##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended:March 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number: 0-49649
 PLAYLOGIC ENTERTAINMENT, INC.
  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
 þ o
 o þ
  Class
    
    Outstanding at May 4, 2006Common Stock, par value $.001 per share
    
    24,465,733 shares
 o þ




---



##### 



PLAYLOGIC ENTERTAINMENT, INC.
FORM 10-QSB
CONTENTS
 Page No.PART I  FINANCIAL INFORMATIONItem 1.Financial Statements
    
    F-1Consolidated Balance Sheets at March 31, 2006 (unaudited)
    
    F-1Consolidated Statements of Operations and Comprehensive
Income (unaudited) for the three months ended March 31,
2006 and 2005
    
    F-3Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2006 and 2005
    
    F-4Notes to Consolidated Financial Statements
    
    F-5Item 2.
    
    Managements Discussion and Analysis
    
    4Item 3.
    
    Controls and Procedures
    
    9PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    11Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    11Item 3.
    
    Defaults Upon Senior Securities
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    12Item 5.
    
    Other Information
    
12Item 6.
    
    ExhibitsSignaturesExhibit IndexCertificationsEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 
 PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 (Unaudited)
 March 31,
    
    
    March 31,2006
    
    
    2005ASSETSCurrent AssetsCash on hand and in bank
    
    $
    142,387
    
    
    $
    20,298Accounts receivable
Trade, net of allowance for doubtful accounts
of approximately $21,418 and $-0-, respectively
    
    
    2,389,341
    
    
    
    539,860Loans to affiliated companies
    
    
    
    
    
    
    145,250Value Added Taxes from foreign governments
    
    
    203,980
    
    
    
    155,046Prepaid expenses and other
    
    
    56,836
    
    
    
    15,612Total current assets
    
    
    2,792,544
    
    
    
    876,066Property and Equipment  at costComputers and office equipment
    
    
    1,404,534
    
    
    
    1,390,290Leasehold improvements
    
    
    295,933
    
    
    
    197,843Software
    
    
    291,433
    
    
    
    46,0111,991,900
    
    
    
    1,634,145Less accumulated depreciation
    
    
    (1,239,258
    )
    
    
    (1,051,311
    )Net property and equipment
    
    
    752,642
    
    
    
    582,834Other assetsCapitalized software development costs
    
    
    4,536,922
    
    
    
    1,400,500Other
    
    
    869,608
    
    
    
    Deferred tax asset
    
    
    
    
    
    
    253,110Total other assets
    
    
    5,406,530
    
    
    
    1,653,610Total Assets
    
    $
    8,951,716
    
    
    $
    3,112,510
 - Continued -
 
 F-1




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS  CONTINUED
 (Unaudited)
 March 31,
    
    
    March 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS DEFICITCurrent LiabilitiesBank overdraft
    
    $
    1,507,481
    
    
    $
    703,097Short-term loans payable
    
    
    
    
    
    
    194,505Software financing loans payable
    
    
    
    
    
    
    259,340Current maturities of long-term debt
    
    
    36,306
    
    
    
    38,901Accounts payable  trade
    
    
    2,542,378
    
    
    
    2,007,181Payroll taxes payable
    
    
    1,516,568
    
    
    
    357,016Other accrued liabilitiesAccrued wages and related personnel costs
    
    
    218,744
    
    
    
    364,242Other
    
    
    1,925,780
    
    
    
    396,242Deferred revenues
    
    
    860,649
    
    
    
    Loan from stockholders
    
    
    48,408
    
    
    
    9,788,505Total Current Liabilities
    
    
    8,656,314
    
    
    
    14,109,029Long-Term LiabilitiesLong-term debt, net of current maturities
    
    
    254,142
    
    
    
    262,582Total Liabilities
    
    
    8,910,456
    
    
    
    14,371,611Commitments 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.
24,465,733 and 22,765,894 shares
issued and outstanding, respectively
    
    
    24,466
    
    
    
    22,766Common stock warrants
    
    
    1,720,180
    
    
    
    Additional paid-in capital
    
    
    38,361,250
    
    
    
    20,584,984Currency translation adjustments
    
    
    (1,607,260
    )
    
    
    (2,043,651
    )Accumulated deficit
    
    
    (38,428,032
    )
    
    
    (29,823,200
    )70,604
    
    
    
    (11,259,101
    )Stock subscriptions receivable
    
    
    (29,344
    )
    
    
    Total Stockholders Deficit
    
    
    41,260
    
    
    
    (11,259,101
    )Total Liabilities and Shareholders Deficit
    
    $
    8,951,716
    
    
    $
    3,112,510
 
 F-2




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005RevenuesGame software
    
    $
    2,719,610
    
    
    $
    532,138Cost of SalesDirect costs of production
    
    
    1,761,625
    
    
    
    123,077Gross Profit
    
    
    957,985
    
    
    
    409,061Operating expensesResearch and development
    
    
    343,691
    
    
    
    362,269Selling and marketing
    
    
    89,670
    
    
    
    5,920General and administrative
    
    
    1,602,021
    
    
    
    650,979Depreciation
    
    
    78,497
    
    
    
    104,067Total operating expenses
    
    
    2,113,880
    
    
    
    1,123,234Loss from Operations
    
    
    (1,155,895
    )
    
    
    (714,173
    )Other Income (Expense)Interest expense
    
    
    (76,827
    )
    
    
    (103,330
    )Foreign currency exchange gain (loss)
    
    
    35,217
    
    
    
    Loss before provision for income taxes
    
    
    (1,197,505
    )
    
    
    (817,503
    )Provision for Income Taxes
    
    
    
    
    
    
    217,514Net Loss
    
    
    (1,197,505
    )
    
    
    (559,990
    )Other comprehensive incomeForeign currency translation adjustment
    
    
    (107,619
    )
    
    
    593,934Comprehensive Loss
    
    $
    (1,305,124
    )
    
    $
    33,944Net loss per weighted-average share
of common stock outstanding,
computed on Net Loss
- basic and fully diluted
    
    $
    (0.05
    )
    
    $
    (0.02
    )Weighted-average number of shares
of common stock outstanding -
basic and fully diluted
    
    
    24,272,908
    
    
    
    22,765,894
 
 F-3




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005Cash Flows from Operating ActivitiesNet loss
    
    $
    (1,197,506
    )
    
    $
    (559,990
    )Adjustments to reconcile net income to net cash
provided by operating activitiesCurrency translation adjustment
    
    
    (107,619
    )
    
    
    593,934Realized loss on currency exchange
    
    
    94,085
    
    
    
    Depreciation
    
    
    78,497
    
    
    
    104,067Bad debt expense
    
    
    65,259
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (257,514
    )Management fees contributed as capital
    
    
    25,000
    
    
    
    (Increase) Decrease in
Accounts receivable  trade and other
    
    
    (1,248,449
    )
    
    
    (694,906
    )Prepaid expenses and other
    
    
    770
    
    
    
    257,206Increase (Decrease) in
Deferred revenues
    
    
    850,920
    
    
    
    Accounts payable  trade
    
    
    (27,178
    )
    
    
    (1,180,412
    )Payroll taxes payable
    
    
    (786,776
    )
    
    
    218,194Other current liabilities
    
    
    1,057,709
    
    
    
    (282,489
    )Net cash used in operating activities
    
    
    (1,195,288
    )
    
    
    (1,801,910
    )Cash Flows from Investing ActivitiesCash paid for software development
    
    
    (1,431,504
    )
    
    
    (226,103
    )Cash advanced for prepaid royalties to affiliated entities
    
    
    
    
    
    
    (56,492
    )Cash paid to acquire property and equipment
    
    
    (108,288
    )
    
    
    (59,220
    )Net cash used in investing activities
    
    
    (1,539,792
    )
    
    
    (341,815
    )Cash Flows from Financing ActivitiesIncrease (Decrease) in cash overdraft
    
    
    (23,571
    )
    
    
    (229,920
    )Net activity on short term notes to third parties
    
    
    
    
    
    
    (18,513
    )Net activity on software financing notes payable
    
    
    
    
    
    
    (334,653
    )Principal payments on long-term debt
    
    
    6,552
    
    
    
    (26,237
    )Cash advanced by affiliated entities
    
    
    495,743
    
    
    
    Cash advanced or repaid to shareholder  net
    
    
    (114,683
    )
    
    
    2,191,379Proceeds from sales of common stock
    
    
    1,178,065
    
    
    
    Collections on stock subscriptions receivable
    
    
    1,200,000
    
    
    
    Proceeds from sales of pre-merger subsidiary common stock
    
    
    
    
    
    
    559,741Cash contributed by shareholder to support operations
    
    
    
    
    
    
    Cash paid to acquire capital
    
    
    (4,399
    )
    
    
    Net cash provided by financing activities
    
    
    2,737,707
    
    
    
    2,141,797Increase (Decrease) in Cash and Cash Equivalents
    
    
    2,627
    
    
    
    (1,928
    )Cash and cash equivalents at beginning of period
    
    
    139,760
    
    
    
    22,226Cash and cash equivalents at end of period
    
    $
    142,387
    
    
    $
    20,298Supplemental Disclosures of Interest and Income Taxes PaidInterest paid during the period
    
    $
    76,827
    
    
    $
    103,330Income taxes paid (refunded)
    
    $
    
    
    
    $
    Supplemental Disclosures of Non-Cash Investing and Financing ActivitiesCommon stock issued to repay notes payable
    
    $
    918,652
    
    
    $
    Cost of acquiring capital paid with issuance of common stock
    
    $
    13,200
    
    
    $
    
 
 F-4




---



##### Table of Contents



PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  ORGANIZATION AND DESCRIPTION OF BUSINESS
        NOTE B  PREPARATION OF FINANCIAL STATEMENTS
    
 F-5




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE B  PREPARATION OF FINANCIAL STATEMENTS  Continued
      NOTE C  GOING CONCERN UNCERTAINTY
   ̈  ̈  ̈  ̈
 F-6




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE C  GOING CONCERN UNCERTAINTY  Continued
      NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 1.
    
    Currency translation
   March 31, 2006
    
    $
    1.21020December 30, 2005:
    
    $
    1.18290March 31, 2005
    
    $
    1.29670December 31, 2004:
    
    $
    1.36550
  F-7




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 1.
    
    Currency translation  continued
  March 31, 2006
    
    $
    1.20016December 31, 2005:
    
    $
    1.24658March 31, 2005
    
    $
    1.31927December 31, 2004:
    
    $
    1.24514
 2.
    
    Cash and cash equivalents
   3.
    
    Accounts receivable  trade
    4.
    
    Property and equipment
  5.
    
    Software development costs
  F-8




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 5.
    
    Software development costs  continued
  6.
    
    Prepaid royalties
  7.
    
    Organization and reorganization costs
  8.
    
    Research and development expenses
  9.
    
    Advertising expenses
  10.
    
    Income Taxes
  11.
    
    Share-Based Payments
  12.
    
    Earnings (loss) per share
  F-9




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 Earnings per share
    Revenue recognition
      The Company defers revenues on sales which do not confirm to the above listed criteria until such time that the billed amount is either paid or any attached right-of-return
expires/terminates.
 New accounting pronouncements
 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 SFAS 123(R) and certain SEC rules
and regulations, and is intended to assist in the initial implementation. SFAS(R) is effective
for all companies that file as small business issuers as of the beginning of the first interim
or annual reporting period that begins after December 15, 2005. The Company is currently
evaluating the provisions of SFAS 123(R) and its effect on its financial statements. The
Company does not expect the adoption of this statement to have a material impact on its
financial statements.
 F-10




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 New accounting pronouncements
    NOTE E  FAIR VALUE OF FINANCIAL INSTRUMENTS
     F-11




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE F  CONCENTRATIONS OF CREDIT RISK
   NOTE G  PROPERTY AND EQUIPMENT
  March 31,
    
    
    March 31,Estimated Life
    
    2006
    
    
    2005Computers and office equipment
    
    $
    1,404,534
    
    
    $1,390,2903-5 yearsLeasehold improvements
    
    
    295,933
    
    
    197,843 initial lease termSoftware
    
    
    291,433
    
    
    46,011 3-5 years1,991,900
    
    
    
    1,634,145Less accumulated depreciation
    
    
    (1,239,258
    )
    
    
    (1,051,311
    )Net property and equipment
    
    $
    752,642
    
    
    $
    582,834
 NOTE H  AMOUNTS DUE FROM RELATED PARTIES
  NOTE I  LONG-TERM DEBT
  March 31,
    
    
    March 31,2006
    
    
    2005Note payable to a landlord for leasehold improvements.
Payable in quarterly installments of approximately
$8,871. Final maturity in 2013.
    
    $
    290,448
    
    
    $
    301,483Less current maturities
    
    
    (36,306
    )
    
    
    (38,901
    )Current portion
    
    $
    254,142
    
    
    $
    262,582
 F-12




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE I  LONG-TERM DEBT  Continued
  Year endingDecember 31,
    
    
    Amount2006
    
    
    $
    35,4872007
    
    
    
    35,4872008
    
    
    
    35,4872009
    
    
    
    35,4872010
    
    
    
    35,4872011-2015
    
    
    
    106,481Totals
    
    $
    283,896
 NOTE J  LOAN FROM STOCKHOLDERS
  NOTE K  INCOME TAXES
  Three monthsThree monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005Domestic:Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    Foreign:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    257,514State:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
 F-13




---



##### Table of Contents





PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED


NOTE K  INCOME TAXES  Continued




Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005Statutory rate applied to loss before income taxes
    
    $
    (407,200
    )
    
    $
    (190,400
    )Increase (decrease) in
income taxes resulting from:Foreign income taxes
    
    
    387,400
    
    
    
    190,400State income taxes
    
    
    
    
    
    
    Deferred income taxes  (257,514)Other, including reserve for deferred tax asset
and effect of graduated tax brackets
    
    
    19,800
    
    
    
    Total income tax expense (benefit)
    
    $
    $(257,514)




March 31,2006Net operating loss carryforwards
$8,643,000Less valuation allowance
(8,643,000)Net Deferred Tax Asset
    
    $
    


NOTE L  COMMON STOCK TRANSACTIONS


On February 21, 2005, by written consent in lieu of meeting, stockholders representing 78.9% of the
issued and outstanding shares of our common stock approved a recommendation of our Board of
Directors to effect a one share for ten shares reverse stock split of our common stock, par value
$.001 per share, with all fractional shares rounded down to the nearest whole share. The reverse
split became effective on April 15, 2005. As a result of the reverse split, the total number of
issued and outstanding shares of our common stock decreased from 9,289,647 shares to 928,964
shares, after giving effect to rounding for fractional shares. In the reverse split calculation,
all fractional shares were rounded down to the nearest whole share. Holders of less than ten
shares, prior to the reverse split, shall receive $0.30 per share as compensation. The effect of
this action is reflected in the Companys financial statements as of the first day of the first
period.On June 30, 2005, pursuant to a Securities and Exchange Agreement (Exchange Agreement) by and among
the Company and Playlogic International N.V., a corporation formed under the laws of The
Netherlands (Playlogic), and the shareholders of Playlogic (Playlogic Shareholders); the Playlogic
Shareholders exchanged 100.0% of the issued and outstanding ordinary shares and preferred shares of
Playlogic for an aggregate 21,836,924 shares of the Companys common stock. As a result of this
transaction, Playlogic became the Companys wholly-owned subsidiary, now represents all of the
Companys commercial operations, and the Playlogic Shareholders control approximately 91.0% of the
outstanding common stock of the Company, post-transaction.


F-14



---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE L  COMMON STOCK TRANSACTIONS  Continued
        F-15




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE L  COMMON STOCK TRANSACTIONS  Continued
         F-16




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE M  STOCK WARRANTS
      WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceBalance at December 31, 2004
    
    
    100,000
    
    
    $
    0.60Issued
    
    
    570,000
    
    
    $
    5.00Exercised
    
    
    (100,000
    )
    
    $
    0.60Balance at December 31, 2005
    
    
    570,000
    
    
    $
    5.00Issued
    
    
    204,263
    
    
    $
    5.00Expired
    
    
    Exercised
    
    
    Balance at March 31, 2006
    
    
    774,263
    
    
    $
    5.00
   F-17




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE M  STOCK WARRANTS  Continued
  NOTE N  STOCK OPTIONS
     Weighted averageprice per shareOptions outstanding at January 1, 2004
    
    
    
    
    
    
    Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2004
    
    
    
    
    
    
    Issued
    
    
    390,000
    
    
    $
    3.50Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2005
    
    
    390,000Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at March 31, 2006
    
    
    390,000
   F-18




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE N  STOCK OPTIONS  Continued
    NOTE O  COMMITMENTS AND CONTINGENCIES
 Security agreement
  Transactions with related parties
  Office leases
 o
 o
 F-19




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  COMMITMENTS AND CONTINGENCIES  Continued
 Office leases
 o o
 o o 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
   Year endingDecember 31,
    
    Amount2006
    
    $
    208,2922007
    
    
    131,4802008
    
    
    84,3492009
    
    
    44,892Totals
    
    $
    469,013
 Employment agreements
  F-20




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  COMMITMENTS AND CONTINGENCIES  Continued
 Employment agreements
 o o
 o o o
 o
 o o
  F-21




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  COMMITMENTS AND CONTINGENCIES  Continued
 Employment agreements
  o
 Software development contracts
  Litigation
    F-22




---



##### Table of Contents



F-23




---



##### Table of Contents



Item 2. Managements Discussion and Analysis
 Forward-Looking Statements
   Our Business
     Release Schedule
 Game
    
    Studio
    
    Platform
    

Expected Release DateCompleted GamesAlpha Black Zero
    
    Khaeon (NL)
    
    PC
    
    ReleasedAirborne Troops
    
    Widescreen Games (F)
    
    PS2, PC
    
    ReleasedCyclone Circus
    
    Playlogic Game Factory (NL)
    
    PS2
    
    Released
 4




---



##### Table of Contents



Game
    
    Studio
    
    Platform
    

Expected Release DateXyanide
    
    Overloaded (NL)
    
    Mobile Phones
    
    ReleasedWorld Racing 2
    
    Synetic (D)
    
    PS2, Xbox, PC
    
    Released(i)Knights of the Temple 2
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    Released(i)Gene Troopers
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    Released(i)Under DevelopmentXyanide
    
    Playlogic Game Factory (NL)
    
    Xbox
    
    Q2 2006Age of Pirates: Caribbean Tales
    
    Akella (Russia)
    
    PC
    
    Q2 2006Ancient Wars: Sparta
    
    World Forge (Russia)
    
    PC
    
    Q3/Q4 2006StateShift Racing
    
    Engine Software (NL)
    
    PSP
    
    Q4 2006Xyanide Resurrection
    
    Playlogic Game Factory (NL)
    
    PSP
    
    Q4 2006P.R.I.S.M.  Threat Level: Red
    
    Rebellion (UK)
    
    PC
    
    Q4 2006Wizard of Funk
    
    Playlogic Game Factory (NL)
    
    PC
    
    Q4 2006Infernal
    
    Metropolis
    
    PC
    
    Q4 2006Infernal
    
    Metropolis
    
    Next Gen
    
    Q2/3 2007(ii)Age of Pirates: Captain Blood
    
    Akella
    
    Next Gen
    
    Q2/3 2007(ii)Red Bull Break Dance Game
    
    To be announced
    
    Various
    
    2007
 
 (i)
    
    Europe only. US publishing and distribution agreement signed.(ii)
    
    Final decision on Next Gen options to be made. Managements Overview of Historical and Prospective Business Trends
 Increased Console Installed Base.
 Software Prices.
 Increasing Cost of Titles.
 Uncertainties and Other Risk Factors that May Affect our Future Results and Financial Condition
   5




---



##### Table of Contents



Critical Accounting Policies
 General
  Estimates
  Accounts receivable
  Software Development Costs
    6




---



##### Table of Contents



Revenue Recognition
  
    
    Evidence of an arrangement: We recognize revenue when we have evidence of an agreement
with the customer reflecting the terms and conditions to deliver products.
    
    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 revenue 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 revenue when collection becomes probable (generally upon cash
collection).
 Product Revenue
  New Accounting Pronouncements
   7




---



##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005.
    8




---



##### Table of Contents



Liquidity and Capital Resources
 March 31, 2006
    Off Balance Sheet Arrangements
  
 Item 3. Controls and Procedures.
  9




---



##### Table of Contents



10




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
    
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Shares
 NAME
    
    SHARES
    
    DATEW.P. Deegen
    
    
    111,048
    
    
    January 31, 2006D. Swart
    
    
    184,178
    
    
    January 31, 2006Austerlitz Finance B.V.
    
    
    53,300
    
    
    March 17, 2006I. Fock-van Ittersum
    
    
    30,000
    
    
    March 17, 2006R.H.M. van Hees Orthodontist
Holding B.V.
    
    
    30,000
    
    
    March 17, 2006
      Options and Warrants
 Options
  11




---



##### Table of Contents



Warrants
  NAME
    
    WARRANTS
    
    DATEW.P. Deegen
    
    
    55,542
    
    
    January 31, 2006D. Swart
    
    
    92,089
    
    
    January 31, 2006Austerlitz Finance BV
    
    
    25,000
    
    
    March 17, 2006I.Fock-van Ittersum
    
    
    15,000
    
    
    March 17, 2006R.H.M. van Hees Orthodontist
Holding B.V.
    
    
    15,000
    
    
    March 17, 2006
   Issuer Purchase of Equity Securities
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  12




---



##### Table of Contents



SIGNATURES
  Playlogic Entertainment, Inc.(Registrant)Date: May 22, 2006
    
    By:
    
    /s/ Willem M. SmitWillem M. SmitChief Executive OfficerDate: May 22, 2006
    
    By:
    
    /s/ Jan Willem KohneJan Willem KohneChief Financial Officer(Principal Financial and Accounting Officer)
 PLAYLOGIC ENTERTAINMENT, INC.
 
 EXHIBIT INDEX
 Exhibit Number
    
    Description31.1
    
    Certifications of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certifications 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
 13