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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB/A
 Amendment No. 1
 x
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 FOR THE FISCAL YEAR ENDED: December 31, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FROM THE TRANSITION PERIOD FROM   TO
 COMMISSION FILE NUMBER: 000-49649
 PLAYLOGIC ENTERTAINMENT, INC.
  Delaware
    
    23-3083371(State or other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)Concertgebouwplein 13, 1071 LL Amsterdam, 
The Netherlands
    
    1071 LL(Address of Principal Executive Offices)
    
    (Zip Code)
 31-20-676-0304
    o
 x o
 o
 o
 o




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##### Table of Contents



EXPLANATORY NOTE
 RESTATEMENT OF FINANCIAL STATEMENTS
  Restatements
  Changes Reflected in this Form 10-KSB/A
  Part IIItem 6 
    
    Managements Discussion and AnalysisRestatementsResults of OperationsItem 7 
    
    Financial StatementsReport of Independent Registered Public Accounting FirmRestated Consolidated Financial StatementsNote D Summary of Significant Accounting PoliciesNote E Correction of an ErrorNote L Income Taxes




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Note Q Segment Information and Revenue ConcentrationNote R Selected Financial Data (unaudited)Note S Subsequent EventsItem 8A 
    
    Controls and ProceduresPart IIIItem 13 
    
    Exhibits and Financial Statement SchedulesSignaturesCertifications




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PLAYLOGIC ENTERTAINMENT, INC.
 AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-KSB/A
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005
 TABLE OF CONTENTS
 Page No.PART IIItem 6. Managements Discussion and Analysis

2Item 7. Financial Statements

9Item 8A. Controls and Procedures

9PART IIItem 13. Exhibits and Financial Statement Schedules

10Signatures

12CertificationsEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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PART II
 
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 Overview
      
    
    Alpha Black Zero, a mission-based tactical shooting game for the PC;
    
    Airborne Troops, an infiltration action adventure game based on World War II for
PC and PlayStation2;
    
    Cyclone Circus, an arcade stunt/racing game for PlayStation2;
    
    Xyanide, a shoot-m- up game for mobile devices.
    
    World Racing 2, a racing game for PS2, Xbox and PCs;
    
    Knights of the Temple 2, a hack & slash/ adventure game for PS2, Xbox and PC; and
 2




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
    
    Gene Troopers, a futuristic shooter for PS2, Xbox and PC.
  Visionvale agreement
 DC Studios agreement.
 1C Europe agreements.
 Metropolis agreement.
 RivalInteractive agreement.
 Rebellion agreement.
 Macrovision agreement. www.playlogicgames.com
 Sony agreement.
 Red Bull agreement.
 3




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Managements Overview of Historical and Prospective Business Trends
 Increased Console Installed Base.
 Software Prices.
 Increasing Cost of Titles.
 Estimates.
 Restatements
  Results of Operations
 4




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Comparison of Fiscal 2005 to Fiscal 2004.
 Net sales
 Gross Profit
 Reorganization expenses.
 Selling, marketing, general and administrative expenses
 Expense related to intrinsic value of issued stock options
 Research and development expenses
 Depreciation
 Interest expense
 Net loss
 Other comprehensive income
 5




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Equity
 Liquidity and Capital Resources
     Off Balance Sheet Arrangements
  Contractual Obligations
  Payments Due By Period (inthousands)Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    1-3
    
    
    3-5
    
    
    than 5Contractual Obligations
    
    Total
    
    
    Year
    
    
    Years
    
    
    Years
    
    
    YearsLong-Term Debt Obligations
    
    $
    248
    
    
    $
    35
    
    
    $
    71
    
    
    $
    71
    
    
    $
    71Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease Obligations
(Including Rent)
    
    $
    5,134
    
    
    $
    790
    
    
    $
    1,534
    
    
    $
    1,335
    
    
    $
    1,475Purchase obligations
    
    $
    4,840
    
    
    $
    4,840
    
    
    
    
    
    
    
    
    
    
    
    Other contractual obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    10,222
    
    
    $
    5,665
    
    
    $
    1,605
    
    
    $
    1,406
    
    
    $
    1,546
 6




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 
 Summary of Significant Accounting Policies
 Accounts receivable
  Software Development Costs
    Prepaid royalties
   7




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Revenue Recognition
  
    
    Evidence of an arrangement: We recognize revenues when we have
evidence of an agreement with the customer reflecting the terms and
conditions to deliver products.
    
    Delivery: Delivery is considered to occur when the products are
shipped and risk of loss has been transferred to the customer.
    
    Fixed or determinable fee: If a portion of the arrangement fee is not
fixed or determinable, we recognize that amount as revenues when the
amount becomes fixed or determinable.
    
    Collection is deemed probable: At the time of the transaction, we
conduct a credit review of each customer involved in a significant
transaction to determine the creditworthiness of the customer.
Collection is deemed probable if we expect the customer to be able to
pay amounts under the arrangement as those amounts become due. If we
determine that collection is not probable, we recognize revenues when
collection becomes probable (generally upon cash collection).
 Product Revenues
  New Accounting Pronouncements
   8




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Related Party Transactions
  
 ITEM 7. FINANCIAL STATEMENTS
  
 ITEM 8A. DISCLOSURE CONTROLS AND PROCEDURES
  9




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PART II Exhibits and Financial Statement Schedules
 
 ITEM 13. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
 (a) Documents filed as part of Form 10-KSB/A
 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 Restated Consolidated Financial StatementsReport of Independent Registered Public Accounting FirmRestated Consolidated Balance Sheet
 10




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Restated Consolidated Statements of Operations and Comprehensive LossRestated Consolidated Statement of Changes in Shareholders Equity (Deficit)Restated Consolidated Statements of Cash FlowsNotes to Restated Consolidated Financial Statements2.
    
    Schedules Supporting Financial Statements:All schedules are omitted because they are not required, are inapplicable, or the
information is otherwise shown in the consolidated financial statements or notes to the
consolidated financial statements.3.
    
    Exhibits:Exhibit Index
 Exhibit 31.1
    
    Certification of Chief
Executive Officer
pursuant to Rule
13a-14(a)/15-14(a)
    
    Filed HerewithExhibit 31.2
    
    Certification of Chief
Financial Officer
pursuant to Rule
13a-14(a)/15-14(a)
    
    Filed HerewithExhibit 32.1
    
    Certification of Chief
Executive Officer
pursuant to 18 U.S.C.
Section 1350, as adopted
pursuant to Section 906
of the Sarbanes-Oxley Act
of 2002
    
    Filed HerewithExhibit 32.2
    
    Certification of Chief
Financial Officer
pursuant to 18 U.S.C.
Section 1350, as adopted
pursuant to Section 906
of the Sarbanes-Oxley Act
of 2002
    
    Filed Herewith
 11




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SIGNATURES
  Playlogic International, INC.Dated: December 21, 2006
    By
    /s/ Willem M. SmitWillem M. SmitChief Executive Officer  Signature
    
    Capacity in Which Signed
    
    Date/s/ Willy S. Simon
    
    Chairman of the Board
    
    December 21, 2006Willy. Simon/s/ Willem M. Smit

Willem M. Smit
    
    Director and Chief Executive Officer
    
    December 21, 2006Interim Chief Financial Officer
    
    December 21, 2006/s/ Wilbert Knol
    
    (Principal Financing and AccountingWilbert Knol
    
    Officer)/s/ Erik L.A. van Emden

Erik L.A. van Emden
    
    Director
    
    December 21, 2006/s/ George M. Calhoun

George M. Calhoun
    
    Director
    
    December 21, 2006
 12




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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 CONTENTS
 PageReport of Independent Registered Public Accounting FirmS. W. Hatfield, CPA
    
    
    F-1BDO CampsObers
    
    
    F-3Restated Consolidated Financial StatementsRestated Consolidated Balance Sheet
as of December 31, 2005
    
    
    F-4Restated Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 2005 and 2004
    
    
    F-5Restated Consolidated Statement of Changes in Stockholders Equity (Deficit)
for the years ended December 31, 2005 and 2004
    
    
    F-6Restated Consolidated Statements of Cash Flows
for the years ended December 31, 2005 and 2004
    
    
    F-8Notes to Restated Consolidated Financial Statements
    
    
    F-9




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LETTERHEAD OF S. W. HATFIELD, CPA
 REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
 
       F-1




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/s/ S. W. Hatfield, CPAS. W. HATFIELD, CPADallas, TexasDecember 11, 2006
 F-2




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LETTERHEAD OF BDO CampsObers
 REPORT OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING FIRM
 
     /s/ BDO CampsObers

BDO CampsObersAmstelveen, The Netherlands24th May 2005
 F-3




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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 RESTATED CONSOLIDATED BALANCE SHEET
  (RESTATED)December 31,2005ASSETSCurrent AssetsCash on hand and in bank
    
    $
    139,760Accounts receivableTrade, net of allowance for doubtful
accounts of $276,070
    
    
    645,884Loans to affiliated companies
    
    
    495,743Value Added Taxes from foreign governments
    
    
    764,247Prepaid expenses and other
    
    
    927,214Total current assets
    
    
    2,972,848Property and Equipment  at costComputers and office equipment
    
    
    1,365,939Leasehold improvements
    
    
    232,814Software
    
    
    284,8591,883,612Less accumulated depreciation
    
    
    (1,133,933
    )Net property and equipment
    
    
    749,679Other assetsCapitalized software development costs
    
    
    3,105,418Total other assets
    
    
    3,105,418Total Assets
    
    $
    6,827,945
 - Continued -
  F-4




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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 RESTATED CONSOLIDATED BALANCE SHEET  CONTINUED
  (RESTATED)December 31,2005LIABILITIES AND STOCKHOLDERS DEFICITCurrent LiabilitiesBank overdraft
    
    $
    1,531,052Current maturities of long-term debt
    
    
    35,487Accounts payable  trade
    
    
    2,569,558Payroll taxes payable
    
    
    2,303,344Other accrued liabilitiesAccrued wages and related personnel costs
    
    
    269,793Other
    
    
    817,022Deferred revenues
    
    
    9,729Loan from stockholders
    
    
    754,541Total Current Liabilities
    
    
    8,290,526Long-Term LiabilitiesLong-term debt, net of current maturities
    
    
    248,409Total Liabilities
    
    
    8,538,935Commitments and contingenciesStockholders DeficitPreferred stock  $0.001 par value.
20,000,000 shares authorized.
None issued and outstanding
    
    
    Common stock  $0.001 par value.
100,000,000 shares authorized.
24,057,207 shares issued and outstanding, respectively
    
    
    24,057Common stock warrants
    
    
    1,266,369Additional paid-in capital
    
    
    38,696,665Currency translation adjustments
    
    
    (1,531,523
    )Accumulated deficit
    
    
    (38,937,214
    )(481,646
    )Stock subscriptions receivable
    
    
    (1,229,344
    )Total Stockholders Deficit
    
    
    (1,710,990
    )Total Liabilities and Shareholders Deficit
    
    $
    6,827,945
  F-5




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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 RESTATED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
  (RESTATED)Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004RevenuesGame software
    
    $
    1,824,199
    
    
    $
    109,487Cost of SalesDirect costs of production
    
    
    1,082,306
    
    
    
    35,906Gross Profit
    
    
    741,893
    
    
    
    73,581Operating expensesReorganization expenses
    
    
    899,697
    
    
    
    Research and development
    
    
    1,582,073
    
    
    
    4,530,747Selling and marketing
    
    
    778,273
    
    
    
    578,223General and administrative
    
    
    6,438,345
    
    
    
    3,288,516Expense related to intrinsic value
of issued stock options
    
    
    70,773
    
    
    
    8,965,037Depreciation
    
    
    280,480
    
    
    
    360,799Total operating expenses
    
    
    10,049,641
    
    
    
    17,723,322Loss from Operations
    
    
    (9,307,748
    )
    
    
    (17,649,741
    )Other Income (Expense)Interest expense
    
    
    (288,165
    )
    
    
    (2,499,104
    )Impairment charge related to investment in another entity
    
    
    
    
    
    
    (14,008
    )Loss before provision for income taxes
    
    
    (9,595,913
    )
    
    
    (20,162,853
    )Provision for Income Taxes
    
    
    (78,091
    )
    
    
    Net Loss
    
    
    (9,674,004
    )
    
    
    (20,162,853
    )Other comprehensive incomeForeign currency translation adjustment
    
    
    1,106,062
    
    
    
    (1,869,999
    )Comprehensive Loss
    
    $
    (8,567,942
    )
    
    $
    (22,032,852
    )Net loss per weighted-average share
of common stock outstanding,
computed on Net Loss
- basic and fully diluted
    
    $
    (0.37
    )
    
    $
    (0.89
    )Weighted-average number of shares
of common stock outstanding -
basic and fully diluted
    
    
    22,865,402
    
    
    
    22,703,351
  F-6




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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 RESTATED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY (DEFICIT)
  Common
    
    
    Additional
    
    
    Currency
    
    
    StockCommon Stock
    
    
    stock
    
    
    paid-in
    
    
    translation
    
    
    subscription
    
    
    AccumulatedShares
    
    
    Amount
    
    
    warrants
    
    
    capital
    
    
    adjustment
    
    
    receivable
    
    
    deficit
    
    
    TotalBalances at December 31, 2003
    
    
    7,122,667
    
    
    $
    7,123
    
    
    $
    
    
    
    $
    349,010
    
    
    $
    
    
    
    $
    
    
    
    $
    (373,174
    )
    
    $
    (17,041
    )Effect of 1 for 10 reverse split
on April 15, 2005
    
    
    (6,410,401
    )
    
    
    (6,411
    )
    
    
    
    
    
    
    6,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Effect of reverse merger
with Playlogic International,
N. V. on June 30, 2005
    
    
    21,836,930
    
    
    
    21,837
    
    
    
    
    
    
    
    32,377,477
    
    
    
    (767,586
    )
    
    
    
    
    
    
    (8,727,183
    )
    
    
    23,562,581Balances at December 31, 2003,
as restated
    
    
    22,549,196
    
    
    
    22,549
    
    
    
    
    
    
    
    32,732,898
    
    
    
    (767,586
    )
    
    
    
    
    
    
    (9,100,357
    )
    
    
    23,545,540Common stock issued pursuant
to private placements for:Services
    
    
    32,080
    
    
    
    32
    
    
    
    
    
    
    
    16,008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,040Settlement of accrued officers
compensation and repayment
of advances from officer
    
    
    184,618
    
    
    
    185
    
    
    
    
    
    
    
    92,124
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92,309Capital contributed to support operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,370Change in currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,869,999
    )
    
    
    
    
    
    
    
    
    
    
    (1,869,999
    )Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,162,853
    )
    
    
    (20,162,853
    )Balances at December 31, 2004
    
    
    22,765,894
    
    
    
    22,766
    
    
    
    
    
    
    
    32,855,370
    
    

    
    (2,637,585
    )
    
    
    
    
    
    
    (29,263,210
    )
    
    
    1,635,377Common stock issued pursuant
to private placements for:Cash
    
    
    936,132
    
    
    
    936
    
    
    
    1,266,369
    
    
    
    2,500,887
    
    
    
    
    
    
    
    (1,229,344
    )
    
    
    
    
    
    
    2,538,848Conversion of debt
    
    
    255,181
    
    
    
    255
    
    
    
    
    
    
    
    918,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    918,652Aggregate equalization charge
for sale at less than fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    983,150Common stock issued pursuant to
Employee Compensation Plan
    
    
    100,000
    
    
    
    100
    
    
    
    
    
    
    
    59,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000Equalization charge for sale at
less than fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000Less: Cost of raising capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,500
    )Capital contributed to support operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,292,461
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,292,461Change in currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,106,062
    
    
    
    
    
    
    
    
    
    
    
    1,106,062Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,674,004
    )
    
    
    (9,674,004
    )Balances at December 31, 2005
    
    
    24,057,207
    
    
    $
    24,057
    
    
    $
    1,266,369
    
    
    $
    38,696,665
    
    
    $
    (1,531,523
    )
    
    $
    (1,229,344
    )
    
    $
    (38,937,214
    )
    
    $
    (1,710,990
    )
  F-7




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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS
  (RESTATED)Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Cash Flows from Operating ActivitiesNet loss
    
    $
    (9,674,004
    )
    
    $
    (20,162,853
    )Adjustments to reconcile net income to net cash
provided by operating activitiesCurrency translation adjustment
    
    
    1,106,062
    
    
    
    (1,869,999
    )Depreciation
    
    
    280,480
    
    
    
    360,799Bad debt expense
    
    
    276,070
    
    
    
    Impairment charges for goodwill
    
    
    
    
    
    
    14,008Expenses paid for by affiliated entity
    
    
    1,162,938
    
    
    
    Expense charges for stock options
    
    
    70,773
    
    
    
    8,965,037Imputed expense related to common stock
issuances at less than fair value
    
    
    1,073,150
    
    
    
    (Increase) Decrease in
Accounts receivable  trade and other
    
    
    (1,686,201
    )
    
    
    11,733Prepaid expenses and other
    
    
    (654,396
    )
    
    
    (87,070
    )Increase (Decrease) in
Deferred revenues
    
    
    9,729
    
    
    
    Accounts payable  trade
    
    
    (618,035
    )
    
    
    2,161,132Payroll taxes payable
    
    
    2,164,522
    
    
    
    (610,981
    )Other current liabilities
    
    
    43,842
    
    
    
    281,588Net cash used in operating activities
    
    
    (6,445,070
    )
    
    
    (10,936,606
    )Cash Flows from Investing ActivitiesCash paid for software development
    
    
    (1,931,021
    )
    
    
    (679,696
    )Cash advanced for prepaid royalties to affiliated entities
    
    
    (406,985
    )
    
    
    (88,758
    )Cash paid to acquire property and equipment
    
    
    (308,687
    )
    
    
    (359,028
    )Net cash used in investing activities
    
    
    (2,646,693
    )
    
    
    (1,127,482
    )Cash Flows from Financing ActivitiesIncrease in cash overdraft
    
    
    598,035
    
    
    
    933,017Net activity on short term notes to third parties
    
    
    (807,011
    )
    
    
    807,011Principal payments on long-term debt
    
    
    (43,824
    )
    
    
    (2,243
    )Cash advanced or repaid to shareholder  net
    
    
    (6,842,586
    )
    
    
    1,318,225Proceeds from sales of common stock
    
    
    3,446,728
    
    
    
    Proceeds from sales of pre-merger subsidiary common stock
    
    
    12,731,932
    
    
    
    8,948,593Cash contributed by shareholder to support operations
    
    
    145,341
    
    
    
    Cash paid to acquire capital
    
    
    (19,318
    )
    
    
    Net cash provided by financing activities
    
    
    9,209,297
    
    
    
    12,004,603Increase (Decrease) in Cash and Cash Equivalents
    
    
    117,534
    
    
    
    (59,485
    )Cash and cash equivalents at beginning of period
    
    
    22,226
    
    
    
    81,711Cash and cash equivalents at end of period
    
    $
    139,760
    
    
    $
    22,226Supplemental Disclosures of Interest and Income Taxes PaidInterest paid during the period
    
    $
    288,165
    
    
    $
    2,499,104Income taxes paid (refunded)
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash Investing and Financing ActivitiesCommon stock issued to repay notes payable
    
    $
    918,652
    
    
    $
    
  F-8




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A  ORGANIZATION AND DESCRIPTION OF BUSINESS
        NOTE B  PREPARATION OF FINANCIAL STATEMENTS
    F-9




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE B  PREPARATION OF FINANCIAL STATEMENTS  CONTINUED
    NOTE C  GOING CONCERN UNCERTAINTY
     
    F-10




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE C  GOING CONCERN UNCERTAINTY  CONTINUED
   NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Currency translation
   December 30, 2005:
    
    $
    1.18290December 31, 2004:
    
    $
    1.36550December 31, 2003
    
    $
    1.25700
  December 31, 2005:
    
    $
    1.24658December 31, 2004:
    
    $
    1.24514December 31, 2003
    
    $
    1.13272
 Cash and cash equivalents
   Accounts receivable  trade
  F-11




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED
 Accounts receivable  trade
  Property and equipment
  Software development costs
  Prepaid royalties
  Organization and reorganization costs
  F-12




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED
 Research and development expenses
  Advertising expenses
  Income Taxes
  Share-Based Payments
  Earnings (loss) per share
      F-13




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED
 Revenue recognition
  *
    
    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).
  New accounting pronouncements
    F-14




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  CONTINUED
 New accounting pronouncements
   NOTE E  CORRECTION OF AN ERROR
  Year endedDecember 31,2005Net Loss, as previously reported
    
    $
    (7,967,316
    )Effect of the correction of an error(Increase) Decrease in Net Loss
by financial statement line item:Operating expenses:Recognition of previously unrecorded reorganization expenses
    
    
    (899,697
    )Recognition of previously unrecorded selling expenses
    
    
    (186,987
    )Recognition of previously unrecorded general
and administrative expenses
    
    
    (620,004
    )Total effect of changes on
Loss from Operations and Net Loss
    
    
    (1,706,688
    )Net Loss, as restated
    
    $
    (9,674,004
    )
 F-15




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE E  CORRECTION OF AN ERROR  CONTINUED
 Year endedDecember 31,2005Earnings per share, as previously reported
    
    $
    (0.30
    )Total effect of changes
    
    
    (0.07
    )Earnings per share, as restated
    
    $
    (0.37
    )
  NOTE F  FAIR VALUE OF FINANCIAL INSTRUMENTS
    NOTE G  CONCENTRATIONS OF CREDIT RISK
   F-16




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE H  PROPERTY AND EQUIPMENT
  Carrying value
    
    
    Estimated LifeComputers and office equipment
    
    $
    1,365,939
    
    
    3-5 yearsLeasehold improvements
    
    
    232,814
    
    
    Initial lease termSoftware
    
    
    284,859
    
    
    3-5 years1,883,612Less accumulated depreciation
    
    
    (1,133,933
    )Net property and equipment
    
    $
    749,679
 NOTE I  AMOUNTS DUE FROM RELATED PARTIES
  NOTE J  LONG-TERM DEBT
  Note payable to a landlord for leasehold improvements.Payable in quarterly installments of approximately
$8,871. Final maturity in 2013.
    
    $
    283,896Less current maturities
    
    
    (35,487
    )Current portion
    
    $
    248,409
  Year endingDecember 31,
    
    Amount2006
    
    $
    35,4872007
    
    
    35,4872008
    
    
    35,4872009
    
    
    35,4872010
    
    
    35,4872011-2015
    
    
    106,481Totals
    
    $
    283,896
 NOTE K  LOAN FROM STOCKHOLDERS
  F-17




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE L  INCOME TAXES
  (RESTATED)Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Domestic:Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    
    
    
    
    Foreign:Current
    
    
    78,091
    
    
    
    Deferred
    
    
    
    
    
    
    78,091
    
    
    
    State:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    78,091
    
    
    $
    
   Year ended
    
    
    Year endedDecember 31,
    
    
    December 31,2005
    
    
    2004Statutory rate applied to loss before income taxes
    
    $
    (3,289,200
    )
    
    $
    (7,512,500
    )Increase (decrease) in
income taxes resulting from:Foreign income taxes
    
    
    2,771,700
    
    
    
    7,512,500State income taxes
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    Non-deductible items:Imputed expense related to common stock
issued at less than fair value
    
    
    364,900
    
    
    
    Other, including reserve for deferred tax asset
and effect of graduated tax brackets
    
    
    152,600
    
    
    
    Total income tax expense (benefit)
    
    $
    78,091
    
    
    $
    
 F-18




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE L  INCOME TAXES  CONTINUED
  Net operating loss carryforwards
    
    $
    8,643,000Less valuation allowance
    
    
    (8,643,000
    )Net Deferred Tax Asset
    
    $
    
  NOTE M  COMMON STOCK TRANSACTIONS
       F-19




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE M  COMMON STOCK TRANSACTIONS  CONTINUED
      F-20




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE N  STOCK WARRANTS
    WeightedNumber of Exercise
    
    
    AverageShares
    
    
    PriceBalance at December 31, 2004
    
    
    100,000
    
    
    $
    0.60Issued
    
    
    570,000
    
    
    $
    5.00Exercised
    
    
    (100,000
    )
    
    $
    0.60Balance at December 31, 2005
    
    
    570,000
    
    
    $
    5.00
    NOTE O  STOCK OPTIONS
    F-21




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES   NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  STOCK OPTIONS  CONTINUED
  Weighted averageprice per shareOptions outstanding at January 1, 2004
    
    
    
    
    
    
    Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2004
    
    
    
    
    
    
    Issued
    
    
    390,000
    
    
    $
    3.50Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2005
    
    
    390,000
      NOTE P  COMMITMENTS AND CONTINGENCIES
 Security agreement
  Transactions with related parties
 
 F-22




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE P  COMMITMENTS AND CONTINGENCIES  CONTINUED
 Transactions with related parties
  Office leases
 
 
  
   1 2 1 2
  Year endingDecember 31,
    
    Amount2006
    
    $
    581,3592007
    
    
    673,0332008
    
    
    645,2722009
    
    
    645,2722010
    
    
    645,2722011-2015
    
    
    1,475,076Totals
    
    $
    4,665,284
 Transportation leases
  F-23




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE P  COMMITMENTS AND CONTINGENCIES  CONTINUED
 Transportation leases
  Year endingDecember 31,
    
    Amount2006
    
    $
    208,2922007
    
    
    131,4802008
    
    
    84,3492009
    
    
    44,892Totals
    
    $
    469,013
 Employment agreements
   
   
 
 F-24




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE P  COMMITMENTS AND CONTINGENCIES  CONTINUED
 Employment agreements
  
   
 Software development contracts
  Litigation
    F-25




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE Q  SEGMENT INFORMATION AND REVENUE CONCENTRATIONS
  Year ended
    
    
    Year endedDecember 31, 2005
    
    
    December 31,2004Amount
    
    
    % of total
    
    
    Amount
    
    
    % of totalEurope and United KingdomCustomer A
    
    
    558,181
    
    
    
    31
    %
    
    
    
    
    
    
    
    %Customer B
    
    
    262,530
    
    
    
    14
    %
    
    
    
    
    
    
    
    %Others
    
    
    616,636
    
    
    
    34
    %
    
    
    119,982
    
    
    
    100
    %1,437,347
    
    
    
    79
    %
    
    
    119,982
    
    
    
    100
    %Middle East/AfricaOthers
    
    
    13,982
    
    
    
    1
    %
    
    
    
    
    
    
    
    %13,982
    
    
    
    1
    %
    
    
    
    
    
    
     
    %Asia
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %United StatesCustomer C
    
    
    353,817
    
    
    
    19
    %
    
    
    
    
    
    
    
    %Others
    
    
    19,073
    
    
    
    1
    %
    
    
    
    
    
    
    
    %372,890
    
    
    
    20
    %
    
    
    
    
    
    
    
    %South America
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Totals
    
    $
    1,824,199
    
    
    
    100
    %
    
    $
    119,982
    
    
    
    100
    %
 NOTE R  SELECTED FINANCIAL DATA (Unaudited)
  Quarter ended
    
    Quarter ended
    
    Quarter ended
    
    Quarter ended
    
    Year endedMarch 31
    
    June 30
    
    September 30
    
    December 31
    
    December 31Year ended December
31, 2005Net revenues
    
    $
    532,138
    
    
    $
    204,421
    
    
    $
    542,579
    
    
    $
    545,061
    
    
    $
    1,824,199Gross profit
    
    $
    409,061
    
    
    $
    187,729
    
    
    $
    206,199
    
    
    $
    (61,096
    )
    
    $
    741,893Net loss from
operations
    
    $
    (559,990
    )
    
    $
    (3,122,484
    )
    
    
    (4,300,023
    )
    
    $
    (1,691,507
    )
    
    $
    (9,674,004
    )Basic and fully
diluted earnings
per share
    
    $
    (0.02
    )
    
    $
    (0.12
    )
    
    $
    (0.17
    )
    
    $
    (0.07
    )
    
    $
    (0.37
    )Weighted-average
number of shares
outstanding
    
    
    22,765,894
    
    
    
    22,806,637
    
    
    
    23,062,428
    
    
    
    23,072,016
    
    
    
    22,972,348Year ended December 31,
2004Net revenues
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    109,062
    
    
    $
    109,062Gross profit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    73,296
    
    
    $
    73,296Net loss from
operations
    
    $
    (10,807,437
    )
    
    $
    (2,855,523
    )
    
    $
    (1,778,290
    )
    
    $
    (4,921,669
    )
    
    $
    (20,162,919
    )Basic and fully
diluted
earnings per share
    
    $
    (0.48
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )
    
    $
    (0.22
    )
    
    $
    (0.89
    )Weighted-average
number of shares
outstanding
    
    
    22,557,216
    
    
    
    22,723,753
    
    
    
    22,765,894
    
    
    
    22,581,276
    
    
    
    22,702,846
 F-26




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE S  SUBSEQUENT EVENTS
 Equity Transactions
           F-27




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE S  SUBSEQUENT EVENTS  CONTINUED
 Equity Transactions
    Debt transactions
 
 
 
 
  F-28




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE S  SUBSEQUENT EVENTS  CONTINUED
 Debt transactions
  
   
   
    
 F-29




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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
  NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE S  SUBSEQUENT EVENTS  CONTINUED
 Debt transactions
  Product development issues
   Employment Agreements
  
 F-30