SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from _____to_____

COMMISSION FILE NUMBER 000-50603

LEFT BEHIND GAMES INC.

 (Exact name of registrant as specified in its charter)

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

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

 (Address of principal executive offices) (Zip Code)

(951) 894-6597

 (Registrant's telephone number, including area code)

With copies to:

Virginia K. Sourlis, Esq.

The Sourlis Law Firm

214 Broad Street

Red Bank, New Jersey 07701

Tel: (732) 530-9007

Fax: (732) 530-9008

www.SourlisLaw.com

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

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

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

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

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

As of November 22, 2010, the Registrant had 4,446,193,905 shares of common stock, par value $0.001 per share, issued and outstanding.

PART I.	FINANCIAL INFORMATION
ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	3
	CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2010 AND MARCH 31, 2010	3
	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009	4
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009	5
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	15
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22
ITEM 4.	CONTROLS AND PROCEDURES	22
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	22
ITEM 1A.	RISK FACTORS	22
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	23
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	23
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23
ITEM 5.	OTHER INFORMATION	23
ITEM 6.	EXHIBITS	24

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LEFT BEHIND GAMES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		September 30,		March 31,
		2010		2010
ASSETS		(Unaudited)		(Audited)
Current assets
Cash	$	20,227	$	56,677
Restricted cash		30,000		30,000
Accounts receivable		--		6,915
Inventories, net		45,047		148,058
Prepaid royalties		7,182		30,426
Prepaid expenses and other current assets		8,257		6,048
Total current assets		110,713		278,124
Property and equipment, net		63,827		68,290
Note receivable		84,259		101,111
Intellectual property, net		51,563		85,938
Other assets		6,102		5,927
Total assets	$	316,464	$	539,390
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and accrued expenses	$	1,527,339	$	2,350,525
Payroll liabilities payable		237,867		161,104
Notes payable, net of discounts		99,807		31,200
Notes payable in default		--		177,338
Advances from related parties		--		--
Deferred revenue		608		78
Total current liabilities		1,865,621		2,720,245
Commitments and Contingencies
Stockholders' Deficit
Series A preferred stock, $0.001 par value; 3,586,245 shares authorized,
issued and outstanding as of September 30, 2010 and March 31, 2010;
liquidation preference of $188,500		3,586		3,586
Series B preferred stock, $0.001 par value; 16,413,755 shares authorized;
10,700,929 and 11,040,929 shares issued and outstanding on September 30, 2010   and March 31, 2010		10,702		11,041
Series C preferred stock, $0.001 par value,10,000 authorized,		--		--
issued and outstanding as of September 30, 2010 and March 31, 2010
Series D convertible preferred stock, 1,000 shares authorized, 109 and zero
shares issued and outstanding as of September 30, 2010 and March 31, 2010		--		--
Common stock, par value $0.001 per share; 5,000,000,000 shares
authorized; 3,980,681,458 and 2,279,968,311 shares issued and outstanding
As of September 30, 2010 and March 31, 2010, respectively		3,972,132		2,280,419
Treasury stock		24,500		24,500
Additional paid-in capital		46,939,731		47,338,235
Accumulated deficit		(52,499,808)		(51,838,636)
		(1,549,157)		(2,180,855)
Total liabilities and stockholders' deficit	$	316,464	$	539,390

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

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LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED

SEPTEMBER 30, 2010 AND 2009

		Three Months		Three Months		Six Months		Six Months
		Ended		Ended		Ended		Ended
		September 30,		September 30,		September 30,		September 30,
		2010		2009		2010		2009
Net revenues	$	182,976	$	18,591	$	222,872	$	42,396
Costs and expenses:
Cost of sales – product costs		121,947		14,156		135,188		26,907
Cost of sales – intellectual property costs		1,178		3,004		2,571		7,191
Stock based compensation – consultants		75,657		149,393		287,261		299,830
General and administrative		142,100		468,952		390,046		883,262
Product development		(133,477)		47,361		68,131		48,961
Total costs and expenses		207,405		682,866		883,197		1,266,151
Operating loss		(24,429)		(664,275)		(660,325)		(1,223,755)
Other (income) expense:
Interest and other debt expenses		6,060		225,272		(16,005)		498,472
Other expense		2,567		305		16,852		305
Total other (income) expense		8,627		225,577		847		498,777
Net loss		(33,056)		(889,852)		(661,172)		(1,722,532)
Basic and diluted profit (loss) per common share	$	(0.00)	$	(0.00)	$	(0.00)	$	(0.00)
Weighted average number of common          shares outstanding		3,251,501,634		799,254,783		2,909,326,917		623,060,609

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

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LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

		Six Months		Six Months
		Ended		Ended
		September 30,		September 30,
		2010		2009
Cash flows from operating activities:
Net loss	$	(661,172)	$	(1,722,532)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		22,135		16,403
Recognition of deferred stock compensation		--		100,025
Stock based compensation - consultants		287,261		299,830
Stock based compensation - employees and directors for services		--		60,000
Interest paid in common stock		4,063		--
Amortization of debt discount		7		317,631
Provision for notes receivable reserve		16,852		--
Issuance of shares for antidilution protection		103,742		--
Beneficial conversion on note payable conversions		--		131,251
Changes in operating assets and liabilities:
Accounts receivable		6,915		--
Inventories		103,011		8,022
Prepaid expenses		6,791		3,334
Other assets and prepaid royalties		57,444		(7,206)
Accounts payable and accrued expenses		(519,925)		194,763
Deferred income – product sales		530		1,325
Net cash used in operating activities		(572,346)		(597,154)
Cash flows from investing activities:
Purchases of property and equipment		(17,672)		--
Net cash used in investing activities		(17,672)		--
Cash flows from financing activities:
Proceeds from the issuance of notes payable		25,000		25,000
Proceeds from the issuance of common stock		528,568		619,006
Net cash provided by financing activities		553,568		644,006
Net (decrease) increase in cash		(36,450)		46,852
Cash at beginning of period		56,677		7,778
Cash at end of period	$	20,227	$	54,630

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

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LEFT BEHIND GAMES INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2010 AND 2009

		Six Months		Six Months
		Ended		Ended
		September 30,		September 30,
		2010		2009
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	--	$	--
Income taxes	$	--	$	--
Supplemental disclosures of non-cash and investing and financing information:
Issuance of common stock under license agreement	$	--	$	137,500
Exchange of equipment for settlement of accounts payable	$	--	$	503
Discount on convertible notes payable	$	25,000	$	--
Conversion of notes and accounts payable into common stock	$	337,917	$	1,262.601
Return of common stock as treasury shares	$	--	$	24,500

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

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LEFT BEHIND GAMES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

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

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

BASIS OF PRESENTATION

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

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

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. Furthermore, the new accounting standard requires disclosure of the date through which subsequent events were evaluated. 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 September 30, 2009, and have evaluated subsequent events through November 22, 2010. 

In June 2009, the FASB issued a new accounting standard which provides guidance related to the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of a previously issued standard. 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. 

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In June 2008, the FASB issued a new accounting standard which provides guidance relating to determining whether an instrument (or embedded feature) is indexed to an entity's own stock and is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. This standard specifies that a contract that would otherwise meet the definition of a derivative but is both (a) indexed to our own stock and (b) classified in stockholders' equity in the statement of financial position would not be considered a derivative financial instrument. The standard provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuer's own stock and thus able to qualify for the standard's scope exception. 

We adopted this new standard effective April 1, 2009. The adoption of the standard's requirements can affect the accounting for warrants or convertible debt that contain provisions that protect holders from a decline in the stock price (or "down-round" protection). For example, warrants with such provisions will no longer be recorded in equity. Down-round protection provisions reduce the exercise price of a warrant or convertible instrument if a company either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise price.

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. 

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 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, 2010.

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

Customer Concentrations

During the three month period ended September 30, 2010, one reseller accounted for approximately 82% of our revenue. That reseller paid us in cash for the games it purchased and they have no right of return.  During the three month period ended September 30, 2009, we had no customers accounting for greater than 5% of our revenues.

NOTE 3 - GOING CONCERN

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of LBG as a going concern. We have started generating revenue but have incurred net losses of $661,172 during the six months ending September 30, 2010 and had an accumulated deficit of $52,499,808 at September 30, 2010. In addition, we used cash in our operations of $572,346 during the six months ending September 30, 2010.

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

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

These matters, among others, raise substantial doubt about the ability of LBG to continue as a going concern. These 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.

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NOTE 4 - INVENTORIES

Inventories consisted of the following at September 30, 2010 and March 31, 2010:

	September 30, 2010			March 31, 2010
Raw Materials	$	--	$	85,660
Finished Goods		45,047		62,398
Total Inventories	$	45,047	$	148,058

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30, 2010 and March 31, 2010:

		September 30,		March 31,
	2010		2010
Office furniture and equipment	$	4,293	$	2,764
Leasehold improvements		1,364		839
Computer equipment		153,098		137,480
		158,755		141,083
Less accumulated depreciation		(94,928)		(72,793)
	$	63,827	$	68,290

Depreciation expense for the six month periods ended September 30, 2010 and 2009 was $22,135 and $16,403, respectively.

NOTE 6 - INTANGIBLE ASSETS

Intangible assets consisted of the following at September 30, 2010 and March 31, 2010:

	September 30, 2010		March 31, 2010
License	$	137,500	$	137,500
Less accumulated amortization		(85,937)		(51,562)
	$	51,563	$	85,938

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

NOTE 7 - 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 have elected to forego all net losses of this variable interest entity in excess of our ownership interest and the actual capital we have invested in this entity. During the six months ending September 30, 2010, we did not make any payments to LB Games Ukraine.

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NOTE 8 - STOCKHOLDERS’ EQUITY

Common Stock

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

The number of shares outstanding reflects a 2 to 3 forward split of the registrant’s common stock, effectuated on November 9, 2009. Figures referring to shares of the registrant’s common stock in this Form 10-Q for the reporting period ending September 30, 2010 are provided on a post-forward split basis.

During the six months ending September 30, 2010 and 2009, we issued to independent third parties 567,765,146 and 24,624,571 shares of common stock for services provided, valued at $287,261 and $299,830, respectfully. We also issued 4,000,000 shares of common stock, valued at $60,000 to certain employees as additional compensation in the six months ended September 30, 2009.

Also, during the six month period ended September 30, 2010, certain of our investors and creditors converted notes payable, accrued interest and accounts payable, to 415,380,572 shares of our common stock at $0.001 per share, reducing our debt by $337,917. We also raised $528,568 in cash through the sale of 732,265,654 shares of common stock, sold at various prices.

During the six month period ended September 30, 2009, certain of our investors converted notes payable and related accrued interest to 263,866 shares of our common stock at various conversion prices, reducing our debt by $1,262,601. We also raised $619,006 through the sale of 274,230,410 shares of common stock, sold at various prices.

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

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 are designated as preferred A shares, 11,080,929 preferred B shares, 10,000 are designated as preferred C shares and 1,000 are designated as convertible preferred D shares.  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.

Series A Preferred 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 since March 31, 2006.

We have not issued any Series A Preferred shares since our fiscal year ended March 31, 2006 and we currently do not plan to further issue this class of shares.

Series B Preferred Stock

Each share of series B preferred stock has voting power equal to one vote of common stock. In the event of liquidation, holders of preferred stock are entitled to share ratably in the net assets available for distribution to stockholders. Due to its liquidation preference, the series A preferred stock will have priority over series B preferred stock in the event of a liquidation.

We have not issued any Series B Preferred shares in the past two fiscal years and we currently do not plan to further issue this class of shares. During the quarter ended September 30, 2010, two investors converted an aggregate of 340,000 Series B Preferred shares to an equivalent number of common stock.

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Series C Preferred Stock

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 voting rights of the Company’s common stockholders may be limited by the issuance of Series C Preferred Stock.

In the nine months ending December 31, 2009, we issued 10,000 Series C Preferred shares to our Chairman and CEO, Troy Lyndon.

Series D Preferred Stock

On September 28, 2009, the Company filed a Certificate of Designations for a Series D Convertible Preferred Stock. The authorized number of Series D Convertible Preferred Stock is 1,000. The holders of the Series D Convertible Preferred Stock have no voting power whatsoever, except as otherwise provided by the Washington Business Corporation Act and for provisions protection of the Series D Convertible Preferred Stock Certificate of Designations. In each instance, each share of Series D Convertible Preferred Stock shall be entitled to one vote. Each holder of Series D Convertible Preferred 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 Convertible Preferred Stock is first issued, to convert each share of Series D Convertible Preferred Stock into one million five hundred thousand (1,500,000) fully-paid and non-assessable shares of the Company’s common stock. The voting rights of the Company’s common stockholders may be limited by the issuance and/or conversion of Series D Convertible Preferred Stock.

In the first week of the quarter ending December 31, 2009, we issued 10 series D Preferred shares to our Director, Richard Knox, Jr. of which he converted 1 share into one million (1,000,000) shares of the Company’s common stock. Also, in the quarter ending December 31, 2009, we issued 150 series D Preferred shares to our CEO, Troy Lyndon. Mr. Lyndon then elected to convert 150 series D Preferred shares into one hundred fifty million (150,000,000) shares of our common stock.  On August 27, 2010, Mr. Lyndon exchanged one hundred million (100,000,000) shares of his common stock into 100 of our D Preferred shares.

NOTE 9 - 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.

Anti-dilution Rights to Common Stock

In 2004, we entered into an agreement with Charter Financial Holdings, LLC in connection with consulting services. The compensation section of the agreement requires that we issue shares of our common stock to Charter sufficient to ensure that its ownership in us, does not fall below one percent (1%) of our outstanding common stock. The result is that for each time we issue or sell stock, we must issue shares equal to one percent of such issuance to Charter Financial Holdings, LLC to maintain their ownership percentage. Charter Financial Holdings, LLC is not required to pay additional consideration for those shares.

Employment Agreements

We have entered into no new employment agreements with key employees.

Leases

We operate in a 4,300 square foot sales and distribution facility in Temecula, California under a sublease agreement through October 2011 with an option to extend such lease for up to three additional 12 month periods. Its cost is $2,850 per month.

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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. We have recorded as exit costs approximately $60,000 for the potential liabilities associated with abandoning those facilities.

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 with stock-based bonus incentives.

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.

Content License

In July 2007, and subsequently in June, 2009, we entered into a Software Publishing Agreements to publish three pc video games under the Charlie Church Mouse (“CCM”) brand. That license agreement requires us to pay royalties to the licensor at a rate of twenty percent of the gross margin on the cash receipts from sales of CCM branded games net of any amounts received as or for any sales, use, customs or other taxes, or postage, shipping, handling, freight, delivery, insurance, maintenance service, sales programs and commissions, interest or finance charges. We paid an original license fee of $25,000 and a renewal fee of another $25,000 in connection with the signing of the Software Publishing Agreements and have a prepaid license fee amount of $7,182 under prepaid expenses and other current assets on our September 30, 2010 balance sheet. In the quarter ending June 30, 2010, we acquired the Charlie Church Mouse brand for a payment of 100 million shares of our common stock. Subsequently to 2010, we have issued these shares in accordance with the brand acquisition agreement.  According to the agreement, we no longer pay royalties for this brand and as part of the agreement, wrote-off the prepaid expenses as compensation to the original license holder, Lifeline Studios LLC.

On August 2, 2010, we entered into a license agreement with Integrity Media, Inc. for 30 songs from various Christian artists for music to be included in our Praise Champion game.

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.

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NOTE 10 - 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 September 30, 2010:
		Face Amount of				Notes Payable,
		Notes Payable		Note Discounts		Net of Discounts
Individual loans	$	39,800	$	-	$	39,800
2 year convertible notes		85,000		(24,993)		60,007
Total notes payable	$	124,800	$	(24,993	$	99,807
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

In the six months ended September 30, 2010, one of the remaining individual loan holders converted all $25,000 of his principal into our common stock and the another holder converted his $55,937 principal into a two year convertible note.  At September 30, 2010, we had $1,492 of accrued interest related to the remaining individual loan.

In the six months ended September 30, 2010, the final I year convertible noteholder converted his $81,601 principal into common stock.

In the six months ended September 30, 2010, one of the two remaining holders of the three year convertible notes converted $4,200 of his principal into our common stock.  

In the six months ended September 30, 2010, an investor lent us $25,000 in the form of a two year convertible note.  As there was a beneficial conversion feature on the agreed conversion price, we recorded a discount of $25,000 against that note and began amortizing it through the effective interest method. At September 30, 2010, we had $3,188 of accrued interest related to the remaining 2 year convertible notes.

NOTE 11 – 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 September 30, 2010, DP owed us $202,221. We established a reserve of $101,111 against this note receivable as a charge to other income in the fiscal year ended March 31, 2010 and increased this reserve by another $16,852 due to uncertainty of collectibility and, as a result, show a net amount of $84,259 on our September 30, 2010 consolidated balance sheet.

NOTE 12 - DEFERRED REVENUES

At September 30, 2010, we had $608 of deferred revenue related to our on-line store sales. As we allow a one-month period for our on-line store customers to return our games, we record the revenue from the last month of each quarter as deferred revenue and then recognize that revenue once the one-month period has elapsed.

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NOTE 13 – SUBSEQUENT EVENTS

In October 2010 and through November 19, 2010, we issued an aggregate of 209,512,447 shares to certain accredited investors in exchange for cash investments totaling $87,000.

In October 2010 and through November 19, 2010, we issued an aggregate of 256,000,000 shares in conversion of $57,000 of accounts payable.

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

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

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

FORWARD LOOKING STATEMENTS

This document contains statements that are considered forward-looking statements. Forward-looking statements give our current expectations, plans, objectives, assumptions or forecasts of future events. All statements other than statements of current or historical fact contained in this annual report, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward -looking statements by terminology such as “anticipate,” “estimate,” “plans,” “potential,” “projects,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” and similar expressions. These statements are based on our current plans and are subject to risks and uncertainties, and as such our actual future 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.

THE COMPANY

Left Behind Games Inc., a Washington corporation, conducts all of its operations through its wholly owned subsidiary, Left Behind Games Inc. d/b/a Inspired Media Entertainment (herein referred to as the “Company”, “LFBG”, “we”, “us”, “our” or similar terms). LFBG was founded on December 31, 2001 and incorporated in the state of Delaware on August 22, 2002. The Company is engaged in the development, production and sale of Christian inspirational PC video games based upon a number of brands and licenses, including the 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 that 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., a Washington corporation, became a public company on February 7, 2006. On that date, through a reverse merger acquisition, we acquired the public entity Bonanza Gold, Inc., a Washington corporation which had been in operation since 1961. As a result of the share exchange agreement, LFBG shareholders and management controlled the new public company and as part of the transaction, we changed the name of Bonanza Gold, Inc. to Left Behind Games, Inc. We are currently doing business under the name “Inspired Media Entertainment.”

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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. As time goes on, and we continue to add new products, we anticipate also operating under our dba, Inspired Media Entertainment.

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

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

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

On December 6, 2010, we amended our License Agreement with Lifeline Studios through which we purchased the exclusive rights to the Charlie Church Mouse brand from Lifeline Studios in exchange for a payment due by September 30, 2010 of $200,000 in cash or 100 million shares of common stock in the Company

To date, we have financed our operations primarily through the sale of shares of our common stock. During the six months ended September 30, 2010, we raised $528,568 through the sale of common stock to certain “accredited investors” under several different formats. We continue to generate operating losses and have only just begun to generate revenues.

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

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

WHERE YOU CAN FIND MORE INFORMATION

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

RESULTS OF OPERATIONS

Three Months Ended September 30, 2010 and 2009

Revenues

We recorded net revenues of $182,976 for the three months ended September 30, 2010 compared to $18,591 in the three months ended September 30, 2009. This represented an increase in our revenues of $164,385, or 884%. During the three month period ended September 30, 2010, one reseller accounted for approximately 93% of our revenue. That reseller paid us in cash for the games it purchased and they have no right of return.  During the three month period ended September 30, 2009, we had no customers accounting for greater than 5% of our revenues.

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Cost of Sales - Product Costs

We recorded cost of sales - product costs of $121,947 for the three months ended September 30, 2010 compared to $14,156 in the three months ended September 30, 2009. This represented an increase in our cost of sales – product costs of $107,791, or 761%. The increase in cost of sales – product costs was due to the increase in revenues noted above. Cost of sales - product costs consists of product costs and inventory-related operational expenses.

Cost of Sales – Intellectual Property Licenses

We recorded cost of sales – intellectual property licenses of $1,178 for the three months ended September 30, 2010 compared to $3,004 in the three months ended September 30, 2009. This represents a decrease in our intellectual property costs of $2,794, or 67%.  This decrease was the result of our acquiring the Charlie Church Mouse brand and as a result, we no longer have to accrue cost of sales – intellectual property licenses for sales of the CCM games.

Stock Based Compensation – Consultants

Stock based compensation expense to consultants was $75,657 for the three months ended September 30, 2010 compared to $149,393 for the three months ended September 30, 2009.  This represented a decrease in our stock based compensation to consultants of $73,736.  These expenses were for product development, marketing and investor relations services.

General and Administrative Expenses

General and administrative expenses were $142,100 for the three months ended September 30, 2010, compared to $468,952 for the three months ended September 30, 2009, a decrease of $326,852. The decrease was primarily due to a $217,771 reduction in payments to marketing consultants, a $46,724 reduction in legal fees and a $49,615 reduction in other professional fees.

Product Development Expenses

Product development expenses, excluding stock-based payments, were $(133,477) for the three months ended September 30, 2010, compared to $47,361 for the three months ended September 30, 2009.  The September 2010 period included two credits totaling $241,470 related to $126,912 as forgiveness of debt from a foreign game developer as that amount was no longer owed and a $114,558 reduction in amounts due to the former publisher of the Charlie Church Mouse games since we acquired that brand.  Without those credits, we had $107,993 of product development expenses in the 2010 period which related to investments in new game and software infrastructure development largely with outside contractors.

Interest Expense

We recorded interest expense of $6,060 for the three months ended September 30, 2010, compared to $225,272 in the three months ended September 30, 2009, a decrease of $219,212. The reduction was due to the significant decrease in our notes payable, which have largely converted to common stock.  Our interest expense is comprised of interest incurred on outstanding debts and the, accretion of the debt discounts related to zero coupon notes and, in the 2009 period, amortization of debt issuance costs.

Net Loss

As a result of the above factors, we reported a net loss of $33,056 for the three months ended September 30, 2010, compared to a net loss of $889,852 for the three months ended September 30, 2009. In addition, our accumulated deficit at September 30, 2010 totaled $52,499,808.

Six Months Ended September 30, 2010 and 2009

Revenues

We recorded net revenues of $222,872 for the six months ended September 30, 2010 compared to $42,396 in the six months ended September 30, 2009. This represented an increase in our revenues of $180,476, or 426%. During the six month period ended September 30, 2010, one reseller accounted for approximately 80% of our revenue. That reseller paid us in cash for the games it purchased and they have no right of return.  During the six month period ended September 30, 2009, we had no customers accounting for greater than 5% of our revenues.

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Cost of Sales - Product Costs

We recorded cost of sales - product costs of $135,188 for the six months ended September 30, 2010 compared to $26,907 in the six months ended September 30, 2009. This represented an increase in our cost of sales – product costs of $108,281, or 402%. The increase in cost of sales – product costs was due to the increase in revenues noted above. Cost of sales - product costs consists of product costs and inventory-related operational expenses.

Cost of Sales – Intellectual Property Licenses

We recorded cost of sales – intellectual property licenses of $2,571 for the six months ended September 30, 2010 compared to $7,191 in the six months ended September 30, 2009. This represents a decrease in our intellectual property costs of $4,620, or 64%.  This decrease was the result of our acquiring the Charlie Church Mouse brand and as a result, we no longer have to accrue cost of sales – intellectual property licenses for sales of the CCM games.

Stock Based Compensation – Consultants

Stock based compensation expense to consultants was $287,261 for the six months ended September 30, 2010 compared to $299,830 for the six months ended September 30, 2009.  This represented a decrease in our stock based compensation to consultants of $12,569.  These expenses were for product development, marketing and investor relations services.

General and Administrative Expenses

General and administrative expenses were $390,046 for the six months ended September 30, 2010, compared to $883,262 for the six months ended September 30, 2009, a decrease of $493,216. The decrease was primarily due to a $219,770 reduction in payments to marketing consultants, a $159,412 reduction in legal fees and a $75,460 reduction in other professional fees.

Product Development Expenses

Product development expenses, excluding stock-based payments, were $68,131 for the three months ended September 30, 2010, compared to $48,961 for the three months ended September 30, 2009.  The September 2010 period included two credits totaling $241,470 related to a $126,912 write-off of accounts payable to a foreign game developer as that amount was no longer owed and a $114,558 reduction in amounts due to the former publisher of the Charlie Church Mouse games since we acquired that brand.  Without those credits, we had $309,601 of product development expenses in the 2010 period which related to investments in new game and software infrastructure development largely with outside contractors.

Interest Expense

We recorded interest expense of $(16,005) for the six months ended September 30, 2010, compared to $498,472 in the six months ended September 30, 2009, a decrease of $514,477. Our interest expense is comprised of interest incurred on outstanding debts and the, accretion of the debt discounts related to zero coupon notes and, in the 2009 period, amortization of debt issuance costs.

The two primary factors in the interest expense for the September 2010 period was a charge of $103,741 related to the fair value of shares issued under antidilution arrangements with certain of our investors.  This charge was offset by a $140,253 quarter end adjustment that was the result of an analysis of our accrued interest that led us to conclude that we had overaccrued our interest expense by that amount over the past several years.

Net Loss

As a result of the above factors, we reported a net loss of $661,172 for the six months ended September 30, 2010, compared to a net loss of $1,722,532 for the six months ended September 30, 2009. In addition, our accumulated deficit at September 30, 2010 totaled $52,499,808.

CASH REQUIREMENTS, LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2010 we had $20,227 of cash compared to $56,677 of cash at March 31, 2010, a decrease of $36,450 largely due to the amount of cash used to our operating activities exceeding the amount that we raised through the private sales of our common stock to “accredited investors”. At September 30, 2010, we had a working capital deficit of $1,754,908 compared to a working capital deficit of $2,442,122 at March 31, 2010.

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Operating Activities

For the six month periods ended September 30, 2010 and 2009, net cash used in operating activities was $572,346 and $597,154, respectively. The net losses for the six month periods ended September 30, 2010 and 2009 were $661,172 and $1,722,532, respectively, a decrease of $856,360.

Investing Activities

We invested $17,672 in fixed assets during the six month period ended September 30, 2010.

Financing Activities

For the six month periods ended September 30, 2010 and 2009, net cash provided by financing activities was $553,568 and $644,006, respectively. The primary element of cash provided by financing activities in both periods was the sale of common stock.

Future Financing Needs

Since our inception in August 2002 through September 30, 2010, we have raised approximately $14 million through funds provided by private placement offerings and convertible notes. This was sufficient to enable us to develop our first product and expand our product line to include 11 games. Although we expect this trend of financing our business through private placement offerings to continue, we can make no guarantee that we will be adequately financed going forward. We do not currently have enough capital to sustain our operations for the next 12 months, of which there can be no assurance.  We will need to continue raising capital through privately placed offerings in order to continue our operations over the next twelve months. It is also anticipated that in the event we are able to continue raising funds at a pace that exceeds our minimum capital requirements, we may elect to spend cash to expand operations or take advantage of business and 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 and through the issuance of debt instruments. During the six months ended September 30, 2010, we raised $528,568 of cash through the sale of common stock to certain accredited investors. We continue to generate operating losses.

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

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 $1,754,908, 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.

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.

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Critical Accounting Policies

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

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

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

Impairment of Long-Lived Assets. We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows expected to be generated by the assets. If the assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the present value of estimated future cash flows. At September 30, 2010, our management believes there is no impairment of our long-lived assets other than the lease-hold improvements of its abandoned office space and certain trademark costs both of which have been written off in the fiscal year ended March 31, 2008. There can be no assurance however; that market conditions will not change or that there will be demand for our products, which could result in impairment of long-lived assets in the future.

Stock-Based Compensation. Effective April 1, 2006, on the first day of our fiscal year 2006, we adopted the fair value recognition provisions of the accounting standards applied at that time, using the modified-prospective transition method. Under this transition method, compensation cost recognized in the fiscal year ended March 31, 2007 includes: (a) compensation cost for all share-based payments granted and not yet vested prior to April 1, 2006, based on the grant date fair value estimated in accordance with the accounting standards, and (b) compensation cost for all share-based payments granted subsequent to March 31, 2006 based on the grant-date fair value estimated in accordance with the provisions of accounting standards. Accounting standards requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. As of March 31, 2008, we had no options outstanding and therefore believe the adoption of this accounting standard had an immaterial effect on the accompanying consolidated financial statements.

We calculate stock-based compensation by estimating the fair value of each option using the Binomial Lattice option pricing model. Our determination of the fair value of share-based payment awards are made as of their respective dates of grant using the option pricing model and that determination is affected by our stock price as well as assumptions regarding a 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. Because our employee stock options have certain characteristics that are significantly different from traded options, the existing valuation models may not provide an accurate measure of the fair value of our employee stock options. Although the fair value of employee stock options is determined in accordance with accounting standards using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction. The calculated compensation cost, net of estimated forfeitures, is recognized on a straight-line basis over the vesting period of the option.

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

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

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

·

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

·

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

·

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

·

Collectibility is reasonably assured: At the time of the transaction, we conduct a credit review of each customer involved in a significant transaction to determine the creditworthiness of the customer. Collection is deemed probable if we expect the customer to be able to pay amounts under the arrangement as those amounts become due. If we determine that collection is not probable, we recognize revenue when collection becomes probable (generally upon cash collection).

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

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

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

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

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

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

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

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Historically, we promoted our products with advertising, consumer incentive and trade promotions. Such programs include, but are not limited to, cooperative advertising, promotional discounts, coupons, rebates, in-store display incentives, volume based incentives and product introductory payments (i.e. slotting fees). In accordance with accounting standards, certain payments made to customers by us, including promotional sales allowances, cooperative advertising and product introductory expenditures have been deducted from revenue. During the six months ended September 30, 2010 and 2009, we paid $3,809 under such types of arrangements.

Off-Balance Sheet Arrangements

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES.

Evaluation of Controls and Procedures.

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

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2010, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in this Report was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.

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

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

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

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

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

ITEM 1A. RISK FACTORS.

Not applicable.

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

During the six months ending September 30, 2010, we issued to independent third parties, some of whom were accredited investors, an aggregate of 567,765,146 shares of common stock for services provided, valued at $287,261 (based on the closing price on the respective grant date or the invoice amount, whichever was more easily measurable).  Such shares were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded the Company under Section 4(2) promulgated thereunder due to the fact that such issuances were isolated and did not involve a public offering of securities.

Also, during the six months ended September 30, 2010, one of the remaining individual loan holders converted all $25,000 of his principal into our common stock, a One Year convertible noteholder converted his $81,601 principal into common stock and one of the two remaining holders of the three year convertible notes converted $4,200 of his principal into our common stock.  The shares were issued pursuant to the registration exemptions afforded the Company under Section 3(a)(9) promulgated under the Securities Act of 1933, as amended, due to the fact that the securities were converted for no additional consideration.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

None in the quarter ended September 30, 2010.  

ITEM 5. OTHER INFORMATION.

In October 2010 and through November 19, 2010, we issued an aggregate of 209,266,141 shares to certain accredited investors in exchange for cash investments totaling $87,000.

In October 2010 and through November 19, 2010, we issued an aggregate of 256,000,000 shares in conversion of $57,000 of accounts payable.

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

ITEM 6. EXHIBITS.

(a)

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

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

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SIGNATURES

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

                                                                        LEFT BEHIND GAMES, INC.

Date: November 22, 2010

BY: /S/ TROY A. LYNDON                            

TROY A. LYNDON

CHAIRMAN, PRESIDENT, CHIEF

EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

(Principal Executive Officer)

(Principal Financial and Accounting Officer)

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