##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the period ended: September 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number: 0-49649
 PLAYLOGIC ENTERTAINMENT, INC.
  Delaware
    
    23-3083371(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)Concertgebouwplein 13, 1071 LL Amsterdam, The Netherlands
    
    1071 LL(Address of principal executive offices)
    
    (Zip Code)
 31-20-676-0304
 (Issuers telephone number)
 þ o
 o þ
  Class
    
    Outstanding at September 30, 2006Common Stock, par value $.001 per share
    
    24,593,733 shares
 o þ




---



##### 



PLAYLOGIC ENTERTAINMENT, INC.
 FORM 10-QSB
 CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (unaudited and unreviewed)*
    
    
    3Item 2. Managements Discussion and Analysis
    
    
    14Item 3. Controls and Procedures
    
    
    20PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    21Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    21Item 3. Defaults Upon Senior Securities
    
    
    22Item 4. Submission of Matters to a Vote of Security Holders
    
    
    22Item 5. Other Information
    
    
    22Item 6. Exhibits
    
    
    23Signatures
    
    
    24Exhibit Index
    
    
    24CertificationsEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION
  
 *
    
    The unaudited financial statements contained in this quarterly report
on Form 10-QSB has not been reviewed by the Companys independent public accountant. 2




---



##### Table of Contents



Part I  FINANCIAL INFORMATION
 
 Item 1. Financial statements
PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET   (Unaudited and Unreviewed)
 ASSETSCurrent AssetsCash
    
    $
    2.577Accounts receivableTrade, net of allowance for doubtful accounts
    
    
    1.704.635Value Added Taxes from foreign governments
    
    
    445.234Prepaid expenses and other
    
    
    600.816Total current assets
    
    
    2.753.262Net property and equipment
    
    
    845.891Other assetsCapitalized software development costs
    
    
    4.598.348Restricted cash
    
    
    147.786Total other assets
    
    
    4.746.134Total Assets
    
    $
    8.345.287LIABILITIES AND SHAREHOLDERS DEFICITCurrent LiabilitiesBank line of credit
    
    $
    1.065.140Short-term debts
    
    
    379.740Current maturities of long-term debt
    
    
    37.974Accounts payable  trade
    
    
    3.341.432Other accrued liabilities
    
    
    5.319.094Deferred revenues
    
    
    1.027.973Loan from shareholders
    
    
    4.024.711Total current liabilities
    
    
    15.196.064Long-term debt, less current maturities
    
    
    237.338Total Liabilities
    
    
    15.433.402Shareholders 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. 24,593,733 shares issued and
outstanding
    
    
    24.594Additional paid-in capital
    
    
    41.997.831Accumulated currency translation adjustments reserve
    
    
    (1.956.046
    )Accumulated deficit
    
    
    (47.154.494
    )Total shareholders deficit
    
    
    (7.088.115
    )Total Liabilities and Shareholders Deficit
    
    $
    8.345.287
  3




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited and Unreviewed)
 Three months
    
    
    Three months
    
    
    Nine months
    
    
    Nine monthsended
    
    
    ended
    
    
    ended
    
    
    endedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesGame software
    
    $
    1,702,951
    
    
    $
    542,579
    
    
    $
    4,835,622
    
    
    $
    1,288,361Cost of salesDirect costs of production
    
    
    (838,089
    )
    
    
    (206,199
    )
    
    
    (2,766,002
    )
    
    
    (351,827
    )Gross profit
    
    
    864,862
    
    
    
    336,380
    
    
    
    2,069,620
    
    
    
    936,534Operating expensesResearch and development
    
    
    975,810
    
    
    
    (3,322
    )
    
    
    2,262,975
    
    
    
    474,323Selling and marketing
    
    
    330,392
    
    
    
    73,937
    
    
    
    1,068,394
    
    
    
    569,057General and administrative
    
    
    1,140,453
    
    
    
    803,832
    
    
    
    3,932,100
    
    
    
    2,112,566Depreciation
    
    
    72,127
    
    
    
    (5,033
    )
    
    
    226,490
    
    
    
    196,293Asset impairment charges
    
    
    785,494
    
    
    
    
    
    
    
    1,123,439
    
    
    
    Compensation expense related to common stock issuances at less than fair value
    
    
    
    
    
    
    63,000
    
    
    
    
    
    
    
    153,000Total operating expenses
    
    
    3,304,276
    
    
    
    932,414
    
    
    
    8,613,398
    
    
    
    3,505,239Loss from operations
    
    
    (2,439,414
    )
    
    
    (596,034
    )
    
    
    (6,543,778
    )
    
    
    (2,568,705
    )Other income/(expense)Interest expense
    
    
    (1,457,577
    )
    
    
    (59,477
    )
    
    
    (1,629,665
    )
    
    
    (256,297
    )Realized and unrealized exchange losses
    
    
    (360,471
    )
    
    
    
    
    
    
    (49,305
    )
    
    
    Other
    
    
    
    
    
    
    (621,220
    )
    
    
    
    
    
    
    (1,701,220
    )Income/(Loss) before provision for income taxes
    
    
    (4,257,462
    )
    
    
    (1,276,731
    )
    
    
    (8,222,748
    )
    
    
    (4,526,222
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    612,934Net loss
    
    
    (4,257,462
    )
    
    
    (1,276,731
    )
    
    
    (8,222,748
    )
    
    
    (3,913,288
    )Other comprehensive income/(loss)Foreign currency adjustment
    
    
    4,585
    
    
    
    25,465
    
    
    
    (456,418
    )
    
    
    955,154Comprehensive Income/(Loss)
    
    $
    (4,252,877
    )
    
    $
    (1,251,266
    )
    
    $
    (8,679,166
    )
    
    $
    (2,958,134
    )Net loss per weighted-average share of common stock outstanding, computed on Net Loss- basic and fully diluted
    
    
    (0.17
    )
    
    
    (0.06
    )
    
    
    (0.34
    )
    
    
    (0.17
    )Weighted-average number of shares of common stock outstanding- basic and fully diluted
    
    
    24,593,733
    
    
    
    23,098,429
    
    
    
    24,445,768
    
    
    
    22,914,595
  4




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS   (Unaudited and Unreviewed)
 Nine months
    
    Nine monthsended
    
    endedSeptember 30,
    
    September 30,2006
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (8.222.748
    )
    
    $
    (3.913.288
    )Adjustments to reconcile net loss to net cash used in operating activitiesRealized and unrealized exchange losses
    
    
    49.305
    
    
    
    Depreciation
    
    
    226.490
    
    
    
    333.617Asset impairment charge
    
    
    1.123.439
    
    
    
    Bad debt expense
    
    
    67.558
    
    
    
    Expense charges for stock options
    
    
    208.000
    
    
    
    Expense related to common stock issuances at less than fair value
    
    
    
    
    
    
    153.000Deferred income taxes
    
    
    
    
    
    
    (584.741
    )Non-cash interest charge related to fair value of warrants issued in conjunction with debt
    
    
    123.760
    
    
    
    Bonus interest on short term bridge loans
    
    
    1.017.558
    
    
    
    Management fees contributed as capital
    
    
    75.000
    
    
    
    Increase (decrease) in cash attributable to changes in operating assets and liabilitiesAccounts receivable  trade and other
    
    
    (1.062.343
    )
    
    
    (561.803
    )Prepaid expenses and other
    
    
    1.005.339
    
    
    
    (2.141.098
    )Accounts payable  trade
    
    
    580.874
    
    
    
    95.836Other accrued liabilities
    
    
    642.578
    
    
    
    647.051Deferred revenues
    
    
    998.784
    
    
    
    Net cash used in operating activities
    
    
    (3.166.405
    )
    
    
    (5.971.426
    )CASH FLOWS FROM INVESTING ACTIVITIESRestricted cash
    
    
    
    
    
    
    (147.642
    )Cash paid for software development
    
    
    (1.854.507
    )
    
    
    (1.919.927
    )Cash paid to acquire property and equipment
    
    
    (269.357
    )
    
    
    (206.476
    )Net cash used in investing activities
    
    
    (2.123.864
    )
    
    
    (2.274.044
    )CASH FLOWS FROM FINANCING ACTIVITIESPayments in bank line of credit
    
    
    (562.632
    )
    
    
    (349.198
    )Net activity on short term notes
    
    
    372.733
    
    
    
    (197.273
    )Principal payments on long-term debt
    
    
    (27.955
    )
    
    
    (41.104
    )Proceeds from loans from shareholder
    
    
    3.970.013
    
    
    
    (4.688.041
    )Payments on loans to shareholder
    
    
    (75.091
    )
    
    
    Proceeds from sales of common stock
    
    
    820.666
    
    
    
    13.938.534Collections on stock subscriptions receivable
    
    
    1.029.344
    
    
    
    (29.344
    )Net cash provided by financing activities
    
    
    5.527.078
    
    
    
    8.633.573Effect of foreign exchange on cash
    
    
    (373.991
    )
    
    
    (410.329
    )Increase (decrease) in Cash
    
    
    (137.183
    )
    
    
    (22.226
    )Cash at beginning of period
    
    
    139.760
    
    
    
    22.226Cash at end of period
    
    $
    2.577
    
    
    $
    Supplemental disclosures of interest and income taxes paidInterest paid during the period
    
    $
    74.534
    
    
    $
    256.297Income taxes paid (refunded)
    
    
    
    
    
    
    Supplemental disclosures of non-cash investing and financing activitiesCommon stock issued to repay notes payable
    
    $
    738.000
    
    
    
    Cost of acquiring capital paid with issuance of common stock
    
    $
    13.200
    
    
    $
    
  5




---



##### Table of Contents



PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
 CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited and Unreviewed)
 NOTE A  ORGANIZATION AND DESCRIPTION OF BUSINESS
     NOTE B  BASIS OF PRESENTATION
      NOTE C  GOING CONCERN UNCERTAINTY
   6




---



##### Table of Contents



NOTE D  SUMMARY OF SELECTED SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING PRONOUNCEMENTS
 Currency translation
   September 30, 2006
    
    $
    1.26580September 30, 2005:
    
    $
    1.20640
  September 30, 2006:
    
    $
    1.24244September 30, 2005:
    
    $
    1.26457
 7




---



##### Table of Contents



Software development costs
   Earnings (loss) per share
    New Accounting Pronouncements
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.
   Reclassifications
 8




---



##### Table of Contents



NOTE E  BANK LINE OF CREDIT AND SHORT-TERM DEBT
 Bank line of credit
  Short-term debt
  NOTE F  OTHER ACCRUED LIABILITIES
  Payroll taxes payable
    
    $
    2,351,187Bonus interest on bridge loans
    
    
    1,017,558Accrued interest
    
    
    371,320Royalties to be paid
    
    
    558,886Deferred Rent
    
    
    370,703Accrued wages and related personnel costs
    
    
    342,934Board remuneration to be paid
    
    
    110,758Other
    
    
    195,798$
    5,319,094
 NOTE G  LOANS FROM STOCKHOLDERS
     Loan from a lender based in the Netherlands
  9




---



##### Table of Contents



NOTE H  LONG-TERM DEBT
  Note payable
    
    $
    275.312Less current maturities
    
    
    37.974Long term debt, less current maturities
    
    $
    237.338
 10




---



##### Table of Contents



NOTE I  SHAREHOLDERS EQUITY TRANSACTIONS
 Common stock
          11




---



##### Table of Contents



Option grants
      Three MonthsEnded September
    
    
    Nine Months Ended30, 2006
    
    
    September 30, 2006Net loss before stock option expense
    
    $
    (4,176,714
    )
    
    $
    (8,014,748
    )Less stock option expense
    
    
    80,748
    
    
    
    208,000Net loss as reported
    
    $
    (4,257,462
    )
    
    $
    (8,222,748
    )
 12




---



##### Table of Contents



Three Months
    
    
    Nine MonthsEnded September
    
    
    Ended September30, 2005 (restated)
    
    
    30, 2005 (restated)Net loss applicable to common shareholders, as reported
    
    $
    (1,276,731
    )
    
    $
    (3,913,288
    )Deduct: total stock-based compensation expense under fair
Value method for awards, net of related tax effect
    
    
    (2,315
    )
    
    
    (2,315
    )Net loss applicable to common shareholders, pro forma
    
    $
    (1,279,046
    )
    
    $
    (3,915,603
    )Loss per share:Basic and diluted loss, as reported
    
    $
    (0.06
    )
    
    $
    (0.17
    )Basic and diluted loss, pro forma
    
    $
    (0.05
    )
    
    $
    (0.17
    )
 NOTE J  OTHER RELATED PARTY TRANSACTIONS
   NOTE K COMMITMENTS AND CONTINGENCIES
 Litigation
    Other Matters
   13




---



##### Table of Contents



Item 2. Managements Discussion and Analysis
 Forward-Looking Statements
   Our Business
         14




---



##### Table of Contents



Release Schedule
 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 (D)
    
    PS2, Xbox, PC
    
    ReleasedKnights of the Temple 2
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    Released 1Gene Troopers
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    Released 1Xyanide
    
    Playlogic Game Factory (NL)
    
    Xbox
    
    ReleasedAge of Pirates: Caribbean Tales
    
    Akella (Russia)
    
    PC
    
    ReleasedUnder DevelopmentAncient Wars: Sparta
    
    World Forge (Russia)
    
    PC
    
    Q1 2007Infernal
    
    Metropolis
    
    PC
    
    Q1 2007Xyanide Resurrection
    
    Playlogic Game Factory (NL)
    
    PSP
    
    Q1 2007Age of Pirates: Captain Blood
    
    Akella
    
    PC & Next Gen
    
    Q2/Q3 2007Red Bull Break Dance Game
    
    JGI Games
    
    Various
    
    Q3 2007Infernal
    
    Metropolis
    
    Next Gen
    
    Q3/Q4 2007 2Voodoo Nights
    
    Mindware
    
    PC & Next Gen
    
    Q4 2007 2P.R.I.S.M.  Threat Level: Red
    
    Rebellion (UK)
    
    PC
    
    To be announced
 
 1
    
    Released in Europe only.2
    
    Final decision on Next Gen options to be made.    Managements Overview of Historical and Prospective Business Trends
 Increased Console Installed Base.
  Software Prices.
 15




---



##### Table of Contents



Increasing Cost of Titles.
 Uncertainties and Other Risk Factors that May Affect our Future Results and Financial
Condition
     Critical Accounting Policies
 General
  Estimates
  Accounts
  16




---



##### Table of Contents



Software Development Costs
      Revenue
  
    
    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
  17




---



##### Table of Contents



New Accounting
 Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.
   Results of Operations
 Three and Nine Ended September 30, 2006 Compared to Three and Nine Months Ended September
30, 2005.
          18




---



##### Table of Contents



Liquidity and Capital Resources
 September 30,
    19




---



##### Table of Contents



Off Balance Sheet Arrangements
  
 Item 3. Controls and Procedures.
            20




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
    
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Shares
  Options and Warrants
 Options
  Warrants
  NAME
    
    WARRANTS
    
    DATEAn accredited investor based in the
Netherlands
    
    
    500,000
    
    
    August 16, 2006An accredited investor based in Andorra
    
    
    40,000
    
    
    September 1, 2006An accredited investor based in the
Netherlands
    
    
    400,000
    
    
    September 5, 2006
  21




---



##### Table of Contents



Issuer Purchase of Equity Securities
  
 Item 3. Defaults upon Senior Securities.
 
 
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
 
 
  Loan from a lender based in the Netherlands
 
  
 22




---



##### Table of Contents



 
   
   
  Subsequent events
 Termination of a Material Definitive Agreement
 
 Appointment of Principal Officers.
  
 
 Item 6. Exhibits.
  23




---



##### Table of Contents



SIGNATURES
  Playlogic Entertainment, Inc.(Registrant)Date: November 20, 2006
    
    By:
    
    /s/ Willem M. SmitWillem M. SmitChief Executive Officer
 PLAYLOGIC ENTERTAINMENT, INC.
 
 EXHIBIT INDEX
 Exhibit Number
    
    Description31.1
    
    Certifications of the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certifications of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 200232.2
    
    Certifications of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
 24