SPARE BACKUP, INC. - FORM 10-K

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EXCEL - IDEA: XBRL DOCUMENT - SPARE BACKUP, INC.	Financial_Report.xls
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
EX-31.2 - EXHIBIT 31.2 - SPARE BACKUP, INC.	ex31-2.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, 2011

[ ]	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.)

	990 Ironwood Drive, Minden, NV 98423
	(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (775) 392 2180

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 [X] No [ ]

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, 2011 was $17,370,938. For purposes of this calculation, an aggregate of 42,123,360 shares of Common Stock were held by the directors, officers, and affiliates of the registrant on June 30, 2011 and have been included in the number of shares of Common Stock held by affiliates.

The number of the registrant’s shares of common stock outstanding as of March 31, 2012: 309,307,977.

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.

2011 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	16
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	(Removed and Reserved)	16

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	17
Item 7.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	18
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	24
Item 9B.	Other Information	25


	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	25
Item 11.	Executive Compensation	27
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 13.	Certain Relationships and Related Transactions, and Director Independence	33
Item 14.	Principal Accountant Fees and Services	34

	PART IV

Item 15.	Exhibits, Financial Statement Schedules	35

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 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 Mobile, Spare Backup for PC and tablets, Spare Switch PC data migration software, and our Parental Controls.

Our Products and Services

Our flagship products are Spare Mobile™ and Spare Backup™, a fully-automated remote backup solution designed and developed for mobile devices and small office or home environment users, allowing automatic and efficient back ups of all data on selected mobile devices, laptop and desktop computers. As a result, we believe consumers and small companies can ensure file safety of all files contained on their mobile devices, 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 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 Mobile will provide a user with the ability to backup data and content from their phone to the Spare cloud without the need to connect the mobile device to a PC via a cable.

●	Backup is performed securely using the users’ mobile or Wi-Fi network; mobile network usage charges may apply.
●	Backup captures data stored both on the Mobile devices onboard memory as well as any add on memory devices such as a memory card.
●	Backup captures all pertinent user data and configuration if feasible.
●	A user has the ability to configure the frequency that backups occur.
●	The Spare Mobile software detects files that should be backed up automatically.
●	Users have the ability to customize which files to back up and 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 has 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:
●	Blackberry Platform v4.3 & above, some exceptions based on models and hardware/software features available on the phone, such as GPS chip;
●	Android OS v1.5 & 1.6 backup and security functions;
●	Android OS v2.1 & above backup and security functions;
●	WinMobile OS v6.0, v6.1 & v6.5 backup and security functions;
●	iPhone OS v3.1.3 supports backup only;
●	iPhone OS v4.0 & above backup and security functions; and
●	Java phones with MIDP 2.0 and/or MIDP 2.1 backup only.

***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 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 between $0.99 and $6.99 per month and certain partners offer annual plans.

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 Security Suite for Mobile and Tablets, and Parental Controls. The following paragraphs provide certain information regarding our 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 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.

Our Target Customers

We distribute our product line through four vertical channels as a “white label solution,” branding our solutions under our distribution partners’ brands. We are focusing on the insurance and warranty space where we are bundled into a warranty with retailers online, including OEM’s and Telco’s. Our partners will then resell our products to 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 too 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

We market our software products through distributor’s retailers as well as a "white label" solution that will be distributed through its vertical channel, such as insurance and warranty providers. We are continuing to expand our current distribution base with scheduled launches throughout the remainder of the year. We will focus our distribution efforts in four vertical channels:

Insurance and warranties: Assurant, Service Net and Lifestyle Group;

Retail: Car Phone Warehouse, Best Buy Europe and Simplexity;

Original Equipment Manufacturers: Sony; and

Carriers

Examples of our marketing partners within the four vertical distribution channels include Wirefly/Simplexity, Assurant/Federal Home Warranty, Life Styles Group (a UK warranty provider), Best Buy Europe, and Sony. We will continue to aggressively add additional partnerships. We expect our current partners will commence scheduled launches of our services during 2012. We are in various stages of negotiations with potential partners in the U.S., Brazil, India, the Middle East, South America, and the South Pacific. We are hopeful that these negotiations will result in additional partnerships in the coming quarters.

While, we believe the launch of our base offerings will be commercially successful, it is still too early, to determine the extent of its market penetration.

We continue to invest in our software development, particularly focusing on the smart phone market. We have added additional features, such as:

Last Known LocationPRO: View the approximate location of your registered phone(s) on an integrated map using the phone’s built-in GPS.

Lock/Unlock PhonePRO: Remotely lock your phone to prevent unauthorized use and protect your personal information.

Display MessagePRO: Send a message to your phone that locks your phone and displays a message requesting that the Good Samaritan holding your phone contact you to return it.

Set Phone AlarmPRO: Locks your phone and sends a loud, audible alert directly to your phone to immediately pinpoint its location.

Erase PhonePRO: Remotely lock your phone and erase your contacts, photos, etc. from your phone. Since Wirefly Mobile Backup also backs up your contacts, photos, and more, you can easily transfer your stored data to your replacement device in minutes.

In the third quarter of 2011 we completed the first phase of development of a new suite of parental controls to enable parents to monitor and manage numerous aspects of their children's use of smart mobile devices. The parental controls are activated through a simple set-up wizard that helps users establish boundaries for monitoring up to 5 children’s locations and times of daily activities like school, sports, and time with friends. Once specific rules are put into place by the subscriber, if the child's phone is not in the location it should be, the intelligent software automatically notifies the subscriber through email or text. Through the secure website and mobile devices a parent can view the exact movements of a monitored child to see where they have been. Additional functionalities are being developed which we anticipate will be released in the coming quarters

We believe our offerings will adapt to the customer’s day-to-day needs, as our cloud system provides smart phones with the ability to link to our cloud and connect to multiple devices, which include PC’s and tablets.

In addition, we are working on providing our partners with real time data analytics which will provide them with behavioral pattern matching and market research.

We began an initial small-scale launch with the UK-based Carphone Warehouse in April of 2011 and in the Netherlands in May 2011. We have now converted our product to support the local language in the Netherlands and Spain, as we anticipate a progressive ramp in their distribution efforts throughout the remainder of 2012.

In September 2010 we reached a distribution agreement with Simplexity, LLC., (“Simplexity”), the parent company of Wirefly.com. Simplexity, a privately held company, is the Internet's leading authorized seller of cell phones and wireless services. Wirefly is Simplexity's shopping and comparison site for consumers, bringing online shoppers an unprecedented selection of cell phones and service plans from every major U.S. carrier with the convenience of automated application processing and cell phone activation. For the last six years Wirefly has been the internet's #1 authorized dealer for AT&T, Verizon Wireless, Sprint, and T-Mobile. Simplexity also operates and maintains similar online websites for a number of major retailers in North America. We believe Simplexity is uniquely positioned in the U.S. market to reach potential mobile customers across a wide variety of carriers through online mobile sales sites they own or manage within North America. We anticipate the sales launch of our services through Simplexity’s distribution network to progressively grow in 2011 and beyond. The service will be offered as an add-on or inclusive in the service packages such as “data protection,” currently marketed by Simplexity to its channel partners and customers.

We opened a new distribution channel for our mobile platform through mobile insurance and warrantee providers. In North America we reached an agreement with Assurant (Federal Warranty Service Corporation). Assurant, which develops, underwrites, and markets specialty insurance, extended service contracts, and other risk management solutions with leading financial institutions, retailers, and other entities, has bundled us into their services. The first of their launches is with Sprint, a US-based cellular company. Our backup solution will be bundled into all warranties associated with tablet sales. We will be expanding our offerings and are currently doing translations for up to 8 additional languages to support additional launches throughout 2012.

We also have a distribution partnership with Lifestyle Services Group (LSG), provider of leading lifestyle solutions and insurance products. LSG specializes in supporting its client products brands, attracting customers, improving the customer journey, and reducing customer attrition rates. LSG’s portfolio includes Mobile Phone Insurance, Card Protection and Tech Protect®, and The Hubb, which allows clients to seamlessly integrate a complete suite of products and services all accessed via one number. Their customer base includes Virgin Mobile, Orange, “3”, Phone, Phones 4 U, Barclay’s and Lloyds bank to name a few in the U.K. LSG has also amended our December 13, 2010 master services agreement in the third quarter of 2011 to include our parental controls functionality. Under the terms of the amended agreement, Spare Backup will supply the parental controls to LSG for distribution to LSG's affinity distribution channels, which includes most of the major retail banks and mobile networks and targets approximately 10 million customers. Both companies have agreed that Lifestyle Services Group will have exclusive distribution rights to the parental controls functionality in territories where it has a physical presence, provided it reaches certain minimum volumes over specified periods, including a minimum of one million registered users in the first six months of launch.

We expect to be able to work with each LSG partner. The software will be marketed as a way to not only protect data from loss, but to also increase the likelihood of retrieving a lost or stolen phone through the suite of security features. As mobile devices are becoming more prevalent and more powerful, we believe this channel should become a significant source of revenue to our company in the coming quarters. We anticipate that these companies will begin marketing programs beginning in 2012.

Through our relationship with LSG’s client companies, Spare Backup will broaden its distribution efforts with current and new partners and initiate new launches into Ireland, Poland, Turkey, the Middle East, India, Brazil and South America. In 2012 we anticipate expanding our marketing partnerships across our four vertical marketing channels and across additional geographic areas in order to reach the widest potential subscriber base.

Customer Support

We provide 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 Minden, Nevada. 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 $2.3 million in research and development during fiscal 2011 and fiscal 2010, 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 back up 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’ such as Connected.com, Livevault, and backup.com, Carbonite and EMC/Mozy. These companies provide services similar to our PC backup 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). With mobile technology, we have very few competitors that can compete with our service of synchronization between the PC and mobile devices. Competitors include SugarSync, Inc., Lookout, Inc. and to an extent McAfee, Inc.

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. In the fourth quarter the company filed for patents involving its Parental Controls.

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 December 31, 2011 we had 22 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.

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. 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.

If we are unable to obtain financing necessary to support our operations, we may be unable to continue as a going concern.

Our net losses for the fiscal years ended December 31, 2011 and 2010 were $5,850,863 and $11,127,218, respectively. We have never generated sufficient revenues to fund our ongoing operations. Our operating losses for fiscal 2011 and fiscal 2010 were $7,552,495 and $9,966,532, respectively, and these losses are primarily attributable to our selling, general and administrative expense. The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2011 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.

Our operating loss has decreased approximately 24% for fiscal 2011 over fiscal 2010; we will need to significantly increase our revenues to fund these costs. At December 31, 2011 we had approximately $71,000 cash overdraft and a working capital deficit of approximately $11 million. We have raised, subsequent to December 31, 2011, approximately $394,000 from the sale of our common stock. We intend to use the proceeds form the sale of the common stock for working capital purposes. 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.

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 $399,343 and $958,886, respectively, for the fiscal years ended December 31, 2011 and 2010. Our net revenues significantly decreased for fiscal 2011 over fiscal 2010 and we 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 $2,708,000 of debt which is presently past due 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 $2,708,000 which are either currently past due or which are due in the current fiscal year. Currently, there are $1,593,772 principal amount of the 8% short-term notes which are past due, $324,963 principal of the 10% short-term notes which are past due, and $787,600 of notes payable which are past due. During 2011, 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 2012 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 ours 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 2012, 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 are past due in the payment of payroll taxes.

At December 31, 2011 we had approximately $4,315,000 of accrued but unpaid payroll taxes due to various governmental agencies. We do not have the funds necessary to satisfy this obligation. During April 2011, the Company entered into an installment plan with the state of California to pay off their outstanding balance. The payment scales up and works with our cash flow, $25,000 for 3 months, $35,000 for the next 3 months and $50,000 per month there after till paid off, allowing us to still maintain our cash flow. We have made payments against our outstanding balance. If we are unable to raise the funds necessary, it is possible that we will be subject to significant additional fines and penalties. The government could file liens against our company and our bank accounts until such time as the amounts have been paid. We are also currently working with the IRS on a payment plan for our outstanding balance with them.

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 two separate lawsuits. 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, 2012 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 57,080,652 shares of our common stock at prices ranging between $0.01 to $1.30 per share;
●	9,632,107 shares of our common stock issuable upon the possible conversion of the outstanding $1,868,735 principal amount 8% and 10% convertible promissory notes due between August 2008 and June 2011, and
●	29,118,482 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 our 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, 2011, and at December 31, 2011 we had an accumulated deficit of approximately $117 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, Livevault, and backup.com, Carbonite and EMC/Mozy. These companies provide services similar to our PC backup 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). With mobile technology, we have very few competitors that can compete with our service of synchronization between the PC and mobile devices. Competitors include SugarSync, Inc., Lookout, Inc. and, to an extent, McAfee, Inc.

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.

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 May 2011 we entered into a two year lease agreement, commencing June 1, 2011, with Biofilm Management, Inc., which is affiliated with a board member by means of common ownership and management, which serves as our principal executive office. Under the terms of the lease our initial base rent is approximately $3,000 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 $3,090 in the second year. We believe this facility meets our operational needs for the foreseeable future.

In October 2011 we entered into a two year lease agreement, commencing November 15, 2011, with an unrelated third party for 3,610 square feet which serves as our secondary office. Under the terms of the lease our initial base rent is approximately $8,664 and we will be responsible for our pro-rata share of common area expenses.

Item 3. Legal Proceedings

In October 2010, Exigen Services (USA), Inc. filed suit against us in San Francisco Superior Court. We filed motions reducing the scope of their claims and also filed x-complaint for Exigen’s failure to perform and negligence. Exigen was asserting claims of approximately $200,000, but the matter was settled for $45,000 in October 2011.

We have appealed to the California Court of Appeals in the matter of Wolfe Axelrod Weinberger, LLC vs. Spare Backup Inc. The issue on appeal is the California Superior Court’s failure to disregard a NY state court judgment for approximately $100,000, which we assert was improperly entered and, therefore, should not be recognized as a valid sister state judgment. The company’s likelihood of success on this appeal cannot be determined at this time.

In November 2011, Gimmel Partners, LP filed suit against us in Nevada State Court in Douglas County, alleging breach of a promissory debenture. We have filed motions to dismiss the action based on the fact that Gimmel Partners has been dissolved and we have entered into individual agreements with its former partners. The case has not been set for trial and, as of this, date there is a low likelihood of an unfavorable outcome.

In June 2011, FPT Software filed suit against us for breach of contract related to software services they provided. After several months of litigation, the case was settled for $60,000 to be paid over a 120 day period..

In February 2011, Darryl Adams filed suit against us alleging various employment related claims. We conducted litigation and discovery and on April 4, 2012 the case was settled for approximately $60,000 to be paid over 15 months.

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, 2010	High	Low

First quarter ended March 31, 2010	$ 0.23	$ 0.12
Second quarter ended June 30, 2010	$ 0.22	$ 0.13
Third quarter ended September 30, 2010	$ 0.17	$ 0.09
Fourth quarter ended December 31, 2010	$ 0.15	$ 0.08

Fiscal Year Ended December 31, 2011	High	Low

First quarter ended March 31, 2011	$ 0.11	$ 0.08
Second quarter ended June 30, 2011	$ 0.09	$ 0.05
Third quarter ended September 30, 2011	$ 0.17	$ 0.05
Fourth quarter ended December 31, 2011	$ 0.13	$ 0.07

	High	Low

First quarter ended March 31, 2012	$ 0.87	$ 0.049

Stockholders

On March 30, 2012, the last sale price of our common stock as reported on the OTCBB was $0.0595. As of March 31, 2012, there were approximately 472 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

During the three-month period ended December 31, 2011, we issued 4,640,000 shares of common stock to four investor relation providers and consultants for service performed at a fair value of $415,000 or $0.09 per share . This private transaction is exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that Act.

During the three-month period ended December 31, 2011, we issued in aggregate 9,109,521 shares of our common stock to 13 accredited investors pursuant to a private placement which generated gross proceeds of approximately $392,000 or $0.04 per share. The Company issued 2,875,000 warrants, exercisable at $0.07 per share, as finder’s fees. The warrants expire in November 2014. This private transaction is exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Regulation D, Rule 506 and Section 4(2) of that act.

During the three-month period ended December 31, 2011, we issued warrants to 5 accredited investors in connection with private placements aggregating 2,607,142 shares for $115,000 and the issuance of a short-term note payable of $100,000. The warrants are exercisable in 1,850,000 shares of our common stock at an exercise price range of $0.03-$0.10 per share. The warrants expire in November and December 2014. This private transaction is exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that Act.

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

We are a software development company and service provider for the PC and mobile device industry. Our flagship product is Spare Backup, a fully-automated remote backup solution designed and developed especially for the small office, mobile and home environment which automatically and efficiently backs up all data on selected laptops, tablets or desktop computers, as well as smart phones. As a result, we believe individuals and businesses can ensure file safety. We launched our Spare Back-up service and software product version 1.0 in March 2005 specifically designed for the PC, and we are currently offering version 6.0 of the product which now incorporates not only the PC but tablets and smart phones which are carrier agnostic and handset agonistic .

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 individuals and businesses that use diverse technologies and various devices to support their businesses and lifestyles.

Our Spare Mobile product backs up personal content on your “smart phones” such as contacts, emails, calendar events, photos, music and videos. We offer a complete line of security products to compliment the user’s smart phone, such as:

Last Known LocationPRO: View the approximate location of your registered phone(s) on an integrated map using the phone’s built-in GPS.

Lock/Unlock PhonePRO: Remotely lock your phone to prevent unauthorized use and protect your personal information.

Display MessagePRO: Send a message to your phone that locks your phone and displays a message requesting that the Good Samaritan holding your phone contact you to return it.

Set Phone AlarmPRO: Locks your phone and sends a loud, audible alert directly to your phone to immediately pinpoint its location.

Erase PhonePRO: Remotely lock your phone and erase your contacts, photos, etc. from your phone.

We provide an easy to use, scalable, cloud-based solution for securing business files, media, and personal data. The total Spare Backup offerings represent a suite of complementary products and services which are designed for use by technical and non-technical users. Our software has unique, easy, scalable characteristics which we believe provides a competitive advantage over other competitors whose products require large investments in hardware, installation, training and support.

Beginning in 2010 we have focused our development efforts and, in 2011, our marketing efforts on our Spare Mobile product, which backs up personal content on “smart phones” and “tablets,” such as contacts, emails, calendar events, photos, music, videos and data files. It also offers a complete line of mobile security products and parental controls (developed in 2011) to compliment the users’ mobile devices, as described in our software development section. We have shifted our focus to the mobile industry to take advantage of a number of industry trends which we believe represent a tremendous growth opportunity for our company. In 2011, there were approximately six billion mobile subscribers throughout the world according to The International Telecommunications Union, representing almost 87% of the world’s population. Industry experts, including IDC and Strategy Analytics, estimate that worldwide shipments of smart phones were approximately 490 million units, up over 60% from 2010, and representing over 31% of all handsets shipped. In August of 2011, Juniper Research estimated that less than 1 in 20 smart phones and tablets have third-party security software installed in them. This is expected to change according to Canalys, which estimates the U.S. market for mobile security will grow to over $3 billion annually by 2015.

Corporate Relocation

We completed the move of our corporate headquarters, including a major portion of our software development team, to Minden, Nevada in the third quarter of 2011. We believe the move will enable us to draw from a more experienced labor pool for software design, as well as provide us with a significantly more favorable corporate tax environment. We currently anticipate that we will be subject to minimal corporate taxes for the remainder of 2011 and throughout 2012.

Business Development and Marketing Strategy:

We market our software products through distributor’s retailers as well as insurance and warrantee providers. We are continuing to expand our current distribution base with scheduled launches throughout the remainder of the year. We will focus our distribution efforts in four vertical channels:

Insurance and warranties: Assurant, Service Net and Lifestyle Group;

Retail: Car Phone Warehouse, Best Buy Europe and Simplexity;

Original Equipment Manufacturers: Sony; and

Carriers

While, we believe the launch of our base offerings will be commercially successful, it is still too early, to determine the extent of its market penetration.

We continue to invest in our software development, particularly focusing on the smart phone market. We have added additional features, such as:

Last Known LocationPRO: View the approximate location of your registered phone(s) on an integrated map using the phone’s built-in GPS.

Lock/Unlock PhonePRO: Remotely lock your phone to prevent unauthorized use and protect your personal information.

Display MessagePRO: Send a message to your phone that locks your phone and displays a message requesting that the Good Samaritan holding your phone contact you to return it.

Set Phone AlarmPRO: Locks your phone and sends a loud, audible alert directly to your phone to immediately pinpoint its location.

In addition, we are working on providing our partners with real time data analytics which will provide them with behavioral pattern matching and market research.

We also have a distribution partnership with Lifestyle Services Group (LSG), provider of leading lifestyle solutions and insurance products. LSG specializes in supporting its client products brands, attracting customers, improving the customer journey, and reducing customer attrition rates. LSG’s portfolio includes Mobile Phone Insurance, Card Protection and Tech Protect®, and The HubbTM, which allows clients to seamlessly integrate a complete suite of products and services all accessed via one number. Their customer base includes Virgin Mobile, Orange, “3”, Phone, Phones 4 U, Barclay’s and Lloyds bank to name a few in the U.K. LSG has also amended our December 13, 2010 master services agreement in the third quarter of 2011 to include our parental controls functionality. Under the terms of the amended agreement, Spare Backup will supply the parental controls to LSG for distribution to LSG's affinity distribution channels, which includes most of the major retail banks and mobile networks and targets approximately 10 million customers. Both companies have agreed that Lifestyle Services Group will have exclusive distribution rights to the parental controls functionality in territories where it has a physical presence, provided it reaches certain minimum volumes over specified periods, including a minimum of one million registered users in the first six months of launch.

Through our relationship with LSG’s client companies, Spare Backup will broaden its distribution efforts with current and new partners and initiate new launches into Ireland, Spain, Poland, Turkey, the Middle East, India, Brazil and South America. In 2012 we anticipate expanding our marketing partnerships across our four vertical marketing channels and across additional geographic areas in order to reach the widest potential subscriber base.

Software Development

Our decision to expand the scope of our cloud-based platform into mobile backup and security required us to make substantial changes to our software to enhance the scalability and functionality of our services across a wide array of devices and platforms. This expansion delayed our ability to launch a number of important programs in 2011. Our development team continued to test and improve the mobile platform throughout the second half of 2011 and now feel that these changes enable us to complete launches with our marketing partners into 2012.

In the third quarter we began the full migration to an HTML-based platform for our distribution partners. We have begun launching with our marketing partners and anticipate a progressive roll out system-wide by the end of 2012. The sites will enable a full touchscreen interface to support all tablet and mobile device applications including Android, Blackberry, Windows and Apple. HTML will also enable quicker launch schedules for new customers, greater scalability, simplification of server technology, and faster maintenance.

We also began the upgrade of our hardware in the third quarter of 2011 to a scalable storage platform capable of supporting millions of users for our software products. Through a unique cloud-like structure, this new platform can be infinitely scaled as usage increases by the combined use of additional network storage and virtual machine arrays (VMWARE). Upon completion all user backup data will be stored on state of the art NetAPP SAN storage. User account information and transactional information will be stored in a secure SQL-Server redundant distributed database utilizing special high-speed RAID drives. In addition, our IIS web servers each can support thousands of simultaneous users. Combining this with our new, scalable virtual machine array allows the system to be used by millions of users.

We believe that through our software and hardware improvements we are now better positioned to begin the launches of Assurant, Simplexity, LSG and other potential partners in 2012. The above partnerships represent multiple opportunities, as each of the companies has different distributors and strategic alliances marketing their products. We will continue to enhance our platform nonetheless. We believe the backbone for our service platform has been substantially developed. We have added new features to our existing services that will continue rolling out throughout 2012 that will accelerate revenue from our distribution.

Results of Operations

SPARE BACKUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Year Ended						Increase/			Increase/
	December 31,						(Decrease)			(Decrease)
	2011			2010			in $ 2011			in % 2011
							vs 2010			vs 2010

Net Revenues	$	399,343		$	958,886		$	(559,543	)		-58.4	%

Operating expenses:
Research and development		1,088,689			2,341,738			(1,253,049	)		-53.5	%
Selling, general and administrative		6,863,149			8,583,680			(1,720,531	)		-20.0	%
Total operating expenses		7,951,838			10,925,418			(2,973,580	)		-27.2	%

Operating loss		(7,552,495	)		(9,966,532	)		2,414,037			-24.2	%

Other income (expense):
Change in fair value of derivative liabilities		2,296,519			446,027			1,850,492			414.9	%
Gain from debt settlement		171,624			442,250			(270,626	)		-61.2	%
Realized gain on foreign currency		(2,736	)		-			(2,736	)	NM
Interest expense		(763,775	)		(2,048,963	)		1,285,188			-62.7	%
Total other income (expense)		1,701,632			(1,160,686	)		2,862,318			-246.6	%

Net loss		(5,850,863	)		(11,127,218	)		5,276,355			-47.4	%

NM: Not Meaningful

Revenues

Our net revenues primarily consist of subscription fees charged for online back-up services. Our net revenues decreased during fiscal 2011, when compared to fiscal 2010, due to a decrease in the base over which deferred revenue is amortized during 2011, offset by an increase in revenues from our new distributors who launched our products during the latter part of 2010. The amortization of deferred revenue, which amounted to approximately $621,000 during fiscal 2010, resulted from our previous partnership with DSG International, which terminated in 2009. We expect that our revenues during 2012 will increase sequentially from 2011.

During 2011, Spare Backup spent a considerable amount of money and effort converting to its new HTML based software platform. This conversion was necessary to accommodate the breadth of operating systems currently available in the mobile phone market place, and to facilitate new software design applications. This conversion, however, caused delays in launching some of Spare Backup’s marketing partnerships during 2011.

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 fiscal 2011 include costs associated with continued development of user interfaces and enhancements of existing products.

The decrease in our research and development expenses during fiscal 2011, when compared to the prior year periods, is primarily attributable to the completion of our Spare back-Up offering as a cloud solution during the first half of 2010, while our research and development expenses during fiscal 2011 consisted mostly of enhancements to our existing solutions.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses primarily consist of consultant fees related to the marketing and enhancement of our products, advertising, as well as other general and administrative expenses, such as payroll expenses, necessary to support our existing and anticipated growth in our revenues and legal and professional fees.

The decrease in selling, general and administrative expenses in 2011, as compared to 2010 of $1,720,531 or 20% is primarily due to the following:

●

a decrease in non-recurring fair value of options, warrants, and our shares of common stock issued to employees and consultants, including the fair value of modification of terms of such options and warrants. Otherwise, selling, general, and administrative expenses during fiscal 2011 are at comparable levels to the prior year period.

Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities results from the changes in the fair value of the derivative liability due to the application of ASC 815, resulting in either income or expense, depending on the difference in fair value of the derivative liabilities between their measurement dates. The decrease or increase in fair value of derivative liabilities recognized during fiscal 2011 and 2010 is primarily due to a decrease or increase of our common stock quoted price between measurement dates and during such periods, respectively. Our common stock quoted price is one of the primary assumptions used in the computation of our derivative liabilities.

Gain from Debt Settlement

During fiscal 2011 and 2010, we settled numerous court cases and disputes with vendors, which resulted in gains from debt settlements amounting to approximately $172,000 and $442,000, respectively.

Interest Expense

Interest expense consists primarily of interest recognized in connection with the excess of the fair value of the shares issued to satisfy such obligations, over their carrying value, the amortization of debt discount and interest on our convertible promissory notes. The decrease in interest expense during fiscal 2011 is primarily due lower amortization of debt discount than in fiscal 2010. We recognized the amortization of debt discount over the terms of their respective promissory notes, which matured during the latter part of the fiscal 2010 and the first half of 2011.

Liquidity and Capital Resources

At December 31, 2011, our cash overdraft amounted to $70,750 and our working deficit amounted to approximately $10,909,000 as compared with the cash overdraft of $127,321 and a working deficit of approximately $9,513,000 at December 31, 2010.

During the year ended December 31, 2011, we used cash in our operating activities amounting to approximately $3,812,000. Our cash used in operating activities was comprised of our net loss of approximately $5,851,000 adjusted for the following:

	●	Change in fair value of our derivative liabilities of approximately $2,297,000;
	●	Fair value of stock-based payments issued to employees and consultants of approximately $851,000;
	●	Fair value of shares of common stock issued in connection with services rendered of approximately $1,018,000;
	●	Fair value of equity transactions related to financing of approximately $343,000;

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 $1.6 million, resulting from delays in payments to satisfy our obligations due to our liquidity issues.

During the year ended December 31, 2011, we generated cash from financing activities of approximately $4 million, which consisted of the proceeds from notes payable and convertible promissory notes of $1.3 million, and the net proceeds from the issuance of common stock for cash of $2.2 million offset principal repayments of certain notes payable aggregating $173,000 and the funding of our overdraft of approximately $57,000. Additionally, we generated proceeds from exercise of options and warrants aggregating approximately $496,000.

During the year ended December 31, 2010, we used cash in our operating activities amounting to approximately $4,588,000. Our cash used in operating activities was comprised of our net loss of approximately $10,636,000 adjusted for the following:

	●	Change in fair value of derivative liabilities of approximately $446,000;
	●	Fair value of options and warrants granted to employees of approximately $1,025,000;
	●	Depreciation or property and equipment, amortization of prepaid expenses, amortization of debt discount and amortization of deferred financing costs of approximately $1,904,000;
	●	Gain from debt settlement of approximately $442,000;
	●	Fair value of convertible promissory notes modifications of approximately $175,000;

	●	Fair value of common stock issued in connection with convertible promissory notes modifications and conversions of approximately $79,000;
	●	Fair value of common stock issued in connection with note payable issuance of approximately $177,000;
	●	Fair value of option and warrant modifications of approximately $726,000;
	●	Fair value of warrants issued to convertible promissory note holders and note holders of approximately $25,000;
	●	Fair value of common stock issued in connection with debt settlement of $20,000;
	●	Fair value of shares, warrants or options issued for services of approximately $1,831,000; and
	●	Fair value of shares issued for interest payment of approximately $30,000.

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

	●	Increase in prepaid expense and other current assets of approximately $843,000, resulting from an increase in the prepaid commissions and marketing fees associated with our DSG International agreement;
	●	Decrease in deferred revenue of approximately $519,000, resulting from the mutual release of our agreement with DSG International; offset by
	●	Decrease in accounts receivable of approximately $26,000, resulting from a decrease in the amount of time it takes our customers to pay us;
	●	Increase in accounts payable, accrued expenses and accrued payroll taxes of approximately $2,001,000, resulting from an increase of unpaid payroll taxes; and
	●	Increase in accrued interest on convertible promissory notes of approximately $280,000, resulting from the8% convertible promissory notes issued in later fiscal 2009.

During the year ended December 31, 2010, we incurred capital expenditures of approximately $58,000.

During the year ended December 31, 2010, we generated cash from financing activities of approximately $4,646,000, which primarily consisted of the proceeds from convertible promissory notes of $197,500, proceeds from notes payable of $1,310,500, net proceeds from the issuance of common stock for cash of $2,864,794, proceeds from the exercise of stock options of $22,392, proceeds from the exercise of warrants of $585,359 and cash overdraft of approximately $89,000, offset by the repayment of notes payable of $418,000.

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 $117 million from cash and non-cash activity since inception through December 31, 2011. 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, 2011 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. 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

Evaluation of Disclosure Controls and Procedures

We do not maintain proper “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures 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. Based on his evaluation as of the end of the period covered by this report, our President who also serves as our principal financial and accounting officer, has concluded that our disclosure controls and procedures were not 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 not accumulated and communicated to our management, including our President to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following individuals serve as our executive officers and members of our Board of Directors:

Name	Age	Position
Cery B. Perle	49	Chief Executive Officer, President and Chairman of the Board
Ivor Newman	47	Chief Operating Officer and Director
Andy Zeinfeld	51	Director

Cery B. Perle. Mr. Perle has served as our President, CEO and Chairman since February 2004. Mr. Perle co-founded Grass Roots in June of 2002. Mr. Perle has experience in numerous start-up ventures. A primary focus of Mr. Perle's experience has been on the sales and marketing of innovative ideas and products. Prior to Grass Roots, from 2001 to 2002, he was director of Crystal Consulting Group, a business-consulting firm. From 2000 to 2001, he was engaged as a consultant to Rxalternative.com, an alternative healthcare web site. From 1994 to 1998, he was President and Chief Executive Officer of Waldron & Co., a California-based registered broker-dealer, where he established four branch offices in addition to the West Coast based corporate office of the investment firm.

We believe that Mr. Perle is qualified to serve on our board of directors due to his experience with numerous start-up ventures and his sales and marketing skills. Mr. Perle is also our founder.

Ivor Newman. Mr. Newman has over 19 years of program management and product marketing experience. Prior to joining Spare Backup in 2007, Mr. Newman was the Worldwide cross line of business (X-Lob) Program Manager for Dell Inc. where he was responsible for the successful creation and implementation of global services programs. Mr. Newman joined Dell in 1999 and was intimately involved with the global services division. Prior to working for Dell, Mr. Newman was the District Director for a professional services corporation in New York City.

We believe that Mr. Newman is qualified to serve on our board of directors due to his extensive program management and product marketing experience with large companies.

Andy Zeinfeld. Mr. Zeinfeld is the Chief Executive Officer for Simplexity LLC since December 2007. From October to December 2007, he was the Chief Executive Officer for InPhonic, Inc and from April 2006 to October 2007, he served as the President, E-Commerce for InPhonic Inc. During November 2007, he also served as Director of InPhonic, Inc. Prior to April 2006, Inc., Mr. Zeinfeld was Senior Vice President and Chief Retail Services Officer for RadioShack Corporation. On September 9, 2010, Simplexity LLC and Spare Backup entered into a certain Digital Platform Agreement, wherein the parties are marketing the Company’s digital platform services to consumers.

We believe that Mr. Zeinfeld is qualified to serve on our board of directors due to his extensive cell phone industry experience.

There are no family relationships between any of the executive officers and directors, except as set forth above. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.

Key Employees

Following is biographical information on those persons whom we consider key employees of our company:

Name	Age	Position
Cery Perle	49	Chief Executive Officer, President and Chairman of the Board
Ivor Newman	47	Chief Operating Officer and Director

Compliance with Section 16(A) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers, directors and persons who own more than ten percent of a registered class of our equity securities file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such executive officers, directors and ten percent stockholders are also required by the SEC rules to furnish to us copies of all Section 16(a) reports that they file. Based solely on its review of the copies of such forms received by us, or written representations from certain reporting persons that they were not required to file a Form 5, we believe that during the fiscal year ended December 31, 2011, our executive officers, directors and ten percent stockholders complied with all Section 16(a) filing requirements applicable to such persons.

Code of Business Conduct and Ethics

We have adopted a Code of Business Conduct and Ethics to provide guiding principles to all of our employees. Our Code of Business Conduct and Ethics does not cover every issue that may arise, but it sets out basic principles to guide our employees and provides that all of our employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. Any employee who violates our Code of Business Conduct and Ethics will be subject to disciplinary action, up to an including termination of his or her employment. Generally, our Code of Business Conduct and Ethics provides guidelines regarding:

●	compliance with laws, rules and regulations,
●	conflicts of interest,
●	insider trading,
●	corporate opportunities,
●	competition and fair dealing,
●	discrimination and harassment,
●	health and safety,
●	record keeping,
●	confidentiality,
●	protection and proper use of company assets,
●	payments to government personnel,
●	waivers of the Code of Business Conduct and Ethics,
●	reporting any illegal or unethical behavior, and
●	compliance procedures.

In addition, we have also adopted a Code of Ethics for our Chief Executive Officer and Senior Financial Officers. In addition to our Code of Business Conduct and Ethics, our CEO and senior financial officers are also subject to specific policies regarding:

●	disclosures made in our filings with the SEC,.
●	deficiencies in internal controls or fraud involving management or other employees who have a significant role in our financial reporting, disclosure or internal controls,
●	conflicts of interests, and
●	knowledge of material violations of securities or other laws, rules or regulations to which we are subject.

A copy of our Code of Business Conduct and Ethics has been filed with the Securities and Exchange Commission as an exhibit to this annual report. We will provide a copy, without charge, to any person desiring a copy of the Code of Business Conduct and Ethics, by written request to, 990 Ironwood Drive, Minden, NV 89423, Attention: Corporate Secretary.

Committees of the Board of Directors

Our Board of Directors has not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, any committee performing a similar function. The functions of those committees are being undertaken by the entire board as a whole. Because of the small size of our company and the even number of independent directors, our Board of Directors believes that the establishment of committees of the Board would not provide any benefits to our company and could be considered more form than substance.

We do not have a policy regarding the consideration of any director candidates which may be recommended by our stockholders, including the minimum qualifications for director candidates, nor has our Board of Directors established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director candidates by our stockholders, including the procedures to be followed. Our Board has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors. Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all members of our Board will participate in the consideration of director nominees.

None of our directors is an "audit committee financial expert" within the meaning of Item 401(e) of Regulation S-B. In general, an "audit committee financial expert" is an individual member of the audit committee or Board of Directors who:

●	understands generally accepted accounting principles and financial statements,
●	is able to assess the general application of such principles in connection with accounting for estimates, accruals and reserves,
●	has experience preparing, auditing, analyzing or evaluating financial statements comparable to the breadth and complexity to our financial statements,
●	understands internal controls over financial reporting, and
●	understands audit committee functions.

Since our formation we have relied upon the personal relationships of our CEO to attract individuals to our Board of Directors. While we would prefer that one or more of our directors be an audit committee financial expert, the individuals whom we have been able to attract to our Board do not have the requisite professional backgrounds. As with most small companies until such time our company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officers insurance, we do not have any immediate prospects to attract independent directors. When we are able to expand our Board of Directors to include one or more additional independent directors, we intend to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these additional independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include "independent" directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.

Item 11. Executive Compensation

The following table summarizes all compensation recorded by us in the last completed fiscal year for

●	our principal executive officer or other individual serving in a similar capacity,
●	our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2011 as that term is defined under Rule 3b-7 of the Securities Exchange Act of 1934. In the case of our company this includes two key employees of our company, and
●	up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2011.

For definitional purposes in this annual report these individuals are sometimes referred to as the "named executive officers." The value attributable to any option awards is computed in accordance with ASC 718.

Summary Compensation Table
Name and Principal Position	Year	Salary ($)		Stock Awards ($)		Option Awards ($) (1)			All Other Compensation		Total ($)
Cery Perle, President and	2010		366,337		-		372,950	(4)		66,624		805,911
Chief Executive Officer (2)	2011		399,300				25,000	(5)		99,237		505,069

Ivor Newman, Vice President	2010		206,250		-		101,800	(8)		6,624		304,549
of Operations (6)	2011		127,500				25,000	(9)		18,468		170,968

Terry Bahr (10)	2011		132,917		-		-			-		132,917

Prakash Phalke (11)	2011		106,874		-		-			-		106,874

(1) The dollar value recognized for the stock option awards was determined in accordance with ASC 718. For a disclosure of the assumptions made in the valuation please refer to footnote 10 in our consolidated financial statements filed under Item 8 of this Annual Report on Form 10-K.

(2) All other compensation consists of $60,000 in car allowance during 2010 and 2011, respectively, vacation pay of $20,769 during 2011, and health insurance of $6,624 and $18,468 during 2010 and 2011, respectively.

(3) Options to purchase 3,100,000 shares of our common stock at an exercise price ranging from $0.01 to $0.18 per share, vesting at a range from at the date of grant to over 24 months.

(4) Options to purchase 500,000 shares of our common stock at an exercise price of $0.08, vesting immediately.

(5) All other compensation consists of health insurance during 2010 and 2011.

(6) Options to purchase 1,850,000 shares of our common stock at an exercise price ranging from $0.15 to $0.20 per share, vesting at the date of grant.

(7) Options to purchase 500,000 shares of our common stock at an exercise price of $0.08, vesting immediately.

(8) Mr. Bahr did not serve as an executive officer during fiscal 2011.

(9) Mr. Phalke did not serve as an executive officer during fiscal 2011.

Employment Agreements and Narrative Regarding Executive Compensation

Employment Agreement with Cery Perle

On January 1, 2010, Cery Perle’s employment agreement automatically renewed for an additional year. Under the terms of this agreement, we currently pay Mr. Perle an annual base salary of $363,000. We initially granted him an option to purchase 1,000,000 shares of our common stock at an exercise price of $0.01 per share as additional compensation, which vest immediately. During 2010, the Board Approved granted him options to purchase a total of 3,100,000 shares of our common stock at an exercise prices ranging from $0.01 to $0.18 per share which were valued at $372,950. In addition, during fiscal 2008, 2009 and 2010 we paid him certain additional compensation set forth in the above table which was approved by our Board of Directors. The agreement also provides for an automobile allowance which is presently $5,000 per month, paid vacation, fringe benefits commensurate with his duties and responsibilities and benefits in the event of disability, as well as containing certain non-disclosure and non-competition provisions. Under the terms of the agreement, we may terminate Mr. Perle's employment either with or without cause. If the agreement is terminated by us without good cause, or by Mr. Perle with cause, we would be obligated to pay him his base salary though the end of the term of the agreement, continue his benefits through the end of the term and all options would continue to vest during the remaining period of the term. To the extent that Mr. Perle is terminated for cause, or he voluntarily resigns, no severance benefits will be paid.

How Mr. Newman's compensation was determined

On October 20, 2010, we entered into an employment agreement with Mr. Newman to serve as our Chief Operating Officer and Director. Under the terms of this agreement, Mr. Newman's base salary was increased to $250,000. We granted him an option to purchase 500,000 shares of our common stock at an exercise price of $0.12 per share as additional compensation. This option vested immediately. Mr. Newman's employment with the company is "at will" basis.

Outstanding Equity Awards at Fiscal Year End

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2011:

Option Awards									Stock Awards
Name	Number of securities underlying unexercised options (#) exercisable		Number of securities underlying unexercised options (#) unexercisable		Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)	Option exercise price ($)		Option expiration date	Number of shares or units of stock that have not vested (#)	Market value of shares or units of stock that have not vested ($)	Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)	Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested (#)
Cery B. Perle		2,000,000					0.18	01/15/16
		500,000					0.18	05/31/16
		118,000					0.18	07/26/16
		50,000					0.18	10/12/16
		100,000					0.18	01/09/12
		500,000					0.18	04/05/12
		100,000					0.18	09/26/12
		2,000,000					0.18	01/16/13
		500,000					0.18	03/26/13
		100,000					0.11	10/15/13
		150,000					0.18	01/23/14
		500,000					0.18	02/11/14
		100,000					0.15	06/18/14
		1,500,000		500,000			0.18	07/13/14
		500,000					0.165	2/12/15
		427,397		572,603			0.14	2/22/15
		100,000					0.18	3/22/15
		500,000					0.14	7/1/15
		1,000,000					0.01	10/20/15
		500,000					0.08	04/19/16
Ivor Newman		100,000					0.30	07/27/16
		350,000					0.30	08/01/16
		200,000					0.30	08/23/16
		50,000					0.30	10/13/16
		100,000					0.30	01/09/12
		100,000					0.30	05/04/12
		100,000					0.30	06/21/12
		100,000					0.30	09/13/12
		100,000					0.30	10/19/12
		100,000					0.30	01/18/13
		100,000					0.11	10/15/13
		150,000					0.18	01/23/14
		200,000					0.15	06/18/14
		1,500,000					0.20	11/10/14
		1,000,000					0.01	10/20/15
		500,000					0.12	10/20/13
		500,000					0.08	04/19/16

2002 Stock Option and Stock Award Plan

Overview

On August 9, 2002, our board of directors authorized, and holders of a majority of our outstanding common stock approved and adopted, our 2002 Stock Option and Stock Award Plan covering 1,000,000 shares of common stock. On April 20, 2004, the plan was amended to increase the number of shares covered by the plan to 12,000,000 shares to accommodate grants previously provided under the Grass Roots Communications, Inc. compensation program, and on May 31, 2006 the plan was again amended to further increase the number of shares covered by the plan to 27,000,000 shares.

The purpose of the plan is to encourage stock ownership by our officers, directors, key employees and consultants, and to give such persons a greater personal interest in the success of our business and an added incentive to continue to advance and contribute to us. Our board of directors, or a committee of the board, will administer the Plan including, without limitation, the selection of the persons who will be awarded stock grants and granted options, the type of options to be granted, the number of shares subject to each option and the exercise price.

Plan options may either be options qualifying as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended, or non-qualified options. In addition, the plan allows for the inclusion of a reload option provision, which permits an eligible person to pay the exercise price of the option with shares of common stock owned by the eligible person and receive a new option to purchase shares of common stock equal in number to the tendered shares. Furthermore, compensatory stock amounts may also be issued. Any incentive option granted under the plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of grant, but the exercise price of any incentive option granted to an eligible employee owning more than 10% of our outstanding common stock must not be less than 110% of fair market value on the date of the grant. The term of each plan option and the manner in which it may be exercised is determined by the board of directors or the committee, provided that no option may be exercisable more than 10 years after the date of its grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the common stock, no more than five years after the date of the grant.

On January 14, 2010, the board approved the repricing of all options granted to our employees and directors. The new exercise price for all options is $0.18.

Eligibility

Our officers, directors, key employees and consultants are eligible to receive stock grants and non-qualified options under the plan. Only our employees are eligible to receive incentive options.

Administration

The plan will be administered by our board of directors or an underlying committee. The board of directors or the committee determines from time to time those of our officers, directors, key employees and consultants to whom stock grants or plan options are to be granted, the terms and provisions of the respective option agreements, the time or times at which such options shall be granted, the type of options to be granted, the dates such plan options become exercisable, the number of shares subject to each option, the purchase price of such shares and the form of payment of such purchase price. All other questions relating to the administration of the plan, and the interpretation of the provisions thereof and of the related option agreements, are resolved by the board of directors or committee.

Shares Subject to Awards

We have currently reserved 27,000,000 of our authorized but unissued shares of common stock for issuance under the plan, and a maximum of 27,000,000 shares may be issued, unless the plan is subsequently amended, subject to adjustment in the event of certain changes in our capitalization, without further action by our board of directors and stockholders, as required. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number of shares as to which a stock grant or plan option may be granted to any person. Shares used for stock grants and plan options may be authorized and unissued shares or shares reacquired by us, including shares purchased in the open market. Shares covered by plan options which terminate unexercised will again become available for grant as additional options, without decreasing the maximum number of shares issuable under the plan, although such shares may also be used by us for other purposes.

The plan provides that, if our outstanding shares are increased, decreased, exchanged or otherwise adjusted due to a share dividend, forward or reverse share split, recapitalization, reorganization, merger, consolidation, combination or exchange of shares, an appropriate and proportionate adjustment will be made in the number or kind of shares subject to the plan or subject to unexercised options and in the purchase price per share under such options. Any adjustment, however, does not change the total purchase price payable for the shares subject to outstanding options. In the event of our proposed dissolution or liquidation, a proposed sale of all or substantially all of our assets, a merger or tender offer for our shares of common stock, the board of directors may declare that each option granted under the Plan terminates as of a date to be fixed by the board of directors; provided that not less than 30 days written notice of the date so fixed shall be given to each participant holding an option, and each such participant shall have the right, during the period of 30 days preceding such termination, to exercise the participant's option, in whole or in part, including as to options not otherwise exercisable.

Terms of Exercise

The plan provides that the options granted there under shall be exercisable from time to time in whole or in part, unless otherwise specified by the committee or by the board of directors.

The plan provides that, with respect to incentive stock options, the aggregate fair market value (determined as of the time the option is granted) of the shares of common stock, with respect to which incentive stock options are first exercisable by any option holder during any calendar year shall not exceed $100,000.

Exercise Price

The purchase price for shares subject to incentive stock options must be at least 100% of the fair market value of our common stock on the date the option is granted, except that the purchase price must be at least 110% of the fair market value in the case of an incentive option granted to a person who is a "10% stockholder." A "10% stockholder" is a person who owns, within the meaning of Section 422(b)(6) of the Internal Revenue Code of 1986, at the time the incentive option is granted, shares possessing more than 10% of the total combined voting power of all classes of our outstanding shares. The plan provides that fair market value shall be determined by the board of directors or the committee in accordance with procedures which it may from time to time establish. If the purchase price is paid with consideration other than cash, the Board or the Committee shall determine the fair value of such consideration to us in monetary terms.

The exercise price of non-qualified options shall be determined by the board of directors or the committee, but shall not be less than the par value of our common stock on the date the option is granted.

The per share purchase price of shares issuable upon exercise of a plan option may be adjusted in the event of certain changes in our capitalization, but no such adjustment shall change the total purchase price payable upon the exercise in full of options granted under the plan.

Manner of Exercise

Plan options are exercisable by delivery of written notice to us stating the number of shares with respect to which the option is being exercised, together with full payment of the purchase price therefore. Payment shall be in cash, checks, certified or bank cashier's checks, promissory notes secured by the shares issued through exercise of the related options, shares of common stock or in such other form or combination of forms which shall be acceptable to the board of directors or the committee, provided that any loan or guarantee by us of the purchase price may only be made upon resolution of the board of directors or committee that such loan or guarantee is reasonably expected to benefit us.

Option Period

All incentive stock options shall expire on or before the tenth anniversary of the date the option is granted except as limited above. However, in the case of incentive stock options granted to an eligible employee owning more than 10% of the common stock, these options will expire no later than five years after the date of the grant. Non-qualified options shall expire 10 years and one day from the date of grant unless otherwise provided under the terms of the option grant.

Termination

All plan options are non-assignable and nontransferable, except by will or by the laws of descent and distribution, and during the lifetime of the optionee, may be exercised only by such optionee. If an optionee shall die while our employee or within three months after termination of employment by us because of disability, or retirement or otherwise, such options may be exercised, to the extent that the optionee shall have been entitled to do so on the date of death or termination of employment, by the person or persons to whom the optionee's right under the option pass by will or applicable law, or if no such person has such right, by his executors or administrators.

In the event of termination of employment because of death while an employee or because of disability, the optionee's options may be exercised not later than the expiration date specified in the option or one year after the optionee's death, whichever date is earlier, or in the event of termination of employment because of retirement or otherwise, not later than the expiration date specified in the option or one year after the optionee's death, whichever date is earlier.

If an optionee's employment by us terminates because of disability and such optionee has not died within the following three months, the options may be exercised, to the extent that the optionee shall have been entitled to do so at the date of the termination of employment, at any time, or from time to time, but not later than the expiration date specified in the option or one year after termination of employment, whichever date is earlier.

If an optionee's employment shall terminate for any reason other than death or disability, optionee may exercise the options to the same extent that the options were exercisable on the date of termination, for up to three months following such termination, or on or before the expiration date of the options, whichever occurs first. In the event that the optionee was not entitled to exercise the options at the date of termination or if the optionee does not exercise such options (which were then exercisable) within the time specified herein, the options shall terminate.

If an optionee's employment shall terminate for any reason other than death, disability or retirement, all right to exercise the option shall terminate not later than 90 days following the date of such termination of employment.

If an optionee's employment with us is terminated for any reason whatsoever, and within three months after the date thereof optionee either (i) accepts employment with any competitor of, or otherwise engages in competition with us, or (ii) discloses to anyone outside our company or uses any confidential information or material of our company in violation of our policies or any agreement between the optionee and our company, the committee, in its sole discretion, may terminate any outstanding stock option and may require optionee to return to us the economic value of any award that was realized or obtained by optionee at any time during the period beginning on that date that is six months prior to the date optionee's employment with us is terminated.

The committee may, if an optionee's employment with us is terminated for cause, annul any award granted under this plan to such employee and, in such event, the committee, in its sole discretion, may require optionee to return to us the economic value any award that was realized or obtained by optionee at any time during the period beginning on that date that is six months prior to the date optionee's employment with us is terminated.

Modification and Termination of Plan

The board of directors or committee may amend, suspend or terminate the plan at any time. However, no such action may prejudice the rights of any holder of a stock grant or optionee who has prior thereto been granted options under the plan. Further, no amendment to this plan which has the effect of (a) increasing the aggregate number of shares subject to this plan (except for adjustments due to changes in our capitalization), or (b) changing the definition of "Eligible Person" under the plan, may be effective unless and until approved by our stockholders in the same manner as approval of this plan is required. Any such termination of the plan shall not affect the validity of any stock grants or options previously granted there under. Unless the plan shall theretofore have been suspended or terminated by the board of directors, the plan will terminate on August 9, 2012.

Director Compensation

Our Board of Directors is comprised of Messrs. Perle and Zeinfeld. Mr. Perle, who is also an executive officer of our company, does not receive any compensation specifically for his Board services. The following table provides information concerning the compensation of Mr. Zeinfeld for services as members of our Board of Directors for fiscal 2011. The value attributable to any option awards is computed in accordance with FAS 123R.

Director Compensation
Name	Fees earned or paid in cash ($)	Stock awards ($)	Warrant and Option awards ($)	Non-equity incentive plan compensation ($)	Nonqualified deferred compensation earnings ($)	All other compensation ($)	Total ($)
Andy Zeinfeld (1)	-	-	41,494	-	-	-	41,494

(1)	Represents the value of options to purchase 584,417 shares of our common stock with an exercise price of $0.01 per share.

We have not established standard compensation arrangements for our directors and the compensation payable to each individual for their service on our Board is determined from time to time by our Board of Directors based upon the amount of time expended by each of the directors on our behalf.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

At March 31, 2012 we had 309,307,977shares of common stock, 50,000 shares of Series A Preferred Stock and 50,000 shares of Series B Preferred Stock issued and outstanding. Each share of common stock entitles the holder to one vote, each share of Series A Preferred Stock entitles the holder to 400 votes, and each share of Series B Preferred Stock entitles the holder to 400 votes at any meeting of our stockholders and the shares of common stock, Series A Preferred Stock and Series B Preferred Stock vote together on all matters submitted to a vote of our stockholders.

The following table sets forth information known to us as of March 31, 2011 relating to the beneficial ownership of shares of our voting securities by:

●	each person who is known by us to be the beneficial owner of more than five percent of our outstanding voting stock;
●	each director;
●	each named executive officer; and
●	all named executive officers and directors as a group.

Unless otherwise indicated, the business address of each person listed is in care of 990 Ironwood Drive, Minden, Nevada 89423. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.

	Amount and Nature of Beneficial Ownership
	Common Stock					Series A Preferred Stock					Series B Preferred Stock
Name (1)	# of Shares		% of Class			# of Shares		% of Class			# of Shares		% of Class			% of Vote
Cery B. Perle (2)		18,127,694		6.1	%		50,000		100	%		-		n/a			12.8	%
Ivor Newman (3)		5,250,000		1.8	%		-		n/a			-		n/a			1.5	%
Andy Zeinfeld (4)		1,000,000		*			-		n/a			50,000		50	%		6.1	%
AlAll named executive officers and directors as a group (three persons)		24,377,694		8.3	%		50,000		100	%		50,000		50	%		20.4	%
Robbins Capital Partners L.P. (5)		20,875,528		7.3	%		-		n/a			-		n/a			6.0	%
Daniel X. Wray (6)		20,966,666		7.2	%		-		n/a			50,000		50	%		11.7	%
* represents less than 1%

(1)		Unless otherwise indicated, the business address of each person listed is in care of Spare Backup, Inc., 990 Ironwood Drive, Minden, NV 89423
(2) Includes:		Common stock of 5,809,694, of which 1,085,194 shares is held by Mr. Perle, 4,000,000 shares are held in a trust for his benefit and 724,500 shares held in a trust for his minor children; and 12,318,000 options, exercisable at a range of $0.01 to $0.18 per share.
(3) Includes:		4,250,000 options, exercisable at a range of $0.8 per share to $0.18 per share.
(4) Includes:		Common stock of 500,000 owned by his wife; 500,000 options, exercisable at $0.09 per share; and 50,000 shares of Series B Preferred Stock.
(5) Includes:		Common stock of18,847,000; and 2,028,528 options, exercisable at a range of $0.10 per share to $0.20 per share. Robbins Capital Partners L.P.’s address is 100 First Stamford Place, 6th Floor, East Stamford, Ct.
(6) Includes:		Common stock of 7,416,666 shares held by Mr. Wray, 8,550,000 shares held by Biofilm, Inc. over which he has voting and dispositive control; 5,000,000 warrants, exercisable at $0.09 per share; and 50,000 shares of Series B Preferred Stock. Mr. Wray’s address is Post Office Box 2649, Minden, NV.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Mr. Perle, our CEO, has made an available home owned by him for our use as temporary housing for new employees at monthly rental costs which we believe are below market. During 2010 we used this home for approximately 70% of the year. We reimburse each of Mr. Perle for the actual mortgage payment and pay ordinary operating expenses associated with such home including utilities, maintenance and insurance. During fiscal 2010 we made rental payments to Mr. Perle of $9,273. The home was not used in 2011 and no rental payments were made to Mr. Perle.

In January 2008 we issued Mr. Cery Perle, our CEO and a member of our Board of Directors, 50,000 shares of a newly created Series A Preferred Stock as additional compensation valued at $.001 per share or $50.00. The designations, rights and preferences of the Series A Preferred Stock includes:

●	each share has a stated value and a liquidation preference of $0.001 per share which equals the par value of the shares,
●	the shares are not convertible or exchange into any other security,
●	each share entitles the holder to 400 votes at any meeting of our stockholders and such shares will vote together with our common stockholders, provided, however, that Mr. Perle is not eligible to vote the shares in connection with an amendment to increase the number of our authorized shares of common stock if such amendment is proposed to our stockholders within four months from the date of issuance of the shares,.
●	the shares are not subject to redemption, and
●	so long as the shares are outstanding we have agreed not to alter or change the rights of the security in a manner which would adversely affect the Series A Preferred Stock, or take any action which would result in the taxation of the holder under Section 305 of the Internal Revenue Code.

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 presently controls the vote of approximately 12.8% of our outstanding voting securities. These actions were approved by our Board of Directors of which Mr. Perle is a member.

Related Party Transactions

None.

Director Independence

Mr. Zeinfeld is "independent" within the meaning of Marketplace Rule 5605 of the NASDAQ Stock Market, Inc.

Item 14. Principal Accountant Fees and Services

Sherb & Co., LLP served as our independent registered public accounting firm for fiscal 2010 and fiscal 2011. The following table shows the fees that were billed for the audit and other services provided by such firm for fiscal 2009 and fiscal 2010.

Fee Category	2010		2011
Audit Fees (1)	$	74,000	$	74,000
Audit Related Fees		-		-
Tax Fees (2)		-		-
All Other Fees		-		-
Total	$	74,000	$	74,000

(1) Consists of fees for professional services rendered in connection with the review of our three quarterly reports on Form 10-Q and the financial statements included in our annual report on Form 10-K

(2) Consists of fees relating to our tax compliance and tax planning.

We do not have an Audit Committee. Our Board of Directors pre-approves all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm. All fees listed above were pre-approved in accordance with this policy.

PART IV

Item 15. Exhibits, Financial Statement Schedules

The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated:

a.	Index to Consolidated Financial Statements and Financial Statement Schedules

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheet as of December 31, 2010 and 2011	F-3
Consolidated Statement of Operations for each of the two years in the period ended December 31, 2011	F-4
Consolidated Statement of Shareholders’ Equity for each of the two years in the period ended December 31, 2011	F-5
Consolidated Statement of Cash Flows for each of the two years in the period ended December 31, 2011	F-6
Notes to Consolidated Financial Statements	F-7 – F-20

b.	All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.

Exhibits

EXHIBIT NO.

DESCRIPTION

2.1 Acquisition Agreement and Plan of Merger(3)

2. Agreement and Plan of Merger(4)

3.1 Certificate of Incorporation(1)

3.2 By-Laws (1)

3.3 Certificate of Incorporation, as amended(2)

3.4 Certificate of Amendment to the Certificate of Incorporation(5)

3.5 Certificate of Amendment to the Certificate of Incorporation (8)

3.6 Certificate of Ownership merging Spare Backup, Inc. into Newport International Group, Inc. (19)

3.7 Certificate of designations, rights and preferences of Series A Preferred Stock (23)

4.1 Form of Investor Warrant to Purchase Common Stock issued with 8% promissory note (12)

4.2 Form of Common Stock Purchase Warrant issued with 10% secured note (12)

4.3 Form of Common Stock Purchase Warrant issued to Robinson Reed Inc. and First Capital Holdings International, Inc.(11)

4.4 Form of $0.75 Investor Warrant (11)

4.5 Common stock purchase warrant issued March 31, 2005 to purchase 256,667 shares of common stock issued to Jenelle Fontes (10)

4.6 Common stock purchase warrant issued March 31, 2005 to purchase 280,000 shares of common stock issued to Curtis Lawler (10)

4.7 Form of $1.30 common stock purchase warrant (13)

4.8 Form of common stock purchase warrant issued to Langley Park Investment Trust, PLC (16)

4.9 Form of placement agent warrant issued to Brookstreet Securities Corporation (20)

4.10 Option to Purchase Common Stock issued to Wolfe Axlerod Weinberger (20)

4.11 Option to Purchase Common Stock issued to The Sterling Group (20)

4.12 Form of warrant issued to DSG Plc.(24)

10.1 2002 Stock Option and Stock Award Plan (15)

10.2 Lease for principal executive offices (24)

10.3 Stock Purchase Agreement with Langley Park Investment Trust PLC (9)

10.4 Employment Agreement with Cery B. Perle (11)

10.5 Common Stock and Warrant Purchase Agreement dated as of August 27, 2004 (9)

10.6 Registration Rights Agreement dated as of August 27, 2004 (9)

10.7 Amendment No. 1 to Common Stock and Warrant Purchase Agreement dated as of November 2, 2004 (9)

10.8 Settlement Agreement and Release between Newport International Group, Inc., Robinson Reed, Inc., First Capital Holdings International, Inc., Continental Blue Limited and E-Holdings, Inc. (11)

10.9 Supplier Agreement with CompUSA (12)

10.10 Form of Settlement Agreement between Newport International Group, Inc, Robinson Reed, Inc. and First Capital Holdings International, Inc. (14)

10.11 Amendment No. 1 to the 2002 Stock Option and Stock Award Plan (6)

10.12 Form of Repurchase Agreement with Langley Park Investment Trust PLC (16)

10.13 Form of Amendment to Escrow Agreement with Langley Park Investment Trust PLC (16)

10.14 Amendment No. 2 to the 2002 Stock Option and Stock Award Plan (17)

10.15 Customer Technical Support Services Agreement with Circuit City Stores, Inc. (18)

10.16 Standard Services Agreement and Statement of Work with Hewlett-Packard Company (20)

10.17 Finder's Agreement dated February 5, 2007 between Spare Backup, Inc. and Skyebanc, Inc. (21)

10.18 Agreement Regarding Put Option dated as of May 8, 2007 by and among Spare Backup, Inc., Robinson Reed, Inc. and First Capital Holdings International, Inc. (22)

10.19 Software License and Distribution Agreement with Gateway Companies, Inc. (22) Portions of this agreement have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment.

10.20 Data Storage Services Agreement dated February 2, 2007 between DSG Retail and Spare Backup, Inc. (24) Portions of this agreement have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment.

14.1 Code of Business Conduct and Ethics and Code of Ethics for the Chief Executive Officer and Senior Financial Officers (11)

21.1 Subsidiaries of the registrant (11)

23.1 Consent of Sherb & Co., LLP *

31.1 Section 302 Certificate of Chief Executive Officer *

31.2 Section 302 Certificate of principal accounting and financial officer *

32.1 Section 906 Certificate of Chief Executive Officer and principal financial and accounting officer *

101.1 The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (v) related notes to these financial statements, tagged as blocks of text.

* filed herewith

(1) Incorporated by reference to the Quarterly Report on Form 10-QSB as filed with the SEC on May 10, 2000.

(2) Incorporated by reference to the Current Report on Form 8-K as filed with the SEC on February 5, 2001.

(3) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on November 6, 2000.

(4) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on February 13, 2004.

(5) Incorporated by reference to the definitive Information Statement on Schedule 14C as filed with the SEC on November 14, 2003.

(6) Incorporated by reference to the registration statement on Form S-8 as filed with the SEC on August 8, 2004.

(7) Intentionally omitted.

(8) Incorporated by reference to the quarterly report on Form 10-QSB for the three and six months ended June 30, 2004.

(9) Incorporated by reference to the Quarterly Report on Form 10-QSB for the three and nine months ended September 30, 2004.

(10) Incorporated by reference to the Current Report on Form 8-K as filed with the SEC on May 5, 2005.

(11) Incorporated by reference to the registration statement on Form SB-2, as amended, file number 333-123096, as declared effective on May 19, 2005.

(12) Incorporated by reference to the Quarterly Report on Form 10-QSB for the three and six months ended June 30, 2005. Portions of this agreement have been omitted and separately filed with the Securities and Exchange Commission with a request for confidential treatment.

(13) Incorporated by reference to the registration statement on Form SB-2, SEC file number 333-128980, as amended, as declared effective by the SEC on November 14, 2005.

(14) Incorporated by reference to the Current Report on Form 8-K as filed with the SEC on December 15, 2005.

(15) Incorporated by reference to the registration statement on Form S-8, SEC File No. 333-98229, as filed on August 16, 2002.

(16) Incorporated by reference to the Current Report on Form 8-K as filed on May 31, 2006.

(17) Incorporated by reference to the Current Report on Form 8-K as filed on June 6, 2006.

(18) Incorporated by reference to the Current Report on Form 8-K as filed on August 18, 2006. Portions of this agreement have been omitted and marked with a [_] and separately filed with the Securities and Exchange Commission with a request for confidential treatment.

(19) Incorporated by reference to the Current Report on Form 8-K as filed on August 16, 2006.

(20) Incorporated by reference to the registration statement on Form SB-2, SEC File No. 333-139138, as amended, as declared effective by the SEC on February 13, 2007.

(21) Incorporated by reference to the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006 as filed on April 2, 2007.

(22) Incorporated by reference to the Quarterly Report on Form 10-QSB for the period ended March 31, 2007 as filed on May 21, 2007.

(23) Incorporated by reference to the Current Report on Form 8-K as filed on January 18, 2008.

(24) Incorporated by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 2007 as filed on April 14, 2008.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SPARE BACKUP, INC.

By: /s/ Cery Perle

Cery Perle

Executive Officer, President and Director

Date: April 26, 2012

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

Signature	Title	Date

By: /s/ Cery Perle	Chief Executive Officer, President and Chairman of the Board	April 26, 2012
Cery Perle	(Principal executive officer and financial officer)

By: /s/ Daniel Wray	Director	April 26, 2012
Daniel Wray

By: /s/ Andy Zeinfeld	Director	April 26, 2012
Andy Zeinfeld

SPARE BACKUP, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2011

Index to Consolidated Financial Statements and Financial Statement Schedules

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheet as of December 31, 2010 and 2011	F-3
Consolidated Statement of Operations for each of the two years in the period ended December 31, 2011	F-4
Consolidated Statement of Shareholders’ Equity for each of the two years in the period ended December 31, 2011	F-5
Consolidated Statement of Cash Flows for each of the two years in the period ended December 31, 2011	F-6
Notes to Consolidated Financial Statements	F-7 – F-20

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Spare Backup, Inc.

We have audited the accompanying consolidated balance sheets of Spare Backup, Inc. and Subsidiary as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Spare Backup, Inc. and Subsidiary at December 31, 2011 and 2010, and the results of their operations and their cash flows for the year ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has negative working capital and a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Sherb & Company LLP

New York, New York

April 25, 2012

F-2

SPARE BACKUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	December 31,			December 31,
ASSETS	2011			2010
Current Assets:
Accounts receivable, net allowance for bad debt of $100,000 and $65,000 at December 31, 2011 and 2010, respectively	$	120,248		$	28,536
Prepaid expenses		10,599			58,798
Total current assets		130,847			87,334

Property and equipment, net of accumulated depreciation of $279,345 and $758,902 at December 31, 2011 and 2010, respectively		98,070			305,342

Other assets		85,522			50,648
Total assets	$	314,439		$	443,324

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
Accounts payable and accrued expenses	$	3,615,504		$	2,989,495
Overdraft liability		70,750			127,321
Accrued payroll taxes		4,314,670			3,203,189
8% convertible promissory notes, net of debt discount of $0 and $365 at December 31, 2011 and 2010, respectively		1,593,772			1,835,907
10% convertible promissory notes		324,963			420,963
Accrued interest on convertible promissory notes		215,004			31,473
Notes payable		787,600			892,500
Derivative liabilities		-			470,871
Deferred revenue		102,500			102,500
Due to stockholder		15,000			15,000
Total current liabilities		11,039,763			10,089,219

Stockholders' Deficit:
Preferred stock, $0.001 par value, 5,000,000 shares authorized: 150,000 and 50,000 issued and outstanding at December 31, 2011 and 2010, respectively		150			50
Common stock; $.001 par value; 450,000,000 shares authorized; 303,943,573 and 200,342,954 issued and outstanding at December 31, 2011 and 2010, respectively		303,943			200,343
Additional paid-in capital		105,765,093			101,097,359
Accumulated deficit		(116,794,510	)		(110,943,647	)

Total stockholders’ deficit		(10,725,324	)		(9,645,895	)

Total liabilities and stockholders’ deficit	$	314,439		$	443,324

See Notes to Consolidated Financial Statements.

F-3

SPARE BACKUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended
	December 31,
	2011			2010

Net Revenues	$	399,343		$	958,886

Operating expenses:
Research and development		1,088,689			2,341,738
Selling, general and administrative		6,863,149			8,583,680
Total operating expenses		7,951,838			10,925,418

Operating loss		(7,552,495	)		(9,966,532	)

Other income (expense):
Change in fair value of derivative liabilities		2,296,519			446,027
Gain from debt settlements		171,624			442,250
Other		(2,736	)		-
Interest expense		(763,775	)		(2,048,963	)
Total other income (expense)		1,701,632			(1,160,686	)

Net loss	$	(5,850,863	)	$	(11,127,218	)


Basic and diluted loss per common share	$	(0.02	)	$	(0.07	)

Basic and diluted weighted average common shares outstanding		258,789,468			164,011,500

See Notes to Consolidated Financial Statements.

F-4

SPARE BACKUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

From January 1, 2010 to December 31, 2011

												Additional								Total Stockholders'
	Preferred Stock A			Preferred Stock B			Common Stock					Paid-in			Accumulated			Deferred		Equity
	Shares	$		Shares	$		Shares		$			Capital			Deficit			Compensation		(Deficit)
Balance, January 1, 2010	50,000	$	50	-	$	-	134,036,062		$	134,036		$	90,886,623		$	(99,816,429	)	$	-	$	(8,795,720	)

Common stock issued for cash, net of costs	-		-	-		-	32,155,449			32,155			2,832,639			-			-		2,864,794
Fair value of shares issued for interest payment	-		-	-		-	2,464,567			2,464			300,160			-			-		302,624
Fair value of shares issued for services	-		-	-		-	11,481,076			11,481			1,584,490			-			-		1,595,971
Fair value of shares issued for debt settlement agreement	-		-	-		-	100,000			100			19,900			-			-		20,000
Conversion of convertible promissory notes	-		-	-		-	11,268,790			11,269			2,050,096			-			-		2,061,365
Exercise of stock options	-		-	-		-	1,636,752			1,637			20,755			-			-		22,392
Exercise of warrants	-		-	-		-	5,803,593			5,804			579,555			-			-		585,359
Beneficial conversion features of convertible notes	-		-	-		-	-			-			1,021,351			-			-		1,021,351
Fair value of convertible promissory note repricing	-		-	-		-	-			-			174,706			-			-		174,706
Fair value of shares issued for convertible promissory note repricing	-		-	-		-	416,666			417			78,750			-			-		79,167
Fair value of warrants issued to convertible promissory note holder	-		-	-		-	-			-			12,160			-			-		12,160
Fair value of warrants issued for accrued interest	-		-	-		-	-			-			29,626			-			-		29,626
Fair value of warrants issued for services	-		-	-		-	-			-			57,100			-			-		57,100
Fair value of warrants issued for interest	-		-	-		-	-			-			36,401			-			-		36,401
Fair value of shares issued in connection with the issuance of notes payable	-		-	-		-	980,000			980			154,727			-			-		155,707
Reclassification of liabilty contracts to equity contracts	-		-	-		-	-			-			72,462			-			-		72,462
Reclassification of equity to liability contracts	-		-	-		-	-			-			(742,387	)		-			-		(742,387	)
Fair value of options issued for services	-		-	-		-	-			-			177,472			-			-		177,472
Fair value of options issued granted	-		-	-		-	-			-			1,025,210			-			-		1,025,210
Fair value of options and warrants modifications	-		-	-		-	-			-			725,563			-			-		725,563
Net loss	-		-	-		-	-			-			-			(11,127,218	)		-		(11,127,218	)
Ending balance, December 31, 2010	50,000		50	-		-	200,342,955			200,343			101,097,359			(110,943,647	)		-		(9,645,895	)

Common stock issued for cash, net of costs	-		-	-		-	50,117,856			50,118			2,193,735			-			-		2,243,853
Fair value of shares issued for interest payment	-		-	-		-	517,623			518			70,091			-			-		70,609
Fair value of shares issued for services	-		-	-		-	12,035,000			12,035			1,124,290			-			-		1,136,325
Issuance of preferred stock	-		-	100,000		100	-			-			(100	)		-			-		-
Conversion of convertible promissory notes	-		-	-		-	13,147,625			13,148			426,142			-			-		439,290
Exercise of stock options	-		-	-		-	4,900,404			4,900			129,104			-			-		134,004
Exercise of warrants	-		-	-		-	6,109,403			6,109			641,257			-			-		647,366
Issuance of common stock pursuant to conversion of line of credit	-		-	-		-	8,550,000			8,550			504,500			-			-		513,050
Fair value of convertible promissory note repricing	-		-	-		-	-			-			266			-			-		266
Fair value of shares issued to satisfy notes payable	-		-	-		-	8,072,707			8,073			788,927			-			-		797,000
Fair value of shares issued for interest on note payable							250,000			250			12,250								12,500
Fair value of warrants issued and embedded conversion feature	-		-	-		-	-			-			47,672			-			-		47,672
Fair value of warrants issued for accrued interest	-		-	-		-	-			-			198			-			-		198
Cancellation of shares	-		-	-		-	(1,200,000	)		(1,200	)		(116,800	)		-			-		(118,000	)
Fair value of warrants issued for interest	-		-	-		-	-			-			-			-			-		-
Fair value of shares issued in connection with the issuance of notes payable	-		-	-		-	500,000			500			43,500			-			-		44,000
Reprice of previous agreement for common stock issued for cash	-		-	-		-	600,000			600			(600	)		-			-		-
Fair value of options issued for services	-		-	-		-	-			-			531,552			-			-		531,552
Reclassification of equity contracts to liability contracts	-		-	-		-	-			-			(2,407,261	)		-			-		(2,407,261	)
Reclassification of liability contracts to equity contracts	-		-	-		-	-			-			519,389			-			-		519,389
Beneficial conversion feature	-		-	-		-	-			-			38,000			-			-		38,000
Fair value of options and warrants modifications	-		-	-		-	-			-			121,621			-			-		121,621
Net loss	-		-	-		-	-			-			-			(5,850,863	)		-		(5,850,863	)
Ending balance, December 31, 2011	50,000	$	50	100,000	$	100	303,943,573		$	303,943		$	105,765,092		$	(116,794,510	)	$	-	$	(10,725,324	)

See Notes to Consolidated Financial Statements.

F-5

SPARE BACKUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended
	December 31
	2011			2010
Cash flows from operating activities:
Net loss	$	(5,850,863	)	$	(11,127,218	)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative liabilities		(2,296,519	)		(446,027	)
Fair value of options and warrants issued for services		851,041			1,985,345
Fair value of shares and warrants in lieu of interest		223,510			177,354
Fair value of common stock issued in connection with service rendered		1,018,325			1,595,971
Fair value of common stock issued in connection with the conversion of convertible promissory notes		119,971			(555	)
Fair value of convertible promissory notes modifications		-			174,706
Fair value of common stock issued in connection with note payable issuance		-			155,707
Depreciation		217,537			281,615
Bad debt		35,000			-
Amortization of debt discount		27,865			1,142,697
Amortization of deferred financing costs		648			110,456
Gain from debt settlement		171,348			(442,250	)
Changes in operating assets and liabilities:
Accounts receivable		(129,712	)		25,835
Prepaid expense and other current assets		48,199			(44,311	)
Other assets		(32,522	)
Accounts payable, accrued expense and accrued payroll taxes		1,601,141			2,061,320
Deferred revenues		-			(518,627	)
Accrued interest on convertible promissory notes		183,531			279,923
Net cash used in operating activities		(3,811,500	)		(4,588,059	)

Cash flows used in investing activities:
Capital expenditures		(10,265	)		(58,318	)
Net cash used in investing activities		(10,265	)		(58,318	)

Cash flows from financing activities:
Proceeds from issuance of convertible promissory notes and line of credit		490,000			197,500
Proceeds from issuance of notes payable		821,363			1,310,500
Repayment of notes payable		(173,000	)		(418,000	)
Net proceeds from issuance of common stock for cash		2,244,027			2,864,794
Cash overdraft		(56,571	)		83,832
Proceeds from exercise of warrants		360,827			585,359
Proceeds from exercise of stock options		135,119			22,392
Net cash provided by financing activities		3,821,765			4,646,377

Net increase in cash		-			-

Cash, beginning of period		-			-

Cash, end of period	$	-		$	-

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Non-cash investing and financing activities:
Write off of fully depreciated property and equipment	$	697,094		$	1,907,351
Fair value of warrants and embedded conversion features issued in connection with the issuance of convertible promissory notes and corresponding debt discount	$	38,000		$	1,021,351
Conversion of convertible promissory notes and accrued interest into shares of common stock	$	439,290		$	2,061,365
Issuance of a note payable to pay certain accounts payable	$	52,500		$	-
Reclassification from liability to equity contract	$	519,389		$	72,462
Reclassification from equity to liability contract	$	2,407,261		$	742,387

See Notes to Consolidated Financial Statements.

F-6

SPARE BACKUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

Spare Backup, Inc., (the "Company") was incorporated in Delaware in December 1999. The Company sells on-line backup solutions software and services to individuals, business professionals, small office and home office companies, and small to medium sized businesses.

The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has incurred net losses of approximately $5.9 million during the year ended December 31, 2011. The Company's ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due, including accrued payroll taxes and statutory additions amounts to approximately $4.3 million at December 31, 2011, and to generate profitable operations in the future. Management plans to continue to provide for its capital requirements by issuing additional equity securities and debt. The outcome of these matters cannot be predicted at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its business plan or generate positive operating results.

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

The accompanying consolidated financial statements include the accounts of Spare Backup and its wholly-owned subsidiary. All material inter-company balances and transactions have been eliminated in consolidation.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States 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 periods. Significant estimates made by management include, but are not limited to share-based payments and useful life of property and equipment. Actual results will differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less when purchased, to be cash equivalents.

Concentration of Credit Risks

The Company is subject to concentrations of credit risk primarily from cash and cash equivalents.

The Company’s cash and cash equivalents accounts are held at financial institutions and are insured by the Federal Deposit Insurance Corporation, or the FDIC, up to $250,000. During the year ended December 31, 2011, the Company did not exceed the FDIC insurance limit.

The Company's accounts receivable are due from a few customers, of which are located in the Unites States and United Kingdom. At December 31, 2011, two of the Company’s customers accounted for 16% and 69% of its accounts receivable. Two of the Company’s customers accounted for 96% of its accounts receivable at December 31, 2010.

F-7

Accounts Receivable

The Company has a policy of reserving for uncollectible accounts based on its best estimate of the amount of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to the bad debt expense after all means of collection have been exhausted and the potential for recovery is considered remote. Management determined that an allowance of $100,000 and $65,000 was necessary at December 31, 2011 and 2010, respectively.

Property and Equipment

Property and equipment, which primarily consists of office equipment and computer software, are recorded at cost and are depreciated on a straight-line basis over their estimated useful lives of three to five years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in other income (expense) in the accompanying statements of operations.

Revenue Recognition

The Company follows the guidance of the FASB ASC 605-10-S99 "Revenue Recognition Overall – SEC Materials." 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.

The Company has collected annual fees related to online back-up services. Online back up service fees received in advance or collected up front are reflected as deferred revenue on the accompanying balance sheet. Deferred revenue as of December 31, 2011 and 2010 amounted to $102,500 and $102,500, respectively, and will be recognized as revenue over the respective subscription period.

Revenue consists of the gross value of billings to clients. The Company reports this revenue gross in accordance with Generally Accepted Accounting Pronouncements (“GAAP”) 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.

Customer Concentration

One of the Company's customers accounted for approximately 44% of its revenues during the year ending December 31, 2011. One of the Company’s customers accounted for 70% of the Company’s revenue during the year ending December 31, 2010.

Product Concentration

The Company offers subscriptions to online and software backup products to assist individuals, small businesses and home business users.

Fair Value of Financial Instruments

FASB ASC 820, “Fair Value Measurements and Disclosures” establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities
	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data
	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

F-8

The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2011 and 2010, with the exception of its convertible promissory notes and derivative liabilities. The carrying amount of the convertible promissory notes at December 31, 2011 and 2010 approximate their respective fair value based on the Company’s incremental borrowing rate. The derivative liabilities are computed using either the Black Scholes Model or the binomial method.

Software Development Costs

Costs incurred in the research and development of software products are expensed as incurred until technological feasibility has been established. After technological feasibility is established, any additional costs are capitalized in accordance with FASB ASC 985-20, “Costs of Software to be Sold, Leased, or Marketed.” The Company believes that the current process for developing software is essentially completed concurrently with the establishment of technological feasibility. Accordingly, no software development costs have been capitalized as of December 31, 2011. Instead, such amounts are included in the statement of operations under the caption "Research and Development."

Foreign Currency Transactions

The Company periodically engages in transactions in countries outside the United States which may result in foreign currency transaction gains or losses. Gains and losses resulting from foreign currency transactions are recognized as foreign currency gain (loss) in the statement of operations of the period incurred.

Income Taxes

Income taxes are accounted for in accordance with the provisions of FASB ASC-740 – Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized, but no less than quarterly.

Share-based Payments

The Company accounts for stock-based compensation in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). Under the fair value recognition provisions of this topic, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period.

The Company has elected to use the Black-Scholes-Merton (“BSM”) option-pricing model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life, and dividend yield to calculate the fair value of stock option awards. Compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest and reflects estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Convertible Instruments

The Company evaluates and accounts for conversion options embedded in its convertible instruments and warrants in accordance with professional standards for “Accounting for Derivative Instruments and Hedging Activities.”

Professional standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument.”

F-9

The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could require net cash settlement, then the contract shall be classified as an asset or a liability.

Pursuant to 815-40-25-22, if the number of currently authorized but unissued shares, less the maximum number of shares that could be required to be delivered during the contract period under existing commitments, including outstanding convertible debt or instruments, outstanding stock options and warrants, exceeds the maximum number of shares that could be required to be delivered under share settlement of the contract, then the excess is to be accounted for as a liability.

Additionally, the Company determines whether the instruments issued in the transactions are considered indexed to the Company’s own stock.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying consolidated financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.

Basic and Diluted Earnings per Share

Basic earnings per share is calculated by dividing income available to stockholders by the weighted-average number of common shares outstanding for each period. Diluted earnings per share is computed using the weighted-average number of common and dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon the exercise of stock options and warrants (calculated using the reverse treasury stock method). The outstanding options, warrants and shares equivalent issuable pursuant to convertible promissory notes amounted to 105,097,959 and 110,599,038 at December 31, 2011 and 2010, respectively. Accordingly, these common share equivalents at December 31, 2011 and 2010 are excluded from the loss per share computation for that period due to their antidilutive effect.

The following sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2011 and 2010:

	For the years ended
	December 31,
	2011		2010
Numerator:
Net loss attributable to common stock	$	(5,850,863)	$	(11,127,218	)
Change in fair value of derivative liability		(2,296,519)		(446,027)
		(8,147,382)		(11,573,245)

Denominator:
Denominator for basic earnings per share- Weighted average shares outstanding		258,789,468		164,011,500
Denominator for diluted earnings per share- Weighted average shares outstanding		258,789,468		164,011,500

Basic earnings per share	$	(0.02)	$	(0.07	)
Diluted earnings per share	$	(0.02)	$	(0.07	)

F-10

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

		December 31,			December 31,
	Estimated life	2011			2010
Computer and office equipment	3 to 5 years	$	377,415		$	861,946
Leasehold improvements	5 years		-			202,298
			377,415			1,064,244
Less: Accumulated depreciation			(279,345	)		(758,902	)
		$	98,070		$	305,342

During the year ended December 31, 2011, the Company wrote-off $494,797 of fully-depreciated office and computer equipment and $202,297 of fully-depreciated leasehold improvements. Depreciation expense amounted to $217,537 and $281,615 during the years ended December 31, 2011 and 2010, respectively.

NOTE 4 – ACCRUED PAYROLL TAXES

At December 31, 2011, the Company recorded a liability of approximately $4.3 million to certain U.S. and state governmental agencies for unpaid payroll taxes, including statutory additions, such as interest and penalties.

NOTE 5 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following as of:

	December 31, 2011			December 31, 2010
Convertible promissory notes, bearing interest between 8% and 10% per annum, maturing between August 2008 and October 2011. Interest is payable within 30 days after the end of the quarter. Interest may be paid in cash or common stock at the option of the Company. Interest paid in common stock will be calculated at a range of 90% of the average closing price for the common stock for the five trading days preceding the interest payment date to 100% of the volume weighted average price for the common stock for ten trading days preceding the interest payment date. The promissory notes are convertible at any time at the option of the holder, into shares of common stock at an effective conversion rate ranging from $0.05 to $0.25	$	1,918,735		$	2,257,235
Less: unamortized discount		(-	)		(365	)
Convertible promissory notes	$	1,918,735		$	2,256,870

F-11

The following sets forth the Company’s activity of its convertible notes payable during the year ended December 31, 2011 and 2010, respectively:

	Year ended December 31, 2011		Year ended December 31, 2010
Re-pricing of certain convertible promissory notes from $0.16 to $0.12 per share-interest expense	$	-	$	174,706
Issuance of 416,666 shares of common stock in connection with aforementioned re-pricing		-		79,167
Issuance of 13,147,625 and 11,268,790 shares of common stock pursuant to conversion of convertible notes payable		439,290		2,061,365
Proceeds from issuance of convertible notes payable and line of credit		490,000		-
Fair value of warrants issued to certain promissory note holders recorded as interest expense		-		12,160
Fair value of 767,623 shares of common stock to satisfy accrued interest obligations		50,995		-
Fair value of warrants and embedded conversion features recorded as corresponding debt discount		47,627		-
Fair value of warrants issued to satisfy accrued interest obligations		198		29,626
Amortization of debt discount		27,865		1,142,697
Amortization of deferred financing costs		648		110,456

All convertible notes are past due at December 31, 2011.

During June 2011, the Company agreed to issue a $1.5 million note payable, 5,000,000 warrants and 50,000 shares of the Company’s Series B Preferred Stock. At September 30, 2011, the Company’s available credit under the note amounted to $1.1 million and the Company’s Series B Preferred Stock have not been designated or issued. The note bears interest at 10% per annum, which is payable in August 2011 and every month thereafter. The note matures in June 2014. The note is convertible, at the holder’s option, at a rate equal to 75% of the Company’s 5-day moving average quoted price of the stock for that month. The exercise price of the warrants is $0.09 per share. The warrants expire in June 2016. The Company may borrow up to $325,000 per month under this instrument. The Company received $440,000 under the note payable during the year ending December 31, 2011. The Company has satisfied its obligations under such note at December 31, 2011. In December 2011, 50,000 shares of Series B Preferred Stock were issued.

Notes Payable

Notes payable do not have any stated interest rate, are payable on demand and are unsecured, with the exception of one note amounting to $37,500, which has a premium of $15,000 and was due on November 16, 2011. The amount due under such note at December 31, 2011 amounts to $15,000.

The following sets forth the Company’s activity of its notes payable during the year ended December 31, 2011 and 2010, respectively:

	Year ended December 31, 2011		Year ended December 31, 2010
Principal repayments	$	173,000	$	418,000
Proceeds from issuance of note payable		821,363		1,310,500
Fair value of 500,000 and 980,000 shares of common stock to satisfy accrued interest obligations		44,000		155,707
Issuance of 8,072,707 shares to satisfy obligations under certain notes payable		797,000		-
Issuance of note payable to satisfy certain accounts payable		37,500		-

The Company recognized approximately $764,000 and $2 million during 2011 and 2010, respectively, as interest expense, which consists of the excess of the fair value of shares of common stock over the carrying value of the convertible promissory notes and notes payable satisfied, amortization of debt discount, amortization of deferred financing costs, fair value of the Company’s shares of common stock and warrants issued in lieu of interest.

F-12

NOTE 6 – DERIVATIVE LIABILITIES

The maximum number of shares required to be delivered during the period under which substantially all of the Company’s outstanding warrants and convertible notes exceed the amount of authorized shares through September 30, 2011.

The Company accounts for the embedded conversion features included in its convertible promissory notes and outstanding warrants.

The aggregate fair value of derivative liabilities at December 31, 2011 and December 31, 2010 amounted to approximately $0 and $471,000, respectively.

During the first three quarters of 2011, the warrants and convertible promissory notes issued by the Company were recognized as liability contracts because, at issuance, the Company did not have sufficient amount of authorized of shares of common stock to satisfy its obligations under such contracts.

During December 2011, the Company’s shareholders approved an increase in the Company’s authorized number of its shares of common stock to 450,000,000. Accordingly, the Company reclassified its previously-recorded liability contracts to equity contracts in December 2011.

At each measurement date, the fair value of the embedded conversion features and warrants were based on the binomial and the Black Scholes method, respectively.

The fair value of the derivative instruments were based on the following assumptions:

	December 31, 2011		Issuance or reclassification of contracts during the year ended December 31, 2011		December 31, 2010		Issuance or reclassification of contracts during the year ended December 31, 2010
Embedded Conversion Features:
Effective Exercise price		$0.20		$0.08 - 0.13		$0.10-0.16		$0.065 - 0.20
Effective Market price		$0.075		$0.08 - 0.13		$0.095		$0.09-0.165
Volatility		77%		69%		75%		56-79%
Risk-free interest		0.25%		0.25 - 1.93%		0.30%		0.11-1.51%
Terms days		1		1		182		365-1,825
Expected dividend rate		0%		0%		0%		0%


Warrants:
Effective Exercise price		$0.21		$0.06 - 0.34		$0.05-0.20		$0.065-0.20
Effective Market price		$0.075		$0.08 - 0.15		$0.095		$0.09-0.165
Volatility		77%		69-78%		75%		56-79%
Risk-free interest		0.25%		0.25-1.76%		0.30%		0.11-1.51%
Terms		610		76-1825		829		365-1,825
Expected dividend rate		0%		0%		0%		0%

F-13

The fair value of the warrants and embedded conversion features issued in connection with the issuance of convertible promissory notes amounted to approximately $248,000 of which $48,000 has been recognized as debt discount and $200,000 has been recognized as interest expense during the year ended December 31, 2011.

The fair value of the warrants and embedded conversion features reclassified from equity contracts to liability contracts during 2011 and 2010 amounted to approximately $2.4 million and $742,000 with a corresponding decrease in additional paid-in capital.

The fair value of the warrants and embedded conversion features reclassified from liability contracts to equity contracts during 2011 and 2010 amounted to approximately $520,000 and $72,000 with a corresponding increase in additional paid-in capital.

The fair value of derivative liabilities decreased by approximately $2.3 and $446,000 million between measurement dates during 2011 and 2010. Such decrease is recorded as other income in the accompanying statement of operations.

NOTE 7 - STOCKHOLDERS' DEFICIT

Preferred Stock

During the year ended December 31, 2011, the Company issued 100,000 shares of its Series B Preferred Stock. The Series B Preferred Stock’s designation provides voting rights amounting to 400-to-1 shares. The Company issued 50,000 of such shares to one of its directors, who also manages and controls a company which is one of the Company’s customers. Additionally, the Company issued 50,000 of such shares to one its lenders and shareholders, who has granted a $1.5 million convertible note payable and was the owner of 7,416,666 shares of the Company’s common stock at the date of issuance of the $1.5 million convertible note payable.

The issuance of the shares of Series B Preferred Stock was recognized at their par value.

F-14

Common Stock

During December 2011, the Company increased its authorized shares of common stock to 450,000,000.

The issuance of common stock during the year ended December 31, 2010 is summarized in the table below:

	Number of Shares of Common Stock		Fair Value at Issuance		Fair Value at Issuance (per share)
Accrued Interest Payment for 8% and 10% convertible promissory notes		2,464,567	$	302,624	$	0.12
Services performed- Investor relations		2,870,000		445,100		0.0925 - 0.165
Services performed- Legal expense		175,398		28,941		0.165
Services performed- Project management expense		360,678		48,277		0.10 - 0.21
Services performed- Business development		1,750,000		270,528		0.106 - 0.20
Services performed- Strategy consulting		25,000		4,125		0.165
Services performed- Payroll		300,000		39,000		0.13
Services performed- Marketing		6,000,000		760,000		0.12 – 0.13
Exercised stock options		1,636,752		22,392		0.01
Exercised warrants		5,803,593		585,359		0.10
Conversion of 8% convertible promissory notes		10,012,308		1,851,328		.012 – 0.16
Conversion of 10% convertible promissory notes		1,256,482		210,037		0.17
Private placement, net of finder’s fee of $50,980		32,155,449		2,864,794		0.05 - 0.20
Debt settlement agreement		100,000		20,000		0.20
Convertible note repricing		416,666		79,167		0.19
Interest associated with issuance of notes payable		980,000		176,700		0.16 - 0.22
		66,306,893	$	7,708,372

The issuance of common stock during the year ended December 31, 2011 is summarized in the table below:

	Number of Shares of Common Stock		Value at Issuance		Value at Issuance (per share)
Accrued interest payment for 8% and 10% convertible promissory notes		767,623	$	50,995	$	0.07
Fair value of shares of common stock issued as interest payment on note payable		250,000		12,500		0.05
Services performed- Investor relations		6,695,000		831,325		0.04-0.10
Services performed-Consulting		5,340,000		550,000		0.03-0.135
Exercised stock options		4,900,404		134,004		0.01-0.06
Exercised warrants		6,109,403		647,366		0.05-.010
Conversion of convertible promissory notes and notes payable		29,770,332		1,749,340		0.05-0.16
Private placement, net of finder’s fee of $57,330		50,117,856		2,243,853		0.03-0.07
Interest associated with issuance of notes payable		500,000		44,000		0.088

Warrants

During 2010, the Company issued warrants to purchase 200,000 shares of common stock at an exercise price of $0.20 per shares. The warrants expire three years from the date of grant. The Company valued the warrants at $12,160 using the Black-Scholes option pricing model, increasing additional paid-in capital, and increase to interest expense.

F-15

During 2010, in connection with the modifications to certain 8% convertible promissory notes, the Company also repriced 1,335,222 warrants from an exercise price of $0.20 to $0.16. As a result of this modification, the Company recognized $15,585 as an increase in additional paid-in capital and an increase in interest expense.

During 2010, the Company extended the maturity dates of 2,210,195 warrants for a certain investor for an additional five years from the original maturity dates. As a result of the extension, the Company recognized an expense of $235,943as an increase in additional paid-in capital and an increase in consulting expense.

During 2010, the Company repriced 5,453,595 warrants from an exercise price ranging from $0.20 to $1.00, to $0.10. As a result of this modification, the Company recognized $230,114 as an increase in additional paid-in capital and an increase in modification expense. As a result of this repricing, the warrant holders exercised their 5,453,595 warrants for common stock.

During 2010, in connection with the private placements the Company issued warrants to purchase 19,136,517 shares of common stock at an exercise price range of $0.065 to $0.20 per share. The warrants expire three to five years from the date of grant.

During 2010, in connection with the conversion of 8% convertible promissory notes issued warrants to purchase 5,249,998 shares of common stock at an exercise price range of $0.16 to $0.20 per share. The warrants expire in 2012.

During 2010, in connection with the conversion of 8% convertible promissory notes, the Company issued warrants to purchase 513,397 shares of common stock at an exercise price range of $0.16 to $0.20 per shares for accrued interest. The warrants expire in 2012. The warrants were valued at $29,626 using the Black-Scholes option pricing model.

During 2010, the Company issued warrants to purchase 500,000 shares of common stock to a consultant. The warrants have an exercise price of $0.12 and expire between three years from grant. The warrants were valued at $57,100 utilizing the Black-Scholes options pricing model and was recorded as an increase in additional-paid in capital and an increase in consulting fees.

During 2010, the Company issued warrants to purchase 750,000 shares of common stock to two short-term note holders. The warrants have an exercise price ranging from $0.10 to $0.14 and expire five year from grant. The warrants were valued at $36,401 using the Black-Scholes option pricing model.

During 2011, in connection with the private placements the Company issued warrants to purchase 5,148,333 shares of common stock at an exercise price range of $0.07 to 0.15 per share. In connection with the private placement, the Company also issued additional warrants to purchase 4,575,000 shares of common stock at an exercise price range of $0.05 to $0.12 as finder’s fee. The warrants expire between 2014 and 2016. During 2011, included in the aforementioned issuance of warrants, the Company issued 333,333 warrants which were accounted as derivative liabilities upon issuance. Their fair value upon issuance amounted to approximately $27,000 and was recorded as a reduction of the additional paid-in capital related to the proceeds of the private placement.

During 2011, in connection with the conversion of an 8% convertible promissory note issued warrants to purchase 166,667 shares of common stock at an exercise price of $0.16 per share. The warrants expire in 2013.

During 2011, in connection with the conversion of an 8% convertible promissory note, the Company issued warrants to purchase 19,981 shares of common stock at an exercise price of $0.16 per shares for accrued interest. The warrants expire in 2013. The warrants were valued at $198 using the Black-Scholes option pricing model.

During 2011, in connection with the issuance of a $1.5 million convertible promissory note, the Company issued warrants to purchase 5,000,000 shares of common stock at an exercise price of $0.09. The warrants expire in 2016.

F-16

The fair value of the warrants granted is based on the Black Scholes Model using the following assumptions:

	December 31, 2010	December 31, 2011
Exercise price:	$0.10 - $0.32	$0.06 - $0.34
Market price at date of grant:	$0.135 - $0.225	$0.08 - $0.15
Expected volatility:	64.25% - 168.64%	69% - 78%
Term:	2 – 9 years	0 – 5 years
Risk-free interest rate:	0.34% - 3.59%	1.76% - 1.93%

Stock Options

In 2002, the Company adopted the 2002 Stock Plan under which stock awards or options to acquire shares of the Company's common stock may be granted to employees and non-employees of the Company. The Company has authorized 12,000,000 shares of the Company's common stock for grant under the 2002 Plan.

In May 2006, the Board increased the authorized amount to 27,000,000. The 2002 Plan is administered by the Board of Directors and permits the issuance of options for the purchase of up to the number of available shares outstanding. Options granted under the 2002 Plan vest in accordance with the terms established by the Company's stock option committee and generally terminates ten years after the date of issuance.

During 2010, the Company modified the exercise price of certain options aggregating 15,825,342 to $0.18 exercise price. As a result of the modification, the Company recognized an expense of $239,821 as an increase in additional paid-in capital and an increase in selling, general & administrative expense.

For the year ended December 31, 2010, the Company granted 6,756,252 ranging from three to five-year stock options to purchase common stock to employees at exercise prices ranging from $0.01 to $0.20 per share. For the year ended December 31 2010, total stock-based compensation charged to operations for option-based arrangements amounted to $1,025,210. At December 31, 2010, there was $285,494 of total unrecognized compensation expense related to non-vested option-based compensation arrangements under the Qualified Stock Option Plan and Non-Qualified Stock Option Plan.

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for determining the fair value of options granted under the Black-Scholes option pricing model:

Stock option activity for the years ended December 31, 2011 and 2010, respectively is summarized as follows:

	Options			Weighted Average Exercise Price		Weighted Average Contractual Terms		Aggregate Intrinsic Value
Outstanding at January 1, 2010		28,504,422		$	0.25

Granted		7,427,680			0.09
Exercised		-			0.02
Expired		(7,128,853	)		0.21
Outstanding at December 31, 2010		27,166,497			0.18		1.50	$	269,711

Granted		15,084,417			0.14
Exercised		(4,900,404	)		0.04
Expired		(2,979,817	)		0.28
Outstanding at December 31, 2011		34,370,693		$	0.17		1.80	$	162,938

Exercisable and vested at December 31, 2011		26,870,693		$	0.16		2.30	$	162,938

	December 31, 2010	December 31, 2011
Exercise Price	$0.01 - $ 0.20	$0.03-0.08
Market price at date of grant	$0.09 - $ 0.225	$0.05-0.08
Expected volatility	73.1% - 100.4%	69% - 78%
Risk-free interest rate	0.51% - 2.47%	1.76% - 1.93%

F-17

The following activity occurred under our plan:

	Year ended December 31,
	2011		2010
Weighted-average grant-date fair value of options granted	$	0.04	$
Fair value of options recognized as expense:	$	651,041	$	1,985,345
Options granted		7,584,417		7,427,680

The total compensation cost related to non-vested options not yet recognized amounted to approximately $85,000 at December 31, 2011 and the Company expects that it will be recognized over the following weighted-average period of 13 months.

NOTE 8 - INCOME TAXES

A reconciliation of the Company’s effective tax rate to the statutory federal rate is as follows at December 31:

	2011			2010
Tax at US statutory rate		35.0	%		35.0	%
State tax rate, net of federal benefits		4.0			4.0
Permanent differences: Changes in fair value of derivative liability Fair value of shares issued for financing and operating activities		(11.0	)		(8.0	)
Change in valuation allowance		(41.0	)		(31.0	)
Effective tax rate		0.0	%		0.0	%

* Permanent differences consist of changes in fair value derivative liability and fair value of shares issued for financing or operating activities.

Management believes it is more likely than not that it will be able to offset its deferred tax liability against its net operating losses.

The components of the deferred tax assets and liabilities are as follows:

	2011			2010
Deferred tax assets:
Net operating loss carryforward	$	26,020,000		$	24,700,000
Accrued expenses unpaid within 75 days	$	2,640,000		$	-
Options issued as compensation		390,000			1,800,00
Less: valuation allowance		(29,050,000	)		(26,500,000	)
Net deferred tax assets	$	-		$	-

At December 31, 2011 the Company had estimated tax net operating loss carryforwards of approximately $66.7 million, which expire through its tax year ending in 2031.

F-18

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Litigation

During 2011, the Company initiated a JAMS arbitration claim in San Francisco against a placement agent. This declaratory relief and breach of contract action is related to an investment banking agreement. The placement agent asserted claims in excess of $160,000. The Company asserted the agreement is unenforceable and void. The case was set for arbitration in March 2011 and there was a low likelihood of an unfavorable outcome. In March 2011 the case was settled for $100,000 to be paid over 13 months beginning May 1, 2011. As of April 1, 2012, the unpaid settlement balance is approximately $35,000.

In October 2010, a consultant filed suit against the Company in San Francisco Superior Court. The Company filed motions reducing the scope of their claims and also filed x-complaint for the consultant’s failure to perform and negligence. The consultant was asserting claims of approximately $200,000, but the matter was settled for $45,000 in October 2011.

In May 2010, a consultant filed suit against the Company in Broward County Florida Circuit Court seeking recovery of approximately $50,000 in unpaid fees for accounting services. During 2011, the consultant subsequently obtained a judgment against the company for approximately $55,000.

The Company has appealed to the California Court of Appeals in a matter involving a consultant. The issue on appeal is the California Superior Court’s failure to disregard a NY state court judgment for approximately $100,000, which the Company asserts was improperly entered and, therefore, should not be recognized as a valid sister state judgment. The Company’s likelihood of success on this appeal cannot be determined at this time.

In November 2011, a note holder filed suit against the Company in Nevada State Court in Douglas County, alleging breach of a promissory debenture. The Company has filed motions to dismiss the action based on the fact that the note holder has been dissolved and the Company has entered into individual agreements with its former partners. The case has not been set for trial and, as of this date, there is a low likelihood of an unfavorable outcome.

In June 2011, a vendor filed suit against the Company for breach of contract related to software services they provided. During 2011, the case was settled for $60,000, to be paid over a 120 day period.

In February 2011, a former employee filed suit against the Company alleging various employment related claims. The Company conducted litigation and discovery and on April 4, 2012, the case was tentatively settled for approximately $60,000 to be paid over 15 months.

At December 31, 2011, the Company has recorded liabilities in connection with such legal proceedings.

Operating Leases

The Company entered into a 2-year lease for certain office space in Minden, Nevada, effective June 1, 2011. Under the terms of the lease, the Company pays monthly base rent of $3,000.

During October 2011, the Company entered into a 2-year lease for certain office space in Los Angeles, California, effective November 15, 2011. Under the terms of the lease, the Company pays monthly base rent of $8,664.

Future annual minimum payments, net of sublease income, required under operating lease obligations at December 31, 2011 are as follows:

	Future Minimum Lease Payments
2012	$	139,968
2013	$	110,304
2014		-

F-19

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company made rental payments for property owned by the Chief Executive Officer of the Company during 2010 amounting to $15,000. The rental property was used for temporary employee housing during such periods.

NOTE 11 - SEGMENTS

During the years ended December 31, 2011 and 2010, the Company operated in one business segment. The percentages of sales by geographic region for the years ended December 31, 2011 and 2010 were approximately:

	2011	2010
United States	44%	25%
Europe	56%	75%

F-20

Attached files

SPARE BACKUP, INC. Reports

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