**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION** ****


**Washington,
      D.C. 20549**




**FORM
      10-KSB**







**|X|
      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF** **THE
      SECURITIES EXCHANGE ACT OF 1934**




**FOR
      THE FISCAL YEAR ENDED: December 31, 2006**




**|_|
      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.**
 (Name
      of
      Small Business Issuer in Its Charter)




**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)


Securities
      registered under Section 12(b) of the Exchange Act: None




Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, par value
      $0.001 per share




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. [ ]




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. [
      ]
      Yes       [X] No




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. |X|




Indicate
      by checkmark whether the registrant is a shell company (as defined in Rule
      12b-2
      of the Exchange Act). [ ]




The
      Issuer's revenues for its most recent fiscal year were $5,042,517





As
      of
      April 13, 2007, 25,766,893 shares
      of
      the Issuer's $0.001 par value common stock were outstanding and the aggregate
      market value of the shares held by non-affiliates was approximately $16,748,480
      based upon a closing bid price on April 13, 2007 of $0.65 per share of common
      stock on the Over-The-Counter Bulletin Board.




As
      of
      April 16, 2007 the registrant has shares of common stock outstanding. As of
      April 16 2006, no shares of preferred stock were outstanding.










**PLAYLOGIC
      ENTERTAINMENT ANNUAL REPORT ON FORM 10-KSB**


**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2006**





**TABLE
      OF CONTENTS**




PART
                  I
              
              PageItem
                  1.
              Business
              2Item
                  1A.
              Risk
                  Factors
              10Item
                  2.
              Property
              21Item
                  3.
              Legal
                  Proceedings
              22Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              22PART
                  IIItem
                  5.
              Market
                  for Registrant’s Common Equity, Related Shareholder Matters and Small
                  Business Issuer Purchases of Equity Securities
              23Item
                  6.
              Management’s
                  Discussion and Analysis
              27Item
                  7.
              Financial
                  Statements
              34Item
                     8.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              34Item
                  8A.
              Controls
                  and Procedures
              35Item
                  8B.
              Other
                  Information
              36PART
                  IIIItem
                  9.
              Directors
                  and Executive Officers of the Registrant; Compliance with Section
                  16(a) of
                  the Exchange Act
              37Item
                  10.
              Executive
                  Compensation
              42Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners andManagement
                  and Related Shareholder Matters
              46Item
                  12.
              Certain
                  Relationships and Related Transactions
              47Item
                  13.
              Exhibits
                  and Financial Statement Schedules
              47Item
                  14.
              Principal
                  Accounting Fees and Services
              48











**PART
      I**


**ITEM
      1. BUSINESS**




**Caution
      Regarding Forward-Looking Information**




Certain
      statements contained in this Annual Report including, without limitation,
      statements containing the words "believes", "anticipates", "expects" and words
      of similar import, constitute forward-looking statements. Such forward-looking
      statements involve known and unknown risks, uncertainties and other factors
      that
      may cause the actual results, performance or achievements of the Company, or
      industry results, to be materially different from any future results,
      performance or achievements expressed or implied by such forward-looking
      statements.


Such
      factors include, among others, the following: international, national and local
      general economic and market conditions: demographic changes; the ability of
      the
      Company to sustain, manage or forecast its growth; the ability of the Company
      to
      successfully make and integrate acquisitions; raw material costs and
      availability; new product development and introduction; existing government
      regulations and changes in, or the failure to comply with, government
      regulations; adverse publicity; competition; the loss of significant customers
      or suppliers; fluctuations and difficulty in forecasting operating results;
      changes in business strategy or development plans; business  disruptions;
      the ability to attract and retain qualified personnel; the ability to protect
      technology; and other factors referenced in this and previous
      filings.


Given
      these uncertainties, readers of this Annual Report and investors are
      cautioned not to place undue reliance on such forward-looking statements. The
      Company disclaims any obligation to update any such factors or to publicly
      announce the result of any revisions to any of the forward-looking statements
      contained herein to reflect future events or developments.




**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
      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 U.S. company)
      and priority shares (which are substantially similar to shares of preferred
      stock of a U.S. company) of Playlogic International for 21,836,924 shares of
      our
      common stock. Pursuant to the share exchange agreement, the former shareholders
      of Playlogic International received approximately 91.0% of our outstanding
      common stock. Of the 21,836,924 shares of Playlogic Entertainment issued in
      the
      share exchange, 1,399,252 were placed in escrow with the Company’s stock
      transfer agent, Securities Transfer Corporation, as escrow agent. Following
      review by our auditors and our filing of the financial statements of the first
      quarter of 2006 these 1,399,252 shares in escrow were released to Halter
      Financial Group, Inc. and its affiliates or their assigns.


On
      August
      2, 2005, Donar Enterprises Inc. merged with and into a wholly owned subsidiary
      named Playlogic Entertainment, Inc. In connection with the merger, Donar's
      name
      was changed to Playlogic Entertainment, Inc. Playlogic
      Entertainment, Inc. was formed specifically for the purpose of effecting the
      name change.





*-
            2
            -*





In
      this
      annual report, "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.




**General**




Our
      principal business office is located at Concertgebouwplein 13, 1071 LL
      Amsterdam, The Netherlands, and our telephone number at that address is
      31-20-676-0304.


Our
      corporate web site is www.playlogicgames.com. The information found on our
      web
      site is not intended to be part of this annual report and should not be relied
      upon by you when making a decision to invest in our common stock.




***General
      Overview***




Playlogic
      is a publisher of interactive entertainment products, such as video game
      software and other digital entertainment products. We publish for most major
      interactive entertainment hardware platforms, like Sony’s PlayStation 3,and
      Playstation2, Microsoft’s Xbox 360 and Nintendo’s Wii, PCs and handheld devices
      (such as Nintendo DS, and PSP) and mobile devices.


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




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




Various
      studios throughout the world develop games which we publish. One of these
      studios is our subsidiary, Playlogic Game Factory B.V., 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.




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




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




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








*-
            3
            -*





***Industry
      Overview***





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





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


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


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





***Market
      Trends - Worldwide***




In
      the
      U.S. wireless games will experience the fastest rate of growth, increasing
      from
      $646 million in 2005 to $2.3 billion in 2010, a 28.6 percent compound annual
      increase. In EMEA the online game market will be driven by increased penetration
      of the broadband subscriber market as well as by the new consoles, which will
      emphasize online play. In the Asia Pacific region online games became the
      second-largest category in 2005, passing the PC game total, and will increase
      by
      23.0 percent compounded annually, reaching $4.4 billion in 2010 as compared
      with
      $1.6 billion in 2005.As a result of lack of competition from the newer online
      and wireless technologies, PC games are relatively more important in Latin
      America and are not exhibiting the declines evident elsewhere in the world.
      Canada has one of the highest broadband penetration rates in the world, spurring
      growth in the online game segment, according to the 2006 report commissioned
      by
      the Entertainment Software Association exam


Console
      Installed Base





Since
      the
      introduction of PlayStation 2 in 2000, the console has sold over 100 million
      units worldwide according to games industry. biz. The PlayStation 3 has
      been introduced to the market in the second half of 2006. Microsoft
      introduced its next generation console, the Xbox 360, in November 2005.





Microsoft’s
      Xbox360 has sold more than 10 million units so far. Sony sold almost 3 million
      units of its Playstation 3.Nintendo’s next generation console, called ‘Wii’ has
      been sold more than 6 million units so far. Wed bush Morgan Securities expects
      next generation hardware shipments through the end of 2007 will reach 46 million
      units in the U.S. and Europe.





Nintendo
      Dual Screens (‘Nintendo DS’) and PlayStation Portable (‘PSP’) were both
      successfully introduced to the market. The sales volume of the Nintendo DS
      reached 13 million units by January 1, 2006, and PSP reached the sales volume
      of
      10 million units by the end of October 2005.








*-
            4
            -*





PC
      Games





Playlogic
      will continue its focus on PC games because in comparison to next generation
      consoles, PC games are less expensive to develop and address a much wider target
      audience. Furthermore Playlogic will focus on handheld games, because of the
      large big installed base, Nintendo especially of the DS. Playlogic will
      continue  development
      of PlayStation2 titles, because of their large installed base of over 100
      million units.





**Consumer
      Facts**




Thirty
      percent of most frequent game players are under eighteen years old while
      twenty-six percent of most frequent game players are between 18 and 35
      years old. Forty-four percent of most frequent game players are over 35 years
      old. Forty percent of most frequent console game players are under eighteen
      years old while thirty-five percent of most frequent game players are
      between 18 and 35 years old. Twenty-five percent of most frequent
      console game players are over 35 years old. Thirty-eight percent of game
      players are women. Women age 18 or older represent a significantly greater
      portion of the game-playing population (30%) than boys age 17 or younger
      (23%).The average adult woman plays games 7.4 hours per week.  The average
      adult man plays 7.6 hours per week. Though males spend more time playing than
      do
      females, the gender/time gap has narrowed significantly.  Whereas in 2003,
      males spent an average of 18 more minutes a day playing games than did their
      female counterparts, in 2004 they spent only six minutes more each day doing
      so.  Females spend an average of two hours more per week playing games now
      than they did a year ago. Forty-four percent of most frequent game players
      say
      they play games online, up from 31% in 2002.


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








*-
            5
            -*





*Release
      Overview*





***Expected
                release******Game***
            
            ***Studio***
            
            ***Platform***
            
            ***date
                to retail*****Completed
                Games**Alpha
                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
                (G)
            
            PS2,
                Xbox, PC
            
            ReleasedKnights
                of the Temple 2
            
            Cauldron
                (SK)
            
            PS2,
                Xbox, PC
            
            Released
                1Gene
                Troopers
            
            Cauldron
                (SK)
            
            PS2,
                Xbox, PC
            
            Released
                1Xyanide
            
            Playlogic
                Game Factory (NL)
            
            Xbox
            
            ReleasedAge
                of Pirates: Caribbean Tales
            
            Akella
                (Russia)
            
            PC
            
            ReleasedInfernal
            
            Metropolis
                (Poland)
            
            PC
            
            Released2**Under
                Development**Ancient
                Wars: Sparta
            
            World
                Forge (Russia)
            
            PC
            
            Q2
                2007Xyanide
                Resurrection
            
            Playlogic
                Game Factory (NL)
            
            PSP
            
            Q2
                2007Evil
                Days Of Luckless John
            
            3A
                Entertainment (Great Britain)
            
            PC
            
            Q2
                2007Xyanide
                Resurrection
            
            Playlogic
                Game Factory (NL)
            
            PS2
            
            Q3
                2007Obscure
                2
            
            Hydravision
                (F)
            
            PC
            
            Q3
                2007Obscure
                2
            
            Hydravision
                (F)
            
            PS2
            
            Q3
                2007Obscure
                2
            
            Hydravision
                (F)
            
            Wii
            
            Q3
                2007Officers
            
            GFI
                (Russia)
            
            PC
            
            Q3
                2007Age
                of Pirates:CT the Sequel
            
            Akella
                (Russia)
            
            
            
            Q3
                2007Age
                of Pirates: Captain Blood*
            
            Akella
                (Russia)
            
            PC
            
            Q4
                2007Age
                of Pirates: Captain Blood*
            
            Akella
                (Russia)
            
            Xbox360
            
            Q4
                2007Aggression
                1914
            
            Buka
                (Russia)
            
            PC
            
            Q4
                2007Manhunter*
            
            L’Art/PLGF
            
            PC
            
            Q4
                2007Collapse
            
            Buka
                (Russia)
            
            PC
            
            Q1
                2008Red
                Bull Break dancing
            
            TBC
            
            TBC
            
            TBCInfernal
                2
            
            Metropolis
                (Poland)
            
            TBC
            
            TBCInfernal
            
            Metropolis
                (Poland)
            
            Wii
            
            TBC


_______________




1    Released
      in Europe only.


2    Final
      decision on Next Generation options to be made.


*   working
      title





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




*Material
      agreements*




We
      entered into the following material agreements in the fiscal year ended December
      31, 2006:





*-
            6
            -*





*Macrovision
      agreement.* On
      February 21 2006, we signed an agreement with Macrovision’s Trymedia Games
      division for the digital distribution of Playlogic’s entertainment products. As
      a leading secure digital distribution services provider and operator of the
      world's largest distribution network for downloadable games, Macrovision will
      distribute selected Playlogic products on its network. Playlogic will also
      incorporate the Trymedia technology into their recently re-launched website www.playlogicgames.com ,
      offering customers easy and secure access to some of its latest game releases,
      as well as the option to try-before-you-buy selected titles. The agreement
      illustrates Playlogic’s strategically focus on digital distribution in the
      future.





*Sony
      agreement.* On March
      1, 2006, our subsidiary Playlogic Game Factory B.V. signed a first-party
      software development agreement with Sony Computer Entertainment Europe Limited.
      We develop dedicated software for Sony Computer Entertainment Europe Limited.
      One of our two in-house teams is fully dedicated to the project.





*Red
      Bull agreement.* On March
      28, 2006, we signed a worldwide licensing agreement with leading soft drink
      company Red Bull for the publishing and production of a break dance video game.
      The game is based on the “Red Bull BC One Event”. The title will be produced for
      various platforms and will be released in 2007. The game is based on the
      increasing worldwide popularity of break dancing and will give a realistic
      representation of dance moves and actions.





*Age
      of Pirates agreement* . On
      July 7, 2006 we signed a worldwide licensing and distribution agreement with
      Atari to distribute our game Age of Pirates: Caribbean Tales throughout Europe,
      the US and Asia. This game has been released in Europe in September 2006 and
      in
      North America.





*PSP
      license* On
      October 11, 2006 Sony Computer Entertainment Europe, based in London, licensed
      us as official PSP **®** publisher.




*Sony
      agreement* On
      October 25, 2006 we signed an extension on our cooperation agreement dated
      March
      1, 2006 with Sony Computer Entertainment Europe Limited (SCEE).





*Eidos
      agreement.* On
      December 4, 2006 we signed an agreement with Eidos Interactive Plc. for Eidos
      to
      worldwide distribute our PC titles “ Infernal” and Ancient Wars: Sparta” in the
      first quarter and second quarter of 2007..





**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.


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.


Playlogic
      games are distributed worldwide by local distribution partners. Distribution
      costs per game are low since Playlogic does not have the costs of a physical
      distribution network of its own.





In
      each
      territory Playlogic decides on strategic partners for physical distribution
      of a
      game. This distribution partner must have all necessary listings at local
      retail.





*-
            7
            -*





Playlogic
      delivers finished manufactured products to distribution partners. Delivery
      of
      finished products instead of licensing a game enables Playlogic to a much higher
      margin and quality control. In emerging markets Playlogic’s games are
      manufactured under licenses held by local distribution partners. In countries
      in
      which we currently do not have a console publishing license, we enter into
      co-publishing arrangements with our business partners, who manufacture, finalize
      and distribute the finished games to the retail stores.





Local
      distribution partners of Playlogic sell and deliver the games to retail stores
      and take care of reorders. Playlogic’s local distribution partners only get
      rights of offline distribution on the manufactured products.





We
      retain
      all rights of further exploitation of a digital entertainment product such
      as
      digital distribution, OEM-/Premium sales, and merchandising.





Worldwide
      major games portals and platforms will offer Playlogic’s products for
      Games-on-Demand and Purchase-by-Download. To play games on demand end-users
      pay
      for a time limited access to a package of games a monthly subscription, similar
      to video rental stores in the past. Playlogic games are offered as well for
      purchase by download. The end user has the choice between trying the game for
      a
      limited time (for instance one hour) before buying or direct download. The
      time
      limitation is defined by us for each game individually dependent on the genre.
      Hosting and payment fulfilment are completed by external technology
      partners.




Playlogic
      will pursue a variety of digital distribution strategies for delivering
      entertainment products to the end-user, including mobile games, in-flight
      entertainment, and set-top boxes.




**Competition**




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. We compete for both licences and game sales with the other
      international games publishing houses, including 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. 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 an increasing number
      of
      games titles compete for adequate levels of shelf space and promotional support:
      the competition is intense. 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.




We
      have
      an advantage over our competitors concerning digital distribution; we do not
      have our own physical distribution network. Therefore we can easily switch
      to
      digital distribution, whereas our peers need to use its existing physical
      distribution network as well. For instance, the agreement we signed in February
      2006 with Macrovision illustrates Playlogic’s strategic focus on digital
      distribution in the future. We signed the agreement with Macrovision’s Trymedia
      Games division for the digital distribution of Playlogic’s entertainment
      products. As a leading secure digital distribution services provider and
      operator of the world's largest distribution network for downloadable games,
      Macrovision will distribute selected Playlogic products on its network. We
      will
      also incorporate the Trymedia technology into our recently re-launched website www.playlogicgames.com ,
      offering customers easy and secure access to some of its latest game releases,
      as well as the option to try-before-you-buy selected titles.





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            8
            -*





**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.




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 software may be subject
      to
      legal claims that could be costly and time consuming and cause a material
      adverse effect on our business. 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
      own or
      have licensed trademarks and copyrights of the following games:




**Games**
            **Platform**
            **Area**1.
            
            **Alpha
                Black Zero**
            PC
            Worldwide2.
            
            **Airborne
                Troops**
            PS2
            WorldwidePC
            Worldwide3.
            a.
            **Xyanide
                Resurection**
            PSP
            Worldwideb.
            **Xyanide
                Mobile**
            Mobile
                Phones
            Worldwide4.
            
            **Cyclone
                Circus**
            PS2
            Worldwide5.
            
            **World
                Racing 2**
            PS2
            WorldwideXbox
            WorldwidePC
            Worldwide6.
            
            **Knights
                of the Temple 2**
            PS2
            WorldwideXbox
            WorldwidePC
            Worldwide7.
            
            **Gene
                Troopers**
            PS2
            WorldwideXbox
            WorldwidePC
            Worldwide8.
            
            **Age
                of Pirates: Caribbean Tales**
            PC
            Worldwide
                (1)9
            
            **Ancient
                Wars: Sparta**
            PC
            Worldwide
                (2)10.
            
            **Age
                of Pirates Captain Blood**
            PC
            Worldwide
                (3)11.
            
            **Infernal**
            PC
            Worldwide
                (4)12.
            
            **Evil
                days of Luckless John**
            PC
            Worldwide13.
            
            **Obscure2**
            PC,PS2,Wii
            Worldwide






(1) Excluding
          former USSR, Poland, Check, Slovak and South Africa


(2)  Excluding
      former USSR


(3) Excluding
          former USSR, Poland, Czech, Slovak and South Africa


(4)  Excluding
      Japan, former USSR





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            9
            -*





**Employees**




As
      of
      December 31, 2006, we employed 63 full-time employees and 2 part-time employees.
      All of our employees are based in the Netherlands and have executed employment
      agreements with us, which are governed by the law of the Netherlands.
      Substantially all of the employment contracts are running for an indefinite
      period of time. As to the senior executives mentioned under Item 10, the Company
      may terminate the employment upon a six-month notice, and a senior executive
      may
      terminate the employment upon a three-month notice. As to non-executive
      employees, the Company may terminate the employment upon a two-month notice,
      and
      the employee may terminate the employment upon a one-month notice. We are
      obliged to continue to pay base salary and fringe benefits to our employees
      during the notice period. We typically pay an annual base salary and allow
      our
      staff certain benefits. Our employees are entitled to 26 vacation days a year.
      23 of our employees are entitled to a company car. Two of our senior non-Dutch
      executives are entitled to receive allowances for housing, and home leave travel
      cost. With the exception of the disclosures made under Item 10, we did not
      grant
      any bonuses during 2005. Under Dutch law, we are obliged to pay the employees
      in
      the event of illness 100% of base salary from the first day of illness reporting
      for a maximum period of 52 weeks, calculated from this first day of illness.
      After the lapse of the period of 52 weeks, we pay 70% of the base pay during
      a
      period with a maximum of 52 weeks counted from the first day of the 53rd week
      following the date of illness reporting. We currently do not have any pension
      plan or other retirement schedule. The costs associated with employer’s
      contribution to the Dutch social security system are per employee in the range
      of 15% of annual base pay.




**ITEM
      1A. RISK FACTORS** ****




An
      investment in our common stock involves substantial risks and uncertainties
      and
      our actual results and future trends may differ materially from our past
      performance due to a variety of factors, including, without limitation, the
      risk
      factors identified below. The risks and uncertainties described below are
      not the only risks and uncertainties we face. Additional risks and uncertainties
      not presently known to us or that we currently deem immaterial also may impair
      our business operations. If any of the following risks actually occur, our
      business, results of operations and financial condition would suffer. In that
      event, the trading price of our common stock could decline, and our shareholders
      may lose part or all of their investment in our common stock. The discussion
      below and elsewhere in this report also includes forward-looking statements,
      and
      our actual results may differ substantially from those discussed in these
      forward-looking statements as a result of the risks discussed
      below.




**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 April 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 $.13, 456,418 .in 2006, $8,567,942 in 2005,
      $22,095,677 in 2004, $7,657,536 in 2003 and $2,199,945 in 2002. The net
      consolidated losses of $22,095,677 in 2004 included a one-time expense of
      $9,824,400 related to the grant of options to some of our shareholders 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's independent auditors on Playlogic
      International's December 31, 2006 financial statements included an explanatory
      paragraph indicating there is substantial doubt at year end 2006 about
      Playlogic's ability to continue as a going concern.








*-
            10
            -*





**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.**




We
      expect
      that our current cash balance and cash generated from operations will be
      sufficient to cover our working capital costs through the first quarter of
      2007.
      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 the
      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, 2006, two titles, Age of Pirates Caribbean Tales and
      World Racing 2accounted for approximately 60% of our revenues. For the year
      ended December 31, 2005, three titles, World Racing 2, Gene Troopers, Knights
      of
      the Temple 2 accounted for approximately 60% of our revenues. 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.




**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.





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            11
            -*





**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.




**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.





*-
            12
            -*





**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 and
      Nintendo introduced its Nintendo Dual Screen. The next hardware transition
      cycle
      commenced in late 2005 and will continue in 2006. Microsoft introduced its
      Xbox
      360 in November 2005. Sony’s PlayStation 3 has been introduced during the second
      half of 2006 and Nintendo’s Wii was introduced in November 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.





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            13
            -*





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.




**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:




·
            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.




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.





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            14
            -*





**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 consumer demand of software for
      platforms of older generation will decrease as more advanced platforms are
      introduced. 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.




We
      have
      devoted and will continue to devote significant development and marketing
      resources on products designed for new-generation video game systems, such
      as
      Xbox 360 and PlayStation 3. If PlayStation 3 and/or Xbox 360 do not achieve
      wide
      acceptance by consumers or Sony/Microsoft is unable to ship a significant number
      of PlayStation 3/Xbox 360 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 only give them the right to return
      titles to us or to cancel firm orders in case of reorders, 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.





*-
            15
            -*





Our
      sales
      returns and allowances for the year ended December 31, 2006 were $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.




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 revenues will
      decline.




Our
      products are sold internationally through third-party distribution and licensing
      arrangements. 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
      ARRANGEMENT** **S** **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.





*-
            16
            -*





**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 products and provide related
      services in the Benelux countries, France, Germany, the United Kingdom, and
      other European countries and the United States, for a variety of entertainment
      software publishers, many of which are our competitors, and/or 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 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. 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.




**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.**




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 revenues 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.





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            17
            -*





**OUR
      EXPANSION MAY STRAIN OUR OPERATIONS.**




We
      have
      expanded through internal growth and acquisitions of titles, which has placed
      and may continue to place a significant strain on our management,
      administrative, operational, and financial and other resources. We intend to
      release a number of titles on current and new platforms. Furthermore, we have
      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 shareholders.




**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.** ****




Sales
      to
      our four largest customers accounted for approximately 88% of our revenues
      for
      the year ended December 31, 2006. Sales to our three largest customers accounted
      for approximately 65% of our revenues for the year ended December 31, 2005.
      Sales to our three largest customers accounted for approximately 95% of our
      revenues for the year ended December 31, 2004. The loss of our relationships
      with principal customers or a decline in sales to principal customers could
      harm
      our operating results. Atari accounted for 32% or more of the Company’s sales
      revenues.




**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.





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            18
            -*





In
      the
      United States, there have been several legislative proposals that if adopted
      would result in the regulation of 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 U.S. 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 U.S.-based retailers Wal-Mart Stores Inc., Sears Inc.,
      including its Kmart and Sears’s 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
      European markets, primarily Germany, France and the Benelux, have accounted
      for
      an increasing portion of our revenues. In
      2005,
      sales in Europe accounted for approximately 79% of our revenues and sales in
      the
      United States accounted for the remaining 20% of our revenues. We are subject
      to
      risks inherent in international trade, including:




·
            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** **.**




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.





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            19
            -*





**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 revenues 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, 2006 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.




**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
      December 31, 2006, officers, directors, and shareholders holding more than
      5% of
      our outstanding shares collectively controlled approximately 38% 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 management shareholders and shareholders holding
      more
      than 5% of our outstanding shares may not always coincide with the interests
      of
      our other shareholders, and accordingly, they could cause us to enter into
      transactions or agreements that we would not otherwise consider.




**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.**




Although
      we believe that we has adequate legal claims or defenses in place and/or
      provided adequate accruals for related costs such that the ultimate outcome
      will
      not have a material adverse impact on our future financial position or results
      from operation the outcome of these legal proceedings is not sure.





*-
            20
            -*





**IT
      MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OR OUR OFFICERS AND
      DIRECTORS.**




Service
      of process upon our directors and officers, most 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.




**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.**


The
      Company’s management believes that in order to satisfy its working capital
      requirements through the second quarter of 2007, it will need to obtain
      additional financing from third parties. If the Company does not obtain any
      necessary financing in the future, we may need to cease operations. There
      is
      no legal obligation for either management or significant shareholders to provide
      additional future funding. Consequently, there is substantial doubt about our
      ability to continue as a going concern. We have no current plans, proposals,
      arrangements or understandings with respect to the sale or issuance of
      additional securities prior to the location of a merger or acquisition
      candidate. Accordingly, there can be no assurance that sufficient funds will
      be
      available to us to allow us to cover the expenses related to such activities.




**ITEM
      2. PROPERT** **Y**




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 (€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 (€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
      expired on February 28, 2007. The lease property spans 451 square meters and
      may
      only be used as office space. Rent is due on an annual basis and amounts to
      $123,593 (€90,584) per year. The lease agreement has been rescinded by a court
      decision as of February 15, 2006. We have recognized an obligation for payments
      in the amount of $245,592 (€180,000) due on 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, 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 (€59,628.52) per
      year.




On
      June
      1, 2005, we entered into a lease for new offices at Amstelveenseweg 639-710
      in
      Amstelveen. The move of our offices to this location has been delayed following
      late commissioning of entrance and elevators. We will start using this office
      now as from June 2007




The
      leased premises have 1,500 square meters. The lease amounts to $272.90 (€200)
      per square meter for rent and $34 (€25) per square meter for service costs.
      Payment starts December 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 the 750 square meter segment is due immediately upon the start date
      of
      the lease agreement (June 1, 2005). Payment is due on a quarterly basis and
      amounts per January 1, 2007 to $460,514 (€337,497) per year.





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            21
            -*








**ITEM
      3. LEGAL PROCEEDINGS** ****




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





On
      March
      30, 2007, Fortis Vastgoed B.V. (plaintiff) filed a motion to institute
      accelerated proceedings against Playlogic International
      N.V.(defendant)  with the Court of Amsterdam (Kantongerecht) the
      Netherlands. Fortis claims evacuation of the offices at Amstelveenseweg 639-710
      in Amstelveen with immediate effect and damages in the amount of € 142,249 plus
€ 91,626 for each quarter following April 1, 2007 till the end of the lease term
      expiring on May 31, 2011 in case Fortis is unable to agree on a lease for the
      offices with a third party (or approximately $ 187,569 using December 31, 2006
      exchange rates) in view of the alleged unlawful non performance by Playlogic
      under the lease agreement dated June 1, 2005.




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




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




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS******




On
      June 27, 2006 we had our annual general shareholder meeting for the
      election of directors for a term expiring on the date of the annual meeting
      of
      the Company in 2007. Each of the four director nominees recommended by the
      Board
      was reelected by the shareholders present at the meeting, as follows:




**Nominee**
            
            **Number
                of Votes For**
            
            **Number
                of Votes Withheld**Willem
                M. Smit
            
            14,203,622
            
            
            1,000Willy
                Simon
            
            14,203,622
            
            
            1,000George
                Calhoun
            
            14,203,622
            
            
            1,000Erik
                van Emden
            
            14,203,622
            
            
            1,000





No
      other
      matter was submitted to a vote of the holders of our common stock during this
      meeting. During the second half of the fiscal year ending December 31,
      2006, no other matters were submitted to a vote of holders of our common stock
      through the solicitation of proxies or otherwise.











*-
            22
            -*








**PART
      II**




**ITEM
      5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
      SHAREHOLDER MATTERS** **AND ISSUER PURCHASES OF EQUITY SECURITIES**




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
      December 31, 2006, there were approximately 370 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 1-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
                2005**
            **High**
            **Low**First
                Quarter
            $3.10
            $1.40Second
                Quarter
            $4.00
            $2.80Third
                Quarter
            $7.24
            $4.30Fourth
                Quarter
            $5.40
            $4.60**Fiscal
                2006**
            **High**
            **Low**First
                Quarter
            $5.05
            $5.05Second
                Quarter
            $2.75
            $2.50Third
                Quarter
            $2.20
            $2.00Fourth
                Quarter
            $0,65
            $0.65




The
      source for the high and low closing bids quotations is www.finance.yahoo.com
      and
      does not reflect inter-dealer prices. Such quotations are without retail
      mark-ups, mark-downs or commissions, and may not represent actual transactions
      and have not been adjusted for stock dividends or splits.




In
      December 2005, we submitted a listing application for the quotation of our
      shares of common stock on the NASDAQ Capital Market. During the fourth quarter
      of 2005 we have taken steps necessary to meet NASDAQ listing requirements,
      including forming an audit committee and compensation committee and appointing
      additional independent directors to the Board of Directors (see Item 4). We
      received NASDAQ’s initial comment letter on January 24, 2006. Following a
      further review by NASDAQ we have decided to withdraw our listing application
      for
      the time being. There is no assurance that we will re file our application
      and
      there is **** no
      assurance that our securities will be listed on the NASDAQ stock market. On
      January 17, 2007 we announced that we are currently reviewing a potential
      listing at the London Stock Exchange (AIM).




The
      Company has never declared or paid dividends on its common stock and anticipates
      that for the foreseeable future it will not pay dividends on its common stock.





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            23
            -*





**Unregistered
      Sales of Equity Securities**




Each
      issuance set forth below was made in reliance upon the exemptions from
      registration requirements under Section 4(2) of the Securities Act of 1933,
      as
      amended. 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.





Common
      stock





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


investor
      at $2.50 per share for a total cash consideration of $181,155. These sales
      were
      made without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to Rule 144. The Company did not utilize an underwriter for
      this offering of its securities and no sales commissions were paid to any third
      party in connection with this sale.





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





On
      January 31, 2006, the Company sold 184,178 shares of its common stock to an
      accredited investor based in the Netherlands at $2.50 per share for a total
      cash
      consideration of $460,445. The sale was made pursuant to the terms of a
      Subscription Agreement, dated as of January 31, 2006. This sale was made
      without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to Rule 144. The Company did not utilize an underwriter for
      this offering of its securities and no sales commissions were paid to any third
      party in connection with this sale.





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





On
      March 17, 2006, the Company sold 53,300 shares of its common stock to an
      accredited investor based in the Netherlands at $3.75 per share for a total
      cash
      consideration of $200,000. The sale was made pursuant to the terms of a
      Subscription Agreement, dated as of March 28, 2006, This sale was made
      without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to Rule 144. The Company did not utilize an underwriter for
      this offering of its securities and no sales commissions were paid to any third
      party in connection with this sale.





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








*-
            24
            -*





On
      March 17, 2006, the Company sold 30,000 shares of its common stock to a
      second accredited investor based in the Netherlands at $4.00 per share for
      total
      cash consideration of approximately $120,000. The sale was made pursuant to
      the
      terms of a Subscription Agreement, dated as of March 28, 2006, This sale was
      made without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to Rule 144. The Company did not utilize an underwriter for
      this offering of its securities and no sales commissions were paid to any third
      party in connection with this sale.




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





On
      March 17, 2006, the Company sold 30,000 shares of its common stock to a
      third accredited investor based in the Netherlands at $4.00 per share for total
      cash consideration of approximately $120,000. The sale was made pursuant to
      the
      terms of a Subscription Agreement, dated as of March 28, 2006, This sale was
      made without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to Rule 144. The Company did not utilize an underwriter for
      this offering of its securities and no sales commissions were paid to any third
      party in connection with this sale. Concurrent with the third March 17,
      2006 stock sales, the Company issued to warrants to purchase 15,000 shares
      of
      common stock at an exercise price of $5.00 per share. These warrants may be
      exercised starting on March 1, 2007 and expire on February 28, 2009.





On
      June 1, 2006, the Company sold 128,000 of its common stock to an accredited
      investor based in the Netherlands at $3.00 per share for total cash
      consideration of approximately $384,000. The sale was made pursuant to the
      terms
      of a Subscription Agreement, dated as of June 1, 2006. This sale was made
      without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to


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





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





On
      December 31, 2006, the Company sold 627,016 of its common stock to an accredited
      investor based in the Netherlands at $1.15 per share for total cash
      consideration of approximately $721,069. The sale was made pursuant to the
      terms
      of a Subscription Agreement, dated as of December 31, 2006. This sale was made
      without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to Rule 144. The Company did not utilize an underwriter for
      this offering of its securities and no sales commissions were paid to any third
      party in connection with this sale.





Concurrent
      with the December 31, 2006 stock sales, the Company issued warrants to purchase
      313,508 shares of common stock at an exercise price of $2.75 per share. The
      warrants may be exercised starting on January 1, 2008 and expire on December
      31,
      2011.





On
      December 31, 2006, the Company sold 114,660 of its common stock to an accredited
      investor based in the Netherlands at $1.15 per share for total cash
      consideration of approximately $131,860. The sale was made pursuant to the
      terms
      of a Subscription Agreement, dated as of December 31, 2006. This sale was made
      without registration in reliance upon the exemption afforded by
      Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
      with reference to


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





*-
            25
            -*








Concurrent
      with the December 31, 2006 stock sales, the Company issued warrants to purchase
      57,331 shares of common stock at an exercise price of $2.75 per share. The
      warrants may be exercised starting on January 1, 2008 and expire on December
      31,
      2011.





Option
      grants





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





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





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


Pursuant
      to an amendment of the employment agreement with our Chief Financial Officer
      ad
      interim dated November 1, 2006 we granted to Mr. Knol, 60,000 options to
      purchase shares of our common stock at an exercise price of $2.50 per share.
      A
      total of 20,000 shares of these options will vest on May 4, 2008, and the
      remaining options will vest in two equal installments on, May 4, 2009 and May
      4,
      2010.





**Securities
      Authorized for Issuance under Equity Compensation Plans**





The
      following table sets forth, as of December 31, 2006, information with respect
      to
      the Company’s equity compensation.





Plan
                Category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants,
                and rights
              
              (a)
            
            Weighted-average
                exercise price of outstanding options, warrants, and rights
              
              (b)
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a)
              (c)Equity
                compensation plans approved by security holders
            
            --
            
            --
            
            --Equity
                compensation plans not approved by security holders
            
            600,000
            
            $
                2.75
            
            --Total
            
            600
                ,000




**Issuer
      Purchase of Equity Securities**




None.





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            26
            -*





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION******




**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. In connection with the merger, 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 document, we are also referring to our
      company when it was known as Donar Enterprises, Inc.




Playlogic
      is a publisher of interactive entertainment products, such as video game
      software and other digital entertainment products. We publish for most major
      interactive entertainment hardware platforms, like Sony’s PlayStation 3,and
      Playstation2, Microsoft’s Xbox 360 and Nintendo’s Wii, PCs and handheld devices
      (such as Nintendo DS, and PSP) and mobile devices.


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




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




Various
      studios throughout the world develop games which we publish. One of these
      studios is our subsidiary, Playlogic Game Factory B.V., 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.




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




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




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





*-
            27
            -*








We
      have
      released 10 games to date:


***Expected
                release******Game***
            
            ***Studio***
            
            ***Platform***
            
            ***date
                to retail*****Completed
                Games**Alpha
                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
            
            ReleasedXyanide
            
            Playlogic
                Game Factory (NL)
            
            Xbox
            
            ReleasedAge
                of Pirates: Caribbean Tales
            
            Akella
                (Russia)
            
            PC
            
            ReleasedInfernal
            
            Metropolis
                (Poland)
            
            PC
            
            Released




We
      entered into the following material agreements in the fiscal year ended December
      31, 2006:




*Macrovision
      agreement.* On
      February 21 2006, we signed an agreement with Macrovision’s Trymedia Games
      division for the digital distribution of Playlogic’s entertainment products. As
      a leading secure digital distribution services provider and operator of the
      world's largest distribution network for downloadable games, Macrovision will
      distribute selected Playlogic products on its network. Playlogic will also
      incorporate the Trymedia technology into their recently re-launched website www.playlogicgames.com ,
      offering customers easy and secure access to some of its latest game releases,
      as well as the option to try-before-you-buy selected titles. The agreement
      illustrates Playlogic’s strategically focus on digital distribution in the
      future.





*Sony
      agreement.* On March
      1, 2006, our subsidiary Playlogic Game Factory B.V. signed a first-party
      software development agreement with Sony Computer Entertainment Europe Limited.
      We develop dedicated software for Sony Computer Entertainment Europe Limited.
      One of our two in-house teams is fully dedicated to the project.





*Red
      Bull agreement.* On March
      28, 2006, we signed a worldwide licensing agreement with leading soft drink
      company Red Bull for the publishing and production of a break dance video game.
      The game is based on the “Red Bull BC One Event”. The title will be produced for
      various platforms and will be released in 2007. The game is based on the
      increasing worldwide popularity of break dancing and will give a realistic
      representation of dance moves and actions.





*Age
      of Pirates agreement* . On
      July 7, 2006 we signed a worldwide licensing and distribution agreement with
      Atari to distribute our game *Age
      of Pirates: Caribbean Tales* throughout Europe, the US and Asia. This game has been released in Europe in
      September 2006 and in North America.





*PSP
      license On* October
      11, 2006 Sony Computer Entertainment Europe, based in London, licensed us as
      official PSP **®** publisher.




*Sony
      agreement* On
      October 25, 2006 we signed an extension on our cooperation agreement dated
      March
      1, 2006 with Sony Computer Entertainment Europe Limited (SCEE).





*Eidos
      agreement.* On
      December 4, 2006 we signed an agreement with Eidos Interactive Plc. for Eidos
      to
      worldwide distribute our PC titles “Infernal” and Ancient Wars: Sparta” in the
      first quarter and second quarter of 2007.





*-
            28
            -*








**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, since Microsoft
      introduced its Xbox 360 and because consumers anticipate the next generation
      of
      consoles of Sony and Nintendo, unit volumes often decrease.




*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.




*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**




*Comparison
      of Fiscal 2006 to Fiscal 2005*




*Revenues* .
      Revenues for Fiscal 2006 were $5,042,517 as compared to $1,824,199 for Fiscal
      2005. This increase in revenues is primarily the result of increased sales
      volumes following the release of “Age of Pirates - Caribbean Tales”, the release
      of 3 new titles in the US and 3 rd party
      development activities. During 2006. $3,654,358 (72%) of the revenues
      ($1,437,347 or 79% for 2005) was generated by the sales in Europe and $1,333,522
      (26%) was generated by the sales in the U.S ($372,871 or 20% for 2005). These
      revenues were primarily derived from our game distributors and our 3 rd party
      development contract with SONY.




*Gross
      Profit* .
      Gross
      profit totaled $1,205,437 for Fiscal 2006. For Fiscal 2005, gross profit totaled
      $741,893. This increase in gross profit is primarily the result of an increase
      in net sales.




*Reorganization
      expenses.* Reorganization expenses totaled $0 for Fiscal 2006 compared to $899,697 for
      Fiscal 2005. These expenses related to the June 2005 share exchange
      transaction.




*Selling,
      marketing, general and administrative expenses* .
      Selling, marketing, general and administrative expenses totaled $7,223,641
      for
      the Fiscal 2006. For fiscal 2005, selling, general and administrative expenses
      totaled $7,287,391.





*-
            29
            -*





*Expense
      related to intrinsic value of issued stock options* .
      Expense
      related to the fair value of issued stock options totaled $345,052 for Fiscal
      2006 and has following FAS 123R been included G&A expenses as a compensation
      expense. This relates to the cost of options granted to personnel. For Fiscal
      2005 expense related to intrinsic value of issued stock options totaled $70,773.
      The increase is due to a higher number of employees with stock options.
      Furthermore, in 2006 the non executive members of the Board of Directors
      received stock options.




*Research
      and development*  *expenses* .
      Research and development expenses totaled $2,135,832 for Fiscal 2006. For Fiscal
      2005, research and development expenses totaled $1,581,987. This represents
      an
      increase of $553,845, or 35%. This increase is due to a lower amount of
      capitalized personnel expenses in our development studio in Fiscal 2006
      following the 3 rd Party
      development agreement with SONY.  Furthermore,asset
      impairment charges amounting to $837,714 for fiscal 2005 were included in
      Research and Development.




*Depreciation* .
      Depreciation expense totaled $315,175 for Fiscal 2006. For Fiscal 2005,
      depreciation expense totaled $280,480. The decrease of $34,695 or 12% is caused
      by some additions in fixed assets.




*Asset
      impairment charges* We
      review
      our Capitalized Software whenever events or changes in circumstances indicate
      that the related carrying amounts may not be recoverable. Asset impairment
      charges totaled $ 1,907,117 for fiscal 2006 versus $837,714 in Fiscal 2005.
      The
      Fiscal 2006 amount primarily reflects our decisions to terminate the development
      of two games following our assessment of changes in marketability of these
      games. As
      mentioned above the asset impairment charges amounting to $837,714 for fiscal
      2005 were included in Research and Development.




*Interest
      expense* .
      Interest expense totaled $917,973 for Fiscal 2006. For Fiscal 2005, interest
      expense totaled $ 288,165. This represents an increase of $629,808 and is
      primarily the result of an increase of our short term debts. Furthermore, an
      interest penalty expense for late repayment of an outstanding loan amounting
      to
      $1,254,100 has been recognized.




*Net
      loss* .
      Our net
      loss was $12,548,400 for Fiscal 2006. For Fiscal 2005 the net loss totaled
      $9,674,004. The increase of the net loss is primarily due to higher research
      and
      development expenses, impairments charges on capitalized games and a higher
      amount of interest expenses including penalty expense.




*Other
      comprehensive income* .
      Other
      comprehensive income represents the change of the Currency Translation
      Adjustments balance during the reporting period. The Currency Translation
      Adjustments balance that appears in the stockholders’ equity section is
      cumulative in nature and is a consequence from translating all assets and
      liabilities at current rate whereas the stockholders’ equity accounts are
      translated at the appropriate historical rate and revenues and expenses being
      translated at the weighted-average rate for the reporting period. The change
      in
      currency translation adjustments was $(908,018) for the Fiscal 2006 and
      $1,106,062 for Fiscal 2005.




*Equity* .
      The
      total stockholders’ deficit as of December 31, 2006 was $(11,021,531).




**Liquidity
      and Capital Resources**




As
      of
      December 31, 2006, our cash balance was $18,433, as compared to $139,760 at
      December 31, 2005.




In
      order
      to cover our working capital requirements through the second quarter of 2007,
      we
      will need to obtain additional financing. The Company is currently in
      negotiation with several parties in this respect. The Company is presently
      in
      contact with private investors. The company anticipates closing during the
      second quarter a private placement composed of both the issuance of new shares
      and debt instruments in the maximum total amount of 10 million USD. If the
      Company does not obtain any necessary financing in the future, it may need
      to
      cease operations.




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




Our
      net
      accounts receivable, after providing an allowance for doubtful accounts, at
      December 31, 2006 was $749,578, as compared to $645,884 at
      December 31, 2005. The increase is due to increased sales of our games,
      especially during the third quarter of 2006 when the Company realized sales
      of
      the game Age of Pirates: Caribbean Tales.





*-
            30
            -*








**Off
      Balance Sheet Arrangements**




Except
      the operating lease obligations mentioned below 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, and results of operations, liquidity
      or
      capital expenditures.




**Contractual
      Obligations**




We
      have
      the following contractual obligations associated with its lease commitments
      and
      other contractual obligations per December 31, 2006:




**Contractual
                Obligations**
            **Payments
                Due By Period (in thousands)**Total
            Less
                than 1 Year
            1-3
                Years
            3-5
                Years
            More
                than 5 YearsLong-Term
                Debt Obligations
            $277
            $40
            $79
            $79
            $79Capital
                Lease Obligations
            -
            -
            -
            -
            -Operating
                lease Obligations (Including Rent)
            $8.874
            $948
            $2.669
            $2,414
            $2,843Purchase
                obligations
            $1.857
            $1.857
            -
            -
            -Other
                contractual obligations
            -
            -
            -
            -
            -Total
            $11,008
            $2.845
            $2,748
            $2,493
            $2,922




Note


On
      June
      1, 2005, we entered into a lease for new offices at Amstelveenseweg 639-710
      in
      Amstelveen. The move of our offices to this location has been delayed following
      late commissioning of entrance and elevators. We will start using this office
      now as from June 2007.  The leased premises have 1,500 square meters. The
      rent is $272.90 (€200) per square meter and the service fee is $34 (€25) per
      square meter. Payments have become due per 1 December 2006 for 750 square
      meters and by January 1 2007 we will start paying for the remaining 750 square
      meters. Payment of the service fee for each 750 square meter segment is due
      immediately upon the start of the lease term on June 1, 2005.




**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.





*-
            31
            -*








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:




·
            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.


·
            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**




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





*-
            32
            -*








**New
      Accounting Pronouncements**




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





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





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





In
      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
      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 SFAS123(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 Non monetary Assets, an
      amendment of APB 29, Accounting for Non monetary Transactions”. This statement’s
      amendments are based on the principle that exchanges of non monetary assets
      should be measured based on the fair value of the assets exchanged. Further,
      SFAS 153 eliminates the narrow exception for non monetary exchanges of similar
      productive assets and replaces it with a broader exception for exchanges of
      non
      monetary 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.





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            33
            -*








In
      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.





**Related
      Party Transactions**




See
      below
      Part III.




**ITEM
      7. FINANCIAL STATEMENTS**




The
      required financial statements begin on Page F-1 of this document.




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE******




On
      August
      18, 2006, the Board of Directors elected to replace S. W. Hatfield, CPA (SWHCPA)
      as the Company's Registered Independent Certified Public Accounting
      Firm.





Concurrent
      with the above action, the Company's Board of Directors appointed Rosthein
      Kass
      $ Company, P.C. as the Company’s Registered Independent Certified Public
      Accounting Firm.





The
      Report of Registered Independent Certified Public Accounting Firm issued by
      SWHCPA on May 1, 2006 for the year ended December 31, 2005 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 the Company to
      continue as a going concern. Subsequent to the issuance of this report SWHCPA
      withdrew the report on November 16, 2006 following management determining that
      the Company’s accounting for certain expenses incurred during the second and
      third quarter of 2005 had not been properly reflected in accordance with U.S.
      generally accepted accounting principles. Certain operating expenses and
      transaction costs associated with the company’s Share Exchange Agreement entered
      into in June 2005, which were initially paid by the Company and reimbursed
      by
      certain shareholders, were omitted from the Company’s consolidated statement of
      operations for the year ended December 31, 2005. Accordingly, these matters
      created a situation requiring the restatement of the company’s financial
      statements as of and for the year ended December 31, 2005. The results of these
      findings resulted in an additional charge of approximately $1,706,688 being
      charged to operations. The Report of Registered Independent Certified Public
      Accounting Firm reissued by SWHCPA on December 11, 2006 including the restated
      financial statements for the year ended December 31, 2005 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 the restatement
      mentioned and a going concern opinion expressing substantial doubt about the
      ability of the Company to continue as a going concern.





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            34
            -*











During
      the Company's then most recent fiscal year (ended December 31, 2005 and from
      January 1, 2006 to August 18, 2006, the date of the Company’s Form 8-K filing
      relating to certain events, including the change in the Company’s certifying
      accountants, 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 the
      Company'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 the Company's most recent fiscal year (ended December
      31,
      2005) and from January 1, 2006 to August 18, 2006 the date of the Company’s Form
      8-K filing relating to certain events, including the change in the Company’s
      certifying accountants.





SWHCPA
      furnished a letter addressed to the SEC stating that it agreed with the above
      statements. A copy of such letter, dated August 18, 2006, was attached as an
      Exhibit to the Company’s Form 8-K filed on August 18, 2006.





During
      the two most recent fiscal years and to August 18, 2006, the Company had not
      consulted with Rosthein Kass $ Company, P.C. regarding (i) either the
      application of accounting principles to a specified transaction (completed
      or
      proposed) or the type of audit opinion that might be rendered on the Company’s
      financial statements, 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.





Subsequent
      thereto, Rosthein Kass $ Company, P.C. declined their August 18, 2006
      appointment as the Company's Registered Independent Certified Public Accounting
      Firm on January 10, 2007 prior to their performance of any audit but after
      performing their review procedures for the Company on the quarter ending
      September 31, 2006 financial statements.





From
      August 16, 2006 to the date of this report, there were no disagreements with
      Rothstein Kass on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure. In connection with its
      review of the Company’s unaudited financial statements for the quarterly period
      ended September 30, 2006, Rothstein Kass advised the management and the board
      of
      directors of the Company that the Company had material weaknesses in its
      internal control, which was disclosed by the Company in its quarterly report
      on
      Form 10-QSB for the same period, as amended, restated and filed on December
      21,
      2006 after which the Company is in full compliance with its reporting and filing
      duties; there were otherwise no reportable events, as described in Item
      304(a)(1)(iv)(B) of Regulation S-B.





The
      Company then undertook the process of seeking a new Registered Independent
      Certified Public Accounting Firm.





On
      April
      2, 2007, the Company’s Board of Directors authorized the appointment of
      Cordovano and Honeck, CPA’s of Englewood Colorado as the Company's new
      independent auditors for periods subsequent to the September 30, 2006 .
      The
      Company, its Board of Directors and/or management, did not consult with
      Cordovano and Honeck at any time prior to the April 2, 2007 appointment,
      regarding the Company's two most recent fiscal years ended December 31, 2006
      and
      2005, the subsequent interim period through the April 2, 2007 filing of the
      Form
      8-K announcing this appointment event, and any of the matters or events set
      forth in Item 304(a)(2)(i) and (ii) of Regulation S-B**.**





**ITEM
      8A. DISCLOSURE CONTROLS AND PROCEDURES**





We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our Exchange Act reports is recorded,
      processed, summarized and reported within the time periods specified in the
      SEC's rules and forms, and that such information is accumulated and communicated
      to our management, including our Chief Executive Officer and Chief Financial
      Officer, as appropriate, to allow timely decisions regarding required
      disclosure. Such controls and procedures, by their nature, can provide only
      reasonable assurance regarding management's control objectives.








*-
            35
            -*





As
      of the
      end of the period covered by this report, we conducted an evaluation, under
      the
      supervision and with the participation of our management, including our Chief
      Executive Officer and Chief Financial Officer, of the effectiveness of the
      design and operation of our disclosure controls and procedures (as defined
      in
      Rules 13a-15 and 15d-15 of the Exchange Act). Based upon this evaluation, our
      Chief Executive Officer and Chief Financial Officer concluded that our
      disclosure controls and procedures are effective to ensure that the information
      required to be disclosed by the Company in reports that it files or submits
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in the Securities and Exchange Commission rules
      and
      forms. It should be noted that the design of any system of control is based
      in
      part upon certain assumptions about the likelihood of future events, and there
      can be no assurance that any design will succeed in achieving its stated goals
      under all potential future conditions, regardless of how remote. There have
      been
      no significant changes in our internal controls or in other factors that could
      significantly affect internal controls subsequent to the date we carried out
      the
      evaluation.




While
      we
      believe that our existing disclosure controls and procedures have been effective
      to accomplish their objectives, we intend to continue to examine, refine and
      formulize our disclosure controls and procedures and to monitor ongoing
      developments in this area.




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




**ITEM
      8B. OTHER INFORMATION** ****




None.





*-
            36
            -*





**PART
      III** ****




**ITEM
      9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION
      16(A) OF THE EXCHANGE ACT**




Our
      directors and executive officers are as follows:





**Name**
            **Age**
            **Position**Willem
                M. Smit
            60
            Director,
                President, and Chief Executive OfficerWilly
                J. Simon
            56
            Chairman
                of the Board of DirectorsGeorge
                M. Calhoun
            54
            DirectorErik
                L.A. van Emden
            58
            DirectorRogier
                W. Smit
            32
            Executive
                Vice PresidentJan
                Willem Kohne
            35
            Chief
                Financial Officer till November 1, 2006Wilbert
                Knol
            39
            Chief
                Financial Officer ad interim as of November 1, 2006Stefan
                Layer
            36
            Chief
                Marketing & Sales OfficerDominique
                Morel
            33
            Chief
                Technology Officer





**Biographical
      Information**




The
      principal occupations and brief summary of the background of each director
      and
      executive officer are as follows: ****




*Willem
      M. Smit* has been
      the Chief Executive Officer of Playlogic International since 2001. In July
      2005,
      he became Chief Executive Officer of the Company. In 1976, he founded Datex
      Software B.V., where he grew the company over nine years from 20 to 900
      employees. Datex went public in 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, the Company's 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. In July 2005, he became Chairman
      and Non Executive Director of the Company. He currently serves as a
      Non-Executive Director of Redi & Partners Ltd., a hedge fund of hedge funds.
      He served among others as Director of IMC Holding and Chairman of Bank Oyens
      & van Eeghen. Moreover he acted as an Advisor to the Board of NIB Capital.
      From 1997-2001, he was an executive member of the Board of Fortis Bank NL.





*George
      M. Calhoun* became
      Non Executive Director of the Company in November 2005. George Calhoun is
      currently serving on the faculty of the Howe School of Technology Management
      at
      the Stevens Institute of Technology in Hoboken, New Jersey. He was Chairman
      and
      CEO of Illinois Superconductor Corporation from 1999 until 2002. He has more
      than 23 years of experience in high-tech wireless systems development, beginning
      in 1980 as part of the team that organized Inter Digital Communications
      Corporation, where he participated in the development of the first commercial
      application of digital TDMA radio technology, and introduced the first wireless
      local loop system to the North American telecommunications industry. Dr. Calhoun
      holds a Ph.D. in Systems Science from the Wharton School at the University
      of
      Pennsylvania, as well as a B.A. from the same university.





*-
            37
            -*











*Erik
      L.A. van Emden* has
      been
      on Playlogic International N.V.’s Supervisory Board since December 2003. In
      July 2005, he became Non Executive Director of the Company. Since 1993 Van
      Emden
      has been an attorney and partner with Bosselaar & Strengers, a law firm
      based in Utrecht, the Netherlands, which focuses on large and medium-sized
      companies. The firm specializes in practices including employment, liability
      & insurance, real estate and corporate. Van Emden specializes in corporate
      law and is coordinator of the corporate law practice group. Previously, Van
      Emden was Board Member of the Amsterdam Stock Exchange and Member of the
      Executive Board of Credit Lyonnais Bank Nederland N.V. He also held positions
      at
      Barclays Bank and Algemene Bank Nederland. In addition, Van Emden 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 Playlogic International N.V.'s Executive Vice President and Chief
      Operating Officer since 2002.





*Stefan
      Layer* has been
      Chief Marketing & Sales Officer / VP of Playlogic International N.V. since
      April 2005 and of the Company since July 2005. From 1999 until joining us,
      Mr.
      Layer was the Vice President Licensing Europe for Atari Deutschland GmbH where
      he was responsible for the expansion to new markets, the European licensing
      business and the acquisition of IP rights. Mr. Layer defined the European
      licensing strategy of Atari Europe for digital distribution, OEM and premium
      sales and managed the expansion to Eastern Europe.





*Wilbert
      Knol* became
      the Company's Chief Financial Officer ad interim on November 1, 2006 following
      Jan Willem Kohne’s resignation as CFO per the same date. Mr.
      Knol
      has held several financial and operational positions with among others Hill
      Rom
      a division of Hillebrand Industries Inc. (NYSE) (1999-2005) and Coopers &
Lybrand (1992-1997). Mr. Knol received his RA Degree (the Dutch equivalent
      of a
      CPA Degree) from Amsterdam University the Netherlands in 1999.




*Dominique* Morel
      has
      joined the Company as Chief Technology Officer in September 2005. He has a
      key
      strategic role in our business development, evaluation process and current
      and
      future line-up. Before Morel joined the company, he was Project Evaluation
&
Business Development Manager of Atari Europe. In this position he signed major
      deals (Next-Gen, PC, PS2). He also initiated and established the "Business
      Opportunities On-line Database" for Atari worldwide. In this period with Atari
      he has acquired an extensive network in the European developer community. Prior
      to this, Morel worked as Project Evaluation & Game Play Consulting Manager
      for Atari/Infogrames, which involved analyzing and ensuring the Game Play and
      Game Design Consulting for over 120 published games. All together Morel worked
      with Atari for more than 10 years and has been an important internal consultant
      for many production decisions for Atari worldwide.




The
      directors named above will serve until the next annual meeting of our
      stockholders or until his successor is duly elected and has qualified. Directors
      will be elected for one-year terms at the annual stockholders meeting. There
      is
      no arrangement or understanding between any of our directors or officers and
      any
      other person pursuant to which any director or officer was or is to be selected
      as a director or officer, and there is no arrangement, plan or understanding
      as
      to whether non-management stockholders will exercise their voting rights to
      continue to elect the current directors to our Board of Directors. There are
      also no arrangements, agreements or understandings between non-management
      stockholders that may directly or indirectly participate in or influence the
      management of our affairs.




**Indemnification
      of Officers and Directors** ****




Our
      Certificate of Incorporation provides that we will indemnify any officer or
      director, or former officer or director, to the fullest extent permitted by
      law.
      Our bylaws provide for the indemnification of our directors, officers,
      employees, and agents, under certain circumstances, against expenses incurred
      by
      them in any litigation to which they become a party arising from their
      association with or activities on behalf of our Company. We will also bear
      the
      expenses of such litigation for any of our directors, officers, employees,
      or
      agents, upon such person's promise to repay us therefore if it is ultimately
      determined that any such person shall not have been entitled to
      indemnification.





*-
            38
            -*








**Conflicts
      of Interest** ****




Our
      officers, directors and principal stockholders may actively negotiate for the
      purchase of a portion of their common stock as a condition to, or in connection
      with, a proposed merger or acquisition transaction. It is anticipated that
      a
      substantial premium may be paid by the purchaser in conjunction with any sale
      of
      shares by our officers, directors and principal stockholders made as a condition
      to, or in connection with, a proposed merger or acquisition transaction. The
      fact  that
      a
      substantial premium may be paid to members of our management to acquire their
      shares creates a conflict of interest for them and may compromise their state
      law fiduciary duties to our other stockholders. In making any such sale, members
      of our management may consider their own personal pecuniary benefit rather
      than
      our best interests and the best interests of our other stockholders, and the
      other stockholders are not expected to be afforded the opportunity to approve
      or
      consent to any particular buy-out transaction involving shares held by members
      of our management.




Although
      our management has no current plans to cause the Company to do so, it is
      possible that we may enter into an agreement with an acquisition candidate
      requiring the sale of all or a portion of the common stock held by our current
      stockholders to the acquisition candidate or principals thereof, or to other
      individuals or business entities, or requiring some other form of payment to
      our
      current stockholders, or requiring the future employment of specified officers
      and payment of salaries to them. It is more likely than not that any sale of
      securities by our current stockholders to an acquisition candidate would be
      at a
      price substantially higher than that originally paid by such stockholders.
      Any
      payment to current stockholders in the context of an acquisition involving
      our
      Company would be determined entirely by the largely unforeseeable terms of
      a
      future agreement with an unidentified business entity.




**Involvement
      in Certain Legal Proceedings**




During
      the past five years, no present or former director, executive officer or person
      nominated to become a director or an executive officer of our Company:




1.
      was a
      general partner or executive officer of any business against which any
      bankruptcy petition was filed, either at the time of the bankruptcy or two
      years
      prior to that time;




2.
      was
      convicted in a criminal proceeding or named subject to a pending criminal
      proceeding (excluding traffic violations and other minor offenses);




3.
      was
      subject to any order, judgment or decree, not subsequently reversed, suspended
      or vacated, of any court of competent jurisdiction, permanently or temporarily
      enjoining, barring, suspending or otherwise limiting his involvement in any
      type
      of business, securities or banking activities; or




4.
      was
      found by a court of competent jurisdiction (in a civil action), the Commission
      or the Commodity Futures Trading Commission to have violated a federal or state
      securities or commodities law, and the judgment has not been reversed, suspended
      or vacated.




**Beneficial
      Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 and regulations of the SEC there
      under require the Company’s executive officers and directors, and persons who
      own more than ten percent of a registered class of the Company’s equity
      securities, to file reports of initial ownership and changes in ownership with
      the SEC. Based solely on its review of copies of such forms received by the
      Company, or on written representations from certain reporting persons that
      no
      other reports were required for such persons, the Company believes that during
      2006, all of the Section 16(a) filing requirements applicable to its executive
      officers, directors and ten percent stockholders were complied with on a timely
      basis.





*-
            39
            -*











**Information
      Concerning the Board of Directors and the Audit Committee**




During
      2006, the Company's Board of Directors had four Directors. During 2006 the
      Board
      met twelve times on an executive base. The Board acted by unanimous written
      consent on nine occasions.




**Audit
      Committee**




The
      Company established an Audit Committee on October 31, 2005. Messrs. Calhoun
      (Chair), Van Emden and Simon are the members of the Audit Committee.


The
      Audit
      Committee assists the Board of Directors in its oversight of the integrity
      of
      the Company's accounting, auditing and reporting practices. The Board of
      Directors has determined that Mr. Simon possesses the attributes to be
      considered financially sophisticated and has the background to be considered
      an
      "audit committee financial expert" as defined by the rules and regulations
      of
      the SEC. The Audit Committee will meet with the Company's independent
      accountants at least annually to review the results of the Company's annual
      audit and discuss the financial statements. The Committee will also meet
      quarterly with our independent accountants to discuss the results of the
      accountants' quarterly reviews as well as quarterly results and quarterly
      earnings releases; recommend to the Board that the independent accountants
      be
      retained; and receive and consider the accountants' comments as to internal
      controls, adequacy of staff and management performance and procedures in
      connection with audit and financial controls. The Audit Committee will review
      all financial reports prior to filing with the SEC. The specific
      responsibilities in carrying out the Audit Committee's oversight role are set
      forth in the Audit Committee's Charter. All of the members of the Audit
      Committee are independent directors as contemplated by Section 10A (m)(3) of
      the
      Securities and Exchange Act, as amended.




During
      2006 the Audit Committee met four times.





**Compensation
      Committee**





The
      Company's Compensation Committee is responsible for establishing and
      administering the Company's policies involving the compensation of all of its
      executive officers. This committee consists of Messrs. Van Emden (Chair),
      Calhoun and Simon and was formed on December 15, 2005. The Compensation
      Committee operates pursuant to a charter approved by the Company's Board of
      Directors.





During
      2006 no meetings were held by the Compensation Committee





**Nominating
      and Governance Committee**





The
      Company's Nominating and Governance Committee selects nominees for the Board
      of
      Directors. This committee consists of Messrs. Simon (Chair), Calhoun and Van
      Emden and was formed on December 15, 2005. The Nominating and Governance
      committee utilizes a variety of methods for identifying and evaluating nominees
      for director. Candidates may also come to the attention of the Nominating and
      Governance committee through current board members, professional search firms
      and other persons. The Nominating and Governance committee operates pursuant
      to
      a charter approved by the Board of Directors.





During
      2006 no meetings were held by the Governance Committee





**Code
      of Business Conduct and Ethics**





The
      Company's board of directors has adopted in December 2005 a Code of Business
      Conduct and Ethics that applies to all of our directors, officers and employees
      and an additional Code of Business Ethics that applies to our Chief Executive
      Officer and senior financial officers.








*-
            40
            -*





The
      Company plans to satisfy the disclosure requirement under Item 5.05 of Form
      8-K
      relating to amendments to or waivers from provisions of these codes by
      describing on our Internet website, located at
      http://www.playlogicinternational.com, within four business days following
      the
      date of a waiver or a substantive amendment, the nature of the amendment or
      waiver, the date of the waiver or amendment, and the name of the person to
      whom
      the waiver was granted.





Information
      on the Company’s internet website is not, and shall not be deemed to be, a part
      of this 10-KSB or incorporated into any other filings the Company makes with
      the
      SEC.





**Director
      Nomination**





*Criteria
      for Board Membership.* In
      selecting candidates for appointment or re-election to the Board, the Nominating
      and Governance Committee considers the appropriate balance of experience, skills
      and characteristics required of the Board of Directors, and seeks to insure
      that
      at least a majority of the directors are independent under the rules of the
      NASDAQ Stock Market, and that members of the Company’s Audit Committee meet the
      financial literacy and sophistication requirements under the rules of the NASDAQ
      Stock Market and at least one of them qualifies as an “audit committee financial
      expert” under the rules of the Securities and Exchange Commission. Nominees for
      director are selected on the basis of their depth and breadth of experience,
      integrity, ability to make independent analytical inquiries, understanding
      of
      the Company’s business environment, and willingness to devote adequate time to
      Board duties.





*Stockholder
      Nominees.* The
      Nominating Committee will consider written proposals from stockholders for
      nominees for director. Any such nominations should be submitted to the
      Nominating Committee c/o the Secretary of the Company and should include the
      following information: (a) all information relating to such nominee that is
      required to be disclosed pursuant to Regulation 14A under the Securities
      Exchange Act of 1934 (including such person’s written consent to being named in
      the Proxy Statement as a nominee and to serving as a director if elected);
      (b) the names and addresses of the stockholders making the nomination and
      the number of shares of the Company’s common stock which are owned beneficially
      and of record by such stockholders; and (c) appropriate biographical
      information and a statement as to the qualification of the nominee, and should
      be submitted in the time frame described in the Bylaws of the Company and under
      the caption, “Stockholder Proposals for the Next Annual Meeting” below.





*Process
      for Identifying and Evaluating Nominees.* The
      Nominating Committee believes the Company is well-served by its current
      directors. In the ordinary course, absent special circumstances or a material
      change in the criteria for Board membership, the Nominating Committee will
      renominate incumbent directors who continue to be qualified for Board service
      and are willing to continue as directors. If an incumbent director is not
      standing for re-election, or if a vacancy on the Board occurs between annual
      stockholder meetings, the Nominating Committee will seek out potential
      candidates for Board appointment who meet the criteria for selection as a
      nominee and have the specific qualities or skills being sought. Director
      candidates will be selected based on input from members of the Board, senior
      management of the company and, if the nominating committee deems appropriate,
      a
      third-party search firm. The Nominating Committee will evaluate each candidate's
      qualifications and check relevant references; in addition, such candidates
      will
      be interviewed by at least one member of the nominating committee. Candidates
      meriting serious consideration will meet with all members of the Board. Based
      on
      this input, the Nominating Committee will evaluate which of the prospective
      candidates is qualified to serve as a director and whether the committee should
      recommend to the Board that this candidate be appointed to fill a current
      vacancy on the Board, or presented for the approval of the stockholders, as
      appropriate.





The
      Company has never received a proposal from a stockholder to nominate a director.
      Although the Nominating Committee has not adopted a formal policy with respect
      to stockholder nominees, the committee expects that the evaluation process
      for a
      stockholder nominee would be similar to the process outlined above.





*-
            41
            -*





**ITEM
      10. EXECUTIVE COMPENSATION**




The
      following table sets forth information regarding compensation for the fiscal
      years ended December 31, 2004, 2005 and 2006 received by the individual who
      served as Playlogic International's Chief Executive Officer during 2006 and
      Playlogic International’s other most highly compensated executive officers whose
      total annual salary and bonus for fiscal year 2006 exceeded $100,000 (the “Named
      Officers”).








**Summary
      Compensation Table**


**Long-Term**
            **Payouts**
            **All
                Other Compensation****Annual
                Compensation**
            **Compensation
                Awards****Name
                and Principal Position as of December 31, 2005**
            **Year**
            **Salary
                €/($)**
            **Bonus
                ($)**
            **Other
                Annual Compensation ($)**
            **Restricted
                Stock Awards (3)**
            **Securities
                Underlying Options/SARs (#)**
            **LTIP
                Payouts ($)**Willem
                M. Smit (1)
              Chief
                Executive Officer
            2006
              2005
              2004
            €0
              €0
              €0
            
            --
            
            
            --Sloterhof
                Investments N.V. (of which Mr. Willem M. Smit is the beneficial
                owner)
              Managing
                Director
            2006
              2005
              2004
            €0
              €0
              €100,000/$135,458
            
            --
            
            
            --Rogier
                W. Smit
              Executive
                Vice President
            2006
              2005
              2004
            €143,000/$188,559
              €143,000/$195,109
              €100,000/$147,096
            
            --
            
            
            --Jan
                Willem Kohne Chief Financial Officer (2)
            2006
              2005
              2004
            €131,083/$172,846
              €143,000/$195,109
              €0
              €0
            48,480
            --
            0
                (4)
            0(7)
            --
              --Wilbert
                Knol Chief Financial Officer a.i.(2)
            2006
              2005
              2004
            €99537/$131,249
              €7,716/$10,174
              €0
            
            
            
            60,000(10)Stefan
                Layer Chief Marketing & Sales Officer / VP(2)
            2006
              2005
              2004
            €143,000/$188,559
              €143,000/$195,109
              €0
            67,200
              67,200
            --
            $245,000
                (5)
            
            --Maarten
                Minderhoud General Counsel (2)
            2006
              2005
              2004
            €143,000/$188,559
              €143,000/$195,109
              €0
            0
            --
            $21,000
                (6)
            40,000(8)
            --
              --Dominique
                Morel Chief Technology Officer(2)
            2006
              2005
              2004
            €143,000/$188,559
              €143,000/$195,109
              €0
            0
            --
            
            100,000
                (9)
            --
              --














*-
            42
            -*







(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,
                Knol, Layer, Minderhoud and Morel joined the Company in 2005. Mr
                Kohne
                left the Company on December 1,
                2006





(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).





(4)
            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. The shares were sold back by Kohne
                to the
                Company at an aggregate price of $ 1 upon the termination of Mr.
                Kohne’s
                employment with the Company effective December 1,
                2006.





(5)
            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.





(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 can not 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. These options were cancelled on December 1, 2006
                upon
                termination of the employment of Mr. Kohne per the same
                date.





(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 10,000
                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 25,000
                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





(10)
            We
                granted to Mr. Knol, 60,000 options to purchase shares of our common
                stock
                at an exercise price of $2.50 per share. A total of 20,000 shares
                of these
                options will vest on May 4, 2008, and the remaining options will
                vest in
                two equal installments on May 4, 2009, May 4, 2010.







**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.





The
      following table contains information concerning the grant of stock options
      under
      individual employment arrangements with the Names Executive Officers made during
      the fiscal year of 2006.





*-
            43
            -*











**NAME**
            **Grant
                and approval date**
            **Closing
                Price on Grant date**
            **Number
                of Securities Underlying Options/SARs granted**
            **Percentage
                of Total Options/SARs granted to employees in fiscal year
                (2)**
            **Exercise
                or Base Price ($/Sh)**
            **Expiration
                date**Wilbert
                Knol (1)
            November
                1, 2006
            $2.00
            60,000
            100%
            $2.50                                                         
                November
                1, 2011





(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, 2006.





**Option
      Exercises and Holdings**




During
      the fiscal year ended December 31, 2006, no options were exercised.




**Directors’
      Compensation**





Each
      non-employee director is paid an annual cash retainer in the amount of $30,000
      ($36,000 for the Chairman) for attending the meetings of the Board of Directors
      or its committees at which there is a quorum, whether in person or by telephone.
      In addition, all directors are eligible for reimbursement of their expenses
      in
      attending meetings of the Board of Directors or its committees. Further, each
      non-employee director is granted per year of service options to purchase share
      of the Company’s common stock with a cash equivalent equal to the annual cash
      retainer. Stock options are granted and valued at 33% of the prevailing stock
      price. The prevailing stock price is the closing price of the stock on the
      business day prior to the date of grant (being the day of the annual meeting).
      Such options vest upon a waiting period of two years following the date of
      grant
      in three equal installments over three years and have a term of four years.





**Employment
      Agreements**





In
      July
      2005, Playlogic International amended an existing employment agreement
      (effective February 1, 2002) with Rogier Smit, Executive Vice President. The
      agreement is for an indefinite period, but can be terminated by the Company
      upon
      twelve months notice or by Mr. Smit upon six months notice. Mr. Smit ́s starting
      salary was $9,427 (€7,500) per month. On July 1, 2005, his base salary increased
      to $15,009 (€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, Playlogic International entered into an employment agreement
      with
      Stefan Layer, Chief Marketing & Sales Officer, effective as of April 1,
      2005. Pursuant to the terms of the agreement, Mr. Layer is responsible for
      marketing, sales and licensing. The agreement is for an indefinite period,
      but
      can be terminated by the Company upon six months notice or by Mr. Layer upon
      three months notice. Mr. Layer's starting salary is $15,009 (€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 and a company
      car. Under this agreement, Mr. Layer received 500,000 ordinary shares of
      Playlogic International at a nominal value of $0.068 (€0.05) per share which
      were exchanged for 364,556 shares of the Company's common stock. Such shares
      are
      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 the
      Company at nominal value. Pursuant to the agreement, Mr. Layer is also subject
      to confidentiality, non-competition and invention assignment
      requirements.





*-
            44
            -*








In
      August
      2005, Playlogic International entered an employment contract with Maarten
      Minderhoud as General Counsel effective as of September 1, 2005. The agreement
      is for an indefinite period but can be terminated by the Company upon six months
      notice or by Mr. Minderhoud upon 3 months notice. Mr. Minderhoud’s starting
      salary will be $15,055
      ( € 11,034) per
      month. . In addition to his salary, Mr. Morel is entitled to a company car. On
      September 1, 2005, pursuant to the agreement, Mr. Minderhoud received 30,000
      shares of the Company's
      common stock at par
      value of $0.001. Such
      shares will be subject to a two-year lock up period. After the lock up period
      Mr. Minderhoud will be permitted to sell up to 50% of his shares each year. Pursuant
      to the agreement, Mr. Minderhoud was granted 40,000 options to purchase shares
      of common stock of the Company at an exercise price of $3.50 per share. 10,000
      of these options vest on September1, 2007, and 10,000 of the remaining options
      will vest on September1, 2008, September1, 2009 and September 1, 2010. Pursuant
      to the agreement, Mr. Minderhoud is also subject to confidentiality,
      non-competition and invention assignment requirements.





In
      August
      2005, Playlogic International entered an employment contract with Dominique
      Morel as Chief Technology Officer effective as of September 14, 2005. The
      agreement is for an indefinite period but can be terminated by the Company
      upon
      six months notice or by Mr. Morel upon 3 months notice. Mr. Morel’s starting
      salary will be $15,008.50 (€11,000) per month. In addition to his salary, Mr.
      Morel is entitled to a company car. Pursuant
      to the agreement, Mr. Morel was granted 100,000 options to purchase shares
      of
      common stock of the Company at an exercise price of $3.50 per share. 25,000
      of
      these options vest on October 1, 2007, and 25,000 of the remaining options
      will
      vest on October 1, 2008, October 1, 2009 and October 1, 2010. Pursuant
      to the agreement, Mr. Morel is also subject to confidentiality, non-competition
      and invention assignment requirements.








In
      November 2006, Playlogic International amended the existing employment agreement
      of Wilbert Knol


(Corporate
      controller as of December 1, 2005) as Chief Financial Officer ad interim
      effective as of November 1, 2006. The agreement is for an indefinite period
      but
      can be terminated by the Company upon two months notice or by Mr. Knol upon
      1
      months notice. Mr. Knol ’s starting salary as CFO a.i. will be $12,310.45
      (€9,336) per month. In addition to his salary, Mr. Knol is entitled to a company
      car. Pursuant
      to the agreement w e
      granted
      to Mr. Knol, 60,000 options to purchase shares of our common stock at an
      exercise price of $2.50 per share. A total of 20,000 shares of these options
      will vest on May 4, 2008, and the remaining options will vest in two equal
      installments on May 4, 2009, May 4, 2010. Pursuant to the agreement, Mr. Morel
      is also subject to confidentiality, non-competition and invention assignment
      requirements.





Mr.
      Kohne
      was a party to an employment agreement with the Company dated October 1, 2005.
      The agreement has been terminated effective December 1, 2006 without any further
      obligation for the Company. Options granted pursuant to the employment agreement
      were cancelled effective December 1, 2006. 90,000 Shares of common stock awarded
      upon signing of the employment agreement were sold
      back by Mr. Kohne to the Company at an aggregate price of $ 1.











*-
            45
            -*





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**




The
      following table sets forth, as of December 31, 2006, information concerning
      the
      ownership of all classes of common stock of the Company of (i) all persons
      known
      to the Company to beneficially own 5% or more of the Company’s common stock,
      (ii) each director of the Company, (iii) the Named Executive Officers and (iv)
      all directors and executive officers of the Company as a group. Share ownership
      includes shares issuable upon exercise of outstanding options that are
      exercisable within 60 days of December 31, 2006.




**Name
                and Address (1)**
            **Number
                of Shares of Common Stock**
            **Percentage
                of Common Stock**Sloterhof
                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%Erik
                L.A. van Emden
            0
            *Willy
                J. Simon
            87,494
            *George
                M. Calhoun
            200
            *All
                directors and executive officers as a group
            9,533,103
            38%




*Less
      than 1%


___________


(1)
      Unless otherwise indicated, the address is our address at Concertgebouwplein
      13,
      1071 LL Amsterdam, and The Netherlands.


(2)
      Includes shares held by Sloterhof Investments N.V. a company beneficially owned
      by Mr. W. Smit


(3)
      Includes shares held by Castilla Investments B.V. a company beneficially owned
      by Mr. R. Smit





*-
            46
            -*








**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS** ****




Effective
      January 1, 2006 the Company entered into a service agreement with Altaville
      Investments N.V., a company beneficially owned by its CEO Willem M. Smit. The
      Company pays for certain services among others house keeping and cleaning
      services provided by Altaville to the Company at an annual aggregate amount
      of $
      49,843 which is paid in twelve monthly installments.




**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 Statements


Report
      of
      Independent Registered Public Accounting Firm


Consolidated
      Balance Sheet


Consolidated
      Statements of Operations and Comprehensive Income


Consolidated
      Statement of Changes in Shareholders’ Equity (Deficit)


Consolidated
      Statements of Cash Flows


Notes
      to
      Consolidated Financial Statements





***2.***  ***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
                HerewithExhibit32.2
            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





*-
            47
            -*





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**




**Audit
      Fees.**




The
      aggregate fees billed by SWHCPA for professional services rendered for the
      review of financial statements included in the Company's Forms 10-QSB for the
      quarters ended March 31, 2006 and June 30, 2006 and the restated financial
      statements 2005 and 2006 included in the Company’s Forms 10-QSB and 10-KSB were
      $31,125.




The
      aggregate fees billed by Rosthein Kass $ Company, P.C. for professional services
      rendered for the review of financial statements included in the Company's Forms
      10-QSB for the quarter ended September 30, 2006 were $10,000.




The
      aggregate fees billed by Cordovano & Honeck, LLP and DRV Accountants for
      professional services rendered for the audit of the financial statements
      included in the Company's Forms 10-KSB for the year ended December 30, 2006
      were
      $112,500.




The
      aggregate fees billed by BDO CampsObers for professional services rendered
      for
      (i) the review of financial statements included in the Company’s Forms
      10-QSB for the quarters ended, June 30, 2005 and September 30, 2005,
      (ii) the audit of the Company’s financial statements for the fiscal year
      ended December 31, 2005 and (iii) audit-related services were
      $455,075.




The
      aggregate fees billed by SWHCPA for professional services rendered for the
      review of financial statements included in the Company’s Forms 10-QSB for the
      quarters ended June 30, 2005 and September 30, 2005 and the audit of
      the Company’s financial statements for the fiscal year ended December 31,
      2005 were $27,400.




**Audit-Related
      Fees.**




No
      fees
      were billed for assurance and related services that are reasonably related
      to
      the performance of the audit or review of our financial statements, for the
      years ended December 31, 2006.




**Tax
      Fees.**




The
      aggregate fees billed for tax compliance, tax advice or tax planning services
      by
      SWHCPA for the fiscal year ended December 31, 2006 were $300. The aggregate
      fees
      for such services by SWHCPA for the fiscal year ended December 31, 2005 were
      $263.




The
      aggregate fees billed for tax compliance, tax advice or tax planning services
      by
      DRV for the fiscal year ended December 31, 2006 were $6,250. The aggregate
      fees
      for such services by BDO CampsObers were $9,811 for the fiscal year ended
      December 31, 2005.




**All
      Other Fees.**




There
      were no fees billed for products and services, other than the services described
      in the paragraphs captions “Audit Fees”, “Audit-Related Fees”, and “Tax Fees”
above for the years ended December 31, 2006.








*-
            48
            -*





An
      aggregate amount of 1,625 was billed by SWHCPA for products and services, other
      than the services described in the paragraphs captions “Audit Fees”,
“Audit-Related Fees”, and “Tax Fees” above for the years ended December 31,
      2005 and 2004.





No
      other
      fees were billed by BDO CampsObers for products and services, other than the
      services described in the paragraphs captions “Audit Fees”, “Audit-Related
      Fees”, and “Tax Fees” above for the years ended December 31, 2005 and 2004.





*-
            49
            -*





**SIGNATURES**





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




**Playlogic International,
              INC.**Dated:
              April
              17, 2007
            By:
            /s/ Willem
              M.
              SmitWillem
              M. Smit
              Chief
                Executive Officer


Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.





**Signature**
            **Capacity
                in Which Signed**
            **Date**/s/Willy
                J.. Simon
              Willy
                J. Simon
            Chairman
                of the Board
            April
                17, 2007/s/
                Willem M. Smit
              
              Willem
                M. Smit
            Director
                and Chief Executive Officer
            April
                17, 2007/s/
                Wilbert Knol
              Wilbert
                Knol
            Chief
                Financial Officer
              (Principal
                Financing and Accounting Officer)
            April
                17, 2007/s/
                Erik L.A. van Emden
              Erik
                L.A. van Emden
            Director
            April
                17, 2007/s/
                George M. Calhoun
              George
                M. Calhoun
            Director
            April
                17, 2007







*-
          50
          -*
 
  
 
 **PLAYLOGIC
        ENTERTAINMENT, INC. AND SUBSIDIARIES**
 
 **CONTENTS**
 
 
  Page**Reports
                  of Independent Registered Public Accounting Firms**
              F-1**Consolidated
                  Financial Statements**Consolidated
                  Balance Sheetas of December 31, 2006
              F-3Consolidated Statements of Operations and Comprehensive
                  Lossfor the year ended December 31, 2006 and 2005
              F-4Consolidated
                  Statement of Changes in Shareholders' Deficitfor the year ended December 31, 2006 and 2005
              F-5Consolidated
                  Statements of Cash Flowsfor the year ended December 31, 2006 and 2005
              F-6Notes
                  to the Consolidated Financial Statements
              F-7
 
 
 
 
 
 
 **REPORT
        OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
        FIRM**
 
 
 
 The
        Board
        of Directors and Shareholders
 Playlogic
        Entertainment, Inc.
  We
        have
        audited the accompanying consolidated balance sheet of Playlogic Entertainment,
        Inc. as of December 31, 2006, and the related consolidated statements of
        operations and comprehensive loss, changes in shareholders’ deficit, and cash
        flows for the year ended December 31, 2006. 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 audit.
  We
        conducted our audit in accordance with auditing standards of the Public
        Companies 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. 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 consolidated financial position of Playlogic
        Entertainment, Inc. as of December 31, 2006, and the consolidated results
        of their operations and their cash flows for the year ended December 31,
        2006 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 not fully realized the potential of it’s business
        plan and, accordingly, has experienced limited revenues related to the sale
        of
        videogames. Additionally, the Company continues to experience net operating
        losses and is reliant upon outside sources of working capital to meet current
        obligations. The Company’s existence is dependent upon the successful
        introduction of videogame products into the marketplace and the ability to
        raise
        working capital from outside sources. 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/
        Cordovano and Honeck LLP
 Cordovano
        and Honeck LLP
 Englewood,
        Colorado
 April 17,
        2007
 
 *F-1*
 
 **REPORT
        OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
        FIRM**
 
 
 
 Board
        of
        Directors and Stockholders
 Playlogic
        Entertainment, Inc.
 (formerly
        Donar Enterprises, Inc.)
 
 We
        have
        audited the accompanying restated consolidated balance sheet of Playlogic
        Entertainment, Inc. (formerly Donar Enterprises, Inc.) (a Delaware corporation)
        and Subsidiaries (Netherlands corporations) as of December 31, 2005 (not
        separately included herein) and the related restated statements of operations
        and comprehensive loss, changes in stockholders' equity (deficit) and cash
        flows
        for the year ended December 31, 2005, respectively. These restated
        financial statements are the responsibility of the Company's management.
        Our
        responsibility is to express an opinion on these restated financial statements
        based on our audit.
 
 The
        consolidated statement of operations and comprehensive loss and consolidated
        statement of cash flows of the Company’s subsidiaries, Playlogic International,
        N. V. and it’s wholly-owned subsidiary, Playlogic Game Factory, B. V., as
        of and for the year ended December 31, 2004 were audited by other auditors
        whose
        report was dated May 24, 2005 and included a paragraph expressing substantial
        doubt about Playlogic International, N. V.s ability to continue as a going
        concern.
 
 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 audit to obtain reasonable assurance about whether the restated
        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 restated financial statements, 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 restated financial position of Playlogic Entertainment,
        Inc. as of December 31, 2005 and the results of its restated operations and
        cash
        flows for the year ended December 31, 2005, 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 not fully realized the potential of it’s business
        plan and, accordingly, has experienced limited revenues related to the sale
        of
        videogames. Additionally, the Company continues to experience net operating
        losses and is reliant upon outside sources of working capital to meet current
        obligations. The Company’s existence is dependent upon the successful
        introduction of videogame products into the marketplace and the ability to
        raise
        working capital from outside sources. 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.
 
 We
        initially issued a Report of Independent Certified Public Accountants (Report)
        on the above listed financial statements on May 1, 2006. Subsequent to the
        date
        of that Report, Management determined that the Company’s accounting for the
        reimbursement of certain expenses incurred during the second and third quarter
        of 2005 had not been properly reflected in accordance with U.S. generally
        accepted accounting principles. Certain operating expenses and transaction
        costs
        associated with the Company’s Share Exchange Agreement entered into in June
        2005, which were initially paid by the Company and reimbursed by certain
        shareholders, were omitted from the Company’s consolidated statements of
        operations for the year ended December 31, 2005. Accordingly, these matters
        created a situation requiring the restatement of the Company’s financial
        statements as of and for the year ended December 31, 2005. The results of
        these
        findings resulted in an additional charge of approximately $1,706,688 being
        charged to operations.
 
 We
        formally withdrew our Report of Registered Independent Certified Public
        Accounting Firm dated May 1, 2006 on November 16, 2006 and no reliance should
        be
        placed on that opinion.
 
 
 
 /s/
        S.
        W. Hatfield, CPA
 S.
        W.
        HATFIELD, CPA
 Dallas,
        Texas
 December
        11, 2006
 
 *F-2*
 
 **PLAYLOGIC
            ENTERTAINMENT INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            BALANCE SHEET**
 December
            31, 2006
  **ASSETS****Current
                      Assets**Cash
                  
                  $
                  18,433ReceivablesTrade
                      accounts, net of allowance for doubtful accounts
                  
                  
                  749,579Value
                      Added Taxes from foreign governments
                  
                  
                  557,089Software
                      development costs
                  
                  
                  3,115,659Prepaid
                      expenses and other
                  
                  
                  247,371**Total
                      current assets**
                  
                  
                  4,688,131**Property
                      and Equipment - at cost**Computers
                      and office equipment
                  
                  
                  1,813,213Leasehold
                      improvements
                  
                  
                  322,440Software
                  
                  
                  344,2112,479,864Less
                      accumulated depreciation
                  
                  
                  (1,595,401
                  )**Net
                      property and equipment**
                  
                  
                  884,463**Other
                      assets**Software
                      development costs, net of current portion
                  
                  
                  1,347,771Restricted
                      cash
                  
                  
                  153,953**Total
                      other assets**
                  
                  
                  1,501,724**Total
                      Assets**
                  
                  $
                  7,074,318**LIABILITIES
                      AND SHAREHOLDERS' DEFICIT****Current
                      Liabilites**Bank
                      credit facility
                  
                  $
                  1,792,429Short-term
                      debt
                  
                  
                  395,580Derivative
                      liability
                  
                  
                  8,087Current
                      maturities of long-term debt
                  
                  
                  39,558Accounts
                      payable - trade
                  
                  
                  4,347,885Other
                      accrued liabilities
                  
                  
                  6,241,500Deferred
                      revenues
                  
                  
                  1,319,853Loan
                      from shareholders
                  
                  
                  3,581,747**Total
                      current liabilities**
                  
                  
                  17,726,639**Long-term
                      debt, less current maturities**
                  
                  
                  237,350**Total
                      Liabilities**
                  
                  
                  17,963,989Committments and
                    contingencies
                  
                  
                  -**Shareholders'
                      Deficit**Preferred
                      stock - $0.001 par value. 20,000,000 shares authorized. None
                      issued and
                      outstanding
                  
                  
                  -Common
                      stock - $0.001 par value.100,000,000 shares authorized. 25,332,109
                      shares
                      issued and outstanding
                  
                  
                  25,332Additional
                      paid-in capital
                  
                  
                  42,596,112Deferred
                      Compensation-Employee Stock Options
                  
                  
                  414,040Accumulated
                      deficit
                  
                  
                  (51,485,615
                  )Accumulated
                      Other Comprehensive Loss
                  
                  
                  (2,439,540
                  )(10,889,671
                  )Stock
                      subscriptions receivable
                  
                  
                  -**Total
                      shareholders' deficit**
                  
                  
                  (10,889,671
                  )**Total
                      Liabilities and Shareholders' Deficit**
                  
                  $
                  7,074,318
  
 The
        accompanying notes are an integral part of these consolidated financial
        statements
 
 *F-3*
  **PLAYLOGIC
          ENTERTAINMENT INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**
  For
                    the year ended December 31,2006
                
                2005
                    (restated)**Revenues**Net
                    revenues
                
                $
                5,042,516
                
                $
                1,824,199**Cost
                    of sales**Direct
                    costs of production
                
                
                (3,837,079
                )
                
                (1,082,306
                )**Gross
                    profit**
                
                
                **1,205,437**
                
                
                **741,893****Operating
                    expenses**Reorganization
                    expenses
                
                
                -
                
                
                899,697Research
                    and development
                
                
                2,135,832
                
                
                1,581,987Selling
                    and marketing
                
                
                1,343,722
                
                
                778,273General
                    and administrative
                
                
                5,879,920
                
                
                6,509,118Depreciation
                
                
                315,174
                
                
                280,480Asset
                    impairment charges
                
                
                1,907,117
                
                
                -**Total
                    operating expenses**
                
                
                11,581,765
                
                
                10,049,641**Loss
                    from operations**
                
                
                **(10,376,328**
                **)**
                
                **(9,307,748**
                **)****Other
                    income/(expense)**Interest
                    expense
                
                
                (917,972
                )
                
                (288,165
                )Loan
                    penalty expense
                
                
                (1,254,100
                )
                
                -**Income/(Loss)
                    before provision for income taxes**
                
                
                (12,548,400
                )
                
                (9,595,913
                )Provision
                    for Income Taxes
                
                
                -
                
                
                (78,091
                )**Net
                    loss**
                
                
                (12,548,400
                )
                
                (9,674,004
                )**Other
                    comprehensive income/(loss)**Foreign
                    currency adjustment
                
                
                (908,017
                )
                
                1,106,062**Comprehensive
                    Loss**
                
                $
                (13,456,417
                )
                $
                (8,567,942
                )Net
                    loss per share of common stock-
                    basic and fully diluted
                
                
                (0.51
                )
                
                (0.42
                )Weighted-average
                    number of shares of common stock outstanding-
                    basic and fully diluted
                
                
                24,482,474
                
                
                22,865,402
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements
 
 *F-4*
  **PLAYLOGIC
          ENTERTAINMENT, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
          (DEFICIT)**


Additional
              
              
              
              
              
              Stock
              
              
              
              
              
              Accumulated
                  OtherCommon
                  stock
              
              
              Paid-in
              
              
              Deferred
              
              
              Subscription
              
              
              Accumulated
              
              
              ComprehensiveShares
              
              
              Par
                  Value
              
              
              Capital
              
              
              Compensation
              
              
              Receivable
              
              
              deficit
              
              
              Loss
              
              
              Total**Balances
                  at December 31, 2004 as restated**
              
              
              **22,765,894**
              
              $
              **22,766**
              
              $
              **32,855,370**
              
              $
              **-**
              
              $
              **-**
              
              $
              **(29,263,210**
              **)**
              $
              **(2,637,585**
              **)**
              $
              **977,341**-Common
                  stock issued pursuant to private placements for:
              
              
              
              
              
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Cash
              
              
              936,132
              
              
              936
              
              
              3,767,256
              
              
              -
              
              
              (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
              
              
              -
              
              
              -
              
              
              1,292,462
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,292,462Change
                  in currency translation difference
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,106,062
              
              
              1,106,062Net
                  loss for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (9,674,005
              )
              
              -
              
              
              (9,674,005
              )**Balances
                  at December 31, 2005 as restated**
              
              
              **24,057,207**
              
              
              **24,057**
              
              
              **39,963,035**
              
              
              **-**
              
              
              **(1,229,344**
              **)**
              
              **(38,937,215**
              **)**
              
              **(1,531,523**
              **)**
              
              **(1,710,990**
              **)**Common
                  stock issued for cash
              
              
              647,887
              
              
              648
              
              
              1,706,474
              
              
              -
              
              
              (190,560
              )
              
              -
              
              
              -
              
              
              1,516,562Offering
                  costs
              
              
              
              
              
              
              
              
              (17,599
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              (17,599
              )Loan
                  conversions into shares
              
              
              627,015
              
              
              627
              
              
              720,442
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              721,069Common
                  stock warrants
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Collections
                  on stock subscriptions receivable
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,419,904
              
              
              -
              
              
              -
              
              
              1,419,904Capital
                  contributed to support operations
              
              
              -
              
              
              -
              
              
              100,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000Change
                  in currency translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (908,017
              )
              
              (908,017
              )Stock
                  options issued pursuant to Employee Compensation Plan
              
              
              -
              
              
              -
              
              
              -
              
              
              414,040
              
              
              -
              
              
              -
              
              
              -
              
              
              414,040Non
                  cash interest charge
              
              
              -
              
              
              -
              
              
              123,760
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              123,760Net
                  loss for the period
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (12,548,400
              )
              
              -
              
              
              (12,548,400
              )**Balances
                  at December 31, 2006**
              
              
              **25,332,109**
              
              $
              **25,332**
              
              $
              **42,596,112**
              
              $
              **414,040**
              
              $
              **-**
              
              $
              **(51,485,615**
              )
              $
              **(2,439,540**
              )
              **$**
              **(10,889,670**
              **)**


The
          accompanying notes are an integral part of these consolidated financial
          statements
 *F-5*
 
 **PLAYLOGIC
          ENTERTAINMENT, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
  For
                    the Year Ended December 31,2006
                
                2005
                    (restated)**CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    loss
                
                $
                (12,548,402
                )
                $
                (9,674,004
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activitiesCurrency
                    translation difference
                
                
                -
                
                
                1,106,062Depreciation
                    of fixed assets
                
                
                315,174
                
                
                280,480Amortization
                    of capitalized software
                
                
                835,461
                
                
                -Asset
                    impairment charge
                
                
                1,907,117
                
                
                -Bad
                    debt expense
                
                
                280,834
                
                
                276,070Expense
                    charges for stock options
                
                
                414,040
                
                
                70,773Expenses
                    paid for by affiliated entity
                
                
                -
                
                
                1,162,938Expense
                    related to common stock issuances at less than "fair
                    value"
                
                
                -
                
                
                1,073,150Non-cash
                    interest charge related to fair value of warrants issued in conjunction
                    with debt
                
                
                123,760
                
                
                -Warrant
                    derivatives
                
                
                8,800
                
                
                -Management
                    fees contributed as capital
                
                
                100,000
                
                
                -(Increase)/
                    Decrease in cash attributable to changes in operating assets
                    and
                    liabilitiesRestricted
                    cash
                
                
                (146,420
                )
                
                -Accounts
                    receivable - trade and other
                
                
                (308,987
                )
                
                (1,686,201
                )Prepaid
                    expenses and other
                
                
                (993,488
                )
                
                (654,396
                )Increase
                    / (Decrease) inDeferred
                    revenues
                
                
                1,244,976
                
                
                9,729Accounts
                    payable - trade
                
                
                1,828,600
                
                
                (618,035
                )Payroll
                    taxes payable
                
                
                1,874,025
                
                
                2,164,522Other
                    current liabilities
                
                
                380,592
                
                
                43,842**Net
                    cash used in operating activities**
                
                
                **(4,683,918**
                **)**
                
                **(6,445,070**
                **)****CASH
                    FLOWS FROM INVESTING ACTIVITIES**Cash
                    paid for software development
                
                
                (3,695,342
                )
                
                (1,931,021
                )Cash
                    advanced for prepaid royalties to affiliated entities
                
                
                -
                
                
                (406,985
                )Cash
                    paid to acquire property and equipment
                
                
                (361,571
                )
                
                (308,687
                )**Net
                    cash used in investing activities**
                
                
                **(4,056,913**
                **)**
                
                **(2,646,693**
                **)****CASH
                    FLOWS FROM FINANCING ACTIVITIES**Receipts
                    on bank credit facility
                
                
                81,547
                
                
                598,035Receipts/(payments)
                    on short term notes
                
                
                376,230
                
                
                (807,011
                )Receipts
                    on software financing notes payable
                
                
                1,748,945
                
                
                -Principal
                    payments on long-term debt
                
                
                (37,623
                )
                
                (43,824
                )Cash
                    advanced by affiliated entities
                
                
                525,582
                
                
                -Cash
                    advanced / (repaid) to shareholder
                
                
                3,335,347
                
                
                (6,842,586
                )Proceeds
                    from sales of common stock
                
                
                1,688,248
                
                
                3,446,728Collections
                    on stock subscriptions receivable
                
                
                1,229,343
                
                
                -Proceeds
                    from sales of pre-merger subsidiary common stock
                
                
                -
                
                
                12,731,932Cash
                    contributed by shareholder to support operations
                
                
                -
                
                
                145,341Cash
                    paid to acquire capital
                
                
                -
                
                
                (19,318
                )**Net
                    cash provided by financing activities**
                
                
                **8,947,618**
                
                
                **9,209,297****Effect
                    of foreign exchange on cash**
                
                
                **(328,114**
                **)**
                
                **-****Decrease
                    in Cash**
                
                
                (121,327
                )
                
                117,534Cash
                    at beginning of year
                
                
                139,760
                
                
                22,226**Cash
                    at end of period**
                
                $
                18,433
                
                $
                139,760**Supplemental
                    disclosures of interest and income taxes paid**Interest
                    paid during the year
                
                $
                75,408
                
                $
                288,164Income
                    taxes paid (refunded)
                
                
                -
                
                
                -**Supplemental
                    disclosures of non-cash investing and financing
                    activities**Common
                    stock issued to repay notes payable
                
                $
                721,069
                
                $
                918,652Offering
                    costs paid with issuance of common stock
                
                $
                13,200
                
                $
                -
  The
        accompanying notes are an integral part of these consolidated financial
        statements
 
 *F-6*
 
  
 **PLAYLOGIC
        ENTERTAINMENT, INC. AND SUBSIDIARIES**
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 December
        31, 2006 and 2005
 
 
 **NOTE
        A - ORGANIZATION AND DESCRIPTION OF BUSINESS**
 
 The
        Company was incorporated on May 25, 2001 in the State of Delaware.
 
 On
        June
        30, 2005, pursuant to a Securities and Exchange Agreement (Exchange Agreement)
        by and among PEI, a “shell company” at the time, and Playlogic International
        N.V. (Playlogic N.V.), a corporation formed under the laws of The Netherlands
        in
        April 2002, and the shareholders of Playlogic N.V., the Playlogic N.V.
        shareholders exchanged 100.0% of the issued and outstanding ordinary shares
        and
        preferred shares of Playlogic N.V. for an aggregate 21,836,930 shares of
        PEI’s
        common stock. As a result of the Exchange Agreement, Playlogic N.V. became
        PEI’s
        wholly-owned subsidiary. Playlogic N.V. Shareholders control approximately
        91.0%
        of the outstanding common stock of PEI, post-transaction.
 
 The
        Company develops and publishes interactive software games designed for video
        game consoles, handheld platforms and personal computers.
 
 
 **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 the disclosure of contingent assets and liabilities at the
        dates
        of the financial statements and the reported amounts of net revenue and expenses
        during the reporting periods. The most significant estimates and assumptions
        relate to the recoverability of software development costs, licenses and
        intangibles, and the adequacy of allowances for returns, price concessions
        and
        doubtful accounts. Actual amounts could differ significantly from these
        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
        reporting purposes, the Company operated in only one industry 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.
 
 These
        consolidated financial statements include the financial statements of Playlogic
        Entertainment, Inc., Playlogic International N.V. (a corporation domiciled
        in
        The Netherlands) and its wholly-owned subsidiary Playlogic Game Factory B.V.
        All
        material inter-company balances and transactions have been eliminated in
        consolidation.
 
 
 *F-7*
 
 **Restatements**
  During
        the course of preparing the unaudited financial statements for the three
        months
        ended September 30, 2006, Management of the Company determined that the
        Company’s accounting for the reimbursement of certain expenses incurred during
        the second and third quarter of 2005 had not been properly reflected in
        accordance with U.S. generally accepted accounting principles. Certain operating
        expenses and transaction costs associated with the Company’s Share Exchange
        Agreement entered into in June 2005, which were initially paid by the Company
        and reimbursed by certain shareholders, were not included in the Company’s
        consolidated statements of operations for each of the six and three months
        ended
        June 30, 2005, the nine and three months ended September 30, 2005 and the
        year
        ended December 31, 2005. The corrections to this situation resulted in the
        recognition of expenses in connection with the Share Exchange Agreement as
        well
        as either the recognition of additional contributed capital and/or a reduction
        in amounts due from shareholder(s) for unrelated advances made prior to the
        aforementioned Share Exchange Agreement
 
 The
        impact on the consolidated balance sheet for the year ended December 31,
        2005,
        is as follows:
  Year
                  ended December 31, 2005
              
              Restatement
              
              Year
                  ended December 31, 2005
                Restated*Current
                  liabilities*Due
                  to shareholders
              
              $
              163,091
              
              $
              591,450
              
              $
              754,541Total
                  current liabilities
              
              $
              7,699,076
              
              $
              591,450
              
              $
              8,290,526Total
                  liabilities
              
              $
              7,947,485
              
              $
              591,450
              
              $
              8,538,935Stockholders'
                  deficitAdditional
                  paid-in capital
              
              $
              37,549,545
              
              $
              1,147,120
              
              $
              38,696,665Currency
                  translation adjustments
              
              $
              (1,499,641
              )
              $
              (31,882
              )
              $
              (1,531,523
              )Accumulated
                  deficit
              
              $
              (37,230,526
              )
              $
              (1,706,688
              )
              $
              (38,937,214
              )Total
                  Stockholders' deficit
              
              $
              109,804
              
              $
              (591,450
              )
              $
              (481,646
              )
  The
        restated numbers have been included in the consolidated statement of
        operations.
 
 These
        restatements to the Company’s financial statements were, in part, caused by a
        material weakness in the Company’s
        internal control over financial reporting due to the limitations in the capacity
        of the Company’s accounting
        resources to appropriately identify and react in a timely manner to non-routine,
        complex and related party
        transactions and communicate said occurrences to it’s independent auditors, as
        well as the adequate understanding
        of the disclosure requirements relating to these types of transactions. In
        order
        to remediate this material
        weaknesses, Management of the Company has designed and implemented improvements
        to it’s internal controls over financial reporting and to better define the most
        appropriate protocols to enhance the preparation, review, presentation and
        disclosures of the Company’s financial statements.
 
 
 **NOTE
        C - GOING CONCERN UNCERTAINTY**
 
 The
        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.
 
 *F-8*
 
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the Company will continue as a going concern. At December 31, 2006, the Company
        had an accumulated deficit of approximately $51.5 million, a shareholders’
deficit of approximately $10.9 million and a working capital deficit of
        approximately $16.2 million. During the year ended December 31, 2006, the
        Company incurred a net loss of $12.5 million and negative operating cash
        flows
        of approximately $4.7 million. These circumstances raise uncertainties about
        the
        Company’s ability to continue as a going concern.
 
 While
        the
        Company has contracts in place with several third-party developers and is
        developing titles through its Playlogic Game Factory B.V. subsidiary, and
        anticipates successful debuts of such titles; the market for interactive
        entertainment software is characterized by short product lifecycles and frequent
        introduction of new products. Many software titles do not achieve sustained
        market acceptance or do not generate a sufficient level of sales to offset
        the
        costs associated with product development. A significant percentage of the
        sales
        of new titles generally occur within the first three months following their
        release. Therefore, the Company’s profitability depends upon the Company’s
        ability to develop and sell new, commercially successful titles and to replace
        revenues from titles in the later stages of their lifecycles. Any competitive,
        financial, technological or other factor which delays or impairs the Company’s
        ability to introduce and sell the Company’s software could adversely affect
        future operating results.
 
 The
        Company’s continued existence is dependent upon its ability to generate
        sufficient cash flows from operations to support its daily operations as
        well as
        provide sufficient resources to retire existing liabilities and obligations
        on a
        timely basis and its ability to raise debt and/or equity financing.
 
 The
        Company anticipates future sales of equity securities to raise working capital
        to support and preserve the integrity of the corporate entity. However, there
        is
        no assurance that the Company will be able to obtain additional funding through
        the sales of additional equity securities or, that such funding, if available,
        will be obtained on terms favorable to or affordable by the
        Company.
 
 If
        no
        additional funding is received during the next twelve months, the Company
        will
        be forced to rely on additional funds loaned by management and/or significant
        stockholders to preserve the integrity of the corporate entity at this time.
        In
        the event, the Company is unable to acquire advances from management and/or
        significant stockholders, the Company’s ongoing operations would be negatively
        impacted to the point that all operating activities are ceased.
 
 While
        the
        Company is of the opinion that good faith estimates of the Company’s ability to
        secure additional capital in the future to reach the Company’s goals have been
        made, *there* is no
        guarantee that the Company will receive sufficient funding to sustain operations
        or implement any future business plan steps.
 
 No
        adjustment has been made in the accompanying financial statements to the
        amounts
        and classification of assets and liabilities which could result should the
        Company be unable to continue as a going concern.
 
 
 **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.
 
 *F-9*
 
 
 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
                  31, 2006:
              
              $
              1.31860
 
  For
        revenues, expenses, gains and losses during a respective reporting period,
        a
        weighted average exchange rate for the respective reporting period is used
        to
        translate those elements.  The Company’s management considers the Euro to
        be a stable currency. Accordingly, the Company calculates the weighted average
        exchange rate using the first day of the period being converted, the 15th
        of
        each respective month and the last day of each respective month in the reporting
        period. The exchange rates used for all revenues, expenses, gains and losses
        during the year-to-date periods ended, as noted, are:
 
  December
                  31, 2006
              
              $
              1.25410December
                  31, 2005:
              
              $
              1.24658
  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.
 
 3.  Accounts
        receivable - trade
 
 The
        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.
 
 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. The allowance for doubtful
        accounts as of December,31 2006 is $318,615.
 
 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.
 
 
 *F-10*
 
 5.  Software
        development costs
 
 Capitalized
        software development costs include payments made in the form of milestone
        payments to independent software developers under development agreements,
        as
        well as direct costs incurred for internally developed products. The Company
        accounts for software development costs in accordance with SFAS No. 86 —
“Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
        Marketed”. Software development costs are capitalized once technological
        feasibility of a product is established and such costs are determined to
        be
        recoverable against future revenues. Amortization of such costs as a component
        of cost of sales is recorded on a title-by-title basis based on the greater
        of
        the proportion of current year sales to the total of current and estimated
        future sales for the title or the straight-line method over the remaining
        estimated useful life of the title. At each balance sheet date, the Company
        evaluates the recoverability of capitalized software costs based on net
        undiscounted future cash flows and charges to operations any amounts that
        are
        deemed unrecoverable. For the years ended December 31, 2006 and 2005, the
        Company recognized impairment charges of approximately $1,907,000 and $837,000,
        respectively.   For
        the
        year ended December 31, 2005 the impairment charges were included in Research
        and Development expenses.
 
 For
        the
        years ended December 31, 2006 and 2005, the Company recognized amortization
        charges of approximately $835,000 and $ 184,000 respectively.
 
 The
        Company’s agreements with third-party developers generally provide it with
        exclusive publishing and distribution rights and require it to make advance
        payments that are recouped against royalties due to the developer based on
        the
        contractual amounts of product sales, adjusted for certain costs.
 
 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.
 
 6.  Organization
        and reorganization costs
 
 The
        Company has adopted the provisions of AICPA Statement of Position 98-5,
“Reporting on the Costs of Start-Up Activities” whereby all organizational and
        reorganizational costs incurred with either the initial formation and
        capitalization of the Company or the reorganization of the Company pursuant
        to
        the June 2005 Share Exchange Agreement were charged to operations as
        incurred.
 
 7.  Research
        and development expenses
 
 Research
        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. The total Research and Development expense recorded
        for
        the years ended December 31, 2006 and 2005 amount to $2,135,832 and $1,582,073
        respectively.
  
 *F-11*
  9.  Advertising
        expenses
 
 The
        Company expenses advertising costs as incurred. Advertising expense for the
        years ended December 31, 2006, and 2005 amounted to approximately $683,000,
        and
        $591,000, respectively.
 
 10.  Income
        Taxes
 
 The
        Company utilizes the asset and liability method of accounting for income
        taxes.
        At December 31, 2006, 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 carry forwards to offset current taxable
        income.
 
 11.  Share-Based
        Payments
 
 Effective
        January 1, 2006, the Company adopted SFAS 123(R), “Share-Based Payment”, which
        revised Statement of Financial Accounting Standards No. 123. SFAS 123(R)
        requires all share-based payment transactions with employees, including grants
        of employee stock options, to be recognized as compensation expense over
        the
        requisite service period based on their relative fair values. Prior to the
        adoption of SFAS 123(R), stock-based compensation expense related to employee
        stock options was not recognized in the statement of operations if the exercise
        price was at least equal to the market value of the common stock on the grant
        date, in accordance with Accounting Principles Board Opinion No. 25, “Accounting
        for Stock Issued to Employees.” Prior to November 1, 2005, the Company had
        adopted the disclosure-only provisions under SFAS 123.
 
 The
        Company elected to use the Modified Prospective Application (“MPA”) method for
        implementing SFAS 123(R). Under the MPA method, prior periods are not restated
        and new awards are valued and accounted for prospectively upon adoption.
        Outstanding prior stock option awards that are non-vested as of December
        31,
        2005 are recognized as compensation expense in the statement of operations
        over
        the remaining requisite service period. For the year ended December 31, 2006,
        the Company recorded approximately $345,052 of incremental stock-based
        compensation expense in connection with its adoption of SFAS 123(R). See
        Note O
        for a full discussion of the Company’s stock-based compensation arrangements.
 
 12.  Earnings
        (loss) per share
 
 SFAS
        No. 128, “Earnings Per Share”, requires dual presentation of basic and
        diluted income per share for all periods presented. Basic income per share
        excludes dilution and is computed by dividing earnings available to common
        shareholders by the weighted-average number of common shares outstanding
        during
        the period. Diluted earnings per share reflects the potential dilution that
        could occur if securities or other contracts to issue common stock were
        exercised or converted into common stock or resulted in the issuance of common
        stock that then shared in the earnings of the Company.
  Unexercised
        stock options to purchase 350,000 and 390,000 shares of the Company’s common
        stock as of December 31, 2006 and 2005, respectively, were not included in
        the computation of diluted earnings per share because the exercise of the
        stock
        options would be anti-dilutive to earnings per share.
 
 Unexercised
        warrants to purchase 1,097,962 shares of the Company’s common stock as of
        December 31, 2006, were not included in the computation of diluted earnings
        per share because the exercise of the warrants would be anti-dilutive to
        earnings per share. The 900,000 warrants issued in connection with a loan
        as per
        note L are excluded from the computation as they are used as collateral for
        the
        loan. As of December 31, 2005 there were 570,000 warrants to purchase shares
        of
        the Company’s common stock outstanding.
 
 *F-12*
 
 13.  Revenue
        recognition
 
 The
        Company earns its revenue from the sale of internally developed interactive
        software titles and from the sale of titles developed by and/or licensed
        from
        third-party developers. The Company also earns revenue from 3 rd Party
        development activities.
  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 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 conform to the above listed
        criteria until such time that the billed amount is either paid or any attached
        right-of-return expires/terminates.
 
 Some
        of
        the Company’s software products provide limited online functionality at no
        additional cost to the consumer. Currently, none of the Company’s products
        require an internet connection for use, and online functionality is perceived
        to
        be of only incidental value to the software product itself. When such
        functionality is offered to the consumer, the Company does not provide ongoing
        technical support for gameplay. Accordingly, the Company considers such features
        to be an insignificant deliverable and does not defer revenue related to
        products containing online features.
  Revenue
        is recognized after deducting estimated reserves for returns, price concessions
        and other allowances. In circumstances when the Company does not have a reliable
        basis to estimate returns and price concessions or is unable to determine
        that
        collection of a receivable is probable, it defers the revenue until such
        time as
        it can reliably estimate any related returns and allowances and determine
        that
        collection of the receivable is probable.
 
 *Allowances
        for Returns, Price Concessions and Other Allowances*
 
 The
        Company accepts returns and grants price concessions in connection with its
        publishing arrangements. Following reductions in the price of its products,
        the
        Company grants price concessions which permit customers to take credits for
        unsold merchandise against amounts they owe the Company. The Company’s customers
        must satisfy certain conditions to allow them to return products or receive
        price concessions, including compliance with applicable payment terms and
        confirmation of field inventory levels.
 
 The
        Company’s distribution arrangements with customers do not give them the right to
        return titles or to cancel firm orders. However, the Company sometimes accepts
        returns from its distribution customers for stock balancing and makes
        accommodations to customers, which include credits and returns, when demand
        for
        specific titles falls below expectations.
 
 *F-13*
 
 The
        Company makes estimates of future product returns and price concessions related
        to current period product revenue based upon, among other factors, historical
        experience and performance of the titles in similar genres, historical
        performance of a hardware platform, customer inventory levels, analysis of
        sell-through rates, sales force and retail customer feedback, industry pricing,
        market conditions and changes in demand and acceptance of its products by
        consumers.
 
 Significant
        management judgments and estimates must be made and used in connection with
        establishing the allowance for returns and price concessions in any accounting
        period. The Company believes it can make reliable estimates of returns and
        price
        concessions. However, actual results may differ from initial estimates as
        a
        result of changes in circumstances, market conditions and assumptions.
        Adjustments to estimates are recorded in the period in which they become
        known.
 
 14. Foreign
        Currency Translation
 
 The
        functional currency for the Company’s foreign operations is primarily the
        applicable local currency. Accounts of foreign operations are translated
        into
        U.S. dollars using exchange rates for assets and liabilities at the balance
        sheet date and average prevailing exchange rates for the period for revenue
        and
        expense accounts. Adjustments resulting from translation are included in
        other
        comprehensive income (loss). Realized and unrealized transaction gains and
        losses are included in income in the period in which they occur, except on
        inter-company balances considered to be long term. Transaction gains and
        losses
        on inter-company balances considered to be long term are recorded in other
        comprehensive income.
 
 Comprehensive
        income (loss) is defined to include all changes in equity except those resulting
        from investments by owners and distributions to owners. The Company’s items of
        other comprehensive income (loss) are foreign currency translation adjustments,
        which relate to investments that are permanent in nature and therefore do
        not
        require tax adjustments.
 
 15.  New
        accounting pronouncements
 
 In
        September 2006, the SEC issued Staff Accounting Bulletin, or SAB, No. 108,
        Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements. SAB No. 108 provides
        guidance on how prior year misstatements should be taken into consideration
        when
        quantifying misstatements in current year financial statements for purposes
        of
        determining whether the current year’s financial statements are materially
        misstated. SAB No. 108 is effective for fiscal years ending on or after November
        15, 2006. The Company is currently in the process of evaluating the impact
        of
        SAB No. 108 on our financial position and results of operations.
 
 In
        September 2006, the Financial Accounting Standards Board, or FASB, issued
        SFAS
        No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for
        measuring the fair value of assets and liabilities. This framework is intended
        to provide increased consistency in how fair value determinations are made
        under
        various existing accounting standards which permit, or in some cases require,
        estimates of fair market value. SFAS No. 157 is effective for fiscal years
        beginning after November 15, 2007, and interim periods within those fiscal
        years. Earlier application is encouraged, provided that the reporting entity
        has
        not yet issued financial statements for that fiscal year, including any
        financial statements for an interim period within that fiscal year. The Company
        is currently in the process of evaluating the impact of SFAS No. 157 on our
        financial position and results of operations.
 
 In
        July
        2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes,
        an
        interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting
        and
        reporting for uncertainties in income tax law. FIN 48
 
 *F-14*
 
 prescribes
        a comprehensive model for the financial statement recognition, measurement,
        presentation, and disclosure of uncertain tax positions taken or expected
        to be
        taken in income tax returns. FIN 48 is effective for fiscal years beginning
        after December 15, 2006. The Company is currently in the process of evaluating
        the impact of FIN 48 on our financial position and results of
        operations.
 
 16.
        Reclassifications
  Certain
        2005 amounts have been reclassified to conform to the 2006
        presentation
 
 
 **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**
 
 Financial
        instruments that potentially subject the Company to a concentration of credit
        risk consist of cash, restricted cash and accounts receivable. Cash and
        restricted cash are deposited with high quality financial institutions. Accounts
        receivable are derived from revenue earned primarily from game distributors
        in
        Europe and the U.S.
 
 The
        Company maintains cash balances at several major financial institutions.
        While
        the Company attempts to limit credit exposure with any single institution,
        balances often exceed insurable amounts.
 
 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.
 
 
 If
        the
        financial condition and operations of the Company’s customers deteriorate, the
        Company’s risk of collection could increase substantially. A majority of the
        Company’s trade receivables are derived from sales to major distributors.
 
 *F-15*
 
 The
        Company’s four largest customers accounted for 88%, and 64% of net revenue in
        each of the two years ended December 31, 2006, and 2005, respectively. As
        of
        December 31, 2006, the four largest customers accounted for 58% of gross
        accounts receivable, respectively. Except for the largest customers noted
        above,
        all receivable balances from the remaining individual customers are less
        than
        10% of the Company’s net receivable balance. Management believes that the
        receivable balances from these largest customers do not represent a significant
        credit risk based on past collection experience.
 
 
 **NOTE
        G - PROPERTY AND EQUIPMENT**
 
 Property
        and equipment consists of the following at December 31, 2006:
 
 Carrying
                  value
              
              Estimated
                  LifeComputers
                  and office equipment
              
              $
              1,813,213
              
              
              3-5
                  yearsLeasehold
                  improvements
              
              
              322,440
              
              
              Initial
                  lease termSoftware
              
              
              344,211
              
              
              3-5
                  years2,479,864Less
                  accumulated depreciation
              
              
              (1,595,401
              )**Net
                  property and equipment**
              
              
              884,463
 
 Depreciation
        expense for the years ended December 31, 2006, and 2005, was $315,175, and
        $280,480, respectively.
   **NOTE
        H - SOFTWARE DEVELOPMENT COSTS**
 
 The
        following table provides the details of software development costs for the
        year
        ended December 31, 2006:
  ****Beginning
                  balance
              **$**
              3,601,041Additions
              3,169,886Amortization
              (835,461)Write
                  down
              (1,907,117)Foreign
                  exchange
              435,081Ending
                  balance
              4,463,430Less:
                  current portion
              3.115,659Non-current
                  portion
              **$**
              1,347,771
 
 The
        amount of software development costs resulting from advance payments and
        guarantees to third-party developers was $3,466,638 at December 31, 2006.
        In addition, software development costs at December 31, 2006 included an
        amounts of $2,659,470, related to titles that have not been released yet.
  The
        non-current portion of the capitalized software development costs is expected
        to
        be amortized in 2008.
 
 *F-16*
 
 **NOTE
        I - LONG-TERM DEBT**
 
 Long-term
        debt consists of the following at December 31, 2006:
 
 Note
                  payable to a landlord for leasehold improvements
                  uncollateralized.Payable
                  in quarterly installments of approximately$9,750.
                  Final maturity in 2013.
              
              $
              276,908Less
                  current maturities
              
              
              (39,558
              )Current
                  portion
              
              $
              237,350
 
 Future
        maturities of long-term debt are as follows:
  Year
                  endingDecember
                  31
              
              Amount2007
              
              39,5582008
              
              39,5582009
              
              39,5582010
              
              39,5582011
              
              39,5582012-2015
              
              79,118$
              276,908
 
  **NOTE
        J — BANK CREDIT FACILITY AND SHORT-TERM DEBT**
  Bank
        Credit Facility
  On
        March 10, 2006, the Company entered into a credit facility with ABN-AMRO
        Bank N.V. in the amount of €1,250,000, or approximately $1.6 million. This
        credit facility bears interest at 7.0% and was due on October 15, 2006. As
        the credit facility is in default, the Company is no longer able to draw
        on this
        facility and has negotiated extension of the repayment terms. The outstanding
        amount is required to be repaid in four installments. The last installment
        is
        due on July 5, 2007. Under the terms of this credit facility, the Company
        entered into a negative pledge arrangement on the Intellectual Property owned
        by
        the Company. Additionally, the Company’s CEO Mr. Willem M. Smit has issued
        a personal guarantee to ABN AMRO Bank N.V. for this credit
        facility.
  Short-term
        debt
  On
        May 3, 2006, the Company entered into a loan agreement with a lender based
        in The Netherlands, pursuant to which the Company borrowed the principal
        amount
        of €300,000, or approximately $396,000. This loan bears compound interest at
        a
        rate of 60% per annum, and repayment of principal and interest was due on
        August 4, 2006, which due date was extended for an indefinite period of
        time under the same terms and conditions.
 
 *F-17*
 
 
 **NOTE
        K — OTHER ACCRUED LIABILITIES**
  As
        of
        December 31, 2006, other accrued liabilities can be specified as
        follows:
 Payroll
                  taxes payable
              
              $
              2,948,993Loan
                  penalty expense
              
              
              1,318,600Accrued
                  interest
              
              
              302,696Royalties
                  to be paid
              
              
              549,078Deferred
                  Rent
              
              
              458,572Accrued
                  wages and related personnel costs
              
              
              311,523Accrued
                  expenses
              
              
              229,436Accrued
                  board remuneration
              
              
              122,602**$**
              **6,241,500**
 
 
 **NOTE
        L - LOAN FROM SHAREHOLDERS**
 
 On
        May
        24, 2006, the Company entered into a loan agreement with a lender based in
        the
        Netherlands, pursuant to which the Company borrowed the principal amount
        of
€100,000, or approximately $132,000. This loan bears compound interest at
        a rate
        of 60% per annum, and repayment of principal and interest was due on August
        24,
        2006. Under this loan agreement, the Company pledged as a collateral any
        income
        generated by the Company publishing agreement with XIM Inc. On August 7,
        2006,
        the Company extended the maturity date of this loan for an indefinite period
        of
        time under the same terms and conditions.
 
 Since
        June 30, 2006, a lender based in Andorra has advanced loans to the Company
        in an
        aggregate principal amount of €40,000, or approximately $52,000. These loans
        bear interest at a rate of 4.0% per annum, and the repayment of the principal
        and interest was due in August 2006. The Company extended the maturity date
        of
        this loan until January 1, 2007 under the same terms and conditions.
 
 Concurrent
        with the extension of this loan under an agreement dated September 1, 2006,
        the
        Company issued to this lender, warrants convertible into 40,000 shares of
        the
        Company’s common stock at an exercise price of $5.00 per share. The warrants,
        fair valued at $0.88, may be exercised starting on September 1, 2007 and
        expire
        on September 1, 2009. A non cash interest charge of $35,000 was recorded
        in the
        consolidated financial statements in relation to the value of the
        warrants.
 
 **Loans
        from a lender based in The Netherlands**
  The
        Company entered into four loan agreements with a lender based in the
        Netherlands, and its director. On June 17, 2006 the company entered into
        a first
        agreement (the “First Loan”) pursuant to which the Company borrowed a principal
        amount of €600,000, or approximately $791,000 from this lender. The First Loan
        bears compound interest at a rate of 20% per annum, payable at maturity.
        The
        repayment of the principal and interest was due on August 17, 2006.
 
 Concurrent
        with entering into the loan agreement on June 17, 2006, the Company issued
        to
        this lender warrants convertible into 100,000 shares of the Company’s common
        stock at an exercise price of $5.00 per share. The warrants, fair valued
        at
        $0.88, may be exercised starting on November 1, 2006 and expire on October
        31,
        2009. A non cash interest charge of $88,000 was recorded in the consolidated
        financial statements in relation to the value of the warrants.
 
 *F-18*
 
 
 On
        August
        16, 2006 the Company entered into a second loan agreement (the “Second Loan”),
        pursuant to which the Company extended the maturity date of the First Loan
        to
        November 1, 2006, and also borrowed an additional principal amount of
€1,000,000, or approximately $1,318,000. The second loan bears compound interest
        at a rate of 20% per annum, payable at maturity. The repayment of the principal
        and interest was due on October 31, 2006. As a condition to the Second Loan,
        the
        Company pledged all the Company’s intellectual property rights (second after the
        ABN-AMRO credit facility) as security and collaterized its accounts receivables
        to the lender. The Company had the option to extend the maturity date of
        the
        First and Second Loan to December 1, 2006, provided that the Company shall
        pay a
        total amount of principal and interest of €1,600,000, or approximately $2.1
        million on the extended maturity date plus an amount of €1,600,000, or
        approximately $2.1 million as premium. In addition, the Company has the option
        to further extend the maturity date of the First and Second Loan beyond December
        1, 2006, as discussed below.
 
 Concurrent
        with entering into the second loan agreement the Company issued to this lender
        warrants convertible into 400,000 shares of the Company’s common stock at an
        exercise price of $2.50 per share. The warrants, fair valued at $0.017 may
        be
        exercised starting on November 1, 2006 and expire on October 31, 2009. A
        liability and debt discount of $6,800 has been recorded associated with these
        warrants as these warrants were issued as collateral until October 31, 2006.
        In
        accordance with the Second loan, the warrants would be returned to the Company
        for consideration of €500,000 or approximately $660,000 if received by October
        31, 2006.
 
 On
        September 5, 2006 the Company entered into a third loan agreement (the “Third
        Loan”), pursuant to which the Company borrowed a principal amount of €500,000,
        or approximately $660,000. The Third Loan bears compound interest at a rate
        of
        20% per annum, payable at maturity. The repayment of the principal and interest
        was due on October 31, 2006. The Company has the option to extend the maturity
        date of the Third Loan to December 1, 2006, provided that the Company shall
        pay
        a total amount of principal and interest of €1,000,000, or approximately
        $1,318,000 on the extended maturity date. In addition, the Company has the
        option to further extend the maturity date of the First, Second and Third
        Loan
        beyond December 1, 2006, as discussed below.
 
 Concurrent
        with entering into the Second and Third loan agreement the Company issued
        to
        this lender warrants convertible into 500,000 shares of the Company’s common
        stock at an exercise price of $3.50 per share. The warrants, fair valued
        at
        $0.004 per warrant, may be exercised starting on November 1, 2006 and expire
        on
        October 31, 2009. A liability and debt discount of $2,000 has been recorded
        associated with these warrants as these warrants were issued as collateral
        until
        October 31, 2006. In accordance with the Second loan, the warrants would
        be
        returned to the Company for consideration of €500,000 or approximately $660,000
        if received by October 31, 2006.
 
 On
        September 29, 2006 the Company borrowed an additional principal amount of
        €500,000, or approximately $660,000 (the “Fourth Loan”) from the lender who
        provided the First, Second and Third Loan. The Fourth Loan bears a compound
        interest at a rate of 20% per annum, payable at maturity. The repayment of
        the
        principal and interest was due on October 31, 2006. The Company has the option
        to extend the maturity date of the Fourth Loan to December 1, 2006, provided
        that the Company shall pay a total amount of principal and interest of
€1,000,000, or approximately $1,318,000 on the extended maturity date. In
        addition, the Company has the option to further extend the maturity date
        of the
        First, Second, Third and Fourth Loan beyond December 1, 2006, provided that
        the
        Company pays a premium of €60,000, or approximately $79,000 per
        month.
 
 The
        Company entered into a fixing agreement effective as of December 31, 2006.
        Repayment of the principal amount of these loans has been extended until
        May 15,
        2007. Furthermore, it has been agreed that all other rights on cost, penalties
        of which ever kind for non- or late payment are waived, with the exception
        of
        the penalty of €1 million or $1.3 million. This penalty and the interest due has
        been recorded under the accrued interest expenses, which are classified under
        the ‘other accrued liabilities’.
 
 *F-19*
 
 
 Loans
        from shareholder at December 31, 2006 are comprised of the
        following:
 
 Loan
                  with a lender based in Andorra
              
              52,744Loans
                  with a lender based in the Netherlands
              
              3,428,360Other
                  receivables from shareholders
              
              (23,131)Less:
                  unamortized debt discount
              
              (8,087)Loans
                  from shareholder, less unamortized debt discount
              
              $
              3,449,886
 
 
 **NOTE
        M - INCOME TAXES**
 
 The
        components of income tax (benefit) expense for each of the years ended December
        31, 2006 and 2005, respectively, are as follows:
 Year-ended
              
              Year-endedDecember
                  31,
              
              December
                  31,2006
              
              2005
                  (restated)Domestic:Current
              
              $
              0
              
              $
              0Deferred
              
              
              0
              
              
              00
              
              
              0Foreign:Current
              
              
              0
              
              
              78,901Deferred
              
              
              0
              
              
              00
              
              
              78,901State:Current
              
              
              0
              
              
              0Deferred
              
              
              0
              
              
              00
              
              
              0Total
              
              $
              0
              
              $
              78,901
 
 
 As
        of
        December 31, 2006, the Company has a net operating loss carry forward of
        approximately $500,000 to offset future for United States taxable income
        and
        approximately $37,000,000 to offset future Netherlands taxable income. Subject
        to current United States regulations, the approximate $500,000 carry forward
        will begin to expire in 2020. The amount and availability of the net operating
        loss carry forwards may be subject to limitations set forth by the Internal
        Revenue Code and the Dutch Government. 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 United States carry forwards.
 
 
 *F-20*
 
 The
        Company's income tax expense (benefit) for the years ended December 31, 2006
        and
        2005, respectively, differed from the statutory rate of 29% as noted
        below:
 
 Year-ended
              
              Year-endedDecember
                  31,
              
              December
                  31,2006
              
              2005
                  (restated)Statutory
                  rate applied to loss before income taxes
              
              (12,548,400)
              
              (3,289,200)Increase
                  (decrease) inincome
                  taxes resulting from:Foreign
                  income taxes
              
              11,979,589
              
              2,771,700State
                  income taxes
              
              -
              
              -Deferred
                  income taxes
              
              -
              
              -Non-deductible
                  items:Imputed
                  expense related to common stockissued
                  at less than “fair value”
              
              414,040
              
              364,900Other,
                  including reserve for deferred tax assetand
                  effect of graduated tax brackets
              
              154,772
              
              152,600Total
                  income tax expense (benefit)
              
              $
              -
              
              $
              -
 
 Temporary
        differences, consisting primarily of the timing of the utilization of net
        operating loss carry forwards, give rise to deferred tax assets as of December
        31, 2006.
 Net
                    operating loss carry forwards
                
                
                12,548,000Less
                    valuation allowance
                
                
                (12,548,000
                )Net
                    Deferred Tax Asset
                
                
                -
 **NOTE
        N — LONG-TERM DEBT**
  Long-term
        debt consists of a note payable to a landlord for leasehold improvements,
        payable in quarterly installments of approximately $9,750 through 2013. This
        note does not bear interest. As of December 31, 2006, this can be specified
        as
        follows:
  Note
                  payable
              
              $
              276,908Less
                  current maturities
              
              
              39,558**Long
                  term debt, less current maturities**
              
              $
              237,350
 
 
 **NOTE
        O - SHAREHOLDER’S EQUITY TRANSACTIONS**
 
 Preferred
        stock
 
 As
        of
        December 31, 2006, the Company has 20,000,000 shares of par value $ 0.001
        preferred stock authorized but unissued. The rights, preferences, and
        restrictions of the preferred stock may be designated by the Board of Directors
        without further action by our shareholders.
 
 
 *F-21*
   Common
        stock
  On
        January 31, 2006, the Company exchanged 38,586 shares of its common stock
        to an accredited investor based in the Netherlands for the repayment of a
        loan
        payable in the amount of approximately $ 96,000, or approximately $2.50 per
        share. The exchange was made pursuant to the terms of a Subscription Agreement,
        dated as of January 31, 2006, which agreement contained confidentiality and
        non-disclosure agreements and covenants. Furthermore, on February 12, 2006,
        the
        Company sold 72,462 shares of its common stock to this investor at $2.50
        per
        share for a total cash consideration of $181,155. These sales were made without
        registration in reliance upon the exemption afforded by Section 4(2) of the
        Securities Act of 1933, as amended. The shares are “restricted securities” in
        that the sense that they are marked with a legend with reference to
        Rule 144. The Company did not utilize an underwriter for this offering of
        its securities and no sales commissions were paid to any third party in
        connection with this sale.
  Concurrent
        with the January 31, 2006 debt conversion, the Company issued warrants
        convertible into 19,299 shares of the Company’s common stock at a price of $5.00
        per share. The warrants, fair valued at $0.305 each, may be exercised starting
        February 1, 2007 and expire on January 31, 2009. Concurrent with the
        February 12, 2006 stock sale, the Company issued warrants to purchase 36,243
        shares of the Company’s common stock at an exercise price of $5 per share. These
        warrants may be exercised starting February 1, 2007 and expire on
        January 31, 2009.
  On
        January 31, 2006, the Company sold 184,178 shares of its common stock to an
        accredited investor based in the Netherlands at $2.50 per share for a total
        cash
        consideration of $460,445. The sale was made pursuant to the terms of a
        Subscription Agreement, dated as of January 31, 2006. This sale was made
        without registration in reliance upon the exemption afforded by
        Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
        with reference to Rule 144. The Company did not utilize an underwriter for
        this offering of its securities and no sales commissions were paid to any
        third
        party in connection with this sale.
  Concurrent
        with the January 31, 2006 stock sale, the Company issued warrants to
        purchase 92,089 shares of the Company’s common stock at an exercise price of
        $5.00 per share. The warrants may be exercised starting on February 1, 2007
        and expire on January 31, 2009.
   *F-22*
   On
        March 17, 2006, the Company sold 53,300 shares of its common stock to an
        accredited investor based in The Netherlands at $3.75 per share for a total
        cash
        consideration of $200,000. The sale was made pursuant to the terms of a
        Subscription Agreement, dated as of March 28, 2006, This sale was made
        without registration in reliance upon the exemption afforded by
        Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
        with reference to Rule 144. The Company did not utilize an underwriter for
        this offering of its securities and no sales commissions were paid to any
        third
        party in connection with this sale.
  Concurrent
        with the first March 17, 2006 stock sales the Company issued warrants to
        purchase 25,000 shares of the Company’s common stock at a price of $5.00 per
        share. These warrants may be exercised starting on March 1, 2007 and expire
        on February 28, 2009.
  On
        March 17, 2006, the Company sold 30,000 shares of its common stock to a
        second accredited investor based in the Netherlands at $4.00 per share for
        total
        cash consideration of approximately $120,000. The sale was made pursuant
        to the
        terms of a Subscription Agreement, dated as of March 28, 2006, This sale
        was
        made without registration in reliance upon the exemption afforded by
        Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
        with reference to Rule 144. The Company did not utilize an underwriter for
        this offering of its securities and no sales commissions were paid to any
        third
        party in connection with this sale.
  Concurrent
        with the second March 17, 2006 stock sales the Company issued warrants to
        purchase 15,000 shares of common stock at an exercise price of $5.00 per
        share.
        These warrants may be exercised starting on March 1, 2007 and expire on
        February 28, 2009.
  On
        March 17, 2006, the Company sold 30,000 shares of its common stock to a
        third accredited investor based in the Netherlands at $4.00 per share for
        total
        cash consideration of approximately $120,000. The sale was made pursuant
        to the
        terms of a Subscription Agreement, dated as of March 28, 2006, This sale
        was
        made without registration in reliance upon the exemption afforded by
        Section 4(2) of the Securities Act of 1933, as amended. The shares
        are
 “restricted
        securities” in that the sense that they are marked with a legend with reference
        to Rule 144. The Company did not utilize an underwriter for this offering
        of its securities and no sales commissions were paid to any third party in
        connection with this sale. Concurrent
        with the third March 17, 2006 stock sales, the Company issued to warrants
        to purchase 15,000 shares of common stock at an exercise price of $5.00 per
        share. These warrants may be exercised starting on March 1, 2007 and expire
        on February 28, 2009.
  On
        June 1, 2006, the Company sold 128,000 of its common stock to an accredited
        investor based in the Netherlands at $3.00 per share for total cash
        consideration of approximately $384,000. The sale was made pursuant to the
        terms
        of a Subscription Agreement, dated as of June 1, 2006. This sale was made
        without registration in reliance upon the exemption afforded by
        Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
        with reference to Rule 144. The Company did not utilize an underwriter for
        this offering of its securities and no sales commissions were paid to any
        third
        party in connection with this sale.
  Concurrent
        with the June 1, 2006 stock sales, the Company issued warrants to purchase
        128,000 shares of common stock at an exercise price of $5.00 per share. The
        warrants may be exercised starting on June 2, 2007 and expire on
        June 1, 2009.
  On
        December 31, 2006, the Company exchanged 627,016 shares of its common stock
        to an accredited investor based in Spain for the repayment of a loan payable
        in
        the amount of approximately $ 721,000, or approximately $1.15 per share.
        The
        exchange was made pursuant to the terms of a Subscription Agreement, dated
        as of
        December 31, 2006, which agreement contained confidentiality and non-disclosure
        agreements and covenants.
  Concurrent
        with the December 31, 2006 loan conversion, the Company issued warrants to
        purchase 313,508 shares of common stock at an exercise price of $2.75 per
        share.
        The warrants may be exercised starting on January 1, 2008 and expire on January
        1, 2011.
 
 On
        December 31, 2006, the Company sold 114,661 of its common stock to an accredited
        investor based in the Netherlands at $1.15 per share for total cash
        consideration of approximately $131,860. The sale was made pursuant to the
        terms
        of a Subscription Agreement, dated as of December 31, 2006. This sale was
        made
        without registration in reliance upon the exemption afforded by
        Section 4(2) of the Securities Act of 1933, as amended. The shares are
“restricted securities” in that the sense that they are marked with a legend
        with reference to Rule 144. The Company did not utilize an underwriter for
        this offering of its securities and no sales commissions were paid to any
        third
        party in connection with this sale.
  Concurrent
        with the December 31, 2006 stock sales, the Company issued warrants to purchase
        57,331 shares of common stock at an exercise price of $2.75 per share. The
        warrants may be exercised starting on January 1, 2008 and expire on January
        1,
        2010.
  Option
        grants
  On
        June 27, 2006 the Company granted to Willy J. Simon, the Company’s Chairman
        and Non Executive Director, 56,250 options to purchase shares of the Company’s
        common stock at an exercise price of $2.90 per share. A total of 18,750 shares
        of these options will vest on June 27, 2008, and the remaining options will
        vest in two equal installments on June 27, 2009, June 27,
        2010.
  On
        June 27, 2006 the Company granted to George M. Calhoun, one of the
        Company’s Non Executive Directors, 46,875 options to purchase shares of the
        Company’s common stock at an exercise price of $2.90 per share. A total of
        15,625 shares of these options will vest on June 27, 2008, and the
        remaining options will vest in two equal installments on June 27, 2009,
        June 27, 2010.
  *F-23*
   On
        June 27, 2006 the Company granted to Erik L.A. van Emden, one of the
        Company’s Non Executive Directors, 46,875 options to purchase shares of the
        Company’s common stock at an exercise price of $2.90 per share. A total of
        15,625 shares of these options will vest on June 27, 2008, and the
        remaining options will vest in two equal installments on June 27, 2009,
        June 27, 2010.
  On
        November 1, 2006, pursuant to the appointment as Interim Chief Financial
        Officer, the Company granted Wilbert Knol 60,000 options to purchase shares
        of
        the Company’s common stock at an exercise price of $2.50 per share A total of
        20,000 shares of these options will vest on May 4, 2008, and the remaining
        options will vest in two equal installments on May 4, 2009 and May 4,
        2010.
 
 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. These
        options were cancelled on December 1, 2006 upon termination of the employment
        of
        Mr. Kohne per the same date.
 
 A
        summary
        of our stock options for the two years ended December 31, 2006 is as
        follows:
  Number
                  of optionsOptions
                  outstanding at January 1, 2005
              
              
              
              -Issued
              
              
              390,000Exercised
              
              
              -Expired/Terminated
              
              
              -Options
                  outstanding at December 31, 2005Options
                  outstanding at January 1, 2006
              
              
              
              
              
              390,000Issued
              
              
              210,000Exercised
              
              
              -Expired/Terminated
              
              
              (250,000
              )Options
                  outstanding at December 31, 2006
              
              
              
              
              
              (40,000
              )350,000
  The
        weighted average exercise price of all issued and outstanding options at
        December 31, 2006 is approximately $3.07.
 
 Restricted
        stock awards are expensed on a straight-line basis over the vesting period,
        which typically ranges from two to five years. As of December 31, 2006, the
        total future unrecognized compensation cost, net of estimated forfeitures,
        related to outstanding unvested restricted stock is approximately $317,000
        and
        will be recognized as compensation expense on a straight-line basis over
        the
        remaining vesting period, which is through fiscal year ended December 31,
        2010.
        The Company recognized $414,000 of stock-based compensation related to its
        restricted stock awards for the year ended December 31, 2006.
 The
        following table summarizes the activity in non-vested restricted stock under
        the
        Company’s stock-based compensation plans:
 Weighted
                  averageNumber
                  of options
              
              shares
                  grant priceNon-vested
                  restricted stock at December 31, 2005
              
              
              390,000
              
              
              3.50Granted
              
              
              210,000
              
              
              2.79Vested
              
              
              -
              
              
              -Forfeited
              
              
              (250,000
              )
              
              3.50Non-vested
                  restricted stock at December 31, 2006
              
              
              350,000
              
              
              3.07
 
 
 *F-24*
 
 On
        January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
“Share-Based payment” (SFAS No. 123R”), that addresses the accounting for
        share-based payment transactions in which an enterprise receives employee
        services in exchange for either equity instruments of the enterprise or
        liabilities that are based on the fair value of the enterprise’s equity
        instruments or that may be settled by the issuance of such equity instruments.
        SFAS No. 123R eliminates the ability to account for share-based
        compensation transactions, as the Company formerly did, using the intrinsic
        value method as prescribed by Accounting Principles Board (“APB”), Opinion
        No. 25, “Accounting for Stock Issued to Employees”, and generally requires
        that such transactions be accounted for using a fair-value-based method and
        recognized as an expense in the Company’s Consolidated Statements of
        Operations.
 The
        implementation of SFAS No. 123R has the following effect on the statement
        of operations for the three months and year ended December 31, 2006:
 
 **Year
                  Ended December 31, 2006**Net
                  loss before stock option expense
              
              $
              (11,477,419
              )Less
                  stock option expense
              
              
              345,052Net
                  loss as reported
              
              $
              (11,822,471
              )
  The
        following table illustrates the effect on the net loss and loss per share
        as if
        the Company had applied the fair value recognition provisions of FAS
        No. 123R for the three months and year ended December 31,
        2006.
 
 **Year
                  Ended December 31, 2005 (restated)**Net
                  loss applicable to common shareholders, as reported
              
              $
              (9,674,005
              )Deduct:
                  total stock-based compensation expense under fairvalue method for awards, net of related tax effect
              
              
              (2,315
              )Net
                  loss applicable to common shareholders, pro forma
              
              $
              (9,676,320
              )Loss
                  per share:Basic
                  and diluted loss, as reported
              
              $
              (0.42
              )Basic
                  and diluted loss, pro forma
              
              $
              (0.42
              )
 
 The
        Black-Scholes option valuation model was developed for use in estimating
        the
        fair value of traded options, which do not have vesting restrictions and
        are
        fully transferable. In addition, option valuation models require the input
        of
        highly subjective assumptions, including the expected stock price volatility.
        Because the Company's employee stock options have characteristics significantly
        different from those of traded options, and because changes in the subjective
        input assumptions can materially affect the fair value estimate, in management's
        opinion, the existing models do not necessarily provide a reliable single
        measure of the fair value of its employee stock options.
 
 
 *F-25*
 
 The
        following table summarizes the assumptions and variables used by the Company
        to
        compute the weighted average fair value of stock option grants:
 December
                  31, 2006
              
              December
                  31, 2005Risk-free
                  interest rate
              
              
              5.0
              %
              
              4.5
              %Expected
                  stock price volatility
              
              
              12.2
              %
              
              61.2
              %Expected
                  term until exercise (years)
              
              
              4
              
              
              4Dividends
              
              
              none
              
              
              none
 
 
 **NOTE
        P — OTHER RELATED PARTY TRANSACTIONS**
  Willem
        M.
        Smit, the Company’s Chief Executive Officer, has agreed to not receive any cash
        compensation until such time that the Company achieves positive cash flows
        from
        operations. However, the Company does reimburse Mr. Smit for his business
        related expenses and provides him with an automobile. As Mr. Smit provides
        executive management and oversight services to the Company, an amount of
        $100,000 per annum is imputed as the value of his services and recorded as
        additional contributed capital to the Company.
  Furthermore
        Mr. Willem M. Smit has a current account with the Company. As of December
        31, 2006 the balance of this account amounts to approximately $23,000
        (payable to the Company) which is included in the Loans from shareholders.
        This
        amount been reduced significantly and will be further reduced to zero during
        2007.
  Effective
        January 1, 2006 the Company entered into a service agreement with Altaville
        Investments B.V., a company beneficially owned by its CEO Willem M. Smit.
        The
        Company pays for certain service among others house keeping and cleaning
        services provided by Altaville to the Company an annual aggregate amount
        of $
        49,843 which is paid in twelve monthly installments. No amounts have been
        recorded during the year ended Decmeber 31, 2005.
 
 **NOTE
        Q - COMMITMENTS AND CONTINGENCIES**
 
 Litigation
 On
        December 15, 2005, Playlogic International N.V. (plaintiff) filed a
        motion to institute proceedings against Digital Concepts DC Studios Inc.,
        of
        Montreal (“DC Studios”) (defendant) and South Peak Interactive LLC, of
        North Carolina (“South Peak”) (defendant) with the Superior Court of the
        Province of Quebec District of Montreal Canada. Playlogic claims damages
        in the
        amount of Canadian $9,262,640 (or approximately $ 8.2 million using
        September 30, 2006 exchange rates) in view of the alleged unlawful
        termination by DC Studios of a Letter of Intent under which DC Studios granted
        the Company exclusive worldwide publishing rights of State of Emergency 2,
        a
        title that was released in the first half of 2006. The Company sued South
        Peak
        in these proceedings as the second defendant because South Peak, in alleged
        violation of a clear letter of demand issued by the plaintiff to the defendants,
        has entered into a publishing agreement with DC Studios with respect to the
        State of Emergency 2. The Company reached a settlement out of court in
        August 2006. Under this settlement the Company agreed to withdraw its
        action in Court while defendants renounced to claim against the Company taxable
        costs related to the proceedings and all parties to this settlement agreement
        mutually gave each other a complete full and final release and forever mutually
        discharged each other.
 
 On
        March
        30, 2007, Fortis Vastgoed B.V. (plaintiff) filed a motion to institute
        accelerated proceedings against Playlogic International
        N.V.(defendant)  with the Court of Amsterdam (Kantongerecht) the
        Netherlands. Fortis claims evacuation of the offices at Amstelveenseweg 639-710
        in Amstelveen with immediate effect and damages in the amount of € 142,249 plus
€ 91,626 for each quarter following April 1, 2007 till the end of the lease
        term
        expiring on May 31, 2011 in case Fortis is unable to agree on a lease for
        the
        offices with a third party (or approximately $ 187,569 using December 31,
        2006
        exchange rates) in view of the alleged unlawful non performance by Playlogic
        under the lease agreement dated June 1, 2005.
 
 *F-26*
 
 Moreover
        the Company is involved in a number of minor legal actions incidental to
        its
        ordinary course of business.
  With
        respect to the above matters, the Company believes that it has adequate legal
        claims or defenses and/or provided adequate accruals for related costs such
        that
        the ultimate outcome will not have a material adverse effect on the Company’s
        future financial position or results of operations.
  Office
        leases
 
 The
        Company leases it’s executive offices located at Concertgebouwplein 13 in
        Amsterdam from Mr. Prof. Dr. D. Valerio. This lease agreement expired on
        March
        31, 2007. This lease agreement contained an extension option, which has extended
        the expiration date to March 31, 2012. The lease requires annual payments
        of
        approximately$81,000 (€59,000) per year, to be paid in quarterly
        installments.
 
 Our
        subsidiary, Playlogic Game Factory, B. V., previously operated in leased
        offices, located at Hoge Mosten 16-24 in Breda, from Kantoren Fonds Nederland
        B.V. pursuant to a lease agreement which expired on February 28, 2007. The
        lease
        requires annual payments of approximately $85,000 (€62,500) per year. Due to
        space limitations, Playlogic Game Factory, B. V. has abandoned this property
        and
        is no longer using this location, by an official notice to the landlord.
        The
        landlord has granted the Company permission to sublease this property; however,
        to date, the Company has not found an interested party to date. The Company
        has
        accrued the total obligation due to the landlord under the original terms
        of the
        lease as of the abandonment date.
 
 Our
        subsidiary, Playlogic Game Factory, B. V., leases offices located at
        Hambroeklaan 1 in Breda from Neglinge BV pursuant to a lease agreement which
        expires on October 1, 2013. This lease agreement contains an extension option,
        which if exercised, will extend the expiration date to October 1, 2018. At
        the
        execution of this lease agreement, the landlord committed itself to invest
        approximately $409,000 (€300,000) in leasehold improvements which are scheduled
        to be repaid by Playlogic Game Factory B.V. over a 10 year period. The lease
        requires annual payments of approximately$41,000 (€30,000) per year, payable in
        quarterly installments.
 
 On
        June
        1, 2005, the Company entered into a new lease agreement for new corporate
        offices at Amstelveenseweg 639-710 in Amstelveen. The move of our offices
        to
        this location has been delayed following late commissioning of entrance and
        elevators. We will start using this office now as from June 2007.
 The
        lease
        requires annual payments of approximately$273 (€200.00) per square meter for
        rent and $34.00 (€25.00) per square meter for service costs. Payment started
        December 1, 2006 for approximately 1⁄2 of the leased premises (approximately 750
        square meters) and in June 2007, payment will start on the second 1⁄2 of the
        leased premises (approximately 750 square meters). Payment of the service
        costs
        for each of the 750 square meter segments began at the execution of the lease
        agreement. The lease expires in June 2011.
 
 Future
        non-cancellable lease payments on the above leases for office space are as
        follows:
 Year
                    endingDecember
                    31
                
                Amount2007
                
                $
                801,8502008
                
                
                788,1072009
                
                
                788,1072010
                
                
                788,1072011-2015
                
                
                2,175,337Totals
                
                $
                5,341,508
  *F-27*
 
 Transportation
            leases
 The
          Company leases 23 automobiles for certain officers and employees pursuant
          to the
          terms of their individual employment agreements under operating lease
          agreements. These agreements are for terms of 3 to 4 years and begin to
          expire
          in 2007. The leases require monthly aggregate payments of approximately
          $24,760.
 
 Future
          non-cancelable lease payments on the above leases for automobile leases
          are as
          follows:
 Year
                      endingDecember
                      31,
                  
                  Amount2007
                  
                  $
                  146,5632008
                  
                  
                  94,0252009
                  
                  
                  50,0422010
                  
                  
                  -2011-2015
                  
                  
                  -Totals
                  
                  $
                  290,630
  Employment
          agreements
  In
          July
          2005, Playlogic International amended an existing employment agreement
          (effective February 1, 2002) with Rogier Smit, Executive Vice President.
          The
          agreement is for an indefinite period, but can be terminated by the Company
          upon
          twelve months notice or by Mr. Smit upon six months notice. Mr. Smit ́s starting
          salary was $9,427 (€7,500) per month. On July 1, 2005, his base salary increased
          to $15,009 (€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, Playlogic International entered into an employment agreement
          with
          Stefan Layer, Chief Marketing & Sales Officer, effective as of April 1,
          2005. Pursuant to the terms of the agreement, Mr. Layer is responsible
          for
          marketing, sales and licensing. The agreement is for an indefinite period,
          but
          can be terminated by the Company upon six months notice or by Mr. Layer
          upon
          three months notice. Mr. Layer's starting salary is $15,009 (€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 and
          a company
          car. Under this agreement, Mr. Layer received 500,000 ordinary shares of
          Playlogic International at a nominal value of $0.068 (€0.05) per share which
          were exchanged for 364,556 shares of the Company's common stock. Such shares
          are
          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
          the
          Company at nominal value. Pursuant to the agreement, Mr. Layer is also
          subject
          to confidentiality, non-competition and invention assignment
          requirements.
 
 In
          August
          2005, Playlogic International entered an employment contract with Maarten
          Minderhoud as General Counsel effective as of September 1, 2005. The agreement
          is for an indefinite period but can be terminated by the Company upon six
          months
          notice or by Mr. Minderhoud upon 3 months notice. Mr. Minderhoud’s starting
          salary will be $15,055
          ( € 11,034) per
          month. . In addition to his salary, Mr. Morel is entitled to a company
          car. On
          September 1, 2005, pursuant to the agreement, Mr. Minderhoud received 30,000
          shares of the Company's
          common stock at par
          value of $0.001. Such
          shares will be subject to a two-year lock up period. After the lock up
          period
          Mr. Minderhoud will be permitted to sell up to 50% of his shares each year. Pursuant
          to the agreement, Mr. Minderhoud was granted 40,000 options to purchase
          shares
          of common stock of the Company at an exercise price of $3.50 per share.
          10,000
          of these options vest on September1, 2007, and 10,000 of the remaining
          options
          will vest on September1, 2008, September1, 2009 and September 1, 2010. Pursuant
          to the agreement, Mr. Minderhoud is also subject to confidentiality,
          non-competition and invention assignment requirements.
   *F-28*
 
 In
          August
          2005, Playlogic International entered an employment contract with Dominique
          Morel as Chief Technology Officer effective as of September 14, 2005. The
          agreement is for an indefinite period but can be terminated by the Company
          upon
          six months notice or by Mr. Morel upon 3 months notice. Mr. Morel’s starting
          salary will be $15,008.50 (€11,000) per month. In addition to his salary, Mr.
          Morel is entitled to a company car. Pursuant
          to the agreement, Mr. Morel was granted 100,000 options to purchase shares
          of
          common stock of the Company at an exercise price of $3.50 per share. 25,000
          of
          these options vest on October 1, 2007, and 25,000 of the remaining options
          will
          vest on October 1, 2008, October 1, 2009 and October 1, 2010. Pursuant
          to the agreement, Mr. Morel is also subject to confidentiality, non-competition
          and invention assignment requirements.
 
 In
          November 2006, Playlogic International amended the existing employment
          agreement
          of Wilbert Knol (Corporate
          controller as of December 1, 2005) as Chief Financial Officer ad interim
          effective as of November 1, 2006. The agreement is for an indefinite period
          but
          can be terminated by the Company upon two months notice or by Mr. Knol
          upon 1
          months notice. Mr. Knol’s starting salary as CFO a.i. will be $12,310.45
          (€9,336) per month. In addition to his salary, Mr. Knol is entitled to a
          company
          car. Pursuant
          to the agreement w e
          granted
          to Mr. Knol, 60,000 options to purchase shares of our common stock at an
          exercise price of $2.50 per share. A total of 20,000 shares of these options
          will vest on May 4, 2008, and the remaining options will vest in two equal
          installments on May 4, 2009, May 4, 2010. Pursuant to the agreement, Mr.
          Morel
          is also subject to confidentiality, non-competition and invention assignment
          requirements.
 
 Mr.
          Kohne
          was a party to an employment agreement with the Company dated October 1,
          2005.
          The agreement has been terminated effective December 1, 2006 without any
          further
          obligation for the Company. Options granted pursuant to the employment
          agreement
          were cancelled effective December 1, 2006. 90,000 Shares of common stock
          awarded
          upon signing of the employment agreement were
          sold
          back by Mr Kohne to the Company at an aggregate price of $ 1.
 
 Software
          development contracts
 
 The
          Company has entered into six (6) separate software development contracts
          with
          unrelated entities. These contracts require periodic payments of agreed-upon
          amounts upon the achievement of certain developmental milestones, as defined
          in
          each individual contract. All of these contracts have completion deadlines
          of
          less than one (1) year from the contract execution and will require an
          aggregate
          funding liability of approximately $2.6 million through completion.
   *F-29*
 
 **NOTE
          R - SEGMENT INFORMATION AND REVENUE CONCENTRATIONS**
 
 The
          Company sells it’s products to wholesale distributors in various domestic and
          foreign markets. The following table shows the Company’s gross revenue
          composition:
  Year
                    ending
                
                Year
                    endingDecember
                    31, 2006
                
                December
                    31, 2005Europe
                    and United KingdomCustomer
                    A
                
                
                1,872,371
                
                
                37
                %
                
                558,181
                
                
                31
                %Customer
                    B
                
                
                1,238,058
                
                
                25
                %
                
                262,529
                
                
                14
                %Customer
                    C
                
                
                167,235
                
                
                3
                %
                
                0
                
                
                0
                %Others
                
                
                376,694
                
                
                7
                %
                
                616,636
                
                
                34
                %3,654,358
                
                
                72
                %
                
                1,437,346
                
                
                79
                %Middle
                    East/AfricaOthers
                
                
                54,637
                
                
                1
                %
                
                13,982
                
                
                1
                %54,637
                
                
                1
                %
                
                13,982
                
                
                1
                %AsiaOthers
                
                
                0
                
                
                0
                %
                
                0
                
                
                0
                %0
                
                
                0
                %
                
                0
                
                
                0
                %United
                    States & CanadaCustomer
                    D
                
                
                905,075
                
                
                18
                %
                
                353,817
                
                
                19
                %Customer
                    E
                
                
                417,933
                
                
                9
                %
                
                0
                
                
                0
                %others
                
                
                10,514
                
                
                0
                %
                
                19,054
                
                
                1
                %1,333,522
                
                
                27
                %
                
                372,871
                
                
                20
                %South
                    AmericaOthers
                
                
                0
                
                
                0
                %
                
                0
                
                
                0
                %0
                
                
                0
                %
                
                0
                
                
                0
                %Total
                    revenue as reported
                
                
                5,042,517
                
                
                100
                %
                
                1,824,199
                
                
                100
                %
 
 
 *F-30*