UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

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

                  For the quarterly period ended June 30, 2006

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

                 For the transition period from _____ to ______


                        Commission file number 000-30451


                               SPARE BACKUP, INC.
                               ------------------
        (Exact name of small business issuer as specified in its charter)


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


                70361 El Paseo, Suite 202, Palm Desert, CA 92260
                ------------------------------------------------
                    (Address of principal executive offices)


                                 (760) 779-0251
                                 --------------
                           (Issuer's telephone number)


                        Newport International Group, Inc.
                        ---------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 39,622,546 shares of common stock
issued and outstanding at August 10, 2006.

Transitional Small Business Disclosure Format: Yes [ ]  No [X]

<PAGE>

When used in this quarterly report, the terms "Spare Backup,", the "Company",
"we," and "us" refers to Spare Backup, Inc. , a Delaware corporation formerly
known as Newport International Group, Inc., and its subsidiaries, Spare Backup,
Inc., a California corporation ("Spare Subsidiary") and Grass Roots
Communications, Inc., a Delaware corporation ("Grass Roots").

           CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this Quarterly Report on Form 10-QSB 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, 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, which speak only as of the date of
this report. Readers should carefully review this Quarterly Report in its
entirety, including but not limited to our financial statements and the notes
thereto appearing elsewhere herein. 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.

                                       -2-
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL INFORMATION

                               SPARE BACKUP, INC.
                           CONSOLIDATED BALANCE SHEET
                                  June 30, 2006
                                   (Unaudited)

                                     ASSETS
Current Assets:
  Cash ..........................................................  $    660,848
  Accounts receivable, net of provision for returns of $234,033 .             -
  Restricted cash ...............................................        60,000
                                                                   ------------
    Total current assets ........................................       720,848

  Property and equipment, net of accumulated
   depreciation of $161,895 .....................................       353,306
  Deferred financing costs, net of accumlated
   amortization of $34,969 ......................................       594,297
  Other assets ..................................................        76,380
                                                                   ------------

    Total assets ................................................  $  1,744,831
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts payable and accrued expenses .........................  $    384,231
  8% Convertible promissory notes ...............................       688,413
  12.5% Convertible promissory notes, net of debt
   discount of $230,427 .........................................       367,380
  Bridge promissory notes, net of debt discount of $1,431,113 ...        68,887
  Accrued interest on convertible promissory notes ..............        43,212
  Derivative liabilities ........................................    10,511,772
  Due to stockholder ............................................        15,000
                                                                   ------------

    Total current liabilities ...................................    12,078,895

  Other liabilities .............................................         6,425
                                                                   ------------

    Total liabilities ...........................................    12,085,320

Stockholders' Deficit:
  Preferred stock; $.0001 par value, 5,000,000
   shares authorized, none issued and outstanding ...............             -
  Common stock; $.001 par value, 150,000,000
   shares authorized, 39,573,617 issued and outstanding .........        39,573
  Additional paid-in capital ....................................    30,652,588
  Accumulated deficit ...........................................   (40,210,874)
  Deferred compensation .........................................      (821,776)
                                                                   ------------

    Total stockholders' deficit .................................   (10,340,489)
                                                                   ------------

    Total liabilities and stockholders' deficit .................  $  1,744,831
                                                                   ============

            See Notes to Unaudited Consolidated Financial Statements.

                                       -3-
<PAGE>
<TABLE>
                                             SPARE BACKUP, INC.
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (Unaudited)
<CAPTION>
                                                      For the six-month           For the three-month
                                                        period ended                 period ended
                                                          June 30,                     June 30,
                                                ---------------------------   ---------------------------
                                                    2006           2005           2006          2005
                                                ------------   ------------   ------------   ------------
                                                                (restated)                    (restated)
<S>                                             <C>            <C>            <C>            <C>
Revenues .....................................  $     33,645   $     13,428   $     16,824   $      9,582
Operating expenses:
  Research and development ...................       433,118        331,148        182,300         91,065
  Amortization of deferred compensation ......     1,192,195              -        617,325              -
  Share-based payment- options ...............     1,587,785              -        944,188              -
  Sales, general and administrative ..........     2,957,373      2,230,939        581,026      1,227,999
                                                ------------   ------------   ------------   ------------

    Total operating expenses .................     6,170,471      2,562,087      2,324,839      1,319,064
                                                ------------   ------------   ------------   ------------

    Operating loss ...........................    (6,136,826)    (2,548,659)    (2,308,015)    (1,309,482)
                                                ------------   ------------   ------------   ------------

Other income (expenses)-derivative liabilities      (514,937)    11,162,720        648,521      2,892,996
Other expense-liquidated damages .............             -       (172,929)             -              -
Transfer- unrealized gain- investment held for
 sale to trading security ....................       112,509              -         62,911              -
Unrealized loss-transfer of available-for-sale
 securities to trading securities ............             -     (4,999,263)             -     (4,999,263)
Unrealized loss-trading securities ...........             -       (270,384)             -       (270,384)
Realized loss- trading securities ............      (111,624)    (5,777,843)       (62,026)    (5,777,843)
Interest expense .............................      (478,709)    (1,065,639)      (235,852)      (752,271)
                                                ------------   ------------   ------------   ------------
    Total other expenses, net ................      (992,761)    (1,123,338)       413,554     (8,906,765)

Net loss .....................................  $ (7,129,587)  $ (3,671,997)  $ (1,894,461)  $(10,216,247)
                                                ============   ============   ============   ============

Transfer of previous unrealized loss on
 restricted investment .......................             -      4,999,263              -      4,999,263

Transfer of available-for-sale securities
 to trading securities .......................             -      4,999,263              -      4,999,263

Transfer- unrealized gain- investment held
 for sale to trading security ................      (112,509)             -              -              -
                                                ------------   ------------   ------------   ------------

Comprehensive income (loss) ..................  $ (7,242,096)  $  6,326,529   $ (1,894,461)  $   (217,721)
                                                ============   ============   ============   ============

Basic net loss per common share ..............  $      (0.17)  $      (0.14)  $      (0.04)  $      (0.38)
                                                ============   ============   ============   ============

Diluted net loss per share ...................  $      (0.17)  $      (0.57)  $      (0.04)  $      (0.48)
                                                ============   ============   ============   ============

Basic weighted average common
shares outstanding ...........................    41,843,321     26,941,846     42,413,813     27,092,909
                                                ============   ============   ============   ============

Diluted weighted average common
shares outstanding ...........................    41,843,321     26,941,846     42,413,813     27,092,909
                                                ============   ============   ============   ============

                         See Notes to Unaudited Consolidated Financial Statements.

                                                    -4-
</TABLE>
<PAGE>
<TABLE>
                                      SPARE BACKUP, INC.
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                           For the six-month period ending June 30,
                                         (Unaudited)
<CAPTION>
                                                                      2006          2005
                                                                  -----------   ------------
                                                                                 (Restated)
<S>                                                               <C>           <C>
Cash flows from operating activities:
Net loss .......................................................  $(7,129,587)  $ (3,671,997)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Unrealized loss-transfer of available-for-sale securities to
   trading securities ..........................................            -      4,999,263
  Realized loss on trading securities ..........................            -      5,777,843
  Unrealized loss-trading securities ...........................            -        270,384
  Fair value of derivatives at issuance related to consulting ..    1,029,000         32,300
  Fair value of derivatives at issuance of financing instruments      582,837        557,620
  Increase (decrease) in fair value of derivative liabilities ..      (67,950)   (11,752,640)
  Excess of fair value of shares issued upon conversion of
   convertible promissory notes ................................            -         10,125
  Fair value of options issued to employees ....................    1,587,785        282,130
  Amortization of debt discount ................................      317,505        853,174
  Amortization of deferred compensation ........................    1,192,195              -
  Fair value of shares of common stock issued in payment
    of interest on convertible promissory note .................       63,858         72,315
  Fair value of shares issued in connection with the failure
    to timely file the registration statement ..................            -        132,851
  Fair value of shares issued in connection with
   services rendered ...........................................            -         13,440
  Depreciation .................................................       42,933         37,876
  Amortization of deferred financing costs .....................       77,679        124,303
Changes in operating assets and liabilities
  Other assets .................................................      (50,000)             -
  Accounts payable and accrued expenses ........................     (120,925)       195,487
  Deferred revenues ............................................      (12,684)             -
  Accrued interest on note receivable ..........................            -          1,200
  Accrued interest on convertible promissory notes .............        5,637         12,654
                                                                  -----------   ------------

Net cash used in operating activities ..........................   (2,481,717)    (2,051,672)
                                                                  -----------   ------------

Cash flows from investing activities:
  Proceeds from disposition of marketable securities ...........            -         68,925
  Proceeds from note receivable ................................            -         85,000
  Purchases of property and equipment ..........................      (65,653)       (92,199)
                                                                  -----------   ------------

Net cash (used in) provided by investing activities ............      (65,653)        61,726
                                                                  -----------   ------------

Cash flows from financing activities:
  Principal repayments on lease obligations ....................       (6,932)        (2,553)
  Principal repayments on convertible promissory note ..........      (52,193)             -
  Repurchase of shares of common stock .........................     (633,602)             -
  Proceeds from issuance of convertible promissory notes .......            -        635,000
  Proceeds from issuance of bridge notes .......................    1,500,000              -
  Proceeds from issuance of shares .............................    2,450,000              -
  Proceeds from exercise of stock options ......................            7            413
  Payments of convertible promissory notes .....................            -       (265,000)
  Payments of deferred financing costs .........................     (190,000)             -
  Payments of financing costs ..................................      (25,000)             -
                                                                  -----------   ------------

Net cash provided by financing activities ......................    3,042,280        367,860
                                                                  -----------   ------------

Decrease in cash ...............................................      494,910     (1,622,086)

Cash, beginning of period ......................................      165,938      1,671,773
                                                                  -----------   ------------

Cash, end of period ............................................  $   660,848   $     49,687
                                                                  ===========   ============

Supplemental disclosures of cash flow information:
  Cash paid during the year for interest .......................  $     8,664   $      3,601
                                                                  ===========   ============

  Cash paid during the year for taxes ..........................  $         -   $          -
                                                                  ===========   ============

Supplemental schedule of non-cash financing and investing
 activities:

Fair value of warrants  and embedded conversion features
 issued in connection with the issuance of convertible
 promissory notes and corresponding debt discount ..............  $ 1,500,000   $    650,000
                                                                  ===========   ============

Fair value of warrants issued in connection with the
 repurchase of shares of common stock ..........................  $   900,000   $    900,000
                                                                  ===========   ============

Fair value of warrants and embedded conversion features
 issued in connection with the issuance of common
 stock and corresponding increase in derivative liabilities ....  $   300,725   $          -
                                                                  ===========   ============

Fair value of shares issued to partially satisfy convertible
 promissory notes ..............................................  $         -   $     48,750
                                                                  ===========   ============

Conversion of convertible promissory notes in shares of
 common stock ..................................................  $   104,906   $    200,625
                                                                  ===========   ============

Fair value of shares of common stock issued to consultants
 for services ..................................................  $   333,500   $     13,000
                                                                  ===========   ============

                  See Notes to Unaudited Consolidated Financial Statements.

                                             -5-
</TABLE>
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

Spare Backup, Inc., formerly known as Newport International Group, Inc. (the
"Company"), was a development stage company incorporated in Delaware in December
1999. During February 2004, the Company acquired GrassRoots Communications, Inc.
("GrassRoots"). The Company, through one of its subsidiaries, Spare Backup,
Inc., a California corporation ("Spare Subsidiary") 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
Company has substantially discontinued its marketing and development efforts
under GrassRoots. Effective August 16, 2006 the Company changed its name from
Newport International Group, Inc. to Spare Backup, Inc.

The accompanying financial statements have been prepared on a going concern
basis. The Company has generated minimal revenue since its inception on June 12,
2002 and has incurred net losses of approximately $7.1 million during the
six-month period ended June 30, 2006. The Company's ability to continue as a
going concern is dependent upon its ability to obtain the necessary financing to
meet its obligations and repay its liabilities arising from normal business
operations when they come due, to fund possible future acquisitions, and to
generate profitable operations in the future. Management plans to continue to
provide for its capital requirements by issuing additional equity securities and
debt. The outcome of these matters cannot be predicted at this time and there
are no assurances that if achieved, the Company will have sufficient funds to
execute its business plan or generate positive operating results.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Significant estimates made by management include, but are not
limited to, the valuation of derivative liabilities and share-based payments.
Actual results will differ from these estimates.

                                       -6-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

EARNINGS PER SHARE

Basic earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are 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 embedded conversion features amounted to 30,740,001 and 25,767,748
at June 30, 2006 and 2005, respectively. The outstanding options, warrants and
shares equivalent issuable pursuant to embedded conversion features and warrants
at June 30, 2006 and 2005 are excluded from the loss per share computation for
that period due to their anti-dilutive effect.

The following sets forth the computation of basic and diluted earnings per share
for the six-month periods ended June 30:

                                                        2006           2005
                                                    ------------   ------------

Numerator:
Net (loss) income ................................. $ (7,129,587)  $ (3,671,997)
Adjustments:
Other (income) expenses- derivative liabilities ...      (67,950)   (11,752,640)
                                                    ------------   ------------
Adjusted net loss for earnings per share .......... $ (7,061,637)  ($15,424,637)
                                                    ============   ============

Denominator:
Denominator for basic earnings per share-
Weighted average shares outstanding ...............   41,834,321     26,941,846
Effect of dilutive warrants, embedded
conversion features And liquidated damages ........            -              -
                                                    ------------   ------------

Denominator for diluted earnings per share-
Weighted average shares outstanding ...............   41,843,321     26,941,846
                                                    ============   ============

Basic earnings (loss) per share ................... $      (0.17)  $      (0.14)
                                                    ============   ============

Diluted earnings (loss) per share ................. $      (0.17)  $      (0.57)
                                                    ============   ============

RISKS AND UNCERTAINTIES

The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. During the six-month period ended
June 30, 2006, the Company has reached bank balances exceeding the FDIC
insurance limit. To reduce its risk associated with the failure of such
financial institutions, the Company evaluates at least annually the rating of
the financial institutions in which it holds deposits.

                                       -7-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's cash and cash equivalents, accounts
payable and accrued expenses and due to stockholder approximate their estimated
fair values due to the short-term maturities of those financial instruments. The
carrying amount of the derivative liability is based on its fair value. The
carrying amount of the convertible notes and bridge notes approximates the
estimated fair value for these financial instruments as management believes that
such convertible notes constitute substantially all of the Company's debt and
the interest payable on the convertible notes approximates the Company's
incremental borrowing rate.

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form l0-QSB and Article 10 of
Regulation S-B. Accordingly, they do not include all the information and
disclosures required for annual financial statements. These financial statements
should be read in conjunction with the consolidated financial statements and
related footnotes as of and for the year ended December 31, 2005, included in
the Annual Report filed on Form l0-KSB.

In the opinion of the management, all adjustments (consisting of normal
recurring items) necessary to present fairly the Company's financial position as
of June 30, 2006, and the results of operations and cash flows for the six-month
period ending June 30, 2006 have been included. The results of operations for
the six-month period ended June 30, 2006 are not necessarily indicative of the
results to be expected for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report filed on Form l0-KSB as filed with the Securities and
Exchange Commission for the year ended December 31, 2005.

INVESTMENT IN EQUITY SECURITIES AND COMPREHENSIVE LOSS

During 2004, the Company received shares of a United Kingdom Corporation (the
"Investee") pursuant to a stock-exchange agreement whereby the Company issued
5,882,352 of its shares of common stock in exchange for the Investee's stock. At
the time of issuance, the Company recorded the cost of the investment at the
market value of the shares exchanged of approximately $11.8 million.

The Company held 3,242,420 shares of the Investee in an escrow account which
could not be released without the Investee's permission until August 2006. Until
these shares were released from escrow, the Company accounted for the value
attributable to such shares as restricted investment in marketable securities.
The Company adjusted the carrying value of the restricted investment to $133,921
at June 30, 2005 to reflect an other-than temporary impairment amounting to
approximately $5.8 million and has been recognized as realized loss in earnings.

During May 2006, the Company assigned its remaining interest in the shares to
the Investee, which were valued at approximately $135,000 at the date of
assignment and no longer holds the shares of the Investee.

                                       -8-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

The decrease in the market value from January 1, 2006 to the date of assignment
which amounted to approximately $112,000, has been recorded as a realized loss
on trading securities.

SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of software products are expensed
as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED OR OTHERWISE MARKETED. The Company believes that the current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility; accordingly, no software development
costs have been capitalized as of June 30, 2006.

PROPERTY AND EQUIPMENT

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

DEFERRED FINANCING COSTS

Deferred financing costs represent costs incurred in connection with the
issuance of the convertible promissory notes. Deferred financing costs are being
amortized over the terms of the related debt agreements, which range between one
to two years.

SHARE-BASED PAYMENTS

In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
companies are required to measure the compensation costs of share-based
compensation arrangements based on the grant-date fair value and recognize the
costs in the financial statements over the period during which employees are
required to provide services. Share-based compensation arrangements include
stock options, restricted share plans, performance-based awards, share
appreciation rights and employee share purchase plans. In March 2005, the SEC
issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107 expresses views
of the staff regarding the interaction between SFAS No. 123(R) and certain SEC
rules and regulations and provides the staff's views regarding the valuation of
share-based payment arrangements for public companies. SFAS No. 123(R) permits
public companies to adopt its requirements using one of two methods. On April
14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS
123(R). Companies may elect to apply this statement either prospectively, or on
a modified version of retrospective application under which financial statements
for prior periods are adjusted on a basis consistent with the pro forma
disclosures required for those periods under SFAS 123. Effective January 1,
2006, the Company has fully adopted the provisions of SFAS No. 123(R) and
related interpretations as provided by SAB 107. As such, compensation cost is
measured on the date of grant as the fair value of the share-based payments.
Such compensation amounts, if any, are amortized over the respective vesting
periods of the option grant. The Company applies this statement prospectively.

                                       -9-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

The following pro forma information is to reflect the change from applying the
provisions of FAS 123 and APB 25:

                                                              June 30,
                                                     --------------------------
                                                         2006          2005
                                                     -----------   ------------
Net (loss) income .................................  $(7,129,587)  $ (3,671,997)

Adjustments:
Other income expenses- derivative liabilities .....      (67,950)   (11,752,640)
                                                     -----------   ------------
Adjusted net loss for diluted earnings per share ..  $(7,197,537)  $(15,424,637)

Add:
  Stock-based compensation expense included in
  reported net (loss) income, net of related
  tax effects .....................................            -        493,813

Deduct:
  Total stock-base employee compensation expense
  determined under fair value based method for
  all awards, net of related tax effects
  excluded from net (loss) income: ................           (-)      (186,768)
                                                     -----------   ------------
Net (loss) income pro forma .......................  $(7,197,537)  $(15,117,592)
                                                     ===========   ============

Proforma earnings per share:
Basic .............................................  $     (0.17)  $      (0.14)
                                                     ===========   ============

Diluted ...........................................  $     (0.17)  $      (0.56)
                                                     ===========   ============

The fair value of the options granted during the six-month period ended June 30,
2005 was determined using the Black-Scholes option-pricing model with the
following assumptions: risk-free interest of 3.32%; stock volatility of 86%; no
dividends; and estimated life of 36 months.

DERIVATIVE LIABILITIES

The Company accounts for its liquidated damages pursuant to Emerging Issue Task
Force ("EITF ")05-04, View C, "The Effect of a Liquidated Damages Clause on a
Freestanding Financial Instrument Subject to EITF Issue No. 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock". Pursuant to EITF 05-04, View C, the liquidated damages
paid in cash or stock are accounted for as a separate derivative, which requires
a periodical valuation of its fair value and a corresponding recognition of
liabilities associated with such derivative. The Company accounts for its
embedded conversion features and freestanding warrants pursuant to SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which requires a
periodic valuation of their fair value and a corresponding recognition of
liabilities associated with such derivatives. The recognition of derivative
liabilities related to the issuance of shares of common stock is applied first
to the proceeds of such issuance, at the date of issuance, and the excess of
derivative liabilities over the proceeds is recognized as other expense in the
accompanying consolidated financial statements. The recognition of derivative

                                      -10-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

liabilities related to the issuance of convertible debt and associated warrants
or other derivatives is applied first to the proceeds of such issuance as a debt
discount, at the date of issuance, and the excess of derivative liabilities over
the proceeds is recognized as other expense in the accompanying consolidated
financial statements. Any subsequent increase or decrease in the fair value of
the derivative liabilities is recognized as other expense or other income,
respectively.

REVENUE RECOGNITION, ACCOUNTS RECEIVABLE, AND PROVISION FOR RETURNS

Revenue is recognized when it is earned. The Company's revenue recognition
policies are in compliance with SOP 97-2 Software Revenue Recognition (as
amended by SOP 98-4 and SOP 98-9) and related interpretations.

The Company markets its software through multiple channel resellers and retail
stores. The Company provides for unlimited rights of return to its customers.
The Company has only recently licensed its products through such multiple
channels and does not have a historical pattern of returns. Additionally, such
customers generally pay software vendors based on their own sell-thru and return
the unsold products to the software vendor. The customers have not returned any
products at June 30, 2006. Accordingly, the Company provides for a provision for
returns for all outstanding receivables until the customers return the products
or the customers pay their invoices. The outstanding gross receivables at June
30, 2006 amounted to approximately $234,000. The Company has recorded a
corresponding amount as provision for returns at June 30, 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the Financial Accounting Standard Board ("FASB") issued Statement
No. 154, "Accounting Changes and Error Corrections, a replacement of APB Opinion
No. 20, Accounting Changes, and Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements" (SFAS 154). SFAS 154 changes the requirements for
the accounting for, and reporting of, a change in accounting principle.
Previously, most voluntary changes in accounting principles were required to be
recognized by way of a cumulative effect adjustment within net income during the
period of the change. SFAS 154 requires retrospective application to prior
periods' financial statements, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. SFAS 154 is
effective for accounting changes made in fiscal years beginning after December
15, 2005; however, the Statement does not change the transition provisions of
any existing accounting pronouncements. We do not believe adoption of SFAS 154
will have a material effect on our financial position, results of operations or
cash flows.

In July 2005, the FASB issued FASB Staff Position ("FSP") 150-5, "Accounting
Under SFAS 150 for Freestanding Warrants and Other Similar Instruments on
Redeemable Shares". FSP 150-5 clarifies that warrants on shares that are
redeemable or puttable immediately upon exercise and warrants on shares that are
redeemable or puttable in the future qualify as liabilities under SFAS 150,
regardless of the redemption feature or redemption price. The FSP is effective
for the first reporting period beginning after June 30, 2005, with resulting
changes to prior period statements reported as the cumulative effect of an
accounting change in accordance with the transition provisions of SFAS 150. We
adopted the provisions of FSP 150-5 on July 1, 2005, which did not have a
material effect on our financial statements.

                                      -11-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

In July 2005, the FASB issued EITF 05-6, "Determining the Amortization period
for Leasehold Improvements Purchased After Lease Inception or Acquired in a
Business Combination", which addressed the amortization
 period for leasehold improvements made on operating leases acquired
significantly after the beginning of the lease. The EITF is effective for
leasehold improvements made in periods beginning after June 29, 2005. We adopted
the provisions of EITF 05-6 on July 1, 2005, which did not have a material
impact to the Company's financial position, results of operations and cash
flows.

NOTE 3 - RESTATEMENT OF FINANCIAL STATEMENTS

In March 2006, the Company revised its accounting for certain transactions
related to its convertible debt and associated warrants as well as liquidated
damages issued in fiscal 2004 and 2005. The Company revised its accounting to
reflect the issuance of convertible notes which are convertible in an
undeterminable amount of shares. Accordingly, the embedded conversion features
associated with such convertible notes are recorded as derivative liabilities.
Furthermore, because the Company cannot ascertain that it has a sufficient
amount of authorized but unissued shares, all other financial instruments, such
as options or warrants, outstanding at the time of the issuance of the
convertible notes are considered derivatives as well.

This revised accounting treatment resulted in an increase in derivative
liabilities and accumulated deficit of $6,033,590 as of June 30, 2005.
Additionally, the Company increased its other-income derivative liabilities and
increased its net loss by $11,162,720 for the six-month ended June 30, 2006. The
revised accounting treatment did not have any impact on the Company's net cash
used in operating activities, investing activities, of financing activities.

NOTE 4 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following as of June 30, 2006:

8% Convertible promissory notes, bearing interest at 8% per annum,
matured on March 1, 2006. Interest payable June 30, 2004 and every
quarter thereafter either in cash or common stock. Interest paid in
common stock is convertible using the 10-day average closing bid of
the stock prior to the end of the quarter. Each occurrence of
interest not paid within 30 days following the end of each quarter
causes a reduction of 10% in the conversion price of the promissory
notes and the exercise price of the related warrants. The promissory
notes are convertible at any time at the option of the holder, into
shares of common stock at a rate of $0.375 .........................  $ 688,413

Less:  unamortized discount ........................................         (-)
                                                                      ---------
Convertible promissory notes-short-term ............................  $ 688,413
                                                                      =========

                                      -12-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 4 - CONVERTIBLE PROMISSORY NOTES - CONTINUED

12.5% Convertible promissory notes, bearing interest at 12.5% per
annum, maturing between March and June 2007. Interest payable June
30, 2005 and every quarter thereafter either in cash or common
stock. Interest paid in common stock is convertible using the 5-day
average closing price of the stock prior to the end of the quarter.
Each occurrence of interest not paid within 30 days following the
end of each quarter causes a reduction of 10% in the conversion
price of the promissory notes and the exercise price of the related
warrants. The promissory notes are convertible into shares of common
stock at a rate of $0.35  ..........................................  $ 597,807

Less: unamortized discount .........................................   (230,427)
                                                                      ---------
Convertible promissory notes-short term ............................  $ 367,380
                                                                      =========

8% Bridge promissory notes, bearing interest at 8% per annum,
maturing between November and December 2007. Interest payable at
maturity. Principal and interest immediately converts upon the
closing of subsequent financing of at least $1,000,000. The
promissory notes are convertible into shares of common stock at
a rate of $0.35  .................................................  $ 1,500,000

Less: unamortized discount .......................................   (1,431,113)
                                                                    -----------
Convertible promissory notes-short term ..........................  $    68,887
                                                                    ===========

The convertible rates for Convertible promissory notes interest accrued as of
June 30, 2006 amounted to $0.43 per share. The Company issued 47,113 and 69,840
shares in connection with the payment of interest on the Convertible promissory
notes during the six-month period ended June 30, 2006 and 2005, respectively.
The fair value of such shares issued during the six-month period ended June 30,
2006 and 2005 amounted to approximately $64,000 and $35,000, respectively.
Furthermore, the Company issued 48,929 shares in July 2006 in connection with
the payment of accrued interest of approximately $21,000 as of June 30, 2006.

During the six-month period ended June 30, 2006, certain note holders of 8%
convertible promissory notes converted their promissory notes and accrued
interest amounting to approximately $105,000 in 279,750 shares of common stock.

During the six-month period ended June 30, 2006 and June 30, 2005, the Company
received $1,500,000 and $635,000 in consideration for the issuance of the bridge
promissory notes and convertible promissory notes, respectively.

                                      -13-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 4 - CONVERTIBLE PROMISSORY NOTES - CONTINUED

During the six-month period ended June 30, 2006, the Company made principal
repayments of approximately $52,000 on a 12.5% Convertible promissory note held
by an employee who is the fiancee of the Company's Chief Executive officer. The
outstanding amount due under the Convertible promissory note amounts to
approximately $223,000 at June 30, 2006.

In the event the Company issues any shares of its common stock or issues any
options, warrants, convertible preferred stock or convertible debt issuable or
convertible into common stock of the Company at an exercise price or conversion
price per share less than $0.75 per share within two years following the closing
of the 12.5% Convertible Promissory Notes, then the exercise price of the
warrants issued pursuant to the Follow-on Financing will reset to such lower
price. As of June 30, 2006, the exercise price of such warrants are $0.35.

Under the terms of the instruments, the Company has the right to call all of the
8% Convertible promissory notes and 12.5% convertible promissory notes warrants,
if the stock underlying the warrants has been registered (and that registration
statement is still effective), the lock-up restriction, as defined, on the
common stock has been lifted, and after the lock-up restriction has been lifted
the stock maintains a closing bid price above $3.00 for 15 business days. The
Company may redeem the warrants for $0.01 if not exercised within 30 days of the
call notification.

The Company has the right to call the related warrants issued upon the conversin
of the Bridge promissory notes if the stock underlying the warrants has been
registered (and that registration statement is still effective), the lock-up
restriction, as defined in the agreement, on the common stock has been lifted,
and after the lock-up restriction has been lifted the stock maintains a closing
bid price above and $0.75 for 15 business days. The Company may redeem the
warrants for $0.01 if not exercised within 30 days of the call notification.

The Company recognized a debt discount of $1,500,000 in connection with the
issuance of the 8% Bridge promissory notes. The debt discount relates to the
recognition of derivative liabilities associated with the 8% Bridge promissory
notes. The debt discount is amortized over the term of the Bridge promissory
notes, which is eighteen months.

The Company paid financing fees of $190,000 to the placement agent in connection
with the issuance of the Bridge promissory notes. Additionally, the Company
issued 1,071,429 warrants to the placement agent. The fair value of the
warrants, which amounted to approximately $439,000 together with the financing
fees have been recorded as deferred financing costs and are amortized over 18
months.

The 8% Convertible promissory notes are currently due. Management is in
discussion with the holders of such notes to satisfy these obligations with
either cash or stock consideration or a combination of both.

Amortization of the debt discount amounted to approximately $318,000 and
$853,000 during the six-month period ended June 30, 2006 and 2005, respectively,
and is included in interest expense.

Amortization of the deferred financing costs amounted to approximately $78,000
and $124,000 during the six-month period ended June 30, 2006 and 2005,
respectively, and is included in interest expense.

                                      -14-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 4 - CONVERTIBLE PROMISSORY NOTES - CONTINUED

Accrued interest on the Convertible Promissory Notes amounted to approximately
$43,000 as of June 30, 2006.

NOTE 5 - DERIVATIVE LIABILITIES

During March 2004, the Company closed its 8% Convertible Promissory Notes
private placement. In connection with the issuance of the 8% Convertible
Promissory Notes, the Company granted a subsequent financing conversion reset
right which expired on March 1, 2006. Subsequently, the Company issued similar
rights to the holders of its 12.5% Convertible promissory notes. The subsequent
financing conversion reset is considered an embedded conversion feature pursuant
to EITF Issue No. 00-19. Additionally, because there is no explicit number of
shares that are to be delivered upon satisfaction of subsequent financing
conversion reset feature, the Company is unable to assert that it had sufficient
authorized and unissued shares to settle such feature. Accordingly, all of the
Company's previously issued and outstanding instruments, such as warrants and
options issued to non-employees pursuant to rendered services as well as those
issued in the future, would be classified as liabilities, effective with the
granting of the subsequent financing conversion reset feature.

The Company recognized liabilities for the following derivatives at the date of
their issuance during the six-month period ended June 30, 2006 and 2005,
respectively:

                                             At issuance-2006  At issuance- 2005
                                             ----------------  -----------------
Embedded conversion Features:
12.5% convertible notes .....................   $        -        $  934,000
8% bridge notes .............................    1,500,000                 -
Freestanding warrants and options:
12.5% convertible notes .....................            -           273,620
8% bridge notes .............................      582,857                 -
Other warrants and options ..................    2,668,381            32,300
Liquidated damages ..........................            -                 -
                                                ----------        ----------
                                                $4,751,238        $1,239,920
                                                ==========        ==========

The fair value of the derivative liabilities at June 30, 2006 are as follows:

Embedded conversion Features:
8% convertible notes ........................  $   118,019
12.5% convertible notes .....................      742,989
8% bridge notes .............................    1,500,000
Freestanding warrants and options:
8% convertible notes ........................      782,925
10% convertible notes .......................      123,025
12.5% convertible notes .....................      238,400
8% bridge notes .............................      582,857
Other warrants and options ..................    3,733,313
Common stock subject to put .................    2,378,049
Liquidated damages ..........................      312,195
                                               -----------
                                               $10,511,772
                                               ===========

                                      -15-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 5 - DERIVATIVE LIABILITIES - CONTINUED

The Company used the following assumptions to measure the identified derivatives
at issuance, which is during the six-month periods ended June 30, 2006 and 2005
and at June 30, 2006, as follows:

Embedded conversion feature-Convertible Promissory Notes and Common Stock
Subject to Put

                                      Six-Month      Six-Month
                                       Period         Period
                                        Ended          Ended
                                       June 30,       June 30,       At June 30,
                                         2006           2005            2006
                                      ---------      ----------      -----------

Market price: ...................     $    0.41      $0.40-0.62      $      0.41
Exercise price: .................     $    0.35      $0.188-.85      $0.188-1.75
Term: ...........................     1.5 years       3-5 years      1.5-5 years
Volatility: .....................          221%             86%             221%
Risk-free interest rate:                   5.1%           3.32%             5.1%
Maximum liability:
8% convertible notes ............             -               -      $   688,443
12.5% convertible notes .........             -               -          896,711
8% bridge notes .................             -               -        1,500,000


Liquidated damages
                                         At          At June 30,
                                      Issuance          2006
                                      ---------      -----------
Market price: ...................        n/a         $      0.41
Exercise price: .................        n/a         $      0.50
Term: ...........................        n/a          1.33 years
Volatility: .....................        n/a                221%
Risk-free interest rate: ........        n/a                5.1%
Maximum liability: ..............        n/a         $   975,000


Freestanding warrants and options
                                      Six-Month      Six-Month
                                       Period         Period
                                        Ended          Ended
                                       June 30,       June 30,       At June 30,
                                         2006           2005            2006
                                      ----------     ----------      -----------

Market price: ...................     $0.41-0.50     $0.40-0.62      $      0.41
Exercise price: .................     $0.40-0.50     $0.188-.85      $0.188-1.75

Term: ...........................      2-5 years      3-5 years        2-5 years

Volatility: .....................           221%            86%             221%
Risk-free interest rate: ........     4.18-5.10%          3.32%             5.1%
Options and warrants ............      8,498,215        681,000       14,572,105


                                      -16-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 5 - DERIVATIVE LIABILITIES - CONTINUED

The embedded conversion features are as follows:

Reset Feature Following Subsequent Financing-12.5% Convertible Promissory notes:
50%, which is the effective discount to market value the Company would offer in
the event it provides for a subsequent private placement financing

Liquidated Damage Clause: 22.5%, which is the difference, in months between the
time the underlying shares are free-trading and the grace period to obtain a
registration statement, multiplied by the liquidated damage rate of 1% per
month.

Common stock subject to put: 25%, which is the effective discount to market
value assuming that the put holders convert 2,500,000 shares in convertible
promissory notes.

During the six-month period ended June 30, 2006 and 2005, respectively, the
Company allocated $1,500,000 and $635,000, respectively, of the fair value of
the derivatives issued in connection with convertible promissory notes, at their
date of issuance, to debt discount. The excess of the fair value of the
derivative liabilities over the debt discount has been recognized as other
expense-derivative liabilities, which amounts to approximately $583,000 and
$557,000 during the six-month period ended June 30, 2006 and 2005, respectively.

During the six-month period ended June 30, 2006, the Company allocated
approximately $300,000 of the fair value of the derivatives to the net value of
the issuance of shares of common stock as additional consideration provided to
such stockholders and has been recorded as an offset to additional paid-in
capital.

During the six-month period ended June 30, 2006, the Company allocated
$1,029,000 of the fair value of the derivatives recognized in connection with
the issuance of certain warrants issued to consultants to sales, general, and
administrative expenses.

During the six-month period ended June 30, 2006, the Company allocated $439,256
of the fair value of the derivatives recognized in connection with the issuance
of certain warrants issued to a placement agent to deferred financing costs.

During the six-month period ended June 30, 2006, the Company allocated $900,000
of the fair value of the derivatives recognized in connection with the issuance
of certain warrants issued to the Investee associated with the Company's
repurchase of its shares to additional paid-in capital.

The difference in fair value of the derivative liabilities between the date of
their issuance and their measurement date, which amounted to a decrease of
approximately $68,000 and a decrease of $11.8 million for the six-month periods
ended June 30, 2006 and 2005, respectively, has been recognized as other expense
and other income, respectively.

                                      -17-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 6 - STOCKHOLDERS' DEFICIT

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

During the six-month period ended June 30, 2006 and 2005, the Company issued
1,325,000 and 28,000 shares of common stock, respectively, to consultants for
services performed. The fair value of such shares amounted to approximately
$334,000 and $13,000 during the six-month period ended June 30, 2006 and 2005,
respectively. The nature of the services rendered in connection with the
issuance of these shares were for marketing purposes.

ISSUANCE OF COMMON STOCK PURSUANT TO THE PAYMENT OF INTEREST ON THE CONVERTIBLE
DEBT

The Company issued 47,113 and 69,840 shares in connection with the payment of
interest on the Convertible promissory notes during the six-month period ended
June 30, 2006 and 2005, respectively. The fair value of such shares issued
during the six-month period ended June 30, 2006 and 2005 amounted to
approximately $64,000 and $35,000, respectively. Furthermore, the Company issued
48,929 shares in July 2006 in connection with the payment of accrued interest of
approximately $21,000 as of June 30, 2006.

ISSUANCE OF COMMON STOCK PURSUANT TO FAILURE TO TIMELY FILE REGISTRATION
STATEMENT

During the six-month period ended June 30, 2005, the Company issued 92,903
shares of common stock pursuant to its failure to timely file its registration
statement. The fair value of such shares amounted to approximately $133,000 and
is included in other expenses.

ISSUANCE OF COMMON STOCK PURSUANT TO PRIVATE PLACEMENTS

During the six-month period ended June 30, 2006, the Company issued 5,075,000
shares pursuant to private placements which generated net proceeds of
approximately $2.3 million. In connection with the private placements, the
Company issued 437,500 warrants to the investors. The warrants are exercisable
at a price of $0.40 per share. The warrants expire in March 2011.

Additionally, the Company issued 175,000 warrants to one of the placement
agents, in connection with one of the private placements.

REPURCHASE AND CANCELLATION OF COMMON STOCK

During May 2006, the Company repurchased 5,882,352 shares of its common stock
and as consideration, paid to the Investee approximately $630,000, issued
3,000,000 warrants and assigned its investment in the Investee's shares to the
Investee. The aggregate consideration for the repurchase of the Company's shares
of common stock amounted to approximately $1.7 million and has been recorded as
a decrease of the stockholders' deficit during the six-month period ended June
30, 2006.

                                      -18-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 7 - STOCK OPTIONS AND WARRANTS

WARRANTS

During the six-month period ended June 30, 2005, the Company issued 596,000
warrants in connection with the issuance of the 12.5% Convertible Promissory
Notes. The exercise price of the warrants is $0.35 per underlying share of
common stock. The warrants expire in December 2009.

During the six-month period ended June 30, 2006, the Company issued 1,714,286
warrants in connection with the issuance of the 8% Bridge promissory notes.
Additionally, the Company issued 1,071,429 warrants to the placement agent as
finders' fee in connection with the issuance of the 8% Bridge promissory notes.
The exercise price of the warrants is $0.40 per underlying share of common
stock. The warrants expire in June 2008.

During the six-month period ended June 30, 2006, the Company issued 3,000,000
warrants in connection with the repurchase of its shares from the Investee. The
exercise price of the warrants is $1.00. The warrants expire in May 2008.

During the six-month period ended June 30, 2006, the Company issued 2,100,000
warrants to two consultants. The exercise price of the warrants is $0.50. The
warrants expire in March 2011.

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

The Company granted 3,721,683 and 790,856 options during the six-month period
ended June 30, 2006 and 2005, respectively, to purchase common stock to
employees for services performed. The exercise prices of such options ranged
from $0.001 to $0.56 during the six-month period ended June 30, 2006 and $.001
to 1.62 for options granted during the six-month period ended June 30, 2005,
respectively.

The Company issued 790,856 options with below market exercise prices during the
six-month period ended June 30, 2005. The issuance of such options to employees
resulted in compensation expense pursuant to APB Opinion No. 25 amounting to
approximately $74,000 during the six-month period ended June 30, 2005.

There are 12,675,127 options outstanding at June 30, 2006. The outstanding
options vest over periods of up to two years. During the six-month period ended
June 30, 2006, we recorded a share-based payment expense amounting to
approximately $1.6 million. The share-based payment is based on the fair value
of the outstanding options amortized over the requisite period of service for
option holders, which is generally the vesting period of the options. The fair
value of the options is based on the Black-Scholes Model using the following
assumptions :

                                      -19-
<PAGE>

                               SPARE BACKUP, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006

NOTE 7 - STOCK OPTIONS AND WARRANTS - CONTINUED

Exercise price : ..................  $  0.001-2.25
Market price at date of grant : ...  $0.02-$0.1.95
Volatility : ......................     0% to 221%
Expected dividend rate : ..........             0%
Risk-free interest rate : .........     2.78%-5.1%

NOTE 8 - COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company may become involved in certain legal proceedings and claims which
arise in the normal course of business. Management does not believe that the
outcome of any such matter will have a material effect on the Company's
financial position or results of operations.

During fiscal 2005, an arbitrator awarded a consultant certain compensation
amounting to $81,250 payable by Grassroots, one of the Company's subsidiaries.

During fiscal 2005, a note holder requested an entry of default in the amount of
the note amounting to $15,000 and less than $1,000 in interest and costs. The
note is payable by Grassroots, one of the Company's subsidiaries.

The Company has recorded a corresponding liability related to these matters in
the accompanying financial statements.

NOTE 9 - SUBSEQUENT EVENTS

The Company issued 48,929 shares in July 2006 in connection with the payment of
accrued interest of approximately $21,000 as of June 30, 2006.

On August 9, 2006, the Company entered in a technical support services agreement
with Circuit City Stores, Inc. ("Circuit City") which provides that such
retailer will market and support our Spare Back-Up product. The agreement
provides that, among other things, the Company will deposit up to $1,000,000 in
an escrow account to secure certain obligations associated with compensation to
Circuit City for installs of the Company's software on each computer sold to
their customers. Additionally, the Company agreed to pay $200,000 to the
retailer for marketing development funds related to the promotion of the
software.

Such commitments are partly financed by a private placement of shares of common
stock during July and August 2006 which generated gross proceeds of $1,350,000 ,
in which we issued an aggregate of 600,000 units of our securities, with each
unit consisting of five shares of our common stock and two common stock purchase
warrants, each two year warrant entitling the holder to purchase one share of
our common stock at an exercise price of $0.60 per share.

During August 2006, as a result of the aforedescribed private placement reaching
at least $1,000,000 in a subsequent offering, the Company's Bridge promissory
notes issued in June 2006 automatically converted into 4,285,714 shares of
common stock and 1,714,286 two-year warrants to purchase shares of our common
stock with an exercise price of $0.40 per share.

                                      -20-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

         During March 2005 we launched Spare Backup, our fully automated online
backup service, and in August 2005 we introduced our Spare Switch software. We
are now focusing all our marketing and development efforts on our Spare family
of software products, which we believe will constitute all of our revenues and
operating expenses in the future. Our decision to discontinue all marketing of
our Conga product line to focus on the Spare product line is the result of what
we believe to be the best use of our available resources and limited personnel
and of our belief that this area will provide a greater opportunity for earlier
returns on this technology as compared to video conferencing.

         During fiscal 2005 we began establishing a reseller network focusing on
retailers and original equipment manufacturers (OEMs). We believe that these
distribution channels will significantly broaden the market exposure of our
products while containing marketing costs. Our pricing model for Spare Backup
and Spare Switch product offerings are subscription-based. Certain of our
marketing programs provide for end-user trial periods of up to six months. We
anticipate that within 45 days of a trial download we will begin generating
revenues from automatic billing of credit cards to those users who wish to
continue the service. We are unable to predict at this time with any certainty
what our retention percentage of customers will be following the trial download
period. We believe, however that the retention rate should be high based upon
the convenience we are offering customers at a relatively low monthly cost. In
addition, as a result of the period between the beginning of the trial download
period and the credit card billing cycle, which can be as much as 135 days,
there is a rather significant "lag" time before we begin generating revenues
from customers who try our products and decide to purchase the subscription
service.

         Our concept is to develop a suite of complimentary products. In
addition to the current product offerings, we have several new products in the
development pipeline, which are designed to extend the service to specialized
areas including mobile devices, music and email. Additional service extensions
are currently envisioned to provide alternatives to users when access by the
user to his or her PC is unavailable. The timing of these additional services
will be keyed to our success in developing OEM bundling packages in order to
leverage our allocation of marketing and sales expenses. We do not believe
utilizing retail sales channels will be the most effective way to sell our
products. Generally, when a consumer is purchasing a new computer the method the
purchaser will eventually use to backup of the data to be stored on that device
is not of principal concern. During fiscal 2006 we are devoting significant
focus on creating bundling opportunities with computer OEMs whereby our software
is pre-loaded on the hardware and the purchaser is given a free trial which we
believe will provide us more opportunity to retain the customer after the trial
period. We are currently participating in pilot programs with several major
computer OEMs as part of our focus on creating bundling opportunities.

         In August 2006, we entered in a technical support services agreement
with Circuit City Stores, Inc. ("Circuit City") which provides that Circuit City
will market and support our Spare Back-Up product. The agreement provides that,
among other things, we will deposit up to $1,000,000 in an escrow account to
secure certain obligations associated with compensation to Circuit City for
installs of our software on each computer sold to their customers. Additionally,
we agreed to pay $200,000 to Circuit City for marketing development funds
related to the promotion of our software. As described later in this report, in
July and August 2006 we raised $1,350,000 of gross proceeds through the sale of
securities. The net proceeds will be used to fund these commitments.

         The resources necessary to execute on our business strategy are sales
and program management and are relative to penetration and meeting competition.
Our sales resources are presently on-staff and the program management is on

                                      -21-
<PAGE>

retainer. As our revenues increase we expect to increase our headcount in areas
of program management, marketing, development and customer service. Our approach
is to outsource as many of these functions as possible to suppliers who are
experts in the various disciplines, while only hiring senior staff for the
purpose of interaction with suppliers. We believe this strategy will allow us to
keep expenses flat while growing our revenue base. In addition, our internal
analysis predicts that we can sustain 3,000,000 total users in our current
architecture. Accordingly, we expect to use this architecture in the foreseeable
future although we may, subject to the availability of sufficient capital, make
improvements in our data center localization and services from time to time. Our
capital expenditures are expected to remain flat during fiscal 2006, with
purchases designed to improve workplace layout, support for internal process
improvements and automation.

GOING CONCERN

         We have generated minimal revenue since our inception on June 12, 2002,
and have incurred net losses of approximately $40.2 million, since inception
through June 30, 2006. As a result, our current operations are not an adequate
source of cash to fund future operations. The report of our independent
registered public accounting firm on our financial statements for the year ended
December 31, 2005 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. We plan to continue to provide for our capital requirements through the
sale of equity securities and debt, however, we have no firm commitments from
any third party to provide this financing and we cannot assure you we will be
successful in raising working capital as needed. There are no assurances that we
will have sufficient funds to execute our business plan, pay our obligations as
they become due or generate positive operating results.

CRITICAL ACCOUNTING POLICIES

         A summary of significant accounting policies is included in Note 2 to
the audited consolidated financial statements included in our Form 10KSB for the
year ended December 31, 2005. We believe that the application of these policies
on a consistent basis enables our company to provide useful and reliable
financial information about the company's operating results and financial
condition. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to take 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.

         We account for stock options issued to employees in accordance with the
provisions of SFAS No. 123(R), "Share-Based Payment," In December 2004, the FASB
issued SFAS No. 123(R) which replaces SFAS No. 123 and supersedes APB Opinion
No. 25. Under SFAS No. 123(R), companies are required to measure the
compensation costs of share-based compensation arrangements based on the
grant-date fair value and recognize the costs in the financial statements over
the period during which employees are required to provide services. Share-based
compensation arrangements include stock options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase
plans. In March 2005 the SEC issued Staff Accounting Bulletin No. 107, or "SAB
107". SAB 107 expresses views of the staff regarding the interaction between
SFAS No. 123(R) and certain SEC rules and regulations and provides the staff's
views regarding the valuation of share-based payment arrangements for public
companies. SFAS No. 123(R) permits public companies to adopt its requirements
using one of two methods. On April 14, 2005, the SEC adopted a new rule amending
the compliance dates for SFAS 123(R). Companies may elect to apply this
statement either prospectively, or on a modified version of retrospective

                                      -22-
<PAGE>

application under which financial statements for prior periods are adjusted on a
basis consistent with the pro forma disclosures required for those periods under
SFAS 123. Effective January 1, 2006, the Company has fully adopted the
provisions of SFAS No. 123(R) and related interpretations as provided by SAB
107. As such, compensation cost is measured on the date of grant as its fair
value. Such compensation amounts, if any, are amortized over the respective
vesting periods of the option grant. The Company applies this statement
prospectively. The valuation of such share-based payments requires significant
judgment. We exercise our judgment in determining the various assumptions
associated with the associated share-based payments as well as the expected
volatility related to their fair value. We base our estimate of the share-based
payments on our interpretation of the underlying agreements and historical
volatility of our stock price.

         We account for our investment in equity securities pursuant to
Statement of Financial Accounting Standards ("SFAS") No.115. This standard
requires such investments in equity securities that have readily determinable
fair values be measured at fair value in the balance sheet and that unrealized
holding gains and losses for investments in available-for-sale equity securities
and investments in trading equity securities be recorded as a component of
stockholders' equity and statement of operations, respectively. Furthermore, it
provides that if factors leads us to determine that the fair value of certain
financial instruments is impaired, that we should adjust the carrying value of
such investments to its fair value.

         The Company accounts for liquidated damages pursuant to Emerging Issue
Task Force ("EITF") 0504, View C, "The Effect of a Liquidated Damages Clause on
a Freestanding Financial Instrument", subject to EITF Issue No. 00-19,
"Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company's Own Stock". Pursuant to EITF 05-04, View C, the
liquidated damages payable in cash or stock are accounted for as a separate
derivative, which requires a periodical valuation of its fair value and a
corresponding recognition of liabilities associated with such derivative. The
Company also accounts for its embedded conversion features and freestanding
warrants pursuant to SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which requires a periodic valuation of their fair value and
a corresponding recognition of liabilities associated with such derivatives. The
recognition of derivative liabilities related to the issuance of shares of
common stock is applied first to the proceeds of such issuance, at the date of
issuance, and the excess of derivative liabilities over the proceeds is
recognized as other expense in the accompanying consolidated financial
statements. The recognition of derivative liabilities related to the issuance of
convertible debt is applied first to the proceeds of such issuance as a debt
discount, at the date of issuance, and the excess of derivative liabilities over
the proceeds is recognized as other expense in the accompanying consolidated
financial statements. Any subsequent increase or decrease in the fair value of
the derivative liabilities is recognized as other expense-derivative liabilities
or other income-derivative liabilities, respectively. The valuation of such
derivatives requires significant judgment. We exercise our judgment in
determining the maximum liabilities associated with such derivatives as well as
the expected volatility related to their fair value. We base our estimate of the
maximum liabilities on our interpretation of the agreements related to the
derivatives.

         As the demand for our products and services increases, we intend to add
personnel who will primarily focus in the following areas: customer service and
quality monitoring as well as general and administrative to support growing
operations.

         Once we raise sufficient capital, we also intend to invest in core
technology research and product development as well as sales and marketing
personnel.

                                      -23-
<PAGE>

RESULTS OF OPERATIONS

Six-Month Period Ended June 30, 2006 and 2005
<TABLE>
<CAPTION>
                                                            (Unaudited)
                                                        For the three-months          Increase/         Increase/
                                                        period ended June 30,        (Decrease)        (Decrease)
                                                         2006           2005       $ 2005 vs 2004    % 2005 vs 2004
                                                     -----------    ------------   --------------    --------------
<S>                                                  <C>            <C>             <C>              <C>
Revenues .........................................   $    33,645    $     13,428    $     20,217          151%

Operating expenses:
  Research and development .......................       433,118         331,148         101,970           31%
  Amortization of deferred compensation ..........     1,192,195               -       1,192,195           NM
  Share-based payment- options ...................     1,587,785               -       1,587,785           NM
  Sales, general and administrative ..............     2,957,373       2,230,939         726,434           33%
                                                     -----------    ------------    ------------        --------

    Total operating expenses .....................     6,170,471       2,562,087       3,608,384          141%

    Operating loss ...............................    (6,136,826)     (2,548,659)      3,588,167          141%

Other (expense) income-derivative liabilities ....      (514,937)     11,162,720     (11,677,657)          NM
Other expense-liquidated damages .................             -        (172,929)       (172,929)          NM
Transfer- unrealized gain- investment held for
 sale to trading security ........................       112,509               -         112,509           NM
Unrealized loss-transfer of available-for-sale
 securities to trading securities ................             -      (4,999,263)     (4,999,263)          NM
Unrealized loss-trading securities ...............             -        (270,384)       (270,384)          NM
Realized loss- trading securities ................      (111,624)     (5,777,843)     (5,666,219)          NM
Interest expense .................................      (478,709)     (1,065,639)       (586,930)         -55%
                                                     -----------    ------------    ------------       ---------
  Total other expenses, net ......................      (992,761)     (1,123,338)       (130,577)          12%

Net loss .........................................   $(7,129,587)   $ (3,671,997)      3,457,590           94%
                                                     ===========    ============    ============       =========

NM:  Not meaningful
</TABLE>

                                      -24-
<PAGE>

REVENUES

         We have generated minimal revenues since inception. The increase in
revenues for the six-month period ended June 30, 2006 is primarily attributable
to an increase in volume of licenses for our Spare Back-Up product offerings,
which was launched during 2005. The increase was offset by a decrease in
revenues from our Conga line of products, which we do not market any longer.

RESEARCH AND DEVELOPMENT

         Research and development expenses consist primarily of compensation
expenses paid to our software engineers, employees and consultants. Our increase
in research and development expenses during the six-month period ended June 30,
2006 when compared to the comparable period in fiscal 2005 is primarily due to
reallocation of additional internal resources to research and development during
the six-month period ended June 30, 2006. The increase in additional resources
is primarily due to additional resources to develop additional features and
enhancements for our Company's Spare Back-Up product.

AMORTIZATION OF DEFERRED COMPENSATION

         Amortization of deferred compensation consists primarily of the value
of shares issued as compensation for consulting services prior to June 30, 2006.
The increase in amortization of deferred compensation during the six-month
period ended June 30, 2006 is primarily due to shares we issued for services
during the second half of fiscal 2005 and the first half of fiscal 2006 for
strategic and marketing services to be rendered over periods of up to one year.
We issued 1,325,000 shares of our common stock during the six-month period ended
June 30, 2006. No such shares were issued during the six-month period ended June
30, 2005.

SALES, GENERAL, AND ADMINISTRATIVE EXPENSES

         Sales, general, and administrative expenses consist primarily of
salaries and related expenses paid to our employees and contractors as well as
advertising expenses. The increase in sales, general, and administrative
expenses during the six-month period ended June 30, 2006 is primarily due to
certain payments made to two consultants aggregating $525,000 in February 2006
as well as the issuance of warrants to these consultants valued at approximately
$1 million. The services performed by such consultants are for strategic and
marketing purposes. This increase was offset by a decrease in sales, general,
and administrative expenses related to the issuance of options with exercise
prices below their market value amounting to approximately $285,000 during the
six-month period ended June 30, 2005, a decrease in marketing and advertising
expenses of approximately $250,000, which occurred during the six-month period
ended June 30, 2005 while no such expenses occurred during the six-month period
ended June 30, 2006. Additionally, the remaining decrease in sales, general, and
administrative expenses is attributable to a general expense reduction program
implemented during the latter part of the second quarter of fiscal 2005 and
which was fully effective during the six-months ended June 30, 2006.

         We believe that our selling, general, and administrative expenses will
increase in the foreseeable future resulting from our agreement with Circuit
City as described earlier in this report. Under the terms of that agreement, we
will incur at least $200,000 in marketing expenses during the second half of
fiscal 2006.

SHARE-BASED PAYMENTS-OPTIONS

         Stock-based compensation consists of the amortization expense of the
fair value of options. The increase in share-based payment during the six-month
period ended June 30, 2006 is primarily attributable to the implementation of
SFAS 123(R) effective January 1, 2006, No such expenses occurred during the
six-month period ended June 30, 2006.

                                      -25-
<PAGE>

OTHER INCOME (EXPENSES)

Derivative liabilities

         Other income (expenses) consist primarily of income/expenses associated
with the recognition of derivative liabilities at their date of issuance and
their variation in fair value as well as the fair value of shares issued
pursuant to penalties associated with the failure to timely file the
registration statement. Please refer to footnote 4 of the accompanying financial
statements for more information on the accounting of the derivative liabilities.

         The increase in derivative liabilities expenses during the six-month
period ended June 30, 2006 from the comparable six month period in fiscal 2005
is primarily attributable to the increase in fair value of the derivative
liabilities between measurement dates. The increase in fair value is primarily
attributable to an increase in the expected volatility rate used when computing
the fair value of the derivative liabilities, which is substantially higher
during the six-month ended June 30, 2006. The other income-derivative
liabilities during the six-month period ended June 30, 2006 is primarily
attributable to a decrease in the fair value of the derivative liabilities
between measurement dates. The decrease in fair value is primarily due a
decrease in the market value per share used in computing the fair value of the
derivative liabilities.

Transfer-unrealized gain (loss)-investment held for sale to trading securities

         Transfer-unrealized gain (loss)-investment held for sale to trading
securities consist of unrealized gain or losses on investment held for sale
which were re-categorized as trading securities transferred from other
comprehensive income (loss) to earnings at the date of the intent to sell the
shares. Such re-categorizations were one-time events and we do not expect that
such transfers will occur in the foreseeable future.

Unrealized and realized gain (loss) trading securities

         Unrealized and realized gain (loss)- trading securities consist of
realized gain or losses on trading securities which were sold during the
six-month ended June 30, 2006 and 2005, respectively. Such sales were one-time
events and we do not expect that such sales will occur in the foreseeable
future.

INTEREST EXPENSE

         Interest expense consists primarily of interest recognized in
connection with the amortization of debt discount and interest on our
convertible promissory notes. The decrease in interest expense during the
six-month period ended June 30, 2006 when compared to the prior period is
primarily attributable to a lower level of weighted average outstanding debt.

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. We have experienced losses and negative cash flows from
operations since inception and the report of our independent registered public
accounting firm on our financial statements for fiscal 2005 contains an
explanatory paragraph regarding our ability to continue as going concern. At
June 30, 2006, we had cash on hand of approximately $660,000.

         Our working capital deficit at June 30, 2006 was $11,358,047 as
compared to a working capital deficit of $6,875,700 at December 31, 2005. A
significant component of this working capital deficiency is a derivative
liability of $10,511,772, which we have recognized in connection with the grant
or the issuance of various embedded conversion features, liquidated damages, and
freestanding warrants. The amount of this derivative liability has increased
$4,683,318 from December 31, 2005.

                                      -26-
<PAGE>

         During the six-month period ended June 30, 2006, we have received gross
proceeds of $2,450,000 and $1.5 million from the issuance of shares of common
stock and bridge promissory notes, respectively. Such proceeds were used to fund
our operating activities of $2.5 million and repurchase 5,882,352 shares of our
common stock from Langley Park Investment Trust PLC for approximately $630,000.
We also paid $190,000 in deferred financing costs in connection with the
issuance of the 8% bridge promissory notes.

         During the six-month period ended June 30, 2005, we have received gross
proceeds of $635,000 from the issuance of convertible promissory notes. From
funds available at January 1, 2005, we made principal repayments of $265,000 on
convertible promissory notes and we funded our operating activities amounting to
$2.1 million.

         We have generated minimal revenues since inception. As a result, our
current operations are not an adequate source of cash to fund future operations.
To fund our cash requirements we have relied on private placement issuances of
equity and debt financing instruments. While we do not presently have any
obligations for capital expenditures, approximately $690,000 principal amount 8%
promissory notes were due March 1, 2006, which remain outstanding as of the date
of this quarterly report and an additional $600,000 principal amount 12.5%
convertible subordinated promissory debentures are due in March 2007. As
described later in this report, as a result of the closing of a recent private
financing, the $1,500,000 principal amount 8% convertible promissory notes we
issued in June 2006, together with accrued but unpaid interest, converted into
our securities.

         As described earlier in this report, in August 2006, we entered in a
technical support services agreement with Circuit City which provides that
Circuit City will market and support our Spare Back-Up product. The agreement
provides that, among other things, we will deposit up to $1,000,000 in an escrow
account to secure certain obligations associated with compensation to Circuit
City for installs of our software on each computer sold to their customers.
Additionally, we agreed to pay $200,000 to Circuit City for marketing
development funds related to the promotion of our software. As described later
in this report, in July and August 2006 we raised $1,350,000 of gross proceeds
through the sale of securities. The net proceeds will be used to fund these
commitments.

         We will need to raise additional working capital to satisfy these
obligations, as well as to fund our ongoing operations and growth. The amount
our future capital requirements depend primarily on the rate at which we
increase our revenues and correspondingly decrease our use of cash to fund
operations. Cash used for operations will be affected by numerous known and
unknown risks and uncertainties including, but not limited to, our ability to
successfully market our products and services and the degree to which
competitive products and services are introduced to the market. As long as our
cash flow from operations remains insufficient to completely fund operations, we
will continue depleting our financial resources and seeking additional capital
through equity and/or debt financing. If we raise additional capital through the
issuance of debt, this will result in increased interest expense. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our company held by existing stockholders will be
reduced and those stockholders may experience significant dilution. In addition,
new securities may contain certain rights, preferences or privileges that are
senior to those of our common stock.

         There can be no assurance that acceptable financing to fund our ongoing
operations can be obtained on suitable terms, if at all. If we are unable to
obtain the financing necessary to support our operations, we may be unable to
continue as a going concern. In that event, we may be forced to cease operations
and our stockholders could lose their entire investment in our company.

                                      -27-
<PAGE>

ITEM 3.  CONTROLS AND PROCEDURES

         Our CEO, who is our principal executive officer and principal financial
and accounting officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report. Based on this evaluation, he concluded that our disclosure
controls and procedures are effective for timely gathering, analyzing and
disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934, as amended. There have been no
changes made in our internal controls or in other factors that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         None.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         During April and May 2006, we issued 1,325,000 shares of common stock
to three consultants for strategic and marketing services rendered, all of which
accredited investors. The fair value of the shares amounted to $335,500. The
issuances were exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) of that act.

         Between July and August 2006 we sold an aggregate of 600,000 units of
our securities to 31 accredited investors in a private transaction 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. Each unit consisted of
five shares of our common stock and two common stock purchase warrants, each two
year warrant entitling the holder to purchase one share of our common stock at
an exercise price of $0.60 per share. The offering price of the unit was $2.25
and we received gross proceeds of $1,350,000 from this offering.

         Brookstreet Securities Corporation, an NASD member firm, acted as
placement agent for us in this offering. We paid Brookstreet Securities
Corporation a sales commission of $67,500 (5% of the gross offering proceeds)
and a non-accountable expense allowance of $81,000 (6% of the offering
proceeds), and we agreed to reimburse Brookstreet Securities Corporation for
out-of-pocket marketing and due diligence expenses. We issued that firm a five
year warrant to purchase 750,000 shares of our common stock (representing 25% of
the shares included in the units sold in the offering at an exercise price of
$0.45 per share (the "Placement Agent Warrant"). We also agreed to pay
Brookstreet Securities Corporation a cash commission of 7% of the total funds we
receive upon the exercise of any of the warrants included in the units and issue
that firm additional five year warrants (the "Exercise Warrants") at an exercise
price of $0.45 per share equal to a number which represents 7% of the shares
underlying the warrants so exercised.

         The exercise price and the number of shares of common stock purchasable
upon the exercise of the warrants included in the units as well as the Placement
Agent Warrant are subject to adjustment upon the occurrence of certain events,
including stock dividends, stock splits, combinations or reclassifications. The
warrants included in the units are callable by us at any time beginning
following the date that the 10 day non volume weighted average daily closing
price of our common stock equals or exceeds $1.00 per share and the shares of
our common stock underlying the warrant are covered by an effective registration
statement. The Placement Agent Warrant contains a cashless exercise provision
but it does not contain a call feature.

                                      -28-
<PAGE>

         We have agreed to file a registration statement covering the shares of
common stock underlying the units and the Placement Agent warrants.

         Under the terms of our sale of $1,500,000 principal amount 8%
convertible promissory notes in June 2006, at such time as we received gross
proceeds of at least $1,000,000 in any financing the principal and accrued
interest of the notes automatically converted into units of Newport
International's securities (the "Conversion Units") at a conversion rate of
$1.75 per unit. Each Conversion Unit is comprised of five shares of common stock
and two two-year warrant to purchase shares of our common stock with an exercise
price of $0.40 per share (the "Conversion Warrant"). Pursuant to the conversion,
we will issue an aggregate of 4,285,714 shares of our common stock and 1,714,286
Conversion Warrants. The issuance of the Conversion Units will be exempt from
registration under the Securities Act of 1933 in reliance on exemptions provided
by Section 3(a)(9) of that act. The securities underlying the Conversion Units
were granted piggy back registration rights and the warrants included in the
Conversion Units will be callable by us at such time as the 10 day average
trading price of our common stock is $0.75 per share for at least 15 days and
the underlying shares have been covered by an effective registration statement
for at least 15 days.

ITEM 3.  DEFAULTS ON SENIOR SECURITIES

         None

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 5.  OTHER INFORMATION

         None

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

                                      -29-
<PAGE>

                                    SIGNATURE

In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned and duly authorized

SPARE BACKUP, INC.



By:                   /s/ Cery B. Perle                       August 21, 2006
    ------------------------------------------------------    ---------------
    Cery B. Perle                                             Date
    President, Chief Executive Officer & Director
    (Principal executive officer and principal financial
    officer)

                                      -30-