UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-QSB
(Mark
One)
|
|
|
þ
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the period ended: March 31, 2008
|
|
|
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.
(Exact
name of small business issuer as specified in its charter)
|
|
|
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
(Issuer’s
telephone number)
Check
whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
þ
Yes
o
No
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:
|
|
|
Class
|
|
Outstanding
at May 8, 2008
|
Common
Stock, par value $.001 per share
|
|
41,532,580
shares
|
Transitional
Small Business Disclosure Format (check one): Yes
o
No
þ
PLAYLOGIC
ENTERTAINMENT, INC.
FORM
10-QSB
TABLE
OF CONTENTS
PART
I -- FINANCIAL INFORMATION
|
Page
No.
|
|
|
|
|
Item
1.
|
Financial
Statements
|
3
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis
|
12
|
|
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
17
|
|
|
|
|
|
Item
4
|
Controls
and Procedures
|
18
|
|
|
|
PART
II -- OTHER INFORMATION
|
|
|
|
|
|
|
Item
1.
|
Legal
Proceedings
|
18
|
|
|
|
|
|
Item
1A.
|
Risk
Factors
|
18
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
18
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
18
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
|
|
|
|
|
Item
5.
|
Other
Information
|
19
|
|
|
|
|
|
Item
6.
|
Exhibits
|
19
|
|
|
|
|
|
Signatures
|
20
|
|
|
|
|
Exhibit
Index
|
21
|
|
|
|
|
Certifications
|
Attached
|
PART I -- FINANCIAL INFORMATION
Item 1 - Financial
Statements
PLAYLOGIC
ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
December
31, 2007
Derived from audited statements
|
|
ASSETS
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,629,290
|
|
|
$
|
349,464
|
|
Receivables
|
|
|
|
|
|
|
|
|
Trade,
net of allowance for doubtful accounts
|
|
|
1,908,464
|
|
|
|
671,148
|
|
Officers
|
|
|
14,695
|
|
|
|
78,754
|
|
Value
added taxes from foreign governments
|
|
|
61,839
|
|
|
|
50,620
|
|
Current
portion of software development costs
|
|
|
7,468,794
|
|
|
|
6,244,843
|
|
Discount
on long term debt
|
|
|
490,000
|
|
|
|
-
|
|
Prepaid
expenses and other receivables
|
|
|
2,591,490
|
|
|
|
892,855
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
19,164,572
|
|
|
|
8,287,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
|
|
780,194
|
|
|
|
753,768
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
Software
development costs, net of current portion
|
|
|
1,523,739
|
|
|
|
1,040,510
|
|
Restricted
cash
|
|
|
237,225
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
1,760,964
|
|
|
|
1,040,510
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
21,705,730
|
|
|
$
|
10,081,962
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilites
|
|
|
|
|
|
|
|
|
Accounts
and notes payable
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
5,803,424
|
|
|
$
|
4,785,678
|
|
Note
payable to bank
|
|
|
1,164,391
|
|
|
|
1,056,552
|
|
Note
payable, other
|
|
|
427,146
|
|
|
|
397,845
|
|
Other
current liabilities
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
|
47,445
|
|
|
|
44,205
|
|
Accrued
liabilities
|
|
|
2,647,812
|
|
|
|
2,142,754
|
|
Deferred
revenues
|
|
|
413,742
|
|
|
|
148,750
|
|
Indebtedness
to related party
|
|
|
2,623,299
|
|
|
|
589,400
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
13,127,259
|
|
|
|
9,165,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current maturities
|
|
|
|
|
|
|
|
|
Note
payable to related party
|
|
|
4,000,000
|
|
|
|
-
|
|
Note
payable to other
|
|
|
225,365
|
|
|
|
221,025
|
|
|
|
|
4,225,365
|
|
|
|
221,025
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
17,352,624
|
|
|
|
9,386,209
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
Preferred
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. 41,532,580 shares issued and
outstanding
|
|
|
41,533
|
|
|
|
38,533
|
|
Additional
paid-in capital
|
|
|
56,880,831
|
|
|
|
54,081,832
|
|
Deferred
compensation-employee stock options
|
|
|
438,948
|
|
|
|
374,571
|
|
Accumulated
currency translation adjustments reserve
|
|
|
(2,963,061
|
)
|
|
|
(3,057,297
|
)
|
Accumulated
deficit
|
|
|
(50,045,145
|
)
|
|
|
(50,741,886
|
)
|
|
|
|
4,353,106
|
|
|
|
695,753
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
21,705,730
|
|
|
$
|
10,081,962
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements
PLAYLOGIC
ENTERTAINMENT INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
unaudited
|
|
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
Sales,
net of returns and allowances
|
|
$
|
4,031,680
|
|
|
$
|
3,482,596
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
|
|
|
|
|
|
Direct
costs and license fees
|
|
|
(1,070,560
|
)
|
|
|
(637,983
|
)
|
Amortisation
of software development costs
|
|
|
(745,693
|
)
|
|
|
(448,418
|
)
|
|
|
|
(1,816,253
|
)
|
|
|
(1,086,401
|
)
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
2,215,427
|
|
|
|
2,396,195
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
63,892
|
|
|
|
22,719
|
|
Selling
and marketing
|
|
|
185,647
|
|
|
|
464,792
|
|
General
and administrative
|
|
|
1,145,359
|
|
|
|
1,136,012
|
|
Depreciation
|
|
|
76,820
|
|
|
|
81,690
|
|
Total
operating expenses
|
|
|
1,471,718
|
|
|
|
1,705,213
|
|
|
|
|
|
|
|
|
|
|
Profit from
operations
|
|
|
743,709
|
|
|
|
690,982
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
Gain
on debt restructuring
|
|
|
-
|
|
|
|
387,408
|
|
Interest
expense
|
|
|
(57,915
|
)
|
|
|
(319,446
|
)
|
Realized
and unrealized exchange profit
|
|
|
10,954
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Profit
before provision for income taxes
|
|
|
696,747
|
|
|
|
758,944
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
profit
|
|
$
|
696,747
|
|
|
$
|
758,944
|
|
|
|
|
|
|
|
|
|
|
Net
profit per weighted-average share of common stock outstanding, computed on
net profit
|
|
|
|
|
|
|
|
|
-
basic and fully diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common stock outstanding
|
|
|
|
|
|
|
|
|
-
basic and fully diluted
|
|
|
38,565,913
|
|
|
|
25,332,109
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements
PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
Three
months ended March 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$
|
(345,472
|
)
|
|
$
|
23,101
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash
paid for software development
|
|
|
(1,868,065
|
)
|
|
|
1,696,303-
|
|
Cash
paid to acquire property and equipment
|
|
|
(49,247
|
)
|
|
|
42,314-
|
|
Net
cash used in investing activities
|
|
|
(1,917,312
|
)
|
|
|
(1,738,617
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Receipts
on bank credit facility
|
|
|
-
|
|
|
|
30,229
|
|
Payments
on bank line of credit
|
|
|
29,081
|
|
|
|
-
|
|
Cash
repaid on short term notes
|
|
|
-
|
|
|
|
407,132-
|
|
Principal
payments on long-term debt
|
|
|
(11,347
|
)
|
|
|
9,850-
|
|
Cash
received from shareholder loans
|
|
|
5,719,297
|
|
|
|
2,090,419
|
|
Proceeds
from sales of common stock
|
|
|
2,790,000
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
8,527,031
|
|
|
|
1,703,666
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange on cash
|
|
|
15,578
|
|
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in cash
|
|
|
6,279,825
|
|
|
|
9,936-
|
|
Cash
at beginning of period
|
|
|
349,464
|
|
|
|
16,537
|
|
|
|
|
|
|
|
|
|
|
Cash
at end of period
|
|
$
|
6,629,290
|
|
|
$
|
6,601
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of interest and income taxes paid
|
|
|
|
|
|
|
|
|
Interest
paid during the period
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
taxes paid (refunded)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash investing and financing activities
|
|
|
|
|
|
|
|
|
Common
stock issued to repay notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
Cost
of acquiring capital paid with issuance of common stock
|
|
$
|
210,000
|
|
|
$
|
-
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements
PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
|
|
|
Deferred
compensation
-
employee
stock
options
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par
value
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at December 31, 2007
|
|
|
38,532,579
|
|
|
$
|
38,533
|
|
|
$
|
54,081,831
|
|
|
$
|
374,571
|
|
|
$
|
(3,057,291
|
)
|
|
$
|
(50,741,892
|
)
|
|
$
|
695,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash
|
|
|
3,000,000
|
|
|
|
3,000
|
|
|
|
2,997,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
Capital
contributed to support operations
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
25,000
|
|
Issuing
costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(713,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(713,000
|
)
|
Stock
options issued pursuant to employee compensation plan
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,377
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,377
|
|
Discount
on long term debt
|
|
|
|
|
|
|
|
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,000
|
|
Change
in currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94,231
|
|
|
|
-
|
|
|
|
94,231
|
|
Net
result for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
696,747
|
|
|
|
696,747
|
|
|
|
|
41,532,579
|
|
|
$
|
41,533
|
|
|
$
|
56,880,831
|
|
|
$
|
438,948
|
|
|
$
|
(2,963,061
|
)
|
|
$
|
(50,045,145
|
)
|
|
$
|
4,353,106
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements
PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE
A - ORGANIZATION AND DESCRIPTION OF BUSINESS
Playlogic
Entertainment, Inc. (“Playlogic,” the “Company” or “we”) develops and publishes
interactive software games designed for video game consoles, handheld platforms
and personal computers. We currently offer our products primarily in versions
that operate on the Sony PlayStation 2 (“PS2”), Sony PlayStation 3 (“PS3”),
Nintendo Wii (“Wii”), and Microsoft Xbox 360 (“Xbox360”) console systems,
Nintendo Game Boy Advance (“GBA”), Sony PlayStation Portable (“PSP”), and
Nintendo Dual Screen (“NDS”) hand-held devices, and the personal computer
(“PC”).
We
develop and publish action/adventure, racing, simulation, first-person action,
and other software games to casual players, game enthusiasts, children, adults,
and mass-market consumers. Our principal sources of revenue are
derived from publishing operations. Publishing revenues are derived
from the sale of internally developed software titles or software titles
developed by third parties. Our publishing business involves the
development, marketing, and sale of products directly through distributors or
through licensing arrangements, under which we receive royalties.
We sell
our products in the globally, focusing on the United States, Europe and
Asia.
Management
acknowledges that it is solely responsible for adopting sound accounting
practices, establishing and maintaining a system of internal accounting control
and preventing and detecting fraud. The Company’s system of internal accounting
control is designed to assure, among other items, that 1) recorded transactions
are valid; 2) valid transactions are recorded; and 3) transactions are recorded
in the proper period in a timely manner to produce consolidated financial
statements which present fairly the consolidated financial condition, results of
operations and cash flows of the Company for the respective periods being
presented
Principles of
consolidation
The
consolidated financial statements include the consolidated financial
statements of Playlogic Entertainment, Inc. a Delaware corporation, Playlogic
International N.V. (a corporation domiciled in The Netherlands) and its
wholly-owned subsidiary Playlogic Game Factory B.V. (a corporation domiciled in
The Netherlands). All inter-company accounts and transactions have
been eliminated in consolidation.
For
reporting purposes, the Company operated in only one industry for all periods
presented in the accompanying consolidated financial statements and makes all
operating decisions and allocates resources based on the best benefit to the
Company as a whole.
Basis of
presentation
The
accompanying condensed consolidated balance sheet as of December 31, 2007 has
been derived from audited financial statements and the accompanying unaudited
condensed consolidated financial statements for the three months ended March 31,
2008 have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”) for interim financial
information and the interim reporting requirements of Regulation
S-B. They do not include all of the information and footnotes for
complete consolidated financial statements as required by GAAP. In
management's opinion, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included. These financial statements should be read in conjunction
with the audited financial statements and notes thereto contained in the
Company’s annual report on Form 10-KSBfor the year ended December 31,
2007.
The
results of operations for the three months ended March 31, 2008 and 2007
presented are not necessarily indicative of the results to be expected for the
year.
There is
no provision for dividends for the quarter to which this quarterly report
relates.
PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Currency
translation
The
accompanying consolidated financial statements are reported in U.S.
Dollars. Accounts of foreign operations are translated into U.S.
dollars using exchange rates for assets and liabilities at the balance sheet
date and average prevailing exchange rates for the period for revenue and
expense accounts. Adjustments resulting from translation are included in other
comprehensive income (loss). Realized and unrealized transaction gains and
losses are included in income in the period in which they occur, except on
inter-company balances considered to be long term. Transaction gains and losses
on inter-company balances considered to be long term are recorded in other
comprehensive income.
Comprehensive
income (loss) is defined to include all changes in equity except those resulting
from investments by owners and distributions to owners. The Company’s items of
other comprehensive income (loss) are foreign currency translation adjustments,
which relate to investments that are permanent in nature and therefore do not
require tax adjustments.
The Euro
is the functional currency of our operating subsidiaries domiciled in The
Netherlands. We translate Euro into US Dollars, in accordance with the following
table:
Financial statement element
|
Applicable rate
|
|
Assets
|
Balance
sheet date *
|
|
Liabilities
|
Balance
sheet date *
|
|
Equity
|
Historical
|
|
Revenues
|
Annual
average**
|
|
Expenses
|
Annual
average**
|
|
Gains
|
Annual
average**
|
|
Losses
|
Annual
average**
|
|
*$1.5815
at March 31, 2008
$1.4735 at
December 31, 2007
**
Average for the 3 months ended March 31, 2008 $1.5130
Average for the 3 months ended March 31, 2007 $1.3133
NOTE B - SOFTWARE DEVELOPMENT
COSTS
The
following table provides the details of software development costs for the three
months ended March 31, 2008 and for the year ended December 31,
2007:
|
|
March
31, 2008 unaudited
|
|
December
31, 2007 (derived from audited statements)
|
|
|
Beginning
balance
|
|
$
|
7,285,353
|
|
$
4,463,430
|
|
|
Additions
|
|
|
1,754,590
|
|
4,593,036
|
|
|
Amortization
|
|
|
(745,678
|
)
|
(2,386,223
|
)
|
|
Write
down
|
|
|
-
|
|
(68,566)
|
|
|
Foreign
exchange
|
|
|
698,279
|
|
683,676
|
|
|
Ending
balance
|
|
|
8,992,544
|
|
7,285,353
|
|
|
Less: current portion
|
|
|
(7,468,794
|
)
|
(6,244,843
|
)
|
|
Non-current
portion
|
|
$
|
1,523,750
|
|
$
1,040,510
|
|
|
The
amount of software development costs resulting from advance payments and
guarantees to third-party developers was $7,043,000 at March 31, 2008. In
addition, software development costs at March 31, 2008 included an amounts of
$823,000 related to titles that have not been released yet.
The
non-current portion of the capitalized software development costs is expected to
be amortized in 2009.
PLAYLOGIC ENTERTAINMENT, INC.
AND SUBSIDIARIES
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE C
– SHAREHOLDER’S EQUITY TRANSACTIONS
Common
stock
The
Company sold 3,000,000 shares of its common stock to an accredited investor
based in the Netherlands at $ 1.00 per share for a total cash consideration of
$3,000,000. The sale was made pursuant to the terms of a subscription agreement
dated March 27, 2008. The Company will pay a placement fee of 7% (being
$210,000) on this sale.
Concurrent
with this sale, the Company issued warrants to purchase 1,000,000 shares of the
Company’s common stock at an exercise price of $2.00 per share. The warrants may
be exercised starting March 28, 2008 and expire on March 27, 2013.
NOTE
D – LOANS FROM SHAREHOLDERS
In
February 2008 the Company has entered into a bridge loan agreement with a lender
in the Netherlands, pursuant to which the Company borrowed a principle amount of
€ 1,250,000 (or $1,977,000). The loan bears compound interest at a rate of 10%
per annum and will be repaid on April 4, 2008.
On March
27, 2008, the Company has entered into a long term loan agreement with two
lenders based in the Netherlands, pursuant to which the Company borrowed the
principal amount of $4,000,000. The loan bears compound interest at a rate of 7%
per annum and has a 2.5 year term. The interest will be paid on a monthly basis
and repayment of the principal will be done in 8 quarterly installments,
starting in the fourth quarter of 2008. Under this loan agreement, the Company
pledged as a collateral all Intellectual Property (IP) owned by the Company. The
Company has paid a placement fee of 1% on this loan ($40,000).
Concurrent
with this loan agreement of March 27, 2008, the Company issued to these lenders
warrants to purchase 1,286,000 shares of the Company’s common stock at an
exercise price of $1.20 per share. The warrants may be exercised starting March
28, 2008 and expire on March 27, 2013. The warrants will be exercised cashless
and have a mandatory call clause when the stock price is $4.00.
The
warrants have been valued based on the Black & Scholes model. In accordance
with APB 14, we have recognized a discount on the long term debt amounting to
$490,000 which will be amortized over the term of the loan.
NOTE E
- COMMITMENTS AND CONTINGENCIES
Litigation
On
November 27, 2007, the District Court of Amsterdam found for the plaintiff
(Playlogic) in the case of Playlogic Entertainment, Inc. vs.
WorldForge/VisionVale Ltd.
The
provisional judge of the District Court of Amsterdam concludes that all the
copyrights to the game Ancient Wars: Sparta always belonged to Playlogic
pursuant to the agreement with WorldForge / Visionvale and Burut. The judge
ruled in Playlogic’s favor on all counts and WorldForge / Visionvale and Burut
have to pay a penalty of € 10,000 ($15,815)each time they state the
contrary or refrain from publishing rectifications of former wrong
statements.
Moreover
the Company is involved in a few minor legal actions incidental to its ordinary
course of business.
With
respect to the above matters, the Company believes that it has adequate legal
claims or defenses and/or provided adequate accruals for related costs such that
the ultimate outcome will not have a material adverse effect on the Company’s
future consolidated financial position or results of operations
.
Office
leases
The
Company leases it’s executive offices located at Concertgebouwplein 13 in
Amsterdam from Mr. D. Valerio. This lease agreement expires on June 30,
2008. The lease requires a last payment of approximately $23,000 (€15,000) for
the second quarter of 2008. The Company will move their office in the second
quarter of 2008 to the World Trade Center (WTC) in Amsterdam, the
Netherlands.
The
Company has entered into a lease agreement with the World Trade Center in
Amsterdam for a period of 5 years ending July 31, 2013. The lease requires
annual payments of approximately $460,000 (€ 291,500) for the offices and
$32,000 (€20,600) for parking spaces at the building, all payable in quarterly
installments. The offices total approximately 8,000 square feet (or 900 square
meter). This lease agreement contains an extension option, which if exercised by
the Company, will extend the expiration date to July 31, 2018.The Company has
negotiated a rent-free period with the WTC for the period up to December 31,
2008. First payments will start January 2009.
PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Our fully
owned subsidiary, Playlogic Game Factory, B. V., leases offices located at
Hambroeklaan 1 in Breda from Neglinge BV pursuant to a lease agreement which
expires on October 1, 2013. This lease agreement contains an extension option,
which if exercised, will extend the expiration date to October 1, 2018. At the
execution of this lease agreement, the landlord committed itself to invest
approximately $470,000 (€300,000) in leasehold improvements which are scheduled
to be repaid by Playlogic Game Factory B.V. over a 10 year period. The lease
requires annual payments of approximately $470,000 (€300,000) per year, payable
in quarterly installments.
Future
minimum non-cancelable lease payments on the above leases for office space are
as follows:
March
31,
|
|
|
|
2008
|
|
$
|
399,000
|
|
2009
|
|
|
355,000
|
|
2010
|
|
|
355,000
|
|
2011
|
|
|
355,000
|
|
2012
|
|
|
355,000
|
|
Thereafter
|
|
|
355,000
|
|
Total
|
|
$
|
2,174,000
|
|
Transportation
leases
The
Company leases 14 automobiles for certain officers and employees pursuant to the
terms of their individual employment agreements under operating lease
agreements. These agreements are for terms of 3 to 4 years. The leases require
monthly aggregate payments of approximately $20,000.
Future
minimum non-cancelable lease payments on the above transportation leases are as
follows:
December
31,
|
|
|
|
2008
|
|
$
|
79,500
|
|
2009
|
|
|
37,400
|
|
2010
|
|
|
-
|
|
2011
|
|
|
-
|
|
2012
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
116,900
|
|
Software development
contracts
The
Company has entered into eight (8) separate software development contracts with
unrelated entities. These contracts require periodic payments of agreed-upon
amounts upon the achievement of certain developmental milestones, as defined in
each individual contract. All of these contracts have completion deadlines of
less than one (1) year from the contract execution and will require an aggregate
funding liability of approximately $1.8 million through completion.
NOTE F
— OTHER RELATED PARTY TRANSACTIONS
Willem M.
Smit, the Company’s Chief Executive Officer, has agreed to not receive any cash
compensation until such time that the Company achieves positive cash flows from
operations. However, the Company does reimburse Mr. Smit for his business
related expenses and provides him with an automobile. As Mr. Smit provides
executive management and oversight services to the Company, an amount of
$100,000 per annum (or $25,000 per quarter) is imputed as the value of his
services and recorded as additional contributed capital to the
Company.
Effective
January 1, 2006 the Company entered into a service agreement with Altaville
Investments B.V., a company beneficially owned by its CEO Willem M. Smit. The
Company pays for certain service among others house keeping and cleaning
services provided by Altaville to the Company an annual aggregate amount of
approximately $ 50,000 which is paid in 4 quarterly
installments.
PLAYLOGIC
ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE G
- SEGMENT INFORMATION AND REVENUE CONCENTRATIONS
The
Company sells it’s products to wholesale distributors in various domestic and
foreign markets. The following table shows the Company’s gross revenue
composition:
|
|
For
the 3 months ended March 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Europe and United
Kingdom
|
|
|
|
|
|
|
|
Customer
A *
|
|
0
|
0%
|
|
2,211,950
|
64%
|
|
Customer
B
|
|
1,083,710
|
27%
|
|
433,398
|
12%
|
|
Customer
C
|
|
188,058
|
5%
|
|
525,331
|
15%
|
|
Customer
D
|
|
1,108,424
|
27%
|
|
0
|
0%
|
|
Customer
E
|
|
434,609
|
11%
|
|
0
|
0%
|
|
Others
|
|
493,614
|
12%
|
|
311,917
|
9%
|
|
|
|
3,308,415
|
82%
|
|
3,482,596
|
100%
|
|
Asia
|
|
|
|
|
|
|
|
Others
|
|
32,505
|
1%
|
|
0
|
0%
|
|
|
|
32,505
|
1%
|
|
0
|
0%
|
|
|
|
|
|
|
|
|
|
United States &
Canada
|
|
|
|
|
|
|
|
Customer
A *
|
|
0
|
0%
|
|
0
|
0%
|
|
Customer
E
|
|
690,760
|
17%
|
|
0
|
0%
|
|
Others
|
|
0
|
0%
|
|
0
|
0%
|
|
|
|
690,760
|
17%
|
|
0
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
4,031,680
|
100%
|
|
3,482,596
|
100%
|
|
* The
Company entered into a license contract with Customer A, for global distribution
of certain games. As the Company is located in Europe, the revenue has been
allocated to Europe and UK. Part of this revenue should however be read as US
market revenue.
NOTE
H – SUBSEQUENT EVENTS
In April, the Company has repaid the related party
loans, amounting to $2.6 million using the available cash on the balance
sheet.
Item
2. Management’s Discussion and Analyses of Financial Condition and Results of
Operation
Playlogic
is a publisher of interactive entertainment products, such as video game
software and other digital entertainment products. We publish for most major
interactive entertainment hardware platforms, like Sony’s PlayStation 3,and
Playstation2, Microsoft’s Xbox 360 and Nintendo’s Wii, PCs and handheld devices
(such as Nintendo DS, and PSP) and mobile devices. Our principal sources of
revenue are derived from publishing operations. Publishing revenues are derived
from the sale of our digital entertainment products. We own most of the
intellectual properties of our products, which we believe positions us to
maximize profitability.
As a
publisher, we are responsible for publishing, production, localization, QA and
testing, PR and marketing, manufacturing and sales of our products. Playlogic’s
products are sold to distributors who supply retailers worldwide. Furthermore,
we sell directly to consumers through online distribution channels with various
partners.
Development
studios throughout the world help create the games which are published by
Playlogic. One of these studios is our fully owned subsidiary, Playlogic Game
Factory B.V., located in The Netherlands. Other independent studios in various
countries develop our games under Software Development Agreements (SDA). These
development contracts generally provide that we pay an advance on future
royalties earned upon achievement of milestones successfully completed and
delivered. In addition, we license the rights of existing Playlogic IP to other
development studios who then adapt these products to the specifications and
abilities of other (console) platforms.
Studios
and developers contact us daily requesting financing and publishing of their
games or concepts. We evaluate each of these offers based on several factors,
including sales potential of concept or product, technology & tools used,
track record and project management of the studio.
We select
which games we develop based on our analysis of consumer buying trends and
behavior and our experience with similar or competitive products. Once we select
a game to develop, we then assign a development studio, based upon its
qualifications, previous experience and prior performance. Once developed, we
distribute our games worldwide through existing distribution channels with
global or local distributors. When appropriate we have the ability to release
our titles simultaneously across a range of hardware formats to maximize overall
sales for a particular product with a minimum augmentation in development time
and resources.
We
believe that greater online functionalities, applications and digital
distribution on the new platforms will improve revenue margins and encourage
further industry growth. In addition, according to DFC Intelligence, new sales
potential, revenue opportunities from wireless gaming, online console gaming,
and in-game advertising are expected to grow from $1 billion in 2005 to $5
billion in 2009.
Industry
Overview
Over the
past two decades, the video game industry has advanced and become a valuable
contributor to the entertainment consumption business. The estimated break-down
of gamers in US households is 61% male and 39% female, with 47% of gamers
between 13 and 24 years old, 30% between 25 and 39 years old; and 23% over 40
years old.
Worldwide,
the video game market is projected to increase from $26.2 billion in 2004 to
$46.5 billion in 2010, growing at an 11.4 percent compound annual rate. Asia
Pacific, currently the largest market at $9.6 billion in 2004, is projected to
maintain its dominance, growing at a 12.3 percent compound annual rate through
2010 to reach $17.4 billion. The United States has the second largest market and
is expected to grow from $8.4 billion in 2005 to $13.0 billion in 2010, an 8.9
percent compounded annual according to Company Annual Reports of Crandell &
Sidak. The combined US and European software markets will grow at a 13.5% CAGR
over the 2006-2008 period. (WedBush Morgan).
The video
game market reflects consumer spending on console games (including handheld
games), personal computer (PC) games, online games, and wireless games. The
category excludes spending on the hardware and accessories used to play the
games.
With the
launch of the Nintendo Wii and Sony PlayStation 3, the gaming industry had a
record-breaking year in 2006. According to NPD Group's industry tracking sales
figures, overall profits are up 19 percent, and the combined hardware, software,
and accessories sales reached $12.5 billion in the U.S. alone, making it the
highest grossing year in the video game industry to date.
Market
Trends – Worldwide
The
fastest-growing segment during the next five years, global video game spending
will increase to $55.6 billion in 2008, at a 20.1 percent CAGR.
(PricewaterhouseCoopers). By 2008, online and wireless will be major
distribution channels, spurred by broadband penetration and new mobile phones
that will be used as much for entertainment as for communication. The PC game
market will shrink, and console game spending will grow as next generation
consoles are introduced.
The video
game market was in a transition year in 2005, awaiting the introduction of the
next-generation consoles. Growth slumped to 3.3 percent, the slowest increase
during the past five years. The next generation of consoles and recently
introduced handheld games will spur the console/handheld market in the U.S.,
EMEA, Asia Pacific, and Canada, while PC games will continue to decline or see
little growth in the U.S. and EMEA. The introduction of new wireless phones
capable of downloading games will boost the wireless game market in the U.S.,
EMEA, Asia Pacific, and Canada. Overall, the video game market will expand at an
11.4 percent CAGR to $46 billion in 2010 from $27 billion in 2005.
Console
Installed Base
Since the
introduction of PlayStation 2 in 2000, the console has sold over 140 million
units worldwide according to games industry. biz. The PlayStation 3 has been
introduced to the market in the second half of 2006. Microsoft introduced its
next generation console, the Xbox 360, in November 2005. Playlogic will continue
development of PlayStation2 titles, because of their large installed base of
over 120 million units.
Microsoft’s
Xbox360 has sold 11.6 million units so far. As of April 1, 2007 , Sony has
shipped approximately 5.5 million Playstation 3 units
worldwide. Nintendo’s next generation console, called ‘Wii’ has
sold more than 9.27 million units so far. Wed bush Morgan Securities expects
next generation hardware shipments through the end of 2007 will reach 46 million
units in the U.S. and Europe.
Nintendo
Dual Screens (‘Nintendo DS’) and PlayStation Portable (‘PSP’) were both
successfully introduced to the market. The sales volume of the Nintendo DS
reached 47.3 million units by June 30, 2007, and PSP reached the sales volume of
25.4 million units sold as of March 31 , 2007.
PC
Games
Playlogic
will continue to also release PC games since, in comparison to next generation
consoles games, these products are less expensive to develop, address a very
wide target audience and contribute significant better margins. Furthermore
Playlogic will focus on new successful platforms like the Nintendo DS and
Nintendo Wii.
Consumer
Facts
Thirty
percent of most frequent game players are under eighteen years old while
twenty-six percent of most frequent game players are between 18 and 35 years
old. Forty-four percent of most frequent game players are over 35 years old.
Forty percent of most frequent console game players are under eighteen years old
while thirty-five percent of most frequent game players are between 18 and 35
years old. Twenty-five percent of most frequent console game players are over 35
years old. Thirty-eight percent of game players are women. Women age 18 or older
represent a significantly greater portion of the game-playing population (30%)
than boys age 17 or younger (23%).The average adult woman plays games 7.4 hours
per week. The average adult man plays 7.6 hours per week. Though
males spend more time playing than do females, the gender/time gap has narrowed
significantly.
Females
are being significantly attracted to playing certain online multi-user video
games that offer a more communal experience, and a small hardcore group of young
females are playing aggressive games that are usually thought of as being
"traditionally male" games. The most loyal fan-base is reported to be for large
role-playing games (Nielsen Active Gamer
Study).
According
to the ESRB almost 41% of video and PC gamers are women.
We
believe the demographics of game players will widen, and be a major source of
the growth of the industry. The first generation gamers are now in their 30s and
are still playing games and new consumers enter the market, including children
at the age of 6 to 8 and an increasing number of women players.
|
|
|
|
|
|
Expected
release
|
Game
|
|
Studio
|
|
Platform
|
|
date
to retail
|
Completed
Games
|
|
|
|
|
|
|
Alpha
Black Zero
|
|
Khaeon
(NL)
|
|
PC
|
|
Released
|
Airborne
Troops
|
|
Widescreen
Games (F)
|
|
PS2,
PC
|
|
Released
|
Cyclone
Circus
|
|
Playlogic
Game Factory (NL)
|
|
PS2
|
|
Released
|
Xyanide
|
|
Overloaded
(NL)
|
|
Mobile
Phones
|
|
Released
|
World
Racing 2
|
|
Synetic
(G)
|
|
PS2,
Xbox, PC
|
|
Released
|
Knights
of the Temple 2
|
|
Cauldron
(SK)
|
|
PS2,
Xbox, PC
|
|
Released
|
Gene
Troopers
|
|
Cauldron
(SK)
|
|
PS2,
Xbox, PC
|
|
Released
|
Xyanide
|
|
Playlogic
Game Factory (NL)
|
|
Xbox
|
|
Released
(1)
|
Age
of Pirates: Caribbean Tales
|
|
Akella
(Russia)
|
|
PC
|
|
Released
|
Infernal
|
|
Metropolis
(Poland)
|
|
PC
|
|
Released
|
Ancient
Wars: Sparta
|
|
World
Forge (Russia)
|
|
PC
|
|
Released
|
Xyanide
Resurrection
|
|
Playlogic
Game Factory (NL)
|
|
PSP
|
|
Released
|
Evil
Days Of Luckless John
|
|
3A
Entertainment (Great Britain)
|
|
PC
|
|
Released
|
Xyanide:
Resurrection
|
|
Playlogic
Game Factory (NL)
|
|
PS2
|
|
Released
|
Obscure
2
|
|
Hydravision
(F)
|
|
PC
|
|
Released
|
Obscure
2
|
|
Hydravision
(F)
|
|
PS2
|
|
Released
|
Obscure
2
|
|
Hydravision
(F)
|
|
Wii
|
|
Released
|
|
|
|
|
|
|
|
Xyanide:
Resurrection
|
|
Playlogic
Game Factory (NL)
|
|
PC
|
|
Released
|
Dragon
Hunters
|
|
Engine
software (NL)
|
|
DS
|
|
Released
|
|
|
|
|
|
|
|
Under
development
|
|
|
|
|
|
|
Aggression
1914
|
|
Buka
(Russia)
|
|
PC
|
|
Q2
2008
|
Dimensity
|
|
Dagger
Studio (Bulgaria)
|
|
PC
|
|
Q2
2008
|
Red
Bull Break Dancing
|
|
TBC
|
|
DS
|
|
Q2
2008
|
Infernal
2
|
|
Metropolis
(Poland)
|
|
TBC
|
|
Q2
2008 (2)
|
Simon
the Sorcerer 4
|
|
RTL
/Silverstyle Studio (GER)
|
|
PC
|
|
Q2
2008
|
The
Strategist
|
|
Humagade/Canada
|
|
DS
|
|
Q2
2008
|
Sudoku
Ball
|
|
White
Bear
|
|
Wii/PC/DS
|
|
Q4
2008
|
Age
of Pirates: Captain Blood*
|
|
Akella
(Russia)
|
|
PC
|
|
Q3
2008
|
Age
of Pirates: Captain Blood*
|
|
Akella
(Russia)
|
|
Xbox360
|
|
Q3
2008
|
Worldshift
|
|
RTL
Games (Germany)
|
|
PC
|
|
Q4
2008
|
Undisclosed
Title
|
|
Playlogic
Game Factory (NL)
|
|
PS3,
Xbox360, PC
|
|
Q1
2009
|
_______________
1 Released
in the US only
2
Final decision on Next Generation options to
be made.
* working
title
The games
industry is currently in a transition period. The current and Next Gen consoles
(Xbox360, PlayStation 3, Wii) and DS platforms have broadened the market,
appealing to an even larger mass consumer audience than ever before, providing
increased publishing opportunities. The investments in next generation platforms
are however larger than for the previous generation platforms. Playlogic has
created a healthy balance between games available for the current and the next
generation platforms. To spread risk and broaden Playlogic’s portfolio, PC games
and handheld titles are a substantial part of the line-up for the coming
year.
Material
agreements
During
the three months ended March 31, 2008, the Company entered into a number of
publishing and distribution agreements.
Critical
Accounting Policies and Estimates
Our most
critical accounting policies, which are those that require significant judgment,
include: capitalization and recognition of software development costs and
licenses; share-based compensation and revenue recognition. In-depth
descriptions of these can be found in our Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2007 (the “2007 Form 10-K”). There have been no
material changes in our existing accounting policies from the disclosures
included in our 2007 Form 10-K.
Recently
Issued Accounting Pronouncements
In
February 2007, the FASB issued Statement of Financial Accounting Standard No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”, or
SFAS 159. SFAS 159 permits companies to choose to measure many
financial instruments and certain other items at fair value. It is
expected to expand the use of fair value measurements which is consistent with
the Financial Accounting Standards Board’s long-term measurement objectives for
accounting for financial instruments. SFAS 159 is effective for our
first fiscal year that begins after November 15, 2007, which is our fiscal year
2009 that begins in January 2008. The Company is currently evaluating
the impact of this statement to its financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), ‘’Business
Combinations’’, or SFAS No. 141R. SFAS No. 141R will change the
accounting for business combinations. Under SFAS No. 141R, an
acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with
limited exceptions. SFAS No. 141R will change the accounting
treatment and disclosure for certain specific items in a business
combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008. Accordingly, any business combinations we engage in will be
recorded and disclosed following existing GAAP until January 1,
2009. We expect SFAS No. 141R will have an impact on accounting for
business combinations once adopted but the effect is dependent upon acquisitions
at that time. We are still assessing the impact of this
pronouncement.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair value. Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007, the provisions of
which are required to be applied prospectively. The Company believes that SFAS
159 should not have a material impact on the consolidated financial position or
results of operations.
In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), "Business
Combinations" ("SFAS No. 141R"). SFAS No. 141R will change the accounting for
business combinations. Under SFAS No. 141R, an acquiring entity will be required
to recognize all the assets acquired and liabilities assumed in a transaction at
the acquisition-date fair value with limited exceptions. SFAS No. 141R will
change the accounting treatment and disclosure for certain specific items in a
business combination. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, any business combinations the Company engages in will be recorded
and disclosed following existing GAAP until January 1, 2009. The Company expects
SFAS No. 141R will have an impact on accounting for business combinations once
adopted but the effect is dependent upon acquisitions at that time. The Company
is still assessing the impact of this pronouncement.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements--An Amendment of ARB No. 51, or SFAS No. 160"
("SFAS No. 160"). SFAS No. 160 establishes new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years
beginning on or after December 15, 2008. The Company believes that SFAS 160
should not have a material impact on the consolidated financial position or
results of operations.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities" ("SFAS No. 161"). SFAS 161 requires companies with
derivative instruments to disclose information that should enable
financial-statement users to understand how and why a company uses derivative
instruments, how derivative instruments and related hedged items are accounted
for under FASB Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" and how derivative instruments and related hedged items
affect a company's financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The adoption of this
statement is not expected to have a material effect on the Company's future
financial position or results of operations.
Results
of Operations
Three
Months Ended March 31, 2008 Compared to three months ended March 31,
2007
Net
sales. Net sales for the three months ended March 31, 2008 were $4,031,680 as
compared to $3,482,596 for the three months ended March 31, 2007. This increase
of $549,084 or 16% in revenue is primarily related to the release a number of
new titles and titles on next generation platforms such as the Nintendo
Wii.
Gross
Profit. Gross profit totaled $2,215,427 for the three months ended March 31,
2008. For the three months ended March 31, 2008, gross profit totaled
$2,396,195. This small decrease in gross margin is due to the 2007 revenue
consisted mainly of 2 titles that were licensed. In general the margins on
license contract are higher as the cost of goods are being paid by the
licensee.
Gross
Profit as a percentage of sales can vary significantly from period to period due
to the sales mix and the type of sales deals included.
Selling,
Marketing, General and Administrative Expenses. Selling, marketing, general and
administrative expenses totaled $1,331,006, for the three months ended March 31,
2008. For the three months ended March 31, 2007, selling, general and
administrative expenses totaled $1,600,804. This represents a decrease of
$269,798 or 17%. This decrease in selling, general and administrative expenses
is due to managements’ focus on cost control.
Research
and Development. Research and development expenses totaled $63,892 for the three
months ended March 31, 2008. For the three months ended March 31, 2007, research
and development totaled $22,719. This represents a decrease of $41,173 or 181%.
This decrease is due to costs in relation to 3
rd
party
development activities being classified as Cost of Sales. Furthermore, our
in-house studio is focusing on the development of a game to be released in Q1
2009.
Depreciation.
Depreciation expenses totaled $76,820 for the three months ended March 31, 2008.
For the three months ended March 31, 2007, the depreciation expense totaled
$81,690. The slight decrease is due to some fully depreciated assets. We expect
a slight increase in depreciation for the rest of the year as we are moving our
headquarter offices, which will lead to some leasehold improvement
investments.
Gain on
debt restructuring. Gain on debt restructuring totaled $0 for the three months
ended March 31, 2008. For the three months ended March 31, 2007, gain on debt
restructuring totaled $387,408. The gains relate to debt extinguishments
with various creditors arranged during the first three months of last year. For
2008 we have not restructured any debt.
Interest
Expense. Interest expense totaled $57,915 for the three months ended March 31,
2008. For the three months ended March 31, 2007, interest expense totaled
$319,446. This represents a decrease of $261,531, or 82%. This decrease in
interest expense is primarily due to the decrease of interest bearing short term
loans during the year. During the year 2007 most loans were repaid or converted
into equity.
Net
Result. Our net profit was $696,747 for the three months ended March 31, 2008.
For the three months ended March 31, 2007, the net profit totaled $758,944.
Although a slight decrease in profit is shown, the quality of the result has
improved dramatically. The company was able to restructure the debts, and
through continued focus on the operational expenses the expenses are very flat
compared to prior quarters. Last year we were able to also restructure debts
which led to a one-time gain of $387,408 impacting the result.
Other
comprehensive income. Other comprehensive income represents the change of the
Currency Translation Adjustments balance during the reporting period. The
Currency Translation Adjustments balance that appears in the stockholders’
equity section is cumulative in nature and is a consequence from translating all
assets and liabilities at current rate whereas the stockholders’ equity accounts
are translated at the appropriate historical rate and revenues and expenses
being translated at the weighted-average rate for the reporting period. The
Change in currency translation adjustments was $94,232 for the three months
ended March 31, 2008 and $(104,667) for the three months ended March 31,
2007.
Cash flow from operations.
We
showed a net profit of $696,747 for the 3 months ended March 31, 2008, however
the cash flow from operations shows $345,472 negative. This is due to the fact
that we released 3 new titles in the first quarter, two of which were in
March, which causes some outstanding receivables in the balance
sheet. Sales resulting in revenue, but not yet in cash.
Liquidity
and Capital Resources
As
of March 31, 2008 our cash balance was $6,629,290.
We expect
our capital requirements to increase over the next several years as we continue
to develop new products both internally and through our third-party developers,
increase marketing and administration infrastructure, and embark on in-house
business capabilities and facilities. Our future liquidity and capital funding
requirements will depend on numerous factors, including, but not limited to, the
cash generation from the released games, the cost of hiring and training
production personnel who will produce our titles, the cost of hiring and
training additional sales and marketing personnel to promote our products, and
the cost of hiring and training administrative staff to support current
management.
Our net
accounts receivable, after providing an allowance for doubtful accounts, at
March 31, 2008 was $1,908,464.
Fluctuations in Quarterly Operating
Results and Seasonality
We have
experienced fluctuations in quarterly operating results as a result of the
timing of the introduction of new titles; variations in sales of titles
developed for particular platforms; market acceptance of our titles; development
and promotional expenses relating to the introduction of new titles; sequels or
enhancements of existing titles; projected and actual changes in platforms; the
timing and success of title introductions by our competitors; product returns;
changes in pricing policies by us and our competitors; the accuracy of
retailers’ forecasts of consumer demand; the size and timing of acquisitions;
the timing of orders from major customers; and order cancellations and delays in
product shipment. Quarterly comparisons of operating results are not necessarily
indicative of future operating results.
Item 3. Quantitative and Qualitative Disclosures about
Market Risk
We
transact business in foreign currencies and are exposed to risks resulting from
fluctuations in foreign currency exchange rates. Accounts relating to foreign
operations are translated into United States dollars using prevailing exchange
rates at the relevant quarter end. Translation adjustments are included as a
separate component of stockholders’ equity. For the three months ended March 31,
2008, our accumulated foreign currency translation adjustment loss was
approximately $3.0 million.
Item 4.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Based on
an evaluation under the supervision and with the participation of management,
our principal executive officer and principal financial officer have concluded
that our disclosure controls and procedures as defined in rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange
Act”) were effective as of September 30, 2007 to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission rules and forms
and (ii) accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate to
allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting during the
first quarter of 2008, which were identified in connection with management’s
evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under
the Exchange Act, that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
PART
II — OTHER INFORMATION
Item
1. Legal Proceedings
In June
2007, Playlogic Entertainment Inc. was sued in class action before the US
district court in Manhattan, with respect to alleged damage as a result of copy
protection software included in Age of Pirates – Caribbean Tales. We do not
foresee any liability in this matter, as plaintiffs have clearly sued the wrong
company and the wrong entity. Playlogic acts only as a publisher of the game and
therefore is not liable for possible faults in production or distribution.
Moreover, as far as any claim could be brought against Playlogic, it would be
the Dutch subsidiary Playlogic International NV, with its statutory seat in
Amsterdam, The Netherlands, that would have to be sued. As a consequence, the
pending case should fail on both grounds and any new action against the Dutch
subsidiary would have to be brought before the Dutch courts that are even more
likely than the US courts to reject class actions like this.
Except as
referred to above there were no new material legal proceedings or material
developments to the pending legal proceedings that have been previously
reported in Part I, Item 3 of our 2006 Form 10-K. A full
discussion of our pending legal proceedings is also contained in Part I,
Item 1, “Notes to Unaudited Condensed Consolidated Financial Statements” of
this Report.
Item
1A. Risk Factors
There
have been no material changes to the Risk Factors disclosed in Item 1A of
our Annual Report on Form 10-K for the year ended December 31,
2007.
Item
2 - Changes in Securities.
No
response required.
Item
3 - Defaults Upon Senior Securities.
No
response required.
Item
4 - Submission of Matters to a Vote of Security Holders.
No
response required.
Item
5 - Other Information.
No
response required.
Item
6. Exhibits
Exhibits:
|
|
|
|
|
|
31.1
|
|
Chief
Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Chief
Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Chief
Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Chief
Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
Playlogic
International, Inc.
|
|
|
|
|
|
Date:
May 8, 2008
|
By:
|
/s/ Willem
M. Smit
|
|
|
Willem
M. Smit
Chief
Executive Officer
|
|
|
|
|
Exhibit
Index
Exhibits:
|
|
|
|
|
|
31.1
|
|
Chief
Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Chief
Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Chief
Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Chief
Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
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