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SPARE BACKUP, INC. - 10-Q/A - Management's Discussion and Analysis of Financial Condition and Results of Operations.(Edgar Glimpses Via Acquire Media NewsEdge) Overview We are a software development company and service provider for the PC and mobile device industry. Our flagship product is Spare Backup , a fully-automated remote backup solution designed and developed especially for the small office, mobile and home environment which automatically and efficiently backs up all data on selected laptops, tablets or desktop computers, as well as smart phones. As a result, we believe individuals and businesses can ensure file safety. We launched our Spare Back-up service and software product version 1.0 in March 2005 specifically designed for the PC, and we are currently offering version 6.0 of the product which now incorporates not only the PC but tablets and smart phones which are carrier agnostic and handset agonistic . Our Spare Switch software enables users to complete the transfer of personal files from one personal computer (PC) to another via a high speed Internet connection. We focus on individuals and businesses that use diverse technologies and various devices to support their businesses and lifestyles. Our Spare Mobile product backs up personal content on your "smart phones" such as contacts, emails, calendar events, photos, music and videos. We offer a complete line of security products to compliment the user's smart phone, such as: Last Known LocationPRO: View the approximate location of your registered phone(s) on an integrated map using the phone's built-in GPS. Lock/Unlock PhonePRO: Remotely lock your phone to prevent unauthorized use and protect your personal information. Display MessagePRO: Send a message to your phone that locks your phone and displays a message requesting that the Good Samaritan holding your phone contact you to return it. Set Phone AlarmPRO: Locks your phone and sends a loud, audible alert directly to your phone to immediately pinpoint its location. Erase PhonePRO: Remotely lock your phone and erase your contacts, photos, etc. from your phone. We provide an easy to use, scalable, cloud-based solution for securing business files, media, and personal data. The total Spare Backup offerings represent a suite of complementary products and services which are designed for use by technical and non-technical users. Our software has unique, easy, scalable characteristics which we believe provides a competitive advantage over other competitors whose products require large investments in hardware, installation, training and support. We have focused our more recent development and marketing efforts on our Spare Mobile product, which backs up personal content on "smart phones" and "tablets," such as contacts, emails, calendar events, photos, music, videos and data files. It also offers a complete line of 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. 4 Table of Contents We have generated minimal revenue since our inception on September 12, 2002, and have incurred net losses of approximately $119million from cash and non-cash activity since inception through September30, 2012. Revenues generated from our business have not been sufficient 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. Corporate Relocation We completed the move of our corporate headquarters, including a major portion of our software development team, to Minden, Nevada in the third quarter of 2011. We believe the move will enable us to draw from a more experienced labor pool for software design, as well as provide us with a significantly more favorable corporate tax environment. We currently anticipate that we will be subject to minimal corporate taxes for the remainder of 2012. Business Development and Marketing Strategy: We market our software products through distributor's retailers as well as insurance and warrantee providers. We are continuing to expand our current distribution base with scheduled launches throughout the remainder of the year. We will focus our distribution efforts in four vertical channels: · Insurance and warranties: Assurant, Service Net and Lifestyle Group; · Retail: Car Phone Warehouse, Best Buy Europe and Simplexity; · Original Equipment Manufacturers: Sony; · Carriers Examples of our marketing partners within the four vertical distribution channels include Wirefly/Simplexity, Assurant/Federal Home Warranty, Life Styles Group (a UK warranty provider), Best Buy Europe, and Sony. We will continue to aggressively add additional partnerships. We expect our current partners will commence a number of scheduled launches of our services during 2012 and we are in late stage negotiations for a near term launch with a large international mobile communications company. We are also in various stages of negotiations with potential partners in the U.S., Brazil, India, the Middle East, South America, and the South Pacific. We are hopeful that these negotiations will result in additional partnerships in the coming quarters. While, we believe the launch of our base offerings will be commercially successful, it is still too early, to determine the extent of its market penetration. We continue to invest in our software development, particularly focusing on the smart phone market. We have added additional features, such as: Last Known LocationPRO: View the approximate location of your registered phone(s) on an integrated map using the phone's built-in GPS. Lock/Unlock PhonePRO: Remotely lock your phone to prevent unauthorized use and protect your personal information. Display MessagePRO: Send a message to your phone that locks your phone and displays a message requesting that the Good Samaritan holding your phone contact you to return it. Set Phone AlarmPRO: Locks your phone and sends a loud, audible alert directly to your phone to immediately pinpoint its location. Erase PhonePRO: Remotely lock your phone and erase your contacts, photos, etc. from your phone. Since Wirefly Mobile Backup also backs up your contacts, photos, and more, you can easily transfer your stored data to your replacement device in minutes. In the third quarter of 2011 we completed the first phase of development of a new suite of parental controls to enable parents to monitor and manage numerous aspects of their children's use of smart mobile devices. The parental controls are activated through a simple set-up wizard that helps users establish boundaries for monitoring up to 5 children's locations and times of daily activities like school, sports, and time with friends. Once specific rules are put into place by the subscriber, if the child's phone is not in the location it should be, the intelligent software automatically notifies the subscriber through email or text. Through the secure website and mobile devices a parent can view the exact movements of a monitored child to see where they have been. Additional functionalities are being developed which we anticipate will be released in the coming quarters We believe our offerings will adapt to the customer's day-to-day needs, as our cloud system provides smart phones with the ability to link to our cloud and connect to multiple devices, which include PC's and tablets. 5 Table of Contents In addition, we are working on providing our partners with real time data analytics which will provide them with behavioral pattern matching and market research. We have now converted our product to support 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. In September 2010 we reached a distribution agreement with Simplexity, LLC., ("Simplexity"), the parent company of Wirefly.com. Simplexity, a privately held company, is the Internet's leading authorized seller of cell phones and wireless services. Wirefly is Simplexity's shopping and comparison site for consumers, bringing online shoppers an unprecedented selection of cell phones and service plans from every major U.S. carrier with the convenience of automated application processing and cell phone activation. For the last six years Wirefly has been the internet's #1 authorized dealer for AT&T, Verizon Wireless, Sprint, and T-Mobile. Simplexity also operates and maintains similar online websites for a number of major retailers in North America. We believe Simplexity is uniquely positioned in the U.S. market to reach potential mobile customers across a wide variety of carriers through online mobile sales sites they own or manage within North America. We anticipate the sales launch of our services through Simplexity's distribution network to progressively grow in 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. We opened a new distribution channel for our mobile platform through mobile insurance and warrantee providers. In North America we reached an agreement with Assurant (Federal Warranty Service Corporation). Assurant, which develops, underwrites, and markets specialty insurance, extended service contracts, and other risk management solutions with leading financial institutions, retailers, and other entities, has bundled us into their services. The first of their launches is with Sprint, a US-based cellular company. Our backup solution will be bundled into all warranties associated with tablet sales. We will be expanding our offerings and are currently doing translations for 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. We expect to 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. 6 Table of Contents Software Development Our decision to expand the scope of our cloud-based platform into mobile backup and security required us to make substantial changes to our software to enhance the scalability and functionality of our services across a wide array of devices and platforms. This expansion delayed our ability to launch a number of important programs in 2011. Our development team continued to test and improve the mobile platform throughout the second half of 2011 and now feel that these changes enable us to complete launches with our marketing partners in 2012 and 2013. We believe with the improvements that we have made, we are able to handle carrier commitments that the company is currently negotiating to launch.. In the third quarter we began the full migration to an HTML-based platform for our distribution partners. We have begun launching with our marketing partners and anticipate a progressive roll out system-wide by the end of 2012. The sites will enable a full touchscreen interface to support all tablet and mobile device applications including Android, Blackberry, Windows and Apple. HTML will also enable quicker launch schedules for new customers, greater scalability, simplification of server technology, and faster maintenance. We also began the upgrade of our hardware in the third quarter of 2011 to a scalable storage platform capable of supporting millions of users for our software products. Through a unique cloud-like structure, this new platform can be infinitely scaled as usage increases by the combined use of additional network storage and virtual machine arrays (VMWARE). Upon completion all user backup data will be stored on state of the art NetAPP SAN storage. User account information and transactional information will be stored in a secure SQL-Server redundant distributed database utilizing special high-speed RAID drives. In addition, our IIS web servers each can support thousands of simultaneous users. Combining this with our new, scalable virtual machine array allows the system to be used by millions of users. We believe that through our software and hardware improvements we are now better positioned to begin the launches of Assurant, Simplexity, LSG and other potential partners in 2012 and 2013. The above partnerships represent multiple opportunities, as each of the companies has different distributors and strategic alliances marketing their products. We will continue to enhance our platform nonetheless. We believe the backbone for our service platform has been substantially developed. We have added new features to our existing services that will continue rolling out throughout 2012 that will accelerate revenue from our distribution. 7 Table of Contents Results of Operations for the three-month and nine-month periods ended September 30, 2012 compared to the three-month and nine-month periods ended September 30, 2011 |