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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB/A
 Amendment No. 1
  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 
incorporation or 
organization)
    
    (I.R.S.
Employer
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




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EXPLANATORY NOTE
 RESTATEMENT OF FINANCIAL STATEMENTS
  Restatements
   Changes Reflected in this Form 10-QSB/A
  Part I Financial InformationItem 1 
    
    Financial StatementsUnaudited Consolidated Financial StatementsNote E Correction of an ErrorNote J Note Payable to BankNote K Loan from StockholdersNote R Subsequent EventsItem 2 
    
    Managements Discussion and Analysis or Plan of Operations RestatementsItem 3 
    
    Controls and ProceduresPart II Other InformationItem 6 
    
    ExhibitsCertifications




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PLAYLOGIC ENTERTAINMENT, INC.
 FORM 10-QSB/A
 CONTENTS
 Page No.PART I  FINANCIAL INFORMATIONItem 1.Financial Statements
    
    
    1Restated Consolidated Balance Sheet at March 31, 2006 (unaudited)
    
    
    1Restated Consolidated Statements of Operations and Comprehensive Income (unaudited) for the three months ended March 31, 2006 and 2005
    
    
    3Restated Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2006 and 2005
    
    
    4Notes to Restated Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis
    
    
    27Item 3.
    
    Controls and Procedures
    
    
    33PART II
    
    OTHER INFORMATIONItem 6
    
    Exhibits
    
    
    34SignaturesExhibitsCertificationsEX-31.1: CERTIFICATIONSEX-31.2: CERTIFICATIONSEX-32.1: CERTIFICATIONSEX-32.2: CERTIFICATIONS




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 RESTATED CONSOLIDATED BALANCE SHEETS
  (Unaudited)
 (RESTATED)March 31,
    
    
    March 31,2006
    
    
    2005ASSETSCurrent AssetsCash on hand and in bank
    
    $
    142,387
    
    
    $
    20,298Accounts receivableTrade, 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 -
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 RESTATED CONSOLIDATED BALANCE SHEETS  CONTINUED
  (Unaudited)
 (RESTATED)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
    
    
    653,508
    
    
    
    9,788,505Total Current Liabilities
    
    
    9,261,414
    
    
    
    14,109,029Long-Term LiabilitiesLong-term debt, net of current maturities
    
    
    254,142
    
    
    
    262,582Total Liabilities
    
    
    9,515,556
    
    
    
    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
    
    
    39,508,371
    
    
    
    20,584,984Currency translation adjustments
    
    
    (1,652,792
    )
    
    
    (2,043,651
    )Accumulated deficit
    
    
    (40,134,721
    )
    
    
    (29,823,200
    )(534,496
    )
    
    
    (11,259,101
    )Stock subscriptions receivable
    
    
    (29,344
    )
    
    
    Total Stockholders Deficit
    
    
    (563,840
    )
    
    
    (11,259,101
    )Total Liabilities and Shareholders Deficit
    
    $
    8,951,716
    
    
    $
    3,112,510
 
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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
 
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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 inAccounts receivable  trade and other
    
    
    (1,248,449
    )
    
    
    (694,906
    )Prepaid expenses and other
    
    
    770
    
    
    
    257,206Increase (Decrease) inDeferred 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
    
    
    $
    
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
 
 NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS
  NOTE A  ORGANIZATION AND DESCRIPTION OF BUSINESS
        NOTE B  PREPARATION OF FINANCIAL STATEMENTS
    
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE B  PREPARATION OF FINANCIAL STATEMENTS  Continued
      NOTE C  GOING CONCERN UNCERTAINTY
     
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE C  GOING CONCERN UNCERTAINTY  Continued
      NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Currency translation
 The Company incurs expenses in both US Dollar and Euro transaction accounts. The Euro is the
functional currency of the Companys operating subsidiaries domiciled in The Netherlands. All
transactions reflected in the accompanying financial statements have been converted into US
Dollar equivalents.For balance sheet purposes, at the end of any accounting cycle, the exchange rate at the balance
sheet is used for all assets and liabilities. The utilized conversion rates are:
 March 31, 2006
    
    $
    1.21020December 30, 2005:
    
    $
    1.18290March 31, 2005
    
    $
    1.29670December 31, 2004:
    
    $
    1.36550
 For revenues, expenses, gains and losses during a respective reporting period, an weighted
average exchange rate for the respective reporting period is used to translate those elements.
The Companys management considers the Euro to be a stable currency. Accordingly, the Company
calculates the weighted average exchange rate using the first day of the period being converted,
the 15th of each respective month and the last day of each respective month in the reporting
period. The exchange rates used for all revenues, expenses, gains and losses during the
year-to-date periods ended, as noted, are:
 March 31, 2006
    
    $
    1.20016December 31, 2005:
    
    $
    1.24658March 31, 2005
    
    $
    1.31927December 31, 2004:
    
    $
    1.24514
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 Cash and cash equivalents
 The Company considers all cash on hand and in banks, certificates of deposit and other
highly-liquid investments with maturities of three months or less, when purchased, to be cash
and cash equivalents.Cash overdrafts may occur from time-to-time depending upon managements cash management
policies.
 Accounts receivable  trade
 The Companys current customers are located principally within Europe; however, the Company
anticipates having customers throughout the world in future periods. The Company typically
makes sales to most of its retailers and some distributors on unsecured credit, with terms that
vary depending upon the customers credit history, solvency, credit limits and sales history.
From time to time, distributors and retailers in the interactive entertainment software industry
have experienced significant fluctuations in their business operations and a number of them have
failed. The insolvency or business failure of any significant Company customer could have a
material negative impact on the Companys business and financial results.Because of the credit risk involved, management has provided an allowance for doubtful accounts
which reflects its opinion of amounts which will eventually become uncollectible. In the event
of complete non-performance, the maximum exposure to the Company is the recorded amount of trade
accounts receivable shown on the balance sheet at the date of non-performance.
 Property and equipment
 Property and equipment is recorded at cost and is depreciated on a straight-line basis, over the
estimated useful lives (generally 3 to 10 years) of the respective asset. Major additions and
betterments are capitalized and depreciated over the estimated useful lives of the related
assets. Maintenance, repairs, and minor improvements are charged to expense as incurred.
 Software development costs
 Capitalized software development costs include payments made to independent software developers
under development agreements, as well as direct costs incurred for internally developed
products. The Company accounts for software development costs in accordance with Statement of
Financial Accounting Standards No. 86  Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed. Software development costs are capitalized once
technological feasibility of a product is established and such costs are determined to be
recoverable. The Company also capitalizes internal software development costs and other content
costs subsequent to establishing technological feasibility of a title. Amortization of such
costs as a component of cost of sales is recorded on a title-by-title basis based on the greater
of the proportion of current year sales to the total of current and estimated future sales for
the title or the straight-line method over the remaining estimated useful life of the title. At
each balance sheet date, the company evaluates the recoverability of capitalized software costs
based on undiscounted future cash flows and charges to operations any amounts that are deemed
unrecoverable.The Companys agreements with third-party developers generally provide it with exclusive
publishing and distribution rights and require it to make advance payments that are recouped
against royalties due to the developer based on the contractual amounts of product sales,
adjusted for certain costs.
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 Prepaid royalties
 The Company capitalizes external software development costs (prepaid royalties) and other
content costs subsequent to establishing technological feasibility of a title. Advance payments
are amortized as royalties in cost of sales on a title-by-title basis based on the greater of
the proportion of current year sales to the total of current and estimated future sales for that
title or the contractual royalty rate based on actual net product sales as defined in the
respective agreements. At each balance sheet date, the company evaluates the recoverability of
advanced development payments and unrecognized minimum commitments not yet paid to determine the
amounts unlikely to be realized through product sales. Advance payments are charged to cost of
sales in the amount that management determines is unrecoverable in the period in which such
determination is made or if management determines that it will cancel a development project.
 Organization and reorganization costs
 The Company has adopted the provisions of AICPA Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities whereby all organizational and initial costs incurred with the
incorporation and initial capitalization of the Company were charged to operations as incurred.
 Research and development expenses
 Research and development expenses include the direct costs related to software and game
development which are incurred prior to the establishment of technological feasibility of a
specific game title or product. These costs are charged to operations as incurred.
 Advertising expenses
 The Company does not utilize direct solicitation advertising. All other advertising and
marketing expenses are charged to operations as incurred.
 Income Taxes
 The Company utilizes the asset and liability method of accounting for income taxes. At March
31, 2006 and 2005, the deferred tax asset and deferred tax liability accounts, as recorded when
material, are entirely the result of temporary differences. Temporary differences generally
represent differences in the recognition of assets and liabilities for tax and financial
reporting purposes, primarily accumulated depreciation and amortization and the anticipated
utilization of net operating loss carryforwards to offset current taxable income..
 Share-Based Payments
 The Company utilizes the fair-value method of accounting for the payment for goods and/or
services with the issuance of equity shares in lieu of cash.
 Earnings (loss) per share
 Basic earnings (loss) per share is computed by dividing the net income (loss) available to
common shareholders by the weighted-average number of common shares outstanding during the
respective period presented in our accompanying financial statements.Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share
except that the denominator is increased to include the number of common stock equivalents
(primarily outstanding options and warrants).Common stock equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury stock method, at either the beginning
of the respective period presented or the date of issuance, whichever is later, and only if the
common stock equivalents are considered dilutive based upon the Companys net income (loss)
position at the calculation date.
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 Earnings per share
 As of March 31, 2006 and 2005, the Companys outstanding stock options and warrants are
considered anti-dilutive due to the Companys net operating loss position.
 Revenue recognition
 The Company evaluates the recognition of revenue based on the criteria set forth in SOP 97-2,
Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions and U. S. Securities and Exchange
Commission Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements, as revised by SAB 104, Revenue Recognition. The Company evaluates revenue
recognition using the following basic criteria:
 *
    
    Evidence of an arrangement: The Company recognizes revenue when it has evidence of
an agreement with the customer reflecting the terms and conditions to deliver products.*
    
    Delivery: Delivery is considered to occur when the products are shipped and risk of
loss has been transferred to the customer.*
    
    Fixed or determinable fee: If a portion of the arrangement fee is not fixed or
determinable, the Company recognizes that amount as revenue when the amount becomes fixed
or determinable.*
    
    Collection is deemed probable: At the time of the transaction, the Company conducts
a credit review of each customer involved in a significant transaction to determine the
creditworthiness of the customer. Collection is deemed probable if the Company expects
the customer to be able to pay amounts under the arrangement as those amounts become due.
If the Company determines that collection is not probable, it recognizes revenue when
collection becomes probable (generally upon cash collection).
 The Company defers revenues on sales which do not 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.In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets, an amendment of
APB 29, Accounting for Nonmonetary Transactions. This statements amendments are based on the
principle that exchanges of nonmonetary assets should be measured based on the fair value of the
assets exchanged. Further, SFAS 153 eliminates the narrow exception for nonmonetary exchanges
of similar productive assets and replaces it with a broader exception for exchanges of
nonmonetary assets that do not have commercial substance. Provisions of this statement are
effective for fiscal periods beginning after June 15, 2005. The Company does not expect the
adoption of this statement to have a material impact on its financial statements.
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  Continued
 New accounting pronouncements
 In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for Conditional Asset
Retirement Obligations"(FIN 47), which is an interpretation of SFAS 143, Accounting for Asset
Retirement Obligations. FIN 47 clarifies terminology within SFAS 143 and requires an entry to
recognize a liability for the fair value of a conditional asset retirement obligation when
incurred if the liabilitys fair value can be reasonably estimated. FIN 47 is effective for
fiscal years ending after December 15, 2005. The Company does not expect the adoption of this
statement to have a material impact on its financial statements.In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which
will require entities that voluntarily make a change in accounting principle to apply that
change retroactively to prior periods financial statements unless this would be impracticable.
SFAS No. 154 supersedes Accounting Principles Board Opinion No. 20, Accounting Changes (APB
No. 20), which previously required that most voluntary changes in accounting principle be
recognized by including in the current periods net income the cumulative effect of changing to
the new accounting principle. SFAS No. 154 also makes a distinction between retrospective
application of an accounting principle and the restatement of financial statements to reflect
the correction of an error. Another significant change in practice under SFAS No. 154 will be
that if an entity changes its method of depreciation, amortization, or depletion for long-lived,
non-financial assets, the change must be accounted for as a change in accounting principle.
SFAS No. 154 applies to accounting changes and error corrections that are made in fiscal years
beginning after December 15, 2005. The provisions of SFAS No. 154 are not expected to affect
the Companys consolidated financial statements.
 NOTE E  CORRECTION OF AN ERROR
   As originallyreported
    
    Restatement
    
    As RestatedCurrent LiabilitiesDue to Shareholder
    
    $
    48,908
    
    
    $
    605,100
    
    
    $
    653,508Total Current Liabilities
    
    $
    8,656,314
    
    
    $
    605,100
    
    
    $
    9,261,414Total Liabilities
    
    $
    8,910,456
    
    
    $
    605,100
    
    
    $
    9,515,556Stockholders DeficitAdditional paid-in capital
    
    $
    38,361,250
    
    
    $
    1,147,121
    
    
    $
    39,508,371Currency translation adjustments
    
    $
    (1,607,260
    )
    
    $
    (45,532
    )
    
    $
    (1,652,792
    )Accumulated deficit
    
    $
    (38,428,032
    )
    
    $
    (1,706,689
    )
    
    $
    (40,134,721
    )Total Stockholders Deficit
    
    $
    41,260
    
    
    $
    (605,100
    )
    
    $
    (563,840
    )
 
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE F  FAIR VALUE OF FINANCIAL INSTRUMENTS
    NOTE G  CONCENTRATIONS OF CREDIT RISK
   NOTE H  PROPERTY AND EQUIPMENT
  March 31,
    
    
    March 31,2006
    
    
    2005
    
    
    Estimated LifeComputers and office equipment
    
    $
    1,404,534
    
    
    $
    1,390,290
    
    
    3-5 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 I  AMOUNTS DUE FROM RELATED PARTIES
  
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE J  NOTE PAYABLE TO BANK
 
 NOTE K  LOAN FROM STOCKHOLDERS
  NOTE L  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
  Year endingDecember 31,
    
    Amount2006
    
    $
    35,4872007
    
    
    35,4872008
    
    
    35,4872009
    
    
    35,4872010
    
    
    35,4872011-2015
    
    
    106,481Totals
    
    $
    283,896
  
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE M  INCOME TAXES
  Three months
    
    
    Three monthsended
    
    
    endedMarch 31,
    
    
    March 31,2006
    
    
    2005Domestic:Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    
    
    
    
    Foreign:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    257,514
    
    
    
    State:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
   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
    )
 
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE M  INCOME TAXES  Continued
  March 31,2006Net operating loss carryforwards
    
    $
    8,643,000Less valuation allowance
    
    
    ( 8,643,000
    )Net Deferred Tax Asset
    
    $
    
 NOTE N  COMMON STOCK TRANSACTIONS
       
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE N  COMMON STOCK TRANSACTIONS  Continued
       
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE N  COMMON STOCK TRANSACTIONS  Continued
      NOTE O  STOCK WARRANTS
     
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE O  STOCK WARRANTS  Continued
  WeightedNumber of Exercise
    
    AverageShares
    
    PriceBalance at December 31, 2004
    
    
    100,000
    
    
    $
    0.60Issued
    
    
    570,000
    
    
    $
    5.00Exercised
    
    
    (100,000
    )
    
    $
    0.60Balance at December 31, 2005
    
    
    570,000
    
    
    $
    5.00Issued
    
    
    204,263
    
    
    $
    5.00Expired
    
    
    Exercised
    
    
    Balance at March 31, 2006
    
    
    774,263
    
    
    $
    5.00
    NOTE P  STOCK OPTIONS
    
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE P  STOCK OPTIONS  Continued
  Weighted averageprice per shareOptions outstanding at January 1, 2004
    
    
    
    
    
    
    Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2004
    
    
    
    
    
    
    Issued
    
    
    390,000
    
    
    $
    3.50Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at December 31, 2005
    
    
    390,000Issued
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at March 31, 2006
    
    
    390,000
      NOTE Q  COMMITMENTS AND CONTINGENCIES
 Security agreement
  
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##### Table of Contents



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



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE Q  COMMITMENTS AND CONTINGENCIES  Continued
 Transportation leases
  Year endingDecember 31,
    
    Amount2006
    
    $
    208,2922007
    
    
    131,4802008
    
    
    84,3492009
    
    
    44,892Totals
    
    $
    469,013
 Employment agreements
   
   
 
 
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE Q  COMMITMENTS AND CONTINGENCIES  Continued
 Employment agreements
  
   
 Software development contracts
  Litigation
    
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE R  SUBSEQUENT EVENTS
 Equity Transactions
      Debt transactions
 
 
 
 
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE R  SUBSEQUENT EVENTS  CONTINUED
 Debt Transactions
  
   
   
    
 
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##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE R  SUBSEQUENT EVENTS  CONTINUED
 Debt Transactions
  Product development issues
   Employment Agreements
  
 
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##### Table of Contents



Item 2. Managements Discussion and Analysis
 Forward-Looking Statements
   Our Business
     Release Schedule
 Expected ReleaseGame
    
    Studio
    
    Platform
    
    DateCompleted GamesAlpha Black Zero
    
    Khaeon (NL)
    
    PC
    
    ReleasedAirborne Troops
    
    Widescreen Games (F)
    
    PS2, PC
    
    ReleasedCyclone Circus
    
    Playlogic Game Factory (NL)
    
    PS2
    
    ReleasedXyanide
    
    Overloaded (NL)
    
    Mobile Phones
    
    ReleasedWorld Racing 2
    
    Synetic (D)
    
    PS2, Xbox, PC
    
    Released(i)
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##### Table of Contents



Expected ReleaseGame
    
    Studio
    
    Platform
    
    DateKnights 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
  27




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##### Table of Contents



Critical Accounting Policies
 General
  Estimates
  Accounts receivable
  Software Development Costs
  28




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##### 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
  29




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##### Table of Contents



New Accounting Pronouncements
        30




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##### Table of Contents



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




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##### Table of Contents



Liquidity and Capital Resources
 March 31, 2006
    Off Balance Sheet Arrangements
  
 Item 3. Controls and Procedures.
    32




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##### Table of Contents



Item 6. Exhibits
  33




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##### Table of Contents



SIGNATURES
  Playlogic Entertainment, Inc.
(Registrant)Date: December 21, 2006
    By:
    /s/ Willem M. SmitWillem M. SmitChief Executive Officer Date: December 21, 2006
    By:
    /s/ Jan Wilbert KnolJan Wilbert KnolInterim Chief Financial Officer
(Principal Financial and Accounting Officer)




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##### Table of Contents



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