SPARE BACKUP, INC. - FORM 10-K

Attached files

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EX-31.2 - EXHIBIT 31.2 - SPARE BACKUP, INC.	ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - SPARE BACKUP, INC.	ex32-1.htm
EX-23.1 - EXHIBIT 23.1 - SPARE BACKUP, INC.	ex23-1.htm
EX-31.1 - EXHIBIT 31.1 - SPARE BACKUP, INC.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

[ ] 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 000-30587

SPARE BACKUP, INC.

(Exact name of registrant as specified in its charter)

Delaware		23-3030650
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

	72757 Fred Waring Drive, Palm Desert, CA 92260
	(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (760) 779 0251

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001

(Title of class)

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

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

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 [ ] No [X]

Indicate by checkmark whether the registrant submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]

(Do not check if a smaller reporting company)

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

The aggregate market value of the common equity voting shares of the registrant held by non-affiliates on June 30, 2009, the registrant's most recently completed second fiscal quarter, was $19,266,255.

The number of the registrant’s shares of common stock outstanding as of March 31, 2010: 142,532,608.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this annual report contain or may contain forward-looking statements that are subject to known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to raise sufficient capital to fund our ongoing operations and satisfy our obligations as they become due, our ability to implement our strategic initiatives, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements and readers should carefully review this annual report in its entirety, including the risks described in Part I. Item 1A. Risk Factors. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this annual report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

When used in this annual report, the terms "Spare Backup," " we," "our," and "us" refers to Spare Backup, Inc., a Delaware corporation formerly known as Newport International Group, Inc., and our subsidiaries.


SPARE BACKUP, INC. 2009 ANNUAL REPORT ON FORM 10-K

Table of Contents

PART I

		Page
Item 1.	Business	4
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	17
Item 3.	Legal Proceedings	18
Item 4.	(Removed and Reserved)	18

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	19
Item 7.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	24
Item 9A(T).	Controls and Procedures	25
Item 9B.	Other Information	26

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	27
Item 11.	Executive Compensation	29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director Independence	38
Item 14.	Principal Accountant Fees and Services	39


	PART IV

Item 15.	Exhibits, Financial Statement Schedules	39

PART I

Item 1. Business

We are a developer and marketer of a line of software products specifically designed for consumers as well as the small business and home business users. Our products are designed and developed so that technical skills are not necessary to use or manage the software. Our Spare line of software products includes our Spare Backup service, Spare Backup software and our Spare Switch PC data migration software.

Our Products and Services

Our flagship product is Spare Backup™, a fully-automated remote backup solution designed and developed especially for the small office or home environment which automatically and efficiently backs up all data on selected laptop or desktop computers. As a result, we believe consumers and small companies can ensure file safety in personal computers (PCs) and laptops for backup and retrieval. We launched our Spare Back-up service and software product version 1.0 in March 2005 and are currently offering version 6.0 of the product. Our Spare Switch™ software enables users to complete the transfer of personal files from one PC to another via a high speed Internet connection. Our software has unique characteristics of additional coding that enables easy to scale infrastructure and support elements which we believe provides a competitive advantage over other providers whose products require large investments in hardware, as well as professional installation, training and support.

Spare Backup offers:

●	An automatic program installation that requires absolutely no user interaction to configure backups,

●	No complicated file selection - Spare Backup scans the user's computer and has a number of presets which it backs up automatically, such as:

●	All contacts, email messages and attachments, address book, contacts, folders and contents, signature files from Outlook,

●	Word, Excel, PowerPoint files, templates and settings from MS Office,

●	My Documents, My Music, My Pictures, Quicken, QuickBooks, MS Money, Turbo Tax and Tax Cut; and

●	All desktop files.

In addition, users can manually include any files that are not in the present group.

●	Simple, fast data recovery of individual files or the complete desktop

●	Open file backup, giving the user the ability to back up while a particular program is open

●	Reports automatically available to users in Spare Backup

●	Redundant file support - select a restore from the last five backups

●	Online file retrieval from any Internet connection - using Spare Key

●	Provides files security via 256 Rijndael AES 256 block cipher with unique user encryption key

●	Decryption protected by Spare Key in the user's computer and with broker so complete loss of the computer is not a problem

The VeriSign/Starfield Technology high assurance certificates provide authenticity for web based transactions. The encryption we use for ensuring privacy is the 256 Rijndael AES, a block cypher adopted as an encryption standard by the U.S. Government. The data is protected in transit and communication via Secure Sockets Layer (SSL), a cryptographic protocol which provides secure communications over the public Internet.

An overview of customer benefits includes:

●

Ease-of-use - Spare Backup provides fast, easy and fully automated data protection. Users benefit from automated data file selection, which distinguishes user data files from operating system and application files. As a result, users do not have to remember where all of their data files are stored. Spare Backup allows users to retrieve multiple past versions of a file, not just the most recently backed-up version.

●

Impenetrable Security and Protection of Corporate Data - Spare Backup ensures that all data is encrypted with advanced 256-bit encryption on the user's machine using a user provided "key" or password. The data is encrypted a second time using SSL, or secure sockets layer, while it is being transmitted and a third time before it is stored on the RAID, or redundant array of independent disc, servers using a strong private key.

●	SSL Support - SSL based protocol enhancements to address security parameters during: registration, upgrade, backup and retrieve.

Spare Switch is used by either downloading the software from the Internet or by inserting an installation CD into the old computer. Spare Switch then scans the hard drive and inventories of personal directories, giving the user a detailed report of the documents and other files. From that inventory, the user can then select the exact files that he or she wishes to transfer to the new PC. Spare Switch avoids the need for PC-to-PC transfer cable by compacting, encrypting and then transferring the files via the Internet. Spare Switch's data center can then hold the encrypted data for as long as a week, giving the user the flexibility to choose when to download the files to the new PC. The files are downloaded from our secure. Spare Switch uses a 256-bit encryption cipher with non-algorithmic key to ensure that the information is impervious to hackers at every step of the process. Spare Switch pricing is done on a case by case basis per partner.

Spare Backup software comes with the monthly service and enables users to also back up to local storage devices with or without using the online service.

Our offers vary depending on partnerships, in some cases we offer new users a free 14-day trial, other could be an allocation of space of 1 gigabyte. Spare Backup services cost $6.99 per month for up to 50 gigabytes of data storage bought directly from the Company, along with annual plans that are available.

We developed new products and integrated new feature functionality into our Spare Backup® software. The new offerings in our Spare line of software products include: Spare Room™, Spare Mobile™, Spare Synchronization™ and Spare Diagnostics™. Below provide certain information regarding our new line of products and features:

Spare Room is designed to complement the Spare Backup software. We launched this product in the second quarter of fiscal 2009. This is a first step to digital contract management and cloud computing for Spare Backup users. This feature has been distributed and is available to our active Spare backup users by downloading and installing the software which is obtainable thru our distribution partners. We are currently in production with this product for Car Phone Warehouse Limited, which distributes this under the name “My Hub.”.

The Spare Backup software easily and automatically backs up a user's files from the user's desktop to the Spare Backup's cloud. Once files are stored securely in the cloud, the Spare Room application allows a user to take advantage of a wide range of sharing and social networking tools. The solution allows the user to get the most out of available tools and services on the Internet while providing the security of online backup.

In the first version of the Spare Room, the applications allow our customers to easily access and manage their backed-up photos, videos, music and documents. As well as enabling users to access other services and applications, such as for music, mobile devices and mobile banking for purchases and or convenience. Future versions of Spare Room will include additional features beyond photo sharing to include Video, Contact Management and Calendar management. These features will be displayed on the Spare Room Dashboard allowing a user to easily navigate Spare Room and manage their digital data stored in the Spare cloud from a variety of devices.

Spare Mobile was launched in “Beta” in the third quarter of fiscal 2009. For the initial phase of Spare Mobile, a user must first have an active Spare Backup account and have access to Spare Room. The downloadable installation will be readily available to anyone who visits and has the Spare Backup software itself, and can be downloaded from the Spare Room and the Spare Mobile website. We are currently in the development stage for the last six months on this version along with Spare Room.

Spare Mobile will provide a user with the ability to backup data and settings from their phone to the Spare cloud without the need to connect the mobile device to a PC via a cable.

●	Backup will be performed securely using the users’ mobile network; mobile network usage charges may apply.

●	Backup will capture data stored both on the Mobile devices onboard memory as well as any add on memory devices such as a memory card.

●	Backup will capture all pertinent user data and configuration if feasible.

●	A user will have the ability to configure the frequency that backups occur.

●	The Spare Mobile software will detect files that should be backed up automatically.

●	Users will have the ability to customize which files will be backed up and which will not and will have the ability to recover a backed up file(s) to their mobile device.

●	If a user also has a Spare Backup account, the user will have the ability to retrieve mobile files from a variety of devices using our Spare Synchronization service.

●	Spare Mobile will support the following Mobile device operating systems:

●	Windows Mobile by Microsoft ©;
●	Java™ (CLDC/MIDP);
●	Blackberry®
●	iPhone by Apple, Inc.©; and
●	Adnroid™.

***NOTE: Due to differences in OS functionality the Spare Mobile application may differ slightly in appearance between each supported OS. The functionality however shall remain static.

Spare Mobile works in conjunction with the users of Spare Backup and Spare Room accounts. Spare Room provides an interface for a user to manage their mobile device and the files contained on their mobile device.

Another feature functionality that we have developed is Spare Synchronization. In order to take advantage of the synchronization functionality, the user must first possess an active Spare Backup account with Spare Room. Synchronization will be an add on product to a users standard Family Pack account.. Spare Synchronization is defined as the mirroring or synchronization of content across multiple machines. Spare Backup defines synchronization rules based on file types. A user who chooses to synchronize pictures will synchronize all pictures that exist on two machines. Photos on both machines will be replicated between the two machines so that when the synchronization process is complete the same files will exist on both machines.

The user will configure their synchronization preferences from within Spare Room. Each machine that is to be synchronized must have the Spare Backup client software installed and have an active connection to the internet.

The user will not need to make any configuration changes to their existing Spare Backup account. However the client software will provide the user a link to Spare Room from the client software. If the user chooses this link from within the Spare Backup client software the user will be re-directed to the Spare Room website and automatically logged in.

Spare Diagnostics is another product we are working on that works in conjunction with Spare Backup in order to help predict, prevent and solve computer issues of our users before they have an impact on their operating systems. Spare Diagnostics will track system data and generate reports on any potential issues that may cause our customers to experience problems with their computers. The information collected via the diagnostics will enable us to provide proactive customer support as well.

Our Target Customers

We focus on owners and executives of businesses which do not have an IT (information technology) department that use technology to support their businesses as well as small business users and consumers who desire to secure the redundancy of available files and documents vital to the continuity of their operations, business, or personal information. Since our products and services allow non-technical users to quickly, easily and thoroughly secure and backup their files or data archiving and storage, we believe that our business is uniquely relevant to enabling small companies to succeed using technology. Our products and services also support individual business professionals working in companies of all sizes, as well as individuals who use mobile devices. Other unique characteristics are additional coding that enables easy to scale infrastructure and support elements. We believe that this characteristic provides a competitive advantage over other providers whose products require large investments in hardware, as well as professional installation, training and support. Spare Backup now has a SMB product directed toward the small to mid-size business with 500 or less computers. The same ease of use that the consumer product is known for the SMB product has with an ease to use administrative dashboard for set up, grouping of departments and storage controls.

How We Market Our Products and Services

Our strategy is to partner with leading companies such as computer manufacturers (OEMs), high speed cable providers (MSOs), retailers mobile operators, mobile resellers, warranty and service companies that have established brands as a way to gain acceptance for, and create a demand for, our products and services. We believe that by bundling our products and services as one feature of a value-added service offered by major national and international brands that we will be able to leverage their brand recognition and marketing efforts to accelerate our market acceptance and significantly increase our adoption rates.

Our products are sold direct to the customer via our web site for online distribution. Users may try our products and services at no cost for a limited trial period or by a quantity of storage, which can be easily downloaded.

In January 2008, we entered into a License Agreement with Sony Electronics, Inc.© (Sony) under which we granted Sony a non-exclusive, world-wide license to our Spare Backup fully-automated remote backup solution and software tools, including the right to reproduce, publish, prepare derivative works and sell the product, as well as the right to use our trade name, trademarks and other identifying logos. Under a one year program, Sony may preinstall our Spare Backup service and software tools, on hardware, and or other Sony products it sells, as it determines, on a royalty-fee basis. Sony will receive a percentage of each subscription sold to the end user during the term of the agreement and for 24 months after its termination.

Under the terms of the agreement, we are responsible for delivery of the service to Sony's end users as well as providing for training, at our expense, to Sony's technical support personnel. We have indemnified Sony in connection with claims related to our products and service raising from non-performance. The agreement, which may be renewed for successive 12 month terms, may be immediately terminated by Sony in the event we should directly or indirectly defraud Sony, for any misrepresentation or breach of any warranty made by us in the agreement, or in the event of our bankruptcy or insolvency.

In July 2008, we have received a purchase order amounting to $50,000 from VAIO North America, a division of Sony Electronics in connection with our enterprise-level "Corporate Protection Products" in which certain divisions of Sony are now using this custom product. The product focuses on enterprise-level solutions, bringing its reliable automated data storage services to IT managers and business executive’s at large corporations. The product is now currently being used and all payments have been collected in full.

During fiscal 2008 and 2009, our marketing efforts were primarily invested in marketing strategies and initiatives such as direct mail, marketing materials, in store promotion and bundling with other services.

On September 17, 2008, we have signed a Master Service Agreement (MSA) with Sony of America (VAIO division). The MSA will serve as the primary agreement whereby all contracts and statements of work ("SOW") will reside under the MSA. Future SOW will include unique terms specific to the project or program. During 2009 we terminated our agreement with Sony.

On November 5, 2008, we entered into a data storage services agreement with The Car Phone Warehouse Limited, a company incorporated under the laws of England and Wales, for purposes of providing data backup services for Car Phone's customers. The agreement is for a 12-month term subject to initial renewal periods as elected by the parties. Car Phone is obligated to provide its reasonable best efforts to promote the Company's backup service, and Spare Backup designed the data backup service and will create a backup Web site for Car Phone. We will invoice Car Phone customers directly for all monthly and annual fees and Car Phone will be paid in a commission basis. During 2009, we amended and expanded our agreement with Car Phone via a memorandum of understanding, in which we will now provide Cloud computing, online PC data backup, online PC data transfer, PC synchronization and other additional services. The agreement calls for us to design and host a digital platform service, or consumer cloud, via Spare Room which will sync with all content from multiple devices, as well as for us to provide certain multimedia content for sale to the end users beginning in October 2009. Car Phone Warehouse will provide our services throughout their retail services and online markets and will share revenue with us on an undisclosed basis.

During 2009, we also entered into a 45-day memorandum of understanding with Trend Micro (UK) Limited (“TMI”). The agreement calls for our services to be embedded within Trend Micro Internet Security PRO service offered to Car Phone Warehouse customers in the U.K. The services will be co-branded with TMI using “Geek Squad” user interfaces and powered us. We will receive revenue as customers register for the online storage service on an undisclosed basis.

In February 2009, we entered into a 1 year agreement with privately held Cydcor whereby Cydcor will market our line of backup services for consumers and small businesses throughout its business to business direct sales network. Cydcor is a market leader in outsourced direct sales with over 3,000 direct sales professionals servicing hundreds of thousands of business clients in North America. Their clients represent some of the brands, covering many different industries, including telecommunications, cable, internet, office products, merchant services and energy. Under the terms of the agreement, Cydcor will offer Spare Backup's business data storage solutions to its network of business clients. Cydcor will be paid in a commission basis on all customer orders that has an authorization for customer payment received via the efforts of Cydcor. In addition, Cydcor will receive volume bonuses based on total number of sales generated in any given calendar month.

In June 2009, we entered into a 6 week Memorandum of Understanding agreement with Comet, which is part of Kesa Electricals PLC, located in England. The agreement provides that we will provide Online PC data backup, PC data transfer, Cloud computing via Spare Room and PC synchronization services, which will be co-branded by Comet. Comet offers a wide range of electrical products for business and consumer usage, with products ranging from televisions to computers. During October 2009, a definitive agreement was reached with Comet, agreeing to an 18 month agreement of service. Comet will make our services available to its customers via its retail sales markets comprising England, Scotland, Ireland and Wales.

In April 2010, we entered into a 3 year agreement with Simplexity, LLC, owner of the website Wirefly.com (“Simplexity”). Simplexity is based in Reston, Virginia and is the Internet’s leading authorized seller of cell phones and wireless services. The agreement gives Simplexity the exclusive right for marketing and distribution of our data storage and cloud computing services through online mobile sales sites. We will provide the co-branded platform to Simlexity’s Wiefly.com customers, as well as affilitated companies through a promotional offer anticipated to begin in the second quarter of 2010. We will share all revenue derived from this agreement with Simplexity on an undisclosed basis.

In January 2010, we signed a term sheet with ServiceLive, Inc., a Sears Holdings Corporation (“SLI). The term sheet provides for the distributions of our proprietary services, including Online PC data backup, PC data transfer, Cloud computing (Spare Room) and PC synchronization to SLI’s customers. These services will be co-branded ServiceLic, powered by Spare Backup. We will share all revenue derived from the agreement on an undisclosed basis. At March 31, 2010, no master service agreement had been reached.

In April 2010, we entered into a 2 year agreement with Saveology, LLC (“Saveology”), which automatically renews for another 2 years unless either party terminates. The agreement provides Saveology with the non-exclusive license to market our services to their customers, giving them the opportunity to register for our services directly through a co-branded website maintained and constructed by us. We will share all revenue derived from this agreement with Saveology on a undisclosed basis.

Customer Support

We provide our tier 1 and tier 2 support for our services. Our tier 1 customer support provides initial call resolution and direct linking capabilities to our tier 2 customer support. Tier 2 customer support is managed by an internal group of specialists who are co-located within our Network Operation Center and software development headquarters in Palm Desert. Co-location with the software development group allows for the resolution of highly specific technical issues as well as identification of potential application flaws. Our support services were initially available from during evening hours during the week and extended hours on weekends. In March 2007 we began offering 24/7/365 customer support.

Research and Development

Our products were developed primarily by our employees assisted by contractors in certain specialty areas. We have invested approximately $1.1 million and approximately $1.3 million in research and development during fiscal 2009 and fiscal 2008, respectively.

Technology

Our products use a sophisticated combination of hardware, software, and networking to intelligently select files and settings from a customer's computer and reliably transfer these to secure redundant data centers, making the data highly available.

The networking systems used by us were designed to use outbound Internet connections for all communications, thus allowing many users who are behind a firewall access to the backup services. The proprietary software designed by us has been developed to remove the technical knowledge required to use other backup products by selecting files and backup settings for the user.

We own all of our servers and utilize hosting in geographically dispersed TIA-964 Tier-3 rated collocation facilities. Our server architecture employs multiple servers and switching equipment to provide redundancy and high availability to Spare Backup service users. The entire storage area network (SAN) storage system is replicated in near real-time to a secondary SAN to backup the primary one, which will automatically become available in the event of an outage at the primary storage array. Our servers use the latest enterprise level operating system available from Microsoft and use industry standard networking and communication protocols. This provides a highly available network that can scale rapidly using off the shelf hardware. These systems are fully redundant and we anticipate our reliability at 99.9%. We can expand our network capacity quickly and with highly predictable costs.

Our business will suffer if our systems fail or our third-party facilities become unavailable. A reduction in the performance, reliability and availability of our systems and network infrastructure may harm our ability to distribute our products and services to our customers and other users, as well as harm our reputation and ability to attract and retain customers. Our systems and operations are susceptible to, and could be damaged or interrupted by, outages caused by fire, flood, power loss, telecommunications failure, Internet breakdown, earthquake and similar events. If for some reason we should not have redundancy in our facilities, any damage or destruction to our systems would significantly harm our business. Our systems are also subject to human error, security breaches, power losses, computer viruses, break-ins, "denial of service" attacks, sabotage, intentional acts of vandalism and tampering designed to disrupt our computer systems, Web sites and network communications which are beyond our control. This could lead to slower response times or system failures.

Our computer and communications infrastructure is located in a leased facility in Arizona. While our infrastructure is fully redundant and Tier 3 rated, our insurance coverage covers lost profits and accordingly we may not have adequate business interruption insurance to compensate us for losses that may occur from a system outage. Despite our efforts, our network infrastructure and systems could be subject to service interruptions or damage and any resulting interruption of services could harm our business, operating results and reputation.

Competition

We face intense and increasing competition in the web-based backup solutions market. If we do not compete effectively or if we experience reduced market share from increased competition, our business will be harmed. In addition, the more successful we are in the emerging market for web-based storage solutions, the more competitors are likely to emerge. We believe that the principal competitive factors in our market include:

●	service functionality, quality and performance;

●	ease of use, reliability and security of services;

●	establishment of a significant base of customers and distribution partners;

●	ability to introduce new services to the market in a timely manner by adding additional suite of products to our Backup client;

●	customer service and support; and

●

pricing.

Our primary competitors are various Internet-based backup providers broadcasters, such as Connected.com, Livevault, and backup.com, Carbonite and EMC/Mozy. These companies provide services similar to ours and each have to various degrees a market presence. We also compete with providers of traditional backup technologies, such as Veritas and Symantec (swampdrive) (Norton 360).

Substantially most of our competitors have more capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. These competitors may also engage in more extensive development of their technologies, adopt more aggressive pricing policies and establish more comprehensive marketing and advertising campaigns than we can. Our competitors may develop products and service offerings that we do not offer or that are more sophisticated or more cost effective than our own. For these and other reasons, our competitors' products and services may achieve greater acceptance in the marketplace than our own, limiting our ability to gain market share and customer loyalty and to generate sufficient revenues to achieve a profitable level of operations. Our failure to adequately address any of the above factors could harm our business and operating results.

Intellectual Property

Our intellectual property is critical to our business, and we may seek to protect our intellectual property through copyrights, trademarks, patents, trade secrets, confidentiality provisions in our customer, supplier, potential investors, and strategic relationship agreements, nondisclosure agreements with third parties, and invention assignment agreements with our employees and contractors, although we do not execute such agreements in every case. Our protection efforts may prove to be unsuccessful, and unauthorized parties may copy or infringe upon aspects of our technology, services or other intellectual property rights. In addition, these parties may develop similar technology independently. Existing trade secret, copyright and trademark laws offer only limited protection and may not be available in every country in which we will offer our services.

A non-provisional patent application for the client side technology utilized by Spare Backup was filed in the United States Patent and Trademark Office on June 27, 2006. A non-provisional patent application for the server side technology utilized by Spare Backup was filed in the United States Patent and Trademark Office on August 10, 2006. Both applications are currently pending in the Patent Office and awaiting examination. We are currently looking at expanding our portfolio of intellectual property and we expect to file new applications in the second quarter of fiscal 2009. We are also exploring our abilities to file for patents to include living document functions. The applications we plan to file may fail to result in any patents being issued. Even if one or more of these patents are issued, any patent claims allowed may not be sufficiently broad to protect our technology. In addition, any patents may be challenged, invalidated or circumvented and any right granted there under may not provide meaningful protection to us. The failure of any patents may not provide meaningful protection to us. The failure of any patent to provide protection for our technology would make it easier for other companies or individuals to develop and market similar systems and services without infringing any of our intellectual property rights.

Government Regulation

Although there are currently relatively few laws and regulations directly applicable to the Internet, it is likely that new laws and regulations will be adopted in the United States and elsewhere covering issues such as limitations on the use of mass-delivered e-mails, broadcast license fees, copyrights, privacy, pricing, sales taxes and the characteristics and quality of Internet services. The adoption of restrictive laws or regulations could slow Internet growth. The application of existing laws and regulations governing Internet issues such as property ownership, libel and personal privacy is also subject to substantial uncertainty. There can be no assurance that current or new government laws and regulations, or the application of existing laws and regulations (including laws and regulations governing issues such as property ownership, taxation, defamation and personal injury), will not expose us to significant liabilities, slow Internet growth or otherwise hurt us financially.

Employees

As of March 31, 2010 we had 43 full-time employees, including all of our executive officers. None of our employees are covered by collective bargaining agreements, and we believe our relationships with our employees to be good.

Our History

We were incorporated in Delaware on December 27, 1999 under the name First Philadelphia Capital Corp. to serve as a vehicle to effect a merger, exchange of common stock, asset acquisition or other business combination with domestic or foreign private business. On October 30, 2000, we completed a business combination with Conservation Anglers Manufacturing, Inc., a real estate holding and development company that was originally organized in Florida on February 7, 2000. The combination was a stock-for-stock merger that was accounted for as a "pooling-of-interests". In connection with the merger, we issued 235,000 shares of our common stock in exchange for all the outstanding stock of Conservation Anglers Manufacturing, Inc. In January 2001 we changed our name to Newport International Group, Inc. to better reflect and describe our then current strategic direction.

As a result of the transaction with Conservation Anglers Manufacturing, Inc. we became a real estate holding company that intended to specialize in large-scale commercial, industrial and residential mixed-use property development. At the time of the transaction with Conservation Anglers Manufacturing, Inc. we did not own any real estate and our activities were limited to securing acquisition financing for a projects that we proposed to acquire and develop.

In November 2000, Mr. Soloman Lam, our then president and CEO, executed certain land contracts to purchase approximately 3,300 acres of land for a total of $11,389,600 which we intended to develop in the future. These contracts were due to close on September 1, 2001, but were extended to March 1, 2002 at the sellers' request. Mr. Lam personally deposited $180,000 into escrow pending closing and we had agreed to reimburse him when he assigned the contracts to us. On February 12, 2002, the land contracts were cancelled and the $180,000 deposit was returned to Mr. Lam. Simultaneously, on February 12, 2002, Mr. Lam executed a new land contract to purchase approximately 2,300 acres of land for $15,000,000. We deposited $10,000 in escrow pending closing on April 30, 2002. The closing on this contract was subsequently extended until July 29, 2002 and as consideration we released the $10,000 to the seller that was in escrow. Subsequently, the closing was again extended to September 30, 2002, in consideration for a $25,000 non-refundable deposit. The closing was again extended to December 30, 2002, then to March 31, 2003, then to July 31, 2003, then to October 30, 2003, and subsequently to January 30, 2004, with no additional deposit required. The check representing the $25,000 deposit was never negotiated and in December 2003 it was voided. We do not intend to proceed with this project. We have forfeited the $10,000 deposit and all rights and obligations of this project have been assigned by us to Newport International Group, Inc., a Florida corporation formerly known as Linda Development Corporation, a company affiliated with Mr. Clint Beckwith, a former officer and director of our company.

In December 2001, Mr. Lam entered into purchase contracts to acquire 45 acres of vacant land, representing nine lots, in Wellington, Florida for a total purchase price of $470,000. In April 2002, Mr. Lam closed on two of the nine lots and in May 2002, closed on a third lot. The remaining six lots were to be purchased when and if financing becomes available. Mr. Lam agreed to transfer the vacant land to us in exchange for a purchase price equal to cost. Deposits totaling $15,000 were paid by us in 2002 in conjunction with this land. The lots were never transferred to us, the $15,000 became a receivable from Mr. Lam and in December 2003 was expensed as an addition to our additional paid-in capital.

On February 6, 2004, we closed an Agreement and Plan of Merger with Grass Roots Communications Inc., a Delaware corporation. Grass Roots was a development stage company incorporated in Delaware in June 2002 initially to create, produce, deliver and track targeted multimedia communications over the Internet. Under the terms of this agreement, Grass Roots became our wholly-owned subsidiary. At the effective time of the merger, the stockholders of Grass Roots exchanged their securities for approximately 12,300,000 shares of our common stock, representing approximately 93% of our common stock. Contemporaneous with this transaction, Grass Roots' President and Chief Executive Officer, Mr. Cery B. Perle, was elected as a member of our Board of Directors and appointed CEO, and Mr. Lam resigned his positions with our company. Mr. Richard Galterio, the other member of our Board of Directors before the transaction remained as a director, and Mr. Edward L. Hagan, Secretary of Grass Roots, was appointed our secretary. Mr. Perle, the principal stockholder of Grass Roots, and members of his family/household received an aggregate of 46% of our shares of common stock as a result of the exchange upon the merger.

Effective August 16, 2006 we changed our name to Spare Backup, Inc. The corporate name change was brought about by a merger of a wholly-owned subsidiary into Newport International Group, Inc. with Newport International Group, Inc. surviving but renamed Spare Backup, Inc.

Item 1A. Risk Factors

An investment in our common stock involves a significant degree of risk. You should not invest in our common stock unless you can afford to lose your entire investment. You should consider carefully the following risk factors and other information in this annual report before deciding to invest in our common stock. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected and you could lose your entire investment in our company.

We have a history of losses and an accumulated deficit. We anticipate continuing losses may result in significant liquidity and cash flow problems. The report on our financial statements for Fiscal 2008 contains and explanatory paragraph regarding our ability to continue as a going concern.

Our net losses for the fiscal years ended December 31, 2009 and 2008 were $10,571,914 and $15,132,558, respectively. We have never generated sufficient revenues to fund our ongoing operations. Our operating losses for fiscal 2009 and fiscal 2008 were $8,795,283 and $10,605,030, respectively, and these losses are primarily attributable to our sales, general and administrative expense. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2009 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses, cash used in operations and working capital deficit. Our ability to continue as a going concern is dependent upon our ability to raise additional capital as described below. The financial statements included in this annual report do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result if we are not able to continue as a going concern.

Our revenues are not sufficient to fund our operating expenses and we will need to raise additional capital.

While our operating loss has decreased approximately 17% for fiscal 2009 over fiscal 2008, we will need to significantly increase our revenues to fund these costs. At December 31, 2009 we had approximately $44,000 cash overdraft and a working capital deficit of approximately $9.41 million. We have raised subsequent to December 31, 2009, approximately $778,000 from the sale of our common stock, and entered into a subscription agreement with an accredited investor for a $7 million secured revolving credit note. The proceeds form the sale of the common stock for working capital purposes and intend to use the proceeds from the $7 millions revolving credit note to help pay off our liabilities. However, our current working capital is not sufficient to pay our operating expenses, our obligations as they become due or certain tax liabilities nor is our working capital sufficient to fund any expansion of our company.

While we are constantly evaluating our cash needs and existing burn rate in order to make appropriate adjustments in operating expenses, we need to raise additional debt or equity capital to provide funding for ongoing and future operations and to satisfy our obligations as they become due. While we have historically been able to raise capital, the current capital markets are very challenging and there are no assurances that we will be successful in obtaining additional capital, or that such capital will be available on terms acceptable to us. Our continued existence is dependent upon, among other things, our ability to raise capital and to market and sell our products successfully. If we are unable to raise capital as needed, it is possible that we would be required to cease operations in which event you would lose your entire investment in our Company. During February 2010 we were able to secure a $7 million secured revolving credit note. The note is has a term of 3 years and interest will be payable on the unpaid principal balance at 10% per annum and 4% per annum for the amount of the convertible note which has not been funded. Under the term of the agreement, we will also issue to the note holder five-year warrants to purchase 15 million shares of our common stock with an exercise price of $0.30 per share, as well as 50,000 share of our Series B Preferred Stock. The note is also convertible at any time at the option of the holder based on the principal amount outstanding as follows: (i) up to $1 million, convertible at $0.20, (ii) in excess of $1 million up to $2 million, convertible at $0.25, and (iii) in excess of $2 million up to $7 million, convertible at $0.30.

We cannot predict our future revenues or whether our products will be accepted. If the markets for our products and services do not develop, our future results of operations will be adversely affected.

Net revenues from the sales of our Spare Backup line of products have been limited and insufficient to fund our ongoing operations. We reported net revenues of $2,692,320 and $1,381,443, respectively, for the fiscal years ended December 31, 2009 and 2008. While our net revenues significantly increased for fiscal 2009 over fiscal 2008, our net revenues will need to significantly increase if we are to provide cash to fund our operating expenses. We cannot guarantee either that the demand for our Spare Backup line of software products will develop, that such demand will be sustainable or that we will ever effectively compete in our market segment. In addition, we cannot predict what impact, if any, the reduction in discretionary spending will have on future sales of our products. If we are unable to generate any significant net revenues from our products and services, our business, operating results and financial condition in future periods will be materially and adversely affected and we may not be able to continue our business as presently operated, if at all.

We have approximately $2,620,000 of debt which is presently past due and an additional $1,201,000 which will become due during 2010 and we do not have the funds necessary to pay these obligations.

In addition to funding our operating expenses, we need capital to pay various debt obligations totaling approximately $3,821,000 which are either currently past due or which are due in the current fiscal year. Currently, there are $120,000 principal amount of the 10% short-term notes which have already become due in August and September 2008, and $2,500,000 principal of the 8% short-term notes which has become due in August 2009. In 2010, $570,000 principal of the 8% short-term notes become due between June and September, $245,000 principal of the 8% long-term notes become due between October and November, and $336,000 principal of the 10% short-term notes become due in January. Additionally, there are $96,000 principal amount of the 8% long term notes which becomes due between January and March 2011. Under the terms of the various short-term notes in the aggregate principal amount of $2,500,000, we have the right to force a conversion of those obligations into equity providing that we have registered the shares of common stock issuable upon such conversions prior to the maturity dates of the notes. We have not filed the requisite registration statement and unless we are successful in extending the maturity dates of these obligations it is not likely we will be able to avail our company of this opportunity before the notes become due. During 2010, we have been in contact with numerous note holders to work out either a repayment or extension of these notes. The existence of these obligations provides additional challenges to us in our efforts to raise capital to fund our operations. If we are unable to restructure these notes and we are unable to raise the capital necessary to satisfy the obligations, it is possible we will be forced to cease operations.

We will need additional financing which we may not be able to obtain on acceptable terms. If we are unable to raise additional capital as needed, our continued operations will be adversely affected and the future growth of our business and operations will be severely limited.

Historically, our operations have been financed primarily through the issuance of equity and debt. Because we have a history of losses and have never generated sufficient revenue to fund our ongoing operations, we are dependent on our continued ability to raise working capital through the issuance of equity or debt to fund our present operations. Because our operating expenses have continued to grow and we do not know if our net revenues will grow at a pace sufficient to fund our current operations, the continuation of our operations and any future growth will depend upon our ability to raise additional capital, possibly through the issuance of long-term or short-term indebtedness or the issuance of our equity securities in private or public transactions. While the actual amount of our future capital requirements, however, depend on a number of factors, including our ability to grow our net revenues and manage our business, it is likely we will need to raise a significant amount of capital during fiscal 2010 if we are to continue our current operations and satisfy our obligations as they become due. In addition to the challenges facing the capital markets today which make raising equity capital much more difficult for a company such as our than in prior years, the existence of a number of short term notes which are either currently past due or which will become due in 2010, together with the pending litigation facing our company and the piggy-back registration rights we have granted a number of investors serve to also make it harder to raise the capital we need. There can be no assurance that acceptable financing can be obtained on suitable terms, if at all. If we are unable to raise additional working capital as needed, our ability to continue our current business will be adversely affected and may be forced to curtail some or all of our operations.

We have been dependent on our relationship with DSG International for a majority of our revenues.

During 2009 approximately 89% of our net revenues were derived by sales through our relationship with DSG International. During December 2009 we mutually ended our agreement with DSG International. We are now materially dependent on our other various customers.

We are past due in the payment of payroll taxes.

At December 31, 2009 we had approximately $2,027,000 of accrued but unpaid payroll taxes due to the federal government and since that date, through March 31, 2010 the amount has increased to $2,149,000. We do not have the funds necessary to satisfy this obligation. During October 2009, the Company had entered into an installment plan with the state of California to pay off their outstanding balance from 2008 of $82,346 for three equal installments of $33,000 due in October November and December. In October 2009 we paid the first installment, however, we have not paid either the second or third installments, as a result we paid $9,639 of penalty and interest. We intend to use part of the $7 million revolving credit note to pay off our outstanding taxes. During 2010, we have attempted to negotiate with the various authorities for payment plans to help reduce the penalties and interest. If we are unable to raise the funds necessary, it is possible that we will be subject to significant additional fines and penalties, Mr. Perle, our President, and our Board of Directors could be personally subject to a 100% penalty on the amount of unpaid taxes and the government could file liens against our company and our bank accounts until such time as the amounts have been paid.

Our pricing model for our products and services is unproven and may be less than anticipated, which may harm our gross margins.

The pricing model of our products and services may be lower than expected as a result of competitive pricing pressures, promotional programs and customers who negotiate price reductions in exchange for longer term purchase commitments or otherwise. Our pricing model depends on the duration of the agreement, the specific requirements of the order, purchase volumes, the sales and service support and other contractual agreements. We expect to experience pricing pressure and anticipate that the average selling prices and gross margins for our products may decrease over product life cycles. We may not be successful in developing and introducing on a timely basis new products with enhanced features and services that can be sold at higher gross margins.

We are a defendant in a number of lawsuits.

We are currently a defendant in three separate lawsuits in which the plaintiffs are seeking approximately $252,000 together with attorney's fees, costs and prejudgment interest. We are also incurring additional legal fees in our efforts to defend these actions. While we believe our defenses are meritorious in each of these cases, should we not prevail in one or more of the actions we could be forced to pay significant amounts which, given our current cash position and need for working capital, could materially adversely affect our ability to continue as a going concern.

The exercise of outstanding warrants and the conversion of outstanding notes will be dilutive to our existing stockholders.

As of March 31, 2010 the following securities which are convertible or exercisable into shares of our common stock were outstanding:

●	common stock purchase warrants to purchase a total of 79,237,812 shares of our common stock at prices ranging between $0.12 to $1.30 per share;

●	18,686,250 shares of our common stock issuable upon the possible conversion of the outstanding $3,917,000 principal amount 8% and 10% convertible promissory notes due between August 2008 and March 2011, and

●	28,736,767 shares of our common stock issuable upon exercise of outstanding options with exercise prices ranging from $0.01 to $0.93.

The exercise of these warrants and the conversion of the notes may materially adversely affect the market price of our common stock and will have a dilutive effect on our existing stockholders.

Our quarterly financial results will continue to fluctuate making it difficult to forecast out operating results.

Our quarterly operating results have fluctuated in the past and we expect our net revenues and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are beyond our control, including:

●	the announcement or introduction of new services and products by us and our competitors;

●	our ability to upgrade and develop our products in a timely and effective manner;

●	our ability to retain existing customers and attract new customers at a steady rate, and maintain customer satisfaction;

●	the amount and timing of operating costs and capital expenditures relating to expansion of our business and operations;

●	government regulation; and

●	general economic conditions and economic conditions specific to development and marketing of software products, the market acceptance of new products offered by us, our competitors and potential competitors.

Our limited operating history and unproven business model further contribute to the difficulty of making meaningful quarterly comparisons. Our current and future levels of expenditures are based primarily on our growth plans and estimates of expected future net revenues. Such expenditures are primarily fixed in the short term and our sales cycle can be lengthy. Accordingly, we may not be able to adjust spending or generate new revenue sources timely to compensate for any shortfall in net revenues. If our operating results fall below the expectations of investors, our stock price will likely decline significantly.

Because we expect to continue to incur net losses, we may not be able to implement our business strategy and the price our stock may decline.

We have incurred net losses quarterly from inception through December 31, 2009, and at December 31, 2009 we had an accumulated deficit of approximately $100 million. We expect to continue to incur net losses for the foreseeable future absent a significant increase in our revenues, of which there are no assurances. Accordingly, our ability to operate our business and implement our business strategy may be hampered by negative cash flows in the future, and the value of our stock may decline as a result. Our capital requirements may vary materially from those currently planned if, for example, we incur unforeseen capital expenditures, unforeseen operating expenses or investments to maintain our competitive position. If this is the case, we may have to delay or abandon some or all of our development plans or otherwise forego market opportunities. We will need to generate significant additional net revenues to be profitable in the future and we may not generate sufficient net revenues to be profitable on either a quarterly or annual basis in the future. To address the risks and uncertainties facing our business strategy, we must, among other things:

●	Achieve broad customer adoption and acceptance of our products and services;

●	Successfully raise additional capital in the future;

●	Successfully integrate, leverage and expand our product distribution;

●	Successfully scale our current operations;

●	Implement and execute our business and marketing strategies;

●	Address intellectual property rights issues that affect our business;

●	Develop and maintain strategic relationships to enhance the development and marketing of our existing and new products and services; and

●	Respond to competitive developments in the software industry.

We might not be successful in achieving any or all of these business objectives in a cost-effective manner, if at all, and the failure to achieve these could have a serious adverse impact on our business, results of operations and financial position. Each of these objectives may require significant additional expenditures on our part. Even if we ultimately do achieve profitability, we may not be able to sustain or increase profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

We have not voluntarily implemented various corporate governance measures, in the absence of which, stockholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.

Recent Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national securities exchanges are those that address board of directors' independence, audit committee oversight, and the adoption of a code of ethics. Although we have adopted a Code of Ethics, we have not yet adopted any of these other corporate governance measures and, since our securities are not yet listed on a national securities exchange, we are not required to do so. We have not adopted corporate governance measures such as an audit or other independent committees of our board of directors as we presently have only two independent directors. If we expand our board membership in future periods to include additional independent directors, we may seek to establish an audit and other committees of our board of directors. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.

We cannot be certain that we will be able to protect our intellectual property, and we may be found to infringe on proprietary rights of others, which could harm our business.

Our intellectual property is critical to our business, and we seek to protect our intellectual property through copyrights, trademarks, patents, trade secrets, confidentiality provisions in our customer, supplier, potential investors, and strategic relationship agreements, nondisclosure agreements with third parties, and invention assignment agreements with our employees and contractors. We cannot assure you that measures we take to protect our intellectual property will be successful or that third parties will not develop alternative solutions that do not infringe upon our intellectual property.

In addition, we could be subject to intellectual property infringement claims by others. Claims against us, and any resultant litigation, should it occur in regard to any of our services and applications, could subject us to significant liability for damages including treble damages for willful infringement. In addition, even if we prevail, litigation could be time-consuming and expensive to defend and could result in the diversion of our time and attention. Any claims from third parties may also result in limitations on our ability to use the intellectual property subject to these claims. Further, we plan to offer our services and applications to customers worldwide including customers in foreign countries that may offer less protection for our intellectual property than the United States. Our failure to protect against misappropriation of our intellectual property, or claims that we are infringing the intellectual property of third parties could have a negative effect on our business, revenues, financial condition and results of operations.

Competition may decrease our market share, net revenues, and gross margins.

We face intense and increasing competition in the web-base backup solutions market. If we do not compete effectively or if we experience reduced market share from increased competition, our business will be harmed. In addition, the more successful we are in the emerging market for web-based storage solutions, the more competitors are likely to emerge. We believe that the principal competitive factors in our market include:

●	Service functionality, quality and performance;

●	Ease of use, reliability and security of services;

●	Establish a significant base of customers and distribution partners;

●	Ability to introduce new services to the market in a timely manner;

●	Customer service and support; and

●

Pricing.

Our primary competitors are various Internet-based backup providers’ broadcasters, such as Connected.com, Novastar, Livevault, firstbackup.com, Carbonate, EMC/Mozy and Norton 360 a product of Symantac. These companies provide services similar to ours and each have to various degrees a market presence. We also compete with providers of traditional backup technologies, such as EMC and VERITAS along with CommVault Systems.

Substantially all of our competitors may have more capital, longer operating histories, greater brand recognition, larger customer bases and significantly greater financial, technical and marketing resources than we do. These competitors may also engage in more extensive development of their technologies, adopt more aggressive pricing policies and establish more comprehensive marketing and advertising campaigns than we can. Our competitors may develop products and service offerings that we do not offer or that are more sophisticated or more cost effective than our own. For these and other reasons, our competitors' products and services may achieve greater acceptance in the marketplace than our own, limiting our ability to gain market share and customer loyalty and to generate sufficient net revenues to achieve a profitable level of operations. Our failure to adequately address any of the above factors could harm our business and operating results.

Provisions of our certificate of incorporation and bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders. We recently issued our CEO a series of super voting preferred stock which increased his ability to control the outcome of stockholder votes.

Provisions of our certificate of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of Delaware law also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested stockholders.

In addition, our certificate of incorporation authorizes the issuance of up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Our board of directors may, without stockholder approval, issue preferred stock with dividends, liquidation, conversion or voting rights that could adversely affect the voting power or other rights of our common stockholders. In January 2008 we created a series of 50,000 shares of Series A Preferred Stock which carries super voting rights of 400 votes per share which were issued to our CEO as additional compensation. Prior to the issuance of the shares of Series A Preferred Stock to Mr. Perle he controlled the vote of approximately 10% of our outstanding voting securities. As a result of the issuance of these securities, Mr. Perle now controls the vote of approximately 11.8% of our outstanding voting securities. This action was approved by our Board of Directors of which Mr. Perle is a member in accordance with the provisions of our certificate of incorporation.

Our common stock is currently quoted on the OTCBB, but trading in our stock is limited. Because our stock currently trades below $5.00 per share, and is quoted on the OTC Bulletin Board, our stock is considered a “penny stock” which can adversely affect its liquidity.

The market for our common stock is extremely limited and there are no assurances an active market for our common stock will ever develop. Accordingly, purchasers of our common stock cannot be assured any liquidity in their investment. In addition, the trading price of our common stock is currently below $5.00 per share and we do not anticipate that it will be above $5.00 per share in the foreseeable future. Because the trading price of our common stock is less than $5.00 per share, our common stock is considered a "penny stock," and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. SEC regulations also require additional disclosure in connection with any trades involving a "penny stock," including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements severely limit the liquidity of our securities in the secondary market because few broker or dealers are likely to undertake these compliance activities.

Item 1B. Unresolved Staff Comments

Not applicable to a smaller reporting company.

Item 2. Properties

In November 2006 we entered into a five year lease agreement, commencing January 1, 2007, with an unrelated third party for approximately 6,850 square feet which serves as our principal executive offices. Under the terms of the lease our initial annual base rent is approximately $152,000 and we will be responsible for our pro-rata share of common area expenses. The annual rent will escalate annually during the term of the lease to approximately $171,000 in the fifth year. We believe this facility meets our operational needs for the foreseeable future.

In March 2010 we entered into a 1 year lease agreement, commencing April 26, 2010, with an unrelated third party for approximately 1,900 square feet which serves as our office for research and development. Under the terms of the lease our monthly rent is $2,625 per month, with $3,062 due at signing.

Item 3. Legal Proceedings

In January 2009, we filed a declaratory relief in connection with an investment banking agreement entered into fiscal 2008 against Merriman Curhan Ford & Co. in the Supreme Court of California - County of Riverside Case No. 083346. In February 2009, we received a notice of petition for order compelling arbitration in the Superior Court California- San Francisco County, Case No. CFP 09-509186, which was filed on January 28, 2009 by a placement agent, Merriman Curhan Ford & Co., for failure to pay fees for services associated with an investment banking agreement. The placement agent is seeking for the reimbursement for out of pocket fees of approximately $31,000, payment of notes payable with principal amount of $161,200 and 370,370 shares of the Company. The case is set for arbitration in September 2010, and mediation will be completed by July 2010. We contend that the agreement was obtained by misrepresentations and concealment and that it is unenforceable and void. If the case proceeds, we intend to respond aggressively to the arbitration and management believes that there is a very low likelihood of an unfavorable outcome.

We are a party to litigation in the Riverside County Superior Course, Case No. INC084243, which was filed in February 2009 by Accretive Solutions in the state of Florida. The vendor is claiming a breach of contract, resulting in damages from a 2007 corporate compliance agreement. We contend that no services were ever provided. The vendor is seeking damages of approximately $37,000. The case will most likely be referred to arbitration. Management believes that there is a low likelihood of an unfavorable outcome.

We are a party to litigation in the New York Supreme Court, Case No. 109746-2009, which was filed in July 2009 by Wolfe, Axelrod, Weinberger, LLC, an IR firm. The firm is claiming a breach of contract, resulting in damages from the 2007 agreement. We contend that the contract was terminated by the agreement and intends on filing a cross complaint. The firm is seeking damages of approximately $55,000, and settlement discussions have been ongoing for several months. Management believes that there is a low likelihood of an unfavorable outcome.

Item 4. (Removed and Reserved)

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the OTCBB under the symbol SPBU. The reported high and low sales prices for the common stock as reported on the OTCBB are shown below for the periods indicated. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not represent actual transactions.

Fiscal Year Ended December 31, 2008	High	Low

First quarter ended March 31, 2008	$ 0.50	$ 0.32
Second quarter ended June 30, 2008	$ 0.40	$ 0.23
Third quarter ended September 30, 2008	$ 0.30	$ 0.08
Fourth quarter ended December 31, 2008	$ 0.19	$ 0.07

Fiscal Year Ended December 31, 2009	High	Low

First quarter ended March 31, 2009	$ 0.26	$ 0.13
Second quarter ended June 30, 2009	$ 0.24	$ 0.11
Third quarter ended September 30, 2009	$ 0.26	$ 0.13
Fourth quarter ended December 31, 2009	$ 0.17	$ 0.09

	High	Low

First quarter ended March 31, 2010	$ 0.23	$ 0.10

On March 31, 2010, the last sale price of our common stock as reported on the OTCBB was $0.20. As of March 31, 2010, there were approximately 649 record owners of our common stock.

Dividend Policy

We have never paid cash dividends on our common stock. Under Delaware law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our company, computed in accordance with the relevant Delaware statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits any dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired.

Unregistered Sales of Equity Securities and Use of Proceeds

During October 2009 we issued 490,571 shares of our common stock valued at $69,001 in connection with the payment of the accrued interest on the 8% and 10% convertible promissory notes.

During December 2009 we issued 190,411 shares of our common stock for services valued at $24,349.

During October 2009 we issued 314,298 shares of our common stock for the conversion of a 10% short-term convertible promissory note with a principal of $50,000 and interest of $288.

Between October and December 2009 we issued 5,750,624 shares of our common stock valued at $802,500 pursuant to a private placement. In connection with the issuance of shares, we also issued warrants to purchase 4,663,541 shares of common stock at an exercise price range of $0.16 to $0.20.

During January 2010 we issued 619,600 shares of our common stock valued at $68,637 in connection with the payment of the accrued interest on the 8% and 10% convertible promissory notes.

During January 2010 we issued 575,833 shares of our common stock for services valued at $87,048.

During February 2010 we issued 100,000 shares of our common stock valued at $1,000 for the exercise of options.

During February 2010 we issued 100,000 shares of our common stock valued at $20,000 per the settlement with one of our vendors.

During February 2010 we issued 135,000 shares of our common stock for the conversion on a 8% short-term convertible promissory note with a principal of $20,000 and interest of $1,600.

During March 2010 we issued 725,000 shares of our common stock for the conversion of two 10% short-term convertible promissory notes with principals totaling $125,000.

Between January and March 2010 we issued 6,211,113 shares of our common stock valued at $776,975 pursuant to a private placement. In connection with the issuance of shares, we also issued warrants to purchase 3,106,231 shares of common stock at an exercise price range of $0.16 to $0.20.

Item 6. Selected Financial Data

Not applicable to a smaller reporting company.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following information should be read in conjunction with our financial statements and accompanying notes included in this Annual Report on Form 10-K.

Overview

Our flagship product is Spare Backup, a fully-automated remote backup solution designed and developed especially for the small office or home environment which automatically and efficiently backs up all data on selected laptop or desktop computers, as well as mobile devices. As a result, we believe small companies can ensure file safety in PCs and laptops for backup and retrieval. We launched our Spare Back-up service and software product version 1.0 in March 2005 and we are currently offering version 6.0 of the product. Our Spare Switch software enables users to complete the transfer of personal files from one personal computer (PC) to another via a high speed Internet connection. We focus on owners and executives of businesses that use technology to support their businesses, but do not have an IT (information technology) department, as well as consumers who desire to secure available files and documents vital to the continuity of their operations, business, or personal information. Our concept is to develop a suite of complementary products and services which are designed for use by technical and non-technical users featuring a user interface that can cross both sets of users. Our software has unique characteristics of additional coding that enables easy to scale infrastructure and support elements which we believe provides a competitive advantage over other providers whose products require large investments in hardware, as well as professional installation, training and support.

During the year ended December 31, 2009, we spent significant resources, both financial and management time, in implementing our distribution model and broadening our partnership relationships to accomplish our goals. These costs included approximately $1,807,000 for sales and marketing advertising and business development expenses as well as approximately $624,000 of travel and travel related expenses, and approximately $542,000 of costs associated with technology service which includes engineering development, software and hardware related to the ongoing provision of our services. During this year we also spent approximately $1,140,000 on research and development. The research and development expenses were primarily related to compensation expenses paid to our software engineers, employees and consultants in conjunction with the development or enhancement of our products.

We are also spending significant time with our new partner Cydcor, which has over 3000 door to door sales people starting to sell our SMB products. In February 2009, we entered into a 1 year marketing agreement with Cydcor Inc. whereby Cydcor will market our services and perform marketing campaigns as it may determine from time to time. Cydcor will be paid in a commission basis on all customer orders that has an authorization for customer payment received via the efforts of Cydcor. In addition, Cydcor will receive volume bonuses based on total number of sales generated in any given calendar month.

In 2009 Spare will form its Enterprise division, as we have had a successful launch of its product with Sony Corp.

During 2009, we introduced our new advertising division, which has the ability to sell or cross market products to our data base of clients. We can partner with ours exiting clients and or solicit new customers to cross market products based on the end users behavior.

Results of Operations

SPARE BACKUP, INC.

RESULTS OF OPERATIONS

	Year ended						Increase/		Increase/
	December 31,						(Decrease)		(Decrease)
	2009			2008			in $ 2009		in % 2009
							vs 2008		vs 2008

Net revenues	$	2,692,320		$	1,381,443		$	1,310,877		94.9	%

Operating expenses:
Research and development		1,139,951			1,270,776			(130,825)		-10.3	%
Selling, general and administrative		10,347,652			10,715,697			(368,045)		-3.4	%
Total operating expenses:		11,487,603			11,986,473			(498,870)		-4.2	%

Operating loss		(8,795,283)			(10,605,030)			1,809,747		-17.1	%

Other income (expense)
Change in fair value of derivative liabilities		179,689			-			179,689		NM
Gain from debt settlement		940,106			35,713			904,393		2,532.4	%
Interest expense		(2,896,426	)		(4,563,241	)		1,666,815		-36.5	%
Total other income (expense)		(1,776,631	)		(4,527,528	)		2,750,897		-60.8	%

Net loss		(10,571,914	)		(15,132,558	)		4,560,644		-30.1	%

NM: Not Meaningful

Revenues

Our net revenues increased substantially in the year ended December 31, 2009 from the fiscal year of 2008. This increase in revenues reflects the increased adoption rate of our products by trial users who convert to subscriptions. For the year ended December 31, 2009, approximately 89% of our total net revenues were primarily attributable to the establishment of an international partner relationship with DSG International focusing in Europe. During December 2009 we mutually ended our agreement with DSG International. We are now materially dependent on our other various customers for revenue.

Research and Development

Research and development expenses consist primarily of compensation expenses paid to our software engineers, employees and consultants in conjunction with the development or enhancement of our products. Our research and development expenses for fiscal 2009 include costs associated with continued development of user interfaces and additional products, including version 6.0 of Spare-Backup, a family pack, and our SMB (small to medium business) products Spare’s cloud or Spare Room, Spare Mobile, Spare Synchronization and Spare Diagnostics, and reflected increased research and development efforts to successfully meet various deadlines set by our OEM partners. Included in research and development expenses for the year ended December 31, 2009 are non-cash expenses of $3,600 which represents the fair value of stock issued to a key employee in lieu of cash compensation. The decrease in our research and development expenses when compared to the comparable periods in 2008 is primarily attributable to decreased use of consultants for research and development of our product due to lack of working capital. Subject to the availability of sufficient working capital, we anticipate that we will continue to incur research and development expenses in future periods as a result of the addition of new features, the launch of new versions of our products and the expansion of our engineering staff, however we are not able at this time to quantify the amount of such expenditures. In some cases as we develop or co-develop additional services and products, we may from time to time get our partners to contribute funding for some of these projects.

Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses in 2009, as compared to 2008 of $368,045 or 3.4% is primarily due to the following:

●	an increase in advertising and sales and marketing expenses of approximately $968,000; this increase is primarily due to an increase in sales commissions to DSG International. During 2009, we reached a settlement agreement with DSG International, mutually ending our agreement, at which point all remaining prepaid commission were expensed, amounting to approximately $453,000;
●	an increase in professional and consulting services of approximately $643,000; this increase is primarily due to an increase in litigation expenses of approximately $373,000 due to an increase in our efforts to settle any disputes our litigations, an increase in consulting fees of $166,000 due to an increase in our efforts to decrease our spending on payroll expenses and an increase in PR/IR expense of $134,000; offset by
●	a decrease in option expenses of approximately $840,000; this decrease is primarily due to a re-pricing of options during 2008 in which we recognized a one time expense of approximately $370,000;
●	a decrease in technology services of approximately $264,000; this decrease is primarily due to an effort to decrease our cost of services;
●	a decrease in employee related expenses of approximately $214,000 ; this decrease is due to an increase in penalties and interest related to payroll taxes of approximately $399,000, offset by the decrease in payroll expense of $142,000 and a decrease in stock based consulting expenses of approximately $470,000.

Other Expenses

Our total other expenses, net for fiscal 2009 decreased $2,750,897, or approximately 61%, from the same period in fiscal 2008. The decrease in total other expenses from fiscal 2008 to 2009 were primarily attributable to the following:

Change in Fair Value of Derivative Liabilities and Derivative Liabilities Expense

Change in fair value of derivative liabilities and derivative liabilities expense consist of income or expense associated with the change in the fair value of derivative liabilities as a result of the application of ASC 815. The difference in fair value of the derivative liabilities between the date of their issuance and their measurement date, which amounted to an increase of approximately $247,000 and $0 for fiscal 2009 and 2008, respectively, and derivative liability expense of approximately $180,000 and $0 for fiscal 2009 and 2008, respectively has been recognized as other income/expense in those periods. We did not have a comparable other expense during fiscal 2008 due to our having satisfied all of the 8% and 10% convertible promissory notes during fiscal 2007, the terms of which resulted in the application of ASC 815 to our financial statements, thus eliminating such derivative liabilities.

Historically we have been at a disadvantage in negotiating the terms of financing transactions which have resulted in the recognition of these derivative liabilities. We have reassessed at December 31, 2009, the number of authorized but unissued shares and taking into consideration the floorless feature in connection with the redemption provision on the 10% and 8% convertible promissory notes and have concluded that a derivative liability of approximately $247,000 is necessary.

Gain from Debt Settlement

During 2009, we settled numerous court cases and disputes with vendors. As a result, we recognized a total gain from debt settlement of approximately $940,000, representing an increase of approximately $904,000, or 3,115% from 2008. During 2008, we only reached two settlements with vendors.

Interest Expense

Interest expense consists primarily of interest recognized in connection with the amortization of debt discount and interest on our convertible promissory notes. The increase in interest expense during the 2009 periods when compared to the 2008 periods is primarily attributable to the amortization of the debt discount of approximately $1.1 million, expense associated with the modification of the 8% and 10% convertible promissory notes of approximately $1.1 million, accrued interest of approximately $366,000 and amortization of debt deferred financing costs of approximately $301,000 associated with the 8% and 10% convertible promissory notes .

Liquidity and Capital Resources

At December 31, 2009, our cash overdraft amounted to approximately $43,489 and our working deficit amounted to approximately $9,414,000. During the year ended December 31, 2009, cash decreased due to cash used in operating and investing activities, offset by cash provided by financing activities.

During the year ended December 31, 2009, we used cash in our operating activities amounting to approximately $4,031,000. Our cash used in operating activities was comprised of our net loss of approximately $10,572,000 adjusted for the following:

	●	Change in fair value of derivative liabilities of approximately $180,000;
	●	Fair value of options and warrants granted to employees of approximately $1,004,000;
	●	Amortization of prepaid expenses, debt discount and deferred financing costs, and depreciation of fixed assets of approximately $3,300,000;
	●	Gain from debt settlement of approximately $940,000;
	●	Fair value of beneficial conversion features modifications of approximately $1,069,000;
	●	Fair value of shares, warrants or options issued for services of approximately $532,000; and
	●	Fair value of shares issued for interest payment of approximately $15,000.

Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activities:

	●	Increase in accounts payable, accrued expenses and accrued payroll taxes of approximately $2,074,000, resulting from a an increase in expenditures;
	●	Increase in deferred revenue of approximately $381,000, resulting from an increased number of consumers successfully prepaying for online backup services;
	●	Increase in accrued interest on convertible promissory notes of approximately $366,000, resulting from the issuance of $1,804,000 8% and 10% convertible promissory notes in 2009;
	●	Decrease in accounts receivable of approximately $81,000, resulting from a decrease in the amount of time it takes our customers to pay us; offset by
	●	Increase in prepaid expense and other current assets of approximately $1,164,000, resulting from an increase in the prepaid commissions and marketing fees associated with our DSG International agreement.

During the year ended December 31, 2009, we incurred capital expenditures of approximately $293,000.

During the year ended December 31, 2009, we generated cash from financing activities of approximately $4,305,000, which primarily consisted of the proceeds from convertible promissory notes of $1,804,000, net proceeds from the issuance of common stock for cash of $2,507,500 and cash overdraft of approximately $43,000, offset by the repayment of a convertible promissory note of $50,000.

During the year ended December 31, 2008, we used cash in our operating activities amounting to approximately $5,345,000. Our cash used in operating activities was comprised of our net loss of approximately $15,133,000 adjusted for the following:

	●	Fair value of options and warrants granted to employees of approximately $1,906,000;
	●	Amortization of prepaid expenses, debt discount and deferred financing costs, and depreciation of fixed assets of approximately $5,283,000;
	●	Fair value of preferred stock issued for services rendered of $50; and
	●	Fair value of shares, warrants or options issued for services of approximately $1,677,000.

Additionally, the following variations in operating assets and liabilities impacted our cash used in operating activities:

	●	Increase in accounts payable, accrued expenses and accrued payroll taxes of approximately $621,000, resulting from a an increase in expenditures;
	●	Increase in deferred revenue of approximately $133,000, resulting from an increased number of consumers successfully prepaying for online backup services;
	●	Increase in accrued interest on convertible promissory notes of approximately $290,000, resulting from the issuance of 8% and 10% convertible promissory notes amounting to $1,948,500 in 2008;
	●	Increase in prepaid expense and other current assets of approximately $10,000, resulting from an increase in the prepaid commissions and marketing fees associated with our DSG International agreement; offset by
	●	Increase in accounts receivable of approximately $132,000, resulting from an increase in revenue.

During the year ended December 31, 2008, we incurred capital expenditures of approximately $270,000.

During the year ended December 31, 2008, we generated cash from financing activities of approximately $5,107,000, which primarily consisted of the proceeds from convertible promissory notes of $2,008,500, proceeds from the issuance of common stock for cash of $1,917,000, proceeds from the exercise of warrants of approximately $1,142,000 and the proceeds from the exercise of stock options of approximately $140,000, offset by the payment of deferred financing costs of approximately $38,000 associated with the convertible promissory notes and the repayment of a convertible promissory notes of $62,500.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

A summary of significant accounting policies is included in Note 2 to the audited consolidated financial statements included elsewhere in this annual report. We believe that the application of these policies on a consistent basis enables our company to provide useful and reliable financial information about the company's operating results and financial condition.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Effective January 1, 2006, we adopted the provisions of ASC Topic 718 "Compensation-Stock Compensation" under the modified prospective method. ASC 718 eliminates accounting for share-based compensation transactions using the intrinsic value method prescribed under APB Opinion No. 25, "Accounting for Stock Issued to Employees," and requires instead that such transactions be accounted for using a fair-value-based method. Under the modified prospective method, we are required to recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. For periods prior to adoption, the financial statements are unchanged, and the pro forma disclosures previously required by ASC 718, will continue to be required under ASC 718 to the extent those amounts differ from those in the Consolidated Statement of Operations.

The Company follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements". The Company records revenue when persuasive evidence of an arrangement exists, on-line back-up services have been rendered, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. Online back up service fees received in advance are reflected as deferred revenue on the accompanying balance sheet. Deferred revenue as of December 31, 2008 amounted to $240,436 and will be recognized as revenue over the respective service period.

Revenue consists of the gross value of billings to clients. The Company reports this revenue gross in accordance with EITF 99-19 because it is responsible for fulfillment of the service, has substantial latitude in setting price and assumes the credit risk for the entire amount of the sale, and it is responsible for the payment of all obligations incurred for sales marketing and commissions.

Going Concern

We have generated minimal revenue since our inception on September 12, 2002, and have incurred net losses of approximately $100 million from cash and non-cash activity since inception through December 31, 2009. Our current operations are not an adequate source of cash to fund our current operations and we have relied on funds raised from the sale of our securities to provide sufficient cash to operate our business. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2009 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses and cash used in operations. Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities when they become due and to generate profitable operations in the future. During February 2010 we entered into a subscription agreement with an accredited investor for a $7 million secured revolving credit note. . The note is has a term of 3 years and interest will be payable on the unpaid principal balance at 10% per annum and 4% per annum for the amount of the convertible note which has not been funded. Under the term of the agreement, we will also issue to the note holder five-year warrants to purchase 15 million shares of our common stock with an exercise price of $0.30 per share, as well as 50,000 share of our Series B Preferred Stock. The note is also convertible at any time at the option of the holder based on the principal amount outstanding as follows: (i) up to $1 million, convertible at $0.20, (ii) in excess of $1 million up to $2 million, convertible at $0.25, and (iii) in excess of $2 million up to $7 million, convertible at $0.30. If we are unable to raise capital as needed, it is possible that we would be required to cease operations. The financial statements included in this report do not include any adjustments to reflect future adverse effects on the recoverability and classification of assets or amounts and classification of liabilities that may result if we are not successful.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 8. Financial Statements and Supplementary Data

Our financial statements are contained in pages F-1 through F-22, which appear at the end of this annual report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A(T). Controls and Procedures

Disclosure Controls and Procedures

Our Chief Executive Officer is responsible for establishing and maintaining disclosure controls and procedures for us. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this report, is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and to reasonably assure that such information is accumulated and communicated to our management, including our Chief Executive Officer who also acts as our principal financial and principal accounting officer, to allow timely decisions regarding required disclosure.

Our management does not expect that our disclosure controls or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of December 31, 2009, the end of the period covered by this report, our management concluded its evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. As of the evaluation date, our CEO who also serves as our principal financial and accounting officer, concluded that we do not maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods prescribed by SEC rules and regulations, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

●	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

●

o provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management's assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of these controls.

Based on this assessment, our management has concluded that as of December 31, 2009, our internal control over financial reporting were not effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Our lack of resources prevents us from maintaining proper segregation of duties, documentation of internal controls, implementation and monitoring.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information