SEC Info - Left Behind Games/Inc - 10QSB

See accompanying notes to unaudited consolidated financial statements

LEFT BEHIND GAMES INC.

Consolidated Statements of Cash Flows (Continued)

(unaudited)

	For the Nine Months Ended December 31,
	2006		2005

Supplemental disclosure of cash flow information:
Cash paid during the period for:

Interest	$	503	$	-

Income taxes	$	800	$	-

Supplemental disclosure of non-cash investing and financing activities:

Commitment to pay royalties under a license agreement	$	750,000	$	-

Cancellation of stockholder note and related shares	$	100,000	$	-

Issuance of common stock in exchange for notes receivable	$	480,000	$	-

Issuance of note payable for financing of insurance policy	$	60,000	$	-


See accompanying notes to unaudited consolidated financial statements

LEFT BEHIND GAMES INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

In January 2006, Left Behind Games Inc. (collectively, “we”, “our” 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 performed a 2.988538 for 5 reverse stock split of both our 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 performed a 1 for 4 reverse stock split, resulting in 1,882,204 shares of common stock outstanding.

Effective February 1, 2006, Bonanza exchanged 12,456,538 and 3,586,246 shares of its common and preferred stock, respectively, for an equal number of our common and preferred shares. The acquisition was accounted for as a reverse acquisition whereby the assets and liabilities of LBG will be reported at their historical cost. Bonanza had nominal amounts of assets and no significant operations at the date of the acquisition.

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 recently 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. As such, we are no longer reporting as a development stage company.

White Beacon, Inc., a Delaware Corporation (“White Beacon”), an entity beneficially owned and controlled by our chief executive officer and our president, holds 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. White Beacon has granted us a sublicense (the “Sublicense”) to exploit the rights and fulfill the obligations of White Beacon under the License (see Note 4).

BASIS OF PRESENTATION

We have prepared the accompanying unaudited consolidated financial statements in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) including the instructions to Form 10-QSB 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 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-QSB should be read in conjunction with the consolidated financial statements and notes thereto included in our Form 10-KSB for the year ended March 31, 2006. 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, 2007.

LEFT BEHIND GAMES INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying unaudited 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.

Reverse Stock Split

Effective January 26, 2006, we effected a 2.988538 for 5 reverse stock split of our common and preferred stock outstanding. All share and per share amounts have been retroactively restated for all periods presented to reflect the reverse stock split.

Risks and Uncertainties

We maintain our cash accounts with a single financial institution. Accounts at this financial institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000.

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 and 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.

LEFT BEHIND GAMES INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Cost of Goods Sold

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

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 and Sublicense Agreements

The cost of the License and Sublicense agreements are amortized on a straight-line basis over their terms.

Trademarks

The cost of trademarks includes funds expended for trademark applications that are in various stages of the filing approval process. The cost of trademarks will be amortized on a straight-line basis over their estimated useful lives, once the trademark applications have been accepted.

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 initially recorded as an asset 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.

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 Sublicense agreement requires payments of royalties to the licensor. The Sublicense 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 Sublicense agreement are recorded as prepaid royalties until earned by the licensor, or considered to be unrecoverable. We evaluate prepaid royalties regularly and we plan to expense prepaid royalties to cost of sales to the extent projected to be unrecoverable through sales.

LEFT BEHIND GAMES INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2006 and March 31, 2006, we are carrying a balance of $944,444 and $250,000, respectively, in prepaid royalties in connection with our Sublicense agreement. During the three months ended December 31, 2006, we recorded amortization expense of $80,556 on a straight-line basis related to our prepaid royalties.

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 December 31, 2006, 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.

Stock-Based Compensation

Effective April 1, 2006, on the first day of the Company’s fiscal year 2007, we adopted the fair value recognition provisions of SFAS No. 123(R), Share-Based Payment, using the modified-prospective transition method. Under this transition method, compensation cost recognized in the three and nine month periods ended December 31, 2006 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 original provisions of SFAS No. 123, Accounting for Stock-Based Compensation, 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 SFAS No. 123(R). SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Currently, no stock options have been granted to employees. Therefore, we believe the adoption of SFAS No. 123(R) 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 Black-Scholes option pricing model. Our determination of the fair value of share-based payment 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 Black-Scholes 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 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 SFAS No. 123(R) 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.

LEFT BEHIND GAMES INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation, continued

Stock-based awards to non-employees are accounted for using the fair value method in accordance with SFAS No. 123, and Emerging Issues Task Force (“EITF”) Issue No. 96-18, Accounting for Equity Instruments that are issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods or Services. 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.

In accordance with EITF Issue No. 00-18, Accounting Recognition for Certain Accounting Transactions Involving Equity Instruments Granted to Other Than Employees, 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 record the fair value of the common stock issued for certain future consulting services as prepaid expenses in our consolidated balance sheet.

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 31,617,387 and 19,764,183 for the three month periods ended December 31, 2006 and 2005, respectively. For the nine month periods ended December 31, 2006 and 2005, they would have resulted in weighted average common shares of 28,355,247 and 18,399,442, 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 are accumulated as a separate component of stockholders’ equity. We determined that translation gain or loss did not have a material impact on our stockholders’ equity as of December 31,


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)

	(951) 894-6597
	(Registrant’s Telephone Number)


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

Item 2.	Management's Discussion and Analysis or Plan of Operation	18

Item 3.	Controls and Procedures	23

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	24

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24

Item 3.	Defaults Upon Senior Securities	24

Item 4.	Submission of Matters to a Vote of Security Holders	24

Item 5.	Other Information	25

Item 6.	Exhibits	25

SIGNATURES		26

LEFT BEHIND GAMES INC.
CONSOLIDATED BALANCE SHEETS
	December 31,			March 31,
	2006			2006
ASSETS	(unaudited)

CURRENT ASSETS:
Cash	$	72,488		$	393,433
Accounts receivable, net of allowances of $1,196,503 at of December 31, 2006		948,208			--
Inventories		351,133			--
Prepaid royalties		944,444			250,000
Prepaid consulting		--			3,515,000
Other prepaid expenses and current assets		52,046			4,411
Total current assets		2,368,319			4,162,844

Property and equipment, net		383,673			42,085
Intangible assets, net		100,364			36,329
Other assets		52,372			3,439
	$	2,904,728		$	4,244,697

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,730,692		$	296,222
Royalty payable to related party		750,000			150,000
Advances from related party		3,000			--
Notes payable		73,382			--
Deferred salaries		698,763			696,836
Deferred revenue		100,323			-
Total current liabilities		3,356,160			1,143,058

Commitments and contingencies

Stockholders' equity (deficit):
Series A preferred stock, $0.001 par value; 10,000,000 shares authorized; 3,586,245 shares issued and outstanding; liquidation preference of $188,500		3,586			3,586
Common stock, $0.001 par value; 200,000,000 shares authorized; 22,105,152 and 15,298,658 shares issued and outstanding as of December 31, 2006 and March 31, 2006, respectively		22,041			15,299
Additional paid-in-capital		30,679,960			12,729,907
Stockholder note receivables		--			(100,000	)
Accumulated deficit		(31,157,019	)		(9,547,153	)
Total stockholders' equity (deficit)		(451,432	)		3,101,639
	$	2,904,728		$	4,244,697

	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2006			2005			2006			2005
Net revenues	$	1,006,321		$	-		$	1,006,321		$	-

Cost of goods sold		856,734			-			856,734			-
Gross profit		149,587			-			149,587			-

Operating expenses:
General and administrative		3,788,543			781,249			20,825,182			5,066,962
Research and development		494,212			140,131			937,915			421,594

Total operating expenses		4,282,755			921,380			21,763,097			5,488,556

Operating loss		(4,133,168	)		(921,380	)		(21,613,510	)		(5,488,556	)

Other income (expense):
Interest income (expense)		5,792			(10,800	)		5,637			(10,800	)
Other income (expense)		1,485			191			(1,193	)		1,883
Total other income (expense), net		7,277			(10,609	)		4,444			(8,917	)

Loss before provision for income taxes		(4,125,891	)		(931,989	)		(21,609,066	)		(5,497,473	)
Provision for income taxes		-			2,000			800			2,000

Net loss	$	(4,125,891	)	$	(933,989	)	$	(21,609,866	)	$	(5,499,473	)

Net loss available to common stockholders per common share:
Basic and diluted	$	(0.19	)	$	(0.09	)	$	(1.16	)	$	(0.62	)

Weighted average common shares outstanding:
Basic and diluted		21,889,037			10,302,092			18,626,897			8,937,351

	For the Nine Months Ended December 31,
	2006			2005
Cash flows from operating activities:
Net loss	$	(21,609,866	)	$	(5,499,473	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		188,630			4,365
Loss on disposal of assets		1,193			-
Provision for bad debts and sales reserve		1,196,503			-
Estimated fair value of common stock issued to consultants for services, net of warrants		14,734,147			4,204,389
Estimated fair value of common stock issued to employees and directors for services		1,768,481			47,500

Changes in operating assets and liabilities:
Accounts receivable		(2,144,711	)
Inventories		(351,133	)
Prepaid expenses and other current assets		2,365			260
Other assets and prepaid royalties		101,067			(10,594	)
Accounts payable and accrued expenses		1,434,470			109,120
Deferred revenue		100,323			-
Deferred salaries		1,927			116,618
Net cash used in operating activities		(4,576,604	)		(1,027,815	)

Cash flows from investing activities:
Payments for trademarks and prepaid royalties		(433,088	)		(24,185	)
Purchases of property and equipment		(396,802	)		(17,450	)
Net cash used in investing activities		(829,890	)		(41,635	)

Cash flows from financing activities:
Collection of stockholder note receivables		480,000			-
Borrowings under notes payable		41,284			-
Principal payments under notes payable		(24,902	)		-
Sale of stock warrants		50			-
Proceeds from issuance of common and preferred stock, net of issuance costs		4,589,117			948,199
Net cash provided by financing activities		5,085,549			948,199
Net decrease in cash		(320,945	)		(11,251	)
Cash at beginning of period		393,433			215,974
Cash at end of period	$	72,488		$	94,723

Left Behind Games/Inc · 10QSB · For 12/31/06

Filed On 2/20/07 2:29pm ET · SEC File 0-50603 · Accession Number 1019687-7-512

Quarterly Report -- Small Business · Form 10-QSB
Filing Table of Contents

10QSB · Left Behind Games Inc.

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Left Behind Games/Inc · 10QSB · For 12/31/06

Filed On 2/20/07 2:29pm ET · SEC File 0-50603 · Accession Number 1019687-7-512

Quarterly Report -- Small Business · Form 10-QSBFiling Table of Contents

10QSB · Left Behind Games Inc.

This is an EDGAR HTML document rendered as filed. [ Alternative Formats ]

Quarterly Report -- Small Business · Form 10-QSB
Filing Table of Contents