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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED: December 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 FROM THE TRANSITION PERIOD FROM  TO
 COMMISSION FILE NUMBER: 000-49649
 PLAYLOGIC ENTERTAINMENT, INC.
  Delaware
    
    23-3083371(State or other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 Concertgebouwplein 13, 1071 LL Amsterdam, The Netherlands
    
    1071 LL(Address of Principal Executive Offices)
    
    (Zip Code)
 31-20-676-0304
    o
  o þ
 þ
 o
 o




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##### 



PLAYLOGIC ENTERTAINMENT ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
 TABLE OF CONTENTS
  
 PAGEPART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    10Item 2.
    
    Property
    
    
    19Item 3.
    
    Legal Proceedings
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20PART IIItem 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and Small Business Issuer Purchases of Equity Securities
    
    
    21Item 6.
    
    Managements Discussion and Analysis
    
    
    23Item 7.
    
    Financial Statements
    
    
    30Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    30Item 8A.
    
    Controls and Procedures
    
    
    31Item 8B.
    
    Other Information
    
    
    31PART IIIItem 9.
    
    Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act
    
    
    32Item 10.
    
    Executive Compensation
    
    
    36Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    
    
    40Item 12.
    
    Certain Relationships and Related Transactions
    
    
    41Item 13.
    
    Exhibits and Financial Statement Schedules
    
    
    41Item 14.
    
    Principal Accounting Fees and Services
    
    
    42EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 Caution Regarding Forward-Looking Information
    Background
    Acquisition of Playlogic International N.V.
  2




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Our Business
   3




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4




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
    
    Alpha Black Zero, a mission-based tactical shooting game for the PC;
    
    Airborne Troops, an infiltration action adventure game based on World War II for PC and
PlayStation2;
    
    Cyclone Circus, an arcade stunt/racing game for PlayStation2;
    
    Xyanide, a shoot-m- up game for mobile devices.
    
    World Racing 2, a racing game for PS2, Xbox and PCs;
    
    Knights of the Temple 2, a hack & slash/ adventure game for PS2, Xbox and PC; and
    
    Gene Troopers, a futuristic shooter for PS2, Xbox and PC.
  Visionvale agreement.
 DC Studios agreement.
 1C Europe agreements.
 Metropolis agreement.
 Rival Interactive agreement.
 Rebellion agreement.
 5




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##### Table of Contents



Macrovision agreement. www.playlogicgames.com
 Sony agreement.
 Red Bull Agreement.
   Release Schedule
 ExpectedGame
    
    Studio
    
    Platform
    
    Release DateCompleted GamesAlpha Black Zero
    
    Khaeon (NL)
    
    PC
    
    ReleasedAirborne Troops
    
    Widescreen Games (F)
    
    PS2, PC
    
    ReleasedCyclone Circus
    
    Playlogic Game Factory (NL)
    
    PS2
    
    ReleasedXyanide
    
    Overloaded (NL)
    
    Mobile Phones
    
    ReleasedWorld Racing 2
    
    Synetic (D)
    
    PS2, Xbox, PC
    
    ReleasedKnights of the Temple 2
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    ReleasedGene Troopers
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    ReleasedUnder DevelopmentXyanide
    
    Playlogic Game Factory (NL)
    
    Xbox
    
    Q2 2006Age of Pirates: Caribbean Tales
    
    Akella (Russia)
    
    PC
    
    Q2 2006Ancient Wars: Sparta
    
    World Forge (Russia)
    
    PC
    
    Q3 2006StateShift Racing
    
    Engine Software (NL)
    
    PSP
    
    Q3 2006Xyanide Resurrection
    
    Playlogic Game Factory (NL)
    
    PSP
    
    Q3/4 2006P.R.I.S.M.  Threat Level: Red
    
    Rebellion (UK)
    
    PC
    
    Q3/4 2006Wizard of Funk
    
    Playlogic Game Factory (NL)
    
    PC
    
    Q4 2006Infernal
    
    Metropolis
    
    PC
    
    Q4 2006
 6




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ExpectedGame
    
    Studio
    
    Platform
    
    Release DateInfernal
    
    Metropolis
    
    Next Gen
    
    Q2/3 2007Age of Pirates: Captain Blood
    
    Akella
    
    Next Gen
    
    Q2/Q3 2007Red Bull Break Dance Game
    
    To be announced
    
    Various
    
    2007
  General
   Sales and Distribution
         7




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Competition
    www.playlogicgames.com
 Intellectual Property
  8




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##### Table of Contents



Games
    
    Platform
    
    Area1.
    
    
    
    Alpha Black Zero
    
    PC
    
    Worldwide2.
    
    
    
    Airborne Troops
    
    PS2
    
    WorldwidePC
    
    Worldwide3.
    
    
    
    StateShift Racing
    
    PSP
    
    Worldwide4.
    
    a.
    
    Xyanide Resurection
    
    PSP
    
    Worldwideb.
    
    Xyanide Mobile
    
    Mobile Phones
    
    Worldwide5.
    
    
    
    Cyclone Circus
    
    PS2
    
    Worldwide6.
    
    
    
    World Racing 2
    
    PS2
    
    WorldwideXbox
    
    WorldwidePC
    
    Worldwide7.
    
    
    
    Knights of the Temple 2
    
    PS2
    
    WorldwideXbox
    
    WorldwidePC
    
    Worldwide8.
    
    
    
    Gene Troopers
    
    PS2
    
    WorldwideXbox
    
    WorldwidePC
    
    WorldwideAge of Pirates:10.
    
    
    
    Caribbean Tales
    
    PC
    
    Worldwide (1)11
    
    
    
    Ancient Wars: Sparta
    
    PC
    
    Worldwide (2)Age of Pirates Captain12.
    
    
    
    Blood
    
    PC
    
    Worldwide (3)13.
    
    
    
    Infernal
    
    PC
    
    Worldwide (4)P.R.I.S.M Threat Level:14.
    
    
    
    Red
    
    PC
    
    Worldwide
 
 (1)
    
    Excluding former USSR, Poland, Chech, Slowak and South Africa(2)
    
    Excluding former USSR(3)
    
    Excluding former USSR, Poland, Chech, Slowak and South Africa(4)
    
    Excluding Japan, former USSR Employees
  9




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##### Table of Contents



ITEM 1A. RISK FACTORS
  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 ARE DEPENDENT ON FINANCING BY THIRD PARTIES, AND IF WE ARE NOT ABLE TO OBTAIN THE NECESSARY
FINANCING FOR OUR OPERATIONS, OUR BUSINESS WILL BE SIGNIFICANTLY HARMED, AND WE MAY NEED TO CEASE
OPERATIONS.
  10




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MANY OF OUR TITLES HAVE SHORT LIFECYCLES AND MAY FAIL TO GENERATE SIGNIFICANT REVENUES.
  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.
  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.
  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.
  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.
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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.
   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.
  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.
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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.
   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 MAY FAIL TO ANTICIPATE CHANGING CONSUMER PREFERENCES, AND IF WE DO, OUR RESULTS OF OPERATIONS
MAY BE MATERIALLY HARMED.
  13




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
    
    the popularity, price and timing of new software and hardware platforms being released
and distributed by us and our competitors;
    
    international, national and regional economic conditions, particularly economic
conditions adversely affecting discretionary consumer spending;
    
    changes in consumer demographics;
    
    the availability of other forms of entertainment; and
    
    critical reviews and public tastes and preferences, all of which change rapidly and cannot be predicted.
  RAPIDLY CHANGING TECHNOLOGY AND PLATFORM SHIFTS COULD HURT OUR OPERATING RESULTS.
     IF OUR PRODUCTS CONTAIN DEFECTS, OUR BUSINESS COULD BE HARMED SIGNIFICANTLY.
  RETURNS OF OUR TITLES MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
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OUR BUSINESS IS HIGHLY COMPETITIVE AND INCREASINGLY HIT DRIVEN. IF WE DO NOT CONTINUE TO DELIVER
HIT PRODUCTS, OUR SUCCESS WILL BE LIMITED.
      WE MAY BE BURDENED WITH PAYMENT DEFAULTS AND UNCOLLECTIBLE ACCOUNTS IF OUR DISTRIBUTORS OR
RETAILERS CANNOT HONOR THEIR CREDIT ARRANGEMENTS WITH US.
  15




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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
  OUR SOFTWARE MAY BE SUBJECT TO LEGAL CLAIMS WHICH COULD BE COSTLY AND TIME CONSUMING AND CAUSE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
  IN MANY OF OUR KEY TERRITORIES, OUR BUSINESS, OUR PRODUCTS AND OUR DISTRIBUTION CHANNELS ARE
SUBJECT TO INCREASING REGULATION IN AREAS RELATING TO CONTENT, CONSUMER PRIVACY AND ONLINE
DELIVERY. IF WE DO NOT SUCCESSFULLY COMPLY WITH THESE REGULATIONS, OUR BUSINESS MAY SUFFER.
  IF WE DO NOT CONSISTENTLY MEET OUR PRODUCT DEVELOPMENT SCHEDULES, WE WILL EXPERIENCE FLUCTUATIONS
IN OUR OPERATING RESULTS.
  16




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OUR EXPANSION MAY STRAIN OUR OPERATIONS.
    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.
  RATING SYSTEMS FOR INTERACTIVE ENTERTAINMENT SOFTWARE, POTENTIAL LEGISLATION AND CONSUMER
OPPOSITION COULD INHIBIT SALES OF OUR PRODUCTS.
   17




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WE ARE SUBJECT TO RISKS AND UNCERTAINTIES OF INTERNATIONAL TRADE, AND IF ANY OF THESE RISKS
MATERIALIZE, OUR RESULTS OF OPERATIONS MAY BE HARMED.
  
    
    increased credit risks;
    
    tariffs and duties;
    
    fluctuations in foreign currency exchange rates;
    
    shipping delays; and
    
    international political, regulatory and economic developments, all of which can have a
significant impact on our operating results.
 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.
  FLUCTUATIONS IN FOREIGN EXCHANGE RATES AND INTEREST RATES COULD HARM OUR RESULTS OF OPERATIONS
     18




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THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
  SOME OF OUR EXISTING SHAREHOLDERS CAN EXERT CONTROL OVER US AND MAY NOT MAKE DECISIONS THAT ARE IN
THE BEST INTERESTS OF ALL SHAREHOLDERS.
   THE COMPANY IS INVOLVED IN A NUMBER OF LEGAL PROCEEDINGS RELATED TO ITS ORDINARY COURSE OF
BUSINESS. THE OUTCOME OF THESE PROCEEDINGS IS UNCERTAIN AND MAY ADVERSILY AFFECT THE COMPANIES
FINANCIAL POSITION.
  IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OR OUR OFFICERS AND DIRECTORS.
  THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. IF THE COMPANY DOES
NOT OBTAIN ANY NECESSARY FINANCING, WE MAY NEED TO CEASE OPERATIONS.
  
 ITEM 2. PROPERTY
  19




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 
  
 
   
 
 ITEM 3. LEGAL PROCEEDINGS
    
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  20




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PART II
 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
    Fiscal 2004
    
    High
    
    LowFirst Quarter
    
    $
    0.70
    
    
    $
    0.70Second Quarter
    
    $
    0.80
    
    
    $
    0.80Third Quarter
    
    $
    1.00
    
    
    $
    1.00Fourth Quarter
    
    $
    0.70
    
    
    $
    0.70
 Fiscal 2005
    
    High
    
    LowFirst Quarter
    
    $
    3.10
    
    
    $
    1.40Second Quarter
    
    $
    4.00
    
    
    $
    2.80Third Quarter
    
    $
    7.24
    
    
    $
    4.30Fourth Quarter
    
    $
    5.40
    
    
    $
    4.60
    Unregistered Sales of Equity Securities
  21




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Shares
 NAME
    
    SHARES
    
    DATET. Halter
    
    
    100,000
    
    
    June 1, 2005W.M. Kluitmans
    
    
    162,100
    
    
    June 29, 2005C.J.W.A. Komen
    
    
    36,000
    
    
    July 1, 2005A. van der Mark
    
    
    255,181
    
    
    December 28, 2005W.P. Deegen
    
    
    404,699
    
    
    December 31, 2005D. Swart
    
    
    333,333
    
    
    December 31, 2005
      Options and Warrants
  Options
 NAME
    
    OPTIONS
    
    DATEMaarten Minderhoud
    
    
    40,000
    
    
    September 1, 2005Dominique Morel
    
    
    100,000
    
    
    September 14, 2005Jan Willem Kohne
    
    
    250,000
    
    
    October 1, 2005
    22




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Warrants
 NAME
    
    WARRANTS
    
    DATEW.P. Deegen
    
    
    343,954
    
    
    December 31, 2005D. Swart
    
    
    226,046
    
    
    December 31, 2005
  Securities Authorized for Issuance under Equity Compensation Plans
  Number of securities remainingNumber of securities to
    
    
    Weighted-average
    
    
    available for future issuancebe issued upon exercise
    
    
    exercise price of
    
    
    under equity compensation plansof outstanding options,
    
    
    outstanding options,
    
    
    (excluding securities reflected inwarrants, and rights
    
    
    warrants, and rights
    
    
    column (a)Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    
    
    
    Equity compensation
plans not approved
by security holders
    
    390,000
    
    $3.50
    
    Total
    
    390,000
 Issuer Purchase of Equity Securities
  
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 Overview
   23




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
    
    Alpha Black Zero, a mission-based tactical shooting game for the PC;
    
    Airborne Troops, an infiltration action adventure game based on World War II for PC and
PlayStation2;
    
    Cyclone Circus, an arcade stunt/racing game for PlayStation2;
    
    Xyanide, a shoot-m- up game for mobile devices.
    
    World Racing 2, a racing game for PS2, Xbox and PCs;
    
    Knights of the Temple 2, a hack & slash/ adventure game for PS2, Xbox and PC; and
    
    Gene Troopers, a futuristic shooter for PS2, Xbox and PC.
  Visionvale agreement
 DC Studios agreement.
 1C Europe agreements.
 Metropolis agreement.
 RivalInteractive agreement.
 Rebellion agreement.
 24




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Macrovision agreement. www.playlogicgames.com
 Sony agreement.
 Red Bull agreement.
  Managements Overview of Historical and Prospective Business Trends
 Increased Console Installed Base.
 Software Prices.
 Increasing Cost of Titles.
 Estimates.
 25




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Results of Operations
 Comparison of Fiscal 2005 to Fiscal 2004.
 Net sales
 Gross Profit
 Selling, Marketing, General and Administrative Expenses
 Expense related to intrinsic value of issued stock options
  Research and development
 Depreciation
 Interest Expense
 Net Loss
 Other comprehensive income
 Equity
 Liquidity and Capital Resources
  26




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Off Balance Sheet Arrangements
  Contractual Obligations
  Contractual Obligations
    
    Payments Due By Period (in thousands)Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    YearsLong-Term Debt Obligations
    
    $
    248
    
    
    $
    35
    
    
    $
    71
    
    
    $
    71
    
    
    $
    71Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease Obligations
(Including Rent)
    
    $
    5,134
    
    
    $
    790
    
    
    $
    1,534
    
    
    $
    1,335
    
    
    $
    1,475Purchase obligations
    
    $
    4,840
    
    
    $
    4,840
    
    
    
    
    
    
    
    
    
    
    
    Other contractual obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    10,222
    
    
    $
    5,665
    
    
    $
    1,605
    
    
    $
    1,406
    
    
    $
    1,546
   
 Summary of Significant Accounting Policies
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Accounts receivable
  Software Development Costs
    Prepaid royalties
   Revenue Recognition
  
    
    Evidence of an arrangement: We recognize revenues when we have evidence of an agreement
with the customer reflecting the terms and conditions to deliver products.
    
    Delivery: Delivery is considered to occur when the products are shipped and risk of loss
has been transferred to the customer.
    
    Fixed or determinable fee: If a portion of the arrangement fee is not fixed or
determinable, we recognize that amount as revenues when the amount becomes fixed or
determinable.
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
    
    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 revenues when collection becomes
probable (generally upon cash collection).
 Product Revenues
  New Accounting Pronouncements
      29




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Related Party Transactions
  
 ITEM 7. FINANCIAL STATEMENTS
  
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
         30




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.
 
 ITEM 8A. DISCLOSURE CONTROLS AND PROCEDURES
     
 ITEM 8B. OTHER INFORMATION
  31




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PART III
 
 ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT
  Name
    
    Age
    
    PositionWillem M. Smit
    
    
    59
    
    
    Director, President, and Chief Executive OfficerWilly J. Simon
    
    
    55
    
    
    Chairman of the Board of DirectorsGeorge M. Calhoun
    
    
    53
    
    
    DirectorErik L.A. van Emden
    
    
    57
    
    
    DirectorRogier W. Smit
    
    
    31
    
    
    Executive Vice PresidentJan Willem Kohne
    
    
    35
    
    
    Chief Financial OfficerStefan Layer
    
    
    35
    
    
    Chief Marketing & Sales OfficerDominique Morel
    
    
    32
    
    
    Chief Technology Officer
  Biographical Information
  Willem M. Smit
 Willy J. Simon
 George M. Calhoun
 32




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Erik L.A. van Emden
 Rogier W. Smit
 Stefan Layer
 Jan Willem Kohne
 Dominique
  Indemnification of Officers and Directors
  33




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Conflicts of Interest
   Involvement in Certain Legal Proceedings
      Beneficial Ownership Reporting Compliance
  34




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##### Table of Contents



Information Concerning the Board of Directors and the Audit Committee
  Audit Committee
   Compensation Committee
  Nominating and Governance Committee
  Code of Business Conduct and Ethics
   35




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##### Table of Contents



Director Nomination
 Criteria for Board Membership.
 Stockholder Nominees.
 Process for Identifying and Evaluating Nominees.
  
 ITEM 10. EXECUTIVE COMPENSATION
 The following table sets forth information regarding compensation for the fiscal years ended
December 31, 2003, 2004 and 2005 received by the individual who served as Playlogic Internationals
Chief Executive Officer during 2005 and Playlogic Internationals other most highly compensated
executive officers whose total annual salary and bonus for fiscal year 2005 exceeded $100,000 (the
Named Officers).
 36




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##### Table of Contents



Summary Compensation Table
 Long-TermCompensation
    
    
    
    
    
    All OtherAnnual Cormpensation
    
    Awards
    
    Payouts
    
    CompensationNameandPrincipalPosition
    
    
    
    
    
    
    
    
    
    Other
    
    Restrictedas of
    
    
    
    
    
    
    
    
    
    Annual
    
    Stock
    
    SecuritiesDecember
    
    
    
    
    
    
    
    
    
    Compensation
    
    Awards
    
    Underlying31, 2005
    
    Year
    
    Salary /($)
    
    Bonus ($)
    
    ($)
    
    (3)
    
    Options/SARs (#)
    
    LTIP Payouts ($)Willem M. Smit (1)
    
    2005
    
    0
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Chief Executive
    
    2004
    
    0
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Officer
    
    2003
    
    0
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    Sloterhof Investments
    
    2005
    
    0
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0N.V. (of which Mr.
    
    2004
    
    100,000/$147,096
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Willem M. Smit is the
    
    2003
    
    100,000/$135,458
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    beneficial owner)
Managing DirectorRogier W. Smit
    
    2005
    
    143,000/$195,109
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Executive Vice President
    
    2004
    
    100,000/$147,096
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0
    
    
    
    2003
    
    100,000/$135,458
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    0Jan Willem Kohne
    
    2005
    
    143,000/$195,109
    
    
    48,480
    
    
    
    
    
    
    $
    63,000
    (4)
    
    
    250,000
    (7)
    
    
    Chief Financial Officer (2)
    
    2004
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    0Stefan Layer
    
    2005
    
    143,000/$195,109
    
    
    67,200
    
    
    
    
    
    
    $
    245,000
    (5)
    
    
    0
    
    
    
    Chief Marketing & Sales
    
    2004
    
    0Officer / VP (2)
    
    2003
    
    0Maarten Minderhoud
    
    2005
    
    143,000/$195,109
    
    
    0
    
    
    
    
    
    
    $
    21,000
    (6)
    
    
    40,000
    (8)
    
    
    General Counsel (2)
    
    2004
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    0Dominique Morel
    
    2005
    
    143,000/$195,109
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    100,000
    (9)
    
    
    Chief Technology Officer (2)
    
    2004
    
    0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2003
    
    0
 
 (1)
    
    Willem M. Smit, the Companys Chief Executive Officer, will not receive any salary until
there are positive cash flows from operations. Currently, the Company only pays Mr. Smit for
his business related expenses, and it provides him a company car.(2)
    
    Mr. Kohne, Layer, Minderhoud and Morel joined the Company in 2005.(3)
    
    Calculated by multiplying the amount of restricted stock by the restated value for Dutch
income tax purposes of the restricted stock grant ($.70 per share). 37




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##### Table of Contents



(4)
    
    In connection with Mr. Layers employment arrangement, we sold 364,556 restricted shares to
Mr. Layer, our Chief Marketing & Sales Officer at an aggregate price of $1. The restricted
shares have two years lock-up period during which Mr. Layer cannot sell the shares.(5)
    
    In connection with Mr. Kohnes employment arrangement with the Company, we sold 90,000
restricted shares to Mr. Kohne at an aggregate price of $1. The restricted shares have two
years lock-up period during which Mr. Kohne cannot sell the shares.(6)
    
    In connection with Mr. Minderhouds employment arrangement with the Company we sold 30,000
restricted shares to Mr. Minderhoud at an aggregate price of $1. The restricted shares have a
two-year lock up period during which Mr. Minderhoud cannot sell the shares.(7)
    
    We granted to Mr. Kohne, 250,000 options to purchase shares of our common stock at an
exercise price of $3.50 per share. A total of 62,500 shares of these options will vest on
October 1, 2007, and the remaining options will vest in three equal installments on October 1,
2008, October 1, 2009 and October 1, 2010.(8)
    
    We granted to Mr. Minderhoud, 40,000 options to purchase shares of our common stock at an
exercise price of $3.50 per share. A total of 250,000 shares of these options will vest on
October1, 2007, and the remaining options will vest in three equal installments on September
1, 2008, September 1, 2009 and September 1, 2010.(9)
    
    We granted to Mr. Morel, 100,000 options to purchase shares of our common stock at an
exercise price of $3.50 per share. A total of 250,000 shares of these options will vest on
October1, 2007, and the remaining options will vest in three equal installments on October 1,
2008, October 1, 2009 and October 1, 2010 STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
   Percentage of Total
    
    ExerciseNumber of Securities
    
    Options/SARs granted
    
    or BaseUnderlying Options/SARs
    
    to employees in fiscal
    
    Price
    
    ExpirationNAME
    
    granted
    
    year (2)
    
    ($/Sh)
    
    dateDominique Morel (1)
    
    
    100,000
    
    
    
    26%
    
    
    $
    3.50
    
    
    October 1, 2010Jan Willem Kohne (1)
    
    
    250,000
    
    
    
    64%
    
    
    $
    3.50
    
    
    October 1, 2010Maarten Minderhoud(1)
    
    
    40,000
    
    
    
    10%
    
    
    $
    3.50
    
    
    September 1, 2010
 
 (1)
    
    See applicable footnotes to above Summary Compensation Table.(2)
    
    The Company has not granted any stock appreciation rights in the fiscal year ended
December 31, 2005. Option Exercises and Holdings
  38




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Directors Compensation
  Employment Agreements
  
  
  
 
 39




---



##### Table of Contents




 
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  Number ofShares of
    
    
    Percentage ofName and Address (1)
    
    Common Stock
    
    
    Common StockSloterhof Investments N.V.
Kaya Richard J.
Beaujon Z/N
Curacao, Netherlands Antilles
    
    
    7,303,357
    
    
    
    30.36
    %Castilla Investments B.V.
Concertgebouwplein 13
1071 LL Amsterdam
The Netherlands
    
    
    1,777,496
    
    
    
    7.39
    %Wind Worth Luxembourg Holding S.A.H
19 Rue de lIndustrie
8069 Betrange
Luxembourg
    
    
    2,138,874
    
    
    
    8.89
    %Sophia International Holding S.A.H.
3 Rue de Bains
Luxembourg L-2016
Luxembourg
    
    
    1,611,500
    
    
    
    6.70
    %Willem Smit (2)
    
    
    7,303,357
    
    
    
    30.36
    %Rogier Smit (3)
    
    
    1,777,496
    
    
    
    7.39
    %Stefan Layer
    
    
    364,556
    
    
    
    1.52
    %Jan Willem Kohne
    
    
    90,000
    
    
    
    *Erik L.A. van Emden
    
    
    0
    
    
    
    *Willy J. Simon
    
    
    87,494
    
    
    
    *George M. Calhoun
    
    
    200
    
    
    
    *All directors and executive officers as a group
    
    
    9,623,103
    
    
    
    40
    %
 40




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##### Table of Contents



*
    
    Less than 1%(1)
    
    Unless otherwise indicated, the address is our address at Concertgebouwplein 13, 1071 LL
Amsterdam, The Netherlands.(2)
    
    Includes shares held by Sloterhof Investments N.V.(3)
    
    Includes shares held by Castilla Investments B.V. 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
 
 ITEM 13. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
 (a) Documents filed as part of Form 10-KSB
 1.
    
    Financial Statements:The following financial statements of the Company are submitted in a separate section
pursuant to the requirements of Form 10-KSB, Part I, Item 8 and Part IV, Items 14(a) and
14(d):Index to Consolidated Financial StatementsReport of Independent Registered Public Accounting FirmConsolidated Balance SheetConsolidated Statements of Operations and Comprehensive IncomeConsolidated Statement of Changes in Shareholders Equity (Deficit)Consolidated Statements of Cash FlowsNotes to Consolidated Financial Statements2.
    
    Schedules Supporting Financial Statements:All schedules are omitted because they are not required, are inapplicable, or the
information is otherwise shown in the consolidated financial statements or notes to the
consolidated financial statements.3.
    
    Exhibits:Exhibit Index
 Exhibit 31.1
    
    Certification of Chief Executive Officer
pursuant to Rule 13a-14(a)/15-14(a)
    
    Filed HerewithExhibit 31.2
    
    Certification of Chief Financial Officer
pursuant to Rule 13a-14(a)/15-14(a)
    
    Filed HerewithExhibit 32.1
    
    Certification of Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed HerewithExhibit 32.2
    
    Certification of Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Filed Herewith
 41




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 Audit Fees.
    Audit-Related Fees.
   Tax Fees.
  All Other Fees.
   42




---



##### Table of Contents



SIGNATURES
  Playlogic International, INC.Dated: May 4, 2006
    
    By
    
    /s/ Willem M. SmitWillem M. SmitChief Executive Officer
  Signature
    
    Capacity in Which Signed
    
    Date/s/ Willy S. Simon

Willy. Simon
    
    Chairman of the Board
    
    May 4, 2006/s/ Willem M. Smit

Willem M. Smit
    
    Director and Chief Executive Officer
    
    May 4, 2006/s/ Jan Willem Kohne

Jan Willem Kohne
    
    Chief Financial Officer
(Principal Financing and Accounting Officer)
    
    May 4, 2006/s/ Erik L.A. van Emden

Erik L.A. van Emden
    
    Director
    
    May 4, 2006/s/ George M. Calhoun

George M. Calhoun
    
    Director
    
    May 4, 2006




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 CONTENTS
  PageReport of Independent Registered Public Accounting FirmS. W. Hatfield, CPA
    
    
    F-2BDO CampsObers
    
    
    F-4Consolidated Financial StatementsConsolidated Balance Sheet
as of December 31, 2005
    
    
    F-6Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 2005 and 2004
    
    
    F-9Consolidated Statement of Changes in Stockholders Equity (Deficit)
for the years ended December 31, 2005 and 2004
    
    
    F-11Consolidated Statements of Cash Flows
for the years ended December 31, 2005 and 2004
    
    
    F-13Notes to Consolidated Financial Statements
    
    
    F-15




---



##### Table of Contents



LETTERHEAD OF S. W. HATFIELD, CPA
 
 REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
 
     F-2




---



##### Table of Contents



/s/ S. W. Hatfield, CPAS. W. HATFIELD, CPA
 
 F-3




---



##### Table of Contents



LETTERHEAD OF BDO CampsObers
 REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM
 
     F-4




---



##### Table of Contents



/s/ BDO CampsObersBDO CampsObers
 
 F-5




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEET
  December 31,2005ASSETSCurrent AssetsCash on hand and in bank
    
    $
    139,760Accounts receivableTrade, net of allowance for doubtful accounts of $276,070
    
    
    645,884Loans to affiliated
companies
    
    
    495,743Value Added Taxes from foreign governments
    
    
    764,247Prepaid expenses and other
    
    
    927,214Total current assets
    
    
    2,972,848Property and Equipment  at costComputers and office equipment
    
    
    1,365,939Leasehold improvements
    
    
    232,814Software
    
    
    284,8591,883,612Less accumulated depreciation
    
    
    (1,133,933
    )Net property and equipment
    
    
    749,679Other assetsCapitalized software development costs
    
    
    3,105,418Total other assets
    
    
    3,105,418Total Assets
    
    $
    6,827,945
 - Continued -
  F-6




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEET  CONTINUED
 December 31,2005LIABILITIES AND STOCKHOLDERS DEFICITCurrent LiabilitiesBank overdraft
    
    $
    1,531,052Current maturities of long-term debt
    
    
    35,487Accounts payable  trade
    
    
    2,569,558Payroll taxes payable
    
    
    2,303,344Other accrued liabilitiesAccrued wages and related personnel costs
    
    
    269,793Other
    
    
    817,022Deferred revenues
    
    
    9,729Loan from stockholders
    
    
    163,091Total Current Liabilities
    
    
    7,699,076Long-Term LiabilitiesLong-term debt, net of current maturities
    
    
    248,409Total Liabilities
    
    
    7,947,485Commitments and contingenciesStockholders DeficitPreferred stock  $0.001 par value.
20,000,000 shares authorized.
None issued and outstanding
    
    
    Common stock  $0.001 par value.
100,000,000 shares authorized.
24,057,207 shares issued and outstanding, respectively
    
    
    24,057
  F-7




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##### Table of Contents



December 31,2005Common stock warrants
    
    
    1,266,369Additional paid-in capital
    
    
    37,549,545Currency translation adjustments
    
    
    (1,499,641
    )Accumulated deficit
    
    
    (37,230,526
    )109,804Stock subscriptions receivable
    
    
    (1,229,344
    )Total Stockholders Deficit
    
    
    (1,119,540
    )Total Liabilities and Shareholders Deficit
    
    $
    6,827,945
  F-8




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
  Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004RevenuesGame software
    
    $
    1,824,199
    
    
    $
    109,487Cost of SalesDirect costs of production
    
    
    1,082,306
    
    
    
    35,906Gross Profit
    
    
    741,893
    
    
    
    73,581Operating expensesResearch and development
    
    
    1,582,073
    
    
    
    4,530,747Selling and marketing
    
    
    591,286
    
    
    
    578,223General and administrative
    
    
    4,745,191
    
    
    
    3,288,516Expense related to intrinsic value
of issued stock options
    
    
    70,773
    
    
    
    8,965,037Depreciation
    
    
    280,480
    
    
    
    360,799Total operating expenses
    
    
    7,269,803
    
    
    
    17,723,322Loss from Operations
    
    
    (6,527,910
    )
    
    
    (17,649,741
    )Other Income (Expense)Interest expense
    
    
    (288,165
    )
    
    
    (2,499,104
    )Expense related to the sale of common stock at less than fair value
    
    
    (1,073,150
    )Impairment charge related to investment in another entity
    
    
    
    
    
    
    (14,008
    )
  F-9




---



##### Table of Contents



Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Loss before provision for income taxes
    
    
    (7,889,225
    )
    
    
    (20,162,853
    )Provision for Income Taxes
    
    
    (78,091
    )
    
    
    Net Loss
    
    
    (7,967,316
    )
    
    
    (20,162,853
    )Other comprehensive incomeForeign currency translation adjustment
    
    
    1,137,944
    
    
    
    (1,869,999
    )Comprehensive Loss
    
    $
    (6,829,372
    )
    
    $
    (22,032,852
    )Net loss per weighted-average share
of common stock outstanding,
computed on Net Loss
 basic and fully diluted
    
    $
    (0.30
    )
    
    $
    (0.89
    )Weighted-average number of shares
of common stock outstanding 
basic and fully diluted
    
    
    22,865,402
    
    
    
    22,703,351
  F-10




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
  Common
    
    
    Additional
    
    
    Currency
    
    
    StockCommon Stock
    
    
    stock
    
    
    paid-in
    
    
    translation
    
    
    subscription
    
    
    AccumulatedShares
    
    
    Amount
    
    
    warrants
    
    
    capital
    
    
    adjustment
    
    
    receivable
    
    
    deficit
    
    
    TotalBalances at December 31, 2003
    
    
    7,122,667
    
    
    $
    7,123
    
    
    $
    
    
    
    $
    349,010
    
    
    $
    
    
    
    $
    
    
    
    $
    (373,174
    )
    
    $
    (17,041
    )Effect of 1 for 10 reverse split
on April 15, 2005
    
    
    (6,410,401
    )
    
    
    (6,411
    )
    
    
    
    
    
    
    6,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of reverse merger
with Playlogic International,
N. V. on June 30, 2005
    
    
    21,836,930
    
    
    
    21,837
    
    
    
    
    
    
    
    32,377,477
    
    
    
    (767,586
    )
    
    
    
    
    
    
    (8,727,183
    )
    
    
    23,562,581Balances at December 31, 2003,
as restated
    
    
    22,549,196
    
    
    
    22,549
    
    
    
    
    
    
    
    32,732,898
    
    
    
    (767,586
    )
    
    
    
    
    
    
    (9,100,357
    )
    
    
    23,545,540Common stock issued pursuant
to private placements for:Services
    
    
    32,080
    
    
    
    32
    
    
    
    
    
    
    
    16,008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,040Settlement of accrued officers
compensation and repayment
of advances from officer
    
    
    184,618
    
    
    
    185
    
    
    
    
    
    
    
    92,124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,309
  F-11




---



##### Table of Contents



Common
    
    
    Additional
    
    
    Currency
    
    
    StockCommon Stock
    
    
    stock
    
    
    paid-in
    
    
    translation
    
    
    subscription
    
    
    AccumulatedShares
    
    
    Amount
    
    
    warrants
    
    
    capital
    
    
    adjustment
    
    
    receivable
    
    
    deficit
    
    
    TotalCapital contributed to support operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,370Change in currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,869,999
    )
    
    
    
    
    
    
    
    
    
    
    (1,869,999
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,162,853
    )
    
    
    (20,162,853
    )Balances at December 31, 2004
    
    
    22,765,894
    
    
    
    22,766
    
    
    
    
    
    
    
    32,855,370
    
    
    
    (2,637,585
    )
    
    
    
    
    
    
    (29,263,210
    )
    
    
    1,635,377Common stock issued pursuant
to private placements for:Cash
    
    
    936,132
    
    
    
    936
    
    
    
    1,266,369
    
    
    
    2,500,887
    
    
    
    
    
    
    
    (1,229,344
    )
    
    
    
    
    
    
    2,538,848Conversion of debt
    
    
    255,181
    
    
    
    255
    
    
    
    
    
    
    
    918,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    918,652Aggregate equalization charge
for sale at less than fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983,150Common stock issued pursuant to
Employee Compensation Plan
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    59,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000Equalization charge for sale at
less than fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000Less: Cost of raising capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )Capital contributed to support operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,341
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,341Change in currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,137,944
    
    
    
    
    
    
    
    
    
    
    
    479,908Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,967,316
    )
    
    
    (7,967,316
    )Balances at December 31, 2005
    
    
    24,057,207
    
    
    $
    24,057
    
    
    $
    1,266,369
    
    
    $
    37,549,545
    
    
    $
    (1,499,641
    )
    
    $
    (1,229,344
    )
    
    $
    (37,230,526
    )
    
    $
    (1,119,540
    )
  F-12
    Table of Contents   PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Cash Flows from Operating ActivitiesNet loss
    
    $
    (7,967,316
    )
    
    $
    (20,162,853
    )Adjustments to reconcile net income to net cash
provided by operating activitiesCurrency translation adjustment
    
    
    1,137,944
    
    
    
    (1,869,999
    )Depreciation
    
    
    280,480
    
    
    
    360,799Bad debt expense
    
    
    276,070
    
    
    
    Impairment charges for goodwill
    
    
    
    
    
    
    14,008Expense charges for stock options
    
    
    70,773
    
    
    
    8,965,037Expense related to common stock issuances
at less than fair value
    
    
    1,073,150
    
    
    
    (Increase) Decrease inAccounts receivable  trade and other
    
    
    (1,686,201
    )
    
    
    11,733Prepaid expenses and other
    
    
    (654,396
    )
    
    
    (87,070
    )Increase (Decrease) inDeferred revenues
    
    
    9,729
    
    
    
    Accounts payable  trade
    
    
    (618,035
    )
    
    
    2,161,132Payroll taxes payable
    
    
    2,164,522
    
    
    
    (610,981
    )Other current liabilities
    
    
    53,621
    
    
    
    281,588Net cash used in operating activities
    
    
    (5,869,438
    )
    
    
    (10,936,606
    )Cash Flows from Investing ActivitiesCash paid for software development
    
    
    (1,931,021
    )
    
    
    (679,696
    )Cash advanced for prepaid royalties to affiliated entities
    
    
    (406,985
    )
    
    
    (88,758
    )Cash paid to acquire property and equipment
    
    
    (308,687
    )
    
    
    (359,028
    )
  F-13




---



##### Table of Contents



Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Net cash used in investing activities
    
    
    (2,646,693
    )
    
    
    (1,127,482
    )Cash Flows from Financing ActivitiesIncrease in cash overdraft
    
    
    598,035
    
    
    
    933,017Net activity on short term notes to third parties
    
    
    (807,011
    )
    
    
    807,011Principal payments on long-term debt
    
    
    (43,824
    )
    
    
    (2,243
    )Cash advanced or repaid to shareholder  net
    
    
    (7,434,035
    )
    
    
    1,318,225Proceeds from sales of common stock
    
    
    3,446,728
    
    
    
    Proceeds from sales of pre-merger subsidiary common stock
    
    
    12,731,932
    
    
    
    8,948,593Cash contributed by shareholder to support operations
    
    
    145,341
    
    
    
    Cash paid to acquire capital
    
    
    (3,500
    )
    
    
    Net cash provided by financing activities
    
    
    8,633,665
    
    
    
    12,004,603Increase (Decrease) in Cash and Cash Equivalents
    
    
    117,534
    
    
    
    (59,485
    )Cash and cash equivalents at beginning of period
    
    
    22,226
    
    
    
    81,711Cash and cash equivalents at end of period
    
    $
    139,760
    
    
    $
    22,226Supplemental Disclosures of Interest and Income Taxes PaidInterest paid during the period
    
    $
    288,165
    
    
    $
    2,499,104Income taxes paid (refunded)
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash Investing and Financing ActivitiesCommon stock issued to repay notes payable
    
    $
    918,652
    
    
    $
    
 F-14
    Table of Contents   PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  ORGANIZATION AND DESCRIPTION OF BUSINESS
       F-15    Table of Contents  NOTE B  PREPARATION OF FINANCIAL STATEMENTS
    F-16
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE B  PREPARATION OF FINANCIAL STATEMENTS  Continued
    NOTE C  GOING CONCERN UNCERTAINTY
     
 F-17
    Table of Contents  F-18
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE C  GOING CONCERN UNCERTAINTY  Continued
   NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 1.
    
    Currency translationThe 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:
 December 30, 2005:
    
    $
    1.18290December 31, 2004:
    
    $
    1.36550December 31, 2003
    
    $
    1.25700
 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:
 F-19
    Table of Contents  December 31, 2005:
    
    $
    1.24658December 31, 2004:
    
    $
    1.24514December 31, 2003
    
    $
    1.13272
 2.
    
    Cash and cash equivalentsThe 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.
  3.
    
    Accounts receivable  tradeThe Companys current customers are located principally within Europe; however, the Company
anticipates having customers throughout the world in future periods. 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.
 F-20
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 3.
    
    Accounts receivable  trade  continuedBecause of the credit risk involved, management has provided an allowance for doubtful accounts
which reflects its opinion of amounts which will eventually become uncollectible. In the event
of complete non-performance, the maximum exposure to the Company is the recorded amount of trade
accounts receivable shown on the balance sheet at the date of non-performance.4.
    
    Property and equipmentProperty 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 costsCapitalized 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 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 charges to operations 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.
 F-21
    Table of Contents  6.
    
    Prepaid royaltiesThe 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 costsThe 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.
 F-22
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 8.
    
    Research and development expensesResearch and development expenses include the direct costs related to software and game
development which are incurred prior to the establishment of technological feasibility of a
specific game title or product. These costs are charged to operations as incurred.9.
    
    Advertising expensesThe Company does not utilize direct solicitation advertising. All other advertising and
marketing expenses are charged to operations as incurred.10.
    
    Income TaxesThe Company utilizes the asset and liability method of accounting for income taxes. At December
31, 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 generally
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 PaymentsThe 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 shareBasic 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).
 F-23
    Table of Contents  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 December 31, 2005 and 2004, the Companys outstanding stock options and warrants are
considered anti-dilutive due to the Companys net operating loss position.
  F-24
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 13.
    
    Revenue recognitionThe 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 U. S. Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, as revised by SAB 104, Revenue Recognition. The Company evaluates revenue
recognition using the following basic criteria:
 *
    
    Evidence of an arrangement: The Company recognizes revenue when it has evidence of an
agreement with the customer reflecting the terms and conditions to deliver products.*
    
    Delivery: Delivery is considered to occur when the products are shipped and risk of
loss has been transferred to the customer.*
    
    Fixed or determinable fee: If a portion of the arrangement fee is not fixed or
determinable, the Company recognizes that amount as revenue when the amount becomes fixed
or determinable.*
    
    Collection is deemed probable: At the time of the transaction, the Company conducts
a credit review of each customer involved in a significant transaction to determine the
creditworthiness of the customer. Collection is deemed probable if the Company expects
the customer to be able to pay amounts under the arrangement as those amounts become due.
If the Company determines that collection is not probable, it recognizes revenue when
collection becomes probable (generally upon cash collection).
 The Company defers revenues on sales which do not confirm to the above listed criteria until
such time that the billed amount is either paid or any attached right-of-return
expires/terminates.
 14.
    
    New accounting pronouncementsIn November 2004, the Financial Accounting Standards Board (the FASB) issued SFAS No. 151,
Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 clarifies the accounting
for abnormal amounts of idle facility expense, freight, handling costs and wasted materials.
SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The initial application of SFAS No. 151 is not expected to have a significant impact
on the Companys financial position or results of operations.In December 2004, the FASB issued SFAS 123(R), Share-Based Payment, which
 F-25
    Table of Contents  addresses the accounting for employee stock options. SFAS 123(R) revises the disclosure
provisions of SFAS 123 and supersedes APB 25. SFAS 123(R) requires that the cost of all
employee stock options, as well as other equity-based compensation arrangements, be reflected in
financial statements based on the estimated fair value of the awards. In March 2005, the
Securities & Exchange Commission (the SEC) issued Staff Accounting Bulletin No. 107,
Share-Based Payment, which summarizes the views of the SEC staff regarding the interaction
between SFAS 123(R) and certain SEC rules and regulations, and is intended to assist in the
initial implementation. SFAS(R) is effective for all companies that file as small business
issuers as of the beginning of the first interim or annual reporting period that begins after
December 15, 2005. The Company is currently evaluating the provisions of SFAS 123(R) and its
effect on its financial statements. The Company does not expect the adoption of this statement
to have a material impact on its financial statements.In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of
APB 29, Accounting for Nonmonetary Transactions. This statements amendments are based on the
principle that exchanges of nonmonetary assets should be measured based on the fair value of the
assets exchanged. Further, SFAS 153 eliminates the narrow exception for nonmonetary exchanges
of similar productive assets and replaces it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. Provisions of this statement are
effective for fiscal periods beginning after June 15, 2005. The Company does not expect the
adoption of this statement to have a material impact on its financial statements.
 F-26
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED
 14.
    
    New accounting pronouncements  continuedIn March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations(FIN 47), which is an interpretation of SFAS 143, Accounting for Asset
Retirement Obligations. FIN 47 clarifies terminology within SFAS 143 and requires an entry to
recognize a liability for the fair value of a conditional asset retirement obligation when
incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective for
fiscal years ending after December 15, 2005. The Company does not expect the adoption of this
statement to have a material impact on its financial statements.In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
will require entities that voluntarily make a change in accounting principle to apply that
change retroactively to prior periods financial statements unless this would be impracticable.
SFAS No. 154 supersedes Accounting Principles Board Opinion No. 20, Accounting Changes (APB
No. 20), which previously required that most voluntary changes in accounting principle be
recognized by including in the current periods net income the cumulative effect of changing to
the new accounting principle. SFAS No. 154 also makes a distinction between retrospective
application of an accounting principle and the restatement of financial statements to reflect
the correction of an error. Another significant change in practice under SFAS No. 154 will be
that if an entity changes its method of depreciation, amortization, or depletion for long-lived,
non-financial assets, the change must be accounted for as a change in accounting principle.
SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005. The provisions of SFAS No. 154 are not expected to affect
the Companys consolidated financial statements.
 NOTE E  FAIR VALUE OF FINANCIAL INSTRUMENTS
   F-27
    Table of Contents  F-28
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE F  CONCENTRATIONS OF CREDIT RISK
   NOTE G  PROPERTY AND EQUIPMENT
  Carrying value
    
    Estimated LifeComputers and office equipment
    
    $
    1,365,939
    
    3-5 yearsLeasehold improvements
    
    
    232,814Initial lease term
    
    
    284,859
    
    3-5 yearsSoftware
    
    
    1,883,612Less accumulated depreciation
    
    
    (1,133,933
    )Net property and equipment
    
    $
    749,679
 F-29
    Table of Contents  NOTE H  AMOUNTS DUE FROM RELATED PARTIES
  NOTE I  LONG-TERM DEBT
  Note payable to a landlord for leasehold improvements.
Payable in quarterly installments of approximately
    
    $
    8,871Final maturity in 2013.
    
    $
    283,896Less current maturities
    
    
    (35,487
    )Current portion
    
    $
    248,409
 F-30
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE I  LONG-TERM DEBT  Continued
  Year endingDecember 31,
    
    
    
    
    
    Amount2006
    
    
    
    
    
    $
    35,4872007
    
    
    
    
    
    
    35,4872008
    
    
    
    
    
    
    35,4872009
    
    
    
    
    
    
    35,4872010
    
    
    
    
    
    
    35,4872011-2015
    
    
    
    
    
    
    106,481Totals
    
    
    
    
    
    $
    283,896
 NOTE J  LOAN FROM STOCKHOLDERS
  NOTE K  INCOME TAXES
  Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Domestic:Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    Foreign:Current
    
    
    78,091
    
    
    
    
 F-31
    Table of Contents  Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Deferred
    
    
    
    
    
    
    78,091
    
    
    
    State:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    Total
    
    $
    78,091
    
    
    $
    
  F-32
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE K  INCOME TAXES  Continued
  Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Statutory rate applied to loss before income taxes
    
    $
    (2,708,900
    )
    
    $
    (7,512,500
    )Increase (decrease) inincome taxes resulting from:Foreign income taxes
    
    
    2,269,491
    
    
    
    7,512,500State income taxes
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    Non-deductible items:Expense related to common stock
issued at less than fair value
    
    
    364,900
    
    
    
    Other,
including reserve for deferred tax asset and effect of graduated tax brackets
    
    
    152,600
    
    
    
    Total income tax expense (benefit)
    
    $
    78,091
    
    
    $
    
  Net operating loss carryforwards
    
    $
    8,643,000Less valuation allowance
    
    
    (8,643,000
    )Net Deferred Tax Asset
    
    $
    
 F-33
    Table of Contents  NOTE L  COMMON STOCK TRANSACTIONS
   F-34
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE L  COMMON STOCK TRANSACTIONS  Continued
       F-35
    Table of Contents  F-36
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE L  COMMON STOCK TRANSACTIONS  Continued
   NOTE M  STOCK WARRANTS
  F-37
    Table of Contents  WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at December 31, 2004
    
    
    100,000
    
    
    $
    0.60Issued
    
    
    570,000
    
    
    $
    5.00Exercised
    
    
    (100,000
    )
    
    $
    0.60Balance at December 31, 2005
    
    
    570,000
    
    
    $
    5.00
   F-38
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE M  STOCK WARRANTS  Continued
  NOTE N  STOCK OPTIONS
     Weighted averageprice per shareOptions outstanding at January 1, 2004
    
    
    
    
    
    
    Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
 F-39
    Table of Contents  Weighted averageprice per shareExpired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2004
    
    
    
    
    
    
    Issued
    
    
    390,000
    
    
    $
    3.50Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2005
    
    
    390,000
   F-40
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE N  STOCK OPTIONS  Continued
    NOTE O  COMMITMENTS AND CONTINGENCIES
 Security agreement
  Transactions with related parties
 
 F-41
    Table of Contents  Office leases
 
 
 F-42
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  COMMITMENTS AND CONTINGENCIES  Continued
 Office leases
  
   1 2 1 2
  Year endingDecember 31,
    
    
    
    
    
    Amount2006
    
    
    
    
    
    $
    581,3592007
    
    
    
    
    
    
    673,0332008
    
    
    
    
    
    
    645,2722009
    
    
    
    
    
    
    645,2722010
    
    
    
    
    
    
    645,2722011-2015
    
    
    
    
    
    
    1,475,076Totals
    
    
    
    
    
    $
    4,665,284
 Transportation leases
  F-43
    Table of Contents  Year endingDecember 31,
    
    
    
    
    
    Amount2006
    
    
    
    
    
    $
    208,2922007
    
    
    
    
    
    
    131,4802008
    
    
    
    
    
    
    84,3492009
    
    
    
    
    
    
    44,892Totals
    
    
    
    
    
    $
    469,013
 Employment agreements
  F-44
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  COMMITMENTS AND CONTINGENCIES  Continued
 Employment agreements
  
   
 
 F-45
    Table of Contents   
  F-46
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  COMMITMENTS AND CONTINGENCIES  Continued
 Employment agreements
  
 Software development contracts
  Litigation
    F-47
    Table of Contents  F-48
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE P  SEGMENT INFORMATION AND REVENUE CONCENTRATIONS
  Year ended
    
    
    Year endedDecember 31, 2005
    
    
    December 31, 2004Amount
    
    
    % of total
    
    
    Amount
    
    
    % of totalEurope and United KingdomCustomer A
    
    
    558,181
    
    
    
    31
    %
    
    
    
    
    
    
    
    %Customer B
    
    
    262,530
    
    
    
    14
    %
    
    
    
    
    
    
    
    %Others
    
    
    616,636
    
    
    
    34
    %
    
    
    119,982
    
    
    
    100
    %1,437,347
    
    
    
    79
    %
    
    
    119,982
    
    
    
    100
    %Middle East/AfricaOthers
    
    
    13,982
    
    
    
    1
    %
    
    
    
    
    
    
    
    %13,982
    
    
    
    1
    %
    
    
    
    
    
    
    
    %Asia
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %United StatesCustomer C
    
    
    353,817
    
    
    
    19
    %
    
    
    
    
    
    
    
    %Others
    
    
    19,073
    
    
    
    1
    %
    
    
    
    
    
    
    
    %372,890
    
    
    
    20
    %
    
    
    
    
    
    
    
    %South America
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Totals
    
    $
    1,824,199
    
    
    
    100
    %
    
    $
    119,982
    
    
    
    100
    %
 NOTE Q  SELECTED FINANCIAL DATA (Unaudited)
  F-49
    Table of Contents  Quarter ended
    
    Quarter ended
    
    Quarter ended
    
    Quarter ended
    
    Year endedMarch 31
    
    June 30
    
    September 30
    
    December 31
    
    December 31Year ended December 31, 2005Net revenues
    
    $
    532,138
    
    
    $
    204,421
    
    
    $
    542,579
    
    
    $
    545,061
    
    
    $
    1,824,199Gross profit
    
    $
    409,061
    
    
    $
    187,729
    
    
    $
    206,199
    
    
    $
    (61,096
    )
    
    $
    741,893Net loss from operations
    
    $
    (559,990
    )
    
    $
    (999,448
    )
    
    $
    (655,511
    )
    
    $
    (5,752,367
    )
    
    $
    (7,967,316
    )Basic and fully diluted
earnings per share
    
    $
    (0.02
    )
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.25
    )
    
    $
    (0.35
    )Weighted-average
number of shares
outstanding
    
    
    22,765,894
    
    
    
    22,806,637
    
    
    
    23,062,428
    
    
    
    23,072,016
    
    
    
    22,972,348Year ended December 31, 2004Net revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    109,062
    
    
    $
    109,062Gross profit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    73,296
    
    
    $
    73,296Net loss
from operations
    
    $
    (10,807,437
    )
    
    $
    (2,855,523
    )
    
    $
    (1,778,290
    )
    
    $
    (4,921,669
    )
    
    $
    (20,162,919
    )Basic and fully diluted
earnings per share
    
    $
    (0.48
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )
    
    $
    (0.22
    )
    
    $
    (0.89
    )Weighted-average
number of shares
, outstanding
    
    
    22,557,216
    
    
    
    22,723,753
    
    
    
    22,765,894
    
    
    
    22,581,276
    
    
    
    22,702,846
 F-50
    Table of Contents  PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE R  SUBSEQUENT EVENTS
  st
 F-51