Filing Compare · SPARE BACKUP, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~March 3031, ~~2012~~ 2013

~~o TRANSITION~~ [ ] TRANSITION REPORT UNDER 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)		(I.R.S. Employer Identification No.)

990 Ironwood, Minden, NV 98423

(Address of principal executive offices)

(775) 392-2180

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 o [ ]

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

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

Large accelerated filer o[ ] Accelerated filer o[ ] Non-accelerated filer o[ ] Smaller reporting company [ x ]

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, ~~368~~447,~~599~~887,~~362~~ 403 shares of common stock are issued and outstanding as of ~~November~~July 2610, ~~2012~~2013.

OTHER PERTINENT INFORMATION

When used in this report, the terms “Spare Backup,” the Company”, “ we”, “our”, and “us” refers to Spare Backup, Inc., a Delaware corporation formerly known as Newport International Group, Inc., and our subsidiary. The information which appears on our web site is not part of this report.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this 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 increase our revenues, our ability to compete within our market segment, 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 report in its entirety, as well as our annual report on Form 10-K for the year ended December 31, ~~2011~~2012 including the risks described in Part I. Item 1A. Risk Factors of that report. 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 report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

EXPLANATORY NOTE

Spare Backup, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 (the “Report”) on the date hereof in reliance on Order Under Section 17A and Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder (the “Order”) promulgated by the Securities and Exchange Commission (the “SEC”) on November 14, 2012 (Securities Exchange Act of 1934– Release No. 68224).

The Company was not able to meet the SEC mandated filing deadline for the Report due to Hurricane Sandy. The Company’s certified public accounting firm hired to review the Report and the financial statements contained herein, Sherb and Co. LLP (“Sherb”), is located in New York, New York. Sherb’s offices were closed during Hurricane Sandy and for approximately one week thereafter due to lack of power, heat and telephone service. Because of Hurricane Sandy, Sherb was not able to provide its accounting review service in a timely fashion. Because of this delay, the Company was not able to file the Report until today.

Table of Contents

SPARE BACKUP, INC.

INDEX

		Page
PART I - FINANCIAL INFORMATION:		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1316
Item 4.	Controls and Procedures	1316
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	1317
Item 1A.	Risk Factors	1417
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1417
Item 3.	Defaults Upon Senior Securities	1417
Item 4.	~~[Removed~~Mine ~~and~~Safety ~~Reserved]~~Disclosures	1417
Item 5.	Other Information	1417
Item 6.	Exhibits	1417
Signatures		1518

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements
INDEX TO UNAUDITED FINANCIAL STATEMENTS	PAGE
INDEX TO THE FINANCIAL STATEMENTS	PAGE
Consolidated Balance Sheets at September 30, 2012 (Unaudited) and December 31, 2011	F-1
Consolidated Balance Sheets at March 31, 2013 (Unaudited) and December 31, 2012	F-1
Unaudited Consolidated Statements of Operations for the three and nine months period ended September 30, 2012 (Unaudited) and 2011	F-2
Consolidated Statements of Operations for the three month period ended March 31, 2013 and 2012 (Unaudited)	F-2
Unaudited Consolidated Statements of Cash Flows for the nine months periods ended September 30, 2012 (Unaudited) and 2011	F-3
Consolidated Statements of Cash Flows for the three month period ended March 31, 2013 and 2012(Unaudited)	F-3
Notes to Consolidated Financial Statements	F-4
Notes to the Consolidated Financial Statements	F-4

~~Table~~SPARE ofBACKUP, ~~Contents~~INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS

SPARE BACKUP, INC. AND SUBSIDIARY
	March 31,			December 31,
CONSOLIDATED BALANCE SHEETS
	2013			2012
		September 30,			December 31,
	(Unaudited)
ASSETS		~~2012~~			~~2011~~
		(Unaudited)			(1)
Current Assets:
Cash	$	—		$	—
Accounts receivable, net allowance for bad debt of $98,623 and $100,000		103,814			120,248
Accounts receivable, net allowance for doubtful accounts of $156,706 and $86,714 respectively		98,908			84,282
Prepaid expenses		—			~~10,599~~—
Total current assets		8798,~~684~~908			~~130~~84,~~847~~282
Property and equipment, net of accumulated depreciation of $331,026 and $279,345		47,444			98,070
Property and equipment		379,758			378,703
Deferred financing costs		2,959			—
Accumulated Depreciation		(351,394	)		(341,255	)
Other assets		58,250			85,522
Property and equipment, net		28,364			37,448
Total assets	$	212,467		$	314,439
Loan Receivable		3,750			3,750
Security Deposits		68,500			54,500
Deferred Financing Costs		2,959			2,959
Total assets	$	202,481		$	182,939
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses	$	3,~~462~~522,~~073~~824		$	3,~~615~~669,~~504~~218
Overdraft liability		16,130			70,750
Bank Overdraft		16,185			18,136
Accrued payroll taxes		4,~~397~~538,~~445~~321			4,~~314~~455,~~670~~882
Convertible promissory notes, net of unamortized debt discount of $447,061 and -0-		2,542,853			1,918,735
Current maturities of convertible promissory notes, net of discount of $1,091,028 and $528,788, respectively		1,618,160			2,000,672
Accrued interest on convertible promissory notes		244,948			215,004
Accrued interest on notes		309,152			244,948
Notes payable		~~508~~536,~~000~~011			~~787~~508,~~600~~000
Derivative liabilities		~~516~~1,~~282~~925,831			—600,770
Deferred revenue		102,500			102,500
Due to stockholder		15,000			15,000
Total current liabilities		1112,~~805~~583,~~231~~984			11,~~039~~615,~~763~~126
Non-current Liabilities:
Convertible promissory notes, net of current maturities		539,692			618,440
Total non-current liabilities		539,692			618,440
Total liabilities		13,123,676			12,233,566
Stockholders' Deficit:
Preferred stock, $0.001 par value, 5,000,000 shares authorized:
Preferred stock, par value $0.001, 5,000,000 shares authorized:
150,000 issued and outstanding		150			150
50,000 and 100,000 shares designated as Series A and Series B Preferred Stock, respectively
Common stock; $.001 par value; 450,000,000 shares authorized;
Series A Preferred stock, par value $0.001, 50,000 shares designated:
370,093,881 and 303,943,573 issued; 366,793,881 and 303,943,573 outstanding		366,793			303,943
50,000 shares issued and outstanding		50			50
Additional paid-in capital		107,733,517			105,765,093
Series B Preferred stock, par value $0.001, 100,000 shares designated:
Accumulated deficit		(119,693,224	)		(116,794,510	)
100,000 shares issued and outstanding		100			100
Total stockholders’ deficit		(11,592,764	)		(10,725,324	)
Common stock; par value $0.001; 900,000,000 shares authorized;
Total liabilities and stockholders’ deficit	$	212,467		$	314,439
424,749,442 and 407,349,546 issued and outstanding, respectively		431,554			407,349
(1) Derived from audited financial statements
Additional paid-in capital		106,700,540			108,034,704
Accumulated deficit		(120,053,439	)		(120,492,830	)
Total stockholders’ deficit		(12,921,195	)		(12,050,627	)
Total liabilities and stockholders’ deficit	$	202,481		$	182,939

See Notes to Unaudited Consolidated Financial Statements.

F-1

~~Table~~SPARE ofBACKUP, ~~Contents~~INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS

SPARE BACKUP, INC. AND SUBSIDIARY
	Three-months ended
CONSOLIDATED STATEMENTS OF OPERATIONS
	March 31,
	Three-month periods ended						Nine-month periods ended
	2013			2012
	September 30,						September 30,
	(Unaudited)			(Unaudited)
	2012			2011			2012			2011
Revenues	$	160,285		$	244,315
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating expenses:
Revenues	$	58,167		$	153,568		$	426,833		$	347,071
Research and development		51,594			264,833
Operating expenses:
Selling, general and administrative		438,685			1,361,280
Research and development		216,135			501,380			596,027			1,159,935
Total operating expenses		490,279			1,626,113
Selling, general and administrative		755,253			1,093,789			2,927,733			4,450,281
Operating loss		(329,994	)		(1,381,798	)
Total operating expenses		971,388			1,595,169			3,523,760			5,610,216
Other income (expense):
Operating loss		(913,221	)		(1,441,601	)		(3,096,927	)		(5,263,145	)
Change in fair value of derivative liabilities		1,832,158			—
Other income (expense):
Gain from debt settlements		179,724			—
Change in fair value of derivative liabilities		168,806			(1,552,858	)		155,936			577,076
Interest Income (expense)		(1,302,814	)		(40,797	)
Gain from debt settlements		—			—			446,387			—
Other income (expense)		60,317			—
Interest expense		(283,393	)		(252,699	)		(402,235	)		(643,470	)
Other income (expense), net		769,385			(40,797	)
Other loss		(715	)		—			(1,827	)		—
Net Income (Net loss)	$	439,391		$	(1,422,595	)
Total other income (expense)		(115,302	)		(1,805,557	)		198,261			(66,394	)
Basic and diluted loss per common share	$	0.00		$	(0.02	)
Net loss	$	(1,028,523	)	$	(3,247,158	)	$	(2,898,666	)	$	(5,329,539	)
Basic and diluted weighted average common shares outstanding		418,865,851			306,166,593
Basic and diluted loss per common share	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Basic and diluted weighted average common shares outstanding		364,835,548			273,233,495			337,350,489			243,774,932

See Notes to Unaudited Consolidated Financial Statements.

F-2

Table of Contents

SPARE BACKUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Three Months Ended
	March 31,
	2013			2012
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net income (loss)	$	439,391		$	(1,422,595	)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Change in fair value of derivative liabilities		(1,832,158	)		—
Fair value of options and warrants issued for services		—			275,598
Fair value of option and warrant modifications					—
Fair value of common stock issued in connection with service rendered					280,800
Fair value of convertible promissory notes modifications		—			—
Fair value of common stock issued in connection with note payable issuance		—			—
Fair value of common stock issued to satisfy accrued interest					—
Gain on extinguishment of accounts payable		(179,724	)		—
Amortization of Prepaid expenses		—			2,285
Depreciation and amortization		10,139			21,027
Loss on extinguishment of convertible notes payable		—			—
Bad debt		69,993			—
Amortization of debt discount		1,422,271			—
Changes in operating assets and liabilities:
Accounts receivable		(84,619	)		(1,502	)
Prepaid expense and other current assets					—
Security Deposits		(14,000	)		—
Accounts payable, accrued expense		(146,394	)		205,916
Accrued payroll Tax		82,439			—
Accrued interest on convertible promissory notes		64,204			38,643

Net cash used in operating activities		(168,458	)		(599,828	)

Cash flows used in investing activities:
Purchase of property and equipment		(1,055	)		(1,055	)

Net cash used in investing activities		(1,055	)		(1,055	)

Cash flows from financing activities:
Proceeds from issuance of convertible promissory notes		40,000			—
Proceeds from issuance of notes payable		48,000			266,000
Net proceeds from issuance of common stock for cash		83,464			306,250
Cash overdraft		(1,951	)		(49,767	)
Proceeds from exercise of warrants		—			—
Proceeds from exercise of stock options		—			78,400

Net cash provided by financing activities		169,513			600,883

Net increase (decrease) in cash		—

Cash, beginning of period		—			—

Cash, end of period	$	—		$	—

SPARE BACKUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
	For the Nine Months Ended
	September 30,
	2012			2011
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(2,898,666	)	$	(5,329,539	)
Adjustments to reconcile net loss to net cash used in
operating activities:
Change in fair value of derivative liabilities		155,936			(577,076	)
Fair value of options and warrants issued for services		338,384			468,346
Fair value of option and warrant modifications		12,500			472,458
Fair value of common stock issued in connection with service rendered		804,730			583,325
Fair value of convertible promissory notes modifications		—			—
Fair value of common stock issued in connection with note payable issuance		—			44,000
Fair value of common stock issued to satisfy accrued interest		137,510			—
Gain on extinguishment of debt		(446,387	)		—
Depreciation and amortization		51,681			110,715
Bad debt		(1,346	)		—
Amortization of debt discount		209,703			29,964
Changes in operating assets and liabilities:
Accounts receivable		17,811			(72,330	)
Prepaid expense and other current assets		37,871			25,865
Deferred financing costs		(2,959	)		—
Accounts payable, accrued expense and accrued payroll taxes		375,686			1,369,084
Accrued interest on convertible promissory notes		29,945			2,567
Net cash used in operating activities		(1,489,474	)		(2,872,621	)
Cash flows used in investing activities:
Capital expenditures		(1,055	)		(10,265	)
Net cash used in investing activities		(1,055	)		(10,265	)
Cash flows from financing activities:
Proceeds from issuance of convertible promissory notes		782,000			50,000
Proceeds from issuance of notes payable		25,000			367,600
Repayment of notes payable		—			(163,000	)
Net proceeds from issuance of common stock for cash		612,250			1,166,894
Cash overdraft		(54,621	)		(127,321	)
Proceeds from exercise of warrants		47,500			112,008
Proceeds from exercise of stock options		78,400			90,000
Net cash provided by financing activities		1,490,529			1,496,181
Net increase (decrease) in cash		—			(1,386,705	)
Cash, beginning of period		—			—
Cash, end of period	$	—		$	(1,386,705	)
Supplemental disclosures of cash flow information:
Cash paid for interest	$	2,316		$	—
Cash paid for income taxes	$	—		$	—
Non-cash investing and financing activities:
Write off of fully depreciated property and equipment	$	—		$	183,641
Fair value of warrants and embedded conversion features issued in connection with the issuance of convertible promissory notes and corresponding debt discount	$	672,217		$	47,672
Conversion of convertible promissory notes and accrued interest into shares of common stock	$	—		$	697,500
Conversion of notes payable into shares of common stock	$	—		$	308,500
Fair value of derivative liability	$	516,282		$	2,407,261

See Notes to Unaudited Consolidated Financial Statements.

F-3

~~Table~~ SPARE BACKUP, ~~of Contents~~INC.

~~SPARE BACKUP~~March 31, ~~INC.~~2013 ~~AND~~and ~~SUBSIDIARY~~2012

~~NOTES~~Notes to TOthe ~~CONSOLIDATED FINANCIAL~~Consolidated ~~STATEMENTS~~Financial Statements

FOR THE PERIOD ENDED SEPTEMBER 30, 2012

(Unaudited)

~~NOTE~~Note 1 - ~~ORGANIZATION,~~Organization ~~BASIS~~and ~~OF PRESENTATION AND GOING CONCERN~~Operations

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~~Spare ~~balance sheet presented as of September 30~~Backup, ~~2012 has been derived from our audited financial statements~~Inc., ~~The unaudited financial statements have been prepared pursuant to~~ (the ~~rules and regulations~~"Company") ofwas ~~the~~incorporated ~~SEC. Certain information and footnote disclosures normally included~~ in ~~the~~Delaware ~~annual financial statements prepared~~ in ~~accordance with~~December ~~accounting~~1999 ~~principles~~under ~~generally accepted in~~ the ~~United~~name ~~States~~First ofPhiladelphia ~~America,~~Capital ~~have~~Corp. ~~been omitted pursuant~~ to ~~those~~serve ~~rules~~as ~~and~~a ~~regulations, but~~vehicle ~~we believe that the disclosures are adequate~~ to ~~make~~effect ~~the information presented not misleading. The financial statements and~~a ~~notes included herein should be read in conjunction with the annual financial statements and notes for the year ended December 31~~merger, ~~2011~~exchange ~~included in our Annual Report on Form 10-K filed on April 26, 2012. The results~~ of ~~operations~~common ~~for the nine-month period ended September 30~~stock, ~~2012~~asset ~~are~~acquisition ~~not~~or ~~necessarily~~other ~~indicative~~business ofcombination ~~the~~with ~~results~~domestic ~~for~~or ~~the~~foreign ~~year~~private ~~ending December 31, 2012~~business.

~~The~~Acquisition ~~accompanying consolidated unaudited financial statements have been prepared on a going concern basis. The Company has incurred net losses~~ of ~~approximately~~Grass ~~$2.9~~Roots ~~million during~~Communications ~~the nine-month period ended September 30, 2012 and its current liabilities exceed its current assets by $11~~Inc.7 ~~million.~~(“Grass ~~The~~Roots”) 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, 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~~On ~~matters~~February 6, ~~among~~2004, ~~others~~the Company closed an Agreement and Plan of Merger with Grass Roots Communications Inc., ~~raise~~a ~~substantial~~Delaware corporation. Grass ~~doubt~~Roots ~~about~~was ~~the~~a ~~ability~~development ofstage ~~the~~company ~~Company~~incorporated in Delaware in June 2002 initially to ~~continue~~create, asproduce, adeliver ~~going~~and ~~concern~~track targeted multimedia communications over the Internet. ~~These~~Under ~~financial~~the ~~statements~~terms doof ~~not~~this ~~include~~agreement, ~~any~~Grass ~~adjustments~~Roots became the Company’s wholly-owned tosubsidiary. At the ~~amounts~~effective ~~and~~time ~~classification~~of the merger, the stockholders of ~~assets~~Grass ~~and~~Roots ~~liabilities~~exchanged ~~that~~their ~~may~~securities befor ~~necessary~~approximately 12,300,000 ~~should~~shares of the Company’s becommon ~~unable~~stock, torepresenting ~~continue~~approximately ~~as a~~93% ~~going~~of ~~concern~~its common stock.

~~The~~Effective August ~~accompanying~~16, ~~consolidated~~2006 ~~unaudited~~the ~~financial statements~~Company ~~include~~changed ~~the~~its ~~accounts~~name ofto Spare Backup, ~~and~~Inc. The ~~its~~Company ~~wholly~~sells on-~~owned~~line ~~subsidiary.~~backup ~~All~~solutions ~~material~~software ~~inter-company~~and services ~~balances~~to individuals, business professionals, small office and ~~transactions have~~home ~~been~~office ~~eliminated~~companies, inand ~~consolidation~~small to medium sized businesses.

~~NOTE~~ Note 2 - ~~SUMMARY~~Summary OFof ~~SIGNIFICANT~~Significant ~~ACCOUNTING POLICIES~~Accounting Policies

~~Use~~ Basis of ~~Estimates~~Presentation -Unaudited Interim Financial Information

The accompanying ~~preparation~~unaudited ofinterim ~~the~~ consolidated ~~unaudited~~ financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States ~~requires~~of ~~management~~America to(“U.S. ~~make estimates~~GAAP”) ~~and~~for ~~assumptions~~interim ~~that~~financial ~~affect~~information, and with the ~~reported~~rules ~~amounts~~and regulations of ~~assets~~the United States Securities and ~~liabilities~~Exchange Commission (“SEC”) to Form 10-Q and ~~disclosure~~Article 8 of ~~contingent~~Regulation ~~assets~~S-X. ~~and~~Accordingly, ~~liabilities at~~they ~~the~~do ~~date~~not include all of the information and footnotes required by U.S. GAAP for complete financial statements. ~~and~~The ~~the~~unaudited ~~reported~~interim ~~amounts~~consolidated financial statements furnished reflect all adjustments (consisting of ~~revenues~~normal ~~and~~recurring ~~expenses~~accruals) ~~during~~which ~~the~~are, ~~reporting~~in ~~periods.~~the ~~Significant~~opinion ~~estimates~~of ~~made~~management, bynecessary ~~management~~to ~~include,~~a ~~but~~fair statement of the results for the interim periods presented. Interim results are not ~~limited~~necessarily toindicative ~~share-based~~of ~~payments,~~the ~~derivative~~results ~~liabilities,~~for ~~and~~the ~~useful~~full ~~life~~year. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for ~~property~~the year ended December 31, 2012 and ~~equipment.~~notes ~~Actual~~thereto ~~results~~contained ~~will~~in ~~differ~~the ~~from~~Annual ~~these~~Report ~~estimates~~on Form 10-K filed with the SEC on May 10, 2013.

F-4

Table of Contents

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.

Reclassification

Certain ~~items~~ amounts in the ~~September~~prior ~~30,~~period ~~2011~~ financial statements have been reclassified to conform to the ~~presentation~~current ~~in the September 30, 2012 financial statements~~period presentation. ~~Such~~ These reclassifications ~~did~~had ~~not have~~no aeffect ~~material impact~~ on ~~the~~reported ~~presentation~~earnings ~~of the overall financial statements~~(losses).

~~Concentration of Credit Risks~~F-4

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

The Company’s ~~cash~~applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification to determine whether and ~~cash~~how ~~equivalents~~to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned ~~accounts~~subsidiaries—all ~~are~~entities ~~held~~in atwhich a parent has a controlling financial ~~institutions~~interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and ~~are~~control ~~insured~~is likely to be temporary; (3) consolidation by an investment company within the ~~Federal~~scope ~~Deposit~~of ~~Insurance~~Topic ~~Corporation,~~946 orof a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the ~~FDIC~~usual condition for a controlling financial interest is ownership of a majority voting interest, upand, totherefore, ~~$250~~as a general rule ownership by one reporting entity,~~000.~~ directly or indirectly, of ~~During~~more than 50 percent of the ~~nine-month~~outstanding ~~period~~voting ~~ended~~shares ~~September~~of 30another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, ~~2012~~for example, ~~the~~by contract, lease, agreement with other stockholders, or by court decree. The Company ~~did~~consolidates ~~not~~all ~~exceed~~less-than-majority-owned subsidiaries, if any, in which the ~~FDIC~~parent’s ~~insurance~~power to ~~limit~~control exists.

The Company's ~~accounts~~consolidated ~~receivable~~subsidiaries ~~are~~and/or ~~due~~entities ~~from a few customers, which~~ are ~~located~~as in the Unites States and United Kingdom. At September30, 2012,two of the Company’s customers accounted for 43% and 17% of its accounts receivable. Two of the Company’s customers accounted for 16% and 96%of its accounts receivable at December 31, 2011. follows:

Accounts Receivable

Name of consolidated subsidiary or entity	State or other jurisdiction of incorporation or organization	Date of incorporation or formation (date of acquisition, if applicable)	Attributable interest

Grass Roots Communications Inc	DE	February 6, 2004	100%

~~The Company has a policy of reserving for~~Use ~~uncollectible accounts based on its best estimate~~ of ~~the~~Estimates 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 $98,623 and $100,000 was necessary at September 30, 2012 and December 31, 2011.Assumptions

~~Property~~The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and ~~Equipment~~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.

~~Property~~The Company’s significant estimates and ~~equipment,~~assumptions ~~which~~include ~~primarily~~the ~~consists~~ fair value of ~~office~~financial ~~equipment~~instruments; ~~and~~allowance ~~computer~~for ~~software,~~doubtful accounts; ~~are~~the ~~recorded~~carrying atvalue, ~~cost~~recoverability and ~~are~~impairment, ~~depreciated~~if onany, aof ~~straight~~long-~~line~~lived ~~basis~~assets, ~~over~~including the ~~their~~values assigned to and the estimated useful lives of ~~three~~property toand ~~five~~equipment, ~~years.~~website ~~Maintenance~~ and ~~repairs~~patents; ~~are~~interest ~~charged~~rate; underlying assumptions to ~~expense~~estimate asthe ~~incurred.~~fair ~~Significant~~value ~~renewals~~of beneficial conversion features, warrants and ~~betterments~~options; revenue recognized or recognizable; ~~are~~sales ~~capitalized.~~returns Atand ~~the~~allowances; ~~retirement~~income ortax ~~other~~rate, ~~disposition~~income tax provision, deferred tax assets and valuation allowance of ~~property~~deferred tax assets; and ~~equipment,~~the assumption that the ~~cost~~Company ~~and~~will ~~accumulated~~continue ~~depreciation~~as ~~are~~a ~~removed~~going concern. Those ~~from~~significant accounting estimates or assumptions bear the ~~accounts~~risk ~~and~~of ~~any~~change ~~resulting~~due ~~gain~~to orthe ~~loss~~fact isthat ~~reflected~~there inare ~~other~~uncertainties ~~income~~attached to ~~(expense)~~those inestimates ~~the~~or ~~accompanying~~assumptions, ~~statements~~and ofcertain ~~operations~~estimates or assumptions are difficult to measure or value.

~~Revenue~~Management bases ~~Recognition~~its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

~~The~~Management regularly ~~Company~~evaluates ~~follows~~ the ~~guidance~~key offactors ~~the~~and ~~FASB ASC~~assumptions ~~605-10-S99~~used ~~"Revenue~~to ~~Recognition~~develop the ~~Overall~~estimates -utilizing ~~SEC~~currently ~~Materials."~~available ~~The~~information, ~~Company~~changes ~~records~~in ~~revenue~~facts ~~when~~and ~~persuasive~~circumstances, ~~evidence of~~historical anexperience ~~arrangement~~and ~~exists,~~reasonable ~~on-line~~assumptions. ~~back-up~~After ~~services~~such ~~have been rendered~~evaluations, ~~the~~those ~~sales~~estimates ~~price~~are toadjusted ~~the customer is fixed or determinable~~accordingly, ~~and~~ ~~collectability~~if isdeemed ~~reasonably assured~~appropriate.

~~The Company has collected annual fees related~~Actual toresults ~~online~~could ~~back-up~~differ ~~services.~~from ~~Online~~those ~~back-up service fees received in advance or collected up front are reflected as deferred revenue on the accompanying balance sheet~~estimates. ~~Deferred revenue as of September 30, 2012 and December 31, 2011 amounted to $102,500, 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.

F-5

Table of Contents

Customer Concentration

Two of the Company’s customers accounted for 43% and 17% of the Company’s revenue during the nine-month period ending September 30, 2012. One of the Company’s customers accounted for 50% of the Company’s revenue during the nine-month period ending September 30, 2011.

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~~The Company ~~ASC~~follows ~~820~~applicable ~~“Fair~~accounting ~~Value~~guidance ~~Measurements and~~for ~~Disclosures”~~disclosures ~~establishes~~about afair ~~common~~value ~~definition~~of its financial instruments. U.S. GAAP establishes a framework for measuring fair value, toand berequires ~~applied~~disclosures toabout ~~existing~~fair ~~generally~~value ~~accepted~~measurements. ~~accounting principles~~To ~~that~~provide ~~require~~consistency ~~the~~and ~~use~~comparability in of fair value measurements, ~~establishes~~and arelated ~~framework~~disclosures, ~~for~~U.S. ~~measuring~~GAAP establishes a fair value ~~and~~hierarchy ~~expands~~which ~~disclosure~~prioritizes the inputs ~~about~~to ~~such~~valuation techniques used to measure fair value ~~measurements~~into three broad levels. The ~~adoption~~fair ofvalue ~~ASC 820~~hierarchy ~~did~~gives ~~not~~the ~~have~~highest anpriority to ~~impact~~quoted onprices ~~the~~(unadjusted) ~~Company’s~~in ~~financial~~active ~~position~~ markets for identical assets or ~~operating~~liabilities ~~results,~~and ~~but~~the ~~did~~lowest ~~expand~~priority ~~certain~~to ~~disclosures~~unobservable inputs. The three levels of fair value hierarchy are described below:

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		Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

Level 2		Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

Level 3		Pricing inputs that are generally not observable inputs and not corroborated by market data.

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.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

~~The Company did not have any Level 2 or Level 3 assets or~~If ~~liabilities~~the asinputs ofused ~~September~~to ~~30,~~measure ~~2012 and December 31, 2011, with~~ the ~~exception~~financial ofassets ~~its convertible promissory notes~~ and ~~derivative~~ liabilities~~. The~~ ~~carrying~~fall ~~amount~~within ofmore ~~the~~than ~~convertible~~one ~~promissory~~level ~~notes~~described ~~at September 30~~above, ~~2012~~the ~~and December 31, 2011, approximate~~categorization ~~their~~is ~~respective fair value~~ based on the ~~Company’s~~lowest ~~incremental~~level ~~borrowing~~input ~~rate.~~that ~~The~~is ~~derivative~~significant ~~liabilities~~to ~~are computed using either~~ the ~~Black~~fair ~~Scholes~~value ~~Model~~measurement orof the ~~binomial method and are classified as Level 3 liabilities~~instrument.

~~Software~~The carrying ~~Development~~amounts ~~Costs~~of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, accounts payable, accrued expenses, payroll taxes payable, and due to factor, approximate their fair values because of the short maturity of these instruments.

~~Costs~~The Company’s ~~incurred~~notes inpayable ~~the research~~ and ~~development of~~convertible ~~software~~notes ~~products~~payable ~~are~~approximate ~~expensed~~the asfair ~~incurred~~value ~~until~~of ~~technological feasibility has been established. After technological feasibility~~such isinstruments ~~established,~~based ~~any~~upon ~~additional~~management’s ~~costs~~best ~~are~~estimate ~~capitalized~~of ininterest ~~accordance~~rates ~~with~~that ~~FASB~~would ~~ASC~~be ~~985-20,~~available ~~“Costs of Software~~ to bethe ~~Sold, Leased, or Marketed.” The~~ Company ~~believes that the current process~~ for ~~developing~~similar ~~software is essentially completed concurrently~~financial ~~with~~arrangements ~~the~~at ~~establishment~~March ~~of technological feasibility. Accordingly~~31, no2013 ~~software~~and ~~development~~December ~~costs have been capitalized as of September 30~~31, 2012. ~~Instead, such amounts are included in the statement of operations under the caption "Research and development."~~

~~Foreign~~The Company’s ~~Currency~~Level ~~Transactions~~3 financial liabilities consist of the derivative financial instruments for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. The Company valued the automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering provisions using a lattice model, with the assistance of a valuation specialist, for which management understands the methodologies. These models incorporate transaction details such as Company stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of the date of issuance and each balance sheet date.

~~The~~Transactions involving ~~Company~~related ~~periodically~~parties ~~engages~~cannot inbe ~~transactions in~~presumed ~~countries~~to ~~outside~~be carried out on an arm's-length basis, as the ~~United~~requisite ~~States~~conditions ~~which~~of competitive, free-market dealings may ~~result~~not inexist. ~~foreign~~Representations ~~currency~~about ~~transaction~~transactions with ~~gains~~related orparties, ~~losses.~~if ~~Gains~~made, ~~and~~shall ~~losses~~not ~~resulting from~~imply ~~foreign~~that ~~currency~~the related party transactions ~~are~~were ~~recognized~~consummated ason ~~foreign~~terms ~~currency~~equivalent ~~gain~~to ~~(loss)~~those that prevail in ~~the~~arm's-length ~~statement~~transactions ofunless ~~operations~~such ofrepresentations ~~the~~can ~~period incurred~~be substantiated.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, website and patents, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

F-6

~~Table~~The Company considers the following to be some examples of ~~Contents~~important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

~~Income~~The key ~~Taxes~~assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels, gross margins, and operating costs of the manufacturing facilities. These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions. Any difficulty in manufacturing or sourcing raw materials on a cost effective basis would significantly impact the projected future cash flows of the Company’s manufacturing facilities and potentially lead to an impairment charge for long-lived assets. Other factors, such as increased competition or a decrease in the desirability of the Company’s products, could lead to lower projected sales levels, which would adversely impact cash flows. A significant change in cash flows in the future could result in an impairment of long lived assets.

~~Income taxes are accounted for in accordance with the provisions~~The ofimpairment ~~FASB~~charges, ~~ASC-740~~if -any, ~~Income~~is ~~Taxes.~~included ~~Deferred~~in ~~tax~~operating ~~assets~~expenses 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~~accompanying instatements ~~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~~operations. ~~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~~Cash and ~~Payments~~Cash Equivalents

The Company ~~accounts~~considers ~~for~~all ~~stock-based~~highly ~~compensation~~liquid ininvestments ~~accordance~~ with ~~ASC~~maturities ~~Topic 718, Compensation-Stock Compensation(“ASC 718”). Under the fair value recognition provisions~~ of ~~this topic,~~three ~~stock-based~~months ~~compensation~~or ~~cost~~less ~~is measured~~ at the ~~grant~~time ~~date based on the fair value~~ of ~~the~~purchase ~~award~~to ~~and~~be iscash ~~recognized as expense on a straight-line basis over the requisite service period, which is the vesting period~~equivalents.

~~The Company has elected to use the Black-Scholes-Merton (“BSM”)~~Accounts ~~option-pricing~~Receivable ~~model to estimate the fair value of its options, which incorporates various subjective assumptions including volatility, risk-free interest rate, expected life,~~ and ~~dividend~~Allowance ~~yield~~for toDoubtful 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.Accounts

~~Convertible~~Accounts receivable ~~Instruments~~are recorded at the invoiced amount, net of an allowance for doubtful accounts. The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts. The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

Outstanding account balances are reviewed individually for collectability. The ~~Company~~allowance ~~evaluates~~for ~~and~~doubtful accounts ~~for~~is ~~conversion~~the ~~options~~Company’s ~~embedded~~best estimate of the amount of probable credit losses in ~~its~~the ~~convertible~~Company’s ~~instruments~~existing ~~and~~accounts ~~warrants~~receivable. Bad debt expense is included in ~~accordance~~general ~~with~~and ~~professional~~administrative ~~standards~~expenses, ~~for~~if “any. Pursuant to paragraph 310-10-50-2 of the FASB Accounting ~~for~~Standards ~~Derivative~~Codification account ~~Instruments~~balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine ~~Hedging~~when ~~Activities~~receivables are past due or delinquent based on how recently payments have been received.”

~~Professional standards generally provides three criteria that,~~The ifCompany ~~met,~~does 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~~have ~~and~~any ~~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~~off-~~measured at~~balance-sheet ~~fair~~credit ~~value~~exposure 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~~its ~~rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of “Conventional Convertible Debt Instrument~~customers.”

~~The Company accounts for convertible instruments (when it has determined~~Property 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.Equipment

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful lives. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations. Leasehold improvements, if any, are amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

F-7

~~Table of Contents~~Leases

~~ASC~~Lease agreements ~~815~~are evaluated to determine whether they are capital leases or operating leases in accordance with applicable paragraph 840-4010-25-1 ~~provides~~of ~~that,~~the ~~among~~FASB ~~other~~Accounting ~~things,~~Standards ~~generally~~Codification (“Paragraph 840-10-25-1”). When substantially all of the risks and benefits of property ownership have been transferred to the Company, ifthe anlease then qualifies as a capital lease. Capital ~~event~~lease isassets ~~not~~are ~~within~~depreciated on a straight-line basis over the ~~entity~~capital lease assets estimated useful lives consistent with the Company’s ~~control~~normal ~~could~~depreciation ~~require~~policy ~~net~~for ~~cash~~tangible ~~settlement~~fixed assets, ~~then~~but generally not exceeding the ~~contract~~lease ~~shall~~term. beInterest ~~classified~~charges asare ~~an asset~~expensed orover athe ~~liability~~period of the lease in relation to the carrying value of the capital lease obligation.

~~Pursuant to 815-40-25-22, if the number of~~Rent ~~currently~~expense ~~authorized~~for ~~but~~operating ~~unissued shares~~leases, ~~less~~which ~~the~~may ~~maximum~~include ~~number~~free ofrent ~~shares~~or ~~that~~fixed ~~could~~escalation beamounts ~~required~~in addition to beminimum ~~delivered~~lease ~~during~~payments, ~~the~~is ~~contract~~recognized ~~period~~on ~~under~~a ~~existing~~straight-line ~~commitments,~~basis ~~including~~over ~~outstanding convertible debt or instruments, outstanding stock options and warrants, exceeds~~ the ~~maximum~~duration ~~number~~ of ~~shares~~each ~~that~~lease ~~could be required to be delivered under share settlement of the contract, then the excess is to be accounted for as a liability~~term.

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

~~Recent~~The Company allocates the proceeds received from convertible debt instruments between the liability component and equity component, and records the conversion feature as a liability in accordance with subtopic 470-20 of the FASB Accounting ~~Pronouncements~~Standards Codification (“Subtopic 470-20”). The conversion feature and certain other features that are considered embedded derivative instruments, such as a conversion reset provision, a penalty provision and redemption option, have been recorded at their fair value as its fair value can be separated from the convertible note and its conversion is independent of the underlying note value. The conversion liability is marked to market each reporting period with the resulting gains or losses shown in the Statement of Operations. The Company has also recorded the resulting discount on debt related to the warrants and conversion feature and is amortizing the discount using the effective interest rate method over the life of the debt instruments.

~~Management does not believe that any recently issued, but not yet~~Derivative ~~effective,~~Instruments ~~accounting~~and ~~standards~~Hedging 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.Activities

~~Basic~~The Company accounts for derivative instruments and ~~Diluted~~hedging ~~Earnings~~activities ~~per~~in ~~Share~~accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification (“Paragraph 810-10-05-4”). Paragraph 810-10-05-4 requires companies to recognize all derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends upon: (i) whether the derivative has been designated and qualifies as part of a hedging relationship, and (ii) the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based upon the exposure being hedged as either a fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation.

~~Basic earnings per share is calculated by dividing income available~~Derivative toWarrant 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 183,022,916 and 113,959,750 at September 30, 2012and 2011, respectively. Accordingly, these common share equivalents at September 30, 2012 and 2011 are excluded from the loss per share computation for that period due to their anti-dilutive effect.Liability

The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations and comprehensive income (loss) as other income or expense. Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

F-8

~~Table~~The Company marks to market the fair value of ~~Contents~~the remaining embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the consolidated statements of operations and comprehensive income (loss).

The Company ~~following~~utilizes ~~sets~~the ~~forth~~Lattice model that values the ~~computation~~liability of ~~basic~~the ~~and~~derivative ~~diluted~~warrants ~~earnings~~based on a probability weighted discounted ~~per~~cash ~~share~~flow ~~for~~model with the ~~nine~~assistance of the third party valuation firm. The reason the Company picks the Lattice model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-~~month~~Scholes ~~periods~~valuation ~~ended~~does ~~September~~not 30consider all of the terms of the instrument. Therefore, ~~2012~~the fair value may not be appropriately captured by simple models. In other words, simple models such as Black-Scholes may not be appropriate in many situations given complex features and ~~2011:~~terms of conversion option (e.g., combined embedded derivatives). The Lattice model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full reset features. Based on these features, there are two primary events that can occur; the Holder exercises the Warrants or the Warrants are held to expiration. The Lattice model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, exercise price, volatility, etc.). Projections were then made on the underlying factors which led to potential scenarios. Probabilities were assigned to each scenario based on management projections. This led to a cash flow projection and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed to determine the value of the derivative warrants.

	Three months ended						Nine months ended
	September 30,			September 30,			September 30,			September 30,
	2012			2011			2012			2011
Numerator:
Net loss	$	(1,028,523	)	$	(3,247,158	)	$	(2,898,666	)	$	(5,329,539	)
Increase (decrease) in fair value of derivative liabilities		168,806			1,552,858			155,936			(577,076	)
Numerator for basic earnings per share- loss
attributable to common stockholders - as adjusted		(859,717	)		(1,694,300	)		(2,742,730	)		(5,906,615	)
Numerator for diluted earnings per share-net income (loss)
attributable to common stockholders - as adjusted	$	(859,717	)	$	(1,694,300	)	$	(2,742,730	)	$	(5,906,615	)
Denominator:
Denominator for basic earnings per share—weighted
average shares		364,835,548			273,233,495			337,350,489			243,774,932
Effect of dilutive securities:
Assumed conversion of Series A preferred stock		—			—			—			—
Assumed conversion of notes payable		—			—			—			—
Stock options		—			—			—			—
Warrants		—			—			—			—
Dilutive potential common shares		—			—			—			—
Denominator for diluted earnings per share—adjusted
weighted-average shares and assumed conversions		364,835,548			273,233,495			337,350,489			243,774,932
Loss per share:
Net loss available to common stockholders
Basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)

Embedded Beneficial Conversion Feature of Convertible Instruments

~~NOTE~~The Company 3recognizes and measures the embedded beneficial conversion feature of applicable convertible instruments by allocating a portion of the proceeds from the convertible instruments equal to the intrinsic value of that feature to additional paid-in capital. ~~PROPERTY~~The ~~AND~~intrinsic ~~EQUIPMENT~~value of the embedded beneficial conversion feature is calculated at the commitment date as the difference between the conversion price and the fair value of the securities into which the convertible instruments are convertible. The Company recognizes the intrinsic value of the embedded beneficial conversion feature of the convertible notes so computed as interest expense.

~~Property~~From time ~~and~~to ~~equipment~~time, ~~consisted~~the ofCompany transfers the ~~following:~~liability under the indenture instrument to a third party in certain circumstances.

		September 30,			December 31,
	Estimate Life	2012			2011
Computer and office equipment	3 to 5 years	$	378,470		$	377,415
			378,470			377,415
Less: Accumulated depreciation			(331,026	)		(279,345	)
		$	47,444		$	98,070

Related Parties

~~Depreciation~~The Company ~~expense~~follows ~~amounted~~subtopic to850-10 ~~approximately $51,681~~of ~~and~~the ~~$161,000~~FASB ~~during~~Accounting ~~the~~Standards ~~nine-month~~Codification ~~periods~~for ~~ended~~the ~~September~~identification ~~30,~~of ~~2012~~related parties and ~~2011,~~disclosure of ~~respectively~~related party transactions.

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

F-9

~~Table~~Commitment and ~~of Contents~~Contingencies

~~NOTE~~The Company 4follows subtopic 450-~~ACCRUED~~20 ~~PAYROLL~~of ~~TAXES~~the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

AtIf the ~~September~~assessment ~~30,~~of ~~2012,~~a contingency indicates that it is probable that a material loss has been incurred and the ~~Company~~amount ~~recorded~~of the liability acan be estimated, then the estimated liability ofwould ~~approximately~~be ~~$4.3~~accrued ~~million~~in tothe ~~certain~~Company’s Uconsolidated financial statements.S. ~~and~~If ~~state~~the assessment ~~governmental~~indicates ~~agencies~~that ~~for~~a ~~unpaid~~potential ~~payroll~~material ~~taxes~~loss contingency is not probable but is reasonably possible, ~~including~~or is probable but ~~statutory~~cannot ~~additions~~be estimated, ~~such~~then asthe ~~interest~~nature of the contingent liability, and ~~penalties~~an estimate of the range of possible losses, if determinable and material, would be disclosed.

~~NOTE~~Loss contingencies 5considered -remote ~~CONVERTIBLE~~are ~~PROMISSORY~~generally ~~NOTES~~not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

~~Convertible promissory notes~~Revenue Recognition

~~Convertible~~The Company ~~promissory~~applies ~~notes~~paragraph ~~consist~~605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company ~~following~~recognizes asrevenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

	September 30,		December 31,
	2012		2011
Convertible promissory notes, bearing interest between 8% and 10% per annum, maturing between August 2008 and October 2011. Interest is 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 the 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. These notes are currently in default.	$	1,918,735	$	1,918,735
Convertible note payable for up to $1.5 million, convertible at 75% of the Company’s 5-day moving average quoted price of the stock for that month, bearing interest at 10% per annum, payable monthly beginning August 2011, maturing in June 2014.		585,000		—
Convertible note payable, convertible at the lessor of: 1) 70% of the lowest traded price of the Company’s common stock for the 20 trading days prior to the conversion, or 2) $0.035, bearing a one-time interest payment of 10%, payable upon conversion, maturing December 15, 2012.		60,000		—
Convertible note payable for up to $385,000, convertible at the lessor of: 1) $0.035, or 2) 70% of the lowest trade price in the 25 trading days prior to the conversion, bearing an original issuance discount of 9.1% and no interest for the first 90 days, bearing a one-time interest payment of 5% after 90 days, payable on conversion, maturing one year from the effective date of each payment.		54,545		—
Convertible note payable, convertible at 60% of the average of the lowest three trading prices for the Company’s common stock in the ten day trading period ended one trading day prior to the conversion date, bearing interest at 6% per annum, payable upon conversion, maturing on February 18, 2013.		160,000		—
Convertible note payable valued at $100,000, convertible at a conversion price of $0.01 per share maturity or when in default at a strike price of $0.05 per share, maturing on September 5, 2012 2 million warrants with a strike price of one cent per a share, maturing on October 15, 2012		100,000
Convertible note payable with a value for up to $500,000, convertible at maturity or when in default at a strike price of $0.05 per share, maturing on September 5, 2012 2 million warrants with a strike price of one cent per a share, maturing on October 15, 2012		35,000
Convertible note payable for up to $150,000, convertible at 70% of the lowest traded price in the 5 trading days prior to the conversion, bearing interest at 6% per annum, maturing on August 22, 2014 Convertible note payable, convertible at $0.02, bearing no interest and no maturity date.		75,000
				—
Less: debt discount		477,061		—
	$	2,511,219	$	1,918,735

The Company derives its revenues from sales contracts with customers with revenues being generated upon the delivery of services. Persuasive evidence of an arrangement is demonstrated via sales invoice or contract; product delivery is evidenced by data storage capacity usage that is tracked by a third party vendor and reported to the Company on a monthly basis. When the Company recognizes revenue, no provisions are made for returns because, historically, there have been very few sales returns and adjustments that have impacted the ultimate collection of revenues.

Fixed Price Service Contracts

Revenue from fixed price service contracts is recognized over the term of the contract based on the percentage of services that are provided during the period compared with the total estimated services to be provided over the entire contract. Losses on fixed price contracts are recognized during the period in which the loss first becomes apparent. Revenue from maintenance is recognized over the contractual period or as the services are performed. Revenue in excess of billings on service contracts is recorded as unbilled receivables and is included in trade accounts receivable. Applicable billings in excess of revenue that is recognized on service contracts are recorded as deferred income until the aforementioned revenue recognition criteria are met.

F-10

~~Table~~Stock-Based Compensation offor ~~Contents~~Obtaining Employee Services

The Company ~~following~~accounts ~~sets~~for ~~forth~~its stock based compensation in which the Company’s ~~activity~~obtains ofemployee ~~its~~services ~~convertible~~in share-based payment transactions ~~notes~~under ~~payable~~the ~~during~~recognition and measurement principles of the ~~nine~~fair value recognition provisions of section 718-~~month~~10-30 ~~period~~of ~~ended~~the ~~September~~FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, ~~2012~~all ~~and~~transactions ~~2011~~in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, ~~respectively:~~whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

		Nine-month period ended September 30, 2012		Nine-month period ended September 30, 2011
Reprising of certain convertible promissory notes from $0.16 to $0.12 per share recorded as interest expense	$	—	$	—
Issuance of -0- and 11,760,000 shares of common stock pursuant to conversion of convertible notes payable		—		818,500
Proceeds from issuance of convertible notes payable		782,000		490,000
Fair value of warrants issued to certain promissory note holders recorded as interest expense		—		207,910
Fair value of 2,166,737 and 955,029 shares of common stock to satisfy accrued interest obligations		137,510		50,995
Fair value of warrants and embedded conversion features recorded as corresponding debt discount		672,217		47,672
Fair value of warrants issued to satisfy accrued interest obligations		—
Amortization of debt discount		209,701		40,761
Notes payable converted to convertible notes payable		302,600		—
Original issuance discount on convertible notes payable		14,545		—

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

~~Notes~~· ~~Payable~~· Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method , i.e., expected term = ((vesting term + original contractual term) / 2) , if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

~~Notes~~· ~~payable~~· doExpected ~~not~~volatility ~~have~~of ~~any~~the ~~stated~~entity’s ~~interest~~shares ~~rate,~~and ~~are~~the ~~payable on~~method ~~demand~~used ~~and~~to ~~are~~estimate ~~unsecured,~~it. ~~with~~Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the ~~exception~~calculated ofvalue ~~one~~method ~~note,~~shall ~~which~~disclose ~~amounts~~the reasons why it is not practicable for the Company to ~~$37~~estimate the expected volatility of its share price,~~500,~~ ~~which~~the appropriate industry sector index that it has aselected, ~~premium~~the ofreasons ~~$15~~for selecting that particular index,~~000~~ and ~~was due~~how onit ~~November~~has ~~16,~~calculated ~~2011~~historical volatility using that index. The ~~amount~~Company ~~due~~uses ~~under~~the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such ~~note~~shares atcould ~~September~~be ~~30,~~artificially ~~2012~~inflated due to a larger spread between the bid and ~~December~~asked ~~31,~~quotes ~~2011~~and ~~amounts~~lack toof ~~$15,000~~consistent trading in the market.

· Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company ’ s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

F-11

~~Table~~The Company’s ofpolicy ~~Contents~~is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

~~The following sets forth the Company’s activity of its notes~~Equity ~~payable~~Instruments ~~during~~Issued ~~the~~to ~~nine-month~~Parties ~~period~~Other ~~ended~~Than ~~September~~Employees ~~30,~~for ~~2012~~Acquiring ~~and~~Goods ~~2011,~~or ~~respectively:~~Services

	Nine-month period ended September 30, 2012		Nine-month period ended September 30, 2011
Principal repayments	$	—	$	163,000
Proceeds from issuance of note payable		23,000		367,600
Fair value of -0- and 955,029 shares of common stock to satisfy accrued interest obligations		—		115,874
Issuance of -0- and 12,496,000 shares to satisfy obligations under certain notes payable		—		759,500
Conversion of note payable to convertible note payable		257,000		—
Issuance of notes payable to satisfy certain accounts payable		—		37,500

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

~~The~~Pursuant to ~~Company~~ASC ~~recognized~~Section ~~approximately $402~~505-50-30,~~000 and~~ ~~$644,000~~all ~~during~~transactions in which goods or services are the ~~nine-month~~consideration ~~periods~~received ~~ended~~for ~~September~~the ~~30,~~issuance ~~2012~~of ~~and~~equity instruments ~~2011,~~are ~~respectively,~~accounted asfor ~~interest~~based ~~expense,~~on ~~which~~the ~~consists~~ fair value of the ~~excess~~consideration ofreceived or the fair value of ~~shares~~the ofequity ~~common~~instrument issued, ~~stock~~whichever ~~over~~is more reliably measurable. The measurement date used to determine the ~~carrying~~fair value of the ~~convertible~~equity ~~promissory~~instrument issued ~~notes~~is ~~and~~the ~~notes~~earlier of the date on which the performance is complete or the date on which it is probable that performance will ~~payable~~occur. If ~~satisfied,~~the ~~amortization~~Company ofis ~~debt~~a ~~discount,~~newly ~~amortization~~formed corporation or shares of ~~deferred~~the ~~financing~~Company ~~costs,~~are ~~fair~~thinly ~~value~~traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would ~~shares~~generally be more appropriate than the use of ~~common~~daily ~~stock~~price observations as such shares could be artificially inflated due to a larger spread between the bid and ~~warrants~~asked ~~issued~~quotes inand ~~lieu~~lack of ~~interest~~consistent trading in the market.

~~NOTE~~The fair 6value of share options and similar instruments is estimated on the date of grant using a Black-Scholes ~~DERIVATIVE~~option-pricing ~~LIABILITIES~~valuation model. The ranges of assumptions for inputs are as follows:

A· ~~summary~~· Expected term of ~~the~~share ~~transactions~~options ~~related~~and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the ~~derivative~~ ~~liability~~FASB ~~for~~Accounting Standards Codification the ~~nine-month~~expected term of share options and similar instruments represents the period ~~ended~~of ~~September~~time ~~30,~~the ~~2011:~~options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

Derivative liability at January 1, 2011	$	470,871
Reclassification of equity contracts to liability contracts		2,407,261
Reclassification of liability contracts to equity contracts		(656	)
Issuance of warrants		200,000
Decrease in fair value of derivative liability, recognized as other income		(838,844	)
Derivative liability at September 30, 2011	$	2,238,832

· Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

A· ~~summary~~· Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the ~~transactions~~contractual ~~related~~term toshall disclose the ~~derivative~~ ~~liability~~range ~~for~~of expected dividends used and the ~~nine~~weighted-~~month~~average ~~period~~expected ~~ended~~dividends. ~~September~~The ~~30,~~expected ~~2012:~~dividend yield is based on the Company ’ s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

Derivative liability at January 1, 2012	$	—
Issuance of embedded conversion features, recognized as interest expense		672,217
Decrease in fair value of derivative liability, recognized as other expense		(155,936	)
Derivative liability at September 30, 2012	$	516,281


	· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

The maximum number of shares required to be delivered during the period under which substantially all of the Company’s outstanding warrants, options, and convertible notes exceeded the amount of authorized shares through September 30, 2012.

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

F-12

~~Table~~Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of ~~Contents~~the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

~~Derivative~~Pursuant to ~~liabilities~~Paragraphs ~~amounted~~505-50-25-8 toand ~~$516~~505-50-25-9,~~281~~ an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in $0the atsame ~~September~~manner 30as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, ~~2012~~or ~~and~~using, ~~December~~the 31equity instruments. A recognized asset, ~~2011~~expense, ~~respectively~~or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

~~During~~Pursuant to ASC paragraph 505-50-30-S99-1, if the ~~first~~Company ~~three~~receives ~~quarters~~a ofright ~~2011~~to receive future services in exchange for unvested, ~~the~~forfeitable ~~warrants~~equity ~~and~~instruments, ~~convertible~~those ~~promissory~~equity ~~notes~~instruments ~~issued~~are bytreated ~~the~~as ~~Company~~unissued ~~were~~for ~~recognized~~accounting aspurposes ~~liability~~until ~~contracts~~the ~~because,~~future atservices ~~issuance~~are received (that is, the ~~Company~~ ~~did~~instruments are not ~~have~~considered ~~sufficient~~issued ~~amount~~until ofthey ~~authorized~~vest). ofConsequently, ~~shares~~there ofwould ~~common~~be ~~stock~~no torecognition ~~satisfy~~at ~~its~~the ~~obligations~~measurement date ~~under~~and ~~such~~no ~~contracts~~entry should be recorded.

~~During December 2011, the Company’s~~Software ~~shareholders~~Development 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.Costs

AtThe Company ~~each~~has ~~measurement~~adopted ~~date,~~paragraph 985-20-05-01 of the ~~fair~~FASB ~~value~~Accounting Standards Codification (“Paragraph 985-20-05-01”) for the costs of computer software to be sold or licensed. Paragraph 985-20-05-01 requires research and development costs incurred in the ~~embedded~~process ~~conversion~~of ~~features~~software development before establishment of technological feasibility being expensed as incurred and capitalization ~~warrants~~of ~~were~~software ~~based~~development oncosts incurred subsequent to establishment of technological feasibility and prior to the availability ~~binomial~~of the product for general release to customers. Systematic amortization of capitalized costs begins when a product is available for general release to customers and is computed on a product-by-product basis at a rate not less than straight-line basis over the ~~Black~~product’s ~~Scholes~~remaining ~~method~~estimated economic life. To date, ~~respectively~~all costs have been accounted for as research and development costs and no software development cost has been capitalized.

During the nine-month period ended September 30, 2011, the Company issued warrants in connection with the sale of the Company’s common stock, conversion of convertible promissory notes, and short-term note payable, as well convertible promissory notes. The maximum number of shares required to be delivered during the period under which the warrants issued pursuant to common stock, conversion of promissory notes and short-term note payables, as well as the issuance of convertible promissory note, together with all the outstanding convertible debt, stock options, warrants and common stock, exceeded the amount of authorized common stock shares at September 30, 2011. ~~As a result,~~Foreign ~~the~~Currency ~~Company recorded a derivative liability aggregating $2,238,832 and was offset against additional-paid in capital.~~Transactions

The Company ~~fair~~applies ~~value~~the guidelines as set out in Section 830-20-35 of the ~~derivative~~FASB ~~instruments~~Accounting Standards Codification (“Section 830-20-35”) ~~were~~for ~~based~~foreign oncurrency transactions. Pursuant to Section 830-20-35 of the FASB Accounting Standards Codification, foreign currency transactions are transactions denominated in currencies other than U.S. Dollar, the Company’s reporting currency. Foreign currency transactions may produce receivables or payables that are fixed in terms of the amount of foreign currency that will be received or paid. A change in exchange rates between the functional currency and the currency in which a transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. That increase or decrease in expected functional currency cash flows is a foreign currency transaction gain or loss that generally shall be included in determining net income for the period in which the exchange rate changes. Likewise, a transaction gain or loss (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon settlement of a foreign currency transaction generally shall be included in determining net income for the period in which the transaction is settled. The exceptions to this requirement for inclusion in net income of transaction gains and losses pertain to certain intercompany transactions and to transactions that are designated as, and effective as, economic hedges of net investments and foreign currency commitments. Pursuant to Section 830-20-25 of the FASB Accounting Standards Codification, the following ~~assumptions~~shall apply to all foreign currency transactions of an enterprise and its investees: (a) at the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction shall be measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date as defined in section 830-10-20 of the FASB Accounting Standards Codification; and (b) at each balance sheet date, recorded balances that are denominated in currencies other than the functional currency or reporting currency of the recording entity shall be adjusted to reflect the current exchange rate.

Exercise price:	$0.05 - $0.13
Market price at date of grant:	$0.09 - $0.13
Expected volatility:	78	%
Term:	>1 year
Risk-free interest rate:	0.28% - 1.93%

During the nine-month period ended September 30, 2012, the Company issued warrants in connection with the sale of the Company’s common stock, conversion of convertible promissory notes, and short-term note payable, as well convertible promissory notes. The maximum number of shares required to be delivered during the period under which the warrants issued pursuant to common stock, conversion of promissory notes and short-term note payables, as well as the issuance of convertible promissory note, together with all the outstanding convertible debt, stock options, warrants and common stock, exceeded the amount of authorized common stock shares at September 30, 2012. As a result, the Company recorded a derivative liability aggregating $516,282 and was offset against debt discount.

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

Exercise price:	$0.013 - $0.029
Market price at date of grant:	$0.032 - $0.043
Expected volatility:	76	%
Term:	>1 year - 3 years
Risk-free interest rate:	0.06% -0.31%

F-13

~~Table~~Income Tax ~~of Contents~~Provision

~~NOTE~~The Company 7accounts for income taxes under Section 740-10-30 ~~STOCKHOLDERS'~~of ~~DEFICIT~~the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. 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 the Consolidated Statements of Income and Comprehensive Income in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended March 31 2013 or 2012.

Net Income (Loss) per Common Share

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent share arrangements, stock options and warrants. The outstanding options, warrants and common stock equivalents issuable pursuant to convertible promissory notes amounted to 153,189,701 at March 31, 2013. Accordingly, these common share equivalents at March 31, 2013 are excluded from the net loss per share computation for that period due to their anti-dilutive effect.

F-14

Cash Flows Reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

Subsequent Events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

F-15

Recent Accounting Pronouncements

In January 2013, the FASB issued ASU No. 2013-01, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities". This ASU clarifies that the scope of ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.

In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income by component and their corresponding effect on net income. The ASU is effective for public entities for fiscal years beginning after December 15, 2013.

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

F-16

Note 3 - Going Concern

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the consolidated financial statements, the Company has a working capital deficiency and an accumulated deficit at March 31, 2013, and net cash used in operating activities for the interim period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds by way of a public or private offering, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues and its ability to raise additional funds by way of a public or private offering.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 - Property and Equipment

Property and equipment consisted of the following:

	Estimate Life	March 31, 2013			December 31, 2012

Computer and office equipment	3 to 5 years	$	379,758		$	378,703

Less: Accumulated depreciation			(351,394	)		(341,255	)

		$	28,364		$	37,448

Depreciation expense amounted to $10,139 and $21,027 during the interim period ended March 31, 2013 and 2012, respectively.

Note 5- Accrued Payroll Taxes

At March 31, 2013, the Company recorded a liability of approximately $4.5 million to certain U.S. and state governmental agencies for unpaid payroll taxes, including statutory additions, such as interest and penalties.

F-17

Note 6 - Convertible Promissory Notes

Convertible promissory notes consisted of the following as of:

	March 31, 2013			December 31, 2012

Convertible promissory notes bearing interest at 8% per annum, matured in August 2009. Interest payable commencing the quarter ending December 31, 2007, 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 (5) trading days preceding the interest payment date. The promissory notes are convertible at any time at the option of the holder, into shares of its common stock at an effective conversion rate of $0.25 per share. The notes are currently past due.	$	1,593,772		$	1,593,772

Convertible promissory notes payable bearing interest at 10% per annum, matured between August 2008 and October 2011. Interest payable commencing the quarter ending September 30, 2008, 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 100% of the volume weighted average price for the common stock for ten (10) trading days preceding the interest payment date. The promissory notes are convertible at any time at the option of the holder, into shares of the Company’s common stock at an effective conversion rate ranging from $0.05 to $0.25 per share. The notes are currently past due.		324,963			274,963

Convertible note facility up to $1.5 million, convertible at 75% of the Company’s 5-day moving average quoted price of the stock for that month, bearing interest at 10% per annum, payable monthly beginning August 2011, maturing in June 2014.		585,000			585,000

Secured convertible note payable, convertible at the lesser of: 1) 70% of the lowest traded price of the Company’s common stock for the 20 trading days prior to the conversion, or 2) $0.035 per share, bearing a one-time interest payment of 10%, payable upon conversion, matured December 15, 2012. The note is currently past due.		60,000			60,000
					—
Convertible note facility up to $385,000, convertible at the lessor of: 1) $0.035 per share, or 2) 70% of the lowest trade price in the 25 trading days prior to the conversion, bearing an original issuance discount of 9.1% and no interest for the first 90 days, bearing a one-time interest payment of 5% after 90 days, payable on conversion, maturing one (1) year from the effective date of each receipt. Matured on June 27, 2013. The note is currently past due.		54,545			54,545

Convertible note payable - 10%, convertible at 60% of the average of the lowest three trading prices for the Company’s common stock in the ten day trading period ended one trading day prior to the conversion date, bearing interest at 6% per annum, payable upon conversion, matured on February 18, 2013. The notes are currently past due.		160,000			160,000

Convertible note payable valued at $100,000, convertible at a conversion price of $0.05 per share at maturity or when in default at a strike price of $0.01 per share, maturing on September 5, 2012, 2 million warrants with a strike price of one cent per share, matured on October 15, 2012. The note is currently past due.		100,000			100,000

Convertible note payable issued with a 2- year 2,000,000 warrants with exercise price of $0.01 convertible at maturity with conversion price of $0.0125 per share, matured on October 15, 2012. The note is currently past due.		35,000			34,000

Convertible note payable, issued on August 22, 2012, bearing interest at 6% per annum, payable in common stock, maturing on August 22, 2014, with principal and interest convertible to common stock at 70% of the lowest closing bid price for any of the five (5) trading days including the day upon which a Notice of Conversion is received by the Company.		75,000			75,000

Convertible notes payable issued with warrants to purchase 8.3 million shares of the Company’s common stock over a 3-year period with an exercise price of $0.05 per share, bearing interest at 12% per annum payable in common stock, with principal and interest convertible to common stock at 50% of the lowest closing bid price for any of the five (5) trading days including the day upon which a Notice of Conversion is received by the Company, matured on December 20, 2012. The note is currently past due.		54,000			41,500

Convertible note payable issued with warrants to purchase 20.25 million shares of the Company’s common stock over a 3-year period with an exercise price of $0.05 per share, bearing interest at 12% per annum payable in common stock, with principal and interest convertible to common stock at 50% of the lowest closing bid price for any of the five (5) trading days including the day upon which a Notice of Conversion is received by the Company, matured on December 20, 2012. The note is currently past due.		135,000			137,500

Convertible note payable issued with warrants to purchase 8 million shares of the Company’s common stock over a 3-year period with an exercise price of $0.05 per share, bearing interest at 12% per annum payable in common stock, with principal and interest convertible to common stock at 50% of the lowest closing bid price for any of the five (5) trading days including the day upon which a Notice of Conversion is received by the Company, maturing on January 31, 2014.		40,000			—

Convertible note payable, convertible at $0.05 per share, non-interest bearing and due on demand.		29,600			29,600

Convertible note payable, convertible at $0.05 per share, non-interest bearing and due on demand.		2,000			2,000

Total convertible notes payable		3,248,880			3,147,880

Current maturities		(1,618,160	)		(2,000,672	)

		1,630,720			1,147,208

Discount on convertible notes payable		(1,091,028	)		(528,768	)

Convertible notes payable, net of current maturities and discount	$	539,692		$	618,440

At March 31, 2013 and December 31, 2012, accrued interest due for the convertible notes was $261,210 and $197,638, respectively. Interest expense for the convertible notes payable was $63,572 and $61,680 for the interim period ended March 31, 2013 and 2012, respectively.

F-18

Note 7 - Notes Payable

Notes payable consisted of the following:

	March 31, 2013			December 31, 2012

Seventy units, with each unit consisting of a 10% promissory note of $25,000, maturing from January 22, 2011 through December 18, 2011 with a 10% discount rate, and 82,000 non-dilutable (for one (1) year) restricted shares of the Company’s common stock, at market price. Per the terms and conditions of a debt purchasing agreement formalized with a consultant in September 2011, the Company transferred notes for $50,000 in July 2011 and $25,000 in August 2011, including accrued interest, to the consultant (see Note 11). Per the terms and conditions of a settlement agreement that the Company executed with the estate of a deceased note holder in November 2011, the Company settled a $25,000 note for restricted shares of its common stock, in December 2011, issued to two (2) beneficiaries of the estate (see Notes 10 and 11). The Company is pursuing extensions on the remaining notes.	$	508,000		$	508,000


Three (3) promissory notes payable of $25,000, $15,000 and $8,000 issued with warrants to purchase 1,041,667,625,000 and 41,667 shares of the Company’s common stock over a 5-year period with an exercise price of $0.02 per share, respectively bearing interest at 1% per month, originally matured on March 5, 2013 and were extended to August 2013		48,000			—

Discount on convertible notes payable		(19,989	)		(-	)

Notes payable, net of discount	$	536,011		$	508,000

At March 31, 2013 and December 31, 2012, accrued interest due for the notes was $58,141 and $44,810, respectively, and is included in accrued expenses in the accompanying balance sheets. Interest expense for notes payable for the interim period ended March 31, 2013 and 2012 was $13,331 and $0, respectively.

Note 8 - Derivative Liabilities

As of March 31, 2013, the Company’s derivative liabilities are the Company’s convertible notes and Warrants contain full reset and variable market based conversion derivative features.

In connection with the issuance of certain convertible promissory notes, the terms of the convertible notes included an embedded conversion feature; which provided for the settlement of certain convertible promissory notes into shares of common stock at a rate which was determined to be variable. The Company determined that the conversion feature was an embedded derivative instrument pursuant to ASC 815 “Derivatives and Hedging”.

As a result of entering into the convertible promissory notes, the Company is required to classify all other non-employee warrants as derivative liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as a change in the fair value of derivative liabilities for each reporting period at each balance sheet date. The Company reassesses the classification at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification.

F-19

Valuation of Derivative Financial Instruments

(1)

Valuation Methodology

The Company has utilized a third party valuation consultant to assist the Company to fair value the compound embedded derivatives using a multinomial lattice models that values the derivative liabilities within the convertible notes based on a probability weighted discount cash flow model.

(2)

Valuation Assumptions - Change in Fair Value of Derivative Liability Related to Notes

The following assumptions were used for the valuation of the derivative liability related to the Notes at March 31, 2013:

The Company would optionally redeem (includes penalty) in stock after 6 months following issuance based on availability of alternative financing, increasing 1.0% monthly to a maximum of 10%.

The Company would redeem based on availability of alternative financing, 0% of the time increasing 1.0% monthly to a maximum of 10%.

The Holder would convert during the life of the note (limited to the average trading volume over the last 6 months) and the remainder at maturity if the stock price was above the reset conversion price.

The reset of the conversion price is possible and resets are projected to decrease the exercise price quarterly through to maturity. Management projected quarterly financing ($250,000 per period) at prices approximating 100% of market

The Holder would automatically convert the note on redemption notice if the conversion return was greater than the penalty; the registration was effective and the company was not in default.

An event of default would occur 0% of the time, increasing 1.00% per month to a maximum of 10%; if the Company was in default the interest rate was adjusted to the default rate starting from the initial valuation date.

As of March 31, 2013, the estimated fair value of derivative liabilities on convertible notes was $1,845,080.

(3)

Valuation Assumptions - Change in Fair Value of Derivative Liabilities Related to Warrants

The following assumptions were used for the valuation of the derivative liability related to warrants at March 31, 2013:

The 2-3 year warrants issued to the investors at fixed exercise prices subject to standard adjustments – none with full reset features (exercise price and number of warrants).

The stock price would fluctuate with the Company projected volatility.

The projected volatility curve was based on historical volatilities (averaged over 6 months for each period) of the Company (summarized in the following section).

The Holder would exercise the warrant as they become exercisable at target prices of 2 times the stock price or higher;

The Holder would exercise the warrant at maturity if the stock price was above the project reset prices.

If applicable, the reset of the exercise price is possible and resets are projected to decrease the exercise price quarterly through to maturity. Management projected quarterly financing ($250,000 per period) at prices approximating 100% of market.

No warrants have been exercised or expired.

F-20

As of March 31, 2013, the estimated fair value of derivative liabilities on the warrants was $80,751.

Summary of the Changes in Fair Value of Level 3 Financial Liabilities

The table below provides a summary of the changes in the fair value of the derivative financial instruments and the changes in the fair value of the derivative financial instruments, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Fair Value Measurement Using Level 3 Inputs
	Derivative warrants Assets (Liability)			Total

Balance, December 31, 2012	$	(600,770	)	$	(600,770	)

Purchases, issuances and settlements		(3,157,219	)		(3,157,219	)

Transfers in and/or out of Level 3		—			—

Total gains or losses (realized/unrealized) included in:

Net income (loss)		1,832,158			1,832,158

Other comprehensive income (loss)		—			—

Balance, March 31, 2013	$	(1,925,831	)	$	(1,925,831	)

Note 9 - Stockholders' Deficit

Preferred Stock

During the year ended December 31, 2011, the Company issued a total of 100,000 shares of its Series B Preferred Stock. The Series B Preferred Stock’s designation provides ~~voting~~ voting rights amounting to 400-to-1 in comparison with common 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 of 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 the par value.

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

Common Stock

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

~~The~~In ~~issuance~~April 2013, the Company increased its authorized shares of common stock ~~during~~from ~~the~~four ~~nine-month period~~hundred ~~ended~~and ~~September~~fifty 30million (450,000,000) ~~2011~~to isnine ~~summarized~~hundred inmillion ~~the table below:~~(900,000,000).

	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		517,623	$	38,495	$	0.07
Services performed- Investor relations		5,395,000		701,325		0.04-0.10
Exercised stock options		4,000,000		100,000		0.01-0.03
Exercised warrants		5,109,403		285,442		0.05-.06
Conversion of convertible promissory notes and notes payable		29,033,591		1,711,508		0.05-0.10
Private placement, net of finder’s fee of $57,330		41,258,336		1,852,727		.03-.06
Interest associated with issuance of notes payable		500,000		44,000		.088

F-21

The issuance of common stock ~~during~~ for the ~~nine-month~~year ~~period~~ ended December ~~September 30~~31, 2012 is summarized in the table below:

	Number of Shares of Common Stock		~~Fair~~ Value at Issuance		~~Fair~~ Value at Issuance (per share)
Services performed- Investor relations		5,850,000	$	196,050		$	0.03-0.072
Accrued interest payment for 8% and 10% convertible promissory notes		2,116,737	$	137,510		$	0.049 - 0.142
Services performed-Consulting		13,725,000		585,340			0.03-0.07
Common shares issued for services performed		23,575,000		844,730			0.010 - 0.072
Accrued interest payment for 8% and 10% convertible promissory notes		2,116,737		137,510			0.05-0.12
Exercise of stock options		3,640,000		78,400			0.020 - 0.025
Exercise of stock options		3,640,000		78,400			0.025
Exercise of warrants		4,000,000		47,500			0.010 - 0.003
Private placement		33,251,904		612,250			0.01-0.05
Conversion of convertible promissory notes		16,666,666		166,666			0.010
Exercised warrants		4,000,000		47,500			0.01-0.03
Private placement		53,140,903		735,333			0.010 - 0.050

~~Additionally,~~The ~~the~~issuance ~~Company issued 3,300,000 shares~~ of ~~its~~ common stock asfor ~~collateral in connection with~~ the ~~issuance~~interim period ofended aMarch ~~note~~31, ~~payable~~2013 ofis ~~$60,000~~summarized ~~during~~in the ~~nine-month~~table ~~period ended September 30, 2012.~~below:

F-14

Table of Contents

Warrants

The issuance of warrants ~~during~~for the ~~nine-month period~~year ended December ~~September 30~~31, ~~2011~~2012 is summarized in the table below:

Number of

Exercise

~~Expiration~~

~~Value at~~Expiration

Value at

Association

Warrants

Price

~~Date~~

~~Issuance~~Date

Issuance

Private Placement

1,090,000

~~0.09~~

~~1/5/2014~~0.090

—1/5/2014

—

Finder's Fees

4,575,000

~~0.05 - 0.012~~

~~2/14/14~~0.050 - ~~1/5/14~~0.012

—2/14/14 - 1/5/14

—

Conversion of 8%

Note payable

166,667

~~0.16~~

~~1/14/2013~~0.160

—1/14/2013

—

Accrued interest on

Conversion of 8%

Note payable

19,981

~~0.16~~

~~1/14/2013~~0.160

~~198~~1/14/2013

198

Issuance of convertible

Promissory note

5,000,000

~~0.09~~

~~6/17/2016~~0.090

—6/17/2016

—

The issuance of warrants ~~during~~for the ~~nine-month period~~interim period ended ~~September~~March 3031, ~~2012~~2013 is summarized in the table below:

	Number of		Exercise		~~Expiration~~		~~Value at~~Expiration		Value at
Association	Warrants		Price		~~Date~~		~~Issuance~~Date		Issuance
Private Placement		7,~~350~~500,000	$	~~0.01-0.07~~	$	~~4/1/15 - 6/29/15~~0.020	$	—1/7/2016 - 1/22/2016	$	71,413
Issuance of
Issuance with Convertible Notes and Promissory Notes		10,000,000		$		0.020 - 0.050		1/31/2016 -2/19/2018	$	59,989
Note payable		100,000	$	0.03		5/7/2015		2,900
Services		1,000,000	$	0.018		5/21/2015		23,000

F-22

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

	September 30, 2012			September 30, 2011
	March 31, 2013
Exercise price:	$	$0.~~018 - $0.03~~010			~~$.09-.20~~
Market price at date of grant:	$	$0.~~035 - $0.048~~010			~~$0.08-.15~~
Expected volatility:		76243.2100 – 317.00%	%		~~69-78%~~
Term:		3-5 years			~~3 – 5 years~~
Risk-free interest rate:		0.7237 - 0.89%	%		~~0.75% - 2.72%~~

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~~terminate ten (10) years ~~after~~from the date of issuance.

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:

	September 30, 2012		September 30, 2011
		December 31, 2012
Exercise Price		$ 0.02020 - $ 0.05050		~~$ 0.03-0.08~~
Market price at date of grant		$ 0.~~021~~020 - $ 0.07070	$	~~0.08~~
Expected volatility		76.15% - 76.21%		~~50-69%~~
Risk-free interest rate		0.51% - 0.72%		~~0.63-1.76%~~

~~The~~Stock ~~following~~option activity ~~occurred~~for ~~under~~the ~~our~~interim ~~plan~~period ended March 31, 2013 is summarized as follows:

		Nine- month period ended September 30, 2012			Nine- month period ended September 30, 2011
	Options			Weighted Average Exercise Price		Weighted Average Contractual Terms		Aggregate Intrinsic Value
Weighted-average grant-date fair value of options granted	$	0.04		$	0.04
Outstanding at December 31, 2011		34,370,693			0.170		1.50	$	162,938
Fair value of options recognized as expense:	$	299,984		$	468,346
Granted		5,640,000			0.023		3.55		—
Options granted		5,640,000			4,500,000
Exercised		(3,640,000	)		0.020				—
Expired
Outstanding at December 31, 2012		36,370,693		$	0.170		1.80	$	162,938
Granted		—			—		—		—
Exercised		(-	)		—				—
Expired
Outstanding at March 31, 2013		36,370,693		$	0.170		1.55	$	162,938
Exercisable and vested at March 31, 2013		26,870,693		$	0.010		2.05	$	162,938

~~The total compensation cost related to non~~F-~~vested options not yet recognized amounted to approximately $7,089 at September 30, 2012 and the Company expects that it will be recognized over the following weighted-average period of 3 months.~~23

~~NOTE~~Note 810 - ~~COMMITMENTS~~Commitments ~~AND~~and ~~CONTINGENCIES~~Contingencies

Litigation

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~~The ~~2011, a note holder filed suit against the~~ Company inmade ~~Nevada State Court in Douglas County~~$15,000 ~~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~~$50,000 aspayments oftowards this ~~date~~$100, ~~there~~000 isjudgment ~~a low likelihood of an unfavorable outcome.~~during In2012 ~~February~~and 2011, ~~a former employee filed suit against the Company alleging various employment related claims. The Company conducted litigation and discovery and on April 4~~respectively, ~~2012,~~with ~~the~~remaining ~~case~~balances ~~was settled in exchange for a judgment~~ of $~~125~~35,000~~. In~~ ~~February~~due ~~2012,~~and apayable ~~former~~at ~~employee~~March ~~filed suit against the Company alleging various employment related claims. The Company conducted litigation and discovery~~31, ~~the~~2013 ~~case~~under ~~is set for trial later~~ this ~~year~~judgment. In June 2012, a vendor filed suit against the Company for breach of contract related to call center services they provided. The Company is currently conducting litigation and discovery, the case is not yet set for trial.

~~F-15~~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.

~~Table~~In ofFebruary ~~Contents~~2012, a former employee filed suit against the Company alleging various employment related claims. The Company conducted litigation and discovery, the case is not yet set for trial at March 31, 2013.

~~NOTE~~In 9June -2012, ~~GAIN~~a ONvendor ~~WRITE-OFF~~filed ~~FROM~~suit ~~DEBT~~against ~~SETTLEMENTS~~ the Company for breach of contract related to call center services they provided. The Company is currently conducting litigation and discovery, the case is not yet set for trial at March 31, 2013.

~~During~~Note ~~the~~11 ~~nine~~- ~~months~~Gain ~~ended September 30, 2012, the Company recorded a gain~~ from ~~debt~~Debt ~~settlements of $446,387 on write off of certain payables on which the statute of limitations has expired relating to the collectability of these payables.~~Settlements

~~NOTE~~On 10March -1, ~~RELATED~~2013, ~~PARTY~~the ~~TRANSACTIONS~~Company renegotiated the data center service contract, whereby the Company was relieved all prior obligations, which resulted a gain from debt settlements of $179,724 from accrued liabilities and $14,301 per month on an going forward basis pursuant to the renegotiated contract.

~~The~~Note ~~Company~~12 ~~made rental payments for property owned by the Chief Executive Officer of the Company during the nine~~-~~month~~ ~~periods~~Related ~~ended~~Party ~~September 30, 2012 and 2011 amounting $0 and $2,500, respectively. The rental property was used for temporary employee housing during such periods.~~Transactions

~~NOTE~~The 11Company -did ~~SEGMENTS~~not engage in any related party transactions for the interim period ended March 31, 2013.

~~During the nine~~F-month periods ended September 30, 2012 and 2011, the Company operated in one business segment. The percentages of sales by geographic region for the nine-month periods ended September 30, 2012 and 2011 were approximately:24

	2012			2011
United States		39	%		11	%
Europe		61	%		89	%

Note 13 - Concentration of Credit Risk

~~F-16~~Customers and Credit Concentrations

~~Table~~Revenue ofconcentrations ~~Contents~~and the accounts receivables concentrations are as follows:

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Net Sales for the Interim Period Ended						Accounts Receivable at
	March 31, 2013			March 31, 2012			March 31, 2013			December 31, 2012

Customer A		—	%		69	%		—	%		—	%

Customer B		49	%		—	%		54	%		11	%

Customer C		14	%		—	%		23	%		55	%

Customer D		—	%		—	%		—	%		21	%

Customer E		21	%		—	%		—	%		—	%

Customer F		—	%		—	%		12	%		—	%

Customer G		—	%		—	%		—	%		13	%

Total		84	%		69	%		89	%		100	%

~~Overview~~A reduction in sales from or loss of such customers would have a material adverse effect on the Company’s results of operations and financial condition.

WeMarket 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 .Concentration

~~Our~~The ~~Spare~~percentage ~~Switch software enables users to complete the transfer~~ of ~~personal~~sales ~~files~~by ~~from~~geographic ~~one personal computer (PC) to another via a high speed Internet~~region ~~connection.~~for Wethe ~~focus~~interim onperiod ~~individuals~~ended ~~and~~March ~~businesses~~31, ~~that~~2013 ~~use diverse technologies~~ and ~~various~~2012 ~~devices~~were toas ~~support their businesses and lifestyles.~~ follows:

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~~Note ~~Known~~14 ~~LocationPRO: View the approximate location of your registered phone(s) on an integrated map using the phone’s built~~-in ~~GPS.~~Subsequent Events

~~Lock/Unlock~~The ~~PhonePRO: Remotely~~Company has evaluated all events that occurred after the balance ~~lock~~sheet ~~your~~date ~~phone~~through tothe ~~prevent~~date ~~unauthorized~~when ~~use~~the ~~and~~financial ~~protect~~statements ~~your~~were ~~personal~~issued. The ~~information~~Management of the Company determined that there were no reportable subsequent event(s) to be disclosed.

~~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.~~F-25

~~Set Phone AlarmPRO: Locks~~Item ~~your~~2. Management’s ~~phone~~Discussion and ~~sends~~Analysis aof ~~loud,~~Financial ~~audible~~Condition ~~alert~~and ~~directly~~Results toof ~~your phone to immediately pinpoint its location~~Operations.

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

We are ~~provide~~a andeveloper ~~easy~~and tomarketer ~~use,~~of ~~scalable,~~a ~~cloud-based solution~~line ~~for~~of ~~securing~~software ~~business~~products ~~files,~~specifically ~~media,~~designed ~~and~~for ~~personal~~consumers ~~data.~~as ~~The~~well ~~total~~as ~~Spare~~the ~~Backup~~business ~~offerings~~and ~~represent~~home business ausers. ~~suite~~Our ~~of complementary~~ products ~~and services which~~ are designed ~~for~~and ~~use~~developed byso that technical ~~and~~skills ~~non-technical~~are ~~users.~~not ~~Our~~necessary ~~software~~to ~~has~~use ~~unique,~~or ~~easy,~~manage ~~scalable characteristics~~the software. ~~which~~Our weSpare ~~believe~~line ~~provides~~of asoftware ~~competitive~~products ~~advantage~~includes ~~over~~our ~~other~~Spare ~~competitors~~Mobile, ~~whose~~Spare ~~products~~Backup ~~require~~for ~~large~~PC ~~investments~~and ~~in hardware~~tablets, Spare Switch PC data migration ~~installation~~software, ~~training~~ and ~~support~~our Parental Controls.

~~We have~~Our ~~focused our more recent development and marketing efforts on our Spare Mobile product, which backs up personal~~Products ~~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 mobilesecurity productsandparental controls(developed in 2011 and 2012) 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 June of 2012,Ericsson forecasts that mobile subscriptions will reach 9 billion in 2017, of which 5 billion will be mobile broadband connections . With recent estimates by Juniper Research that less than 1 in 20 smart phones and tablets have third-party security software installed in them, this represents a vast potential market for mobile security. According to Canalys, the U.S. market for mobile security is estimated to grow to over $3 billion annually by 2015. Services

4Our 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 backups 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 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.

~~Table~~Spare Mobile ofwill ~~Contents~~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.

We● ~~have~~Backup ~~generated~~is ~~minimal~~performed ~~revenue~~securely ~~since~~using ~~our inception~~the users’ mobile or Wi-Fi network; mobile network usage charges may apply. ● Backup captures data stored both on ~~September~~the ~~12,~~Mobile ~~2002,~~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 ~~incurred~~the ~~net~~ability ~~losses~~to ofcustomize ~~approximately~~which ~~$119million~~files ~~from~~to ~~cash~~back up and ~~non-cash~~have ~~activity~~the ~~since inception~~ability ~~through~~to ~~September30,~~recover ~~2012~~a backed up file(s) to their mobile device. ~~Revenues~~● ~~generated~~If ~~from~~a ~~our~~user ~~business~~also ~~have~~has ~~not~~a ~~been~~Spare ~~sufficient~~Backup account, the user has the ability to ~~fund~~retrieve mobile files from a variety of devices using our ~~current~~Spare ~~operations and~~Synchronization weservice. ~~have~~● ~~relied~~Spare Mobile will support the following Mobile device operating systems: ● Blackberry Platform v4.0 & above, some exceptions based on ~~funds~~models ~~raised~~and ~~from~~hardware/software features available on the ~~sale~~phone, ofsuch ~~our~~as ~~securities~~GPS tochip; ~~provide~~● ~~sufficient~~Android ~~cash~~OS tov1.5 ~~operate~~& ~~our~~1.6 ~~business~~backup and security functions; ● Android OS v2. 1 & v2.3 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.

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

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 2012.4

~~Business~~Spare Backup ~~Development and Marketing Strategy~~offers:

We● ~~market~~An ~~our~~automatic ~~software~~program ~~products~~installation ~~through~~that ~~distributor’~~requires absolutely no user interaction to configure backups, ● No complicated file selection - Spare Backup scans the user's ~~retailers~~ ascomputer ~~well~~and has a number of presets which it backs up automatically, such as: ~~insurance~~● All contacts, email messages and ~~warrantee~~attachments, ~~providers. We~~address ~~are~~book, ~~continuing~~contacts, tofolders ~~expand~~and ~~our~~contents, ~~current~~signature ~~distribution~~files ~~base~~from ~~with scheduled~~Outlook, ~~launches~~● ~~throughout~~Word, ~~the~~Excel, ~~remainder~~PowerPoint offiles, ~~the~~templates ~~year.~~and Wesettings ~~will~~from ~~focus~~MS ~~our~~Office, ~~distribution~~● ~~efforts~~My inDocuments, ~~four~~My ~~vertical~~Music, ~~channels:~~My Pictures, Quicken, QuickBooks, MS Money, Turbo Tax and Tax Cut; and ● All desktop files.

·In ~~Insurance~~addition, users ~~and~~can ~~warranties:~~manually ~~Assurant,~~include ~~Service~~any ~~Net~~files ~~and~~that ~~Lifestyle~~are ~~Group;~~not in the present group.

·● ~~Retail:~~Simple, ~~Car~~fast ~~Phone~~data ~~Warehouse~~recovery of individual files or the complete desktop ● Open file backup, ~~Best~~giving ~~Buy~~the ~~Europe~~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 ~~Simplexity;~~with broker so complete loss of the computer is not a problem

·The VeriSign/Starfield ~~Original~~Technology ~~Equipment~~high ~~Manufacturers:~~assurance ~~Sony;~~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 ~~Carriers~~overview of customer benefits includes:

~~Examples~~● Ease-of-use ~~our~~- ~~marketing~~Spare ~~partners~~Backup ~~within the~~provides ~~four~~fast, ~~vertical~~easy ~~distribution~~and ~~channels~~fully ~~include~~automated ~~Wirefly/Simplexity,~~data ~~Assurant/Federal~~protection. ~~Home~~Users ~~Warranty,~~benefit ~~Life~~from ~~Styles~~automated ~~Group~~data (afile ~~UK warranty provider)~~selection, ~~Best~~which ~~Buy~~distinguishes ~~Europe,~~user data files from operating system and ~~Sony~~application files. WeAs ~~will~~a ~~continue~~result, users do not have to ~~aggressively~~remember ~~add~~where ~~additional~~all ~~partnerships~~of their data files are stored. WeSpare ~~expect~~Backup ~~our~~allows ~~current~~users ~~partners will~~to ~~commence~~retrieve amultiple ~~number~~past versions of ~~scheduled~~a ~~launches~~file, ofnot ~~our~~just ~~services~~the ~~during~~most ~~2012~~recently backed-up version. ● Impenetrable Security and weProtection ~~are~~of inCorporate ~~late~~Data ~~stage~~- ~~negotiations~~Spare ~~for~~Backup aensures ~~near~~that ~~term launch~~all data is encrypted with advanced 256-bit encryption on the user's machine using a ~~large~~user ~~international~~provided ~~mobile~~"key" ~~communications~~or ~~company~~password. WeThe ~~are~~data ~~also~~is inencrypted ~~various~~a ~~stages~~second oftime ~~negotiations~~using ~~with~~SSL, ~~potential partners~~or insecure ~~the~~sockets ~~U.S.~~layer, ~~Brazil,~~while ~~India,~~it ~~the~~is ~~Middle~~being ~~East~~transmitted and a third time before it is stored on the RAID, ~~South~~or ~~America~~redundant array of independent disc, ~~and the~~servers ~~South~~using ~~Pacific~~a strong private key. We● ~~are~~SSL ~~hopeful~~Support ~~that these~~- ~~negotiations~~SSL ~~will~~based ~~result~~protocol inenhancements ~~additional~~to ~~partnerships~~address insecurity ~~the~~parameters ~~coming~~during: ~~quarters~~registration, upgrade, backup and retrieve.

~~While,~~Spare Switch weis ~~believe~~used by either downloading the ~~launch~~software from the Internet or by inserting an installation CD into the old computer. Spare Switch then scans the hard drive and inventories of ~~our~~personal ~~base~~directories, ~~offerings~~giving the user a detailed report of the documents ~~will~~and beother ~~commercially~~files. ~~successful~~From that inventory, itthe isuser ~~still~~can ~~too~~then ~~early~~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 ~~determine~~choose when to download the ~~extent~~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 ~~its~~the ~~market~~process. Spare ~~penetration~~Switch pricing is done on a case by case basis per partner.

~~We continue to invest in our software development, particularly focusing on the smart phone market. We have added additional features, such as:~~5

~~Last~~Spare Backup ~~Known~~software ~~LocationPRO: View~~ comes with the ~~approximate~~monthly ~~location~~service ofand ~~your~~enables ~~registered~~users ~~phone(s)~~to onalso anback ~~integrated~~up ~~map~~to ~~using~~local ~~the~~storage ~~phone’s~~devices ~~built-in~~with ~~GPS~~or without using the online service.

~~Lock/Unlock~~Our offers ~~PhonePRO: Remotely~~vary depending on partnerships, in some cases we offer new users a free 14-day trial, other could be an allocation of space. ~~lock~~Spare ~~your~~Backup ~~phone~~services toretail ~~prevent~~between ~~unauthorized~~$0.99 ~~use~~and $6.99 per month and ~~protect~~certain ~~your~~partners ~~personal~~offer ~~information~~annual plans.

~~Display MessagePRO: Send~~We adeveloped ~~message~~new toproducts ~~your~~and ~~phone~~integrated ~~that~~new ~~locks~~feature ~~your~~functionality ~~phone~~into ~~and~~our ~~displays~~Spare aBackup® ~~message~~software. ~~requesting~~The ~~that~~new ~~the~~offerings in ~~Good~~our ~~Samaritan~~Spare ~~holding~~line ~~your~~of ~~phone~~software ~~contact~~products include: Spare Room, Spare Mobile , Spare Security Suite for Mobile and ~~you~~Tablets, toand ~~return~~Parental itControls. The following paragraphs provide certain information regarding our line of products and features:

~~Set~~Spare Room ~~Phone~~is ~~AlarmPRO: Locks~~designed to complement the Spare Backup software. We launched this product in the second quarter of fiscal ~~your~~2009. ~~phone~~This is a first step to digital contract management and ~~sends~~cloud acomputing ~~loud,~~for ~~audible~~Spare ~~alert~~Backup ~~directly~~users. toThis ~~your~~feature ~~phone~~has been distributed and is available to ~~immediately~~our ~~pinpoint~~active ~~its~~Spare ~~location~~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”.

~~Erase PhonePRO: Remotely~~The ~~lock~~Spare ~~your~~Backup ~~phone~~software easily and ~~erase~~automatically ~~your~~backs ~~contacts,~~up ~~photos,~~a ~~etc.~~user's files from ~~your~~the ~~phone. Since~~user's ~~Wirefly~~desktop ~~Mobile~~to ~~Backup~~the ~~also~~Spare ~~backs~~Backup's upcloud. ~~your~~Once ~~contacts,~~files ~~photos~~are stored securely in the cloud, the Spare Room application allows a user to take advantage of a wide range of sharing and ~~more,~~social ~~you~~networking ~~can~~tools. ~~easily~~The ~~transfer~~solution ~~your~~allows ~~stored~~the ~~data~~user to ~~your~~get ~~replacement~~the ~~device~~most inout ~~minutes~~of available tools and services on the Internet while providing the security of online backup.

In ~~the third quarter of 2011 we completed~~ the first ~~phase~~version of ~~development~~the ofSpare aRoom, ~~new~~the ~~suite~~applications ofallow ~~parental~~our ~~controls~~customers to ~~enable~~easily ~~parents~~access ~~to monitor~~ and manage ~~numerous~~their ~~aspects~~backed-up ofphotos, ~~their~~videos, ~~children's~~music ~~use~~and ~~of smart mobile devices~~documents. As ~~The~~well ~~parental~~as ~~controls~~enabling ~~are activated through a simple set-up wizard that helps~~ users ~~establish~~ ~~boundaries for monitoring up~~ to 5access ~~children’s~~other ~~locations~~services and ~~times~~applications, ofsuch ~~daily~~as ~~activities~~for ~~like school~~music, mobile ~~sports,~~devices and ~~time~~ ~~with~~mobile ~~friends. Once~~banking ~~specific~~for ~~rules~~purchases ~~are~~and ~~put~~or ~~into~~convenience. ~~place~~Future byversions ~~the~~of ~~subscriber,~~Spare ifRoom ~~the~~will ~~child's~~include ~~phone~~additional features isbeyond ~~not~~photo insharing ~~the~~to ~~location it~~include ~~should be~~Video, ~~the~~Contact ~~intelligent~~Management ~~software~~and ~~automatically~~Calendar ~~notifies~~management. ~~the~~These ~~subscriber~~features ~~through~~will ~~email~~be ordisplayed ~~text. Through~~ on the ~~secure~~Spare ~~website and~~Room ~~mobile~~Dashboard ~~devices~~allowing a ~~parent~~user ~~can~~to ~~view~~easily ~~the~~navigate ~~exact~~Spare ~~movements~~Room ofand amanage ~~monitored~~their ~~child~~digital todata ~~see~~stored ~~where~~in ~~they~~the ~~have been. Additional functionalities~~Spare ~~are~~cloud ~~being~~from ~~developed~~a ~~which~~variety weof ~~anticipate will be released in the coming quarters~~devices.

WeSpare Mobile ~~believe~~works ~~our~~in ~~offerings~~conjunction ~~will~~with ~~adapt~~the tousers ~~the customer’s~~of ~~day-to-day~~Spare ~~needs,~~Backup asand ~~our~~Spare ~~cloud~~Room ~~system~~accounts. ~~provides~~Spare ~~smart~~Room ~~phones~~provides an ~~with~~interface ~~the~~for ~~ability~~a user to ~~link~~manage totheir ~~our~~mobile ~~cloud~~device and ~~connect to~~the ~~multiple~~files ~~devices,~~contained ~~which~~on ~~include~~their ~~PC’s~~mobile ~~and tablets~~device.

5Our Target Customers

~~Table~~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 ~~Contents~~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.

~~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.~~6

WeHow ~~have now converted our~~We ~~product~~Market toOur ~~support~~Products ~~the local language in the Netherlands~~ and ~~Spain. We have also begun translation of our product and documentation into the Turkish language which we anticipate will be launched December 2012.~~Services

~~In September 2010 we reached a distribution agreement with Simplexity,~~We ~~LLC.,~~market ~~(“Simplexity”),~~our ~~the~~software ~~parent~~products ~~company~~through ~~of Wirefly.com. Simplexity, a privately held company, is the Internet'~~distributor’s ~~leading~~ ~~authorized~~retailers ~~seller~~as ofwell ~~cell~~as ~~phones~~a ~~and~~"white ~~wireless~~label" ~~services.~~solution ~~Wirefly~~that iswill ~~Simplexity's shopping and comparison site for consumers,~~be ~~bringing~~distributed ~~online~~through ~~shoppers~~its anvertical 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&Tchannel, ~~Verizon~~such ~~Wireless, Sprint, and T-Mobile.~~as ~~Simplexity~~insurance ~~also operates~~ and ~~maintains~~warranty ~~similar online websites for a number of major retailers in North America~~providers. We ~~believe~~are ~~Simplexity~~continuing ~~is uniquely positioned in the U.S. market~~ to ~~reach potential~~expand ~~mobile~~our ~~customers~~current ~~across~~distribution abase ~~wide~~with ~~variety~~scheduled oflaunches ~~carriers~~throughout ~~through~~the ~~online~~remainder ~~mobile~~of ~~sales~~the ~~sites they own or manage within North America~~year. We ~~anticipate~~will ~~the~~focus ~~sales launch of~~ our ~~services through Simplexity’s~~ distribution ~~network to progressively~~efforts ~~grow~~ in ~~2012~~four ~~and~~vertical ~~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.~~channels:

We· ~~opened~~Insurance ~~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 additional languages to support additional launches throughout 2012 and 2013.~~

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. Bank of Scotland 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.Retailers

We· ~~expect~~Original toEquipment be able to work with each LSG partner, including scheduled launches which occurred in Q3 of 2012 with Lloyds and a soft launch with the Bankof Scotland in Q3 of 2012, as these rolling launches continue, we expect to add customers and revenue accordingly as these partners increase their marketing and awareness of the product to their customers. The software is 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 continue to roll out marketing programs progressively in 2012 and 2013.Manufacturers

6· Telephone Carriers

~~Table~~We will continue to aggressively add additional partnerships. We expect our current partners will commence scheduled launches of our ~~Contents~~services during 2013. 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.

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

~~Our decision to expand the scope of our cloud-based~~We ~~platform~~continue ~~into mobile backup and security required us~~ to ~~make~~invest ~~substantial~~in ~~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~~particularly ~~continued~~focusing toon ~~test and improve~~ the ~~mobile~~smart ~~platform~~phone ~~throughout the second half of 2011 and now feel that these changes enable us to complete launches with our marketing partners in 2012 and 2013~~market. We ~~believe with the improvements that we~~ have ~~made,~~added weadditional ~~are able to handle carrier commitments that~~features, ~~the~~such ~~company is currently negotiating to launch..~~as:

InLast Known LocationPRO: View the ~~third~~approximate ~~quarter~~location weof ~~began~~your ~~the~~registered ~~full~~phone(s) ~~migration to~~on an ~~HTML-based~~integrated ~~platform~~map ~~for~~using ~~our~~the ~~distribution partners. We have begun launching with our marketing partners and anticipate~~phone’s ~~a progressive roll out system~~built-~~wide~~in ~~by the end of 2012~~GPS. 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.

WeLock/Unlock PhonePRO: Remotely ~~also~~lock ~~began~~your ~~the~~phone ~~upgrade of our hardware in the third quarter of 2011~~ to aprevent ~~scalable~~unauthorized ~~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~~protect ~~arrays~~your ~~(VMWARE).~~personal ~~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~~Display ~~hardware~~MessagePRO: Send ~~improvements~~a wemessage ~~are now better positioned~~ to ~~begin~~your ~~the~~phone ~~launches~~that oflocks ~~Assurant,~~your ~~Simplexity,~~phone ~~LSG~~ and ~~other~~displays ~~potential partners~~a inmessage ~~2012~~requesting ~~and~~that ~~2013. The above partnerships represent multiple opportunities, as each of~~ the ~~companies has different~~Good ~~distributors~~Samaritan ~~and~~holding ~~strategic~~your ~~alliances~~phone ~~marketing~~contact ~~their~~you ~~products. We will continue~~ to ~~enhance~~return ~~our platform nonetheless~~it. 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.

7Set Phone AlarmPRO: Locks your phone and sends a loud, audible alert directly to your phone to immediately pinpoint its location.

~~Table~~Erase PhonePRO: Remotely oflock ~~Contents~~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.

~~Results~~In the third quarter of ~~Operations~~2011 ~~for~~we completed the ~~three-month~~first phase of development of a new suite of parental controls to enable parents to monitor and ~~nine~~manage numerous aspects of their children's use of smart mobile devices. The parental controls are activated through a simple set-~~month~~up ~~periods~~wizard that helps users establish boundaries for monitoring up to 5 children’s locations and times of daily ~~ended~~activities ~~September~~like 30school, ~~2012~~sports, ~~compared~~and totime with friends. Once specific rules are put into place by the ~~three-month~~subscriber, ~~and~~if ~~nine-month~~the child's ~~periods~~phone ~~ended~~is ~~September~~not 30in the location it should be, ~~2011~~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

SPARE BACKUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
	Three-month periods ended						Increase/			Increase/			Nine-month periods ended						Increase/			Increase/
	September 30,						(Decrease)			(Decrease)			September 30,						(Decrease)			(Decrease)
	2012			2011			in $ 2012			in % 2012			2012			2011			in $ 2012			in % 2012
	(Unaudited)			(Unaudited)			vs 2011			vs 2011			(Unaudited)			(Unaudited)			vs 2011			vs 2011
Revenues:	$	58,167		$	153,568		$	(95,401	)		-62.1	%	$	426,833		$	347,071		$	79,762			23.0	%
Operating expenses:
Research and development		216,135			501,380			(285,245	)		-56.9	%		596,027			1,159,935			(563,908	)		-48.6	%
Selling, general and administrative		755,253			1,093,789			(338,536	)		-31.0	%		2,927,733			4,450,281			(1,522,548	)		-34.2	%
Total operating expenses		971,388			1,595,169			(623,781	)		-39.1	%		3,523,760			5,610,216			(2,086,456	)		-37.2	%
Operating loss		(913,221	))		(1,441,601	)		528,380			-36.7	%		(3,096,927	)		(5,263,145	)		2,166,218			-41.2	%
Other income (expense):
Change in fair value of derivative liabilities		168,806			(1,552,858	)		1,721,664			-110.9	%		155,936			577,076			(421,140	)		NM
Gain from debt settlement		—			—			—			NM			446,387			—			446,387			NM
Interest expense		(283,393	)		(252,699	)		30,694			12.1	%		(402,235	)		(643,470	)		(241,235	)		-37.5	%
Other loss		(715	)		—			715			NM			(1,827	)		—			1,827			NM
Total other income (expense)		(115,302	)		(1,805,557	)		1,690,255			-93.6	%		198,261			(66,394	)		264,655			-398.6	%
Net loss		(1,028,523	)		(3,247,158	)		(2,218,635	)		-68.3	%		(2,898,666	)		(5,329,539	)		(2,430,873	)		-45.6	%
NM: Not Meaningful

~~Revenues~~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.

~~Our net revenues primarily consist of fees~~In ~~charged for the hosting~~addition, ~~development~~we ~~and~~are ~~modification~~working ofon ~~portals~~providing ~~related to the support of~~ our ~~online~~partners back-up services, as well as monthly subscriptions. Our net revenues decreased during the three-month periods ended September 30, 2012, when compared to the prior year period, due to a decrease in fees associated with ~~the~~real ~~development~~time ofdata ~~portals~~analytics ~~during~~which ~~the~~will ~~three-month~~provide ~~period~~them ended September 30, 2012, offset by an increase in monthly subscription revenues. Our net revenues increased during the nine-month period ended September 30, 2012, when compared to the prior year period, due to an increase in the number of software development projects in the first quarter of 2012, in combination with ~~growing~~behavioral ~~subscription revenues attributable to a larger number of users of our~~pattern ~~products~~matching and ~~several~~market ~~new hosting agreements during the nine-month period ended September 30, 2012~~research.

We have ~~believe~~now ~~that~~converted our ~~monthly~~product ~~subscription~~to ~~revenues will~~support ~~continue~~the tolocal ~~grow~~language ~~sequentially~~in ~~during~~ the ~~remainder~~Netherlands ofand ~~2012~~Spain. We ~~believe~~have ~~that~~also ~~our~~begun ~~portal-related~~translation ~~revenues~~of ~~will vary depending~~our onproduct ~~how~~and ~~many~~documentation ~~new~~into ~~distribution~~the ~~partners~~Turkish ~~begin~~language ~~these~~which ~~marketing~~we ~~programs~~anticipate ~~for~~will ~~the~~be ~~remainder~~launched ofin ~~2012~~2013.

8In 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 2012 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.

~~Table~~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 ~~Contents~~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 additional languages to support additional launches throughout the remainder 2013.

~~Research~~We also have a distribution partnership with Lifestyle Services Group (LSG), provider of leading lifestyle solutions and ~~Development~~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 TM , 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. Bank of Scotland 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.

~~Research~~We expect ~~and~~to ~~development~~be ~~expenses~~able ~~consist~~to ~~primarily~~work with each LSG partner, including scheduled launches which occurred in Q3 of ~~compensation~~2012 with Lloyds and a soft ~~expenses~~launch ~~paid~~with tothe ~~our~~Bankof ~~software~~Scotland ~~engineers~~in Q3 of 2012, ~~employees~~as these rolling launches continue, we expect to add customers and ~~consultants~~revenue inaccordingly as ~~conjunction~~these ~~with~~partners ~~the~~increase ~~development~~their ormarketing ~~enhancement~~and awareness of ~~our~~the ~~products~~product to their customers. The software is marketed ~~Our~~as ~~research~~a ~~and~~way ~~development~~to ~~expenses~~not ~~for~~only protect data from loss, but to also increase the ~~three-month~~likelihood ~~and~~of ~~nine-month~~retrieving ~~periods~~a ~~ended~~lost ~~September~~or 30stolen phone through the suite of security features. As mobile devices are becoming more prevalent and more powerful, ~~2012~~we ~~include~~believe ~~costs~~this ~~associated~~channel ~~with~~should ~~continued~~become ~~development~~a significant source of ~~user~~revenue ~~interfaces~~to ~~and~~our ~~enhancements~~company ofin ~~existing~~the ~~products~~coming quarters. We anticipate that these companies will continue to roll out marketing programs progressively throughout the remainder of 2013.

~~Research~~Through our ~~and~~relationship ~~development~~with ~~expenses~~LSG’s ~~during~~client ~~the~~companies, ~~three-month~~Spare ~~and~~Backup ~~nine-month periods~~will ~~ended~~broaden ~~September~~its ~~30,~~distribution ~~2012~~efforts ~~decreased~~with ~~due~~current toand ~~reduced~~new ~~research~~ partners and ~~development~~initiate ~~related~~new ~~payroll~~launches ~~expenses~~into toIreland, ~~provide~~Poland, ~~for~~Turkey, the ~~maintenance~~ Middle East, India, Brazil and ~~upgrades~~South America. During the remainder of ~~existing~~2013, ~~portals~~we ~~during~~anticipate ~~the~~expanding ~~first~~our ~~half~~marketing ofpartnerships ~~2012,~~across ~~while~~our ~~the~~four ~~Company~~vertical ~~was~~marketing ~~still~~channels ~~developing~~and ~~such~~across ~~portals~~additional ingeographic ~~the~~areas ~~comparable~~in ~~periods~~order ofto reach the ~~prior~~widest ~~year~~potential subscriber base.

~~Selling, General, and Administrative Expenses~~8

~~Selling, general, and administrative expenses primarily consist~~Customer of consultant fees related to the marketing 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.Support

~~The~~We provide ~~decrease~~tier in1 ~~selling, general~~ and ~~administrative~~tier ~~expenses~~2 ~~during the~~support ~~three-month~~for ~~period~~our ~~ended~~services. ~~September~~Our ~~30,~~tier ~~2012,~~1 ~~when~~customer ~~compared~~support ~~with~~provides ~~the~~initial ~~prior~~call ~~period,~~resolution isand ~~primarily~~direct ~~due~~linking capabilities to aour ~~shift~~tier of2 ~~our~~customer ~~resources allocated~~support. toTier ~~our~~2 ~~marketing~~customer ~~efforts~~support ~~from~~is ~~customer~~managed ~~acquisition~~by toan ~~enhancing~~internal group of specialists who are co-located within our ~~existing~~Network ~~distribution~~Operation ~~channels,~~Center ~~which~~and issoftware ~~less~~development ~~costly. In~~headquarters ~~addition~~in Minden, Nevada. Co-location with the ~~shift~~software ~~toward~~development group ~~developing~~allows ~~our~~for ~~current~~the ~~distribution~~resolution ~~channels~~of ~~has~~highly ~~allowed~~specific ustechnical toissues ~~significantly~~as ~~decrease~~well ~~our~~as ~~payroll and~~identification ~~related~~of ~~expenses~~potential ~~due~~application toflaws. Our ~~increased~~support ~~focus~~services ~~and~~were ~~efficiency.~~initially ~~Selling,~~available ~~general~~from ~~and~~during ~~administrative~~evening ~~expenses~~hours during the ~~nine-month period~~week ~~ended~~and ~~September~~extended ~~30,~~hours ~~2012,~~on ~~when~~weekends. ~~compared~~In ~~with~~March 2007 ~~the~~we ~~prior~~began ~~period,~~offering ~~are~~24/7/365 ~~decreased~~customer support.

~~Change~~Research and ~~in Fair Value of Derivative Liabilities~~Development

~~Change~~Our products inwere ~~fair~~developed ~~value~~primarily ofby ~~derivative~~our ~~liabilities~~employees ~~results~~assisted ~~from~~by ~~the changes~~contractors in ~~the~~certain ~~fair~~specialty ~~value~~areas. ofWe ~~the~~have ~~derivative~~invested ~~liability due to the application of ASC 815, resulting in either income or expense,~~approximately ~~depending~~$51.6 onthousand ~~the~~and ~~difference~~approximately ~~in fair value of the derivative liabilities between their measurement dates~~$0.8 ~~The~~million ~~decrease~~ in ~~fair value~~research ofand ~~derivative~~development ~~liabilities recognized~~ during the ~~three-month~~quarter ~~and~~March ~~nine-month periods ended September 30~~31, ~~2012,~~2013 ~~when~~and ~~compared to~~fiscal ~~the prior~~ year ~~period, is primarily due to a decrease in our share price between measurement dates. Our share price is one~~ended ofDecember ~~the~~31, ~~main~~2012, ~~assumptions in our computation of derivative liabilities~~respectively.

~~Interest Expense~~Technology

~~Interest expense consists primarily of interest on our convertible~~Our ~~promissory~~products ~~notes~~use ~~and~~a ~~the~~sophisticated ~~amortization~~combination of ~~debt~~hardware, ~~discount.~~software, ~~The decrease in interest expense during the three-month~~ and ~~nine-month periods~~networking ~~ended September 30, 2012 is primarily due~~ to ~~the~~intelligently ~~fair~~select ~~value~~files ~~of shares issued in connection with notes payable~~ and ~~the~~settings from ~~amortization~~a ofcustomer's ~~debt~~computer ~~discount during the three-month~~ and ~~nine-month~~reliably ~~periods~~transfer ~~ended~~these ~~September~~to ~~30,~~secure ~~2011.~~redundant Wedata ~~recognized the amortization of debt discount over the terms of their respective promissory notes~~centers, ~~which~~making ~~matured during~~ the ~~latter~~data ~~part~~highly ~~of the fiscal 2010 and the first half of 2011~~available.

9The 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.

~~Table~~We own all of ~~Contents~~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.

~~Liquidity~~Our business will suffer if our systems fail or our third-party facilities become unavailable. A reduction in the performance, reliability and ~~Capital~~availability ~~Resources~~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.

Sources of liquidity and capital resources
	Ending balance at September 30				Average balance during nine-month periods
	2012		2011		2012		2011
Cash	$	—	$	162,759	$	—	$	81,380
Accounts receivable, net of allowance for bad debt		103,814		140,855		112,031		84,696
Accounts payable and accrued expenses		3,462,073		3,767,719		3,538,789		3,378,607
Convertible notes payable excluding debt discount		2,542,853		1,921,459		2,230,794		2,089,165
Notes payable, excluding debt discount		508,000		452,100		647,800		672,300

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.

AtOn ~~September~~April 304, ~~2012~~2013, ~~and~~the Company ~~2011~~entered into an amended agreement with IO Capital Princess to reduce the monthly hosting fees from approximately $38,000 to ~~48%~~$14,000 ~~and~~a 58month representing a 63%, ~~respectively~~decrease in this recurring monthly cash expenditure, which is one of ~~our~~the highest expenses ~~total~~the ~~assets~~Company ~~consisted~~incurs ofon ~~cash~~a ~~and~~monthly ~~cash~~basis. ~~equivalents~~The ~~and~~Company ~~accounts~~entered ~~receivable~~an initial Master Service Agreement with the vendor on September 11, 2008.

We extend unsecured credit in the normal course of business to our customers. The determination of the appropriate amount of the reserve for uncollectible accounts is based upon a review of the amount of credit extended, the length of time each receivable has been outstanding, and the specific customers from whom the receivables are due.9

The objective of liquidity management is to ensure that we have ready access to sufficient funds to meet commitments while implementing our growth strategy. Our primary sources of liquidity include the sale of our securities and other financing activities, such as the issuance of a convertible promissory notes and notes payable aggregating $456,000 during the nine-month period ended September 30, 2012. We cannot ascertain that we have sufficient funds from operations to fund our ongoing operating requirements through December 31, 2012. We may need to raise funds to enhance our working capital and use them for strategic purposes. If such need arises, we intend to generate proceeds from either debt or equity financing.Competition

10We 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:

~~Table~~● service functionality, quality and performance; ● ease of ~~Contents~~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.

WeOur primary docompetitors ~~not~~are ~~have~~various ~~any~~Internet-based ~~material~~backup ~~commitments~~providers’ ~~for~~such ~~capital~~as ~~expenditures~~Connected.com, Livevault, and backup.com, Carbonite Weand ~~routinely~~EMC/Mozy. ~~purchase~~These ~~computer~~companies ~~equipment~~provide ~~and~~services ~~technology~~similar to ~~support~~ our ~~products~~PC backup and ~~their~~each ~~development,~~have ~~and~~to ~~such~~various ~~capital~~degrees ~~expenditures~~a market presence. We ~~have~~also ~~ranged~~compete ~~between~~with $1providers of traditional backup technologies,~~055~~ such as Veritas and ~~$10~~Symantec (swampdrive) (Norton 360). With mobile technology,~~265~~ ~~during~~we have very few competitors that can compete with our service of synchronization between the ~~nine-month~~PC ~~periods~~and ~~ended~~mobile ~~September~~devices. Competitors 30include SugarSync, ~~2012~~Inc., Lookout, Inc. and ~~2011~~to an extent McAfee, Inc.

	Nine-Month Periods Ended September 30
	2012			2011
Cash flows from operating activities
Net loss	$	(2,898,666	)	$	(5,329,539	)
Non-cash adjustments
Change in fair value of derivative liabilities		(155,936	)		(577,076	)
Fair value of options and warrants issued for services		338,384			468,346
Fair value of warrants issued for accrued interest		12,500			472,458
Fair value of warrants issued to convertible promissory note holders		—
Fair value of stock issued in connection with services rendered		804,730			5,83,325
Fair value of convertible promissory notes modifications		—
Fair value of common stock issued in connection with notes payable issuance		—			44,000
Fair value of common stock issued to satisfy accrued interest		137,510			—
Gain on extinguishment of debt		(446,387	)		—
Depreciation and amortization		51,681			110,715
Bad debt		(1,346	)		—
Amortization of debt discount		209,703			29,964
Accounts receivable		17,811			(72,330	)
Prepaid expense and other current assets		37,871			25,865
Deferred financing costs		(2,959	)		—
Accounts payable, accrued expenses, and accrued payroll taxes		375,686			1,369,084
Accrued interest on convertible promissory notes		29,945			2,567
Net cash provided by (used in) operating activities		(1,489,474	)		(2,872,621	)
Cash flows from investing activities
Purchase of fixed assets and other, net		(1,055	)		(10,265	)
		(1,055	)		(10,265	)
Cash flows from financing activities
Proceeds from issuance of convertible promissory notes payable		782,000			50,000
Proceeds from issuance of notes payable		25,000			367,600
Repayment of notes payable		—			(163,000	)
Net proceeds from issuance of common stock for cash		612,250			1,166,894
Cash overdraft		(54,621	)		(127,321	)
Proceeds from exercise of warrants		47,500			112,008
Proceeds from exercise of stock options		78,400			90,000
Net cash provided by financing activities		1,490,529			1,496,181
Net increase in cash		—			(1,386,705	)

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.

11Intellectual Property

~~Table~~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 ~~Contents~~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.

~~Nine months ended September 30, 2012~~Government Regulation

~~The~~Although there ~~increase~~are currently relatively few laws and regulations directly applicable to the Internet, it is likely that new laws and regulations will be adopted in ~~accounts~~the ~~receivable~~United States and elsewhere covering issues such as limitations on the use of ~~September~~mass-delivered 30e-mails, ~~2012 is~~broadcast ~~primarily~~license ~~due~~fees, tocopyrights, ~~slower~~privacy, ~~payment~~pricing, ~~processing~~sales bytaxes ~~our~~and ~~primary~~the ~~clients~~characteristics and quality of Internet services. The ~~decrease~~adoption of inrestrictive ~~accounts~~laws ~~payable~~or regulations could slow Internet growth. The application of existing laws and ~~accrued~~regulations ~~expenses~~governing ~~during~~Internet ~~the~~issues ~~nine-month~~such ~~period~~as ~~ended~~property ~~September 30~~ownership, ~~2012~~libel and personal privacy is ~~primarily~~also ~~due~~subject to asubstantial ~~decrease~~uncertainty. inThere ~~our~~can ~~operating~~be ~~expenses~~no assurance that current or new government laws and regulations, inor ~~combination~~the ~~with~~application aof existing laws and regulations (including laws and regulations ~~series~~governing ofissues ~~accounts~~such ~~payable~~as ~~adjustments~~property ~~made~~ownership, ~~during~~taxation, ~~the~~defamation ~~nine-month~~and ~~period~~personal ~~ended~~injury), ~~September~~will 30not expose us to significant liabilities, slow ~~2012~~Internet ~~for~~growth ~~unenforceable~~or ~~debts~~otherwise hurt us financially.

~~Cash used in investing activities during the nine-month period ended September 30, 2012 consists of the purchase of computer equipment of approximately $1,055.~~10

Cash provided by financing activities of approximately $1,572,407 during the nine-month period ended September30, 2012 resulted from the proceeds from the issuance of convertible promissory notes and notes payable of $698,250, proceeds from the issuance of common stock for cash of approximately $777,877, and the exercise of warrants and options of approximately $125,900, offset by a cash overdraft of approximately $54,620.Employees

~~Nine~~As of ~~months~~March ~~ended~~31, ~~September~~2013 30we had 5 full-time employees, including all of our executive officers and 19 independent contractors. We believe this operational model reduces our fixed costs and enables us to better manage our cash flow. As of December 31, 2011 we had 22 full-time employees, including all of our executive officers. Consequently, our overall head count of full-time employees has been reduced by 77% during fiscal 2012, or 15 full-time employees. We have also fully outsourced our customer support functions which we anticipate will result in a substantial reduction in our expenses related to that function in 2013.

~~The increase in accounts receivable as~~ None of ~~September~~our ~~30,~~employees ~~2011~~are ~~is primarily~~covered ~~due to slower payment processing~~ by ~~our~~collective ~~primary~~bargaining ~~clients.~~agreements, ~~The increase in accounts payable~~ and ~~accrued~~we ~~expenses~~believe ~~during the~~our ~~nine-month~~relationships ~~period~~with ~~ended~~our ~~September~~employees ~~30, 2012 is primarily due~~ to ~~slower~~be ~~payment processing to vendors relating to a decrease in liquidity following a decrease in our revenues~~good.

~~Cash used in investing activities during the nine-month period~~Our ~~ended September 30, 2011 consisted of capital expenditures of approximately $10,265.~~History

~~Cash~~We were ~~provided~~incorporated byin ~~financing~~Delaware ~~activities~~on ofDecember ~~approximately~~27, $21999 under the name First Philadelphia Capital Corp.8 ~~million~~to serve as a vehicle to effect ~~consisted~~a merger, exchange of ~~the~~common ~~proceeds~~stock, ~~from~~asset ~~notes~~acquisition ~~payable~~or ~~and~~other ~~convertible~~business ~~notes~~combination ~~promissory~~with ~~notes~~domestic ofor ~~$857~~foreign private business. On October 30,~~600~~ 2000, ~~and~~we ~~the~~completed ~~net~~a ~~proceeds~~business ~~from~~combination ~~the~~with Conservation Anglers Manufacturing, Inc., a real estate holding ~~issuance~~and ofdevelopment ~~our~~company ~~common~~that ~~stock~~was oforiginally ~~approximately~~organized $1in Florida on February 7, 2000.9 ~~million~~The ~~offset~~combination bywas ~~principal~~a ~~repayments~~stock-for-stock merger that was accounted for as a "pooling-of-interests". ~~certain~~In ~~notes~~connection ~~payable~~with ~~aggregating $163~~the merger,~~000~~ ~~and~~we ~~the~~issued ~~funding~~235,000 shares of our ~~overdraft~~common stock in exchange for all the outstanding stock of ~~approximately~~Conservation ~~$127~~Anglers Manufacturing,~~321~~ Inc. ~~Additionally,~~In January 2001 we ~~generated~~changed ~~proceeds~~our ~~from~~name to ~~exercise~~Newport ofInternational ~~options~~ Group, Inc. to better reflect and ~~warrants~~describe ~~aggregating~~our ~~approximately~~then ~~$387,442~~current strategic direction.

~~Off~~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-~~Balance~~owned ~~Sheet~~subsidiary. At ~~Arrangements~~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.

WeEffective August ~~have~~16, no2006 ~~off~~we changed our name to Spare Backup, Inc. The corporate name change was brought about by a merger of a wholly-~~balance~~owned subsidiary ~~sheet~~into ~~arrangements~~Newport International Group, Inc. with Newport International Group, Inc. surviving but renamed Spare Backup, Inc.

~~Capital Raising Transactions~~11

~~During~~Results of Operations for the ~~nine~~three-month period ended ~~September~~March 3031,~~2012,~~ we2013 ~~issued an~~compared ~~aggregate 20,501,904 shares of our common stock pursuant~~ to athe ~~private~~three-month ~~placement~~period ~~which~~ended ~~generated~~March ~~gross proceeds of approximately $457~~31,~~000.~~ 2012

Going Concern

SPARE BACKUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS

	Three-months ended						Increase/			Increase/
	March 31,						(Decrease)			(Decrease)
	2013			2012			in $ 2013			in % 2013
	(Unaudited)			(Unaudited)			vs 2012			vs 2012

Revenues:	$	160,285		$	244,315		$	(84,030	)		-34.4	%

Operating expenses:
Research and development		51,594			264,833			(213,239	)		-80.5	%
Selling, general and administrative		438,685			1,361,280			(922,595	)		-67.8	%
Total operating expenses		490,279			1,626,113			(1,135,834	)		-69.8	%

Operating loss		(329,994	)		(1,381,798	)		1,049,661			-76.1	%

Other income (expense):
Change in fair value of derivative liabilities		(1,832,158	)					(1,832,158	)		NM
Gain from debt settlement		179,724			—			179,724			NM
Interest expense		(1,302,814	)		(40,797	)		(1,262,017	)		3,093	%
Other income (expense)		60,317			—			60,317
Other income (expense), net		769,385			(40,797	)		810,182			(1,985.9	)%

Net income (loss)		439,391			(1,422,595	)		1,861,986			(130.9	)%

NM: Not Meaningful

We have generated minimal revenue since our inception on September 12, 2002, and have incurred net losses of approximately $119 million from cash and non-cash activity since inception through September 30, 2012. 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. Revenues

~~Critical~~Our ~~Accounting~~net ~~Policies~~revenues primarily consist of fees charged for the hosting, development and modification of portals related to the support of our online back-up services, as well as monthly subscriptions. Our net revenues decreased during the three-month period ended March 31, 2013, when compared to the prior year period, due to an increase in the number of customer subscriptions with our existing distribution partners during the three-month period ended March 31, 2013, offset by a decrease in monthly subscription revenues.

AWe ~~summary~~believe ofthat ~~significant~~our ~~accounting~~monthly ~~policies~~subscription revenues iswill ~~included~~grow induring ~~Note 2 to~~ the ~~audited~~remainder ~~consolidated~~of ~~financial statements included elsewhere in this annual report~~2013. We believe that ~~the~~ ~~application~~our ofportal-related ~~these~~revenues ~~policies~~will onvary adepending ~~consistent~~on ~~basis~~how ~~enables~~many ~~our~~new ~~company~~distribution partners tobegin ~~provide~~these ~~useful~~marketing ~~and~~programs ~~reliable~~for ~~financial information about~~ the ~~company's~~remainder ~~operating~~of ~~results and financial condition~~2013.

~~The preparation of financial statements in~~Research ~~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.Development

~~Effective~~Research and ~~January~~development 1,expenses ~~2006,~~consist weprimarily ~~adopted the provisions~~ of ~~ASC~~compensation ~~Topic~~expenses ~~718~~paid ~~"Compensation-Stock~~to ~~Compensation"~~our ~~under~~software ~~the~~engineers, ~~modified~~employees ~~prospective~~and ~~method. ASC 718 eliminates~~consultants ~~accounting~~in ~~for~~conjunction ~~share-based~~with ~~compensation transactions using~~ the ~~intrinsic~~development ~~value~~or ~~method~~enhancement ~~prescribed~~of ~~under~~our ~~APB Opinion No~~products. ~~25,~~Our ~~"Accounting for~~research ~~Stock Issued to Employees,"~~ and ~~requires~~development ~~instead~~expenses ~~that such transactions be accounted~~ for ~~using~~the ~~a fair~~three-~~value-based method.~~month ~~Under~~period ~~the~~ended ~~modified~~March ~~prospective method~~31, we2013 ~~are~~include ~~required~~costs toassociated ~~recognize~~with ~~compensation~~continued ~~cost~~development ~~for share-based payments to employees based on their grant-date fair value from the beginning~~ of ~~the~~user ~~fiscal~~interfaces ~~period in which the recognition provisions are first applied. For periods prior to adoption, the financial statements are unchanged,~~ and ~~the~~enhancements ~~pro~~of ~~forma disclosures previously required by ASC~~existing ~~718, will continue to be required under ASC 718 to the extent those amounts differ from those in the Consolidated Statement of Operations~~products.

12Research and development expenses during the three-month period ended March 31, 2013 decreased due to reduced research and development related payroll expenses to provide for the maintenance and upgrades of existing portals during the first half of 2012, while the Company was still developing such portals in the comparable periods of the prior year.

~~Table of Contents~~12

~~The Company follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104~~Selling, ~~"Revenue Recognition in Financial~~ ~~Statements". The Company records revenue when persuasive evidence of an arrangement exists~~General, ~~on-line back-up services have been rendered, the sales price to the customer is fixed or determinable,~~ and ~~collectability~~Administrative is reasonably assured. Online backup service fees received in advance are reflected as deferred revenue on the accompanying balance sheet. Deferred revenue as of September 30, 2012 amounted to $102,500 and will be recognized as revenue over the respective service period.Expenses

~~Revenue~~Selling, general, ~~consists~~and ofadministrative ~~the~~expenses ~~gross~~primarily ~~value~~consist of ~~billings to~~consultant ~~clients.~~fees ~~The~~related ~~Company~~to ~~reports~~the ~~this~~marketing ~~revenue~~of ~~gross~~our inproducts, ~~accordance with EITF 99-19 because it is responsible for fulfillment of~~advertising, ~~the~~as ~~service,~~well ~~has~~as ~~substantial~~other ~~latitude~~general ~~in setting price~~ and ~~assumes~~administrative ~~the~~expenses, ~~credit~~such ~~risk~~as ~~for~~payroll ~~the~~expenses, ~~entire~~necessary ~~amount~~to ofsupport ~~the~~our ~~sale,~~existing and ~~it is~~anticipated ~~responsible~~growth ~~for~~in ~~the~~our ~~payment~~revenues ofand ~~all~~legal ~~obligations incurred for sales marketing~~ and ~~commissions~~professional fees.

~~Item~~The 3decrease in selling, general and administrative expenses during the three-month period ended March 31, 2013, when compared with the prior period, is primarily due to a shift of our resources allocated to our marketing efforts from customer acquisition to enhancing our existing distribution channels, which is less costly. ~~Quantitative~~In addition, the shift toward developing our current distribution channels has allowed us to significantly decrease our payroll and ~~Qualitative~~related ~~Disclosures~~expenses ~~About~~due ~~Market~~to ~~Risk~~increased focus and efficiency.

~~Not~~Change in ~~applicable~~Fair ~~for~~Value aof ~~smaller~~Derivative ~~reporting company.~~Liabilities

~~Item~~Change 4in 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. ~~Controls~~The ~~and~~decrease ~~Procedures~~in fair value of derivative liabilities recognized during the three-month periods March 31, 2013 when compared to the prior year period, is primarily due to a decrease in our share price between measurement dates. Our share price is one of the main assumptions in our computation of derivative liabilities.

~~Evaluation of Disclosure Controls and Procedures~~Interest Expense

~~We do not maintain proper “disclosure controls and procedures”~~Interest asexpense ~~such~~consists ~~term~~primarily ~~is defined in Rule 13a-15(e) under the Securities Exchange Act~~ of ~~1934.~~interest Inon ~~designing and evaluating~~ our ~~disclosure controls~~convertible ~~and~~promissory ~~procedures,~~notes ~~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~~amortization of ~~disclosure~~debt ~~controls and procedures are met~~discount. 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~~decrease ~~also is based~~ in ~~part~~interest ~~upon~~expense ~~certain~~during ~~assumptions about~~ the ~~likelihood~~three-month ofperiods ~~future~~March ~~events~~31, ~~and~~2013 ~~there~~is ~~can~~primarily bedue noto ~~assurance~~the ~~that~~fair ~~any~~value ~~design will succeed in achieving its stated goals under all potential future conditions. Based on his evaluation as~~ of ~~the~~shares ~~end~~issued ofin ~~the~~connection ~~period~~with ~~covered~~notes bypayable ~~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~~amortization ~~Exchange Act~~ of ~~1934~~debt isdiscount ~~recorded,~~during ~~processed, summarized and reported within~~ the ~~time~~ three-month periods ~~prescribed~~ended byMarch ~~SEC rules and regulations~~31, ~~and that such information is not accumulated and communicated to our management, including our President to allow timely decisions regarding required disclosure~~2013.

~~Changes~~Liquidity and inCapital ~~Internal Control over Financial Reporting~~Resources

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.

Sources of liquidity and capital resources

	Ending balance at March 31,
	2013		2012
Cash	$	—	$	21,000
Accounts receivable, net of allowance for bad debt		98,908		140,855
Accounts payable and accrued expenses		3,522,824		205,915
Convertible notes payable excluding debt discount		1,618,160		266,000
Notes payable, excluding debt discount		536,011		266,000

~~PART~~At IIMarch -31, ~~OTHER~~2013 ~~INFORMATION~~and 2012, 49% and 58%, respectively, of our total assets consisted of cash and accounts receivable.

~~Item~~We 1extend unsecured credit in the normal course of business to our customers. ~~Legal~~The ~~Proceedings~~determination of the appropriate amount of the reserve for uncollectible accounts is based upon a review of the amount of credit extended, the length of time each receivable has been outstanding, and the specific customers from whom the receivables are due.

WeThe ~~have~~objective ~~appealed~~of liquidity management is to ~~the~~ensure ~~California~~that ~~Court~~we ~~of Appeals~~have inready ~~the~~access ~~matter~~to ofsufficient ~~Wolfe~~funds ~~Axelrod~~to ~~Weinberger,~~meet ~~LLC~~commitments while ~~vs.~~implementing ~~Spare~~our ~~Backup~~growth ~~Inc~~strategy. ~~The~~ ~~issue~~Our onprimary ~~appeal~~sources isof liquidity include the ~~California~~sale ~~Superior~~of our securities and other financing ~~Court’s~~activities, ~~failure~~such toas ~~disregard~~the issuance of a NYconvertible ~~state~~promissory ~~court~~notes ~~judgment~~and ~~for~~notes ~~approximately~~payable aggregating $~~100~~88,000 during the three-month period ended March 31, ~~which~~2013. We cannot ascertain that we ~~assert~~have ~~was~~sufficient ~~improperly~~funds ~~entered~~from operations to fund our ongoing operating requirements ~~and,~~through ~~therefore~~December 31, ~~should~~2013. ~~not~~We bemay ~~recognized~~need asto araise ~~valid~~funds ~~sister~~to ~~state~~enhance ~~judgment. The~~our ~~Company’s~~working ~~likelihood~~capital ofand ~~success~~use onthem for strategic purposes. If such ~~this~~need ~~appeal~~arises, ~~cannot~~we beintend ~~determined~~to atgenerate ~~this~~proceeds ~~time~~from either debt or equity financing.

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.13

13 We do not have any material commitments for capital expenditures. We routinely purchase computer equipment and technology to support our products and their development, and such capital expenditures have ranged between $1,055 and $10,265 during the three-month periods ended March 31, 2013 and 2012.

Table of Contents

	Three-Month Periods Ended March 31
	2013			2012
Cash flows from operating activities

Net income (loss)	$	439,391		$	(1,422,595	)
Non-cash adjustments
Change in fair value of derivative liabilities		(1,832,158	)		—
Fair value of options and warrants issued for services		—			275,598
Fair value of warrants issued for accrued interest
Fair value of warrants issued to convertible promissory note holders		—			—
Fair value of stock issued in connection with services rendered		—			280,880
Fair value of convertible promissory notes modifications
Fair value of common stock issued in connection with notes payable issuance
Fair value of common stock issued to satisfy accrued interest
Gain on extinguishment of debt		(179,724	)		—
Depreciation and amortization		10,139			21,027
Bad debt		69,993
Amortization of debt discount		1,422,271			2,285
Accounts receivable		(84,619	)		(1,502	)
Security Deposits		(14,000	)		—
Deferred financing costs
Accounts payable and accrued expenses		(146,394	)		205,915
Accrued Payroll Tax		82,439			—
Accrued interest on convertible promissory notes		64,204			38,643
Net cash provided by (used in) operating activities		(168,458	)		(599,828	)

Cash flows from investing activities
Purchase of property and equipment		(1,055	)		(1,055	)
		(1,055	)		(1,055	)

Cash flows from financing activities
Proceeds from issuance of convertible promissory notes payable		40,000			266,000
Proceeds from issuance of notes payable		48,000
Repayment of notes payable
Net proceeds from issuance of common stock for cash		83,464			306,250
Cash overdraft		(1,951	)		(49,767	)
Proceeds from exercise of warrants
Proceeds from exercise of stock options					78,400
Net cash provided by financing activities		169,513			600,883
Net change in cash		—			—

In February 2011, Darryl Adams filed suit against us alleging various employment related claims. The matter is set for trial in September 2012. The Company’s likelihood of success on this appeal cannot be determined at this time.14

~~In January 2012, Ivor Newman filed suit against~~ Three usmonths ~~alleging~~ended ~~various~~March ~~employment~~31, ~~related claims. The matter is set for trial in December 2012. The Company’s likelihood of success on this appeal cannot be determined at this time.~~2013

~~Item~~The 2.increase ~~Unregistered~~in ~~Sales~~accounts receivable as of ~~Equity~~March ~~Securities~~31, 2013 is primarily due to slower payment processing by our primary clients. The decrease in accounts payable and ~~Use~~accrued expenses during the three-month period ended March 31, 2013 is primarily due to a decrease in our operating expenses, in combination with a series of ~~Proceeds~~accounts payable adjustments made during the three-month period ended March 31, 2013 for unenforceable debts.

~~During~~Cash used in investing activities during the three-month period ended ~~September30, 2012,~~March ~~we issued 13~~31,~~375,000~~ ~~shares~~2013 ofconsists ~~common stock to five investor relation providers and consultants for service performed at a fair value~~ of ~~$456,840 or $0.03-0.048 per share. These private transactions are exempt from registration under~~ the ~~Securities Act~~purchase of ~~1933~~computer inequipment ~~reliance on exemptions provided by Section 4(2)~~ of ~~that~~approximately ~~Act~~$1,055.

~~During~~Cash provided by financing activities of approximately $169,513 during the three-month period ended ~~September 30,~~March ~~2012~~31, ~~we issued~~2013 inresulted ~~aggregate~~from ~~7,978,571~~the ~~shares~~proceeds offrom ~~our~~the ~~common~~issuance ~~stock~~of toconvertible 8promissory ~~accredited investors pursuant to a private~~notes ~~placement~~and ~~which~~notes ~~generated~~payable ~~gross proceeds~~ of ~~approximately~~ $~~151~~88,000, orproceeds ~~$0.018 per share. These private transactions are exempt~~ from ~~registration under~~ the ~~Securities~~issuance ~~Act~~ of ~~1933~~common instock ~~reliance~~for oncash ~~exemptions~~of ~~provided~~approximately ~~by Regulation D~~$83,464, ~~Rule~~offset ~~506~~by ~~and~~a ~~Section~~cash ~~4(2)~~overdraft of ~~that~~approximately ~~act~~$1,951.

~~During~~Three months ~~the nine-month period~~ ended ~~September~~ ~~30,~~March ~~2012~~31, we issued 694,488 shares of common stock to 30 accredited investors in connection with the payment of accrued interest of the 8% and 10% convertible promissory notes. The fair value of such shares issued amounted to $34,285 or $0.05 per share. These private transactions are exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that Act.2012

~~Item~~The 3increase in accounts receivable as of March 31, 2012 is primarily due to slower payment processing by our primary clients. ~~Defaults~~The ~~Upon~~increase in ~~Senior~~accounts ~~Securities~~payable and accrued expenses during the three-month period ended March 31, 2013 is primarily due to slower payment processing to vendors relating to a decrease in liquidity following a decrease in our revenues.

~~None~~Cash used in investing activities during the three-month period ended March 31, 2012 consisted of capital expenditures of approximately $10,265.

~~Item~~Cash 4provided by financing activities of approximately $2.8 ~~[Removed~~million consisted of the proceeds from notes payable and ~~Reserved]~~convertible notes promissory notes of $857,600, and the net proceeds from the issuance of our common stock of approximately $1.9 million offset by principal repayments of certain notes payable aggregating $163,000 and the funding of our overdraft of approximately $127,321. Additionally, we generated proceeds from exercise of options and warrants aggregating approximately $387,442.

~~None.~~ Off-Balance Sheet Arrangements

~~Item~~We 5.have no ~~Other~~off-balance ~~Information~~sheet arrangements.

~~Item~~Capital Raising ~~6. Exhibits~~Transactions

~~31.1~~During ~~Rule~~the ~~13a~~three-~~14(a)/~~month ~~15d-14(a)~~period ~~Certification~~ended March 31, 2013, we issued an aggregate 16,705,408,009 shares of ~~Chief~~our ~~Executive~~common ~~Officer~~stock pursuant to a private placement which generated gross proceeds of approximately $83,464.

~~31.2 Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer~~Going Concern

32We have accumulated deficit and negative working capital at March 31, 2013 and net cash used in operatiing activities for the interim period then ended.1 ~~Section~~Our ~~1350~~current ~~Certification~~operations are not an adequate source of ~~Chief~~cash ~~Executive~~to ~~Officer~~fund our current operations and we ~~principal~~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, 2012 contains an explanatory paragraph regarding our ability to continue as a going concern based upon our net losses and ~~accounting~~cash ~~officer~~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.

1415

~~Table~~Critical Accounting ~~of Contents~~Policies

~~SIGNATURES~~A summary of significant accounting policies is included in Note 2 to the consolidated financial statements. 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.

~~Pursuant~~The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the ~~requirements~~reported amounts of ~~the~~assets ~~Securities Exchange~~and ~~Act~~liabilities and disclosure of ~~1934,~~contingent assets and liabilities at the ~~registrant~~date ~~has~~of ~~duly~~the ~~caused~~financial ~~this~~statements ~~report~~and tothe bereported ~~signed~~amounts onof ~~its~~revenues ~~behalf~~and byexpenses during the ~~undersigned~~reporting ~~thereunto~~period. ~~duly~~Actual ~~authorized~~results may differ from those estimates.

		SPARE BACK UP, INC.
Dated: November 26, 2012	By:	/s/ Cery B. Perle
		Cery B. Perle President, Chief Executive Officer and Director and Principal Financial and Accounting Officer

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.

15 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 backup service fees received in advance are reflected as deferred revenue on the accompanying balance sheet. Deferred revenue as of March 31, 2013 amounted to $102,500 and will be recognized as revenue over the respective service period.

~~Table~~Revenue consists of ~~Contents~~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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable for a smaller reporting company.

Item 4. 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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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 February 2012, a former employee filed suit against the Company alleging various employment related claims. The Company conducted litigation and discovery, the case is not yet set for trial at March 31, 2013.

In June 2012, a vendor filed suit against the Company for breach of contract related to call center services they provided. The Company is currently conducting litigation and discovery, the case is not yet set for trial at March 31, 2013.

At March 31, 2013, the Company has recorded liabilities in connection with such legal proceedings.

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

During the three-month period ended March 31, 2013, we issued in aggregate 16,705,408 shares of our common stock to 3 accredited investors pursuant to a private placement which generated gross proceeds of approximately $83,464 or $0.005 per share. These private transactions are 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.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

Item 6. Exhibits

31.1	Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer

31.2	Rule 13a-14(a)/ 15d-14(a) Certification of principal financial and accounting officer

32.1	Section 1350 Certification of Chief Executive Officer and principal financial and accounting officer

SIGNATURES

Pursuant to the requirements 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 BACK UP, INC.


Dated: August 23, 2013	By:	/s/ Cery B. Perle
		Cery B. Perle President, Chief Executive Officer and Director and Principal Financial and Accounting Officer

Number of Shares of Common Stock

Fair Value at Issuance

Fair Value at Issuance
(per share)

Private placement