UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
   FORM
10-Q
  ý
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES EXCHANGE ACT
OF 1934.For
      the quarterly period ended June 30, 2008ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR SECTION 13
      OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period
      from  _____ to _______.
  Commission
file number 0-49649
   
   PLAYLOGIC
ENTERTAINMENT, INC
 (Exact
Name of Registrant as Specified in Its Charter)
  Delaware
              
              23-3083371(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)Strawinskylaan
      1041,
                WTC
      Amsterdam, C-Tower, 10th floor
              
              1077
      XX(Address
      of principal executive offices)
              
              (Zip
      Code)
 Registrant's
Telephone Number, Including Area Code: +31-20-676-0304
  Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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  ý No  o
   Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "accelerated filer," "large accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
  Large
      accelerated filer o
              
              Accelerated
      filer o
              
              Non-accelerated
      filer o
                (Do
      not check if a smaller reporting company)
              
              Smaller
      reporting company ý
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).    Yes  o No  ý
  As of
June 30, 2008, there were 44,141,275 shares of
the Registrant's Common Stock outstanding.
  
  
 PLAYLOGIC
ENTERTAINMENT, INC.
  FORM
10-Q
  TABLE
OF CONTENTS
   PART
      I -- FINANCIAL INFORMATION
              Page
      No.Item
      1.
              Financial
      Statements
              3Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              14Item
      3.
              Quantitative
      and Qualitative Disclosures about Market Risk
              19Item
      4
              Controls
      and Procedures
              19PART
      II -- OTHER INFORMATIONItem
      1.
              Legal
      Proceedings
              20Item
      1A.
              Risk
      Factors
              20Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              20Item
      3.
              Defaults
      Upon Senior Securities
              20Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              20Item
      5.
              Other
      Information
              20Item
      6.
              Exhibits
              20Signatures
              21Exhibit
      Index
              22Certifications
              Attached







-
2 -





PART I -- FINANCIAL INFORMATION
 Item 1 -  Financial
Statements
 
 PLAYLOGIC
ENTERTAINMENT INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  June
      30, 2008
              
              
              December
      31, 2007Unaudited
              
              
              Derived
      from audited statementsASSETSCurrent
      AssetsCash
      and cash equivalents
              
              $
              2,973,327
              
              
              $
              349,464ReceivablesTrade,
      net of allowance for doubtful accounts
              
              
              3,572,556
              
              
              
              671,148Officers
              
              
              60,328
              
              
              
              78,754Value
      Added Taxes from foreign governments
              
              
              62,758
              
              
              
              50,620Current
      portion of software development costs
              
              
              8,530,188
              
              
              
              6,244,843Prepaid
      expenses and other receivables
              
              
              1,830,956
              
              
              
              892,855Total
      current assets
              
              
              17,030,113
              
              
              
              8,287,684Property
      and equipment, net of accumulated depreciation
              
              
              1,398,280
              
              
              
              753,768Other
      assetsSoftware
      development costs, net of current portion
              
              
              2,338,654
              
              
              
              1,040,510Restricted
      cash
              
              
              236,700
              
              
              
              -Total
      other assets
              
              
              2,575,354
              
              
              
              1,040,510Total
      Assets
              
              $
              21,003,747
              
              
              $
              10,081,962LIABILITIES AND
      SHAREHOLDERS' DEFICITCurrent
      LiabilitesAccounts
      and notes payableAccounts
      payable
              
              $
              5,301,292
              
              
              $
              4,785,678Note
      payable to bank
              
              
              -
              
              
              
              1,056,552Note
      payable, other
              
              
              -
              
              
              
              397,845Other
      current liabilitiesCurrent
      maturities of long-term debt
              
              
              47,340
              
              
              
              44,205Accrued
      liabilities
              
              
              1,203,549
              
              
              
              2,142,754Deferred
      revenues
              
              
              -
              
              
              
              148,750Indebtedness
      to related party
              
              
              3,161,082
              
              
              
              589,400Total
      current liabilities
              
              
              9,713,263
              
              
              
              9,165,184Long-term
      debt, less current maturities
              
              
              3,772,030
              
              
              
              221,025Total
      Liabilities
              
              
              13,485,293
              
              
              
              9,386,209Shareholders'
      EquityCommon
      stock
              
              
              44,141
              
              
              
              38,533Additional
      paid-in capital
              
              
              59,693,224
              
              
              
              54,081,832Deferred
      Compensation-Employee Stock Options
              
              
              481,250
              
              
              
              374,571Accumulated
      other comprehensive loss
              
              
              (2,999,080
              )
              
              
              (3,057,297
              )Accumulated
      deficit
              
              
              (49,701,001
              )
              
              
              (50,741,886
              )Total
      Shareholders' Equity
              
              
              7,518,454
              
              
              
              695,753Total
      Liabilities and Shareholders' Equity
              
              $
              21,003,747
              
              
              $
              10,081,962
  See
accompanying notes to unaudited condensed consolidated financial
statements
  -
3 -
 
 
 PLAYLOGIC
ENTERTAINMENT INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 Unaudited
 
 Three
      months ended June 30
              
              
              Six
      months ended June 302008
              
              
              2007
              
              
              2008
              
              
              2007RevenuesSales,
      net of returns and allowances
              
              $
              4,318,432
              
              
              $
              1,101,432
              
              
              $
              8,350,112
              
              
              $
              4,584,028Cost
      of salesDirect
      costs and license fees
              
              
              (1,179,682
              )
              
              
              (602,408
              )
              
              
              (2,250,242
              )
              
              
              (1,238,731
              )Amortisation
      of software development costs
              
              
              (977,097
              )
              
              
              (163,489
              )
              
              
              (1,722,790
              )
              
              
              (613,567
              )(2,156,779
              )
              
              
              (765,897
              )
              
              
              (3,973,032
              )
              
              
              (1,852,298
              )Gross
      profit
              
              
              2,161,653
              
              
              
              335,535
              
              
              
              4,377,080
              
              
              
              2,731,730Operating
      expensesResearch
      and development
              
              
              111,550
              
              
              
              344,036
              
              
              
              175,442
              
              
              
              366,755Selling
      and marketing
              
              
              221,539
              
              
              
              65,831
              
              
              
              407,186
              
              
              
              530,623General
      and administrative
              
              
              1,294,359
              
              
              
              1,252,622
              
              
              
              2,439,718
              
              
              
              2,388,634Depreciation
              
              
              79,585
              
              
              
              70,934
              
              
              
              156,405
              
              
              
              152,624Total
      operating expenses
              
              
              1,707,033
              
              
              
              1,733,423
              
              
              
              3,178,751
              
              
              
              3,438,636Profit  from
      operations
              
              
              454,620
              
              
              
              (1,397,888
              )
              
              
              1,198,329
              
              
              
              (706,906
              )Other
      income/(expense)Gain
      on debt restructuring
              
              
              -
              
              
              
              362,795
              
              
              
              -
              
              
              
              750,203Interest
      expense
              
              
              (108,803
              )
              
              
              (188,678
              )
              
              
              (166,718
              )
              
              
              (508,124
              )Realized
      and unrealized exchange profit
              
              
              (1,760
              )
              
              
              -
              
              
              
              9,194
              
              
              
              -Profit
      before provision for income taxes
              
              
              344,057
              
              
              
              (1,223,771
              )
              
              
              1,040,805
              
              
              
              (464,827
              )Provision
      for Income Taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      Profit
              
              
              344,057
              
              
              
              (1,223,771
              )
              
              
              1,040,805
              
              
              
              (464,827
              )Net
      profit per weighted-average share of common stock outstanding, computed on
      Net Profit-
      basic and fully diluted
              
              
              0.01
              
              
              
              (0.05
              )
              
              
              0.03
              
              
              
              (0.02
              )Weighted-average
      number of shares of common stock outstanding-
      basic and fully diluted
              
              
              41,546,874
              
              
              
              26,006,149
              
              
              
              40,096,325
              
              
              
              25,670,991
  See
accompanying notes to unaudited condensed consolidated financial
statements
  -
4 -
 
  PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Unaudited
 
 Six
      months ended June 30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Profit / (Loss)
              
              $
              1,040,806
              
              
              
              (464,828
              )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
              
              
              156,405
              
              
              
              152,624Amortization
      of software development
              
              
              1,557,308
              
              
              
              613,507Bad
      debt expense
              
              
              20,098
              
              
              
              -Expense
      charges for stock options
              
              
              106,678
              
              
              
              (165,627
              )Management
      fees contributed as capital
              
              
              50,000
              
              
              
              50,000Non-cash
      interest charge on warrants
              
              
              49,000
              
              
              
              8,800Cash
      paid for software development
              
              
              (4,539,834
              )
              
              
              (1,898,565
              )(Increase)/
      Decrease in cash attributable to changes in operating assets and
      liabilitiesRestricted
      cash
              
              
              (230,195
              )
              
              
              -Accounts
      receivable - trade and other
              
              
              (2,795,474
              )
              
              
              65,543Prepaid
      expenses and other
              
              
              (859,052
              )
              
              
              (1,155,183
              )Increase
      / (Decrease) inDeferred
      revenues
              
              
              (154,921
              )
              
              
              (926,931
              )Accounts
      payable - trade
              
              
              (32,858
              )
              
              
              611,074Payroll
      taxes payable
              
              
              (856,788
              )
              
              
              647,070Other
      current liabilities
              
              
              (124,589
              )
              
              
              (21,235
              )Net
      cash used in operating activities
              
              $
              (6,613,416
              )
              
              $
              (2,483,750
              )CASH
      FLOWS FROM INVESTING ACTIVITIESCash
      paid to acquire property and equipment
              
              
              (731,215
              )
              
              
              (50,199
              )Net
      cash used in investing activities
              
              
              (731,215
              )
              
              
              (50,199
              )CASH
      FLOWS FROM FINANCING ACTIVITIESPayments
      on bank line of credit
              
              
              (1,100,386
              )
              
              
              (209,175
              )Receipts
      on short term notes
              
              
              4,987,450
              
              
              
              3,663,875Cash
      repaid on short term notes
              
              
              (3,107,834
              )
              
              
              (4,514,991
              )Principal
      payments on long-term debt
              
              
              (23,019
              )
              
              
              (19,948
              )Cash
      received from shareholder long term loans
              
              
              4,000,000
              
              
              
              2,607,540Proceeds
      from sales of common stock
              
              
              5,077,000
              
              
              
              997,402Net
      cash provided by financing activities
              
              
              9,833,211
              
              
              
              2,524,703Effect
      of foreign exchange on cash
              
              
              135,282
              
              
              
              2,196Increase/(Decrease)
      in Cash
              
              
              2,623,862
              
              
              
              (7,050
              )Cash
      at beginning of period
              
              
              349,464
              
              
              
              16,537Cash
      at end of period
              
              $
              2,973,327
              
              
              $
              9,487Supplemental
      disclosures of interest and income taxes paidInterest
      paid during the period
              
              $
              -
              
              
              $
              -Income
      taxes paid (refunded)
              
              $
              -
              
              
              $
              -Supplemental
      disclosures of non-cash investing and financing activitiesCommon
      stock issued to repay notes payable
              
              $
              -
              
              
              $
              -Cost
      of acquiring capital paid with issuance of common stock
              
              $
              -
              
              
              $
              -
 
 See
accompanying notes to unaudited condensed consolidated financial
statements
  -
5 -
   PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
 (unaudited)
 
 Common stockShares
              
              
              Par
      Value
              
              
              Additional
                Paid-in
      Capital
              
              
              Deferred
      Compensation
              
              
              Accumulated
                deficit
              
              
              Accumulated
      Other Comprehensive Loss
              
              
              TotalBalances
      at December 31, 2007
              
              
              38,532,579
              
              
              
              38,533
              
              
              
              54,081,832
              
              
              
              374,571
              
              
              
              (50,741,886
              )
              
              
              (3,057,297
              )
              
              
              695,751Common
      stock issued for cash
              
              
              5,608,696
              
              
              
              5,608
              
              
              
              5,994,392
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,000,000Capital
      contributed to support operations
              
              
              
              
              
              
              
              
              
              
              50,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              50,000Offering
      costs
              
              
              
              
              
              
              
              
              
              
              (923,000
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (923,000
              )Stock
      options issued pursuant to Employee Compensation Plan
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              106,679
              
              
              
              
              
              
              
              
              
              
              
              106,679Discount
      on debt
              
              
              
              
              
              
              
              
              
              $
              490,000
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              490,000Comprehensive
      income:Currency
      translation adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              58,217
              
              
              
              58,217Net
      profit
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1,040,805
              
              
              
              
              
              
              
              1,040,805Total
      comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,099,022Balances
      at June 30, 2008
              
              
              44,141,275
              
              
              $
              44,141
              
              
              $
              59,693,224
              
              
              $
              481,250
              
              
              $
              (49,701,081
              )
              
              $
              (2,999,080
              )
              
              $
              7,518,454
 
 See
accompanying notes to unaudited condensed consolidated financial
statements
  -
6 -







PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)








NOTE
A – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





Basis of
presentation


The
accompanying condensed consolidated balance sheet as of December 31, 2007 has
been derived from audited financial statements and the accompanying unaudited
condensed consolidated financial statements for the three and six months ended
June 30, 2008 and 2007 have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for
interim financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X.  They do not include all of the information and
footnotes for complete consolidated financial statements as required by
GAAP.  In management's opinion, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included.  These unaudited condensed consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto contained in the Company’s annual report on Form 10-KSBfor the
year ended December 31, 2007.





The
results of operations for the six months ended June 30, 2008 and 2007 presented
are not necessarily indicative of the results to be expected for the
year.





There is
no provision for dividends for the quarter to which this quarterly report
relates.





Description of
business


Playlogic
Entertainment, Inc. (“Playlogic,” the “Company” or “we”) develops and publishes
interactive software games designed for video game consoles, handheld platforms
and personal computers. We currently offer our products primarily in versions
that operate on the Sony PlayStation 2 (“PS2”), Sony PlayStation 3 (“PS3”),
Nintendo Wii (“Wii”), and Microsoft Xbox 360 (“Xbox360”) console systems,
Nintendo Game Boy Advance (“GBA”), Sony PlayStation Portable (“PSP”), and
Nintendo Dual Screen (“NDS”) hand-held devices, and the personal computer
(“PC”).





We
develop and publish action/adventure, racing, simulation, first-person action,
and other software games for casual players, game enthusiasts, children, adults,
and mass-market consumers.   Our principal sources of revenue are
derived from publishing operations.  Publishing revenues are derived
from the sale of internally developed software titles or software titles
developed by third parties.  Our publishing business involves the
development, marketing, and sale of products directly through distributors or
through licensing arrangements, under which we receive royalties.





We sell
our products worldwide.





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 consolidated financial
statements which present fairly the consolidated financial condition, results of
operations and cash flows of the Company for the respective periods being
presented





Principles of
consolidation


The
consolidated  financial statements include the consolidated financial
statements of Playlogic Entertainment, Inc. a Delaware corporation, Playlogic
International N.V. (a corporation domiciled in The Netherlands) and its
wholly-owned subsidiary Playlogic Game Factory B.V. (a corporation domiciled in
The Netherlands).  All inter-company accounts and transactions have
been eliminated in consolidation.





For
reporting purposes, the Company operated in only one industry for all periods
presented in the accompanying consolidated financial statements and makes all
operating decisions and allocates resources based on the best benefit to the
Company as a whole.








-
7 -







PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)




Reclassifications


Certain
prior year amounts have been reclassified to conform to current year
presentation.





Currency
translation


The
accompanying unaudited condensed consolidated financial statements are reported
in U.S. Dollars.  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.





The Euro
is the functional currency of our operating subsidiaries domiciled in The
Netherlands. We translate Euro into US Dollars, in accordance with the following
table:





Financial
      statement element
            
            Applicable
      rateAssets
            
            Balance
      sheet date *Liabilities
            
            Balance
      sheet date *Equity
            
            HistoricalRevenues
            
            Annual
      average**Expenses
            
            Annual
      average**Gains
            
            Annual
      average**Losses
            
            Annual
      average**


____________




*$1.5780
at June 30, 2008


$1.4735 at December 31, 2007




**
Average for the 6 months ended June 30, 2008 $1.5346


Average for the 6 months ended June 30, 2007 $1.3299




Earnings/(Loss) Per
Share.


Basic
earnings/(loss) per common share is computed by dividing net income(loss) by the
weighted-average number of shares of common stock outstanding for the period.
Basic earnings per share excludes the impact of unvested shares of restricted
stock issued under the Company’s incentive stock compensation
plan.  Diluted earnings per share reflects the potential impact of
common stock options and unvested shares of restricted stock issued under the
Company’s incentive stock compensation plan, and outstanding common stock
purchase warrants. Diluted and basic earnings per share for the three and six
month periods ended June 30, 2008 and 2007 are the same because the impact of
shares issuable under the incentive stock compensation plan and common stock
purchase warrants is anti-dilutive after applying the treasury stock method, as
is required by SFAS 128 Earnings per Share.





Recently Issued Accounting
Pronouncements





In 2008,
the Securities and Exchange Commission (the “SEC”) adopted rule amendments that
replace the category of “Small Business Issuers” with a broader category of
“Smaller Reporting Companies.” Under these rules, a “Smaller Reporting Company”
is a company with a public float less than $75,000,000 (measured at end of Q2).
Companies that meet this definition are able to elect “scaled disclosure
standards” on an item-by-item or “a-la-carte” basis. With this change, the SEC
has streamlined and simplified reporting for many companies, and has not added
any significant disclosure requirements.








-
8 -





PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)








In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”, or
SFAS 159.  SFAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value.  It is
expected to expand the use of fair value measurements which is consistent with
the Financial Accounting Standards Board’s long-term measurement objectives for
accounting for financial instruments.  SFAS 159 is effective for our
first fiscal year that begins after November 15, 2007, which is our fiscal year
2009 that begins in January 2008.  The Company is currently evaluating
the impact of this statement to its financial position and results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), ‘’Business
Combinations’’, or SFAS No. 141R.  SFAS No. 141R will change the
accounting for business combinations.  Under SFAS No. 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions.  SFAS No. 141R will change the accounting
treatment and disclosure for certain specific items in a business
combination.  SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  Accordingly, any business combinations we engage in will be
recorded and disclosed following existing GAAP until January 1,
2009.  We expect SFAS No. 141R will have an impact on accounting for
business combinations once adopted but the effect is dependent upon acquisitions
at that time.  We are still assessing the impact of this
pronouncement.




In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160"
("SFAS No. 160"). SFAS No. 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company believes that SFAS 160
should not have a material impact on the consolidated financial position or
results of operations.




In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of this
statement is not expected to have a material effect on the Company's future
financial position or results of operations.




Effective
January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements ,
which defines fair value, establishes a framework for measuring fair value, and
requires certain disclosures about fair value measurements. Fair value is the
price that we would receive to sell an asset or pay to transfer a liability in
an orderly transaction between market participants at the measurement date (exit
price).




NOTE
B - SOFTWARE DEVELOPMENT COSTS




The
following table provides the details of software development costs as of June
30, 2008 and for the year ended December 31, 2007:




June
      30, 2008 unaudited
            
            
            December
      31, 2007 (derived from audited statements)Beginning
      balance
            
            $
            7,285,353
            
            
            $
            4,463,430Additions
            
            
            4,590,128
            
            
            
            4,593,036Amortization
            
            
            (1,643,722
            )
            
            
            (2,386,223
            )Write
      down
            
            
            0
            
            
            
            (68,566
            )Foreign
      exchange
            
            
            718,350
            
            
            
            683,676Ending
      balance
            
            
            10,950,109
            
            
            
            7,285,353Less: current portion
            
            
            (8,611,455
            )
            
            
            (6,244,843
            )Non-current
      portion
            
            $
            2,338,654
            
            
            $
            1,040,510




The
amount of software development costs resulting from advance payments and
guarantees to third-party developers was approximately $8.7 million at June 30,
2008. In addition, software development costs at June 30, 2008 included an
amount of $2,877,000 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 2009 and further.





-
9 -








PLAYLOGIC ENTERTAINMENT, INC.
AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)







NOTE C
– SHAREHOLDER’S EQUITY TRANSACTIONS





Common
stock




On June
2008, the Company sold 2,608,696 shares of its common stock to an accredited
investor based in the Netherlands at $ 1.15 per share or gross proceeds of
$3,000,000, pursuant to the terms of a subscription agreement dated June 27,
2008.  The Company will pay a placement fee of 7% or $210,000, which
has been recorded as a reduction of the gross proceeds.  Concurrent
with this sale, the Company issued warrants to purchase 500,000 shares of the
Company’s common stock at an exercise price of $2.00 per share. The warrants may
be exercised starting June 28, 2008 and expire on June 27, 2013.





On March
2008, the Company sold 3,000,000 shares of its common stock to an accredited
investor based in the Netherlands at $ 1.00 per share or gross proceeds of
$3,000,000, pursuant to the terms of a subscription agreement dated March 27,
2008. The Company has paid a total of $260,000 placement fee, which has been
recorded as a reduction of the gross proceeds.Concurrent with this sale,
the Company issued warrants to purchase 1,000,000 shares of the Company’s common
stock at an exercise price of $2.00 per share. The warrants may be exercised
starting March 28, 2008 and expire on March 27, 2013.





Stock option
plan





On June
4, 2008, the Board of Directors has agreed to grant 1,140,000 options to key
employees. This grant is in accordance with the in 2006 approved Employee Stock
Option Plan. The option have an exercise price of $2.00 per share. These options
vest ratably over three years and will expire in 4 years.  The fair
value of the options totaled $164,160 or $0.144 per share, of which $4,000 was
recorded during the six months ended June 30, 2008.





The fair
value of options granted was estimated at the grant date using the Black-Scholes
option-pricing model.  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.  The following table summarizes the
assumptions and variables used to compute the weighted average fair value of
stock option grants:





Risk-free
      interest rate
            4.5%Dividend
      yield
            0%Volatility
      factor
            38.56%Weighted-average
      expected life
            4
      Years








NOTE
D – LOANS FROM SHAREHOLDERS





On May
19, 2008, the Company entered into a bridge loan agreement with a shareholder
based in the Netherlands, pursuant to which the Company borrowed a principal
amount of € 700,000 (or $ 1,105,000). The loan bears interest at a rate of 1%
per month for the first 2 months followed by a monthly interest of 1.5%.
Interest will be paid on a monthly basis, the principle amount will be repaid
before December 31, 2008.





On April
25, 2008, the Company entered into a bridge loan agreement with a shareholder
based in the Netherlands, pursuant to which the Company borrowed a principal
amount of € 1,300,000 (or $ 2,051,000).  The bridge loan has been
repaid by the Company on July 3, 2008.





On March
27, 2008, the Company has entered into a long term loan agreement with two
shareholders based in the Netherlands, pursuant to which the Company borrowed
the principal amount of $4,000,000. The loan bears compound interest at a rate
of 7% per annum and has a 2.5 year term. The interest will be paid on a monthly
basis and repayment of the principal will be done in 8 quarterly installments,
starting in the fourth quarter of 2008. Under this loan agreement, the Company
pledged as a collateral all Intellectual Property (IP) owned by the Company. The
Company has paid a placement fee of 1% on this loan ($40,000).





-
10 -





PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)








Concurrent
with this loan agreement of March 27, 2008, the Company issued to these
shareholders warrants to purchase 1,286,000 shares of the Company’s common stock
at an exercise price of $1.20 per share. The warrants may be exercised starting
March 28, 2008 and expire on March 27, 2013. The warrants will be exercised
cashless and have a mandatory call clause when the stock price is
$4.00.





The
warrants have been valued based on the Black & Scholes model. In accordance
with APB 14, we have recognized a discount on the long term debt amounting to
$490,000 which will be amortized over the term of the loan.  During
the six months ended June 30, 2008, $49,000 was amortized as interest expense in
the accompanying unaudited condensed consolidated financial
statements.





On
February 29, 2008, entered into a bridge loan agreement with a shareholder based
in the Netherlands, pursuant to which the Company borrowed a principal amount of
€1,250,000 (or approximately $1,937,000).  The bridge loan has been
repaid by the Company on April 3, 2008








NOTE E
- COMMITMENTS AND CONTINGENCIES




Litigation




On
November 27, 2007, the District Court of Amsterdam found for the plaintiff
(Playlogic) in the case of Playlogic Entertainment, Inc. vs.
WorldForge/VisionVale Ltd.




The
provisional judge of the District Court of Amsterdam concludes that all the
copyrights to the game Ancient Wars: Sparta always belonged to Playlogic
pursuant to the agreement with WorldForge / Visionvale and Burut. The judge
ruled in Playlogic’s favor on all counts and WorldForge / Visionvale and Burut
have to pay a penalty of  € 10,000 ($15,815) each time they state the
contrary or refrain from publishing rectifications of former wrong
statements.





Moreover
the Company is involved in a few 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 consolidated financial position or results of operations .





Office
leases




The
Company leased it’s executive offices located at Concertgebouwplein 13 in
Amsterdam from Mr. D. Valerio. This lease agreement expired on June 30,
2008. At the end of the reporting period the Company does not have any further
obligations. The Company has moved their office in May 2008 to the World Trade
Center (WTC) in Amsterdam, the Netherlands.





The
Company has entered into a lease agreement with the World Trade Center in
Amsterdam for a period of 5 years ending July 31, 2013. The lease requires
annual payments of approximately $460,000 (€ 291,500) for the offices and
$32,000 (€20,600) for parking spaces at the building, all payable in quarterly
installments. The offices total approximately 8,000 square feet (or 900 square
meter). This lease agreement contains an extension option, which if exercised by
the Company, will extend the expiration date to July 31, 2018.The Company has
negotiated a rent-free period with the WTC for the period up to December 31,
2008. First payments will start January 2009.  The Company recognized
$68,000 in rent expense  from this lease agreement during the six
months ended June 30, 2008.





-
11 -








PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)







Our fully
owned 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 $470,000 (€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 $470,000 (€300,000) per year, payable
in quarterly installments.





Future
minimum non-cancelable lease payments on the above leases for office space are
as follows:





June
      30,2008
            
            $
            235,0002009
            
            
            930,0002010
            
            
            930,0002011
            
            
            930,0002012
            
            
            930,000Thereafter
            
            
            700,000Total
            
            $
            4,655,000




Transportation
leases





The
Company leases 14 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. The leases require
monthly aggregate payments of approximately $20,000.





Future
minimum non-cancelable lease payments on the above transportation leases are as
follows:




December
      31,2008
            
            $
            61,0002009
            
            
            37,4002010
            
            
            -2011
            
            
            -2012
            
            
            -Thereafter
            
            
            -Total
            
            $
            98,400




Software development
contracts





The
Company has entered into eight (8) 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 $2.0 million through completion.







NOTE F
—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 (or $25,000 per quarter) is imputed as the value of his
services and recorded as additional contributed capital to the
Company.




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
approximately $ 50,000 which is paid in 4 quarterly
installments.  There are $60,328 outstanding receivables due to our
officer as of June 30, 2008.





-
12 -







PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES


CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)








NOTE G
- 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:







For
      the 6 months ended June 30,2008
            
            
            2007Europe and United
      KingdomCustomer
      A *
            
            
            0
            
            
            
            0.0
            %
            
            
            2,491,740
            
            
            
            54.4
            %Customer
      B
            
            
            2,117,511
            
            
            
            25.4
            %
            
            
            957,507
            
            
            
            20.9
            %Customer
      C
            
            
            599,642
            
            
            
            7.2
            %
            
            
            531,948
            
            
            
            11.6
            %Customer
      D
            
            
            1,354,465
            
            
            
            16.2
            %
            
            
            0
            
            
            
            0.0
            %Customer
      E
            
            
            1,416,842
            
            
            
            17.0
            %
            
            
            0
            
            
            
            0.0
            %Customer
      F
            
            
            440,823
            
            
            
            5.3
            %
            
            
            0
            
            
            
            0.0
            %Others
            
            
            1,673,494
            
            
            
            20.0
            %
            
            
            602,833
            
            
            
            13.2
            %7,602,777
            
            
            
            91.1
            %
            
            
            4,584,028
            
            
            
            100.0
            %AsiaOthers
            
            
            32,970
            
            
            
            0.4
            %
            
            
            0
            
            
            
            0.0
            %32,970
            
            
            
            0.4
            %
            
            
            0
            
            
            
            0.0
            %United States &
      CanadaCustomer
      A *
            
            
            0
            
            
            
            0.0
            %
            
            
            0
            
            
            
            0.0
            %Customer
      E
            
            
            714,365
            
            
            
            8.6
            %
            
            
            0
            
            
            
            0.0
            %others
            
            
            0
            
            
            
            0.0
            %
            
            
            0
            
            
            
            0.0
            %714,365
            
            
            
            8.6
            %
            
            
            0
            
            
            
            0.0
            %Total
            
            
            8,350,112
            
            
            
            100.0
            %
            
            
            4,584,028
            
            
            
            100.0
            %





* The
Company entered into a license contract with Customer A, for global distribution
of certain games. As the Company is located in Europe, the revenue has been
allocated to Europe and UK. Part of this revenue should however be read as US
market revenue.







NOTE
H – SUBSEQUENT EVENTS





On July
3, 2008,, the Company has repaid related party loans, amounting to €1.3 million
(or $2.0 million) using the available cash on the balance sheet.







-
13 -







Item
2. Management’s Discussion and Analyses of Financial Condition and Results of
Operation





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, production, localization, QA and
testing, PR and marketing, manufacturing and sales of our products. Playlogic’s
products are sold to distributors who supply retailers worldwide. Furthermore,
we sell directly to consumers through online distribution channels with various
partners.





Development
studios throughout the world help create the games which are published by
Playlogic. One of these studios is our fully owned subsidiary, Playlogic Game
Factory B.V., located in The Netherlands. Other independent studios in various
countries develop our games under Software Development Agreements (SDA). These
development contracts generally provide that we pay an advance on future
royalties earned upon achievement of milestones successfully completed and
delivered. In addition, we license the rights of existing Playlogic IP to other
development studios who then adapt these products to the specifications and
abilities of other (console) platforms.





Studios
and developers contact us daily requesting financing and publishing of their
games or concepts. We evaluate each of these offers based on several factors,
including sales potential of concept or product, technology & tools used,
track record and project management of the studio.





We select
which games we develop based on our analysis of consumer buying 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
global or local distributors. When appropriate we have the ability to release
our titles simultaneously across a range of hardware formats to maximize overall
sales for a particular product with a minimum augmentation in development time
and resources.





We
believe that greater online functionalities, applications and  digital
distribution on the new platforms will improve revenue margins and encourage
further industry growth. 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.





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 combined US and European software markets will grow at a 13.5% CAGR
over the 2006-2008 period. (WedBush Morgan).





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.





With 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





The
fastest-growing segment during the next five years, global video game spending
will increase to $55.6 billion in 2008, at a 20.1 percent CAGR.
(PricewaterhouseCoopers). By 2008, online and wireless will be major
distribution channels, spurred by broadband penetration and new mobile phones
that will be used as much for entertainment as for communication. The PC game
market will shrink, and console game spending will grow as next generation
consoles are introduced.





-
14 -






The video
game market was in a transition year in 2005, awaiting the introduction of the
next-generation consoles. Growth slumped to 3.3 percent, the slowest increase
during the past five years. The next generation of consoles and recently
introduced handheld games will spur the console/handheld market in the U.S.,
EMEA, Asia Pacific, and Canada, while PC games will continue to decline or see
little growth in the U.S. and EMEA. The introduction of new wireless phones
capable of downloading games will boost the wireless game market in the U.S.,
EMEA, Asia Pacific, and Canada. Overall, the video game market will expand at an
11.4 percent CAGR to $46 billion in 2010 from $27 billion in 2005.





Console
Installed Base





Since the
introduction of PlayStation 2 in 2000, the console has sold over 140 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. Playlogic will continue
development of PlayStation2 titles, because of their large installed base of
over 120 million units.





Microsoft’s
Xbox360 has sold 11.6 million units so far. As of April 1, 2007 , Sony has
shipped approximately 5.5 million Playstation 3 units
worldwide.   Nintendo’s next generation console, called ‘Wii’ has
sold more than 9.27 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 47.3 million units by June 30, 2007, and PSP reached the sales volume of
25.4 million units sold as of March 31 , 2007.





PC
Games





Playlogic
will continue to also release PC games since, in comparison to next generation
consoles games, these products are less expensive to develop, address a very
wide target audience and contribute significant better margins. Furthermore
Playlogic will focus on new successful platforms like the Nintendo DS and
Nintendo Wii.





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.





Females
are being significantly attracted to playing certain online multi-user video
games that offer a more communal experience, and a small hardcore group of young
females are playing aggressive games that are usually thought of as being
"traditionally male" games. The most loyal fan-base is reported to be for large
role-playing games     (Nielsen Active Gamer
Study).





According
to the ESRB almost 41% of video and PC gamers are women.





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.







-
15 -











(Expected)
      ReleaseGame
            
            Studio
            
            Platform
            
            date
      to retailCompleted
      GamesAlpha
      Black Zero
            
            Khaeon
      (NL)
            
            PC
            
            ReleasedAirborne
      Troops
            
            Widescreen
      Games (F)
            
            PS2,
      PC
            
            ReleasedCyclone
      Circus
            
            Playlogic
      Game Factory (NL)
            
            PS2
            
            ReleasedXyanide
            
            Overloaded
      (NL)
            
            Mobile
      Phones
            
            ReleasedWorld
      Racing 2
            
            Synetic
      (G)
            
            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
            
            Released
      (1)Age
      of Pirates: Caribbean Tales
            
            Akella
      (Russia)
            
            PC
            
            Released
      Q3 2006Infernal
            
            Metropolis
      (Poland)
            
            PC
            
            Released
      Q1 2007Ancient
      Wars: Sparta
            
            World
      Forge (Russia)
            
            PC
            
            Released
      Q2 2007Xyanide
      Resurrection
            
            Playlogic
      Game Factory (NL)
            
            PSP
            
            Released
      Q3 2007Evil
      Days Of Luckless John
            
            3A
      Entertainment (Great Britain)
            
            PC
            
            Released
      Q3 2007Xyanide:
      Resurrection
            
            Playlogic
      Game Factory (NL)
            
            PS2
            
            Released
      Q3 2007Obscure
      2
            
            Hydravision
      (F)
            
            PC
            
            Released
      Q3 2007Obscure
      2
            
            Hydravision
      (F)
            
            PS2
            
            Released
      Q3 2007Obscure
      2
            
            Hydravision
      (F)
            
            Wii
            
            Released
      Q1 2008Xyanide:
      Resurrection
            
            Playlogic
      Game Factory (NL)
            
            PC
            
            Released
      Q1 2008Dragon
      Hunters
            
            Engine
      software (NL)
            
            DS
            
            Released
      Q1 2008Aggression
      1914
            
            Buka
      (Russia)
            
            PC
            
            Released
      Q1 2008Dimensity
            
            Dagger
      Studio (Bulgaria)
            
            PC
            
            Released
      Q2 2008Red
      Bull Break Dancing
            
            Smack
      Down Productions (F)
            
            DS
            
            Released
      Q2 2008Simon
      the Sorcerer 4
            
            RTL
      /Silverstyle Studio (GER)
            
            PC
            
            Released
      Q2 2008Worldshift
            
            RTL
      Games (Germany)
            
            PC
            
            Released
      Q2 2008Stateshift
            
            Engine
      Software (NL)
            
            PC
            
            Released
      Q2 2008Under
      developmentInfernal
      2
            
            Metropolis
      (Poland)
            
            TBC
            
            Q4
      2008The
      Strategist
            
            Humagade/Canada
            
            DS
            
            Q3
      2008Sudoku
      Ball Detective
            
            White
      Bear
            
            Wii/PC/DS
            
            Q1
      2009Age
      of Pirates: Captain Blood*
            
            Akella
      (Russia)
            
            PC
            
            Q3
      2008Age
      of Pirates: Captain Blood*
            
            Akella
      (Russia)
            
            Xbox360
            
            Q3
      2008Undisclosed
      Title
            
            Playlogic
      Game Factory (NL)
            
            PS3,
      Xbox360, PC
            
            Q1
      2009Obscure
      2
            
            TBA
            
            DS
            
            Q2
      2009Building
      & Co
            
            Electrogames
      (F)
            
            PC
            
            Q4
      2008Vertigo
            
            Icon
      Games Entertainment Ltd (GB)
            
            PC,
      Wii
            
            Q4
      2008TCFU
            
            Engine
      Software (NL)
            
            DS
            
            Q1
      2009TCFU
            
            Revisotronic
            
            PC,
      PS2, Wii,
            
            Q1
      2009Undisclosed
      Title
            
            TBA
            
            Wii,
      DS
            
            Q3
      2009Undisclosed
      Title
            
            TBA
            
            PS3,
      Xbox360, PC
            
            Q4
      2009Undisclosed
      Title
            
            TBA
            
            PS3,
      Xbox360, PC
            
            Q1
      2010


_______________





1       Released
in the US only


*       working
title





The games
industry is currently in a transition period. The current and Next Gen consoles
(Xbox360, PlayStation 3, Wii) and DS platforms have broadened the market,
appealing to an even larger mass consumer audience than ever before, providing
increased publishing opportunities. The investments in next generation platforms
are however larger than for the previous generation platforms. Playlogic has
created a healthy balance between games available for the current and the next
generation platforms. To spread risk and broaden Playlogic’s portfolio, PC games
and handheld titles are a substantial part of the line-up for the coming
year.







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16 -







Material
agreements





During
the six months ended June 30, 2008, the Company entered into a number of
publishing and distribution agreements.





Critical
Accounting Policies and Estimates




Our most
critical accounting policies, which are those that require significant judgment,
include: capitalization and recognition of software development costs and
licenses; share-based compensation and revenue recognition. In-depth
descriptions of these can be found in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2007 (the “2007 Form 10-K”). There have been no
material changes in our existing accounting policies from the disclosures
included in our 2007 Form 10-K.





Recently
Issued Accounting Pronouncements





In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”, or
SFAS 159.  SFAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value.  It is
expected to expand the use of fair value measurements which is consistent with
the Financial Accounting Standards Board’s long-term measurement objectives for
accounting for financial instruments.  SFAS 159 is effective for our
first fiscal year that begins after November 15, 2007, which is our fiscal year
2009 that begins in January 2008.  The Company is currently evaluating
the impact of this statement to its financial position and results of
operations.





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), ‘’Business
Combinations’’, or SFAS No. 141R.  SFAS No. 141R will change the
accounting for business combinations.  Under SFAS No. 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions.  SFAS No. 141R will change the accounting
treatment and disclosure for certain specific items in a business
combination.  SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  Accordingly, any business combinations we engage in will be
recorded and disclosed following existing GAAP until January 1,
2009.  We expect SFAS No. 141R will have an impact on accounting for
business combinations once adopted but the effect is dependent upon acquisitions
at that time.  We are still assessing the impact of this
pronouncement.







In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160"
("SFAS No. 160"). SFAS No. 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company believes that SFAS 160
should not have a material impact on the consolidated financial position or
results of operations.




In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of this
statement is not expected to have a material effect on the Company's future
financial position or results of operations.








-
17 -








Results
of Operations




Six
Months Ended June 30, 2008 Compared to six months ended June 20, 2007, and the
three months ended June 30, 2008 compared to the three months ended June 30,
2007.




Net sales. Net sales for the
six months ended June 30, 2008 were $8,350,112 as compared to $4,584,028 for the
six months ended June 30, 2007. This increase of $3,766,084 or 82% in revenue is
primarily related to the release a number of new titles and titles on next
generation platforms such as the Nintendo Wii. For the three months ended June
30 the net revenue was $4,318,432 in 2008 compared to $1,101,432 in the same
period 2007. This increase of $3,217,000 or 292% is mainly due to the fact that
we released 5 new titles this quarter, compared to only one title in
2007.




Gross Profit. Gross profit
totaled $4,377,080 for the six months ended June 30, 2008. For the six months
ended June 30, 2008, gross profit totaled $2,731,730. This increase in gross
margin is due to the increase portfolio as well as a different split between
license revenue and distribution revenue. Gross Profit as a percentage of sales
can vary significantly from period to period due to the sales mix and the type
of sales deals included. For the three months ended June 30 the gross
profit was $2,161,653  in 2008 compared to $335,535  in the
same period 2007. The increase of $1,826,118 or 544% is also mainly due to the
fact that we released 5 new titles this quarter, compared to only one title in
2007.





Selling, Marketing, General and
Administrative Expenses. Selling, marketing, general and administrative
expenses totaled $2,846,904, for the six months ended June 30, 2008. For the six
months ended June 30, 2007, selling, general and administrative expenses totaled
$2,919,257. This represents a decrease of  $72,353 or 2%. This
decrease in selling, general and administrative expenses is due to managements’
focus on cost control. In the three months ended June 30, 2008 the Selling,
Marketing, General & Administrative expenses amounted to $1,515,898 compared
to $1,318,453 in 2007.  This represents an increase of $197,445
compared to prior year. This is mainly due to the move of the Company
headquarters in May 2008, general and administrative expenses are higher
compared to the first quarter. These expenses amounting to approximately
$175,000 should be seen as non-recurring expenses.




Research and Development.
Research and development expenses totaled $175,442 for the six months ended June
30, 2008. For the six months ended June 30, 2007, research and development
totaled $366,755. This represents a decrease of $191,313 or 52%. This decrease
is due to costs in relation to 3 rd party
development activities being classified as Cost of Sales. Furthermore, our
in-house studio is focusing on the development of a game to be released in Q1
2009. For the three months ended June 30, 2008, the Research and Development
expenses amounted to $111,550 compared to $344,036 in the same period 2007. This
decrease is also due to the fact that one in-house studio is focusing on the
development of a game to be released in Q1 2009. This game has past the ‘working
model’ stage.




Depreciation. Depreciation
expenses totaled $156,405 for the six months ended June 30, 2008. For the six
months ended June 30, 2007, the depreciation expense totaled $152,624. The
slight increase is due to new investments made due to the move of the Company’s
headquarters. Mainly investments in leasehold improvement and furniture have
been made. For the three months ended June 30, 2008 the depreciation amounted
$79,585 compared to $70,934 in the same period 2007. This slight increase is due
to the office move. We have invested over $700,000 in new furniture, leasehold
improvement and equipment. Depreciation has started mid May, which caused higher
expenses for the quarter.





Gain on debt restructuring.
Gain on debt restructuring totaled $0 for the six months ended June 30, 2008.
For the six months ended June 30, 2007, gain on debt restructuring totaled
$750,203. The gains relate to debt extinguishments with various creditors
arranged during the first three months of last year. For 2008 we have not
restructured any debt. The same applies for the three months period ended June
30, 2008 ($0) compared to the same period in 2007 ($362,795).





Interest Expense. Interest
expense totaled $166,718 for the six months ended June 30, 2008. For the six
months ended June 30, 2007, interest expense totaled $508,124. This represents a
decrease of $341,406, or 67%. This decrease in interest expense is primarily due
to the decrease of interest bearing short term loans during the year. During the
year 2007 most loans were repaid or converted into equity. For the three months
ended June 30, 2008 the interest expense amounted to $108,803 compared to
$188,678 in the same period 2007. This decrease is caused by less interest
bearing short term loans. The long term loan bears an interest of 7%, where we
had short term loans last year that had an interest of 10-15% per
year.





Net Result. Our net profit
was $1,040,805 for the six months ended June 30, 2008. For the six months ended
June 30, 2007, the net loss totaled $464,827. The increase in the net result is
due to the higher sales in the first six months of 2008 as disclosed above.
Furthermore, the continued focus on operational expenses has led to lower costs.
For the three months ended June 30, 2007 the net profit amounted to $344,057
compared to a loss of $1,223,771 in the same period 2007. The increase in the
result is due to the increase in revenue as well as a continued focus on
operating expenses.







-
18 -





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 $59,218 for the six months ended June 30,
2008 and $(104,667) for the six months ended June 30, 2007. For the three months
ended June 30, 2008 the comprehensive income amounted to $162,866 compared to
$(104,667) in the same period 2007.




Cash flow from operations. We
showed a net profit of $1,040,805 for the six months ended June 30, 2008,
however the cash flow from operations shows $6,613,416 negative. This is due to
the fact that we released 4 new titles in the second quarter,  three
of which were in June,  which causes some outstanding receivables in
the balance sheet. Sales resulting in revenue, but not yet in cash. Furthermore,
we have reclassified our cash flow from investments in game development from
‘cash flow from investing activities’ to ‘cash flow from operating activities.
The amount invested in the development of games amounts to $4.5 million for the
six months ended June 30, 2008







Liquidity and
Capital Resources




As
of June 30, 2008 our cash balance was $ 2,973,327.




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 June
30, 2008 was $3,572,556.




Fluctuations in Quarterly Operating
Results and Seasonality




We have
experienced fluctuations in quarterly operating results as a result of the
timing of the introduction of new titles; variations in sales of titles
developed for particular platforms; market acceptance of our titles; development
and promotional expenses relating to the introduction of new titles; sequels or
enhancements of existing titles; projected and actual changes in platforms; the
timing and success of title introductions by our competitors; product returns;
changes in pricing policies by us and our competitors; the accuracy of
retailers’ forecasts of consumer demand; the size and timing of acquisitions;
the timing of orders from major customers; and order cancellations and delays in
product shipment. Quarterly comparisons of operating results are not necessarily
indicative of future operating results.






Item 3. Quantitative and Qualitative Disclosures about
Market Risk




We
transact business in foreign currencies and are exposed to risks resulting from
fluctuations in foreign currency exchange rates. Accounts relating to foreign
operations are translated into United States dollars using prevailing exchange
rates at the relevant quarter end. Translation adjustments are included as a
separate component of stockholders’ equity. For the six months ended June 30,
2008, our accumulated foreign currency translation adjustment loss was
approximately $3.0 million.




Item 4.
Controls and Procedures




Evaluation
of Disclosure Controls and Procedures




Based on
an evaluation under the supervision and with the participation of management,
our principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures as defined in rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange
Act”) were effective as of September 30, 2007 to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission rules and forms
and (ii) accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.




Changes
in Internal Control over Financial Reporting




There
were no changes in our internal control over financial reporting during the
first quarter of 2008, which were identified in connection with management’s
evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under
the Exchange Act, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.





-
19 -





PART
II — OTHER INFORMATION




Item
1. Legal Proceedings





In June
2007, Playlogic Entertainment Inc. was sued in class action before the US
district court in Manhattan, with respect to alleged damage as a result of copy
protection software included in Age of Pirates – Caribbean Tales. We do not
foresee any liability in this matter, as plaintiffs have clearly sued the wrong
company and the wrong entity. Playlogic acts only as a publisher of the game and
therefore is not liable for possible faults in production or distribution.
Moreover, as far as any claim could be brought against Playlogic, it would be
the Dutch subsidiary Playlogic International NV, with its statutory seat in
Amsterdam, The Netherlands, that would have to be sued. As a consequence, the
pending case should fail on both grounds and any new action against the Dutch
subsidiary would have to be brought before the Dutch courts that are even more
likely than the US courts to reject class actions like this.




Except as
referred to above there were no new material legal proceedings or material
developments to the pending legal proceedings that have been previously
reported in Part I, Item 3 of our 2006 Form 10-K.  A full
discussion of our pending legal proceedings is also contained in Part I,
Item 1, “Notes to Unaudited Condensed Consolidated Financial Statements” of
this Report.







Item
1A. Risk Factors




There
have been no material changes to the Risk Factors disclosed in Item 1A of
our Annual Report on Form 10-K for the year ended December 31,
2007.







Item
2 - Changes in Securities.





No
response required.








Item
3 - Defaults Upon Senior Securities.





No
response required.







Item
4 - Submission of Matters to a Vote of Security Holders.





No
response required.








Item
5 - Other Information.





No
response required.






Item
6. Exhibits




Exhibits:31.1
            
            Chief
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Chief
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Chief
      Executive Officer Certification pursuant to 18 U.S.C.
      Section 1350, as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Chief
      Financial Officer Certification pursuant to 18 U.S.C.
      Section 1350, as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.







-
20 -







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.Date:
      August 13, 2008
            By:
            /s/ Willem
      M. SmitWillem
      M. Smit
              Chief
      Executive Officer













-
21 -









Exhibit
Index






Exhibits:31.1
            
            Chief
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Chief
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Chief
      Executive Officer Certification pursuant to 18 U.S.C.
      Section 1350, as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Chief
      Financial Officer Certification pursuant to 18 U.S.C.
      Section 1350, as adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




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