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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: June 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
    
    1071 LLNetherlands(Address of principal executive offices)
    
    (Zip Code)
 31-20-676-0304
 þ o
 o þ
  Class
    
    Outstanding at June 30, 2006Common Stock, par value $.001 per share
    
    24,593,733 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 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
5Item 2. Managements Discussion and Analysis
29Item 3. Controls and Procedures
36PART II  OTHER INFORMATIONItem 6. Exhibits
37Signatures
38Exhibit IndexCertificationsEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-31.1: CERTIFICATIONSEX-31.2: CERTIFICATIONSEX-32.1: CERTIFICATIONSEX-32.2: CERTIFICATIONS
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 Item 1. Financial Statements.
PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS   (Unaudited)
 (restated)
    
    (restated)June 30
    
    June 302006
    
    2005ASSETSCurrent AssetsCash on hand and in bank
    
    $
    151,593
    
    
    $
    144,031Accounts receivableTrade, net
of allowance for doubtful accounts of approximately $22,499 and $-0-, respectively
    
    
    2,681,281
    
    
    
    703,430Loans to affiliated companies
    
    
    
    
    
    
    491,115Value Added Taxes from foreign governments
    
    
    286,040
    
    
    
    301,740Prepaid expenses and other
    
    
    787,079
    
    
    
    784,499Deferred tax asset
    
    
    
    
    
    
    584,837Total current assets
    
    
    3,905,993
    
    
    
    3,009,652Property and Equipment  at costComputers and office equipment
    
    
    1,575,793
    
    
    
    1,352,125Leasehold improvements
    
    
    310,874
    
    
    
    184,096Software
    
    
    306,147
    
    
    
    42,8152,192,813
    
    
    
    1,579,036Less accumulated depreciation
    
    
    (1,378,365
    )
    
    
    (1,075,370
    )Net property and equipment
    
    
    814,448
    
    
    
    503,666Other assetsCapitalized software development costs
    
    
    4,797,825
    
    
    
    1,838,512Other assets
    
    
    
    
    
    
    91,119Total other assets
    
    
    4,797,825
    
    
    
    1,929,631Total Assets
    
    $
    9,518,266
    
    
    $
    5,442,949
 - Continued -
 
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PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS   (Unaudited)
 June 30
    
    
    June 302006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitesBank overdraft
    
    $
    1,629,568
    
    
    $
    393,896Short-term loans from third parties
    
    
    1,296,726
    
    
    
    187,023Software financing loans payable
    
    
    
    
    
    
    241,320Current maturities of long-term debt
    
    
    38,139
    
    
    
    Accounts payable  trade
    
    
    2,989,468
    
    
    
    2,450,847Payroll taxes payable
    
    
    2,180,219
    
    
    
    745,263Other accrued liabilitiesAccrued wages and related personnel costs
    
    
    276,544
    
    
    
    415,339Other
    
    
    1,970,267
    
    
    
    85,251Deferred revenues
    
    
    1,502,626
    
    
    
    Loan from stockholders
    
    
    686,502
    
    
    
    Total Current Liabilities
    
    
    12,570,059
    
    
    
    4,518,939Long-Term LiabilitiesLong-term debt, net of current maturities
    
    
    247,904
    
    
    
    271,485Total Liabilities
    
    
    12,817,962
    
    
    
    4,790,424Commitments 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 - 24,593,733 and 23,063,994 shares
issued and outstanding, respectively
    
    
    24,594
    
    
    
    23,064Deferred Compensation-Employee Stock Options
    
    
    197,411
    
    
    
    Common stock warrants
    
    
    1,890,268
    
    
    
    Additional paid-in capital
    
    
    39,747,155
    
    
    
    32,661,950Currency translation adjustments
    
    
    (2,036,720
    )
    
    
    1,171,721Accumulated deficit
    
    
    (42,902,500
    )
    
    
    (33,204,210
    )(3,079,792
    )
    
    
    652,525Stock subscriptions receivable
    
    
    (219,904
    )
    
    
    Total Stockholders Equity
    
    
    (3,299,696
    )
    
    
    652,525Total Liabilities and Shareholders Equity
    
    $
    9,518,266
    
    
    $
    5,442,949
 
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PLAYLOGIC ENTERTAINMENT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS   (Unaudited)
 (Restated)
    
    
    (Restated)
    
    
    (Restated)
    
    
    (Restated)Six months
    
    
    Six months
    
    
    Three months
    
    
    Three monthsended
    
    
    ended
    
    
    ended
    
    
    endedJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005RevenuesGame software
    
    $
    3,132,671
    
    
    $
    736,559
    
    
    $
    413,061
    
    
    $
    204,421Cost of salesDirect costs of production
    
    
    (1,927,913
    )
    
    
    (139,769
    )
    
    
    (166,288
    )
    
    
    (16,692
    )Gross Profit
    
    
    1,204,758
    
    
    
    596,790
    
    
    
    246,773
    
    
    
    187,729Operating expensesReorganization costs
    
    
    0
    
    
    
    668,757
    
    
    
    0
    
    
    
    668,757Research and development
    
    
    1,625,110
    
    
    
    485,937
    
    
    
    1,281,418
    
    
    
    123,668Selling and marketing
    
    
    738,002
    
    
    
    500,585
    
    
    
    648,333
    
    
    
    494,665General and administrative
    
    
    2,791,646
    
    
    
    1,859,037
    
    
    
    1,189,625
    
    
    
    1,208,058Depreciation
    
    
    154,364
    
    
    
    204,968
    
    
    
    75,866
    
    
    
    100,901Total operating expenses
    
    
    5,309,122
    
    
    
    3,719,284
    
    
    
    3,195,242
    
    
    
    2,238,838Loss from Operations
    
    
    (4,104,364
    )
    
    
    (3,122,484
    )
    
    
    (2,948,469
    )
    
    
    (2,238,838
    )Other Income/(Expense)Interest expense
    
    
    (172,087
    )
    
    
    (197,775
    )
    
    
    (95,260
    )
    
    
    (94,445
    )Realized and Unrealized
Exchange gains/(losses)
    
    
    311,166
    
    
    
    
    
    
    
    275,949
    
    
    
    Income/(Loss) before provision
for income taxes
    
    
    (3,965,285
    )
    
    
    (3,320,269
    )
    
    
    (2,767,780
    )
    
    
    (2,502,765Provision for Income Taxes
    
    
    
    
    
    
    623,404
    
    
    
    
    
    
    
    365,890Net loss
    
    
    (3,965,285
    )
    
    
    (2,696,865
    )
    
    
    (2,767,780
    )
    
    
    (2,136,875
    )Other comprehensive income/(loss)Foreign currency adjustment
    
    
    (461,003
    )
    
    
    (3,958,188
    )
    
    
    (352,382
    )
    
    
    (2,271,116
    )Comprehensive Income/(Loss)
    
    $
    (4,426,288
    )
    
    $
    (7,655,053
    )
    
    $
    (3,121,162
    )
    
    $
    (4,407,991
    )Net loss per weighted-average
share of common stock
outstanding, computed on Net
Loss
- basic and fully diluted
    
    
    (0.16
    )
    
    
    (0.12
    )
    
    
    (0.11
    )
    
    
    (0.09
    )Weighted-average number of
shares of common stock
outstanding
- basic and fully diluted
    
    
    24,391,068
    
    
    
    22,821,155
    
    
    
    24,507,931
    
    
    
    22,840,205
 
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PLAYLOGIC ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS   (Unaudited)
 (Restated)
    
    
    (Restated)Six months
    
    
    Six monthsended
    
    
    endedJune 30,
    
    
    June 30,2006
    
    
    2005Cash Flows from Operating ActivitiesNet loss
    
    $
    (3,965,285
    )
    
    $
    (2,696,865
    )Adjustments to reconcile net income to net cash provided
provided by operating activitiesCurrency translation adjustment
    
    
    (460,997
    )
    
    
    3,958,188(Un)realized (gains)/ losses on currency exchange
    
    
    (311,166
    )
    
    
    Depreciation
    
    
    154,364
    
    
    
    204,968Expenses paid by affiliated company
    
    
    
    
    
    
    549,945Bad debt expense
    
    
    66,821
    
    
    
    Expense charges for stock options
    
    
    134,106
    
    
    
    Expense related to common stock issuances at less than fair value
    
    
    
    
    
    
    90,000Management fees contributed as capital
    
    
    50,000(Increase) Decrease inAccounts receivable  trade and other
    
    
    (2,102,218
    )
    
    
    (703,430
    )Value added taxes receivable
    
    
    
    
    
    
    (301,740
    )Prepaid expenses and other
    
    
    517,994
    
    
    
    (1,291,715
    )Deferred tax asset
    
    
    
    
    
    
    (584,837
    )Increase (Decrease) inDeferred revenues
    
    
    1,492,897
    
    
    
    Accounts payable  trade
    
    
    419,910
    
    
    
    (736,746
    )Payroll taxes payable
    
    
    (123,125
    )
    
    
    Other current liabilities
    
    
    1,357,407
    
    
    
    437,547Net cash used in operating activities
    
    
    (2,769,292
    )
    
    
    (1,074,685
    )Cash Flows from Investing ActivitiesCash paid for software development
    
    
    (1,692,407
    )
    
    
    (664,115
    )Cash advanced for prepaid royalties to affiliated entities
    
    
    
    
    
    
    (402,357
    )Cash paid to acquire property and equipment
    
    
    (208,854
    )
    
    
    Cash received from disposition of property and equipment
    
    
    
    
    
    
    21,838Net cash used in investing activities
    
    
    (1,901,261
    )
    
    
    (1,044,634
    )Cash Flows from Financing ActivitiesIncrease (Decrease) in cash overdraft
    
    
    98,516
    
    
    
    (539,121
    )Principal payments on short-term notes to third parties
    
    
    1,296,726
    
    
    
    (25,995
    )Principal payments on long-term debt
    
    
    2,147
    
    
    
    (56,235
    )Cash advanced by affiliated entities
    
    
    495,743
    
    
    
    Cash advanced or repaid to shareholder  net
    
    
    (112,239
    )
    
    
    (7,688,248
    )Proceeds from sales of common stock
    
    
    1,892,053
    
    
    
    Collections on stock subscriptions receivable
    
    
    1,009,440
    
    
    
    Proceeds from sales of pre-merger subsidiary common stock
    
    
    
    
    
    
    10,524,700Cash contributed by shareholder to support operations
    
    
    
    
    
    
    45,341Cash paid to acquire capital
    
    
    
    
    
    
    (19,318
    )Net cash provided by financing activities
    
    
    4,682,386
    
    
    
    2,241,124Increase (Decrease) in Cash and Cash Equivalents
    
    
    11,833
    
    
    
    121,805Cash and cash equivalents at beginning of period
    
    
    139,760
    
    
    
    22,226Cash and cash equivalents at end of period
    
    $
    151,593
    
    
    $
    144,031Supplemental Disclosures of Interest and Income Taxes PaidInterest paid during the period
    
    $
    172,087
    
    
    $
    197,775Supplemental 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 CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  ORGANIZATION AND DESCRIPTION OF BUSINESS
        NOTE B  PREPARATION OF FINANCIAL STATEMENTS
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NOTE C  GOING CONCERN UNCERTAINTY
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NOTE D  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 1.
    
    Currency translationThe 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:
 June 30, 2006
    
    $
    1.27130December 31, 2005:
    
    $
    1.18290June 30, 2005
    
    $
    1.20660December 31, 2004:
    
    $
    1.36550
 1.
    
    Currency translation  continuedFor 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:
 June 30, 2006
    
    $
    1.22889December 31, 2005:
    
    $
    1.24658June 30, 2005
    
    $
    1.28617December 31, 2004:
    
    $
    1.24514
 2.
    
    Cash and cash equivalentsThe 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.3.
    
    Accounts receivable  tradeThe 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
distributors on
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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.
 4.
    
    Property and equipmentProperty 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.5.
    
    Software development costsCapitalized software development costs include payments made in
the form of milestone payments 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 against future revenues. 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.6.
    
    Prepaid royaltiesThe 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.7.
    
    Organization and reorganization costsThe Company has adopted the provisions of AICPA Statement of
Position 98-5, Reporting on the Costs of
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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.
 8.
    
    Research and development expensesResearch 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.9.
    
    Advertising expensesThe Company does not utilize direct solicitation advertising. All
other advertising and marketing expenses are charged to
operations as incurred.10.
    
    Income TaxesThe Company utilizes the asset and liability method of accounting
for income taxes. At June 30, 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 carry forwards to offset current taxable income.11.
    
    Share-Based PaymentsThe 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.12.
    
    Earnings (loss) per shareBasic 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.As of June 30, 2006 and 2005, the Companys outstanding stock
options and warrants are considered anti-dilutive due to the
Companys net operating loss position.13.
    
    Revenue recognitionThe 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:
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*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
 14.
    
    New accounting pronouncementsIn 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 Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No.
123R (revised 2004), Share-Based Payment which revised Statement
of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation. This statement supersedes Opinion No.
25, Accounting for Stock Issued to Employees. The revised
statement addresses the accounting for share-based payment
transactions with employees and other third parties, eliminates the
ability to account for share-based compensation transactions using
APB 25 and requires that the compensation costs relating to such
transactions be recognized in the statement of operations. The
revised statement has been implemented by the Company effective
January 1, 2006.Effective January 1, 2006, the Company adopted FAS No. 123R
utilizing the modified prospective method. FAS No. 123R requires the
recognition of stock-based compensation expense in the financial
statements. Under the modified prospective method, the provisions of
FAS No. 123R apply to all awards granted or modified after the date
of adoption. In addition, the unrecognized expense of awards not yet
vested at the date of adoption, determined under the original
provisions of FAS 123, Accounting for Stock Based Compensation,
shall be recognized in net earnings in the periods after the date of
adoption. Stock based compensation consists primarily of stock
options. Stock options are granted to employees at exercise prices
equal to the fair market value of the Companys stock at the dates
of grant. Stock options generally vest over four years. Compensation
expense for stock options is recognized over the period for each
separately vesting portion of the stock option award.The fair value for options issued prior to January 1, 2006 was
estimated at the date of grant using a Black Scholes option-pricing
model.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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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
    
    $
    50,852
    
    
    $
    605,100
    
    
    $
    655,952Total Current liabilities
    
    $
    11,934,409
    
    
    $
    605,100
    
    
    $
    12,539,509Total Liabilities
    
    $
    12,182,312
    
    
    $
    605,100
    
    
    $
    12,787,412Stockholders DeficitAdditional paid-in capital
    
    $
    38,600,034
    
    
    $
    1,147,121
    
    
    $
    39,747,155Currency translation adjustments
    
    $
    (1,960,638
    )
    
    $
    (45,532
    )
    
    $
    (2,006,170
    )Accumulated deficit
    
    $
    (41,195,811
    )
    
    $
    (1,706,689
    )
    
    $
    (42,902,500
    )Total Stockholders Deficit
    
    $
    (2,664,046
    )
    
    $
    (605,100
    )
    
    $
    (3,269,146
    )
 15




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##### Table of Contents



NOTE F  FAIR VALUE OF FINANCIAL INSTRUMENTS
    NOTE G  CONCENTRATIONS OF CREDIT RISK
   NOTE H  PROPERTY AND EQUIPMENT
  June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    Estimated LifeComputers and office equipment
    
    $
    1,575,793
    
    
    $
    1,352,125
    
    
    3-5 yearsLeasehold improvements
    
    
    310,874
    
    
    
    184,096
    
    
    initial lease termSoftware
    
    
    306,147
    
    
    
    42,814
    
    
    3-5 years2,192,813
    
    
    
    1,579,035Less accumulated depreciation
    
    
    (1,378,365
    )
    
    
    (1,075,371
    )Net property and equipment
    
    $
    814,448
    
    
    $
    503,666
 NOTE I  AMOUNTS DUE FROM RELATED PARTIES
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##### Table of Contents



NOTE J  LONG-TERM DEBT
  June 30,
    
    
    June 30,2006
    
    
    2005Note payable to a landlord for
leasehold improvements. Payable in
quarterly installments of approximately
$8,871. Final maturity in 2013.
    
    $
    286,043
    
    
    $
    271,845Less current maturities
    
    
    (38,139
    )
    
    
    Current portion
    
    $
    247,904
    
    
    $
    271,845
  Year endingDecember 31,
    
    Amount2006
    
    $
    17,7432007
    
    
    35,4872008
    
    
    35,4872009
    
    
    35,4872010
    
    
    35,4872011-2015
    
    
    106,481Totals
    
    $
    266,152
 NOTE K  CURRENT LIABILITIES
 
 
 NOTE L  LOANS FROM STOCKHOLDERS
  
 
 17




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##### Table of Contents



NOTE M  INCOME TAXES
  Six months Six monthsended
    
    
    endedJune 30,
    
    
    June 30,2006
    
    
    2005Domestic:Current
    
    $
    
    
    
    $
    Deferred
    
    
    
    
    
    
    Foreign:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    593,934State:Current
    
    
    
    
    
    
    Deferred
    
    
    
    
    
    
    Total
    
    $
    
    
    
    $
    
   Six months
    
    
    Six monthsended
    
    
    endedJune 30,
    
    
    June 30,2006
    
    
    2005Statutory rate applied to loss before income taxes
    
    $
    (1,340,493
    )
    
    $
    (316,060
    )Increase (decrease) in income taxes resulting from:Foreign income taxes
    
    
    1,320,693
    
    
    
    316,060State income taxes
    
    
    
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    (584,837
    )Other, including reserve for deferred tax asset and
effect of graduated tax brackets
    
    
    19,800
    
    
    
    Total income tax expense (benefit)
    
    $
    
    
    
    
    (584,837
    )
  18




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##### Table of Contents



June 30,2006Net operating loss carry forwards
    
    $
    9,983,000Less valuation allowance
    
    $
    9,983,000Net Deferred Tax Asset
    
    $
    
 NOTE N  COMMON STOCK TRANSACTIONS
         19




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20




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NOTE O  STOCK WARRANTS
      21




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WeightedAverageNumber of
    
    ExerciseShares
    
    PriceBalance at December 31, 2004
    
    
    100,000
    
    
    $
    0.60Issued
    
    
    570,000
    
    
    $
    5.00Exercised
    
    
    (100,000
    )
    
    $
    0.60Balance at December 31, 2005
    
    
    570,000
    
    
    $
    5.00Issued
    
    
    430,631
    
    
    $
    5.00Expired
    
    
    Exercised
    
    
    Balance at June 30, 2006
    
    
    1,000,631
    
    
    $
    5.00
    NOTE P  STOCK OPTIONS
     22




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##### Table of Contents



Weightedaverageprice pershareOptions 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
    
    
    150,000
    
    
    $
    2.90Exercised
    
    
    
    
    
    
    Expired/Terminated
    
    
    
    
    
    
    Options outstanding at June 30, 2006
    
    
    540,000
     23




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##### Table of Contents



Six MonthsEnded(in thousands, except per share amounts)
    
    June 30, 2006Net loss before stock option expense
    
    $
    (3,831,285
    )Less stock option expense
    
    
    (134,000
    )Net loss as reported
    
    $
    (3,965,285
    )
   June 30,
    
    June 30,2006
    
    2005Risk free annual interest rate
    
    
    4.50
    %
    
    
    n/aExpected volatility
    
    
    61
    %
    
    
    n/aExpected life
    
    3 years
    
    
    n/aAssumed dividends
    
    None
    
    
    n/a
        24




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##### Table of Contents



NOTE Q  COMMITMENTS AND CONTINGENCIES
 Security agreement
  Transactions with related parties
  Office leases
 
 
  
  
  Year endingDecember 31,
    
    Amount2006
    
    $
    314,0812007
    
    
    727,2162008
    
    
    697,2202009
    
    
    697,2202010
    
    
    697,2202011-2015
    
    
    1,593,828Totals
    
    $
    4,726,784
 Transportation leases
 25




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Year endingDecember 31,
    
    Amount2006
    
    $
    111,9292007
    
    
    141,3062008
    
    
    90,6522009
    
    
    48,247Totals
    
    $
    392,134
 Employment agreements
   
   
 
 26




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 
   
 Software development contracts
  Litigation
     27




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##### Table of Contents



NOTE R  SUBSEQUENT EVENTS
 Debt transactions
 
  Product development issues
   Employment Agreements
  
 28




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##### Table of Contents



Item 2. Managements Discussion and Analysis
 Forward-Looking Statements
   Our Business
         29




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##### Table of Contents



Release Schedule
 ExpectedReleaseGame
    
    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
    
    ReleasedKnights of the Temple 2
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    ReleasedGene Troopers
    
    Cauldron (SK)
    
    PS2, Xbox, PC
    
    ReleasedUnder DevelopmentXyanide
    
    Playlogic Game Factory (NL)
    
    Xbox
    
    Q3 2006Age of Pirates: Caribbean Tales
    
    Akella (Russia)
    
    PC
    
    Q3 2006Ancient Wars: Sparta
    
    World Forge (Russia)
    
    PC
    
    Q4 2006Infernal
    
    Metropolis
    
    PC
    
    Q4 2006Age of Pirates: Captain Blood
    
    Akella
    
    PC
    
    Q1 2007Xyanide Resurrection
    
    Playlogic Game Factory (NL)
    
    PSP
    
    Q4/Q1 2007P.R.I.S.M.  Threat Level: Red
    
    Rebellion (UK)
    
    PC
    
    To be announcedInfernal
    
    Metropolis
    
    Next Gen
    
    Q3/Q4 2007Age of Pirates: Captain Blood
    
    Akella
    
    Next Gen
    
    To be announcedRed Bull Break Dance Game
    
    JGI Games
    
    Various
    
    Q3 2007Voodoo Nights
    
    Mindware
    
    PC & Next Gen
    
    Q3/4 2007(i)
 
 (i)
    
    Final decision on Next Gen options to be made.     30




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Managements Overview of Historical and Prospective Business Trends
 Increased Console Installed Base.
  Software Prices.
 Increasing Cost of Titles.
 Uncertainties and Other Factors that May Affect our Future Results and Financial
Condition
     31




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Critical Accounting Policies
 General
  Estimates
  Accounts receivable
  Software Development Costs
     32




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Revenue Recognition
  
    
    Evidence of an arrangement: We recognize revenue when we
have evidence of an agreement with the customer reflecting
the terms and conditions to deliver products.
    
    Delivery: Delivery is considered to occur when the products
are shipped and risk of loss has been transferred to the
customer.
    
    Fixed or determinable fee: If a portion of the arrangement
fee is not fixed or determinable, we recognize that amount
as revenue when the amount becomes fixed or determinable.
    
    Collection is deemed probable: At the time of the
transaction, we conduct a credit review of each customer
involved in a significant transaction to determine the
creditworthiness of the customer.
    
    Collection is deemed probable if we expect the customer to
be able to pay amounts under the arrangement as those
amounts become due. If we determine that collection is not
probable, we recognize revenue when collection becomes
probable (generally upon cash collection).
 Product Revenue
  New Accounting Pronouncements
     33




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Restatements
  Results of Operations
 Three and Six Ended June 30, 2006 Compared to Three and Six Months Ended June 30, 2005.
  34




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35




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Liquidity and Capital Resources
 June 30,
      Off Balance Sheet Arrangements
  
 Item 3. Controls and Procedures.
  36




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PART II. OTHER INFORMATION
 
 Item 6. Exhibits.
  37




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SIGNATURES
  Playlogic
Entertainment, Inc.(Registrant)Date: December 21, 2006
    
    By:
    
    /s/ Willem M. Smit

Willem M. SmitChief Executive Officer
 38




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PLAYLOGIC ENTERTAINMENT, INC.
 
 EXHIBIT INDEX
 ExhibitNumber
    
    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