assets
Cash on hand and in bank $ 144,031
Accounts Receivable
Trade, net of allowance for doubtful accounts 703,430
Taxes 301,740
Affiliated entities 491,115
Prepaid expenses 784,499
Deferred tax asset 584,837
--------------
Total current assets 3,009,652
--------------
Software development costs 1,838,512
-------------
Property and equipment - at cost, net of accumulated depreciation 503,666
-------------
Other Assets 694,419
-------------
Total Assets $6,046,249
==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Bank overdraft $ 393,896
Short term loans from third parties 187,023
Software development financing 241,320
Accounts payable - trade 2,450,847
Accrued salaries, wages and related payroll taxes 745,263
Other accrued liabilities 415,339
Income tax due to shares for management 85,251
--------------
Total Current Liabilities 4,518,939
-------------
Long-term Liabilities
Shareholders' Equity
Preferred stock - $0.001 par value
20,000,000 shares authorized.
None issued and outstanding
Common stock - $0.001 par value. -
100,000,000 shares authorized.
23,063,994 and 22,801,894 shares
issued and outstanding, respectively 23,064
Additional paid-in capital 32,127,823
Currency translation adjustment 1,171,721
Accumulated deficit (32,066,783)
-----------------
Total shareholders' equity 1,255,825
-----------------
Total Liabilities and Shareholders' Equity $6,046,249
==================
The accompanying notes are an integral part of these consolidated financial statements.
F-26
Playlogic Entertainment, Inc. and Subsidiaries
Statements of Operations and Comprehensive Income
Six and Three months ended June 30, 2005 and 2004
(Unaudited)
Six months Six months Three months Three months
ended ended ended ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
Revenues $ 736,559 $204,421 -
Cost of Sales 139,769 - 16,692 -
Gross Profit 596,790 - 187,729 -
Expenses
Research and development costs 485,937 1,809,483 123,668 1,010,310
Sales and marketing expenses 500,585 386,999 494,665 372,255
General and administrative expenses 1,300,367 10,360,091 649,388 775,682
Depreciation 204,968 154,038 100,901 80,591
Compensation expense related to
common stock issuances at less
than "fair value" 90,000 - 90,000 -
Total operating expenses 2,581,857 12,710,611 1,458,622 2,238,838
Loss from operations (1,985,067) (12,710,611) (1,270,893) (2,238,838)
Other Income (Expense)
Interest expense (197,775) (752,349) (94,445) (416,238)
Loss before Income Taxes (2,182,842) (13,462,960) (1,365,338) (2,655,076)
Provision for Income Tax Benefit 623,404 - 365,890 -
Net Loss (1,559,438) (13,462,960) (999,448) (2,655,523)
Other comprehensive income
Change in foreign currency translation (3,958,188) (466,735) (2,271,116) (198,138)
Comprehensive Loss $(5,517,626) $(13,177,346) $(3,270,564) $(2,853,214)
Loss per weighted-average share of
common stock outstanding,
computed on Net Loss - basic
and fully diluted $(0.07) $(0.61) $(0.04) $(0.12)
Weighted-average number of shares of
common stock outstanding 22,821,155 22,676,120 22,840,205 22,759,290
The accompanying notes are an integral part of these consolidated financial statements.
F-27
Playlogic Entertainment, Inc. and Subsidiaries
Statements of Cash Flows
Six months ended June 30, 2005 and 2004
(Unaudited)
Three months Three months
ended ended
June 30, 2005 June 30, 2004
Cash Flows from Operating Activities
Net Loss $(1,604,310) $(13,462,960)
Adjustments to reconcile net income to net cash
provided by operating activities
Currency translation adjustment 3,958,188 466,734
Depreciation 204,968 154,038
Compensation expense related to common stock
issuances at less than "fair value" 90,000 -
(Increase) Decrease in
Accounts receivable - trade (703,430) (79,897)
Value added taxes receivable (301,740) (276,413)
Prepaid expenses (1,237,843) 164,490
Deferred tax asset (584,837) -
Increase (Decrease) in
Accounts payable - trade (736,746) 949,609
Other current liabilities 437,547 356,428
-------- -------
Net cash provided by (used in) operating activities (478,203) (11,727,971)
-------- -------
Cash Flows from Investing Activities
Cash paid for software development (664,115) (471,556)
Cash advanced to affiliated entities (402,357) -
Cash paid to acquire property and equipment - (319,300)
Cash received from disposition of property and
equipment 12,838 -
-------- -------
Net cash used in investing activities (1,053,634) (790,856)
-------- -------
Cash Flows from Financing Activities
Increase in cash overdraft (539,121) 1,510,736
Principal payments on short term notes to third parties (25,995) -
Principal payments on long-term debt (56,235) (29,250)
Cash advanced or repaid to shareholder (8,291,548) 2,940,867
Proceeds from sales of common stock 10,524,700 8,951,268
Cash contributed by shareholder to support operations 45,341 -
Cash paid to acquire capital (3,500) -
-------- -------
Net cash provided by (used in) financing activities 1,653,642 13,373,621
-------- -------
Increase (Decrease) in Cash and Cash Equivalents 121,805 854,794
Cash and cash equivalents at beginning of period 22,226 81,711
-------- -------
Cash and cash equivalents at end of period $ 144,031 $ 936,505
-------- -------
Supplemental Disclosures of Interest and Income
Taxes Paid
Interest paid during the period $ 197,775 $ 752,349
-------- -------
$ $
Income taxes paid (refunded) - -
-------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
Playlogic Entertainment, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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.
PEI's initial business plan was to provide the conversion and filing of various
documents prepared in accordance with either the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, for small to
mid-sized public companies with the U.S. Securities and Exchange Commission
(SEC) electronically through EDGAR, the SEC's Electronic Data Gathering,
Analysis, and Retrieval system. The Company has never been affiliated with the
SEC in any manner.
On February 27, 2002, PEI's Registration Statement on Form SB-2 (SEC File No.
333-68702), registering 2,000,000 pre-reverse split shares to be sold at a price
of $0.05 per share, was declared effective. Between July and December 2002, PEI
sold an aggregate 656,000 pre-reverse split shares of stock under this
Registration Statement.
In June 2004 and December 2004, respectively, PEI experienced separate changes
in control and abandoned its business plan related to providing electronic
filing services for small to mid-sized public companies and began a search to
seek a suitable reverse acquisition candidate through acquisition, merger or
other suitable business combination method.
On June 30, 2005, pursuant to a Securities Exchange Agreement (Exchange
Agreement) by and among the Company and Playlogic Entertainment N.V., a
corporation formed under the laws of The Netherlands (Playlogic), and the
shareholders of Playlogic ((Playlogic Shareholders); the Playlogic Shareholders
exchanged 100.0% of the issued and outstanding ordinary shares and preferred
shares of Playlogic for an aggregate 21,836,924 shares of the Company's common
stock. As a result of this transaction, Playlogic became the Company's
wholly-owned subsidiary, now represents all of the Company's commercial
operations, and the Playlogic Shareholders control approximately 91.0% of the
outstanding common stock of the Company, post-transaction.
Playlogic Entertainment N.V. was incorporated in the Netherlands in May 2002.
Playlogic publishes interactive entertainment software for video game consoles,
personal computers (PCs) and other handheld and mobile electronic devices
developed by its internal studio and by third parties.
In subsequent notes, the consolidated entity is referred to as "Company".
Note B - Preparation of Financial Statements
The acquisition of Playlogic Entertainment N. V. on June 30, 2005, by Playlogic
Entertainment, Inc. (formerly Donar Enterprises, Inc.) effected a change in
control and was accounted for as a "reverse acquisition" whereby Playlogic N. V.
is the accounting acquiror for financial statement purposes. Accordingly, for
all periods subsequent to the June 30, 2005, the financial statements of the
Company reflect the historical financial statements of Playlogic N. V. since its
inception and the operations of Playlogic Entertainment (formerly Donar)
subsequent to the June 30, 2005.
F-29
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of December 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
For segment reporting purposes, the Company operated in only one industry
segment during the periods represented in the accompanying financial statements
and makes all operating decisions and allocates resources based on the best
benefit to the Company as a whole.
During interim periods, the Company follows the accounting policies set forth in
its annual audited financial statements filed with the U. S. Securities and
Exchange Commission on its Current Report on Form 8-K as filed on July 15, 2005
containing the Playlogic financial statements as of and for the year ended
December 31, 2004. The information presented within these interim financial
statements may not include all disclosures required by generally accepted
accounting principles and the users of financial information provided for
interim periods should refer to the annual financial information and footnotes
when reviewing the interim financial results presented herein.
In the opinion of management, the accompanying interim financial statements,
prepared in accordance with the U. S. Securities and Exchange Commission's
instructions for Form 10-QSB, are unaudited and contain all material
adjustments, consisting only of normal recurring adjustments necessary to
present fairly the financial condition, results of operations and cash flows of
the Company for the respective interim periods presented. The current period
results of operations are not necessarily indicative of results which ultimately
will be reported for the full fiscal year ending December 31, 2005.
These financial statements reflect the books and records of Playlogic
Entertainment, Inc. (formerly Donar Enterprises, Inc.), Playlogic Entertainment
N.V. (a corporation domiciled in The Netherlands) and its 100%-subsidiary
Playlogic Game Factory B.V. All significant intercompany transactions have been
eliminated in combination. The consolidated entities are referred to as Company.
Note C - Going Concern Contingency
The Company's management believes that the current cash on hand and additional
cash expected from operations will be sufficient order to cover its working
capital requirements through the third quarter of 2005. After that time, it will
need to obtain additional financing from third parties. If it does obtain any
necessary financing in the future, it may need to cease operations.
F-30
Note D - Summary of Significant Accounting Policies
1. Currency translation
The Company incurs expenses in both US Dollar and Euro transaction
accounts. The Euro is the functional currency of the Company's operating
subsidiaries domiciled in The Netherlands. All transactions reflected in
the accompanying financial statements have been converted into US Dollar
equivalents. For balance sheet purposes, at the end of any accounting
cycle, the exchange rate at the balance sheet is used for all assets and
liabilities. The utilized conversion rates are:
June 30, 2004: $1.21500
December 31, 2004: $1.36450
June 30, 2005: $1.20660
For revenues, expenses, gains and losses during a respective reporting
period, an weighted average exchange rate for the respective reporting
period is used to translate those elements. The Company's management
considers the Euro to be a stable currency. Accordingly, the Company
calculates the weighted average exchange rate using the first day of the
period being converted, the 15th of each respective month and the last day
of each respective month in the reporting period. The exchange rates used
for all revenues, expenses, gains and losses during the year-to-date
periods ended, as noted, are:
June 30, 2004: $1.22618
December 31, 2004: $1.24829
June 30, 2005: $1.28617
2. Cash and cash equivalents
The Company considers all cash on hand and in banks, certificates of
deposit and other highly-liquid investments with maturities of three months
or less, when purchased, to be cash and cash equivalents.
Cash overdrafts may occur from time-to-time depending upon management's
cash management policies.
3. Accounts receivable - trade
The Company's current customers are located principally within Europe. The
Company typically makes sales to most of its retailers and some
distributors on unsecured credit, with terms that vary depending upon the
customer's credit history, solvency, credit limits and sales history. From
time to time, distributors and retailers in the interactive entertainment
software industry have experienced significant fluctuations in their
business operations and a number of them have failed. The insolvency or
business failure of any significant Company customer could have a material
negative impact on the Company's business and financial results.
3. Accounts receivable - trade - continued
Because of the credit risk involved, management has provided an allowance
for doubtful accounts which reflects its opinion of amounts which will
eventually become uncollectible. In the event of complete non-performance,
the maximum exposure to the Company is the recorded amount of trade
accounts receivable shown on the balance sheet at the date of
non-performance.
F-31
4. Property and equipment
Property and equipment is recorded at cost and is depreciated on a
straight-line basis, over the estimated useful lives (generally 3 to 10
years) of the respective asset. Major additions and betterments are
capitalized and depreciated over the estimated useful lives of the related
assets. Maintenance, repairs, and minor improvements are charged to expense
as incurred.
5. Software development costs
Capitalized software development costs include payments made to independent
software developers under development agreements, as well as direct costs
incurred for internally developed products. The Company accounts for
software development costs in accordance with Statement of Financial
Accounting Standards No. 86 - "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed". Software development
costs are capitalized once technological feasibility of a product is
established and such costs are determined to be recoverable. The Company
utilizes both internal development teams and third-party software
developers to develop its products. The Company also capitalizes internal
software development costs and other content costs subsequent to
establishing technological feasibility of a title. Amortization of such
costs as a component of cost of sales is recorded on a title-by-title basis
based on the greater of the proportion of current year sales to the total
of current and estimated future sales for the title or the straight-line
method over the remaining estimated useful life of the title. At each
balance sheet date, the company evaluates the recoverability of capitalized
software costs based on undiscounted future cash flows and charge to cost
of sales any amounts that are deemed unrecoverable. The Company's
agreements with third-party developers generally provide it with exclusive
publishing and distribution rights and require it to make advance payments
that are recouped against royalties due to the developer based on the
contractual amounts of product sales, adjusted for certain costs.
6. Prepaid royalties
The Company capitalizes external software development costs (prepaid
royalties) and other content costs subsequent to establishing technological
feasibility of a title. Advance payments are amortized as royalties in cost
of sales on a title-by-title basis based on the greater of the proportion
of current year sales to the total of current and estimated future sales
for that title or the contractual royalty rate based on actual net product
sales as defined in the respective agreements. At each balance sheet date,
the company evaluates the recoverability of advanced development payments
and unrecognized minimum commitments not yet paid to determine the amounts
unlikely to be realized through product sales. Advance payments are charged
to cost of sales in the amount that management determines is unrecoverable
in the period in which such determination is made or if management
determines that it will cancel a development project.
7. Organization and reorganization costs
The Company has adopted the provisions of AICPA Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" whereby all organizational
and initial costs incurred with the incorporation and initial
capitalization of the Company were charged to operations as incurred.
8. Research and development expenses
Research and development expenses are charged to operations as incurred.
F-32
9. Advertising expenses
The Company does not utilize direct solicitation advertising. All other
advertising and marketing expenses are charged to operations as incurred.
10. Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. At June 30, 2005 and 2004, the deferred tax asset and
deferred tax liability accounts, as recorded when material, are entirely
the result of temporary differences. Temporary differences represent
differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily accumulated depreciation and
amortization and the anticipated utilization of net operating loss
carryforwards to offset current taxable income..
11. Share-Based Payments
The Company utilizes the fair-value method of accounting for the payment
for goods and/or services with the issuance of equity shares in lieu of
cash.
12. Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net income
(loss) available to common shareholders by the weighted-average number of
common shares outstanding during the respective period presented in our
accompanying financial statements.
12. Earnings (loss) per share - continued
Fully diluted earnings (loss) per share is computed similar to basic income
(loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and
warrants).
Common stock equivalents represent the dilutive effect of the assumed
exercise of the outstanding stock options and warrants, using the treasury
stock method, at either the beginning of the respective period presented or
the date of issuance, whichever is later, and only if the common stock
equivalents are considered dilutive based upon the Company's net income
(loss) position at the calculation date.
As of June 30, 2005 and 2004, the Company has no outstanding stock options
and the Company's outstanding stock warrants are anti-dilutive due to the
Company's net operating loss position.
13. Revenue recognition
The Company evaluates the recognition of revenue based on the criteria set
forth in SOP 97-2, "Software Revenue Recognition", as amended by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to
Certain Transactions" and Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements", as revised by SAB 104,
"Revenue Recognition". The Company evaluates revenue recognition using the
following basic criteria:
* Evidence of an arrangement: The Company recognizes revenue when it has
evidence of an agreement with the customer reflecting the terms and
conditions to deliver products.
F-33
* Delivery: Delivery is considered to occur when the products are shipped
and risk of loss has been transferred to the customer.
* Fixed or determinable fee: If a portion of the arrangement fee is not
fixed or determinable, the Company recognizes that amount as revenue when
the amount becomes fixed or determinable.
* Collection is deemed probable: At the time of the transaction, the
Company conducts a credit review of each customer involved in a significant
transaction to determine the creditworthiness of the customer. Collection
is deemed probable if the Company expects the customer to be able to pay
amounts under the arrangement as those amounts become due. If the Company
determines that collection is not probable, it recognizes revenue when
collection becomes probable (generally upon cash collection).
14. New accounting pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" which revised Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation". This
statement supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees". The revised statement addresses the accounting for share-based
payment transactions with employees and other third parties, eliminates the
ability to account for share-based compensation transactions using APB 25
and requires that the compensation costs relating to such transactions be
recognized in the condensed consolidated statement of operations. The
revised statement is effective as of the first fiscal year beginning after
June 15, 2005. Although the Company is currently analyzing the method of
adoption and impact of the adoption of this standard, effective January 1,
2006, it is expected to have an impact on the Company's consolidated
financial statements similar to the pro forma disclosure under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
Note E - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and
notes payable, as applicable, approximates fair value due to the short term
nature of these items and/or the current interest rates payable in relation
to current market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is
fully dependent upon the volatility of these rates. The Company does not
use derivative instruments to moderate its exposure to interest rate risk,
if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully
dependent upon the volatility of these rates. The company does not use
derivative instruments to moderate its exposure to financial risk, if any.
Note F - Concentrations of Credit Risk
The Company maintains its cash accounts in a financial institution subject
to insurance coverage issued by the Federal Deposit Insurance Corporation
(FDIC). Under FDIC rules, the Company is entitled to aggregate coverage of
$100,000 per account type per separate legal entity per financial
institution. Through June 30, 2005, the Company maintained deposits in
various financial institutions with credit risk exposures in excess of
statutory FDIC coverage. The Company has incurred no losses during 2004 or
2003, or subsequent thereto, as a result of any unsecured bank balance.
F-34
The Company is exposed to currency risks. The Company is particularly
exposed to fluctuations in the exchange rate between the U.S. Dollar and
the Euro, as it incurs manufacturing costs and prices its products in the
Euro (the Company's operating subsidiary's functional currency) while a
portion of its revenue is denominated in U.S. Dollars. A substantial
portion of the company's assets, liabilities and operating results are
denominated in Euros, and a minor portion of its assets, liabilities and
operating results are denominated in currencies other than the Euro. The
Company's consolidated financial statements are expressed in US Dollars.
Accordingly, its results of operations are exposed to fluctuations in
various exchange rates. As of the applicable balance sheet dates, the
exposure was very limited, hence, no hedging activities were deemed
necessary by management. In the Company's exchange rate agreements, it uses
fixed interest rates.
Note G - Common Stock Transactions
On February 21, 2005, by written consent in lieu of meeting, stockholders
representing 78.9% of the issued and outstanding shares of our common stock
approved a recommendation of our Board of Directors to effect a one share
for ten shares reverse stock split of our common stock, par value $.001 per
share, with all fractional shares rounded down to the nearest whole share.
The reverse split became effective on April 15, 2005. As a result of the
reverse split, the total number of issued and outstanding shares of our
common stock decreased from 9,289,647 shares to 928,964 shares, after
giving effect to rounding for fractional shares. In the reverse split
calculation, all fractional shares were rounded down to the nearest whole
share. Holders of less than ten shares, prior to the reverse split, shall
receive $0.30 per share as compensation. The effect of this action is
reflected in the Company's financial statements as of the first day of the
first period.
In conjunction with the above discussed reverse stock split, all share
references in the following paragraphs reflect the post-April 15, 2005
reverse split action.
On June 30, 2005, pursuant to a Securities Exchange Agreement (Exchange
Agreement) by and among the Company and Playlogic International N.V., a
corporation formed under the laws of The Netherlands (Playlogic), and the
shareholders of Playlogic (Playlogic Shareholders); the Playlogic
Shareholders exchanged 100.0% of the issued and outstanding ordinary shares
and preferred shares of Playlogic for an aggregate 21,836,924 shares of the
Company's common stock. As a result of this transaction, Playlogic became
the Company's wholly-owned subsidiary, now represents all of the Company's
commercial operations, and the Playlogic Shareholders control approximately
91.0% of the outstanding common stock of the Company, post-transaction.
On March 10, 2004, the Company issued 32,080 shares of restricted,
unregistered common stock to Michael Tay, son of then-President and
controlling shareholder, William Tay, as compensation for various services
provided to the Company. This transaction was valued at approximately
$16,040 (or $0.50 per reverse split share). The Company relied upon the
exemptions provided by Section 4(2) of the Securities Act of 1933, as
amended, for this transaction.
On April 22, 2004, the Company issued an aggregate 184,618 shares of common
stock to William Tay as consideration of approximately $85,000 in accrued,
but unpaid, officer compensation, reimbursement of trade accounts payable
paid by Mr. Tay on behalf of the Company and in repayment of approximately
$7,000 in unsecured advances made to the Company for working capital. The
Company relied upon the exemptions provided by Section 4(2) of the
Securities Act of 1933, as amended, for this transaction.
F-35
As a result of the December 15, 2004 change in control and in consideration
for agreeing to serve as an officer and director of the Company, Timothy P.
Halter was granted a stock warrant to purchase up to 100,000 post-reverse
split shares of the Company's restricted, unregistered common stock at an
effective price of $0.60 per share, in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933, as
amended. Mr. Halter may exercise the warrants, in whole or in part, at any
time after the issuance of the warrants and prior to the expiration of the
warrants on December 15, 2007. On June 1, 2005, Mr. Halter exercised all of
the outstanding warrants for $60,000 cash.
The following table presents warrant activity through June 30, 2005:
Weighted
Average
Number of Exercise
Shares Price
Balance at December 31, 2004 100,000 $0.60
Issued -
Exercised (100,000)
Balance at June 30, 2005 -
On June 29, 2005, the Company sold 162,100 shares of its common stock to
Johannes Wilhelmus Kluijtmans for aggregate consideration of $608,000, or
approximately $3.75 per share. The sale was made pursuant to the terms of a
Subscription Agreement, dated as of June 28, 2005, which agreement
contained confidentiality and non-disclosure agreements and covenants. The
sale was made without registration in reliance upon the exemption afforded
by Section 4(2) of the Securities Act of 1933, as amended. The shares are
"restricted securities" in that they are legended with reference to Rule
144. The Company never utilized an underwriter for this offering of its
securities and no sales commissions were paid to any third party in
connection with the above-referenced sale.
Note H - Commitments and Contingencies
Security agreement
Playlogic Game Factory B.V., on August 31, 2004, signed a security
agreement in favor of the Dutch Tax Authorities for the amount $98,394
concerning Engine Software B.V.
Transactions with related parties
In 2004, Sloterhof Investments N.V. and Castilla Investments B.V., entities
owned and controlled by members of the Company's current management were
previously granted a stock option right to acquire up to a total of
8,609,189 shares in Playlogic International N. V. with an exercise price at
par value of EURO 0.05. The intrinsic value of this option right was
charged to operations upon it's grant during 2004.
Sloterhof Investments N.V. agreed with the company to reimburse the company
for certain expenses incurred in connection with the reverse-share exchange
transaction with Playlogic Entertainment, Inc., previously discussed.
F-36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Donar Enterprises, Inc.
We have audited the accompanying balance sheet of Donar Enterprises, Inc. (a
Delaware corporation and a development stage company) as of December 31, 2004
and the related statements of operations and comprehensive loss, changes in
shareholders' equity (deficit) and cash flows for the year ended December 31,
2004 and for the period from May 25, 2001(date of inception) through December
31, 2004, respectively. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Donar Enterprises, Inc. as of
December 31, 2004 and the results of its operations and cash flows for the year
ended December 31, 2004 and for the period from May 25, 2001 (date of inception)
through December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company was not successful in developing it's initial
business plan and has abandoned said plan. The Company's existence is dependent
upon the support of key officers and/or shareholders to support the corporate
entity. These circumstances create substantial doubt about the Company's ability
to continue as a going concern and Management's plans in regard to these matters
are also described in Note C. The financial statements do not contain any
adjustments that might result from the outcome of these uncertainties.
/s/ S. W. Hatfield, CPA
S. W. HATFIELD, CPA
Dallas, Texas
March 18, 2005
F-37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Donar Enterprises, Inc.
We have audited the accompanying balance sheet of Donar Enterprises, Inc. (a
Delaware corporation and a development stage company) as of December 31, 2003
and the related statements of operations and comprehensive loss, changes in
shareholders' equity (deficit) and cash flows for the year ended December 31,
2003 and for the period from May 25, 2001(date of inception) through December
31, 2003, respectively. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Donar Enterprises, Inc. as of
December 31, 2003 and the results of its operations and cash flows for the year
ended December 31, 2003 and for the period from May 25, 2001 (date of inception)
through December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note C to the
financial statements, the Company has accumulated losses and is still developing
its planned operations. These issues raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note C. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
/s/ Mantyla McReynolds, LLC
Mantyla McReynolds, LLC
March 20, 2004
Salt Lake City, Utah
F-38
DONAR ENTERPRISES, INC.
(a development stage company)
BALANCE SHEETS
December 31, 2004 and 2003
December 31, December 31,
2004 2003
ASSETS
Current Assets
Cash on hand and in bank $ - $ 54,194
Accounts receivable - trade,
net of allowance for doubtful accounts of $-0- - 877
Total current assets - 55,071
Total Assets $ - $ 55,071
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable - trade $ - $ 1,350
Advances from officer/shareholder - 7,012
Accrued officer compensation - 63,750
Total current liabilities - 72,112
Commitments and contingencies
Shareholders' Equity (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.
9,289,647 and 7,122,667 shares
issued and outstanding, respectively 9,290 7,123
Additional paid-in capital 469,562 349,010
Deficit accumulated during the development stage (478,852) (373,174)
Total Shareholders' Equity (Deficit) - (17,041)
Total Liabilities and Shareholders' Equity $ - $ 55,071
F-39
DONAR ENTERPRISES, INC.
(a development stage company)
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended December 31, 2004 and 2003 and
Period from May 25, 2001 (date of inception) through December 31, 2004
Period from
May 25, 2001
(date of inception)
Year ended Year ended through
December 31,December 31,December 31,
2004 2003 2004
Revenues $3,525 $ 14,067 $ 24,778
------------- ---------- --------
Operating expenses
General and administrative costs 109,285 149,153 504,032
Loss from Operations (105,760) (135,086) (479,254)
Other Income (Expense)
Interest income 82 238 402
------------- ---------- --------
Loss before provision for income taxes (105,678) (134,848) (478,852)
Provision for Income Taxes - - -
------------- ---------- --------
Net Loss (105,678) (134,848) (478,852)
Other comprehensive income - - -
Comprehensive Loss $(105,678) $(134,848) $(478,852)
------------- ---------- --------
Net loss per weighted-average share
of common stock outstanding,
computed on Net Loss
- basic and fully diluted $(0.01) $(0.02) $(0.08)
------------- ---------- --------
Weighted-average number of shares
of common stock outstanding -
basic and fully diluted 8,864,217 6,361,202 6,192,296
------------- ---------- --------
F-40
DONAR ENTERPRISES, INC.
(a development stage company)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Period from May 25, 2001 (date of inception) through December 31, 2004
Deficit
accumulated
Additional during the
Common Stock paid-in development
Shares Amount capital stage Total
Shares issued to founder at
inception for organization
costs and services at $0.05
per share 4,750,000 $4,750 $232,750 $ - $237,500
Net loss for the period - - - (145,316) (145,316)
Balances at
December 31, 2001 4,750,000 4,750 232,750 (145,316) 92,184
Sale of common stock pursuant
to Registration Statement on
Form SB-2 at $0.05 per share 656,000 656 32,144 - 32,800
Net loss for the year - - - (93,010) (93,010)
Balances at
December 31, 2002 5,406,000 5,406 264,894 (238,326) 31,974
Common stock issued pursuant
for services at $0.05 per share 1,616,667 1,617 79,216 - 80,833
Sale of common stock pursuant
to Registration Statement on
Form SB-2 at $0.05 per share 100,000 100 4,900 - 5,000
Net loss for the year - - - (134,848) (134,848)
Balances at
December 31, 2003 7,122,667 7,123 349,010 (373,174) (17,041)
Common stock issued pursuant
to private placements for:
Services at $0.05 per share 320,800 321 15,719 - 16,040
Settlement of accrued officers
compensation and repayment
of advances from officer
at $0.05 per share 1,846,180 1,846 90,463 - 92,309
Capital contributed to
support operations - - 14,370 - 14,370
Net loss for the year - - - (105,678) (105,678)
Balances at
December 31, 2004 9,289,647 $9,290 $469,562 $(478,852) $ -
F-41
DONAR ENTERPRISES, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
Years ended December 31, 2004 and 2003 and
Period from May 21, 2001 (date of inception) through December 31, 2004
Period from
May 21, 2001
(date of inception)
Year ended Year ended through
December 31,December 31,December 31,
2004 2003 2004
Cash Flows from Operating Activities
Net loss for the period $(105,678) $(134,848) $(478,852)
Adjustments to reconcile net loss
to net cash provided by operating activities
Depreciation and amortization - - -
Common stock issued for
Operating expenses 297 - 297
Services 16,040 80,833 334,373
Salaries, wages and bonuses 21,250 - 86,350
(Increase) Decrease in
Accounts receivable 877 (526) -
Increase (Decrease) in
Accounts payable and accrued liabilities - (511) -
Accrued officers compensation - 63,750 -
Net cash used in operating activities (67,214) 8,698 (57,832)
Cash Flows from Investing Activities - - -
Cash Flows from Financing Activities
Proceeds from sale of common stock - 5,000 37,800
Advances from officer/shareholder - 1,414 7,012
Cash contributed to support operations 13,020 - 13,020
Net cash provided by financing activities 13,020 6,414 57,832
Increase (Decrease) in Cash (54,194) 15,112 -
Cash at beginning of period 54,194 39,082 -
Cash at end of period $ - $ 54,194 $ -
F-42
DONAR ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
Note A - Organization and Description of Business
Donar Enterprises, Inc. (Company) was incorporated on May 21, 2001 in accordance
with the Laws of the State of Delaware.
The Company's initial business plan was to provide the conversion and filing of
various documents prepared in accordance with either the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended, for small to
mid-sized public companies with the U.S. Securities and Exchange Commission
(SEC) electronically through EDGAR, the Commission's Electronic Data Gathering,
Analysis, and Retrieval system. The Company has never been affiliated with the
U.S. Securities and Exchange Commission in any manner.
On February 27, 2002, the Company's Registration Statement on Form SB-2 (SEC
File No. 333-68702), registering 2,000,000 shares to be sold at a price of $0.05
per share, was declared effective. Between July and December 2002, the Company
sold an aggregate 656,000 shares of stock under this Registration Statement.
The Company has been in the development stage since its formation and has been
unable to become profitable within any segment of its initial business plan.
In June 2004 and December 2004, respectively, the Company experienced separate
changes in control and abandoned its business plan related to providing
electronic filing services for small to mid-sized public companies and began a
search to seek a suitable reverse acquisition candidate through acquisition,
merger or other suitable business combination method.
Note B - Preparation of Financial Statements
The Company follows the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America and has
a year-end of December 31.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Management further acknowledges that it is solely responsible for adopting sound
accounting practices, establishing and maintaining a system of internal
accounting control and preventing and detecting fraud. The Company's system of
internal accounting control is designed to assure, among other items, that 1)
recorded transactions are valid; 2) valid transactions are recorded; and 3)
transactions are recorded in the proper period in a timely manner to produce
financial statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
Note C - Going Concern Uncertainty
Donar Enterprises, Inc. (Company) was originally incorporated in 2001 for the
purpose of providing the conversion and filing of various documents prepared in
accordance with either the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, for small to mid-sized public companies with
the U.S. Securities and Exchange Commission (SEC) electronically through EDGAR,
the Commission's Electronic Data Gathering, Analysis, and Retrieval system. The
Company has never been affiliated with the U.S. Securities and Exchange
Commission in any manner.
F-43
DONAR ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note C - Going Concern Uncertainty - Continued
Concurrent with a July 2004 change in control, all business operations were
abandoned. The Company's current principal business activity is to seek a
suitable reverse acquisition candidate through acquisition, merger or other
suitable business combination method. The Company has had no operations, assets
or liabilities since the July 2004 change in control transaction.
The Company has been in the development stage since its formation and has been
unable to become profitable within any segment of its initial business plan.
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.
The Company anticipates future sales of equity securities to facilitate either
the consummation of a business combination transaction or 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.
It is the intent of management and significant stockholders to provide
sufficient working capital necessary to support and preserve the integrity of
the corporate entity. However, no formal commitments or arrangements to advance
or loan funds to the Company or repay any such advances or loans exist. There is
no legal obligation for either management or significant stockholders to provide
additional future funding.
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 our 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.
Note D - Summary of Significant Accounting Policies
1. Cash and cash equivalents
For Statement of Cash Flows purposes, the Company considers all cash on hand and
in banks, including accounts in book overdraft positions, certificates of
deposit and other highly-liquid investments with maturities of three months or
less, when purchased, to be cash and cash equivalents.
2. Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
At December 31, 2004 and 2003, respectively, the deferred tax asset and deferred
tax liability accounts, as recorded when material to the financial statements,
are entirely the result of temporary differences. Temporary differences
represent differences in the recognition of assets and liabilities for tax and
financial reporting purposes, primarily accumulated depreciation and
amortization, allowance for doubtful accounts and vacation accruals.
F-44
DONAR ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note D - Summary of Significant Accounting Policies - Continued
2. Income Taxes - continued
As of December 31, 2004 and 2003, the deferred tax asset related to the
Company's net operating loss carryforward is fully reserved. Due to the
provisions of Internal Revenue Code Section 338, the Company may have no net
operating loss carryforwards available to offset financial statement or tax
return taxable income in future periods as a result of a change in control
involving 50 percentage points or more of the issued and outstanding securities
of the Company.
3. Earnings (loss) per share
Basic earnings (loss) per share is computed by dividing the net income (loss)
available to common shareholders by the weighted-average number of common shares
outstanding during the respective period presented in our accompanying financial
statements. Fully diluted earnings (loss) per share is computed similar to basic
income (loss) per share except that the denominator is increased to include the
number of common stock equivalents (primarily outstanding options and warrants).
Common stock equivalents represent the dilutive effect of the assumed exercise
of the outstanding stock options and warrants, using the treasury stock method,
at either the beginning of the respective period presented or the date of
issuance, whichever is later, and only if the common stock equivalents are
considered dilutive based upon the Company's net income (loss) position at the
calculation date.
At December 31, 2004 and 2003, and subsequent thereto, the Company had no
outstanding common stock equivalents.
Note E - Fair Value of Financial Instruments
The carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest rate risk is the risk that the Company's earnings are subject to
fluctuations in interest rates on either investments or on debt and is fully
dependent upon the volatility of these rates. The Company does not use
derivative instruments to moderate its exposure to interest rate risk, if any.
Financial risk is the risk that the Company's earnings are subject to
fluctuations in interest rates or foreign exchange rates and are fully dependent
upon the volatility of these rates. The company does not use derivative
instruments to moderate its exposure to financial risk, if any.
Note F - Loans from Shareholder/Officer
AS of December 31, 2003, the Company and it's then-controlling shareholder,
William Tay, agreed that additional funds may be necessary in the future to
support the corporate entity. As of December 31, 2004, Mr. Tay had advanced an
aggregate approximate $7,012. This amount was repaid in an April 2004
transaction with the issuance of an aggregate 1,846,180 shares of restricted,
unregistered common stock.
F-45
DONAR ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note G - Income Taxes
The components of income tax (benefit) expense for each of the years ended
December 31, 2004 and 2003, are as follows:
Year ended Year ended
December 31, December 31,
2004 2003
Federal:
Current $ - $ -
Deferred - -
- -
State:
Current - -
Deferred - -
- -
Total $ - $ -
As a result of the July 2004 and December 2004 changes in control the Company
has a nominal net operating loss carryforward for income tax purposes. The
amount and availability of any net operating loss carryforwards may be subject
to limitations set forth by the Internal Revenue Code. Factors such as the
number of shares ultimately issued within a three year look-back period; whether
there is a deemed more than 50 percent change in control; the applicable
long-term tax exempt bond rate; continuity of historical business; and
subsequent income of the Company all enter into the annual computation of
allowable annual utilization of the carryforwards.
The Company's income tax expense (benefit) for each of the years ended December
31, 2004 and 2003, respectively, differed from the statutory federal rate of 34
percent as follows:
Year ended Year ended
December 31, December 31,
2004 2003
Statutory rate applied to income before income taxes $(35,900) $(45,800)
Increase (decrease) in income taxes resulting from:
State income taxes - -
Other, including reserve for deferred tax asset
and application of net operating loss carryforward $35,900 $45,800
Income tax expense $ - $ -
Temporary differences, consisting primarily of statutory deferrals of expenses
for organizational costs and statutory differences in the depreciable lives for
property and equipment, between the financial statement carrying amounts and tax
basis of assets and liabilities give rise to deferred tax assets and liabilities
as of December 31, 2004 and 2003, respectively:
December 31, December 31,
2004 2003
Deferred tax assets
Net operating loss carryforwards $ - $126,900
Less valuation allowance - (126,900)
Net Deferred Tax Asset $ - $ -
F-46
DONAR ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note G - Income Taxes - Continued
During the years ended December 31, 2004 and 2003, the reserve for the deferred
current tax asset increased (decreased) by approximately $(126,900) and $46,300,
respectively.
Note H - Common Stock Transactions
On February 21, 2005, by written consent in lieu of meeting, stockholders
representing 78.9% of the issued and outstanding shares of our common stock
approved a recommendation of our Board of Directors to effect a one share for
ten shares reverse stock split of our common stock, par value $.001 per share,
with all fractional shares rounded down to the nearest whole share. The reverse
split is anticipated to become effective on or about April 15, 2005, unless the
Board of Directors elects not to effect the split. As a result of the reverse
split, it is anticipated that the total number of issued and outstanding shares
of our common stock will decrease from 9,289,647 shares to 928,964 shares. The
effect of this action will be reflected in the Company's financial statements as
of the first day of the first period presented upon the effective date of the
action.
On May 25, 2001, In connection with the Company's formation and organization,
our then-President, William Tay, was issued 4,750,000 shares of restricted,
unregistered common stock as consideration for various organizational expenses
and for his first year of executive services.
On February 27, 2002, the Company's Registration Statement on Form SB-2 (SEC
File No. 333-68702), registering 2,000,000 shares to be sold at a price of $0.05
per share, was declared effective. Between July and December 2002, the Company
sold an aggregate 656,000 shares of stock under this Registration Statement.
On January 3, 2003, the Company issued an aggregate of 200,000 restricted shares
of common stock to U.S. Capital Partners, Inc., a financial services company
that provides investment banking and brokerage services, as compensation for
financial services to be provided by U.S. Capital Partners, Inc. to the Company.
The Company estimated the value of these services at $10,000. The issuance was
accomplished in reliance upon Section 4(2) of the Securities Act of 1933, as
amended, and is subject to the resale provisions of Rule 144 and may not be sold
or transferred without registration except in accordance with Rule 144.
Certificates representing the shares bear such a legend.
On June 27, 2003, the Company's Board of Directors authorized the issuance of
1,416,667 restricted, unregistered shares of common stock to William Tay for his
past services rendered aggregating $70,833.33 (or $0.05 per share). These
securities were sold under the exemptions from registration provided by Section
4(2) of the Securities Act of 1933, as amended.
In February 2003, the Company sold an aggregate 100,000 shares of common stock,
pursuant to the Registration Statement on Form SB-2, for cash proceeds of
approximately $5,000.
On March 10, 2004, the Company issued 320,800 shares of restricted, unregistered
common stock to Michael Tay, son of then-President and controlling shareholder,
William Tay, as compensation for various services provided to the Company. This
transaction was valued at approximately $16,040 (or $0.05 per share). The
Company relied upon the exemptions provided by Section 4(2) of the Securities
Act of 1933, as amended, for this transaction.
On April 22, 2004, the Company issued an aggregate 1,846,180 shares of common
stock to William Tay as consideration of approximately $85,000 in accrued, but
unpaid, officer compensation, reimbursement of trade accounts payable paid by
Mr. Tay on behalf of the Company and in repayment of approximately $7,000 in
unsecured advances made to the Company for working capital. The Company relied
upon the exemptions provided by Section 4(2) of the Securities Act of 1933, as
amended, for this transaction.
F-47
DONAR ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Note I - Stock Warrant
As a result of the December 15, 2004 change in control and in consideration for
agreeing to serve as an officer and director of the Company, Timothy P. Halter
was granted a stock warrant to purchase up to 1,000,000 pre-reverse split shares
of the Company's restricted, unregistered common stock at an effective price of
$0.06 per share, in reliance upon the exemption from registration set forth in
Section 4(2) of the Securities Act of 1933, as amended. Mr. Halter may exercise
the warrants, in whole or in part, at any time after the issuance of the
warrants and prior to the expiration of the warrants on December 15, 2007. Due
to the uncertainty related to the ultimate exercise for purchase of any shares
covered by this warrant, the Company did not assign any compensation expense
upon the issuance of this warrant.
The following table presents warrant activity through December 31, 2004:
Weighted
Average
Number of Exercise
Shares Price
Balance at December 31, 2003 - -
Issued 1,000,000 $0.06
Exercised -
Balance at December 31, 2004 1,000,000
Note J - Commitment
In March 2003, the Company executed an employment agreement with its
then-President and majority stockholder, William Tay. This agreement, which
originally was scheduled to expire January 1, 2006, required the payment of an
annual base compensation of $85,000 and various fringe benefits (as defined in
the agreement). Concurrent with the July 2004 change in control, this Agreement
was cancelled and the Company has no further performance requirements.
F-48
II-8
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers
The registrant has the power to indemnify its officers and directors
against liability for certain acts pursuant to Section 145 of the General
Corporation Law of the State of Delaware.
In addition, Article XI of the registrant's Bylaws provides as follows:
"Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition: provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT: If a claim under paragraph (a) of this
Section is not paid in full by the Corporation within thirty days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard or conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard or conduct.
II-1
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and 8 (b) of this section, the corporation shall, to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
(d) INSURANCE: The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law."
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered. All of the amounts
shown are estimates except the Securities and Exchange Commission registration
fee.
Securities and Exchange Commission
Registration Fee................................ $3,302
Legal fees and expenses............................ $30,000
Printing and engraving expenses.................... $0
Accounting fees and expenses....................... $150,000
Miscellaneous ..................................... $16,698
TOTAL: ................................... $200,000
Item 26. Recent Sales of Unregistered Securities
Each issuance set forth below was made in reliance upon the exemptions from
registration requirements of the Securities Act of 1933, as amended, contained
in Section 4(2) on the basis that such transactions did not involve a public
offering. When appropriate, we determined that the purchasers of securities
described below were sophisticated investors who had the financial ability to
assume the risk of their investment in our securities and acquired such
securities for their own account and not with a view to any distribution thereof
to the public. Where required by applicable law, the certificates evidencing the
securities bear legends stating that the securities are not to be offered, sold
or transferred other than pursuant to an effective registration statement under
the Securities Act or an exemption from such registration requirements.
----------------------------- ----------------- ----------------------
NAME SHARES DATE
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
U.S. Capital Partners, Inc. 200,000 January 3, 2003
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
William Tay 1,416,667 June 27, 2003
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
Michael Tay 320,800 March 10, 2004
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
William Tay 1,846,180 April 22, 2004
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
Timothy P. Halter 1,000,000 December 15, 2004
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
Johannes W. M. Kluijtmans 162,100 June 29, 2005
----------------------------- ----------------- ----------------------
----------------------------- ----------------- ----------------------
C.J.W.A. Komen 36,000 July 1, 2005
----------------------------- ----------------- ----------------------
II-2
We issued the 200,000 restricted shares of our common stock to U.S. Capital
Partners, Inc., a financial services company that provides investment banking
and brokerage services, as compensation for financial services that were to be
provided by U.S. Capital Partners, Inc. to us. We estimated the value of these
services at $10,000.
We issued the 1,416,667 restricted shares of our common stock to William Tay,
our president at that time, for past services rendered aggregating $70,833.33
(or $0.05 per share).
We issued the 320,800 restricted shares of our common stock to Michael Tay, the
father of William Tay, for a total of $16,040 in consulting services rendered
(or $0.05 per share).
We issued the 1,846,180 restricted shares of our common stock to William Tay,
our president at that time, for past services rendered aggregating $92,309 (or
$0.05 per share).
We issued to Timothy P. Halter warrants convertible into 1,000,000 shares of our
common stock at a price of $0.06 per share as consideration for Mr. Halter's
agreement to serve as an officer and director. We sold the 162,100 restricted
shares to Johannes W. M. Kluijtmans at a price of $3.75 per share for a total of
$607,875.
We sold the 36,000 restricted shares to C.J.W.A. Komen at a price of $3.75 per
share for a total of $135,000.
Item 27. Exhibits
Exhibit Description
2.1 Share Exchange Agreement, dated June 30, 20005 between the
Registrant and the Shareholders of Playlogic International
N.V. (incorporated by reference to the Registrant's Form 8-K
filed July 1, 2005)
3.1 Certificate of Incorporation of the Registrant, as filed with
the Secretary of State of the State of Delaware (incorporated
by reference to the Registrant's form SB-2/A filed September
5, 2001)
3.2 Amendment to the Certificate of Incorporation of the
Registrant, as filed with the Secretary of State of the State
of Delaware (incorporated by reference to the Registrant's
Form 8-K dated April 15, 2005)
3.3 Bylaws of the Registrant (incorporated by reference to the
Registrant's form SB-2/A filed September 5, 2001)
5 Opinion of Heller Ehrman LLP*
10.1 Lease for Office Space between Kantoren Fonds Nederland B.V.,
as the Lessor, and Playlogic Game Factory B.V. as the Lessee
dated March 11, 2002*
10.2 Lease for Office Accommodation between Fortis Vastgoed B.V.,
as the Landlord, and Playlogic International N.V. as the
Tenant dated April 25, 2005*
10.3 Lease for Office Space between Pr. Dr. D. Valerio, as the
Lessor, and Mr. W.M. Smit company director, handling in the
function of president of the company Playlogic International
N.V., as the Lessee dated March 12, 2002*
II-3
10.4 Lease for Office Space between Mr. Endstra, as the Lessor, and
Playlogic Game Factory B.V. as the Lessee dated April 23, 2003*
10.5 Employment Contract between Playlogic International, N.V. and
Stefan Layer dated January 12, 2005*
10.6 Employment Contract between Playlogic International, N.V. and
Leo van de Voort dated April 4, 2005*
10.7 Employment Contract between Playlogic International, N.V. and
Rogier Smit dated July 1, 2005*
10.8 Employment Contract between Playlogic International, N.V. and
Dominique Morel dated August 22, 2005*
16.1 Letter from S.W. Hatfield CPA dated June 30, 2005
(incorporated by reference to the Registrant's Form 8-K filed
July 1, 2005)*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Heller Ehrman LLP (filed as part of Exhibit 5)*
23.2 Consent of BDO CampsObers, Independent Auditors
23.3 Consent of S. W. Hatfield, CPA, Independent Auditors
23.4 Consent of Mantyla McReynolds, LLC, Independent Auditors
- -------------------------------------------------------------------------------
* Previously filed.
II-4
Item 28. Undertakings
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement, and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs A(1)(i) and A(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of Amsterdam, the
Netherlands on this 16th day of September, 2005.
PLAYLOGIC ENTERTAINMENT, INC.
By: /s/ Willem M. Smit
Willem M. Smit
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Willem M. Smit, as her or his attorney in fact,
to sign any supplements or amendments to this Registration Statement (including
post-effective amendments), and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
/s/Willem M. Smit Director, President, Chief Executive Officer September 16, 2005
Willem M. Smit and Principal Executive Officer
/s/Erik L. A. van Emden Director September 16, 2005
Erik L.A. van Emden
/s/Willy J. Simon Director September 16, 2005
Willy J. Simon
/s/ Leo van de Chief Financial Officer and Principal September 16, 2005
Voort Accounting Officer
Leo van de Voort
II-6
PLAYLOGIC ENTERTAINMENT, INC.
Index to Exhibits
Exhibit Description
2.1 Share Exchange Agreement, dated June 30, 20005 between the
Registrant and the Shareholders of Playlogic International
N.V. (incorporated by reference to the Registrant's Form 8-K
filed July 1, 2005)
3.1 Certificate of Incorporation of the Registrant, as filed with
the Secretary of State of the State of Delaware (incorporated
by reference to the Registrant's form SB-2/A filed September
5, 2001)
3.2 Amendment to the Certificate of Incorporation of the
Registrant, as filed with the Secretary of State of the State
of Delaware (incorporated by reference to the Registrant's
Form 8-K dated April 15, 2005)
3.3 Bylaws of the Registrant (incorporated by reference to the
Registrant's form SB-2/A filed September 5, 2001)
5 Opinion of Heller, Ehrman LLP*
10.1 Lease for Office Space between Kantoren Fonds Nederland B.V.,
as the Lessor, and Playlogic Game Factory B.V. as the Lessee
dated March 11, 2002*
10.2 Lease for Office Accommodation between Fortis Vastgoed B.V.,
as the Landlord, and Playlogic International N.V. as the
Tenant dated April 25, 2005*
10.3 Lease for Office Space between Pr. Dr. D. Valerio, as the
Lessor, and Mr. W.M. Smit company director, handling in the
function of president of the company Playlogic International
N.V., as the Lessee dated March 12, 2002*
10.4 Lease for Office Space between Mr. Endstra, as the Lessor, and
Playlogic Game Factory B.V. as the Lessee dated April 23, 2003*
10.5 Employment Contract between Playlogic International, N.V. and
Stefan Layer dated January 12, 2005*
10.6 Employment Contract between Playlogic International, N.V. and
Leo van de Voort dated April 4, 2005*
10.7 Employment Contract between Playlogic International, N.V. and
Rogier Smit dated July 1, 2005*
II-7
10.8 Employment Contract between Playlogic International, N.V. and
Dominique Morel dated August 22, 2005*
16.1 Letter from S.W. Hatfield CPA dated June 30, 2005
(incorporated by reference to the Registrant's Form 8-K filed
July 1, 2005)
21.1 Subsidiaries of the Registrant*
23.1 Consent of Heller Ehrman LLP (filed as part of Exhibit 5)*
23.2 Consent of BDO CampsObers, Independent Auditors
23.3 Consent of S. W. Hatfield, CPA, Independent Auditors
23.4 Consent of Mantyla McReynolds, LLC, Independent Auditors
* Previously filed.
- -------------------------------------------------------------------------------
II-8