UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

 X .ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2010

OR

     .TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO ______

 

LEFT BEHIND GAMES INC.

(Exact name of small business issuer as specified in its charter)

 

Washington		000-50603		91-0745418
(State or other jurisdiction		(Commission File Number)		(IRS Employer
of Incorporation)				Identification Number)
25060 Hancock Avenue, Suite 103 Box 110
Murrieta, California				92562
(Address of principal executive offices)				(Zip Code)

(951) 894-6597

(Issuer’s Telephone Number)

Securities Registered Under Section 12(b) of the Exchange Act: None

Securities Registered Under Section 12(g) of the Exchange Act: Common Stock, $0.001 par value

 (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes      . No  X .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes      . No  X .

Check whether the issuer (1) 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. 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 (§ 229.405 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  X .

Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  X .

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 the 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. Yes      . No  X .

The aggregate market value of the Common Stock held by non-affiliates was approximately $17 million based upon 624,922,506 shares at the closing price of the Common Stock of $0.0273, as reported by the NASDAQ Over-the-Counter Bulletin Board ("OTCBB") on September 30, 2009.

The number of shares of the Common Stock of the registrant outstanding as of July 9, 2010 was 2,714,529,576.

2

---

TABLE OF CONTENTS

3

---

CAUTIONARY STATEMENT REGARDING

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K/A and other reports that we file with the SEC contain 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 activities 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 annual 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;

·

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 annual report.

4

---

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Background

Left Behind Games Inc. d/b/a Inspired Media Entertainment (herein referred to as the “Company”, “LFBG”, “we”, “us”, “our” or similar terms), 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 the popular Left 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 the Left Behind brand for the purpose of electronic games. According to Tyndale House Publishers, the Left 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 the Left 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. became a public company on February 7, 2006. On that date, through a reverse merger, 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 to Left Behind Games, Inc. and are currently doing business under the name “Inspired Media Entertainment.”

Due to the high impact of the brand name Left Behind Games, recognized within the marketplace, we have retained this name although other products have been added to our line.

Our Company became one of the first to develop, publish, and distribute games 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. This original release has made LEFT BEHIND the most widely distributed Christian PC game in the history of this new market segment.

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 and on May 12, 2010, we acquired the entire Charlie Church Mouse brand.

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

Since becoming incorporated, we have not had or been involved in any bankruptcy, receivership or similar proceeding.

Recent Developments

On June 24, 2009, we announced that Wal-Mart has approved a test market for our games. Based upon a successful test, Walmart is expected to expand the test region in Fall 2010 with the expectation to place a national order if such a new test is successful.

On July 7, 2009, we signed a distribution agreement with Jack of All Games to distribute our games, providing us with increased potential distribution of our products into stores including Wal-Mart, Best Buy, Target, EB Games, GameStop, Toys "R" Us, Blockbuster and other leading retailers.

In December, 2009, we signed a representation agreement with Strategic Marketing Partners to offer our products in 2010 to all major retailers. Fulfillment of product sales shall occur through our distribution agreement with Jack of All Games.

On April 21, 2010, we announced strategic relationship agreements with Lifeline Studios and Cloud9Games to develop three new games for release in-time for Christmas 2010. Such titles include Charlie Church Mouse 3D Bible Adventures, Praise Champion and King Solomon’s Trivia Challenge.

5

---

On June 15, 2010, we announced and published our 2010 Product Catalog, available on our website at www.lbgames.com.

Digital Praise:

As previously reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission on February 22, 2010, On February 22, 2010, Left Behind Games, Inc., a Washington corporation (“LFBG” or the “Company”), entered into an Agreement and Plan of Merger (the “Agreement”) with DP Acquisition, Inc., a California corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and Digital Praise, Inc., a California corporation (“Digital Praise”). Pursuant to the Agreement, Merger Sub was supposed to merge into Digital Praise with Digital Praise being the surviving corporation (the “Merger”). The consummation of the Merger was subject to the completion and satisfaction of the terms and conditions of the Agreement. Upon the consummation of the Merger, the Company would have acquired 100% of Digital Praise. On April 30, 2010, our intended merger with Digital Praise expired. As of March 31, 2010, Digital Praise owed us $202,221 under promissory notes we issued to them to assist them with their working capital needs.

Principal Products or Services and Their Markets

All of the games are now branded under the names of LB Games and Inspired Media Entertainment. However, they fall into three categories due to the acquisition of the Charlie Church Mouse brand name and the Keys of the Kingdom rights. See www.lbgames.com. These games have received positive support from well respected Christian leaders, including the Billy Graham Center and Joel Osteen’s Church (Lakewood), one of the largest mega-churches in the U.S.

The company plans to release 2 new brands scheduled to be released in October, 2010 as Praise Champion and King Solomon’s Trivia Challenge. For more information about these, download the Company’s 2010 product line catalog at www.lbgames.com.

In addition to the upcoming new games, the company maintains the following three product lines:

Left Behind Games.

Two of our primary video games are based upon the Left Behind novels and products. These entail fictional storylines focused on events at the end of the world, including the ultimate battles of good against evil. They are very action oriented and supremely suitable for an engaging series of electronic games.

Our initial product was a PC game called “Left Behind: Eternal Forces” (“EF”). EF is a real time strategy game played by one (1) person or online by up to eight (8) players on PCs. The game was launched in November 2006, and we have made nine (9) free updates since the launch. It is based on the Left Behind series, but is not specific to any one of the Left Behind novels.

A year later, “Left Behind: Tribulation Forces” was launched in November 2007. It is a sequel to EF and it takes the real-time genre to an entirely new level. Greater emphasis is placed upon the idea that spiritual weapons such as “prayer” and “worship” are more powerful to achieve the goals of the game than the user of “guns”. Tribulation Forces includes the original forty (40) missions of Eternal Forces, with five (5) new in-depth missions. A new American Militia faction and enhanced artificial intelligence system provides gamers a more challenging experience. Multiplayer features are enhanced and the world graphics have been substantially improved, along with new maps representing a larger portion of a post-apocalyptic New York City.

Currently, “Left Behind 3: Rise of the Antichrist” is scheduled for release October 2010.

Charlie Church Mouse Games

We launched “The Charlie Church Mouse” (“CCM”) video games in 2007. CCM games are educational software programs utilizing Bible stories designed for pre-school, kindergarten and early elementary age children. Each of our three CCM games teaches valuable life lessons through Biblical stories. Sequential stories increase the degree of difficulty to challenge children. All of the games reinforce academic skills, character development and moral integrity through the exploration of timeless Bible stores that parents embrace and children relate to and enjoy.

Currently, “Charlie Church Mouse 3D Bible Adventures” is schedule for release October 2010.

Keys of the Kingdom Game

We launched “Keys of the Kingdom” PC game in the summer of 2008. This game features brain-teasing dynamics and inspirational scriptures. We are obligated to pay the author a royalty of fifteen percent (15%) of gross profits pursuant to our royalty agreement with the developer for as long as we sell the game.

6

---

Additional Products & Marketing

Although we started as a one product company, we have expanded our product line to include six (6) games with plans to release four new games in-time for Christmas 2010. We also are actively seeking to acquire new products, and potentially businesses, to further enhance our product offerings.

We believe that successfully marketing products that are inspirational in nature must include development of a grass-roots campaign supported by Churches and Ministries worldwide. As such, we have held five (5) church sponsored outreach events called “Eternal Forces Mondays.” These events provide opportunities for churches to send their youth to local LAN Centers and for youth pastors and members to invite others to an event outside of church. A LAN Center is a game center that allows gamers to play in a social environment, often for an hourly fee.

Current Retail Environment and Emerging Distribution Methods

 

Increasingly, retailers have limited shelf space and promotional resources, and competition is intense among an increasing number of newly introduced entertainment software titles and hardware for adequate levels of shelf space and promotional support. Competition for retail shelf space is expected to increase, which may require us to increase our marketing expenditures to maintain current sales levels of our titles. Competitors with more extensive product lines and popular titles may have greater bargaining power with retailers. Accordingly, we may not be able to achieve the levels of support and shelf space that such competitors receive.

We are actively investigating emerging distribution platforms, including online digital and wireless download that may represent sources of additional revenue for us beyond the traditional retail outlets and the CBA (inspirational) marketplace.

Pursue Growing Trends of Digital Content Creation and Distribution

As the interactive entertainment industry continues to evolve, new revenue streams are emerging from the growing trends of digital content creation and distribution. While still nascent, these revenue opportunities are expected to increase significantly in future years. We are currently focused on generating revenue from in-game advertising. Our current Left Behind branded games have hundreds of potential placements for in-game advertising, which can be updated weekly, either dynamically or via our automatic update-game feature. To date, Jeep, GameStop and Dell Computers have placed ads in our Left Behind branded games. These advertisers participated paid for ads within our game through our relationship with Double Fusion, an in-game advertising technology and service provider. Under our agreement with Double Fusion, Double Fusion will pay us 65% of net advertising revenues as our part of the revenue share related to in-game advertising placements that they sell once they have recouped their $100,000 advance to us from our 65% revenue share.

In future years, we plan to consider adding other new revenue opportunities, including downloadable content/micro-transactions, mobile content and massively multiplayer online gaming. We also believe that online delivery of episodic content will continue to become more prevalent as broadband connectivity gains popularity and digital delivery platforms such as Xbox Live, PlayStation Network and Valve’s Steam gain additional customers.

 

Market Industry Overview

Company’s Core Demographics. The company’s primary audience is both the Christian demographic, the single largest segment of American consumers and gamers who play family-friendly video games.

The Computer and Video Game Industry. According to the Entertainment Software Association (“ESA”), the modern-day video game industry took form in 1985 with the release of the 8-bit Nintendo System ("NES"). Following upon the heels of Nintendo’s introduction of the NES, Sega Enterprises Ltd. released its 16-bit “Genesis” system, which, in turn, was followed by Nintendo’s introduction of the “Super NES.” The early 1990s led to a rise in the personal computer (“PC”) game business with the introduction of CD-ROMs, with decreases in prices for multimedia PCs, and the introduction of high-level 3D graphics cards. In 1995-1996, consumers reacted positively to the release of the Sony PlayStation and Nintendo 64 and ushered in a new generation of video game consoles.

According to ESA, in 1999 and 2000, the computer and video game industry reached new heights with the introduction of new video game consoles that allowed users to play games, as well as watch DVDs and listen to audio CDs. According to ESA, the video game business experienced strong growth, in spite of the economic recession after the turn of the century.

According to the NPD Group, a provider of consumer and retail information based in Port Washington, New York 2006, U.S. retail sales of video games and PC games, which includes console and portable hardware, software and accessories, were approximately $13.5 billion, which exceeded the previous record set in 2002 by over $1.7 billion.

7

---

Sales growth in the game software industry is more than double the growth rate of the U.S. economy as a whole, according to a study of the U.S. Government Census and other economic data, as reported in an ESA report. Analysts predict that more money will be spent again this year on interactive software than at the box office. According to a recent CNBC News report, even though we are in a recession, computer game sales continue to increase. PricewaterhouseCoopers predicts that the sale of software games will reach $21.6 Billion by 2013. If Christian games capture just 1% of that market, that comes to $210 million annually. Currently, we estimate that between than $2-5 million is spent on Christian games annually.

In 2007, according to the NPD Group, games on computers like Tribulation Forces accounted for $910.7 million in sales with 36.4 million units sold. According to the Entertainment Software Association, the ‘strategy’ genre of Tribulation Forces is played by more than 33% of PC gamers and represents the largest gaming segment in computer games.

In 2010, according to the ESA (Entertainment Software Association), 67% of American households play computer or video games. The average game player age is 34 and 26% of gamers were over the age of 50. The average age of the most frequent game purchaser is 40. 54% of game purchasers are male and 46% are female. The average gamer has been playing electronic games for an average of 12 years. 64% of gamers play games with other gamers in person. This is an increase from 62% in 2009 and from 59% in 2008. 67% of homes in America own either a console and/or PC used to run entertainment software. 93% of the time parents are present at the time games are purchase or rented. 64% of parents believe games are a positive part of their children’s lives. 86% of the time children receive their parents’ permission before purchasing or renting a game. 48% of parents play computer and video games with their children at least weekly. 76% of parents believe that the parental controls available in all new video game consoles are useful. Further, parents impose time usage limits on video games more than any other form of entertainment. The best-selling Computer Game Super Genres by Units Sold in 2009 were Strategy (35.5%), Family Entertainment (18.7%), Role Playing (13.9%), Adventure (10.2%), Shooter (10.1%), Action (3.2%), Other Games/Compilations (2.2%), Flight (1.8%), Children’s Entertainment (1.7%), Sport Games (1.6%), Racing (0.8%), Arcade (0.3%), and Fighting (0.1%). For current and up-to-date game industry information, download a free publicly available report from the ESA at www.theesa.com.

Internet, Online and Wireless Video Games. The Internet has spawned the phenomenon of multiplayer on-line gaming, which we believe will increase with the emergence of broadband capabilities, in addition to new wireless mobile phone platforms. With advances in broadband technology and the ever increasing use of the Internet, the computer and video game industry has witnessed substantial growth in the development of games that can be played over the Internet, thereby opening up another market as well as other revenue models. Organizations have been placing their games on the Internet for consumer consumption either for the purpose of expanding their markets or as a way for companies not in the traditional video game industry to gain entrance. It is our intent to expand into these new markets, once we establish revenue streams from publishing the initial products.

 

At our request, in June 2004, the publisher of the Left Behind book series distributed a twenty (20) question survey for the purpose of helping us to understand the demographic link between Left Behind readership and potential purchasers of such branded video games. More than thirty-five hundred (3,500) responses were received. Of those responding, seventy-two percent (72%) classified themselves as players of video games, and ninety-two percent (92%) said they would consider buying a Left Behind video game for themselves or a family member.

In early 2007, we also launched a survey of our own to fans of our new game, which was released in November 2006. The survey was responded to by approximately 1-2% of those requested. Remarkably, more than two-thirds (2/3) of all those responding intend to buy the next product to be released by Left Behind Games.

Sales and usage of video games, although targeted to predominately younger markets, are not exclusive to this marketplace. As technology evolves and game quality improves, the sale of hardware is shifting to middle-aged and older audiences. The demographics of the interactive industry continue to change as players who have grown up with games are now buying them as adults, as well as for their children.

In 2006, according to a Peter D. Hart Research Associates study, seventy-five percent (75%) of American heads-of-household play computer and video games, thirty-nine percent (39%) of computer gamers are over the age of thirty-five (35) and the average game player is thirty (30) years old, nineteen percent (19%) are age fifty (50) or older, and forty-three percent (43%) are women. The study also found the typical game purchaser is thirty-seven (37) years old, and adult gamers have been playing for an average of twelve (12) years. Further data shows just thirty-five percent (35%) of gamers are under the age of eighteen (18), while forty-three percent (43%) are 18 - 49 years old. Interestingly, women over the age of eighteen (18) constitute a greater portion of the game playing population (28%) than boys 6-17 (21%).

The same survey illustrated that on average an adult male plays games 7.6 hours per week, with the average adult female closing the historical gender gap at 7.4 hours per week.

8

---

ESA indicates that the popularity of computer and video games rivals baseball and amusement parks. According to ESA, three (3) times as many Americans (approximately 145 million) played computer and video games as went to the top five U.S. amusement parks and twice as many as attended major league baseball games. A poll by ESA of sixteen hundred (1,600) households ranked computer and video games number one as their most enjoyable activity.

Consistent with past years' numbers, in 2010, the ESA announced that the majority of games that sold were rated "E" for "Everyone" (48%), followed by “Everyone 10+” (12.1%), "T” for “Teen" rated games (22.3%) and by "M” for “Mature" rated games (17.4%). By comparison, in 2002, E-rated games accounted for 55.7% of games sold, T-rated games 27.6% and M-rated games made up 13.2% of games sold.

According to ESA, all interactive games are rated by the Entertainment Software Rating Board ("ESRB"), a self-regulatory unit of ESA. The ESRB rating system is the benchmark rating system for software for all interactive platforms. The ESRB uses the following key elements to evaluate and rate software products: violence, sexual content, language, and early childhood development skills.

The first step in creating a successful video game product launch is to create a good game concept, ideally based upon a brand name with consumer awareness. Confirmation of the quality of the game is often provided by industry trade publications. As in comparable industries, previews and reviews can provide significant information regarding marketing viability prior to the completion of development and commercial release, enabling companies to more effectively manage development, marketing expenses and potential inventory risks.

Based on the popularity and success of the Left Behind Series with all ages, we believe that the Left Behind Brand is uniquely positioned for long-term success in the interactive video game marketplace. Our challenge is in reaching our target demographic. Recent interactive game market studies reveal a rapidly growing market comprised of people from all ages and cultures. Based on statements by the president of the ESA, we believe that the last few years and the next several years are watershed years for interactive products.

Social Gaming, iPhone, Android and other new platforms. It is clear that new platforms are emerging and represent potential opportunities for growth in the video game industry. The Company is taking a wait-and-see approach to review the financial results of the majority of game companies pursuing these opportunities because management believes break-out successes, although exciting, do not justify the lack of historical data necessary to evaluate market risk and therefore any participation with such new platforms will be preceded by adequate risk assessments. However, the Company anticipates it will grow into these new markets over time once a solid business model can be established based upon historical data, not just entrepreneurial zeal. We are already pioneering a new genre in the established video game markets. And accordingly, we are staying focused on this primary goal.

Video Game Software and Hardware Industries. According to Michael Pachter, Interactive Entertainment Research Analyst for Wedbush Securities, “The most successful publishers are those who build diverse libraries of branded games that produce sequels and recurring revenue streams. With a base-load of steady, sequel-driven revenues, publishers have better visibility into their future performance, which leads to better planning and investment. A less-volatile revenue and earnings model also leads to more confidence from Wall Street and higher public valuations.”

Marketing

We have used a variety of avenues for promoting and marketing the launch of our products in the past 4 years, including television, radio, print advertising, trade shows, as well as the Internet. We anticipate that the Internet in 2010 will become our most cost-effective method for developing brand awareness and promoting our products.

Interactive software publishers use various strategies to differentiate themselves and build competitive advantages within the industry such as platform focus, internal versus external development, third party distribution, international sales and game genre focus. We initially focused on the PC/Multi-player version of our Left Behind titles, since the Strategy segment is the largest market of sales for PC games. Our other products reach a less significant base. However, our new distribution agreements with Strategic Marketing Partners and renewal with our distributor Jack of All Games gives our company the potential to market and ‘distribute’ to retailers throughout North America. We expect to continue to make games for the PC platform with the intent to create games for the Wii and Xbox 360 after we achieve a sustainable level of profitability, which we anticipate with be in 2011 or 2012.

9

---

Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor Contracts

Our future success and ability to compete are dependent, in part, upon our proprietary technology. We rely on trade secret, trademark and copyright law to protect our intellectual property. In addition, we cannot be sure that others will not develop technologies that are similar or superior to our technology. Furthermore, our management believes that factors such as the technological and creative skills of our personnel, new product developments, product enhancements and marketing activities are just as essential as the legal protection of proprietary rights to establishing and maintaining a competitive position.

We rely on trade secrets and know-how and proprietary technological innovation and expertise, all of which are protected in part by confidentiality and invention assignment agreements with our employees and consultants, and, whenever possible, our suppliers. We cannot make any assurances that these agreements will not be breached, that we will have adequate remedies for any breach, or that our unpatented proprietary intellectual property will not otherwise become known or independently discovered by competitors. We also cannot make any assurances that persons not bound by an invention assignment agreement will not develop relevant inventions.

Many participants in the computer software and game market have a significant number of patents and have frequently demonstrated a readiness to commence litigation based on allegations of patent and other intellectual property infringement. We cannot guarantee that third parties will assert that we are infringing upon their proprietary rights even if we believe that is not the case. Responding to such claims, regardless of merit, could cause product shipment delays or require us to enter into royalty or licensing arrangements to settle such claims. Any such claims could also lead to time-consuming, protracted and costly litigation, which would require significant expenditures of time, capital and other resources by our management. The failure to resolve such claims on favorable terms could result in management spending time and energy on such matters instead of our business which could cause material adverse effect on our business, financial condition and results of operations. We expect that companies will increasingly be subject to infringement claims as the number of products and competitors in this industry segment grows and the functionality of products in different industry segments overlaps.

The Left Behind License. On October 11, 2002, the publisher of the Left Behind book series granted us an exclusive worldwide license to use the copyrights and trademarks relating to the storyline and content of the books in the Left Behind series of novels for the manufacture and distribution of video game products for personal computers, CD-ROM, DVD, game consoles, and the Internet.

The license requires us to pay royalties based on the gross receipts on all non-electronic products and for electronic products produced for use on personal computer systems, and a smaller percentage of the gross receipts on other console game platform systems. According to the license agreement, we are required to guarantee a minimum royalty during the initial four-year term of the license, of which we have already paid a portion. This advance will be set off as a credit against all monies owed subsequently under the license. We were behind in our payments to the licensor. If these are not paid, in the event the licensor makes a demand, it could result in the termination of the license agreement. In such case, we shall continue to have the rights to sell all games in the marketplace along with all inventory already purchased. On September 28, 2008, the Company and licensor modified terms of the agreement to eliminate minimum royalty guarantees. Instead, within 30 days from the end of each month, the Company shall provide royalties to licensor based upon its agreement for the preceding month. Additionally, the license term of 3 years automatically renews to additional terms in perpetuity.

Distribution Methods of the Products and/or Services

North American Market. We distributed LEFT BEHIND: Eternal Forces (“EF”) in the holiday season of 2006 through a distribution agreement with COKeM International Ltd. We sold directly to GameStop and COKeM resold EF to a number of large retailers, including Sam’s Club, selected Wal-Mart stores, Target, Best Buy and Circuit City. We believe that EF was distributed at the traditional locations where many North American video gamers go to purchase and/or rent their video games. That distribution agreement was subsequently mutually terminated in 2007. On July 7, 2009, we signed a distribution agreement with Take-Two Interactive (Nasdaq: TTWO) to distribute our games, providing us with potential distribution of our products into retailers including Wal-Mart, Best Buy, Target, EB Games, GameStop, Toys "R" Us, Blockbuster and other leading retailers. The initial term of the agreement is one-year, but will automatically renew if not terminated by either party.

International Market. We currently sell our products internationally through distributors into Australia, Canada, Singapore and South Africa. We intend to continue this strategy of selling through international distributors with an emphasis on Europe and East Asia.

10

---

The Inspirational Bookseller Market. We anticipate that the CBA and related sales channels represent significant sell-through opportunities for the Left Behind series brand. Left Behind books were originally sold exclusively through CBA retailers, until gaining mainstream acceptance and tremendous financial success in other distribution venues. Veggie Tales by Big Idea Productions, which has sold millions of videos, also released products to the CBA market before gaining mainstream acceptance. This distribution channel includes thousands of retail outlets. We are developing direct-to-store relationships in the inspirational bookseller market to broaden our reach, to increase our potential and to pursue building a profitable distribution center for other published products into this marketplace.

Competition

The video game industry is intensely competitive and new video game products and platforms are regularly introduced. Our competitors vary in size from small companies to very large corporations, with far longer operating histories, and significantly greater financial, marketing and product development resources than us. Due to these greater resources, certain of our competitors are be able to undertake more extensive marketing and promotional campaigns, adopt more aggressive pricing policies, pay higher fees to licensors for desirable products, and devote substantially more money to game development than we can. Also as a result, our competitors may be able to adapt more quickly to changes in the media market or to devote greater resources than we can to the sales of our media projects.

We believe that the main competitive factors in the interactive entertainment software industry include product features and quality, compatibility of products with popular platforms, brand name recognition, access to distribution channels, marketing support, ease of use, price, and quality of customer service. There can be no assurance that we will be able to compete successfully with larger, more established video game publishers or distributors.

 

We intend to compete primarily with other creators of video games for personal computers and game consoles. We will also compete with other forms of entertainment and leisure activities. Significant third party software competitors currently include, among others: Activision, Atari, Capcom, Electronic Arts, Konami, Namco, Midway, Take-Two, THQ, and Vivendi.

In addition, integrated video game console hardware and software companies such as Sony Computer Entertainment, Nintendo Co. Ltd. and Microsoft Corporation will compete directly with us in the development of software titles for their respective platforms.

Our competitors could also attempt to increase their presence in our target markets by forming strategic alliances with other competitors. Such competition could adversely affect our gross profits, margins and results of operations. There can be no assurance that we will be able to compete successfully with existing or new competitors. Most of our competitors have substantially greater financial resources than us, and they have much larger staff allowing them to create more games.

Employees

We employ 13 full-time and 12 development workers in the United States.

ITEM 1A. RISK FACTORS RELATING TO OUR BUSINESS AND OUR INDUSTRY

In addition to the other information set forth in this report, you should carefully consider the following factors that could materially affect our business, financial condition or future results. The risks described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Our independent registered public accounting firm has issued a “going concern” opinion.

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 repay our liabilities arising from normal business operations when they come due. We plan to continue to provide for our capital requirements by issuing additional equity or debt securities. No assurance can be given that additional capital will be available when required or on terms acceptable to us. It is likely that raising additional funds will continue to dilute our investors’ interests in the Company. We also cannot give assurance that we will achieve sufficient revenues in the future to achieve profitability and cash flow positive operations. 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 to generate positive operating results. Our independent registered public accounting firm as well as our predecessor independent registered public accounting firm indicated that these matters, among others, raise substantial doubt about our ability to continue as a going concern.

11

---

Need for substantial additional funds.

At March 31, 2010, we only had $56,677 cash on hand. At March 31, 2010, we had accounts receivable of $6,915 and we had $2,350,525 in accounts payable and accrued expenses. We currently need additional funds to finance our operations and the development of our product line within the next twelve months. Our cash requirements may vary or increase materially from those now planned because of unexpected costs or delays in connection with creation of video games, changes in the direction of our business strategy, competition, and other factors. Adequate funds for these purposes may not be available when needed or on acceptable terms.

A prolonged recession could materially adversely affect our operation.

We are currently experiencing the worst world recession since the Great Depression and the Country’s unemployment rate is increasing. Our Net Revenues decreased from $196,316 for the fiscal year ended March 31, 2009 to $111,572 for the fiscal year ended March 31, 2010, a decrease of 43.2% percent. Sales of video games, such as ours, are considered to be “discretionary” items and in periods of economic slowdown and increased unemployment traditionally slow down. Period economic slowdown or recession in the United States and in other countries, rising interest rates or declining demand for video games, or the public perception that any of these events may occur, could result in a general decline economic activities, which would adversely affect our financial position, results of operations, and cash flow. However, we do believe this reduction in sales resulted from a focus to improve our balance sheet, more so than increase sales. For the fiscal year ending March 31, 2010, this period represents our most significant gains with regard to improvements to our balance sheet since we were founded.

It is difficult to assess the likelihood of success for an early stage company without a long operating history like ours. 

Since our organization, we have been engaged in start-up and development activities. There is limited operating history upon which investors may base an evaluation of our likely future performance.

There is no assurance that we will enjoy successful business development.

There can be no assurance that our business strategies will lead to any profits. We face risks and uncertainties relating to our ability to successfully implement our strategies of creating and marketing video and PC games, and selling the games at a profit. Despite the popularity of Left Behind books and other media materials, we do not know whether we can produce video and PC games for which there will be a demand, or whether Left Behind’s brand success will cross over to video games. You must consider the risks, expenses and uncertainties of a company like this, with an unproven business model, and a competitive and somewhat evolving market. In particular, you must consider that our business model is based on an expectation that we will be able to create games and that demand for video games will sustain itself or increase.

We expect the average price of current generation software titles to continue to decline.

 

Consumer demand for software for current generation platforms has declined as newer and more advanced hardware platforms achieve market acceptance. As the gaming software industry transitions to next-generation platforms, we expect few, if any, current generation titles will be able to command premium price points and we expect that these titles will be subject to price reductions earlier in their product life cycles than we have seen in prior years. As a result, we have reduced prices for our current generation software titles and we expect to continue to reduce prices for our current generation software titles which will have a negative impact on our operating results.

Our revenues will be partially dependent on the popularity of the Left Behind series of novels, the Charlie Church Mouse television series and public perception of our brands. If popularity declines, it may have a material adverse effect on our revenues and operating results.

There can be no assurance that the Left Behind Games series or our other brands will sustain its popularity and continue to grow. With regard to the Left Behind brand, according to the publisher, the final book in the series was released in April 2007 and, as a result, it is likely that the popularity of the series is past its peak. A decline in the popularity of the Left Behind Games series will likely affect the popularity of any product based upon the series, including the products that we intend to develop and distribute, and that, in turn, would have a material adverse effect on our revenues and operating results. Despite the popularity of the Left Behind Games series, there can be no guarantee that any video game product based upon the series will enjoy the same popularity or achieve commercial success.

12

---

We identified a material weakness in internal control over financial reporting during fiscal years 2010 and 2009. If we fail to maintain an effective system of internal controls, we may not be able to report our financial results accurately, which may cause investors to lose confidence in our reported financial information and have an adverse effect on the price of our common stock.

Management identified a material weakness in our internal controls over financial reporting regarding revenue recognition accounting during our fiscal years ended subsequent to fiscal year 2007. While we believe that we have mitigated the material weakness related to revenue recognition, we performed an evaluation of internal controls over financial reporting and concluded that we have material weaknesses in existing Segregation of Duties issues and Limited Resources issues, which are only partially mitigated by the controls currently in place. We plan to mitigate the Segregation of Duties issues by hiring additional personnel in our finance department once we have achieved positive cash flow from operations or have raised significant additional working capital. There can be no assurance that we will be able rectify these material weaknesses.

Governmental regulations could adversely affect the video game industry, including the distribution of interactive products over the Internet.

Changes in domestic and foreign laws could affect our business and the development of our planned video game products, and, more specifically, could materially adversely affect the marketing, acceptance and profitability of our products. There can be no assurance that current laws and regulations (or the interpretation of existing regulations) will not become more stringent in the future, or that we will not incur substantial costs in the future to comply with such requirements, or that we will not be subjected to previously unknown laws and regulations that may adversely impact the development and distribution of our intended products or the operation of our business in general. As Internet commerce continues to evolve, we expect that federal, state and foreign governments will adopt laws and regulations covering issues such as user privacy, taxation of goods and services provided over the Internet, pricing, content and quality of products and services. It is possible that legislation could expose companies involved in electronic commerce to liability, taxation or other increased costs, any of which could limit the growth of electronic commerce generally. Legislation could dampen the growth in Internet usage and decrease its acceptance as a communications and commercial medium. If enacted, these laws and regulations could limit the market for our products to the extent we sell them over the Internet, and have a material adverse effect on our revenues and operating results.

If we do not respond to rapid technological change, our products may become obsolete.

The market for video game products and services is characterized by rapid technological change and evolving industry standards. We cannot assure you that we will be successful in responding rapidly or in a cost effective manner to such developments.

We may not be able to achieve our distribution plans.

Although we believe that our plans for marketing and distributing our products are achievable, there can be no assurance that we will be successful in our efforts to secure distribution agreements with national or regional wholesale or retail outlets, or to negotiate international distribution or sublicensing agreements regarding the distribution of Left Behind series video games in countries and territories outside of the United States, or that we will be able to gain access to CBA wholesale or retail channels of distribution. Even if we achieve our desired level of distribution, there can be no assurance that our games will sell sufficient quantities to generate profitable operations.

Our products may have short life cycles and may become quickly obsolete.

Consumer preferences in the video game industry are continuously changing and are difficult to predict. Few products achieve market acceptance, and even when they do achieve commercial success, products typically have short life cycles. We cannot be certain that the products we introduce will achieve any significant degree of market acceptance, or that if our products are accepted, the acceptance will be sustained for any significant amount of time, or that the life cycles of any of our products will be sufficient to permit us to recover development, manufacturing, marketing and other costs associated with them. In addition, sales of our games are expected to decline over time unless they are enhanced or new products are introduced. If the products we create fail to achieve or sustain market acceptance, it could result in excess inventory, require reductions in the average selling prices of the affected products, or require us to provide retailers with financial incentives, any one or all of which would have a material adverse effect on our operating results and financial condition.

13

---

If we are unable to maintain our license to Left Behind Games or other intellectual property, our operating results will be adversely impacted.

All of our planned products are based on or incorporate intellectual property owned by others. Two of our current video game products are based on Left Behind names and themes. We expect that some of the products we publish in the future may also be based on intellectual property owned by others. The rights we enjoy to licensed intellectual property may vary based on the agreement we have with the licensor. Competition for these licenses is intense and many of our competitors have greater resources to take advantage of opportunities for such licenses. If we are unable to maintain our current licenses and obtain additional licenses with significant commercial value, we believe our sales will decline. In addition, obtaining licenses for popular franchises owned by others could require us to expend significant resources and the licenses may require us to pay relatively high royalty rates. If these titles are ultimately unpopular, we may not recoup our investment made to obtain such licenses. Furthermore, in many instances we do not have exclusive licenses for intellectual property owned by others. In these cases, we may face direct competition from other publishers holding a similar license.

 

The video game industry is very competitive, and we may not be able to compete successfully with larger, more established video game publishers.

The interactive entertainment software industry is intensely competitive and new interactive entertainment software products and platforms are regularly introduced. We will compete primarily with other publishers of interactive entertainment software for personal computers and video game consoles. We will also compete with other forms of entertainment and leisure activities.

Our ability to develop and market our Left Behind branded video game products depends entirely upon our license from the publisher of the Left Behind Games series.

On October 11, 2002, we secured the license from the publisher of the Left Behind Games series to use the copyrights and trademarks relating to the Left Behind Games series to develop video game products. The license requires us to pay royalties and other fees on an ongoing basis to the publisher of the Left Behind Games series and to meet certain product development, manufacturing and distribution milestones. To date, we are in arrears on these license payments but the publisher of the Left Behind series has allowed us to continue with the licensing arrangement although there can be no assurance they will continue to do so.

The license also grants the publisher of the Left Behind Games series significant control over the development of products under the license. In the event we are unable to perform all of the obligations to the publisher of the Left Behind Games series under the license, the publisher of the Left Behind Games series may terminate the license leaving us without the ability to develop, manufacture and distribute our video game products. The publisher of the Left Behind Games series rights to review and approve our products may cause delays in shipping those products. Our success and our business plan is heavily dependent upon our ability to comply with the terms and conditions of the license and yet there can be no assurance that we will be able to comply with all terms and conditions of the license from the publisher of the Left Behind Games series. In the event the license is terminated for any reason, we would likely be unable to continue to develop, sell or otherwise distribute video games based on the Left Behind Games series.

Platform manufacturers are primary competitors and have approval rights and are expected to control the manufacturing of our video game products.

The vast majority of commercial video game products are designed to play on a specific platform. The platform is the system that runs the game. Within the video game industry, there are currently many platforms, including Microsoft Xbox 360, Sony Playstation 2, Sony PSP, Sony Playstation 3, Nintendo DS, Nintendo GameCube and Gameboy Advance, Microsoft Windows, and Mac OS. The majority of PC games are designed to play on computers running the Microsoft Windows or the MAC OS platform. In order to develop a game that will run on a particular console platform, it is necessary to enter into a platform licensing agreement with a console or portable platform manufacturer. The platform manufacturers, Sony, Nintendo, and Microsoft, also publish their own video game products and are therefore competitors of ours. If we are successful in securing a platform licensing arrangement with one or more of these companies, we will most likely be required to give them significant control over the approval and manufacturing of our products. This could leave us unable to get our products approved, manufactured and shipped to customers. Control of the approval and manufacturing process by the platform licensors could also increase both our manufacturing and shipping lead times and related costs. Such delays could harm our business and adversely affect our financial performance. Additionally, while we are not aware of any reason that would prevent us from obtaining any desired development and/or publishing agreements with any of the hardware platform licensors, we have not yet signed any such agreement with any platform manufacturer, and we cannot guarantee that we will be able to conclude agreements with these third parties, or that if we do, the provisions of the agreements will be favorable or even as good as the comparable agreements executed by any of our competitors. If we are unable to secure development and/or publishing agreements with the major platform manufacturers, we would not be able to bring our products to market on any such affected platform.

14

---

The success of our company depends on the continuing contributions of our key personnel.

We have a skilled management team to seek out developers for our video games. However, members of our management team are required to devote only as much time to our operations as they, in their sole discretion, deem necessary in carrying out our operations effectively. Any or all of the members of our management team, including Troy A. Lyndon, may fail to divide their time efficiency in operating our business given their outside obligations. In addition, we do not have agreements with any of our management team that hinder their ability to work elsewhere or to resign at will and, thus, any executive officer or key employee may terminate his or her relationship with us at any time without advanced notice.

RISKS RELATING TO AN INVESTMENT IN OUR SECURITIES

Holders of shares of our common stock have a greater risk than holders of our preferred stock because shares of preferred stock have liquidation preferences over shares of our common stock.

Holders of our preferred stock have liquidation preferences over our shares of common stock. The result is that in the event of any liquidation, dissolution or winding up of our affairs, whether voluntary or involuntary, the holders of record of our preferred stock will be entitled to recover their investment prior and in preference to any distribution of any of our remaining assets or surplus funds, if any remain, to the holders of our shares of common stock.

The application of the "penny stock" rules could adversely affect the market price of our common shares and increase your transaction costs to sell those shares.

 

As long as the trading price of our common shares is below $5 per share, the open-market trading of our common shares will be subject to the "penny stock" rules. The "penny stock" rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser's written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common shares, and may result in decreased liquidity for our common shares and increased transaction costs for sales and purchases of our common shares as compared to other securities.

Our common shares are thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

 

Our common shares have historically been sporadically or "thinly-traded" on the OTCBB, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common shares will develop or be sustained, or that current trading levels will be sustained.

15

---

The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly-traded public float, limited operating history and lack of revenue which could lead to wide fluctuations in our share price. The price at which you purchase our common shares may not be indicative of the price that will prevail in the trading market. You may be unable to sell your common shares at or above your purchase price, which may result in substantial losses to you.

 

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In fact, during the 52-week period ended March 31, 2010, the high and low closing sale prices of a share of our common stock were $.0673 and $0.002, respectively. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, we are a speculative or "risky" investment due to our limited operating history, our low level of revenue and or lack of profitability to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer. The following factors may add to the volatility in the price of our common shares: actual or anticipated variations in our quarterly or annual operating results; announcements of significant acquisitions, strategic partnerships or joint ventures; our capital commitments and additions or departures of our key personnel. Many of these factors are beyond our control and may decrease the market price of our common shares regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices, or as to what effect the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

 

Shareholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

Volatility in our common share price may subject us to securities litigation.

 

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.

Our officers and directors beneficially own or control the majority of voting shares as of July 13, 2010, which may limit your ability or that of other shareholders, whether acting individually or together, to propose or direct the management or overall direction of our company.

Additionally, this concentration of ownership could discourage or prevent a potential takeover of our company that might otherwise result in you receiving a premium over the market price for your common shares.

Our issuance of additional common shares in exchange for services or to repay debt, would dilute your proportionate ownership and voting rights and could have a negative impact on the market price of our common stock.

Our board may generally issue shares of common stock to pay for debt or services, without further approval by our shareholders based upon such factors that our board of directors may deem relevant at that time.

16

---

The elimination of monetary liability against our directors, officers and employees under our certificate of incorporation and the existence of indemnification rights to our directors, officers and employees may result in substantial expenditures by our company and may discourage lawsuits against our directors, officers and employees.

Our certificate of incorporation contains provisions which eliminate the liability of our directors for monetary damages to our company and shareholders. Our bylaws also require us to indemnify our officers and directors. We may also have contractual indemnification obligations under our agreements with our directors, officers and employees. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors, officers and employees that we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing a lawsuit against directors, officers and employees for breaches of their fiduciary duties, and may similarly discourage the filing of derivative litigation by our shareholders against our directors, officers and employees even though such actions, if successful, might otherwise benefit our company and shareholders.

ITEM 2. DESCRIPTION OF PROPERTY

We operate in a 4,355 square foot sales and distribution facility in Temecula, California under a sublease agreement through October 2010. Its cost is $2,918.50 per month. Our lease ends each October and is renewable each year for 3 years at a similar lease rate.

Previously, our corporate offices consisted of a 3,500 square foot facility on 29995 Technology Drive in Murrieta, California under a lease agreement through May 2010. Its cost is $7,545 per month, with annual increases of four percent (4%). We abandoned that facility in March 2008 and are seeking a resolution with the landlord. Our financial statements for the year ended March 31, 2009 include a contingency accrual of approximately $180,000 in the event the landlord seeks and is granted damages.

Investment Policies

We do not have any investments in real estate or interests in real estate or investments in real estate mortgages other than that discussed above. We also do not have any investments in any securities of or interests in persons primarily engaged in real estate activities.

Description of Real Estate and Operating Data

See above.

ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 9, 2009, the Company filed with the SEC a Definitive Information Statement therein notifying the Company’s shareholder of record as of the close of business on October 29, 2009 that a majority of the Company shareholders signed a written consent on November 9, 2009 at the Company’s offices, to vote on the following proposals:

1.

To elect Mr. Troy A. Lyndon, Richard Knox, Sr. and Richard Knox Jr. to serve as members of the Company’s Board of Directors until the next annual stockholders’ meeting or until his respective successor is duly elected and qualify;

2.

To amend the Company’s Certificate of Incorporation to increase the authorized common stock from 1.2 billion (1,200,000,000) to 3 billion (3,000,000,000); and

3.

To ratify the Company’s Board of Directors’ appointment of J. Crane CPA, P.C as the Company’s public accountants for the fiscal year ended March 31, 2010.

4.

These actions took effect on November 30, 2009.

On October 9, 2009, after the close of business, the Company effectuated a 3-for-2 forward common stock split.

17

---

On September 28, 2009, the Company filed a Certificate of Designations for a Series C Preferred Stock. The authorized number of Series C Preferred Stock is 10,000. The holders of the Series C Preferred Stock shall be entitled to vote on all matters to be voted upon by the holders of the Company’s common stock and each share shall have the voting equivalent of one million (1,000,000) shares of common stock. The Series C Preferred Stock Certificate of Designations is filed as an exhibit to this Form 8-K.

On September 28, 2009, the Company filed a Certificate of Designations for a Series D Preferred Stock. The authorized number of Series D Preferred Stock is 1,000. The holders of the Series D Preferred Stock shall be entitled to vote on all matters to be voted upon by the holders of the Company’s common stock and each share shall have the voting equivalent of one million (1,000,000) shares of common stock. Each holder of Series D Stock shall have the right, at such holder’s option, at any time or from time to time from and after the day immediately following the date the Series D Stock is first issued, to convert each share of Series D Stock into one million (1,000,000) fully-paid and non-assessable shares of the Company’s common stock. The Series D Preferred Stock Certificate of Designations is filed as an exhibit to this Form 8-K.

As stated in such September 28, 2009 filings, the voting power of the Company’s common stock will be greatly limited by the issuance of any shares of Series C Preferred Stock and/or Series D Preferred Stock.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

(a) Market for Common Equity and Related Stockholder Matters

 

Our common stock is traded on NASD’s Over-the-Counter/Bulletin Board under the symbol “LFBG”. The following table shows the high ask and low bid prices for the common stock for each quarter during the last two (2) fiscal years ended March 31. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

	High Ask			Low Bid
Year ended 3/31/10
Quarter ended 6/30/09	$	0.093		$	0.002
Quarter ended 9/30/09		0.047			0.015
Quarter ended 12/31/09		0.067			0.01
Quarter ended 03/31/10		0.015			0.003
Year ended 3/31/09
Quarter ended 6/30/08	$	0.02		$	0.02
Quarter ended 9/30/08		0.008			0.0066
Quarter ended 12/31/08		0.006			0.005
Quarter ended 03/31/09		0.0035			0.003

Holders

As of June 9, 2010, there were approximately four thousand seventy-five (4,075) holders of record of our common and preferred stock.

Dividends

We have not declared or paid cash dividends or made distributions in the past, and we do not anticipate that we will pay cash dividends or make distributions in the foreseeable future. We currently intend to retain any future earnings to finance our operations.

18

---

Common Stock

We are authorized to issue three billion (3,000,000,000) shares of $0.001 par value common stock of which 2,597,529,576 shares are currently outstanding as of July 9, 2010. Holders of common stock are entitled to one vote per share on each matter submitted to a vote at any meeting of stockholders. Shares of common stock do not carry cumulative voting rights and, therefore, holders of a majority of the outstanding shares of common stock will be able to elect the entire board of directors, and, if they do so, minority stockholders would not be able to elect any members to the board of directors. Our board of directors has authority, without action by the stockholders, to issue all or any portion of the authorized but unissued shares of common stock, which would reduce the percentage ownership of the stockholders and which may dilute the book value of the common stock.

Stockholders have no pre-emptive rights to acquire additional shares of common stock. The common stock is not subject to redemption and carries no subscription or conversion rights. In the event of liquidation, the shares of common stock are entitled to share equally in corporate assets after satisfaction of all liabilities. The shares of common stock, when issued, will be fully paid and non-assessable.

Holders of common stock are entitled to receive dividends as the board of directors may from time to time declare out of funds legally available for the payment of dividends. We have not paid dividends on common stock and do not anticipate that it will pay dividends in the foreseeable future.

Anti-Dilutive Common Stock Rights

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 that amount of stock to Charter Financial Holdings, LLC to maintain their ownership percentage. Charter Financial Holdings, LLC is not required to pay additional consideration for those shares.

Preferred Stock

We are authorized to issue Sixty Million (60,000,000) shares of $0.001 par value preferred stock of which 3,586,245 preferred A shares, 11,040,929 preferred B shares, 10,000 preferred C shares and 9 preferred D shares are issued and outstanding as of July 9, 2010 respectively. Preferred A shares are convertible on a one for one basis with our common stock at the sole discretion of the holder. Our preferred A shares enjoy one for one common stock voting rights. The preferred stock is entitled to preference over the common stock with respect to the distribution of our assets in the event of our liquidation, dissolution, or winding-up, whether voluntarily or involuntarily, or in the event of any other distribution of our assets of among the shareholders for the purpose of winding-up our affairs. The authorized but unissued shares of preferred stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The Directors in their sole discretion shall have the power to determine the relative powers, preferences, and rights of each series of preferred stock. Each share of series B preferred stock has voting power equal to 200 shares of common stock for a twelve month period. Subsequently, each series B preferred share has voting power equal to one vote of common stock.

As stated in our September 28, 2009 filing, the authorized number of shares of Series C Preferred Stock is Ten Thousand (10,000). The holders of the Series C Preferred Stock shall be entitled to vote on all matters to be voted upon by the holders of the Company’s common stock and each share shall have the voting equivalent of one million (1,000,000) shares of common stock. The authorized number of Series D Preferred Stock is One Thousand (1,000). The holders of the Series D Preferred Stock shall be entitled to vote on all matters to be voted upon by the holders of the Company’s common stock and each share shall have the voting equivalent of one million (1,000,000) shares of common stock. Each holder of Series D Stock shall have the right, at such holder’s option, at any time or from time to time from and after the day immediately following the date the Series D Stock is first issued, to convert each share of Series D Stock into one million (1,000,000) fully-paid and non-assessable shares of the Company’s common stock.

19

---

We consider it desirable to have one or more classes of preferred stock to provide us with greater flexibility in the future in the event that we elect to undertake an additional financing and in meeting corporate needs that may arise. If opportunities arise that would make it desirable to issue preferred stock through either public offerings or private placements, the provision for these classes of stock in our certificate of incorporation would avoid the possible delay and expense of a stockholders’ meeting, except as may be required by law or regulatory authorities. Issuance of the preferred stock would result, however, in a series of securities outstanding that may have certain preferences with respect to dividends, liquidation, redemption, and other matters over the common stock which would result in dilution of the income per share and net book value of the common stock. Issuance of additional common stock pursuant to any conversion right that may be attached to the preferred stock may also result in the dilution of the net income per share and net book value of the common stock. The specific terms of any series of preferred stock will depend primarily on market conditions, terms of a proposed acquisition or financing, and other factors existing at the time of issuance. As a result, it is not possible at this time to determine the respects in which a particular series of preferred stock will be superior to the common stock. Other than one for one exchanges of preferred stock held by shareholders of our subsidiary, the board of directors does not have any specific plan for the issuance of preferred stock at the present time and does not intend to issue any such stock on terms which it deems are not in our best interest or the best interests of our stockholders.

(b) Recent Sales of Unregistered Securities

During the fiscal year ended March 31, 2010, we received $2,087,050 in net proceeds from the sale of 439,875,087 shares of common stock.

During the fiscal year ended March 31, 2010, we also issued to independent third parties 326,606,675 shares of common stock for consulting services rendered, valued at $1,246,230 (based on the closing price on the respective grant date). We also issued 105,000,000 shares of common stock, valued at $3,657,100 (based on the closing price on the respective grant date), to certain employees and directors as additional compensation. We also issued 546,870,360 shares for conversion of notes payable, accounts payable and accrued interest, valued at $1,834,153 (based on the principal amount of the notes payable, invoice amounts of accounts payable and ledger balances of accrued interest date).

 

From April 1, 2010 to July 9, 2010, we received $222,075 in net proceeds from the sale of 297,733,702 shares of common stock. We also raised $25,000 through the issuance of a convertible note.

 

We believe the above-referenced transactions to be exempt under Section 4(2) of the Securities Act of 1933, as amended, or Regulation D, Rule 506 because they do not involve a public offering. We believe that these sales of securities did not involve a public offering on the basis that each investor is an accredited investor as defined in Rule 501 of Regulation D and because we provided each of our investors with a private placement memorandum or a stock purchase agreement disclosing items set out in Rule 501 and 506 of Regulation D. The shares sold were restricted securities as defined in Rule 144(a)(3). Further, each common stock certificate issued in connection with this private offering bears a legend providing, in substance, that the securities have been acquired for investment only and may not be sold, transferred or assigned in the absence of an effective registration statement or opinion of legal counsel that registration is not required under the Securities Act of 1933.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

ITEM 6. SELECTED FINANCIAL DATA

As a Smaller Reporting Company, we are not required to furnish information under this Item 6.

20

---

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION

 

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 activities 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.

 

Overview

 

Left Behind Games Inc., a Washington corporation, formerly known as Bonanza Gold, Inc., doing business through its subsidiary Left Behind Games Inc., a Delaware corporation is in the business of developing and publishing video game products based upon the popular Left Behind series of novels. Pursuant to a share exchange agreement closed on February 7, 2006, we became a subsidiary of Left Behind Games Inc. Washington. As a result of the share exchange agreement, our shareholders took majority control of Left Behind Games Inc. Washington and our management became the management of Left Behind Games Inc. Washington (collectively, “we”, “our” or “LBG”).

We are an early stage company which is one of the first companies to develop, publish, and distribute products into the multi-billion dollar video game and inspirational markets. Our goal is to become a leading publisher in the new market of inspirational games.

Our products include games based upon the popular Left Behind series of novels, the Charlie Church Mouse television programs and others. We have the exclusive world-wide rights to the Left Behind book series and brand, for the purpose of making any form of electronic games, which includes video games. Left Behind novels and products are based upon fictional storylines focused on events at the end of the world, including the ultimate battles of good against evil, which are very action oriented and supremely suitable for an engaging series of electronic games. According to the book publisher, Tyndale House Publishers, Left Behind’s series of books has sold more than sixty three (63) million copies. As a result, Left Behind branded products have generated more than $500 million at retail for the Left Behind book series. According to a Barna Research study, Left Behind has also become a recognized brand name by more than one-third (1/3) of Americans. Our management believes that Left Behind products have experienced financial success, including the novels, children's books, graphic novels (comic books), movies, and music. Our interest in the Left Behind brand is limited to our license to make video games. We have no interest in, nor do we profit from any other Left Behind branded products.

 

To date, we have financed our operations primarily through the sale of shares of our common stock. During the fiscal year ended March 31, 2010, we raised net proceeds of $2,087,050 from the sale of 439,875,087 shares of our common stock. We continue to generate operating losses.

21

---

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”.

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

Fiscal Years Ended March 31, 2010 and March 31, 2009

 

Net Revenues

 

We recorded net revenues of $111,572 for the fiscal year ended March 31, 2010 compared to $196,316 in the fiscal year ended March 31, 2009, a decrease of $84,744, or forty three percent (43%). The revenue level declined due to reduced cash receipts from sell through in the Christian bookstore marketplace as we focused our sales efforts largely back into large retail stores and the church marketplace. During the fiscal year ended March 31, 2010, we sold through 4,694 units at our large retail store customers.

Approximately 15% of our revenues in the fiscal year ended March 31, 2010 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 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 $46,645 for the fiscal year ended March 31, 2010 compared to $60,534 in the fiscal year ended March 31, 2009, a decrease of $13,889, or twenty-three percent (23%). Cost of sales - product costs consists of product costs and inventory-related operational expenses. Cost of sales - product costs decreased because the lower level of net revenues noted above and to reduced product costs on a per unit basis.

Cost of Sales - Intellectual Property Licenses

 

We recorded cost of sales - intellectual property licenses of $19,057 for the fiscal year ended March 31, 2010 compared to $13,426 for the fiscal year ended March 31, 2009, an increase of $5,631. Cost of sales - intellectual property licenses consists of certain royalty expenses, amortization of prepaid royalty costs and amortization of certain intangible assets. In the fiscal years ended March 31, 2010, and 2009, all of the cost of sales – intellectual property licenses related to royalties for the Left Behind, Keys of the Kingdom and Charlie Church Mouse games as noted below:

		Fiscal Year Ended March 31,
		2010		2009
Left Behind License	$	3,196	$	2,185
Charlie Church Mouse License		10,155		8,046
Keys of the Kingdom License		5,706		3,195
Total Cost of Sales - intellectual Property Costs	$	19,057	$	13,426

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $1,069,386 for the fiscal year ended March 31, 2010, compared to $999,018 for the fiscal year ended March 31, 2009, an increase of $70,368 or 7.1%. This increase was primarily due to an increase of $100,374 in travel and entertainment expense.

22

---

Advertising and Marketing Expenses

 

Advertising and marketing expenses were $946,772 for the fiscal year ended March 31, 2010, compared to $61,438 for the fiscal year ended March 31, 2009, an increase of $885,334. This increase was partially comprised of $159,769 in general advertising and marketing expenses and $86,595 in advertising and marketing expenses related to our product testing at Wal-Mart. A significant portion of these expenses were non-cash charges since we paid many of our consultants in shares of our common stock rather than in cash. During the fiscal years ended March 31, 2010 and 2009, we recorded expenses relating to these non-cash payments to consultants, including amortization of prepaid consulting expenses, of $630,230 and $299,788, respectively. This represented a $330,442 increase during the year ended March 31, 2010.

Legal Fees

Legal Fees were $978,149 for the fiscal year ended March 31, 2010, compared to $134,861 for the fiscal year ended March 31, 2009, an increase of $843,288 or 625%. A significant portion of these legal fees were non-cash charges since we paid several of our attorneys in shares of our common stock rather than in cash. During the fiscal year ended March 31, 2010, we recorded expenses relating to these non-cash payments to attorneys of $616,000. There were no such stock-based legal expenses in the fiscal year ended March 31, 2009.

Salaries and Wages

Wages and salaries were $4,110,541 for the fiscal year ended March 31, 2010, compared to $669,488 for the fiscal year ended March 31, 2009, an increase of $3,441,053 or 514%. We also paid certain or our employees and directors in shares of our common stock rather than in cash. During the fiscal years ended March 31, 2010 and 2009, we recorded expenses relating to these non-cash payments to employees and directors of $3,657,100 and $54,650, an increase of $3,602,450. These non-cash payments included stock issued to our CEO, Troy Lyndon, equal to $3,270,100 and our Director, Richard Knox, Jr. equal to $327,000. The remainder of the overall increase in wages and salaries was primarily related to the rebuilding of our salesforce during the fiscal year ended March 31, 2010.

 

Product Development Expenses

 

Product development expenses were $140,307 for the fiscal year ended March 31, 2010 compared to $52,557 for the fiscal year ended March 31, 2009, an increase of $87,750 or 167%. This increase was due to increases in our internal development staff and to projects outsourced to independent contractors to develop new games and make enhancements to our existing games.

 

Other Income and Expenses

We recorded other expense of $637,715 in the fiscal year ended March 31, 2010. This other expense was comprised of $200,106 of interest expense, $336,498 from amortization of debt discounts and a charge of $101,111 to establish a reserve against a note receivable.

Net other expense in the fiscal year ended March 31, 2009 was $166,621, $718,838 of other income offset by $885,459 of other expenses. Our other income was composed of $250,000 from a gain on the modification of our license of the Left Behind brand and a $468,838 gain that arose from the cancellation of our initial distribution agreement subsequent to a fire at the distributor’s warehouse. We recorded other expenses of $67,394 in the fiscal years ended March 31, 2009, which primarily related to losses that arose from writing off certain fixed assets and intangible assets as well as the impact of the abandonment of leasehold improvements that arose in connection with our corporate downsizing. We recorded interest expense of $818,065 in the fiscal year ended March 31, 2009. Our interest expense included amortization of debt discount and debt issuance costs of $614,415 in the fiscal year ended March 31, 2009.

Net Loss

 

As a result of the above factors, we reported a net loss of $7,837,000 for the fiscal year ended March 31, 2010, compared to a net loss of $1,961,627 for the fiscal year ended March 31, 2009, resulting in an increased loss of $5,875,373. In addition, our accumulated deficit at March 31, 2010 totaled $51,838,636. These increases are attributable primarily to the factors discussed above.

 

CASH REQUIREMENTS, LIQUIDITY AND CAPITAL RESOURCES

 

At March 31, 2010 we had $56,677 of cash compared to $7,778 of cash at March 31, 2009, an increase of $56,677. At March 31, 2010, we had a working capital deficit of $2,442,121 compared to a working capital deficit of $3,643,117 at March 31, 2009.

23

---

Operating Activities

For the fiscal years ended March 31, 2010 and 2009, net cash used in operating activities was $2,063,773 and $569,137, respectively. The $1,494,636 increase in cash used in our operating activities was primarily due to the increase in our net loss due to increases in our general and administrative expenses and research and development expenses as we increased our expenditures over the fiscal year ended March 31, 2009 to rebuild a sales force and introduce new products into the marketplace. Our operating expenses in the fiscal year ended March 31, 2010 included $4,903,330 of stock-based payments to consultants and employees in order to conserve cash. That was a $4,548,892 increase over the stock-based payments in the prior fiscal year.

The net losses for the fiscal years ended March 31, 2010 and 2009 were $7,837,000 and $1,961,627, respectively, an increase of $5,875,373.

Investing Activities

For the fiscal years ended March 31, 2010 and 2009, net cash used in investing activities was $623 and $0, respectively. These modest investments were attributable to curtailed purchases of property and equipment and payments for trademarks and royalties to conserve cash.

Financing Activities

For the fiscal years ended March 31, 2010 and 2009, net cash provided by financing activities was $2,112,050 and $574,220, respectively. The primary elements of cash provided by financing activities in both fiscal years were issuances of notes payable and the sale of common stock.

Future Financing Needs

Since our inception in August 2002 through March 31, 2010, we have raised approximately $12 million through funds provided by private placement offerings. This was sufficient to enable us to develop our first product and to make some improvements to that product. 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. However, 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 marketing 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. During the fiscal year ended March 31, 2010, we raised net proceeds of $2,087,050 from the sale of 439,875,087 shares of our common stock. We continue to generate operating losses and expect to need to continue to raise capital through the sale of debt or equity in order to continue our operations for the foreseeable future.

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”.

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. We have suffered continuing losses from operations, are in default on certain debt, have negative working capital of $2,442,121, 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 requirements (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.

24

---

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

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of expenses during the reporting period. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes the Company's estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require the most difficult, subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These critical accounting policies relate to stock purchase warrants issued with notes payable, beneficial conversion feature of convertible notes payable, impairment of intangible assets and long lived assets, stock compensation, contingencies and litigation. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations.

Revenue Recognition.

We evaluate the recognition of revenue based on the criteria set forth in Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions and Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104, Revenue Recognition. 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).

Historically, we recorded revenue upon shipment of product to our channel partners and direct customers then adjusted for a reserve to cover anticipated product returns and/or future price concessions, or the “ship-to method.” After considering (i) the limited sales history of our product, (ii) the limited business history with our primary channel partner and largest retail customer and (iii) the competitive conditions in the software industry, we determined that return privileges and price protection rights granted to our customers impacted our ability to reasonably estimate sales returns and future price concessions, and therefore, we were unable to conclude that our sales arrangements had a fixed and determinable price at the time our inventory was shipped to customers.

25

---

For sales to our primary channel partner and largest retail customer, 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 customers to their end customers, we recognize previously deferred income as sales and cost of sales. Our primary channel partner and largest retail customer each provide us with sell-through information on a frequent basis regarding sales to end customers and in-channel inventories. In the fiscal year ended March 31, 2010, we engaged a new primary distributor who has confirmed our accounts receivable balances with them in addition to supplying us with sell through information. As a result, we have recognized our accounts receivable balance with them as of March 31, 2010.

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.

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 EITF Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs, 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.

We promote 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 EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendors Products, certain payments made to customers by us, including promotional sales allowances, cooperative advertising and product introductory expenditures have been deducted from revenue.

During the fiscal year ended March 31, 2010, we had the following amounts deducted from revenue:

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

During the fiscal year ended March 31, 2009, we did not have any such payments.

Fair Value Measurements

 Effective April 1, 2008, we began measuring the fair value of applicable financial and non-financial assets based on the following levels of inputs:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

26

---

Level 3: Unobservable inputs that are not corroborated by market data.

The hierarchy noted above requires us to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value.

The fair value of derivative liabilities is determined based on unobservable inputs that are corroborated by market data, which is a Level 3 classification. We record certain financial instruments on our balance sheet at fair value with changes in fair value recorded in our consolidated statements of operations.

We did not make any fair value estimates n the fiscal year ended March 31, 2010.

We did not make any changes to our valuation techniques compared to the prior fiscal year.

Long-Lived Assets

Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360-10 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This accounting guidance requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. This guidance also requires companies to separately report discontinued operations and extends that reporting requirement to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or the estimated fair value less costs to sell. Management noted no indicators requiring review for impairment during the fiscal year ended March 31, 2010. There can be no assurance however; that market conditions will not change or that there will be demand for our products, which could result in impairment of long-lived assets in the future.

Stock Purchase Warrants Issued with Notes Payable

In prior fiscal years, we granted warrants in connection with the issuance of certain notes payable. We measure the relative estimated fair value of such warrants which represents a discount from the face amount of the notes payable. Such discounts are amortized to interest expense over the term of the notes.

Beneficial Conversion Feature of Notes Payable

The convertible feature of certain notes payable provides for a rate of conversion that is below market value. Such feature is normally characterized as a "Beneficial Conversion Feature" ("BCF"). We measure the estimated fair value of the BCF and record that value in the consolidated financial statements as a discount from the face amount of the notes. Such discounts are amortized to interest expense over the term of the notes.

Share-based Compensation

We account for share-based compensation awards using the fair-value method and record such expense in the consolidated financial statements over the requisite service period. For the fiscal year ended March 31, 2010, we recognized $3,657,100 of share-based compensation expense. All of such share-based compensation was from direct share grants and we used the closing price on the measurement date to value the compensation.

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. SFAS No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed, provides 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.

27

---

Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

ITEM 8. FINANCIAL STATEMENTS

 

The financial statements listed in the accompanying Index to Financial Statements are attached hereto and filed as a part of this Report under Item 15A.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On November 10, 2008, our Board of Directors appointed J. Crane CPA, P.C. as its new independent registered public accounting firm and J. Crane CPA, P.C. has remained our auditing firm since.

During our fiscal year ended March 31, 2008 through the subsequent interim period ended July 13 2010, neither we nor anyone on our behalf consulted J. Crane CPA, P.C. regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

During the years ended March 31, 2010, 2009, 2008, 2007, 2006 and 2005 there have been no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A(T). CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO"), who is also our acting Chief Financial Officer ("CFO"), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date (the "Evaluation Date") within ninety (90) days prior to the filing of our March 31, 2010 Form 10-K.

Based upon that evaluation which included the material weakness described in Management’s Annual Report on Internal Control Over Financial Reporting below, our CEO has concluded that, as of March 31, 2010, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic filings with the SEC.

Internal Control over Financial Reporting

(a) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.

Our management, with the participation of its CEO, assessed the effectiveness of our internal control over financial reporting as of March 31, 2010. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our internal control over financial reporting was not effective as of March 31, 2010 due to control deficiencies that constituted material weaknesses.

Management in assessing its internal controls and procedures for fiscal 2010 identified a lack of sufficient segregation of duties, particularly in cash disbursements. Specifically, this material weakness is such that the design of controls over the area of cash disbursements relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard company assets.

28

---

Management has identified a lack of sufficient personnel in the accounting function due to the limited resources of the Company with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles, particularly as it relates to taxes. Specifically, this material weakness led to segregation of duties issues and resulted in audit adjustments to the annual consolidated financial statements and revisions to related disclosures, including tax reporting.

We are in the process of developing and implementing remediation plans to address our material weaknesses.

Management has identified specific remedial actions to address the material weaknesses described above:

·

Improve the effectiveness of the accounting group by continuing to augment our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issues by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations, or has raised significant additional working capital.

·

Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

CHANGES IN CONTROLS AND PROCEDURES

There were no changes made in our internal controls over financial reporting during the year ended March 31, 2010 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

 

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION.

Not applicable

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors, Executive Officers, Promoters and Control Persons

Directors and Executive Officers

Our directors and executive officers as of July 13, 2010, include the following persons:

 

Name		Age		Position
Troy A. Lyndon		45		Chairman & Chief Executive Officer (Principal Executive Officer) (Principal Financial and Accounting Officer)
Richard Knox, Sr.		72		Director
Richard Knox, Jr.		50		Director

29

---

Troy A. Lyndon, Chief Executive Officer and Chairman, is our Chairman and CEO. Mr. Lyndon’s background includes more than 20 years in the development and publishing of video games. Following are a few excerpts taken from a write-up about him in Wikipedia as well as from his biography which can be seen at www.troylyndon.com.

At age 13, Troy Lyndon developed and sold his first video game professionally, titled Space Voyager for the Radio Shack TRS-80. After publishing his first five games before the age of 20, Lyndon dropped out of Moorpark College (majoring in business administration) to pursue video game development full-time.

Among his long list of accomplishments, Lyndon produced the game version of Howard the Duck, which he believes sold more games than VHS copies of the movie. With co-developer, Michael Knox, he developed ABC's Monday Night Football and Dream Team Basketball for the PC. Monday Night Football was recognized as one of the best sports games of the year by nomination from the Software Publishers' Association.

Due to the success of Monday Night Football on the PC, Electronic Arts sought out Lyndon and his partner Knox to develop a football game which became the first 3D Madden Football game ever and the most successful sports game franchise in video game history. Over five years, Knox and Lyndon, with the assistance of Knox, Sr., grew their development company, Park Place Productions, to 130 employees servicing at peak 14 publishers while making 45 games at once. Lyndon and Knox were recognized when awarded the Inc. Magazine Entrepreneur of the Year Award by Ernst & Young and Merrill Lynch in 1993.

After more than 20 years of success, in 1998 Lyndon left the video games industry to serve on the Jesus Film Project, the largest missionary organization of Campus Crusade for Christ. While there, Lyndon started Jesus Technologies where he worked on numerous projects for Campus Crusade and other ministries, including completion of improvements to the Jesus Film DVD Internet Game, as well as a new version of the Missions Atlas Project, The Jesus Film CD-ROM in Arabic, the Jesus: Fact or Fiction DVD, the Jesus Film Kiosk, the Outreach CD Project, an InTouch Ministries CD-ROM and the Evangelism Toolbox CD-ROM for Campus Crusade for Christ, in association with the Billy Graham Center . In 2003, Lyndon left Campus Crusade to fulfill his vision of developing video games "with a purpose."

Along with his Campus Crusade projects, in 2000 Lyndon invented a technology to allow consumers to click on items of interest in a video stream, whether it be a fancy car of a nice sweater. He now holds the patent for this technology, and although it has not yet been developed for mainstream interactive television, clearly our world is moving in that direction.

In 2002, Lyndon was engaged to manage all of the interactive programming still needed to complete the first interactive Bible and encyclopedia suite ever created called iLumina. Its features include QuickTime VR, full-screen video animation, and a fully interactive verse-by-verse first graphical view of the New Living Translation Bible.

Richard Knox, Sr., Director, is a seasoned businessman, former nuclear physicist and a successful software developer. He is also the Pastor, founder and President of Ohana Haven Ministries in the State of Hawaii.

Richard Knox earned his B.S. in Engineering Physics at the University of Illinois. While attending the Graduate School of Engineering Sciences at the University of California, he worked for the Lawrence Livermore Laboratory. He served as a Containment Scientist for nuclear underground tests and did work on numerous government programs during the 16 years he was at the Laboratory. During that time, he supervised up to 500 engineers and was also responsible for the approval of all equipment fielded for nuclear-device emplacement at the Nevada Test Site.

After leaving the Laboratory, Knox started his own software development and publishing business. His company created consumer CAD software which sold 80,000 copies.

In the 90’s, he joined his son and Left Behind Games CEO, Troy Lyndon, to develop games at North America’s largest independent developer of video games, Park Place Productions. In his position there, he was in charge of 80 personnel, the oversight of all game production, as well as management of communications and negotiations with clients.

Since that time, Richard Knox has relocated to Oahu, Hawaii to pursue personal interests, including the oversight of a ministry. Most recently, he became Pastor of his own congregation. He and his wife, Vicki, have celebrated 50 years of marriage. They have four children and ten grandchildren.

Richard Knox, Jr., Director, is a seasoned developer and is currently engaged on-staff with the Hawaii Department of Education. Mr. Knox has been a prolific multimedia developer his entire life and was originally a CAD software designer before joining the original team in the early 90’s that became North America’s largest independent development company of video games, Park Place Productions, which he built alongside his father Richard Knox, Sr., his brother Michael Knox and Troy Lyndon. Richard’s interests include computers and music, as he is also the worship leader of his church in Oahu, Hawaii.

30

---

Significant Employees

Troy Lyndon, our chief executive officer.

Family Relationships

Our two outside directors have a father-son relationship

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our executive officers and directors and persons who own more than ten percent (10%) of our common stock to file reports of ownership and changes in ownership with the SEC. Such executive officers, directors and greater than ten percent stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms they file. On February 12, 2009, Richard J. Knox, Sr. was appointed to the Company’s Board of Directors. However, Mr. Knox filed his Initial Statement of Beneficial Ownership on Form 3 on October 1, 2009. From the period commencing on the date of Mr. Knox’s appointment to the Board of Directors until March 31, 2009, Mr. Knox did not receive, buy or sell any securities of the Company. On December 3, 2007, Michael Knox was appointed to the Board of Directors, On September 13, 2009, Michael Knox gifted 1,000,000 shares of Company’s common stock to Richard J. Knox, Jr., a current board member, which constituted 100% of the securities of the Company beneficially held by Mr. Michael Knox. Mr. Michael Knox became deceased on September 15, 2009. No reports of beneficial ownership were filed by Michael Knox. Other than the foregoing, based on information supplied to us and filings made with the SEC, we believe that, during the fiscal year ended March 31, 2009, Section 16(a) filing requirements applicable to its directors, officers, and greater than ten percent (10%) beneficial owners were complied with.

Code of Ethics

We have not yet prepared a written code of ethics and employment standards. Due to the fact that we only have three persons serving as the Company’s executive directors and directors, we do not feel that having a written code of ethics is warranted. As the Company grows and its executive team and board grow, the Company anticipates adopting and implementing a Code of Ethics.

Corporate Governance

We currently do not have a corporate governance committee. Our board only consist three directors and as such, acts in the capacity of the corporate governance committee.

Nominating Committee

We currently do not have a nominating committee. Our board only consist three directors and as such, acts in the capacity of the nominating committee.

Audit Committee

We currently do not have an audit committee financial expert or an independent audit committee expert due to the fact that our Board currently does not have an independent audit committee. Our board only consist three directors and as such, acts in the capacity of the audit committee.

Financial Expert

The Board has not designated a member of the Board as a “financial expert” as defined in the 2002 Sarbanes Oxley Act. As our Company and Board grow, we intend to establish an independent audit committee and designate a member of our audit committee to be a “financial expert.”

ITEM 11. EXECUTIVE COMPENSATION

Our compensation discussion and analysis addresses the following topics with respect to Named Executive Officer (“NEO”) compensation processes and decisions:

31

---

(a) General

 

Our Board has not yet appointed a Compensation Committee, so the full Board is responsible for establishing our overall compensation strategy, with support from management and consultants. To date, however, our Board has not approved the compensation of our management. The Board also oversees our current stock option plan, and is responsible for administering the plan.

 

Our compensation arrangements reflect the individual circumstances surrounding the applicable executive officer’s hiring or appointment.

 

Principal Components of Compensation of Our Executive Officers

The principal components of the compensation we have historically paid to our executive officers have consisted of equity compensation, generally in the form of grants of our common stock.

 

Our Board and management have not yet established a consensus on policies or guidelines with respect to the mix of base salary, bonus, cash incentive compensation and equity awards to be paid or awarded to our executive officers. In general, our Board believes that a greater percentage of the compensation of the most senior members of our management should be performance-based. In future fiscal years, our Board anticipates adopting more formal and structured compensation policies and programs, including the formation of a compensation committee. At such time, our Board will endeavor to implement policies designed to attract, retain and motivate individuals with the skills and experience necessary for us to achieve our business objectives. These policies will also serve to link pay with measurable performance, which, in turn, should help to align the interests of our executive officers with our shareholders.

Our Board meets in-person at least once per year. It also meets as necessary, either in person or via telephone to discuss compensation and other issues. It met ten (10) times during the past fiscal year. Our Board works with our management in carrying out its responsibilities.

Base Salary

 

Our Chief Executive Officer - Update

 

Effective October 2009, our CEO, Troy Lyndon, has chosen not to receive a salary on a going-forward basis. However, Mr. Lyndon has reserved the right to receive cash and stock-based compensation on a go-forward basis upon request, although he has not exercised this right.

Bonus Compensation

 

We have not historically paid any automatic or guaranteed bonuses to our executive officers. However, certain officers have bonus components in connection with their performance. 

 

Equity Compensation

 

Our Board plans to begin granting equity-based awards to attract, retain, motivate and reward our employees, particularly our executive officers, and to encourage their ownership of an equity interest in us. We implemented the 2006 Stock Incentive Plan in January 2007 (the “Plan”). All stock authorized for such plan has been issued and accordingly, we did not grant any options to our executive officers or employees under this plan in the fiscal year ended March 31, 2010.

 

We may make future awards of stock options to our executive officers under the Plan. We reserve the discretion to pay compensation to our executive officers that may not be deductible.

We do not have any program, plan or practice that requires us to grant equity-based awards on specified dates. Authority to make equity-based awards to executive officers rests with the board, which considers the recommendations of our CEO and other executive officers.

 

Deferred Compensation

In the fiscal year ended March 31, 2010, no deferred compensation was paid to our officers or directors.

32

---

Severance and Change of Control Payments

Our Board believes that companies should provide reasonable severance benefits to employees, recognizing that it may be difficult for them to find comparable employment within a short period of time.

 

Perquisites

We provide health insurance for Mr. Lyndon.

Compensation Committee Interlocks and Insider Participation

 

We have not yet designated a Compensation Committee. All compensation matters are approved by the full Board. None of our executive officers served on the compensation committee (or equivalent), or the Board, of another entity whose executive officer(s) served on our Board.

(b) Summary Compensation Table

 

The cash and non-cash compensation that we have paid during the fiscal year ended March 31, 2010 and March 31, 2009 or that was earned by our CEO and our other former employees or officers is detailed in the following table.

Name and Principal Position		Year		Salary		Stock Awards(1)(3)		All Other Compensation		Total
Troy A. Lyndon  Chairman and Chief Executive Officer		2010 2009		$152,456 $ 85,000		$3,270,100 --		$ -- $109,380(2)		$3,389,725 $ 194,380

______________________

(1) Stock grant (conditional issuance; present day value of $285,000); stock to be returned under certain circumstances)

(2) Includes $10,380 as automobile related compensation and $99,000 earned income not paid as a result of cash-flow difficulties.

(3) Stock grants are valued as of the grant date.

(c) Narrative Disclosure to Summary Compensation Table

See above.

(d) Outstanding Equity Awards at Fiscal Year-End Table

None

(e) Additional Narrative Disclosure

None

(f) Compensation of Directors

Richard Knox, Jr. was paid a one-time issuance of 10 Series D Preferred Shares (convertible into 10 million common stock shares) and is paid $2,000 per month for his role as a director beginning November 1, 2009, for the fiscal year ended March 31, 2010.

Directors Compensation Program

Currently, our directors do not receive compensation. It is anticipated, however, that each of our directors will receive compensation at some point in the future.

33

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information, as of July 9, 2010 with respect to any person (including any “group”, as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) who is known us to be the beneficial owner of more than five percent (5%) of any class of our voting securities, and as to those shares of our equity securities beneficially owned by each of our directors, our executive officers and all of our directors and executive officers and all of our directors and executive officers as a group. Unless otherwise specified in the table below, such information, other than information with respect to our directors and officers, is based on a review of statements filed, with the SEC pursuant to Sections 13 (d), 13 (f), and 13 (g) of the Exchange Act with respect to our common stock. The number of shares of common stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within sixty (60) days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.

The table also shows the number of shares beneficially owned as of July 9, 2010 by each of the individual directors and executive officers and by all directors and executive officers as a group.

The table below sets forth all persons (including any group) who are known to us to be the beneficial owner of more than five percent (5%) of any class of our voting securities.

Name and Address of Beneficial Owner		Class of Voting Stock		Number of Shares of Voting Stock Beneficially Owned (1)		Percentage of Class (3)(4)
Troy A. Lyndon (1)(4) CEO & Chairman of the Board 25060 Hancock, Suite 103 Box 110 Murrieta, California 92562		Common Stock  Series C Preferred		169,826,036 10,000		6.3% 100%
Richard Knox, Sr. (1) Director of the Board		-- --		-- --
Richard Knox, Jr. (1)(5) Director of the Board 25060 Hancock Ave., Suite 103 Box 110 Murrieta, CA 92562		Common Stock Series D Preferred		2,000,000 9		0.1% 100%
Demos Pappasavvas (1)(3) 25060 Hancock Ave., Suite 103 Box 110 Murrieta, CA 92562		Common Stock Series B Preferred		160,735,290 2,310,466		5.9% 20.9%
Peter Quigley (1)(3) 25060 Hancock Ave., Suite 103 Box 110 Murrieta, CA 92562		Common Stock Series B Preferred		112,395,000 3,350,000		4.1% 30.3%
Martin MacDonald (1)(3) 25060 Hancock Ave., Suite 103 Box 110 Murrieta, CA 92562		Common Stock Series B Preferred		51,322,500 1,613,750		1.9% 14.6%
All Officers & Directors As a Group (3 Persons)(1)(2)(3)(4)(5)		Common Stock Series A Preferred		171,826,036 0		6.3% --%
		Series B Preferred		0		--%
		Series C Preferred		10,000		100%
		Series D Preferred		9		100%

______________________

	(1)	Based on 2,714,529,576 shares of Common Stock issued and outstanding as of July 9, 2010.
	(2)	Based on 3,586,245 shares of Series A Preferred Stock issued and outstanding.
	(3)	Based on 11,040,929 shares of Series B Preferred Stock issued and outstanding.
	(4) (5)	Based on 10,000 shares of Series C Preferred Stock issued and outstanding. Each shares of Series C Preferred Stock is entitled to 1,000,000 votes. Based on nine shares of Series D Preferred Stock issued and outstanding.

Changes in Control

We have not entered into any arrangements which may result in a change in our control.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Transactions with Related Persons

We have not entered into any arrangements which are considered transactions with related persons.

Parents

None.

Promoters and Control Persons

Not applicable.

Director Independence

We currently have three (3) directors, Messrs. Troy A. Lyndon, Richard Knox, Sr. and Richard Knox, Jr. Mr. Lyndon is not independent as he is our CEO and Chairman of our Board. We consider Messrs. Richard Knox, Sr. and Richard Knox, Jr. to be independent.

In determining whether directors are independent, we have developed the following categorical standards for determining the materiality of relationships that the directors may have with us. A director shall not be deemed to have a material relationship with us that impairs the director's independence as a result of any of the following relationships:

1.

the director is an officer or other person holding a salaried position of an entity (other than a principal, equity partner or member of such entity) that provides professional services to us and the amount of all payments from us to such entity during the most recently completed fiscal year was less than two percent (2%) of such entity’s consolidated gross revenues;

2.

the director is the beneficial owner of less than five percent (5%) of the outstanding equity interests of an entity that does business with us;

3.

the director is an executive officer of a civic, charitable or cultural institution that received less than the greater of $1 million or two percent (2%) of its consolidated gross revenues, as such term is construed by the New York Stock Exchange for purposes of Section 303A.02(b)(v) of the Corporate Governance Standards, from us or any of our subsidiaries for each of the last three (3) fiscal years;

4.

the director is an officer of an entity that is indebted to us, or to which we are indebted, and the total amount of either our or the business entity's indebtedness is less than three percent (3%) of the total consolidated assets of such entity as of the end of the previous fiscal year; and

5.

the director obtained products or services from us on terms generally available to customers of us for such products or services. The Board retains the sole right to interpret and apply the foregoing standards in determining the materiality of any relationship.

The Board shall undertake an annual review of the independence of all non-management directors. To enable the Board to evaluate each non-management director, in advance of the meeting at which the review occurs, each non-management director shall provide the Board with full information regarding the director’s business and other relationships with us, our affiliates and senior management.

35

---

Directors must inform the Board whenever there are any material changes in their circumstances or relationships that could affect their independence, including all business relationships between a Director and us, its affiliates, or members of senior management, whether or not such business relationships would be deemed not to be material under any of the categorical standards set forth above. Following the receipt of such information, the Board shall re-evaluate the director's independence.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the fiscal year ended March 31, 2010 and 2009, our current independent auditor, J. Crane CPA, P.C. billed us $45,200. For the fiscal years ended March 31, 2009 and March 31, 2008, Haskell & White, our former independent auditor, billed us $97,108 and $12,500, respectively, for audit services. Also in the fiscal years ended March 31, 2009 and March 31, 2008, KMJ Corbin another former independent auditor, billed us $950 and $142,295, respectively, for audit services.

Audit Fees. The aggregate fees billed for the years ended March 31, 2010 and 2009 were for the audits of our financial statements and reviews of our interim financial statements included in our annual and quarterly reports.

 

Audit Related Fees. There were no fees billed for the years ended March 31, 2010 and 2009 for the audit or review of our financial statements that are not reported under Audit Fees.

All Other Fees

The aggregate fees billed above for the years ended March 31, 2010 and 2009 included services other than the services described above. These services include attendance and preparation for shareholder and audit committee meetings, consultation on accounting, on internal control matters and review of and consultation on our registration statements and issuance of related consents.

Financial Policies and Procedures

Our management has implemented pre-approval policies and procedures related to the provision of audit and non-audit services. Under these procedures, management pre-approves both the type of services to be provided by J Crane CPA, PC and the estimated fees related to these services.

36

---

ITEM 15. EXHIBITS.

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

 

Exhibit 3.1	Articles of Incorporation dated March 29, 1961 (3)
Exhibit 3.2	Amendment to Articles of Incorporation dated August 20, 1962 (3)
Exhibit 3.3	Amendment to Articles of Incorporation dated October 17, 1977 (3)
Exhibit 3.4	Amendment to Articles of Incorporation dated June 15, 1999 (3)
Exhibit 3.5	Amended and Restated Articles of Incorporation dated January 30, 2004 (3)
Exhibit 3.6	Amendment to Articles of Incorporation dated September 28, 2009 (6)
Exhibit 3.7	Bylaws (3)
Exhibit 4.1	Certificate of Designations of Series C Preferred Stock (7)
Exhibit 4.2	Certificate of Designations of Series D Convertible Preferred Stock (7)_
Exhibit 10.1	Share Exchange Agreement (2)
Exhibit 10.2	Employment Agreement with Troy A. Lyndon (2)
Exhibit 10.3	Addendum dated June 2, 2004 to Employment Agreement with Troy A. Lyndon (2)
Exhibit 10.4	Addendum dated February 1, 2005 to Employment Agreement with Troy A. Lyndon (2)
Exhibit 10.5	Employment Agreement with Jeffrey S. Frichner (2)
Exhibit 10.6	Addendum dated June 2, 2004 to Employment Agreement with Jeffrey S. Frichner (2)
Exhibit 10.7	Addendum dated February 1, 2005 to Employment Agreement with Jeffrey S. Frichner (2)
Exhibit 10.8	Employment Agreement with Thomas H. Axelson (2)
Exhibit 10.9	Addendum dated June 2, 2004 to Employment Agreement with Thomas H. Axelson (2)
Exhibit 10.10	Addendum dated February 1, 2005 to Employment Agreement with Thomas H. Axelson (2)
Exhibit 10.12	Distribution Agreement with COKeM International (3)
Exhibit 10.13	Separation Agreement with Jeffrey S. Frichner (1)
Exhibit 10.14	Agreement and Plan of Merger, dated February 22, 2010, by and among Left Behind Games, Inc., DP Acquisition, Inc., Digital Praise, Inc. and Patricia K. Mattes, as Shareholders’ Agent (8)
Exhibit 14.1	Code of Ethics for Chief Executive Officer and Senior Financial Officers (3)
Exhibit 16.1	Letter of Haskell & White LLP, dated November 13, 2008 (4)
Exhibit 31.1	Certification of principal executive officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification of principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)Incorporated by reference from Form 8-K filed on June 13, 2007

(2) Incorporated by reference from Form 8-K filed on February 10, 2006

(3) Incorporated by reference from Form 10-SB filed on February 23, 2004

(4) Incorporated by reference from Form 10K-SB filed on July 16, 2007

(5) Incorporated by reference from Form 8-K filed on November 13, 2008

(6) Incorporated by reference from Form 10-Q for the quarter ended September 30, 2009 filed on November 18, 2009

(7) Incorporated by reference from Form 8-K filed on September 28, 2009

(8) Incorporated by reference from Form 8-K filed on February 26, 2010

37

---

ITEM 15A. FINANCIAL STATEMENTS.

LEFT BEHIND GAMES INC.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 2010 and 2009	F-3
Consolidated Statements of Operations for the years ended March 31, 2010 and 2009	F-4
Consolidated Statements of Stockholders’ Deficiency for the years ended March 31, 2010 and 2009	F-5
Consolidated Statements of Cash Flows for the years ended March 31, 2010 and 2009	F-6
Notes to Consolidated Financial Statements	F-8

F-1

---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

Left Behind Games Inc.

We have audited the accompanying consolidated balance sheets of Left Behind Games Inc. (the “Company’) as of March 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Left Behind Games Inc. as of March 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As more fully described in Note 4 to the consolidated financial statements, the Company has incurred significant operating losses and negative cash flows from operations through March 31, 2010, and has an accumulated deficit at March 31, 2010 of $51,838,636. These items, among other matters, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 4. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of this uncertainty.

/s/ J. Crane CPA, P.C.

Cambridge, MA

July 14, 2010

F-2

---

LEFT BEHIND GAMES INC.

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2010 AND 2009

See report of independent registered public accounting firm and accompanying notes to consolidated financial statements

F-3

---

LEFT BEHIND GAMES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS 

For The Years Ended March 31, 2010 and March 31, 2009

		For the Year Ended March 31,
		2010		2009
Net revenues	$	111,572	$	196,316
Costs and expenses:
Cost of sales - product costs		46,645		60,534
Cost of sales - intellectual property licenses		19,057		13,426
Legal fees		978,149		134,861
Advertising and marketing expenses		946,772		61,438
Selling, general and administrative		1,069,386		999,018
Wages and salaries		4,110,541		669,488
Product development		140,307		52,557
Total costs and expenses		7,310,857		1,991,322
Operating loss		(7,199,285)		(1,795,006)
Other income (expense):
Gain from extraordinary event		--		468,838
Debt forgiveness		--		250,000
Other expense		(101,111)		(67,394)
Interest expense		(536,604)		(818,065)
Total other income (expense)		(637,715)		(166,621)
Loss before provision for income taxes		7,837,000		1,961,627
Provision for income taxes		--		--
Net loss	$	(7,837,000)	$	(1,961,627)
Net loss available to common stockholders per common share:
Basic and diluted	$	(0.01)	$	(0.01)
Weighted average common shares outstanding:
Basic and diluted		1,173,356,216		189,709,222

See report of independent registered public accounting firm and accompanying notes to consolidated financial statements

F-4

---

LEFT BEHIND GAMES INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

For The Years Ended March 31, 2010 and March 31, 2009

See report of independent registered public accounting firm and accompanying notes to consolidated financial statements

F-5

---

LEFT BEHIND GAMES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended March 31, 2010 and March 31, 2009

	For the Year Ended March 31,
	2010			2009
Cash flows from operating activities:
Net loss	$	(7,837,000)		$	(1,961,627)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		29,091			60,199
Loss on disposal of assets		--			77,044
Accretion of debt discount and amortization of debt issuance costs		336,498			614,418
Interest paid in common stock		--			7,120
Reserve on note receivable		101,111			--
Gain on debt forgiveness		--			(250,000)
Beneficial conversion feature on partial conversion of  Notes payable		131,250			--
Change in fair value of warrant		2,023			--
Estimated fair value of common stock issued to consultants for services		1,246,230			299,788
Estimated fair value of common stock issued to employees and directors for services		3,657,100			54,650
Changes in operating assets and liabilities:
Restricted cash		(30,000)			--
Accounts receivable-customers		(6,915)			104,348
Inventories		32,939			(111,801)
Prepaid expenses and other current assets		(2,412)			4,003
Other assets and prepaid royalties		30,315			5,063
Note receivable		(202,221)			--
Accounts payable and accrued expenses		348,818			569,593
Deferred income		(39)			117
Deferred compensation		100,025			(40,625)
Deferred rent		--			(1,427)
Net cash used in operating activities		(2,063,773)			(569,137)
Cash flows from investing activities:
Purchases of property and equipment		623			--
Payments for trademarks and prepaid royalties		--			--
Net cash used in investing activities		(623)			--
Cash flows from financing activities:
(Repayments) on borrowings from related party, net		--			(56,023)
Borrowings under notes payable		25,000			574,300
Principal payments under notes payable		--			(28,194)
Proceeds from issuance of common stock, net of issuance costs		2,087,050			84,137
Net cash provided by financing activities		2,112,050			574,220
Net increase (decrease) in cash		48,899			5,083
Cash at beginning of period		7,778			2,695
Cash at end of period	$	56,677		$	7,778

See report of independent registered public accounting firm and accompanying notes to consolidated financial statements

F-6

---

LEFT BEHIND GAMES INC.

Consolidated Statements of Cash Flows (Continued)

For The Years Ended March 31, 2010 and March 31, 2009

 

		For the Year Ended March 31,
		2010			2009
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	--			--
Income taxes		$	--			--
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock as debt issuance costs		$	--			--
Issuance of common stock as deferred compensation		$	--			100,025
Conversion of accounts payable and accrued expenses into common stock		$	109,700			36,218
Issuance of common stock under licensing agreement		$	137,500			--
Conversion of notes payable and accrued interest into common stock		$	1,724,453			50,558

See report of independent registered public accounting firm and accompanying notes to consolidated financial statements

F-7

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

In January 2006, Left Behind Games Inc. (collectively, “we”, “our,” the “Company” or “LBG”) entered into an Agreement and Plan of Merger (the “Agreement”) with Bonanza Gold, Inc., a Washington corporation (“Bonanza”), wherein Bonanza acquired LBG through the purchase of our outstanding common stock on a “1 for 1” exchange basis. Prior to the execution of the Agreement, on January 25, 2006, we effected a 2.988538 for 5 reverse stock split of LBG’s common stock and preferred stock outstanding, resulting in 12,456,538 and 3,586,246 shares of common and preferred stock, respectively. Also prior to the execution of the Agreement, Bonanza effected a 1 for 4 reverse stock split, resulting in 1,882,204 shares of common stock outstanding.

We were incorporated on August 27, 2002 under the laws of the State of Delaware 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.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Left Behind Games Inc. and, effective July 2005, include the accounts of LB Games Ukraine LLC (“LB Games Ukraine”), a variable interest entity of which we are the primary beneficiary. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

 

Effective July 2005, we adopted FIN 46(R), Consolidation of Variable Interest Entities, which resulted in the consolidation of LB Games Ukraine. LB Games Ukraine was established to provide software development and consulting services and is currently providing these services only to us. LB Games Ukraine is 85% owned by the Company’s Chief Executive Officer. Pursuant to the LB Games Ukraine operating agreement, our Chief Executive Officer is required to fund operations as needed in relation to his ownership interest in LB Games Ukraine. During the years ended March 31, 2009 and 2008 , we contributed approximately $ 470,000 to LB Games Ukraine on behalf of our Chief Executive Officer to provide working capital to LB Games Ukraine. This transaction was eliminated in consolidation.

As LB Games Ukraine provided software development services only to us and due to our history of providing on-going financial support to this entity, through consolidation we absorbed all net losses of this variable interest entity in excess of the equity. LB Games Ukraine’s sole asset was cash which had an approximate balance of $0 at March 31, 2009. During the years ended March 31, 2009 and 2008, we paid approximately $11,000 and $171,000 respectively, for software development services provided by LB Games Ukraine, all of which has been eliminated in consolidation. During the fiscal year ending March 31, 2009, we recorded an additional accrual of approximately $26,000 and have begun the process of dissolving LB Games Ukraine.

NOTE 2-NUMBER NOT USED

NOTE 3- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of LBG and, effective July 2005, include the accounts of LB Games Ukraine LLC (“LB Games Ukraine”), a variable interest entity in which LBG is the primary beneficiary. LB Games Ukraine is a related party created to improve control over software development with independent contractors internationally. All intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Risks and Uncertainties

We maintain our cash accounts with various financial institutions. Accounts at this financial institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At March 31, 2009 and 2008, we did not have balances in excess of the FDIC insurance limit.

F-8

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant estimates include recoverability of prepaid royalties and long-lived assets, the realizability of accounts receivable, inventories and deferred tax assets.

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. Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed, provides 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.

Cost of Sales

Cost of sales consists of product costs, royalty expenses, license costs and inventory-related operational expenses.

Inventories

Raw materials, work in process and finished goods are stated at the lower of average cost or market.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 5 years. Repairs and maintenance are charged to expense as incurred while improvements are capitalized. Upon the sale or retirement of property and equipment, the accounts are relieved of the cost and the related accumulated depreciation, with any resulting gain or loss included in the consolidated statement of operations.

Intangible Assets

License Agreement

The cost of the License Agreement is amortized on a straight-line basis over its terms (see Notes 7 and 8).

Trademarks

The cost of trademarks includes funds expended for trademark applications that are in various stages of the filing approval process. The trademark costs are being amortized on a straight-line basis over their estimated useful lives. During the year ended March 31, 2009, the Company recorded $1,624 of amortization expense related to its capitalized trademark costs. As of March 31, 2009, the Company has written off its capitalized trademark costs as it was uncertain whether those costs would be recouped.

Royalties

Royalty-based obligations with content licensors are either paid in advance and capitalized as prepaid royalties or are accrued as incurred and subsequently paid. These royalty-based obligations are generally expensed to cost of goods sold at the greater of the contractual rate or an effective royalty rate based on expected net product sales.

Our contracts with some licensors include minimum guaranteed royalty payments which are recorded to expense and as a liability at the contractual amount when no significant performance remains with the licensor. Minimum royalty payment obligations are classified as current liabilities to the extent such royalty payments are contractually due within the next twelve months.

F-9

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

Significant judgment is required to estimate the effective royalty rate for a particular contract. Because the computation of effective royalty rates requires us to project future revenue, it is inherently subjective as our future revenue projections must anticipate, for example, (1) the total number of titles subject to the contract, (2) the timing of the release of these titles, (3) the number of software units we expect to sell, and (4) future pricing.

Our license agreement requires payments of royalties to the licensor. The license agreement provides for royalties to be calculated as a specified percentage of sales and provides for guaranteed minimum royalty payments. Royalties payable calculated using the agreement percentage rates are being recognized as cost of sales as the related sales are recognized. Guarantees advanced under the license agreement are recorded as a component of cost of sales during the period in which the Company is contractually obligated to make minimum guaranteed royalty payments.

During the years ended March 31, 2010 and 2009, we recorded cost of sales – intellectual property as follows:

		Fiscal Year Ended March 31,
		2010		2009
Left Behind License	$	3,196	$	2,185
Charlie Church Mouse License		10,155		8,046
Keys of the Kingdom License		5,706		3,195
Total Cost of Sales - intellectual Property Costs	$	19,057	$	13,426

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. As of March 31, 2009, we believe there is no impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or that there will be demand for our products, which could result in impairment of long-lived assets in the future.

Income Taxes

We account for income taxes under the provisions of SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are recognized for future tax benefits or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be realized through future operations.

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), on April 1, 2007, the first day of fiscal 2007. FIN 48 is an interpretation of SFAS No. 109 and seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement requirement for the financial statement recognition of a tax position that has been taken or is expected to be taken on a tax return. FIN 48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under FIN 48 the Company may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. The Company adopted FIN 48 effective January 1, 2007. The Company believes that its income tax filing position and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its consolidated financial position. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48. The cumulative effect, if any, of applying FIN 48 is to be reported as an adjustment to beginning retained earnings related to the adoption of FIN 48. The Company was not required to record a cumulative effect as a result of adopting FIN 48. The Company's policy for recording interest and penalties associated with income tax audits is to record such items as a component of income taxes.

Stock-Based Compensation

Effective April 1, 2006, the first day of our fiscal year 2007, we adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment, using the modified-prospective transition method based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).

F-10

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

We calculate stock-based compensation by estimating the fair value of each stock award using the Binomial Lattice option pricing model. Our determination of the fair value of stock awards is made as of the respective dates of grant using the option pricing model and that determination is affected by our stock price as well as assumptions regarding the number of subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behavior. The Binomial Lattice option pricing model was developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. The calculated compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period of the stock award.

Restricted Cash

 Restricted cash is comprised of $30,000 that we have deposited into an escrow account with a law firm. We agreed to hold these funds in escrow as support for future compensation as a condition to hiring a key game developer.

Basic and Diluted Loss per share

Basic loss per common share is computed by dividing net loss by the weighted average number of shares outstanding for the period. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding assuming all potential dilutive common shares were issued. Basic and diluted loss per share are the same for the periods presented as the effect of warrants and convertible deferred salaries on loss per share are anti-dilutive and thus not included in the diluted loss per share calculation. If such amounts were included in diluted loss per share, they would have resulted in weighted average common shares of 192,423,085 and 1,688,058 for the years ended March 31, 2009 and 2008, respectively.

Foreign Currency and Comprehensive Income

We have determined that the functional currency of LB Games Ukraine is the local currency of that company. Assets and liabilities of the Ukrainian subsidiary are translated into U.S. dollars at the period end exchange rates. Income and expenses, including payroll expenses, are translated at an average exchange rate for the period and the translation gain or loss is accumulated as a separate component of stockholders’ deficiency. We determined that the translation gain or loss did not have a material impact on our stockholders’ deficiency as of March 31, 2009 and 2008. As a result, we have not presented a separate accumulated other comprehensive income (loss) on our consolidated balance sheets.

Foreign currency gains and losses from transactions denominated in other than the respective local currencies are included in income. There were no foreign currency transactions included in income during the years ended March 31, 2009 and 2008.

Fair Value of Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable, related party advances, notes payable and accrued expenses. The carrying amounts of these financial instruments approximate their fair value due to their short maturities or based on rates currently available to the Company for notes payable.

Revenue Recognition

We evaluate the recognition of revenue based on the criteria set forth in Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended by SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions and Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104, Revenue Recognition. 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.

F-11

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

·

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).

After considering (i) the limited sales history of our product, (ii) the limited business history with our primary channel partner and largest retail customer and (iii) the competitive conditions in the software industry, we determined that return privileges and price protection rights granted to our customers impacted our ability to reasonably estimate sales returns and future price concessions, and therefore, we were unable to conclude that our sales arrangements had a fixed and determinable price at the time our inventory was shipped to customers.

For sales to our primary channel partner and largest retail customer, 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 primary channel partner and largest retail customer each provide us with sell-through information on a frequent basis regarding sales to end customers and in-channel inventories. Our primary channel partner has confirmed our accounts receivable balance of $6,915 as of March 31, 2010 and also has paid us that amount since March 31, 2010.

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 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 only upon collection of funds from the customers.

In the future, we intend to continue using the sell-through methodology with our primary channel partner and largest retail customer. 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 30 days.

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 ASC 605-45-50-2, Accounting for Shipping and Handling Fees and Costs, 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.

F-12

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

We promote 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 ASC 605-50-45, Accounting for Consideration Given by a Vendor to a Customer or Reseller of the Vendors Products, certain payments made to customers by the Company, including promotional sales allowances, cooperative advertising and product introductory expenditures have been deducted from revenue. During the fiscal year ended March 31, 2010, we had the following amounts deducted from revenue:

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

During the fiscal year ended March 31, 2009, we did not have any such payments.

Customer Concentrations

 

During the year ended March 31, 2010, one customer accounted for 15% of net sales. In the year ended March 31, 2009, a different customer represented 44% of net sales.

Significant Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board ("FASB") issued a new accounting standard which provides guidance related to the FASB ASC and the Hierarchy of Generally Accepted Accounting Principles. The new accounting standard stipulates the FASB Accounting Standards Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. The new accounting standard is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of this standard during the quarter ended September 30, 2009 did not have a material impact on our statements of operations or financial position.

In May 2008, the FASB issued a new accounting standard which provides guidance relating to accounting for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement). This new standard requires recognition of both the liability and equity components of convertible debt instruments with cash settlement features. The debt component is required to be recognized at the fair value of a similar instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the note and the fair value of the liability. The standard also requires an accretion of the resulting debt discount over the expected life of the debt. Retrospective application to all periods presented is required and a cumulative-effect adjustment is recognized as of the beginning of the first period presented. This standard was effective for us in the first quarter of fiscal year 2010. The adoption of this standard did not have a material impact on our financial statements.

In April 2009, the FASB issued an amendment to an existing standard which provides guidance relating to interim disclosures about fair value of financial instruments. This new standard requires the disclosure of the carrying amount and the fair value of all financial instruments for interim reporting periods and annual financial statements of publicly traded companies (even if the financial instrument is not recognized in the balance sheet), including the methods and significant assumptions used to estimate the fair values and any changes in such methods and assumptions. This new standard is effective for interim reporting periods ending after June 15, 2009. We adopted this pronouncement during the quarter ended June 30, 2009 without material impact to our financial statements.

In May 2009, the FASB issued a new accounting standard related to subsequent events, which provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. The new accounting standard distinguishes events requiring recognition in the financial statements and those that may require disclosure in the financial statements. The new accounting standard is effective for interim and annual periods after June 15, 2009. We adopted the new accounting standard for the quarter ended June 30, 2009.

F-13

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

The Sarbanes-Oxley Act of 2002 ("the Act") introduced new requirements regarding corporate governance and financial reporting. Among the many requirements of the Act is for management to annually assess and report on the effectiveness of its internal control over financial reporting under Section 404(a) and for its registered public accountant to attest to this report under Section 404(b). The SEC has modified the effective date and adoption requirements of Section 404(a) and Section 404(b) implementation for non-accelerated filers multiple times, such that we were only required to issue our management report on internal control over financial reporting in our annual report on Form 10-K for the fiscal year ended March 31, 2009. Based on current SEC requirements, we will be required to have our independent registered public accounting firm attest to the effectiveness of internal controls over financial reporting for our fiscal year ending March 31, 2011.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," which was subsequently codified within ASC 825, ("ASC 825"). ASC 825 expands the scope of specific types of assets and liabilities that an entity may carry at fair value on its statement of financial position, and offers an irrevocable option to record the vast majority of financial assets and liabilities at fair value, with changes in fair value recorded in earnings. ASC 825 is effective for fiscal years beginning after November 15, 2007. We have not yet elected to use the fair value option,and as such, our adoption of ASC 825 as of April 1, 2008 did not have a material impact on our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public

Significant Recent Accounting Pronouncements, continued

Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

FAIR VALUE MEASUREMENTS

We follow FASB ASC 820, "FAIR VALUE MEASUREMENTS AND DISCLOSURES" in connection with financial assets and liabilities measured at fair value on a recurring basis subsequent to initial recognition. The guidance applies to our derivative liabilities.

FASB ASC 820 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

 Level 1: Quoted market prices in active markets for identical assets or liabilities.

 Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

 Level 3: Unobservable inputs that are not corroborated by market data.

The fair value of our warrants is determined based on observable market based inputs or unobservable inputs that are corroborated by market data, which is a Level 3 classification.

We did not make any changes to our valuation techniques compared to the prior fiscal year.

F-14

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

NOTE 4 - 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 $7,837,585 and $1,961,627 during the years ended March 31, 2010 and 2009, respectively, and had an accumulated deficit of $51,838,636 at March 31, 2010. In addition, we used cash in our operations of $2,063,773 and $569,137 during the years ended March 31, 2010 and 2009, respectively. Additionally, as of March 31, 2010, we were in default on certain notes payable. However, from April 1, 2009 to December 31, 2009, the majority of our notes were converted to stock.

Management plans to raise additional capital to meet the expectation of increased operations costs in the later half of 2010 to fund the development and marketing of 4 new products coming to market, then reevaluate capital needs upon a review of sales performance resulting from the upcoming holiday season.

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 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.

NOTE 5 - INVENTORIES

Inventories consisted of the following at March 31, 2010 and 2009:

		2010			2009
Raw Materials		$	85,660		$	101,812
Finished Goods			62,398			79,185
			148,058			180,997
Less Reserve			(-)			(-)
Total Inventories		$	148,058		$	180,997

F-15

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at March 31, 2010 and 2009:

	2010			2009
Office furniture and equipment	$	2,764		$	4,322
Leasehold improvements		839			-
Computer equipment		137,480			137,384
		141,083			141,706
Less accumulated depreciation		(72,793	)		(43,702)
	$	68,290		$	98,004

Depreciation expense for the years ended March 31, 2010 and 2009 was $29,091 and $58,575, respectively.

NOTE 7 - INTANGIBLE ASSETS

Intangible assets consisted of the following at March 31, 2010 and 2009:

		2010			2009
License		$	137,500		$	-
Trademarks			-			-
			137,500			-
Less accumulated amortization			(51,562	)		(-)
		$	85,938		$	-

As of March 31, 2009, we wrote off our intangible assets as there was doubt as to their recoverability. Amortization expense related to our trademarks was $1,624 for the year ended March 31, 2009. Due to the write off, we no longer have future amortization expense related to the trademarks. In June, 2009, we licensed the international rights to the Charlie Church Mouse brand from Lifeline Studios for $137,500 and we are amortizing the license over its two year term.

NOTE 8 - RELATED PARTY TRANSACTIONS

As LB Games Ukraine was providing software development services only to us and due to our history of providing on-going financial support to that entity, through consolidation we absorbed all net losses of this variable interest entity in excess of the equity. During the years ended March 31, 2009, we paid approximately $11,470 for software development services provided by LB Games Ukraine, which has been recorded as research and development cost during the period. We made no payments to LB Games Ukraine in the fiscal year ended March 31, 2010.

F-16

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

NOTE 9 - INCOME TAXES

The provision for income taxes consists of the following for the years ended March 31:

 

		2010			2009
Current:
Federal		$	-		$	-
State			-			-
			-			-
Deferred:
Federal			2,743,000			1,864,000
State			677,000			305,000
			3,420,000			2,164,000
Less change in valuation allowance			(3,420,000)			(2,164,000)
			-			-
		$	-		$	-

 

No current provision for federal income tax is required for the years ended March 31, 2010 and 2009, since the Company incurred net operating losses through March 31, 2010.

The tax effect of temporary differences that give rise to significant portions of the deferred tax asset at March 31, 2010 and 2009 are presented below:

 

		2010			2009
Deferred tax assets:
Net operating loss carryforwards		$	5,706,000		$	5,706,000
Payroll related			-			78,000
Allowance for doubtful accounts			-			-
Deferred rent			-			-
Depreciable and amortizable assets
Inventory reserves
Unearned revenue
			5,784,000			5,784,000
Less valuation allowance			(5,784,000)			(5,784,000)
Net deferred tax assets		$	-		$	-

 

The provision for income taxes for both fiscal 2010 and 2009 was $ 0 and $0, respectively, and differs from the amount computed by applying the U.S. federal income tax rate of 34% to loss before income taxes as a result of the following:

 

		2010			2009
Computed tax benefit at federal statutory rate		$	(686,000)		$	(686,000)
State income tax benefit, net of federal effect			(50,000)			(50,000)
Increase in valuation allowance			736,000			736,000
Non-deductible stock compensation			-			-
Other			-			-
		$	-		$	-

F-17

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

As of March 31, 2010, we had net operating loss carryforwards of approximately $13,543,000 available to offset future taxable Federal and state income. The Federal and state net operating loss carryforwards expire at various dates through 2026 and 2016, respectively.

Section 382 of the Internal Revenue Code may limit utilization of our Federal and California net operating loss carryforwards upon any change in control of the Company.

NOTE 10 – PAYROLL TAXES

As of March 31, 2010, we owed accrued payroll taxes of $161,104 to various governmental authorities. No payroll taxes have been paid since the December 2009 reporting period when we paid the payroll taxes accrued through the June 2008 period. This is significant offense with the US government to which we may face significant penalties and operations could be harmed should the US government wish to enforce its rights to collect the payroll taxes and that our officers and directors, both past and present, are potentially liable for penalties

NOTE 11 - STOCKHOLDERS’ EQUITY

Common Stock

We are authorized to issue three billion (3,000,000,000) 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 fiscal year ended March 31, 2010, we received $2,087,050 in net proceeds from the sale of 439,875,087 shares of our common stock.

 

During the fiscal year ended March 31, 2010, we also issued to independent third parties 326,606,675 shares of common stock for services provided, valued at $1,246,230. We also issued to certain employees and directors as additional compensation 105,000,000 shares of common stock, 101,000,000 of which were the result of issuances of preferred stock and subsequent conversions of that preferred stock to common stock by our Chief Executive officer and one of our directors, valued at $3,657,100 in the aggregate. We also issued 546,870,360 shares of common stock related to debt conversions of $1,834,153.

In December 2009, we licensed the international rights to the Charlie Church Mouse brand from Lifeline Studios in exchange for an issuance of 2,500,000 shares of our common stock, valued at $137,500 based on the closing price.

On October 13, 2009, we effected a 3:2 forward stock split that resulted in the issuance of 515,216,739 shares to existing shareholders.

During the fiscal year ended March 31, 2009, we received $84,137 in net proceeds from the sale of 102,549,333 shares of our common stock and 3,884,467 shares of our series B preferred stock.

 

During the fiscal year ended March 31, 2009, we also issued to independent third parties 48,700,281 shares of common stock for services provided, valued at $299,788. We also issued 2,025,000 shares of common stock, valued at $54,650 to certain employees and directors as additional compensation. We also issued 900,000 shares for interest, valued at $7,120 issued 26,441,850 shares valued at $141,751 to convert accounts payable to equity and issued 25,209,438 shares of common stock related to debt conversions.

 

During the fiscal year ended March 31, 2009, we issued 562,500 warrants to purchase shares of our common stock all with an exercise price of $0.05 per share. We have estimated the value of the 2009 warrants to be approximately $11,250.

F-18

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

NOTE 11 - STOCKHOLDERS’ EQUITY - CONTINUED

Preferred Stock

We are authorized to issue Sixty Million (60,000,000) shares of $0.001 par value preferred stock of which 3,586,245 preferred A shares, 11,080,932 preferred B shares, 10,000 preferred C shares and 9 preferred D shares are issued and outstanding as of March 31, 2010 respectively. Preferred A shares are convertible on a one for one basis with our common stock at the sole discretion of the holder. Our preferred A shares enjoy one for one common stock voting rights. The preferred stock is entitled to preference over the common stock with respect to the distribution of our assets in the event of our liquidation, dissolution, or winding-up, whether voluntarily or involuntarily, or in the event of any other distribution of our assets of among the shareholders for the purpose of winding-up our affairs. The authorized but unissued shares of preferred stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors. The Directors in their sole discretion shall have the power to determine the relative powers, preferences, and rights of each series of preferred stock. Each share of series B preferred stock has voting power equal to 200 shares of common stock for a twelve month period. Subsequently, each series B preferred share has voting power equal to one vote of common stock.

As stated in our September 28, 2009 filing, the authorized number of shares of Series C Preferred Stock is Ten Thousand (10,000). The holders of the Series C Preferred Stock shall be entitled to vote on all matters to be voted upon by the holders of the Company’s common stock and each share shall have the voting equivalent of one million (1,000,000) shares of common stock. The authorized number of Series D Preferred Stock is One Thousand (1,000). The holders of the Series D Preferred Stock shall be entitled to vote on all matters to be voted upon by the holders of the Company’s common stock and each share shall have the voting equivalent of one million (1,000,000) shares of common stock. Each holder of Series D Stock shall have the right, at such holder’s option, at any time or from time to time from and after the day immediately following the date the Series D Stock is first issued, to convert each share of Series D Stock into one million (1,000,000) fully-paid and non-assessable shares of the Company’s common stock.

The holders of series A preferred stock have a liquidation preference equal to the sum of the converted principal, accrued interest and value of converted common stock, aggregating $188,500 at March 31, 2010 and March 31, 2009, respectively.

During the fiscal year ended March 31, 2010, we recorded a conversion of Series D Preferred shares into common stock to our CEO, Troy Lyndon, valued at $3,270,100. Such shares are presently valued at approximately $285,000.

During the fiscal year ended March 31, 2010, we also recorded a one-time issuance of 10 Series D Preferred Shares (convertible into 10 million common stock shares) and a conversion of shares into common stock valued at $327,000. Such shares are presently valued at approximately 1/10 its issued value.

NOTE 12 - STOCK WARRANTS

From time to time, we issue warrants pursuant to equity financing arrangements.

The fair value of each warrant granted during the years ended March 31, 2010 and 2009 to consultants and other service providers is estimated using the Binomial Lattice option-pricing model on the date of grant.

F-19

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

The following table represents a summary of the warrants outstanding at March 31, 2010 and 2009 and changes during the years then ended:

		2010						2009
		Warrants			Weighted Average Exercise Price			Warrants			Weighted Average Exercise Price
Outstanding, beginning of year			5,118,488		$	0.12			4,555,988		$	0.13
Issued			--			--			562,500			0.05
Expired/forfeited			(174,738	)		2.23			--			--
Exercised			(1,031,250	)		.05			--			--
Outstanding and exercisable, end of year			3,912,500		$	0.05			5,118,488		$	0.12
Weighted average fair value of warrants issued					$	--					$	0.05

The following outlines the significant weighted average assumptions used to estimate the fair value information presented utilizing the Binomial Lattice option pricing models:

		Years Ended March 31,
		2010		2009
Risk free interest rate		--		4.73%
Average expected life		--		3 years
Expected volatility		--		185.0%
Expected dividends		--		None

The following table summarizes information about warrants outstanding at March 31, 2010:

Exercise Price		Number of Warrant Shares		Weighted Average Remaining Contractual Life (Years)
$0.05		3,912,500		0.80
		3,912,500

The outstanding warrants at March 31, 2010 are immediately exercisable.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Guarantees and Indemnities

We have made certain indemnities and guarantees, under which we may be required to make payments to a guaranteed or indemnified party in relation to certain actions or transactions. We indemnify our directors, officers, employees and agents, as permitted under the laws of the State of Delaware. We have also indemnified our consultants, investment bankers, sublicensor and distributors against any liability arising from the performance of their services or license commitment, pursuant to their agreements. In connection with our facility leases, we have indemnified our lessors for certain claims arising from the use of the facility. The duration of the guarantees and indemnities varies, and is generally tied to the life of the agreement. These guarantees and indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated nor incurred any payments for these obligations and, therefore, no liabilities have been recorded for these indemnities and guarantees in the accompanying consolidated balance sheets.

F-20

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

Antidilution Rights for 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 that amount of stock to Charter Financial Holdings, LLC to maintain their ownership percentage. Charter Financial Holdings, LLC is not required to pay additional consideration for those shares.

Employment Agreements

We have entered into employment agreements with of our chief executive officer. This contract provides for minimum annual salaries and is renewable annually. In the event of termination of this employment agreement by LBG without cause, we would be required to pay continuing salary payments for specified periods in accordance with the employment contract. Effective October 2009, our CEO, Troy Lyndon, has chosen not to receive a salary on a going-forward basis. However, Mr. Lyndon has reserved the right to receive cash and stock-based compensation on a go-forward basis upon request, although he has not exercised this right.

Leases

We operate in a 4,355 square foot sales and distribution facility in Temecula, California under a sublease agreement through October 2010. Its cost is $2,918.50 per month. Our lease ends each October and is renewable each year for 3 years at a similar lease rate.

Previously, our corporate offices consisted of a 3,500 square foot facility on 29995 Technology Drive in Murrieta, California under a lease agreement through May 2010. Its cost is $7,545 per month, with annual increases of four percent (4%). We abandoned that facility in March 2008 and recorded a contingency accrual of approximately $180,000 relating to the lease abandonment. We are seeking a resolution with the landlord.

Independent Sales Representatives

In order to help us secure retail distribution of our initial product, we entered into consulting arrangements with several independent representatives. The payment arrangements to these independent representatives are based upon the ultimate amount paid to us by each customer. The commission rates for these independent representatives typically vary from three percent to five percent to thirty percent of the net amount we collect from customers.

 

Left Behind License

On October 11, 2002, the publisher of the Left Behind book series granted us an exclusive worldwide license to use the copyrights and trademarks relating to the storyline and content of the books in the Left Behind series of novels for the manufacture and distribution of video game products for personal computers, CD-ROM, DVD, game consoles, and the Internet.

The license requires us to pay royalties based on the gross receipts on all non-electronic products and for electronic products produced for use on personal computer systems, and a smaller percentage of the gross receipts on other console game platform systems. According to the license agreement, we are required to guarantee a minimum royalty during the initial four-year term of the license, of which we have already paid a portion. This advance will be set off as a credit against all monies owed subsequently under the license. We were behind in our payments to the licensor. If these are not paid, in the event the licensor makes a demand, it could result in the termination of the license agreement. In such case, we shall continue to have the rights to sell all games in the marketplace along with all inventory already purchased. On September 28, 2008, the Company and licensor modified terms of the agreement to eliminate minimum royalty guarantees. Instead, within 30 days from the end of each month, Company shall provide royalties to licensor based upon its agreement for the preceding month. Additionally, the license term of 3 years automatically renews to additional terms in perpetuity.

F-21

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

Charlie Church Mouse License

 In July 2007, we obtained an exclusive license to sell three (3) PC games featuring Charlie Church Mouse (“CCM”) to the CBA market from the publisher of the CCM games. The CCM games are educational software programs utilizing Bible stories designed for pre-school, kindergarten and early elementary age children. Under the license, we pay the author a royalty of twenty percent of gross margin collected from our customers. On May 12, 2010, we acquired the entire Charlie Church Mouse brand.

Keys of the Kingdom Game. On May 20, 2008, we acquired the publishing and distribution rights to the PC game, Keys of the Kingdom. This new game features brain-teasing dynamics and inspirational scriptures. We agreed to pay the author a royalty of fifteen percent of gross margin collected from our customers.

Litigation

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.

NOTE 14 - 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 consolidated balance sheet.

Notes payable consist of the following at March 31, 2010:
		Face Amount of				Notes Payable,
		Notes Payable		Note Discounts		Net of 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
At March 31, 2009, the Meyers bridge notes and the individual loans were in default. During the fiscal year ended March 31, 2010, we recorded $200,106 of interest expense related to the contractual coupons of our notes payable and $336,498 from amortization of debt discounts on our convertible notes for a total of $536,604.
Notes payable consist of the following at March 31, 2009:
		Face Amount of				Notes Payable,
		Notes Payable		Note Discounts		Net of Discounts
Zero coupon notes	$	247,187	$	(156,150)	$	91,037
Meyers bridge notes (in default)		150,000		-		150,000
Individual loans (in default)		162,488		-		162,488
1 year convertible notes		700,325		(101,666)		598,659
3 year convertible notes		92,675		(78,682)		13,993
Total notes payable	$	1,352,675	$	(336,498)	$	1,016,177

During the fiscal year ended March 31, 2009, we recorded $203,650 of interest expense related to the contractual coupons of our notes payable and $614,415 from amortization of debt discount and debt issuance costs for a total of $818,065.

 

F-22

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

Future minimum principal payments required under our notes payable are as follows:

Year Ending March 31, 2011	Principal Amount		Less Discount		Notes Payable, Net
	208,538		--		208,538
	208,538		--		208,538

Zero Coupon Notes

In the fiscal years ended March 31, 2010 and 2009, we received an aggregate $158,200 from twelve investors in the form of convertible zero coupon notes (the “Zero Coupon Notes”). The investors funded the Zero Coupon Notes at various times between January and April 2009. The Notes called for the investors to invest at a 36% discount from the principal value of the Notes. The Zero Coupon Notes have a three year term and are convertible to our common stock at $0.025 per share. There is no prepayment penalty to the Notes.

As an inducement for the investors to enter into the Notes, we granted to each investor on the date of his Note a warrant to purchase Common Stock shares (“Warrant Shares”), collectively with the shares issued upon conversion of the Notes, with the shares vesting pro-rata during the three year term, or upon conversion of the Note to Common Stock. All Warrant Shares have an exercise price of $0.05 (“Exercise Price”) and are exercisable for a term of three years by cash exercise only. The warrants have a three year life and vest over that same three year period.

We evaluated the criteria of paragraphs 12-32 of EITF 00-19, with regards to the warrants granted as part of the Notes. As required by FSP EITF 00-19-2, the evaluation was performed without regard to the contingent obligation to transfer consideration or liquidated damages. We concluded that the warrants appear to meet the conditions in paragraphs 12-32 of EITF 00-19 for equity classification.

The warrants were valued at approximately $146,000 under the Binomial Lattice valuation approach based on a three year life, risk free interest rates ranging from 4.51% to 4.85% and volatilities ranging from 84% to 185%.

Based upon the valuation of the warrants and the 36% original issue discount, we recorded an initial note discount of $247,188, which fully covered the principal amount of the convertible zero coupon notes. This note discount will be amortized over the three year term of each Note with the amortization charged to interest expense.

No charge for the beneficial conversion feature was made because the note discount fully discounted the cash received and principal value of the Notes.

During the fiscal year ended March 31, 2010, all of the Zero Coupon Notes were converted to common stock at various conversion prices at or below the original agreed conversion price of $0.025 per share. If it was determined that there was a beneficial conversion feature to any of the conversions below $0.025 per share, then we recorded additional interest expense equal to the value of the beneficial conversion feature.

Meyers Bridge Notes

In January 2007, we entered into a Bridge Loan arrangement with Meyers Associates L.P. (“Meyers”), a broker-dealer. Under this unsecured Bridge Loan arrangement we agreed to issue two shares of our common stock for every $1 lent to us by accredited investors (the “Bridge Units”). We also agreed to pay to the investors 10% simple interest on the funds lent to us and to pay Meyers a commission of 10% of proceeds received under the arrangement and a non-accountable expense allowance that is equal to 3% of the gross funds that we received. Meyers also received 25% shares coverage. We agreed to repay the Bridge Loan at the earlier of (i): twelve months after the date of issuance; (ii) the consummation of any $1.5 million financing; and (iii) the date on which the outstanding principal amount is prepaid in full. The initial completion date of the Bridge Loan was March 31, 2007, which was subsequently extended to May 31, 2007 at which time it terminated.

 

F-23

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

We agreed to provide the investors in this Bridge Offering the same registration rights provided to investors in our next private placement. In the event that a private placement is not completed at our election within 90 days from the completion of this Bridge Offering, we agreed to file with the SEC within 120 days from the final completion of this Bridge Offering a registration statement under the Securities Act of 1933, as amended, concerning the resale of the shares of our Common Stock included in the Bridge Units. To date, we have not filed such registration statement.

We received an aggregate $386,600 in net proceeds (net of commissions and legal fees) under the Bridge Loan and the gross amount at that date that we would need to repay to the investors was $450,000. We issued an aggregate 900,000 shares to the investors as part of the Bridge Units and 225,000 shares to Meyers as part of their compensation. Overall, we valued the 900,000 shares issued to the investors at $358,200, of which $61,400 was related to the issuance of 260,000 shares during the year ended March 31, 2008, based on the closing market price of our stock on the days in which the funding events occurred and capitalized that amount to debt issuance costs on our March 31, 2008 consolidated balance sheet. Overall, the shares issued to Meyers were valued at $221,650, of which $15,350 was related to the issuance of 65,000 shares during the year ended March 31, 2008, based on the closing market price of our stock and were also capitalized to debt issuance costs. Those costs were amortized to interest expense over the term of the loan. We charged $392,250 of the debt issuance costs to interest expense in the year ended March 31, 2008 and then charged the remaining amount to interest expense over the remainder of the term of the Bridge Loan.

The combination of $275,000 in conversions to common stock and the $25,000 partial repayment reduced the amount outstanding under the Bridge Loan as of March 31, 2009 to $150,000. At March 31, 2009, the remaining $150,000 balance was in default.

During the fiscal year ended March 31, 2010, all of the remaining Bridge Loans were converted to common stock or to One Year Notes Payable.

Individual Loans

During the fiscal year ended March 31, 2008, we borrowed $162,488 from certain shareholders under short term promissory notes (“Individual Loans”). Certain of those notes were secured by our assets and required interest payments in our common stock. The interest rates ranged from 10% to 24%.

During the fiscal year ended March 31, 2010, the noteholders agreed to convert $65,788 of the Individual Loans to common stock. Additionally, we borrowed $25,000 from a different shareholder. As a result, at March 31, 2010 we are currently in default on the remaining $95,737 of the original Individual Loans and are not in default on the more recently funded $25,000 Individual Loan. We have accrued $98,549 in interest related to the Individual Loans.

One Year Notes Payable

During the fiscal year ended March 31, 2009, we borrowed $700,325 from certain shareholders under short term promissory notes (“One Year Notes Payable”).

During the fiscal year ended March 31, 2010, certain noteholders agreed to convert $663,724 of the One Year Notes Payable to common stock and another investor funded a new loan of $35,000, this resulted in a balance of $81,601 at March 31, 2010. The interest rate associated with the One Year Notes Payable is the 15% default interest rate. We are currently in default on these short-term notes. We have accrued $47,607 in interest related to the One Year Notes Payable.

Three Year Notes Payable

 

During the fiscal year ended March 31, 2009, we borrowed $92,675 from certain shareholders under promissory notes (“Three Year Notes Payable”). During the fiscal year ended March 31, 2010, certain noteholders agreed to convert $86,475 of the Three Year Notes Payable to common stock; this resulted in a balance of $6,200 at March 31, 2010. We have accrued $7,144 in interest related to the Three Year Notes Payable.

F-24

---

LEFT BEHIND GAMES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended March 31, 2010 and 2009

NOTE 15 - DEFERRED REVENUES

In July 2006, we entered into a revenue share agreement with Double Fusion, an in-game advertising technology and service provider, under which Double Fusion will provide in-game advertising and product placement to go into our first video game product. Under this agreement, Double Fusion advanced $100,000 to us as an upfront deposit, which we received during the fiscal year ended March 31, 2007. Under the agreement, Double Fusion will pay us 65% of net advertising revenues as our part of the revenue share related to in-game advertising placements that they sell. Once they have recouped $100,000 from our 65% revenue share, we will recognize this $100,000 upfront deposit as revenue. As the term of the Double Fusion Agreement expired on December 31, 2008, we are no longer classifying this balance as deferred revenue and have classified it as $100,000 in other liabilities as of March 31, 2010 and 2009.

The $78 in deferred revenue shown on the March 31, 2010 consolidated balance sheet represents the cash collected through our on-line store sales during the month of March 2010 since our policy is to offer our on-line customers the right to return games for up to one month.

NOTE 16 – 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 March 31, 2010, DP owed us $202,221. We have 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 show a net amount of $101,111 on our March 31, 2010 consolidated balance sheet.

NOTE 17 - SUBSEQUENT EVENTS

From April 1, 2010 through July 9, 2010, we received $222,075 in net proceeds from the sale of 297,733,702 shares of common stock.

From April 1, 2010 through July 9, 2010, we issued 36,827,563 shares to consultants for services to be rendered during the June 30, 2010 quarter.

From April 1, 2010 through July 9, 2010, we raised $25,000 through the issuance of a convertible note that is potentially convertible into 16,666,667 shares of common stock.

On April 13, 2010, we acquired the rights to the Charlie Church Mouse brand from Lifeline Studios in exchange for one hundred million shares of common stock.

 

On April 30, 2010, our intended merger with Digital Praise expired.

F-25

---

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.

 

LEFT BEHIND GAMES INC.

(Registrant)

 

July 14, 2010		By:	/s/ Troy A. Lyndon                                                         Troy A. Lyndon Chief Executive Officer (Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

 

Date		Signature	Title
July 14, 2010		/s/ TROY A. LYNDON       (Troy A. Lyndon)	Chief Executive Officer and Chairman (Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer)
July 14, 2010		/s/ RICHARD KNOX, JR. (Richard Knox, Jr.)	Director
July 14, 2010		/s/ RICHARD KNOX, SR. (Richard Knox, Sr.)	Director

38