Left Behind Games (LFBG) 10-Q 2011 Q3 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 X.. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period endedDecember 31, 2010

OR

.. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _____to_____

COMMISSION FILE NUMBER 000-50603

LEFT BEHIND GAMES INC.

 (Exact name of registrant as specified in its charter)

NEVADA	91-0745418
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

25060 HANCOCK AVENUE, SUITE 103 BOX 110, MURRIETA, CA 92562

 (Address of principal executive offices) (Zip Code)

(951) 894-6597

 (Registrant's telephone number, including area code)

With copies to:

Virginia K. Sourlis, Esq.

The Sourlis Law Firm

214 Broad Street

Red Bank, New Jersey 07701

Tel: (732) 530-9007

Fax: (732) 530-9008

www.SourlisLaw.com

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X. No.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes. No.

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting Company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	.(Do not check if a smaller reporting company)	Smaller reporting company	X.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes. No X.

As of February 16, 2011, the Registrant had 4,956,321,980 shares of common stock, par value $0.001 per share, issued and outstanding.

PART I.	FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	3
	CONDENSED CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2010 AND MARCH 31, 2010	3
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 2010 AND 2009	4
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 AND 2009	5
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	21
ITEM 4.	CONTROLS AND PROCEDURES	21
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	22
ITEM 1A.	RISK FACTORS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	22
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	22
ITEM 4T.	[REMOVED AND RESERVED BY THE SECURITIES AND EXCHANGE COMMISSION]	22
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	23

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

		December 31,		March 31,
		2010		2010
ASSETS
Current assets
Cash	$	138,329	$	56,677
Restricted cash		30,000		30,000
Accounts receivable		204		6,915
Inventories, net		126,584		148,058
Prepaid royalties		6,750		30,426
Prepaid expenses and other current assets		89,191		6,048
Total current assets		391,058		278,124
Property and equipment, net		83,643		68,290
Note receivable		67,407		101,111
Intellectual property, net		52,823		85,938
Other assets		35,927		5,927
Total assets	$	630,858	$	539,390
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses	$	1,128,919	$	1,847,450
Payroll liabilities payable		250,236		161,104
Convertible debt		74,063		280,000
Notes payable, net of discounts		39,828		31,200
Notes payable in default		--		177,338
Deferred revenue		103,488		100,401
Total current liabilities		1,596,534		2,597,493
Commitments and Contingencies
Stockholders' Deficit
Series A preferred stock, $0.001 par value; 3,586,245 shares authorized,
issued and outstanding as of December 31, 2010 and March 31, 2010, respectively;
liquidation preference of $188,500		3,586		3,586
Series B preferred stock, $0.001 par value; 16,413,755 shares authorized;
7,890,529 and 11,040,929 shares issued and outstanding as of December 31, 2010 and   March 31, 2010, respectively;		7,891		11,041
Series C preferred stock, $0.001 par value, 10,000 authorized,		10		10
issued and outstanding as of December 31, 2010 and March 31, 2010, respectively;
Series D convertible preferred stock, 1,000 shares authorized, 109 and 9		--		--
shares issued and outstanding as of December 31, 2010 and March 31, 2010, respectively;
Common stock, par value $0.001 per share; 5,000,000,000 shares
authorized; 4,682,633,586 and 2,279,968,311 shares issued and outstanding
as of December 31, 2010 and March 31, 2010, respectively		4,682,634		2,280,419
Treasury stock		24,500		24,500
Additional paid-in capital		58,198,222		55,486,725
Accumulated deficit		(63,882,519)		(59,864,384)
		(965,676)		(2,258,103)
Total liabilities and stockholders' deficit	$	630,858	$	539,390

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

		Three Months		Three Months		Nine Months		Nine Months
		Ended		Ended		Ended		Ended
		December 31,		December 31,		December 31,		December 31,
		2010		2009		2010		2009
Net revenues	$	1,136,266	$	52,868	$	1,359,136	$	95,264
Costs and expenses:
Cost of sales – product costs		73,219		11,372		208,407		38,279
Cost of sales – intellectual property costs		56,632		9,418		59,203		16,609
Gross profit		1,006,415		32,078		1,091,526		40,376
Operating expenses:
Selling, general and administrative		424,883		323,474		677,136		463,986
Consulting		76,532		3,513,513		2,001,305		6,612,070
Depreciation and amortization		43,352		6,403		65,487		22,806
Wages and salaries		269,128		3,727,831		864,615		3,948,004
Product development		65,121		26,967		1,511,252		76,928
Total operating expenses		879,016		7,598,188		5,119,795		11,123,794
Operating income (loss)		127,399		(7,566,110)		(4,028,269)		(11,083,418)
Other (income) expense:
Interest and other debt expenses		3,076		27,499		(12,929)		525,971
Net profit (loss)		124,323		(7,593,609)		(4,015,340)		(11,609,389)
Basic and diluted profit (loss) per common share	$	0.00	$	(0.00)	$	(0.00)	$	(0.01)
Weighted average number of common          shares outstanding		4,248,762,939		1,545,754,982		3,355,805,591		905,605,400

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months		Nine Months
		Ended		Ended
		December 31,		December 31,
		2010		2009
Cash flows from operating activities:
Net loss	$	(4,018,135)	$	(11,609,389)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		65,487		22,806
Recognition of deferred stock compensation		--		100,025
Stock based compensation - consultants		199,904		480,603
Stock based compensation - employees and directors for services		--		3,657,100
Interest paid in common stock		--		--
Change in fair value of warrant		--		2,023
Convertible debt issued for services		3,345,780		5,446,000
Amortization of debt discount		28		336,499
Provision for notes receivable reserve		33,704		--
Issuance of shares for antidilution protection		103,742		--
Beneficial conversion on note payable conversions		--		131,251
Changes in operating assets and liabilities:
Accounts receivable		6,711		(36,595)
Inventories		30,474		18,473
Note receivable		--		(39,589)
Prepaid expenses		(59,467)		3,923
Other assets and prepaid royalties		(30,000)		3,635
Accounts payable and accrued expenses		(311,444)		96,169
Deferred income – product sales		3,087		1,336
Net cash used in operating activities		(630,129)		(1,385,730)
Cash flows from investing activities:
Purchases of property and equipment		(47,725)		(2,457)
Net cash used in investing activities		(47,725)		(2,457)
Cash flows from financing activities:
Proceeds from the issuance of notes payable		25,000		25,000
Borrowings from related party		--		2,089
Proceeds from the issuance of common stock		734,506		1,578,550
Net cash provided by financing activities		759,506		1,605,639
Net (decrease) increase in cash		81,652		217,452
Cash at beginning of period		56,677		7,778
Cash at end of period	$	138,329	$	225,230

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

		Nine Months		Nine Months
		Ended		Ended
		December 31,		December 31,
		2010		2009
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	--	$	--
Income taxes	$	--	$	--
Supplemental disclosures of non-cash and investing and financing information:
Issuance of common stock under license agreement	$	--	$	137,500
Exchange of equipment for settlement of accounts payable	$	--	$	503
Conversion of preferred B stock into common stock	$	3,150	$	--
Discount on convertible notes payable	$	25,000	$	--
Conversion of notes and accounts payable into common stock	$	854,175	$	1,754,453
Common stock issued for inventory	$	9,000		--
Return of common stock as treasury shares	$	--	$	24,500

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

LEFT BEHIND GAMES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Left Behind Games, Inc., a Nevada corporation, conducts all of its operations through its wholly owned subsidiary, Left Behind Games, Inc. d/b/a Inspired Media Entertainment (herein referred to as the “Company”, “LFBG”, “we”, “us”, “our” or similar terms). LFBG was founded on December 31, 2001 and incorporated in the state of Delaware on August 22, 2002 for the purpose of engaging in the business of producing, distributing and selling video games and associated products. We completed the development of a video game based upon the popular LEFT BEHIND series of novels published by Tyndale House Publishers (“Tyndale”) and as of November 2006, began commercially selling the video game to retail outlets nationwide.

We hold an exclusive worldwide license (the “License”) from Tyndale to develop, manufacture and distribute video games and related products based on the LEFT BEHIND series of novels published by Tyndale.  Additionally, we have acquired ownership of the Charlie Church Mouse brand from Lifeline Studios and all assets of Cloud9Games management of both organizations continue as exclusive developers for some of our new products.

BASIS OF PRESENTATION

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) including the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Such rules and regulations allow us to condense and omit certain information and footnote disclosures normally included in audited financial statements prepared in accordance with accounting principles generally accepted in the United States of America. We believe these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal, recurring adjustments) that are necessary for a fair presentation of our consolidated financial position and consolidated results of operations for the periods presented. The information included in this Form 10-Q should be read in conjunction with the condensed consolidated financial statements and notes thereto included i n our Form 10-K for the year ended March 31, 2010. The interim unaudited consolidated financial information contained in this filing is not necessarily indicative of the results to be expected for any other interim period or for the full year ending March 31, 2011.

ADVERTISING COSTS

The Company expenses the production costs of advertising the first time the advertising takes place. During the nine months ended December 31, 2010, the Company expensed $132,856 of advertising costs.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2 – CONVERTIBLE DEBT ISSUED FOR SERVICES

The arrangement with consultant #1 below was terminated with an effective date of September 30, 2010. During the preparation of this 10-Q, the Company’s new audit firm identified errors in the accounting for these consulting arrangements that led to a restatement of previously issued financial statements. The company is also evaluating the structure of these consulting agreements to determine whether or not the consulting arrangement complied with the SEC rules & regulations. Accordingly, the Company has hired legal counsel to evaluate the agreement and request an interpretation from the SEC to ensure that there was no violation of the SEC rules or regulations.

7

April 2009 Consulting Arrangement – Consultant #1

On September 2, 2008, the Company entered into a one-year consulting agreement (the “2008 Consulting Agreement”) with a consultant (the “Consultant”) pursuant to which, in exchange for services rendered by the Consultant to the Company, the Consultant received an aggregate of 8,500,000 shares of common stock of the Company.  In April of 2009, the Company added an addendum to 2008 Consulting Agreement (the “First Addendum”) whereby the Consultant also earned $10,000 per month for the services rendered and received an additional 20,000,000 shares of the Company’s common stock.  The First Addendum also provided that Consultant had the right to convert the monies owed under the amended consulting agreement into shares of common stock of the Company at a rate of $0.005 no later than March 31, 2010.  In April of 2009, the Company added a second addendum to the 2008 Consulting Agreement (the “Second Addendum ”) whereby the conversion rate was reduced to $0.001 per share.  All other terms remained the same.  In April of 2009, the parties entered into the third addendum to the 2008 Consulting Agreement (the “Third Addendum”) whereby the Consultant agreed that in the event the Consultant sold common stock of the Company at a rate exceeding 10,000,000 shares per 30 calendar day period, the Consultant would pay the Company an early-sell fee for each period of $100,000 or an amount equally agreed upon by the Company and Consultant. 

During the three months ended June 30, 2010, the Company received $98,000 in fees from the consultant under this provision.  During the year ended March 31, 2010, the Company received $708,669 under this provision.  The Company recorded these fees against additional paid-in capital.  

On July 23, 2009, the Company replaced the 2008 Consulting Arrangement with a new automatically renewable six month consulting agreement (the “2009 Consulting Agreement”) whereby the Consultant earned a sales commission but not less than $40,000 per month in exchange for services rendered.  The 2009 Consulting Agreement also stated that if during the term of such agreement, the Company does not pay the Consultant as scheduled, the Consultant shall have the choice to accept such monies owed at a later date or to convert such amounts owed into common stock of the Company at a rate of $0.001 per share, in the Consultant’s sole discretion. 

On April 7, 2010, the Company replaced the 2009 Consulting Agreement with a new automatically renewable six month consulting agreement (the “2010 Consulting Agreement”) whereby the Consultant earned $10,000 per month in consideration for services rendered.  The 2010 Consulting Agreement also provided that in the event the Company does not pay the Consultant as scheduled, each such amount due shall become a stock purchase transaction with an effective date equal to the day of any such missed payment.  The stock purchase agreement provided that the Consultant was purchasing shares at a rate of $0.0001 per share.

January 2010 Consulting Arrangement – Consultant #2

In January of 2010, the Company entered into a development arrangement whereby a consultant earned $5,000 per month for services rendered. If the invoice was not paid at the end of the service month, the consultant has the option to receive shares at a conversion rate of $0.0000625 per share. Consequently, at the end of each month, the amount due under the consulting agreement becomes a convertible note. The note is not secured and has no other terms of repayment.

September 2010 Consulting Agreement – Consultant #3

In September of 2010, the Company entered into an agreement with a consultant to issue a $142,500 convertible note for services rendered.  The note is convertible into common stock at $0.001425 per share.  The note is not secured and has no other terms of repayment.  

Accounting

In determining the fair value of the convertible debt issued for services, the Company followed guidance in ASC 470-20-30 “Convertible Instruments Issued to Nonemployees for Goods and Services.”  Under ASC 470-20-30, convertible instruments issued for services are to be valued using the measurement date as determined under ASC 505-50 “Equity-Based Payments to Non-Employees.”  In addition, ASC 470-20-30 provides guidance on determining fair value of convertible instruments issued for services as follows: (1) Fair value of services if determinable (2) Cash received for similar convertible instruments sold to unrelated parties or (3) At a minimum, the value of the equity that could be received if the instrument were converted.  The Company determined that the fair value of the common stock that could be received if the debt were converted was the best measure of fair value in the above transactions.  Accordingly t he value of the underlying common stock on the measurement date, as determined by ASC 505-50, was used to determine the fair value of the convertible debt. 

The Company estimated the fair value of the convertible notes issued to the consultants for services during the six months ended September 30, 2010 to be $3,345,780 and recorded this amount as consulting expense.  During the nine months ended December 31, 2010, $493,438 of the convertible debt was converted into 915,000,000 shares of common stock and the consultants had an outstanding convertible debt balance of $74,063.

8

During the year ended March 31, 2010, $80,000 of the convertible debt was converted into 100,000,000 shares of common stock and the consultant had an outstanding convertible debt balance of $280,000.  

NOTE 3 - GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of LBG as a going concern. We have started generating revenue but have incurred net losses of $4,015,340 during the nine months ending December 31, 2010 and had an accumulated deficit of $63,882,519 at December 31, 2010. In addition, we used cash in our operations of $630,129 during the nine months ending December 31, 2010.

We plan to continue to control and reduce costs where necessary while focusing on the expansion of our product line on more consumer platforms to expand our business. Management plans to continue to raise additional capital in 2011 to fund ongoing business operations and potential business combinations.

Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and to repay the liabilities arising from normal business operations when they come due. We plan to continue to provide for our capital requirements by issuing additional equity securities. No assurance can be given that additional capital will be available when required or on terms acceptable to us. We also cannot give assurance that we will achieve significant revenues in the future. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, we will have sufficient funds to execute our business plan or generate positive operating results.

These matters, among others, raise substantial doubt about the ability of LBG to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

We had a working capital deficit at December 31, 2010 of $1,205,476.

NOTE 4 - INVENTORIES

Inventories consisted of the following:

	December 31, 2010			March 31, 2010
Raw Materials	$	--	$	85,660
Finished Goods		126,583		62,398
Total Inventories	$	126,583	$	148,058

NOTE 5 - INTANGIBLE ASSETS

Intangible assets consisted of the following:

	December 31, 2010			March 31, 2010
License	$	137,500		$	137,500
Trademarks (Cloud 9 Games asset purchase)		14,848			--
Sub-total		152,348			137,500
Less accumulated amortization		(103,125	)		(51,562)
	$	49,223		$	85,938

On July 5, 2007, we obtained an exclusive license to sell three (3) PC games featuring Charlie Church Mouse to the Christian Booksellers Association (CBA) market from Lifeline Studios, Inc., the developer and original publisher. On June 30, 2009, we expanded our license agreement for Charlie Church Mouse PC Games to include all distribution channels worldwide. We are amortizing the license entered into on June 30, 2009 over its two year term.

We have performed a preliminary analysis of the assets that we acquired in the Cloud 9 Games transaction (see note 9) and have assigned $14,848 to trademarks.  

9

Amortization expense for intangible assets was $51,563 and $34,375 for the nine month periods ended December 31, 2010 and 2009, respectively.

NOTE 6 - STOCKHOLDERS’ EQUITY

Common Stock

We are authorized to issue 5,000,000,000 shares of common stock, $0.001 par value per share. The holders of our common stock are entitled to one vote per share of common stock held and have equal rights to receive dividends when, and if, declared by our Board of Directors, out of funds legally available therefore, subject to the preference of any holders of preferred stock. In the event of liquidation, holders of common stock are entitled to share ratably in the net assets available for distribution to stockholders, subject to the rights, if any, of holders of any preferred stock then outstanding. Shares of common stock are not redeemable and have no preemptive or similar rights.

During the nine months ending December 31, 2010, we issued the following:

(1)

337,370,650 shares of common stock to independent third parties for services provided, valued at $199,904.

(2)

863,634,653 shares of common stock to third parties for proceeds of $734,505

(3)

1,129,334,061 shares of common stock to convert outstanding debt and settle accounts payable with a total value of $854,175

(4)

25,500,000 shares of common stock to purchase inventory with a fair value of $9,000

(5)

3,150,400 shares of common stock for the conversion of 3,150,400 shares of our Series B preferred shares

On September 3, 2010, we filed an Information Statement, which noted that the majority of voting shares of the company had authorized an increase of authorized shares from 3 billion to 5 billion.

Anti-dilution Rights to Common Stock

In 2004, we entered into an agreement with Charter Financial Holdings, LLC in connection with consulting services. The compensation section of the agreement requires that we issue shares of our common stock to Charter sufficient to ensure that its ownership in us does not fall below one percent (1%) of our outstanding common stock. The result is that for each time we issue or sell stock, we must issue shares equal to one percent of such issuance to Charter Financial Holdings, LLC to maintain their ownership percentage. Charter Financial Holdings, LLC is not required to pay additional consideration for those shares. During the 9 months ended December 31, 2010, we issued Charter Financial Holdings, LLC 43,225,511 shares at a fair market value of $103,742 for legal services.

NOTE 7 - NOTES PAYABLE

During the fiscal years ended March 31, 2010 and 2009 we entered into several borrowing arrangements. The amounts borrowed under those arrangements are included in notes payable in the accompanying unaudited condensed consolidated balance sheet.

No notes payable are in default and consisted of the following at December 31, 2010:						Notes Payable,
		Face Amount of
		Notes Payable		Note Discounts		Net of Discounts
Individual loans	$	39,800	$	-	$	39,800
2 year convertible notes		25,000		(24,972	)	28
Total notes payable	$	64,800	$	(24,972	)$	39,828

Notes payable consisted of the following at March 31, 2010:
						Notes Payable,
		Face Amount of				Net of
		Notes Payable		Note Discounts		Discounts
Individual loans	$	25,000	$	--	$	25,000
Individual loans (in default)		95,737		--		95,737
1 year convertible notes (in default)		81,601		--		81,601
3 year convertible notes		6,200		--		6,200
Total notes payable	$	208,538	$	--	$	208,538

10

In the nine months ended December 31, 2010, one of the remaining individual loan holders converted all $25,000 of his principal into our common stock and the another holder converted his $55,937 principal into a two year convertible note.  At December 31, 2010, we had $2,985 of accrued interest related to the remaining individual loan.

In the nine months ended December 31, 2010, the final one year convertible noteholder converted his $81,601 principal into common stock.  

In the nine months ended December 31, 2010, one of the two remaining holders of the three year convertible notes converted $4,200 of his principal into our common stock.  

In the nine months ended December 31, 2010, an investor lent us $25,000 in the form of a two year convertible note.  As there was a beneficial conversion feature on the agreed conversion price, we recorded a discount of $25,000 against that note and began amortizing it through the effective interest method. During the nine months ended December 31, 2010, $28 had been amortized to interest expense.  At December 31, 2010, we had $4,125 of accrued interest related to the remaining 2 year convertible notes.

NOTE 8 – NOTE RECEIVABLE

We provided several no-interest short-term loans to another Christian videogame developer, Digital Praise, Inc., a California corporation (“DP”), to assist them with their working capital requirements. As of December 31, 2010, DP owed us $202,221. We established a reserve of $101,111 against this note receivable as a charge to other income in the fiscal year ended March 31, 2010 and increased this reserve by another $16,852 due to uncertainty of collectibility and, as a result, show a net amount of $84,259 on our December 31, 2010 consolidated balance sheet.

NOTE 9 – CLOUD 9 GAMES ACQUISITION

On October 17, 2010, we entered into a Binding Letter of Agreement (the “Agreement”) with Cloud 9 Games and Curtis Ratica, the President of Cloud 9 Games (Cloud 9). Pursuant to the Agreement, we purchased 100% of the assets of Cloud 9 for a total consideration of $30,000. In consideration for the assets, we agreed to pay Mr. Ratica a nominal amount of cash and to enter into a three year employment agreement with Mr. Ratica pursuant to which Mr. Ratica shall serve as our Executive Director of Development (Austin).  

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

ASSETS ACQUIRED AND LIABILITIES ASSUMED
		CLOUD 9 GAMES
Inventory	$	15,152
Intangibles assets		14,848
Total assets acquired		30,000
Total liabilities assumed		--
Net assets acquired	$	30,000

If the acquisitions had occurred on April 1, 2009, our results of operations for fiscal 2010 and 2011 would not have been materially different from the reported results and as such, no pro forma results of operations are included.

NOTE 10– SUBSEQUENT EVENTS

Effective January 17, 2011, the Company was reincorporated in the state of Nevada. Prior to the Company’s reincorporation, it was a Washington corporation.

On January 20, 2011, we acquired 100% of the intellectual property, including but not limited to, the registered trademark, source code and website (www.mypraize.com), and certain tangible assets of MyPraize, LLC ("MyPraize") pursuant to an Asset Acquisition Agreement entered into by and between the Company, MyPraize, Joshua Holmes and Matthew Gaiser. We did not assume any of the debts or liabilities of MyPraize. We also entered into a three year employment agreement with Joshua Holmes pursuant to which Mr. Holmes will serve as the Chief Scientist of our MyPraize business unit. We also extended an offer for a three year employment agreement to Matthew Gaiser, the MyPraize Site Administrator.

11

Since January 1, 2011, we issued 121,714,287 of our restricted common stock shares in exchange for $59,000 in cash from six investors. We issued 151,974,107 shares of common stock to settle accounts payable in the amount of $189,724.

On February 13, 2011, the Board of Directors approved to become effective as of February 15, 2011, a salary for our CEO, Troy Lyndon, in the amount of $60,000 per year and an increase in the Board Compensation received by our Director, Richard Knox, Jr. to $3,000 per month.

On February 17, 2011, the Board of Directors of the Company and stockholders owning an aggregate of 67.6% of the voting securities of the Company voted in lieu of a meeting of stockholders, to amend the Company’s Certificate of Incorporation to increase the authorized common stock of the Company from five billion (5,000,000,000) shares to ten billion (10,000,000,000) shares.  The Company intends to file a Preliminary Information Statement on Schedule 14C with the Securities and Exchange Commission on February 22, 2011.  The amendment will not become effective until 21 days from the date of mailing of a Definitive Information Statement to the Company’s stockholders.  The effective date is anticipated to be at or around March 28, 2011.

12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by the unaudited condensed consolidated financial statements and notes thereto, included in Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.

FORWARD LOOKING STATEMENTS

This document contains statements that are considered forward-looking statements. Forward-looking statements give our current expectations, plans, objectives, assumptions or forecasts of future events. All statements other than statements of current or historical fact contained in this annual report, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward -looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” and similar expressions. These statements are based on our current plans and are subject to risks and uncertainties, and as such our actual future a ctivities and results of operations may be materially different from those set forth in the forward looking statements. Any or all of the forward-looking statements in this quarterly report may turn out to be inaccurate and as such, you should not place undue reliance on these forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions due to a number of factors, including:

·

continued development of our technology;

·

consumer acceptance of our current and future products

·

dependence on key personnel;

·

competitive factors;

·

the operation of our business; and

·

general economic conditions.

These forward-looking statements speak only as of the date on which they are made, and except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.

THE COMPANY

Left Behind Games Inc., a Nevada corporation, conducts all of its operations through its wholly owned subsidiary, Left Behind Games Inc. d/b/a Inspired Media Entertainment (herein referred to as the “Company”, “LFBG”, “we”, “us”, “our” or similar terms). LFBG was founded on December 31, 2001 and incorporated in the state of Delaware on August 22, 2002. The Company is engaged in the development, production and sale of Christian inspirational PC video games based upon a number of brands and licenses, including the popularLeft Behind series of novels, published by Tyndale House Publishers. The mission of the Company is to become the world’s leading independent developer and publisher of quality interactive entertainment products that perpetuate positive values and appeal to mainstream and faith-based audiences. As of the date of this Annual Report, we produce and sell inspirational video games.

Our common stock is quoted on the OTC Bulletin Board under the ticker symbol “LFBG.”

On December 31, 2001, we signed a license agreement with Tyndale House Publishers for the exclusive world-wide rights to theLeft Behind brand for the purpose of electronic games. According to Tyndale House Publishers, theLeft Behind’s book series has sold more than sixty three (63) million copies and as a result, the ten initial books, followed by children’s books, comic books, music and three movies with theLeft Behind brand name have generated hundreds of millions of dollars at retail. According to a Barna Research study,Left Behind has also become a recognized brand name by more than one-third (1/3) of Americans.

Left Behind Games, Inc., a Nevada (formerly Washington) corporation, became a public company on February 7, 2006. On that date, through a reverse merger acquisition, we acquired the public entity Bonanza Gold, Inc., a Washington corporation which had been in operation since 1961. As a result of the share exchange agreement, LFBG shareholders and management controlled the new public company and as part of the transaction, we changed the name of Bonanza Gold, Inc. to Left Behind Games, Inc. We are currently doing business under the name “Inspired Media Entertainment.”

13

Due to the high impact of the brand name “Left Behind Games”recognized withinthe marketplace, we have retained this name although other products have been added to our line. As time goes on, and we continue to add new products, we anticipate also operating under our dba, Inspired Media Entertainment.

Our Company became one of the first to develop, publish, and distribute products game for the multi-billion dollar inspirational marketplace when in November of 2006, we released our first product, “LEFT BEHIND: Eternal Forces”, a PC real-time strategy game. We successfully gained entry into more than ten thousand (10,000) retail locations, including Target, Best Buy, Amazon.com, GameStop, EB Games, select Wal-Marts, Circuit City, Comp USA and numerous others.

On July 5, 2007, we obtained an exclusive license to sell three (3) PC games featuring Charlie Church Mouse to the Christian Booksellers Association (CBA) market from Lifeline Studios, Inc., the developer and original publisher. On June 30, 2009, we expanded our license agreement for Charlie Church Mouse PC Games to include all markets and distribution channels worldwide.

On May 20, 2008, we acquired the publishing and distribution rights to the PC game, “Keys of the Kingdom.” This game features brain-teasing dynamics and inspirational scriptures. We agreed to pay the author a royalty of fifteen percent (15%) of gross profits.

On April 13, 2010, we amended our License Agreement with Lifeline Studios through which we purchased the exclusive rights to the Charlie Church Mouse brand from Lifeline Studios in exchange for a payment due by September 30, 2010 of $200,000 in cash or 100 million shares of common stock in the Company. We subsequently elected to issue the 100 million shares of restricted common stock for the purchase.

To date, we have financed our operations primarily through the sale of shares of our common stock. During the nine months ended December 31, 2010, we raised $713,568 through the sale of common stock to certain “accredited investors” under several different formats. We continue to generate operating losses and have only just begun to generate revenues.

Furthermore, the report by our Independent Registered Public Accounting Firm on our financial statements includes a paragraph describing substantial doubt about our ability to continue as a “going concern” as of and for the year ended March 31, 2010.

On September 3, 2010, we filed an Information Statement, which noted that the majority of voting shares of the company had authorized an increase of authorized shares from 3 billion to 5 billion.

On October 17, 2010, we entered into a Binding Letter of Agreement (the “Agreement”) with Cloud 9 Games and Curtis Ratica, the President of Cloud 9 Games. Pursuant to the Agreement, we purchased 100% of the assets of Cloud 9 Games. In consideration for the assets, we agreed to pay Mr. Ratica a nominal amount of cash and to enter into a three year employment agreement with Mr. Ratica pursuant to which Mr. Ratica shall serve as our Executive Director of Development (Austin).  

Effective January 17, 2011, the Company was reincorporated in the state of Nevada. Prior to the Company’s reincorporation, it was a Washington corporation.  

On February 17, 2011, the Board of Directors of the Company and stockholders owning an aggregate of 67.6% of the voting securities of the Company voted in lieu of a meeting of stockholders, to amend the Company’s Certificate of Incorporation to increase the authorized common stock of the Company from five billion (5,000,000,000) shares to ten billion (10,000,000,000) shares.  The Company intends to file a Preliminary Information Statement on Schedule 14C with the Securities and Exchange Commission on February 22, 2011.  The amendment will not become effective until 21 days from the date of mailing of a Definitive Information Statement to the Company’s stockholders.  The effective date is anticipated to be at or around March 28, 2011.  

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange Act and must file reports, proxy statements and other information with the SEC. The reports, information statements and other information we file with the Commission can be inspected and copied at the Commission Public Reference Room, 450 Fifth Street, N.W. Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The Commission also maintains a Web site http://www.sec.gov) that contains reports, proxy, and information statements and other information regarding registrants, like us, which file electronically with the Commission. Our mailing address is 25060 Hancock Avenue, Suite 103 Box 110, Murrieta, CA 92562. Our phone number is (951) 894-6597. Our Web site ishttp://www.leftbehindgames.com.

14

RESULTS OF OPERATIONS

Assets

At December 31, 2010, our total assets were $720,374, compared to $539,390 at March 31, 2010.  This increase was primarily due to an increase in cash from $56,677 at March 31, 2010 to $138,560 at December 31, 2010 attributable to our sales activity and $713,568 raised through the sale of common stock, and an increase in prepaid expenses and other current assets from $6,048 at March 31, 2010 to $183,591 at December 31, 2010 attributable to prepaying for participation in upcoming trades shows and for marketing campaign targeted to run over a number of quarters.

Liabilities

At December 31, 2010, our total liabilities were $1,776,787, compared to $2,720,245 at March 31, 2010.  This decrease was primarily due to a decrease in accounts payable from $1,730,224 at March 31, 2010 to $978,523 at December 31, 2010 and accrued expenses of $620,301 at March 31, 2010 compared to $505,035 at December 31, 2010.

Three Months Ended December 31, 2010 and 2009

Revenues

We recorded net revenues of $1,136,266 for the three months ended December 31, 2010 compared to $52,868 in the three months ended December 31, 2009. This represented an increase in our revenues of $1,083,398. During the three month period ended December 31, 2010, our primary distributor accounted for approximately 88% of our revenue. That distributor paid us in cash for the games it purchased and they have no right of return.  The remainder of our revenue came from our master distributor, from cash receipts from the Christian bookstore or church markets or from on-line sales. Revenues grew as interest in our products increased substantially resulting from our largest expansion in company history; growing from 7 to 11 products in a three month period. And we supported the release of these 4 new titles with our largest national television, radio and movie theatre advertising campaign in 5 years. This product expansion was made possible as a result of s trategic relationships resulting from our acquisitions of the Charlie Church Mouse brand and Cloud 9 Games’ assets, and our continuing efforts to publish products from these developers.

The revenues from our master distributor were reduced by a number of deductions under our distribution agreement totaling $478,135, as follows:

Cost of new inventory, distribution fees, MDF, defective allowance and sales commissions	$	475,636
Samples for sales team		2,499
Total Deductions	$	478,135

In the three months ended December 31, 2009, approximately 71% of our revenues arose from sales through our new master distributor. The remainder of our revenue came from cash receipts from the Christian bookstore or church market or from on-line sales.

The revenues from our master distributor were reduced by a number of deductions under our distribution agreement totaling $47,592, as follows:

Manufacturing costs paid by our distributor	$	32,332
Cost of presenting at vendor show		1,500
Retail program deductions		11,684
Cost of games returned to distributor		2,076
Total Deductions	$	47,592

Cost of Sales - Product Costs

We recorded cost of sales - product costs of $73,219 for the three months ended December 31, 2010 compared to $11,372 in the three months ended December 31, 2009. This represented an increase in our cost of sales – product costs of $61,847, or 544%. The increase in cost of sales – product costs was due to the increase in revenues noted above. Cost of sales - product costs consists of product costs and inventory-related operational expenses.

15

Cost of Sales – Intellectual Property Licenses

We recorded cost of sales – intellectual property licenses of $56,632 for the three months ended December 31, 2010 compared to $9,418 in the three months ended December 31, 2009. The increase in cost of sales – intellectual property licenses was due to the increase in revenues noted above.

Consulting

Consulting expense to consultants was $76,532 for the three months ended December 31, 2010 compared to $3,513,513 for the three months ended December 31, 2009.  This represented a decrease in our consulting expenses of $3,436,981.  These expenses were for product development, marketing and investor relations services.

Wages and Salaries

We had wages and salaries expense to employees and directors of $269,128 for the three months ended December 31, 2010 as compared to $3,727,831 for the three months ended December 31, 2009.  The decrease is due to less stock based compensation during the 2010 period.

General and Administrative Expenses

General and administrative expenses were $424,883 for the three months ended December 31, 2010, compared to $323,474 for the three months ended December 31, 2009, an increase of $101,409. The increase was primarily due to the expansion of our business in the past year, which includes additional staff and the maintenance of our product line which expanded from 7 to 11 products.

Product Development Expenses

Product development expenses were $65,121 for the three months ended December 31, 2010, compared to $26,967 for the three months ended December 31, 2009, an increase of $38,154.  The increase was primarily due to expenses related to new game developments.

Interest Expense

We recorded interest expense of $3,076 for the three months ended December 31, 2010, compared to $27,499 in the three months ended December 31, 2009, a decrease of $24,423. The reduction was due to the significant decrease in our notes payable, which have largely converted to common stock.  Our interest expense is comprised of interest incurred on outstanding debts and the, accretion of the debt discounts related to zero coupon notes and, in the 2009 period, amortization of debt issuance costs.

Net Loss

As a result of the above factors, we reported a net profit of $124,323 for the three months ended December 31, 2010, compared to a net loss of $7,593,609 for the three months ended December 31, 2009. In addition, our accumulated deficit at December 31, 2010 totaled $63,882,519.

Nine Months Ended December 31, 2010 and 2009

Revenues

We recorded net revenues of $1,359,136 for the nine months ended December 31, 2010 compared to $95,264 in the nine months ended December 31, 2009. This represented an increase in our revenues of $1,263,872. During the nine month period ended December 31, 2010, our primary distributor accounted for approximately 86% of our revenue. That distributor paid us in cash for the games it purchased and they have no right of return.  The remainder of our revenue came from our master distributor, from cash receipts from the Christian bookstore or church markets or from on-line sales. Revenues grew as interest in our products increased substantially resulting from our largest expansion in company history; growing from 7 to 11 products in a three month period. And we supported the release of these 4 new titles with our largest national television, radio and movie theatre advertising campaign in 5 years. This product expansion was made possible as a result of stra tegic relationships resulting from our acquisitions of the Charlie Church Mouse brand and Cloud 9 Games’ assets, and our continuing efforts to publish products from these developers.

16

The revenues from our master distributor were reduced by a number of deductions under our distribution agreement totaling $485,406, as follows:

Cost of new inventory, distribution fees, MDF, defective allowance and sales commissions	$	482,907
Samples for sales team		2,499
Total Deductions	$	485,406

During the nine month period ended December 31, 2009, approximately 39% of our revenues arose from sales through our new master distributor. The remainder of our revenue came from cash receipts from the Christian bookstore or church market or from on-line sales.

The revenues from our master distributor were reduced by a number of deductions under our distribution agreement totaling $47,592, as follows:

Manufacturing costs paid by our distributor	$	32,332
Cost of presenting at vendor show		1,500
Retail program deductions		11,684
Cost of games returned to distributor		2,076
Total Deductions	$	47,592

Cost of Sales - Product Costs

We recorded cost of sales - product costs of $208,407 for the nine months ended December 31, 2010 compared to $38,279 in the nine months ended December 31, 2009. This represented an increase in our cost of sales – product costs of $170,128, or 444%. The increase in cost of sales – product costs was due to the increase in revenues noted above. Cost of sales - product costs consists of product costs and inventory-related operational expenses.

Cost of Sales – Intellectual Property Licenses

We recorded cost of sales – intellectual property licenses of $59,203 for the nine months ended December 31, 2010 compared to $16,609 in the nine months ended December 31, 2009. This represents an increase in our intellectual property costs of $42,594, or 256%. The increase in cost of sales – intellectual property licenses was due to the increase in revenues noted above.  

Consulting

Consulting expense was $2,001,305 for the nine months ended December 31, 2010 compared to $6,612,070 for the nine months ended December 31, 2009.  This represented a decrease in our stock based compensation to consultants of $4,610,765.  These expenses were for product development, marketing and investor relations services.

Wages and Salaries

We had stock wages and salaries to employees and directors of $864,615 for the nine months ended December 31, 2010 as compared to $3,948,004 for the nine months ended December 31, 2009.  The decrease is due to less stock based compensation during the 2010 period.

General and Administrative Expenses

General and administrative expenses were $677,136 for the nine months ended December 31, 2010, compared to $463,986 for the nine months ended December 31, 2009, an increase of $213,150. The increase was primarily due to the expansion of our business in the past year, which includes additional staff and the maintenance of our product line which expanded from 7 to 11 products.

Product Development Expenses

Product development expenses, were $1,511,252 for the nine months ended December 31, 2010, compared to $76,928 for the nine months ended December 31, 2009, an increase of $1,421,812.  The increase was primarily due to expenses related to new game developments.

17

Interest Expense

We recorded interest income of $(12,929) for the nine months ended December 31, 2010, compared to $525,971 in the nine months ended December 31, 2009, a decrease of $538,900. Our interest expense is comprised of interest incurred on outstanding debts and the, accretion of the debt discounts related to zero coupon notes and, in the 2009 period, amortization of debt issuance costs. Due to the conversion to common stock of the majority of our notes payable, our interest expense was significantly lower in the 2010 period.  We also recognized interest income during the nine months ended December 31, 2010 due to the reversal of an interest over-accrual in the prior fiscal year.

Net Loss

As a result of the above factors, we reported a net loss of $4,015,340 for the nine months ended December 31, 2010, compared to a net loss of $11,609,389 for the nine months ended December 31, 2009. In addition, our accumulated deficit at December 31, 2010 totaled $63,882,519.

CASH REQUIREMENTS, LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2010, we had $138,329 of cash compared to $56,677 of cash at March 31, 2010, an increase of $81,652 largely due to the amount of cash used in our operating activities exceeding the amount that we raised through the private sales of our common stock to “accredited investors”. At December 31, 2010, we had a working capital deficit of $1,205,476 compared to a working capital deficit of $2,319,369 at March 31, 2010.

Operating Activities

For the nine month periods ended December 31, 2010 and 2009, net cash used in operating activities was $630,129 and $1,385,730, respectively. The net losses for the nine month periods ended December 31, 2010 and 2009 were $4,015,340 and $11,609,389, respectively, a decrease of $7,594,049.

Investing Activities

We invested $47,725 in fixed assets during the nine month period ended December 31, 2010 compared to $2,457 in the 2009 period.

Financing Activities

For the nine month periods ended December 31, 2010 and 2009, net cash provided by financing activities was $759,506 and $1,605,639, respectively. The primary element of cash provided by financing activities in both periods was the sale of common stock.

Future Financing Needs

Since our inception in August 2002 through December 31, 2010, we have raised approximately $14 million through funds provided by private placement offerings and convertible notes. This was sufficient to enable us to develop our first product and expand our product line to include 11 games. Although we expect this trend of financing our business through private placement offerings to continue, we can make no guarantee that we will be adequately financed going forward. We do not currently have enough capital to sustain our operations for the next 12 months, of which there can be no assurance.  We will need to continue raising capital through privately placed offerings in order to continue our operations over the next twelve months. It is also anticipated that in the event we are able to continue raising funds at a pace that exceeds our minimum capital requirements, we may elect to spend cash to expand operations or take advantage of business and m arketing opportunities for our long-term benefit. Additionally, we intend to continue to use equity whenever possible to finance marketing, public relations and development services that we may not otherwise be able to obtain without cash.

To date, we have financed our operations primarily through the sale of shares of our common stock and through the issuance of debt instruments. During the nine months ended December 31, 2010, we raised $734,506 of cash through the sale of common stock to certain accredited investors. We continue to generate operating losses.

Furthermore, the report by our Independent Registered Public Accounting Firm on our financial statements includes a paragraph describing substantial doubt about our ability to continue as a “going concern” as of and for the year ended March 31, 2010.

18

Going Concern

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business. Since our inception, we have an accumulated deficit of $63,882,519. We have suffered continuing losses from operations, are in default on certain debt, have negative working capital of $1,205,476, which, among other matters, raises substantial doubt about our ability to continue as a going concern. A significant amount of additional capital will be necessary to advance the development and distribution of our products to the point at which they may generate sufficient gross profits to cover our operating expenses. We intend to fund operations through debt and/or equity financing arrangements, which management believes may be insufficient to fund our capital expenditures, working capital and other cash requireme nts (consisting of accounts payable, accrued liabilities, amounts due to related parties and amounts due under various notes payable) for the fiscal year ending March 31, 2011. Therefore, we will be required to seek additional funds to finance our long-term operations.

We are currently addressing our liquidity issue by continually seeking investment capital through the public markets, specifically, through private placements of common stock and debt. However, no assurance can be given that we will receive any funds in addition to the funds we have received to date.

The successful outcome of future activities cannot be determined at this time and there is no assurance that, if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results.

The consolidated financial statements do not include any adjustments related to recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, however, in the past the estimates and assumptions have been materially accurate and have not required any significant changes. Specific sensitivity of each of the estimates and assumptions to change based on ot her outcomes that are reasonably likely to occur and would have a material effect is identified individually in each of the discussions of the critical accounting policies described below. Should we experience significant changes in the estimates or assumptions which would cause a material change to the amounts used in the preparation of our financial statements, material quantitative information will be made available to investors as soon as it is reasonably available.

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Software Development Costs. Research and development costs, which consist of software development costs, are expensed as incurred. Software development costs primarily include payments made to independent software developers under development agreements. Accounting standards provide for the capitalization of certain software development costs incurred after technological feasibility of the software is established or for the development costs that have alternative future uses. We believe that the technological feasibility of the underlying software is not established until substantially all product development is complete, which generally includes the development of a working model. No software development costs have been capitalized to date.

Impairment of Long-Lived Assets.We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the present value of estimated future cash flows. At December 31, 2010, our management believes there is no impairment of our long-lived assets other than the lease-hold improvements of its abandoned office space and certain trademark costs both of which have been written off in the fiscal year ended March 31, 2008. There can be no assurance however; that market conditions will not change or that there will be demand for our products, which could re sult in impairment of long-lived assets in the future.

19

Stock-Based Compensation. Effective April 1, 2006, on the first day of our fiscal year 2006, we adopted the fair value recognition provisions of the accounting standards applied at that time, using the modified-prospective transition method. Under this transition method, compensation cost recognized in the fiscal year ended March 31, 2007 includes: (a) compensation cost for all share-based payments granted and not yet vested prior to April 1, 2006, based on the grant date fair value estimated in accordance with the accounting standards, and (b) compensation cost for all share-based payments granted subsequent to March 31, 2006 based on the grant-date fair value estimated in accordance with the provisions of accounting standards. Accounting standards requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. As of March 31, 20 08, we had no options outstanding and therefore believe the adoption of this accounting standard had an immaterial effect on the accompanying consolidated financial statements.

Stock-based awards to non-employees are accounted for using the fair value method in accordance with accounting standards. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the third-party performance is complete or the date on which it is probable that performance will occur. We account for stock-based awards to non-employees by using the fair value method.

In accordance with accounting standards, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor's balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we have recorded the fair value of the common stock issued for certain future consulting services as prepaid expenses in its consolidated balance sheet.

Revenue Recognition.We evaluate the recognition of revenue based on the criteria set forth in accounting standards. We evaluate revenue recognition using the following basic criteria and recognize revenue when all four of the following criteria are met:

·

Persuasive evidence of an arrangement exists: Evidence of an agreement with the customer that reflects the terms and conditions to deliver products must be present in order to recognize revenue.

·

Delivery has occurred: Delivery is considered to occur when the products are shipped and risk of loss and reward have been transferred to the customer.

·

The seller’s price to the buyer is fixed and determinable: If an arrangement includes rights of return or rights to refunds without return, revenue is recognized at the time the amount of future returns or refunds can be reasonably estimated or at the time when the return privilege has substantially expired in accordance with SFAS No. 48,Revenue Recognition When Right of Return Exists. If an arrangement requires us to rebate or credit a portion of our sales price if the customer subsequently reduces its sales price for our product to its customers, revenue is recognized at the time the amount of future price concessions can be reasonably estimated, or at the time of customer sell-through.

·

Collectibility is reasonably assured: 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).

For sales to our large retail customers, we defer revenue recognition until the resale of the products to the end customers, or the “sell-through method.” Under sell-through revenue accounting, accounts receivable are recognized and inventory is relieved upon shipment to the channel partner or retail customer as title to the inventory is transferred upon shipment, at which point we have a legally enforceable right to collection under normal terms. The associated sales and cost of sales are deferred by recording “deferred income – product sales” (gross profit margin on these sales) as shown on the face of the consolidated balance sheet. When the related product is sold by our primary channel partner or our largest retail customer to their end customers, we recognize previously deferred income as sales and cost of sales. Our large retail customers provide us with sell-through information on a frequent basis regarding sales to end cu stomers and in-channel inventories.

For sales to our on-line store customers, revenues are deferred until such time as the right of return privilege granted to the customers lapses, which is thirty (30) days from the date of sale for unopened games.

For sales to our Christian bookstore customers and all other customers that cannot provide us with sell-through information and for which we may accept product returns from time to time, revenues are recognized on a cash receipts basis.

In the future, we intend to continue using the sell-through methodology from customers that supply us with sell through reports. We also plan to continue recognizing sales on our on-line store after a one month lag to allow for the right that we have given our on-line customers to return unopened games for thirty (30) days.

20

We continue to accumulate historical product return and price concession information related to our Christian bookstore customers and all other customers. In future periods, we may elect to return to the accrual methodology of recording revenue for those customers upon shipment with estimated reserves at which time we believe we can reasonably estimate returns and price concessions to these customers based upon our historical results.

Revenue from Sales of Consignment Inventory. We have placed consignment inventory with certain customers. We receive payment from those customers only when they sell our product to the end consumers. We recognize revenue from the sale of consignment inventory only when we receive payment from those customers.

Shipping and Handling: In accordance with accounting standards, we recognize amounts billed to customers for shipping and handling as revenue. Additionally, shipping and handling costs incurred by us are included in cost of goods sold.

Historically, we promoted our products with advertising, consumer incentive and trade promotions. Such programs include, but are not limited to, cooperative advertising, promotional discounts, coupons, rebates, in-store display incentives, volume based incentives and product introductory payments (i.e. slotting fees). In accordance with accounting standards, certain payments made to customers by us, including promotional sales allowances, cooperative advertising and product introductory expenditures have been deducted from revenue.

During the nine months ended December 31, 2010, we recorded the following deductions from our revenues:

Cost of new inventory, distribution fees, MDF, defective allowance and sales commissions	$	482,907
Samples for sales team		2,499
Total Deductions	$	485,406

During the nine months ended December 31, 2009, we recorded the following deductions from our revenues:

Manufacturing costs paid by our distributor	$	32,332
Cost of presenting at vendor show		1,500
Retail program deductions		11,684
Cost of games returned to distributor		2,076
Total Deductions	$	47,592

Off-Balance Sheet Arrangements

We presently do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The disclosure required under this item is not required to be reported by small reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Controls and Procedures.

In accordance with Securities Exchange Act Rules 13a-15 and 15d-15, our management is required to perform an evaluation under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period.

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2010, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in this Report was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.

Our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures had the following deficiency:

21

We were unable to maintain any segregation of duties within our business operations due to our reliance on a single individual fulfilling the role of both our Principal Executive Officer and Principal Financial Officer. While this control deficiency did not result in any audit adjustments to our interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties. Accordingly we have determined that this control deficiency constitutes a material weakness.

Until such time as we retain the services of a Principal Financial Officer, the above-described deficiency will exist. We intend to hire a Principal Financial Officer in the future as our Company grows and we have sufficient capital to pay such individual.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended December 31, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are subject to litigation from time to time in the ordinary course of our business.

We are currently not involved in any other litigation or any pending legal proceedings that we believe could have a material adverse effect on our financial position or results of operations.

ITEM 1A. RISK FACTORS.

The disclosure required under this item is not required to be reported by small reporting companies; as such term is defined by Item 503(e) of Regulation S-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the nine months ending December 31, 2010, we issued the following:

(1) An aggregate of 337,370,650 shares of common stock to independent third parties for services provided, valued at $199,904, pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”, afforded the Company under Section 4(2) of the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

(2) 863,634,653 shares of common stock to third parties for proceeds of $734,505, pursuant to the exemption from the registration requirements of the Securities Act afforded the Company under Section 4(2) of the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

(3) 1,129,334,061 shares of common stock to convert outstanding debt and settle accounts payable with a total value of $854,175, pursuant to the exemption from the registration requirements of the Securities Act afforded the Company under Section 4(2) of the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

(4) 25,500,000 shares of common stock to purchase inventory with a fair value of $9,000, pursuant to the exemption from the registration requirements of the Securities Act afforded the Company under Section 4(2) of the Securities Act due to the fact that the issuances were isolated and did not involve a public offering of securities.

(5) 3,150,400 shares of common stock for the conversion of 3,150,400 shares of our Series B preferred shares, pursuant to the exemption from the registration requirements of the Securities Act afforded the Company under Section 3(a)(9) of the Securities Act due to the fact that the issuances were in exchange for existing securities and no additional consideration was given for the shares of common stock. 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. [REMOVED AND RESERVED BY THE SECURITIES AND EXCHANGE COMMISSION]

22

ITEM 5. OTHER INFORMATION.

SUBSEQUENT EVENTS

Effective January 17, 2011, the Company was reincorporated in the state of Nevada. Prior to the Company’s reincorporation, it was a Washington corporation.

On January 20, 2011, we acquired 100% of the intellectual property, including but not limited to, the registered trademark, source code and website (www.mypraize.com), and certain tangible assets of MyPraize, LLC ("MyPraize") pursuant to an Asset Acquisition Agreement entered into by and between the Company, MyPraize, Joshua Holmes and Matthew Gaiser. We did not assume any of the debts or liabilities of MyPraize. We also entered into a three year employment agreement with Joshua Holmes pursuant to which Mr. Holmes will serve as the Chief Scientist of our MyPraize business unit. We also extended an offer for a three year employment agreement to Matthew Gaiser, the MyPraize Site Administrator.

Since January 1, 2011, we issued 121,714,287 of our restricted common stock shares in exchange for $59,000 in cash from six investors. We issued 151,974,107 shares of common stock to settle accounts payable in the amount of $189,724.

On February 13, 2011, the Board of Directors approved to become effective as of February 15, 2011, a salary for our CEO, Troy Lyndon, in the amount of $60,000 per year and an increase in the Board Compensation received by our Director, Richard Knox, Jr. to $3,000 per month.

On February 17, 2011, the Board of Directors of the Company and stockholders owning an aggregate of 67.4% of the voting securities of the Company voted in lieu of a meeting of stockholders, to amend the Company’s Certificate of Incorporation to increase the authorized common stock of the Company from five billion (5,000,000,000) shares to ten billion (10,000,000,000) shares.  The Company intends to file a Preliminary Information Statement on Schedule 14C with the Securities and Exchange Commission on February 22, 2011.  The amendment will not become effective until 21 days from the date of mailing of a Definitive Information Statement to the Company’s stockholders.  The effective date is anticipated to be at or around March 28, 2011.

ITEM 6. EXHIBITS.

(a)

Exhibits. The following documents are filed as part of this report:

Exhibit No.:	Description:
31.1	Certification by Troy A. Lyndon, Principal Executive Officer and Principal  Financial and Accounting Officer, of Left Behind Games, Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification by Troy A. Lyndon, Principal Executive Officer and Principal Financial and Accounting Officer, of Left Behind Games, Inc., pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.

23

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LEFT BEHIND GAMES, INC.

Date: February 22, 2011

BY:/S/ TROY A. LYNDON                            

TROY A. LYNDON

CHAIRMAN, PRESIDENT, CHIEF

EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

(Principal Executive Officer)

(Principal Financial and Accounting Officer)

24