UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
(MARK ONE)
                                    FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008

                                       OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
    OF 1934

FOR THE TRANSITION PERIOD FROM __________________ TO _____________________

COMMISSION FILE NUMBER: 000-30451

                               SPARE BACKUP , INC.
                               -------------------
                (Name of registrant as specified in its charter)

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

    72757 FRED WARING DRIVE, PALM DESERT, CA                  92260
    ----------------------------------------                ----------
    (Address of principal executive offices)                (Zip Code)

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

                                       N/A
                                      -----
              (Former name, former address and former fiscal year,
                          if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

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

Large accelerated filer          [ ]             Accelerated filer           [ ]
Non-accelerated filer            [ ]             Smaller reporting company   [X]
(Do not check if smaller reporting company)

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

         Indicated the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date, 81,358,586 shares of
common stock are issued and outstanding as of May 6, 2008.

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                         PART I. - FINANCIAL INFORMATION

Item 1.  Financial Statements .............................................    3

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations. .............................   19

Item 3.  Quantative and Qualitative Disclosures About Market Risk. ........   29

Item 4T  Controls and Procedures. .........................................   29

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings. ...............................................   29

Item 1A. Risk Factors. ....................................................   29

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. .....   29

Item 3.  Defaults Upon Senior Securities. .................................   31

Item 4.  Submission of Matters to a Vote of Security Holders. .............   31

Item 5.  Other Information. ...............................................   31

Item 6.  Exhibits. ........................................................   31

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008
contains "forward-looking statements". Generally, the words "believes",
"anticipates," "may," "will," "should," "expect," "intend," "estimate,"
"continue," and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements which include,
but are not limited to, statements concerning the Company's expectations
regarding its working capital requirements, financing requirements, business
prospects, and other statements of expectations, beliefs, future plans and
strategies, anticipated events or trends, and similar expressions concerning
matters that are not historical facts. Such statements are subject to certain
risks and uncertainties, including the matters set forth in this Quarterly
Report or other reports or documents the Company files with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to update these forward-looking
statements. In addition, the forward-looking statements in this Quarterly Report
on Form 10-Q involve known and unknown risks, uncertainties and other factors
that could cause the actual results, performance or achievements of the Company
to differ materially from those expressed in or implied by the forward-looking
statements contained herein.

                                       -2-
<PAGE>

                         PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements.
<TABLE>
                               SPARE BACKUP, INC. AND SUBSIDIARY
                                  CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                                 Year ended
                                                             March 31, 2008   December 31, 2007
                          ASSETS                               (Unaudited)           (1)
                                                             --------------   -----------------
<S>                                                           <C>               <C>
Current Assets:
  Cash ..................................................     $     25,455      $    527,402
  Prepaid marketing expense .............................                -           181,238
                                                              ------------      ------------
    Total current assets ................................           25,455           708,640

  Property and equipment, net of accumulated depreciation        1,586,198         1,652,077
                                                              ------------      ------------

    Total assets ........................................     $  1,611,653      $  2,360,717
                                                              ============      ============

          LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts payable and accrued expenses .................     $  2,760,814      $  2,878,014
  8% Convertible promissory notes, net of debt discount
    of $1,831,838 and $2,558,624, respectively ..........        1,143,162           416,376
  Accrued interest on convertible promissory notes ......           59,112            33,310
  Due to stockholder ....................................           15,000            15,000
                                                              ------------      ------------

    Total current liabilities ...........................        3,978,088         3,342,700

  8% Convertible promissory notes, net of debt discount
    of $24,284 and $0, respectively .....................           25,716                 -
                                                              ------------      ------------

    Total liabilities ...................................        4,003,804         3,342,700

Stockholders' Deficit:
  Preferred stock; $.001 par value, 5,000,000 shares
    authorized, 50,000 issued and outstanding ...........               50                 -
  Common stock; $.001 par value, 150,000,000 shares
    authorized, 81,079,762 and 77,221,052 issued and
    outstanding, respectively ...........................           81,080            77,221
  Additional paid-in capital ............................       74,575,128        72,585,482
  Accumulated deficit ...................................      (77,048,409)      (73,644,686)
                                                              ------------      ------------

    Total stockholders' deficit .........................       (2,392,151)         (981,983)
                                                              ------------      ------------

    Total liabilities and stockholders' deficit .........     $  1,611,653      $  2,360,717
                                                              ============      ============

(1) Derived from Audited Financial Statements

                   See Notes to Unaudited Consolidated Financial Statements.
                                              -3-
</TABLE>
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                     For the Three Months Ended
                                                             March 31,
                                                        2008           2007
                                                    ------------   ------------
                                                     (Unaudited)    (Unaudited)

Net Revenues .....................................  $    203,060   $     20,942

Operating expenses:
  Research and development .......................       522,954        695,217
  Sales, general and administrative ..............     2,350,858      2,663,800
                                                    ------------   ------------

    Total operating expenses .....................     2,873,812      3,359,017
                                                    ------------   ------------

    Operating loss ...............................    (2,670,752)    (3,338,075)
                                                    ------------   ------------
Other income (expense):
  Change in fair value of derivative liabilities .             -    (13,966,577)
  Derivative liability expense ...................             -       (334,030)
  Gain from debt settlement ......................        53,713              -
  Foreign currency gain ..........................           582              -
  Interest expense ...............................      (787,266)    (1,415,485)
                                                    ------------   ------------
  Total other expenses ...........................      (732,971)   (15,716,092)

Net loss .........................................  $ (3,403,723)  $(19,054,167)
                                                    ============   ============

Basic and diluted net loss per common share ......  $      (0.04)  $      (0.33)
                                                    ============   ============

Basic and diluted weighted average common
 shares outstanding ..............................    78,553,471     57,873,524
                                                    ============   ============

            See Notes to Unaudited Consolidated Financial Statements.
                                       -4-
<PAGE>
<TABLE>
                           SPARE BACKUP, INC. AND SUBSIDIARY
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                          For the Three Months Ended
                                                                   March 31,
                                                              2008           2007
                                                          ------------   ------------
                                                           (Unaudited)    (Unaudited)
<S>                                                       <C>            <C>
Cash flows from operating activities:
Net loss ...............................................  $ (3,403,723)  $(19,054,167)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Derivative liability expense .........................             -        334,030
  Change in fair value of derivative liabilities .......             -     13,966,577
  Fair value of options issued to employees ............       585,477        581,671
  Fair value of options issued to consultants ..........        29,000              -
  Amortization of debt discount ........................       728,154      1,400,698
  Amortization of deferred compensation ................             -         83,678
  Amortization of prepaid marketing expense ............       181,238        313,047
  Fair value of shares of common stock issued in
   connection with services rendered ...................       280,474         67,520
  Fair value of shares of preferred stock issued in
   connection with services rendered ...................            50              -
  Depreciation .........................................       199,591        119,439
Changes in operating assets and liabilities
  Restricted cash ......................................             -        572,830
  Prepaid expenses and other current assets ............             -          2,223
  Accounts payable and accrued expenses ................      (117,200)     1,622,846
  Accrued interest on convertible promissory notes .....        59,112         14,787
  Other liabilities ....................................             -         (6,426)
                                                          ------------   ------------

Net cash (used in) provided by operating activities ....    (1,457,827)        18,753
                                                          ------------   ------------
Cash flows from investing activities:
  Purchases of property and equipment ..................      (133,712)    (1,685,525)
                                                          ------------   ------------

Net cash used in investing activities ..................      (133,712)    (1,685,525)
                                                          ------------   ------------

Cash flows from financing activities:
  Principal repayments on convertible promissory notes .             -        (11,480)
  Repurchase of shares of common stock .................             -     (1,250,000)
  Proceeds from issuance of convertible promissory notes        50,000      1,325,000
  Net proceeds from issuance of common stock for cash ..       475,000              -
  Net proceeds from exercise of warrants ...............       494,705      1,984,096
  Proceeds from exercise of stock options ..............        69,887         14,971
                                                          ------------   ------------

Net cash provided by financing activities ..............     1,089,592      2,062,587
                                                          ------------   ------------

(Decrease) increase in cash ............................      (501,947)       395,815

Cash at beginning of period ............................       527,402        146,318
                                                          ------------   ------------

Cash at end of period ..................................  $     25,455   $    542,133
                                                          ============   ============

Supplemental disclosures of cash flow information:
  Cash paid during the year for interest ...............  $          -   $          -
                                                          ============   ============

  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 .........................................  $     25,652   $          -
                                                          ============   ============

Reclassification of liability contracts to equity ......  $          -   $  8,310,428
                                                          ============   ============

Conversion of convertible promissory notes into
 shares of common stock ................................  $          -   $  1,617,029
                                                          ============   ============

Fair value of shares of common stock issued for
 payment of accrued interest ...........................  $     33,310   $     22,097
                                                          ============   ============

               See Notes to Unaudited Consolidated Financial Statements.
                                          -5-
</TABLE>
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

Spare Backup, Inc., formerly known as Newport International Group, Inc., (the
"Company") was incorporated in Delaware in December 1999. During February 2004,
the Company acquired GrassRoots Communications, Inc. ("GrassRoots"). The Company
sells on-line backup solutions software and services to individuals, business
professionals, small office and home office companies, and small to medium sized
businesses.

The accompanying 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-Q. 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, 2007, included in the Annual Report filed on Form l0-K.

In the opinion of management, all adjustments (consisting of normal recurring
items) necessary to present fairly the Company's financial position as of March
31, 2008, and the results of operations and cash flows for the three months
ending March 31, 2008 have been included. The results of operations for the
three months ended March 31, 2008 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-K as filed with the Securities and
Exchange Commission for the year ended December 31, 2007.

The accompanying unaudited consolidated 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 $3.4
million during the three months ended March 31, 2008. 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, and to generate profitable
operations in the future. Management plans to continue to provide for its
capital requirements by issuing additional equity securities and debt. The
outcome of these matters cannot be predicted at this time and there are no
assurances that if achieved, the Company will have sufficient funds to execute
its business plan or generate positive operating results.

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

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

                                       -6-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

EARNINGS PER SHARE

Basic earnings per share is calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share is computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options and warrants (calculated using the reverse treasury
stock method). The outstanding options, warrants and shares equivalent issuable
pursuant to embedded conversion features amounted to 53,077,226 and 34,521,006
at March 31, 2008 and 2007, respectively. The outstanding options, warrants and
shares equivalent issuable pursuant to embedded conversion features and warrants
at March 31, 2008 and 2007 are excluded from the loss per share computation for
that period due to their antidilutive effect.

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. At March 31, 2008, the Company
had not 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's cash and cash equivalents, accounts
payable, accrued expenses, notes payable, and due to stockholder approximate
their estimated fair values due to the short-term maturities of those financial
instruments.

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.

                                       -7-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 March 31, 2008 instead, such amounts are
included in the statement of operations under the caption "Research and
development".

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.

RECLASSIFICATION

Certain amounts in the 2007 consolidated financial statements have been
reclassified to conform to the 2008 presentation. Such reclassifications had no
effect on the reported net loss.

FOREIGN CURRENCY TRANSACTIONS

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

REVENUE RECOGNITION

The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements". The Company records revenue when persuasive evidence of an
arrangement exists, on-line back-up services have been rendered, the sales price
to the customer is fixed or determinable, and collectability is reasonably
assured.

                                       -8-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company's financial statements issued
in 2008; however, earlier application is encouraged. The Company has determined
that this interpretation does not have a material impact on its financial
position, results of operations, or cash flows.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when quantifying Misstatements in
Current Year Financial Statements ("SAB 108"). SAB 108 requires companies to
evaluate the materiality of identified unadjusted errors on each financial
statement and related financial statement disclosure using both the rollover
approach and the iron curtain approach, as those terms are defined in SAB 108.
The rollover approach quantifies misstatements based on the amount of the error
in the current year financial statement, whereas the iron curtain approach
quantifies misstatements based on the effects of correcting the misstatement
existing in the balance sheet at the end of the current year, irrespective of
the misstatement's year(s) of origin. Financial statements would require
adjustment when either approach results in quantifying a misstatement that is
material.Correcting prior year financial statements for immaterial errors would
not require previously filed reports to be amended. If a Company determines that
an adjustment to prior year financial statements is required upon adoption of
SAB 108 and does not elect to restate its previous financial statements, then it
must recognize the cumulative effect of applying SAB 108 in fiscal 2006
beginning balances of the affected assets and liabilities with a corresponding
adjustment to the fiscal 2006 opening balance in retained earnings. SAB 108 is
effective for interim periods of the first fiscal year ending after November 15,
2006. The adoption of SAB 108 did not have an impact on the Company's
consolidated financial statements.

In December 2006, FASB Staff Position No. EITF 00-19-2, "Accounting for
Registration Payment Arrangements," was issued. The FSP specifies that the
contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with SFAS
No. 5, "Accounting for Contingencies." The Company believes that its current
accounting is consistent with the FSP.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115", under which entities will now be permitted to measure many
financial instruments and certain other assets and liabilities at fair value on
an instrument-by-instrument basis. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. The Company has determined that this interpretation does
not have a material impact on its financial position, results of operations, or
cash flows.

                                      -9-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (continued)

In May 2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of
Settlement in FASB Interpretation No. 48 ("the FSP"). The FSP provides guidance
about how an enterprise should determine whether a tax position is effectively
settled for the purpose of recognizing previously unrecognized tax benefits.
Under the FSP, a tax position could be effectively settled on completion of
examination by a taxing authority if the entity does not intend to appeal or
litigate the result and it is remote that the taxing authority would examine or
re-examine the tax position. The Company does not expect that this
interpretation will have a material impact on its financial position, results of
operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations,"
which replaces SFAS No. 141, " Business Combinations," which, among other
things, establishes principles and requirements for how an acquirer entity
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed (including intangibles) and any noncontrolling
interests in the acquired entity. SFAS No. 141(R) applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company is currently evaluating what impact our adoption of SFAS
No. 141(R) will have on our financial statements.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51." SFAS No. 160
amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB 51's consolidation procedures for
consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. We are currently evaluating what impact our adoption of
SFAS No. 160 will have on our financial statements.

Other accounting standards that have been issued or proposed by the FASB or
other standards-setting bodies that do not require adoption until a future date
are not expected to have a material impact on the consolidated financial
statements upon adoption.

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                                      March 31,     December 31,
                                     Estimated life     2008           2007
                                     --------------  -----------    -----------

Computer and office equipment .....   3 to 5 years   $ 2,495,072    $ 2,361,360

Leasehold improvements ............       5 years        187,122        187,122
                                                     -----------    -----------
                                                       2,682,194      2,548,482

Less: Accumulated depreciation ....                   (1,095,996)      (896,405)
                                                     -----------    -----------
                                                     $ 1,586,198    $ 1,652,077
                                                     ===========    ===========

Depreciation expense amounted to $199,591 and $119,439 during the three months
ended March 31, 2008 and 2007, respectively.

                                      -10-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 4 - CONVERTIBLE PROMISSORY NOTES - CURRENT

Convertible promissory notes consist of the following as of:
<TABLE>
<CAPTION>
                                                                                 March 31,    December 31,
                                                                                   2008           2007
                                                                                -----------   -----------
<S>                                                                             <C>           <C>
8% Convertible promissory notes, bearing interest at 8% per annum, maturing
between October and November 2008. Interest payable commencing the quarter
ended December 31, 2007, payable within thirty (30) days of the end of the
quarter. Interest may be paid in cash or common stock at the option of the
Company. Interest paid in common stock will be calculated at ninety percent
(90%) of the average closing price for the common stock for the five (5)
trading days preceding the interest payment date. The promissory notes are
convertible at any time at the option of the holder, into shares of common
stock at a rate of $0.33. ....................................................  $ 2,975,000   $ 2,975,000

Less:  unamortized discount ..................................................   (1,831,838)   (2,558,624)
                                                                                -----------   -----------
Convertible promissory notes-short-term ......................................  $ 1,143,162   $   416,376
                                                                                ===========   ===========
</TABLE>
Between October 2007 and November 2007, the Company issued convertible
promissory notes totaling $475,000. In connection with the issuance of these
notes payable, the Company granted 950,000 warrants to investors exercisable at
a price of $0.75 per share for a period of three years. These promissory notes
are convertible at $0.50 per share of common stock. In the event the Company
issues any shares of its common stock at an exercise price or conversion price
per share less than $0.50 per share while these notes remain outstanding, then
the exercise price of the warrants issued pursuant to the subsequent financing
will reset to such lower price. The Company recognized a total debt discount of
approximately $475,000 in connection with the issuance of these 8% convertible
promissory notes.

On November 14, 2007, the Company issued convertible promissory notes totaling
$2,500,000. In connection with the issuance of these notes payable, the Company
granted 5,000,000 warrants to investors exercisable at a price of $0.50 per
share for a period of three years. These promissory notes are convertible at
$0.50 per share of common stock. In the event the Company issues any shares of
its common stock at an exercise price or conversion price per share less than
$0.50 per share while these notes remain outstanding, then the exercise price of
the warrants issued pursuant to the subsequent financing will reset to such
lower price. The Company recognized a total debt discount of approximately
$2,500,000 in connection with the issuance of these 8% convertible promissory
notes.

The Company may cause conversion of the 8% convertible promissory notes and any
accrued but unpaid interest into its common stock prior to maturity on written
notice to holders provided (i) it has completed one or more financings in which
it has received gross proceeds of $4,000,000 or more, and (ii) a registration
statement is in effect with the Securities Exchange Commission covering resale
of the shares of common stock underlying the notes and warrants.

In February 2008, the Company reduced the exercise price of warrants to purchase
an aggregate of 5,000,000 shares of common stock to $0.33 per share in
connection with the 8% convertible promissory notes issued in November 2007. In
February 2008, the Company issued 1,060,606 shares of common stock for net
proceeds of approximately $0.33 per share or $350,000 in connection with the
exercise of such stock warrants. Accordingly, in connection with the 8%
convertible promissory notes issued during 2007, the exercise price of the
warrants issued and the conversion price per share pursuant to the subsequent
financing will reset to such lower price or $0.33 per share.

                                      -11-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 4 - CONVERTIBLE PROMISSORY NOTES - CURRENT (CONTINUED)

Between April 2008 and May 2008, the Company issued convertible promissory notes
totaling $945,000. These promissory notes are convertible at $0.30 per share of
common stock. Accordingly, in connection with the 8% convertible promissory
notes issued during 2007, the conversion price per share pursuant to the
subsequent financing will reset to such lower price or $0.30 per share (See Note
10).

Total amortization of debt discounts for the convertible promissory notes -
current amounted to approximately $727,000 and $1.4 million during the three
months ended March 31, 2008 and 2007, respectively, and is included in interest
expense.

NOTE 5 - CONVERTIBLE PROMISSORY NOTES - LONG TERM

In February 2008, the Company issued a convertible promissory note amounting to
$50,000. In connection with the issuance of this note payable, the Company
granted 25,000 warrants to an investor exercisable at a price of $0.50 per share
for a period of three years. The note payable bears 8% interest per annum and
matures in February 2010. This promissory note is convertible at $0.33 per share
of common stock. In the event the Company issues any shares of its common stock
at an exercise price or conversion price per share less than $0.33 per share
following the closing of the 8% Convertible Promissory Notes, then the exercise
price of the warrants issued pursuant to the subsequent financing will reset to
such lower price. The Company recognized a total debt discount of approximately
$26,000 in connection with the issuance of these 8% convertible debentures.

Total amortization of debt discounts for the convertible promissory notes - long
term amounted to approximately $1,000 during the three months ended March 31,
2008, and is included in interest expense.

NOTE 6 - STOCKHOLDERS' DEFICIT

ISSUANCE OF PREFERRED STOCK PURSUANT TO SERVICES PERFORMED

On January 16, 2008, the Company filed a Certificate of Designation with the
Secretary of State of Delaware whereby the company has designated a series of
50,000 shares of its blank check preferred stock as Series A Preferred Stock.
The designations, rights and preferences of the Series A Preferred Stock
includes:

   o  each share has a stated value and a liquidation preference of $0.001 per
      share which equals the par value of the shares,

   o  the shares are not convertible or exchange into any other security,

   o  the holders of Series A Preferred Stock shall have no rights to receive
      dividend distributions or to participate in any dividends declared by the
      Corporation to or for the benefit of the holders of its common stock.

   o  each share entitles the holder to Four Hundred (400) votes at any meeting
      of our stockholders and such shares will vote together with our common
      stockholders, provided, however, that the holder is not eligible to vote
      the shares in connection with an amendment to increase the number of our
      authorized shares of common stock if such amendment is proposed to our
      stockholders with four (4) months from the date of issuance of the shares,

   o  the shares are not subject to redemption, and

                                      -12-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)

   o  so long as the shares are outstanding, the Company has agreed not to alter
      or change the rights of the security in a manner which would adversely
      affect the Series A Preferred Stock, or take any action which would result
      in the taxation of the holder under Section 305 of the Internal Revenue
      Code Immediately following the creation of this class of security the
      Company issued Mr. Cery Perle, the Company's CEO, 50,000 shares of Series
      A Preferred Stock valued at $50. These actions were approved by the
      Company's Board of Directors. The Company recognized compensation expense
      of $50 or equal to the liquidation preference of the shares of Series A
      Preferred Stock issued to the Company's CEO.

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

The Company issued 90,271 shares in connection with the payment of interest on
the 8% convertible promissory notes during January 2008. The fair value of such
shares issued amounted to approximately $33,000.

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

In January 2008, the Company issued in aggregate 151,428 shares of common stock
to the Company's Chief Executive Officer and an employee of the Company for
services rendered. The fair value of such shares amounted to approximately
$61,000 and has been recognized as stock based compensation expense.

In February 2008, the Company issued in aggregate 210,648 shares of common stock
to the Company's Chief Executive Officer and certain employees of the Company
for services rendered. The fair value of such shares amounted to approximately
$95,000 and has been recognized as stock based compensation expense.

In February 2008, the Company issued 100,000 restricted shares of common stock
for consulting services. The Company valued these common shares at the fair
market value on the date of grant at $0.45 per share or $45,000.

In March 2008, the Company issued in aggregate 264,811 shares of common stock to
two employees of the Company for services rendered. The fair value of such
shares amounted to approximately $101,000 and has been recognized as stock based
compensation expense.

ISSUANCE OF COMMON STOCK PURSUANT TO EXERCISE OF STOCK WARRANTS AND OPTIONS.

Between January 2008 and February 2008, in connection with the exercise of stock
warrants, the Company issued an aggregate of 1,489,606 shares of common stock
for net proceeds of approximately $495,000.

In February 2008, the Company reduced the exercise price of warrants to purchase
an aggregate of 5,000,000 shares of common stock to $0.33 per share in
connection with the 8% convertible promissory notes issued in November 2007 (See
Note 4 - Convertible Promissory Notes- Current). In February 2008, the Company
issued 1,060,606 shares of common stock for net proceeds of approximately $0.33
per share or $350,000 in connection with the exercise of stock warrants.
Accordingly, in connection with the 8% convertible promissory notes issued in
fiscal 2007, the exercise price of the warrants issued and the conversion price
per share pursuant to the Follow-on Financing will reset to such lower price or
$0.33 per share.

In January 2008, in connection with the exercise of stock options, the Company
issued 181,822 shares of common stock to the Company's Chief Executive Officer
for net proceeds of approximately $45,000.

                                      -13-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 6 - STOCKHOLDERS' DEFICIT (CONTINUED)

Between February 2008 and March 2008, in connection with the exercise of stock
options, the Company issued 62,981 shares of common stock to an employee for net
proceeds of approximately $25,000.

ISSUANCE OF COMMON STOCK PURSUANT TO PRIVATE PLACEMENTS

In March 2008, the Company issued in aggregate 1,357,143 shares pursuant to a
private placement which generated gross proceeds of approximately $475,000. In
connection with this private placement, the Company issued 678,572 warrants
exercisable at a price of $0.50 per share. The warrants expire in March 2011.

CANCELLATION OF COMMON STOCK

In March 2008, the Company cancelled 50,000 shares of common stock previously
issued to a consultant. In connection with the return of the 50,000 shares of
common stock, the Company reduced stock-based compensation expense by $21,000
based on the fair market value of the common stock on the date of cancellation
of $0.42 per share.

NOTE 7 - STOCK OPTIONS AND WARRANTS

WARRANTS

Between January 2008 and February 2008, in connection with the exercise of stock
warrants, the Company issued an aggregate of 1,489,606 shares of common stock
for net proceeds of approximately $495,000.

In February 2008, the Company issued a convertible promissory note amounting to
$50,000. In connection with the issuance of this note payable, the Company
granted 25,000 warrants to an investor exercisable at a price of $0.50 per share
for a period of three years.

In March 2008, the Company granted a three-year warrant to purchase 678,572
shares of common stock to investors in connection with private placements. These
warrants are exercisable at $0.50 per share.

Stock warrant activity for the three months ended March 31, 2008 is summarized
as follows:

                                               Number of        Weighted Average
                                               Warrants          Exercise Price
                                              -----------       ----------------
Balance at beginning of year ...........       28,029,348           $   0.70
Granted ................................          703,572               0.50
Exercised ..............................       (1,489,606)              0.33
Expired ................................                -                  -
                                              -----------       ----------------
Balance at end of period ...............       27,243,314           $   0.71
                                              ===========       ================

Warrants exercisable at end of period ..       27,243,314           $   0.71
                                              ===========       ================
Weighted average fair value of
warrants granted during the period .....                            $   0.50

                                      -14-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 7 - STOCK OPTIONS AND WARRANTS (CONTINUED)

STOCK OPTIONS

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

In February 2008, the Company granted 100,000 five-year stock options to
purchase common stock for marketing strategy and financial advisory services in
connection with a consulting agreement. The Company valued these options
utilizing the Black-Scholes options pricing model at $0.29 per share or
approximately $29,000.

In January 2008, in connection with the exercise of stock options, the Company
issued 181,822 shares of common stock to the Company's Chief Executive Officer
for net proceeds of approximately $45,000.

Between February 2008 and March 2008, in connection with the exercise of stock
options, the Company issued 62,981 shares of common stock to an employee for net
proceeds of approximately $25,000.

During the three months ended March 31, 2008, the Company granted 3,675,000
five-year stock options to purchase common stock to employees (including
3,250,000 options granted to the Company's Chief Executive Officer and two
directors of the Company) at exercise prices ranging from $0.32 to $0.41 per
share. For the three months ended March 31, 2008 and 2007, total stock-based
compensation charged to operations for option-based arrangements amounted to
$585,477 and $581,671, respectively. At March 31, 2008, there was approximately
$951,000 or total unrecognized compensation expense related to non-vested
option-based compensation arrangements under the Plan.

Stock option activity for the three months ended March 31, 2008 is summarized as
follows:

                                               Number of        Weighted Average
                                                Options          Exercise Price
                                              -----------       ----------------
Balance at beginning of year ...........       13,339,549           $   0.54
Granted ................................        3,775,000               0.35
Exercised ..............................         (244,803)              0.29
Expired ................................         (140,000)              0.56
                                              -----------       ----------------
Balance at end of period ...............       16,729,746           $   0.50
                                              ===========       ================

Options exercisable at end of period ...       13,693,069           $   0.48
                                              ===========       ================
Weighted average fair value of
options granted during the period ......                            $   0.24

                                      -15-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 7 - STOCK OPTIONS AND WARRANTS (CONTINUED)

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

                                                    March 31,
                                          ----------------------------
                                              2008             2007
                                          -------------      ---------
         Expected volatility                70% - 81%           232%
         Expected term                       5 Years          5 Years
         Risk-free interest rate          2.36% - 3.00%        4.54%
         Expected dividend yield                0%               0%

NOTE 8 - COMMITMENTS AND CONTINGENCIES

In January 2008, the Company executed a mutual release and settlement agreement
with a certain vendor. The Company and the vendor claim that both parties were
in breach of their obligation under a Master Services Agreement dated in January
2007. The Company has an outstanding balance of approximately $179,000 which has
been included in accounts payable prior to this settlement. Pursuant to this
agreement, the Company settled for $125,000 payable in four monthly equal
installments beginning on January 15, 2008 and was released from further claim.
The Company has recognized a gain from debt settlement of approximately $54,000
during the three months ended March 31, 2008.

NOTE 9 - RELATED PARTY TRANSACTIONS

The Company made rental payments for property owned by the Chief Executive
Officer of the Company during the three months ended March 31, 2008 amounting
$7,500. The rental property was used for temporary employee housing during the
period.

NOTE 10 - SUBSEQUENT EVENTS

In April 2008 the Company entered into a 12 month investment banking agreement
with a FINRA member firm pursuant to which it agreed to act as a investment
banking consultant for the Company. As partial compensation, the Company issued
the firm a five year common stock purchase warrant to purchase 250,000 shares of
its common stock at an exercise price of $0.40 per share. The Company valued
these warrants utilizing the Black-Scholes options pricing model at $0.21 per
share or approximately $53,000.

In April 2008, in connection with the exercise of stock options, the Company
issued 62,500 shares of common stock to the Company's director for net proceeds
of approximately $20,000.

In April 2008, the Company issued 190,931 shares in connection with the payment
of interest on the 8% convertible promissory notes. The fair value of such
shares issued amounted to approximately $59,000.

In April 2008, the Company issued 75,757 shares in connection with the
conversion of an 8% convertible promissory notes. The fair value of such shares
issued amounted to approximately $25,000.

                                      -16-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)

In April 2008, the Company granted an aggregate of 300,000 five-year stock
options to purchase common stock to certain employees of the Company at exercise
prices ranging from $0.35 to $0.40 per share. The Company valued these options
utilizing the Black-Scholes options pricing model of approximately $0.20 per
share or approximately $62,000.

In April 2008, the Company entered into a 12 month investment banking agreement
with a broker dealer and FINRA member firm pursuant to which it agreed to act as
a financial advisor and lead underwriter for us in connection with capital
raising transactions to be undertaken on a best efforts basis. The Company will
pay this firm a commission fee based on the total amount the Company have
received from the sale of its securities to investors introduce to the Company
as described in the agreement.

In May 2008, the Company issued 50,000 restricted shares of common stock for
investor relations services. The Company valued these common shares at the fair
market value on the date of grant at $0.37 per share or $18,500.

In May 2008, the Company cancelled 100,000 shares of common stock previously
issued to a consultant. In connection with the return of the 100,000 shares of
common stock, the Company reduced stock-based compensation expense by $37,000
based on the fair market value of the common stock on the date of cancellation
of $0.37 per share.

Effective May 12, 2008 the Company sold an aggregate of $745,000 principal
amount 10% Convertible Senior Unsecured Promissory Debentures (the "10%
Debentures") to 10 accredited investors and issued those investors five year
common stock purchase warrants to purchase 745,000 shares of its common. The
Company received gross proceeds of $745,000 and paid the placement agent a
commission of $122,000. In connection with the issuance of these notes payable,
the Company granted 745,000 warrants to investors exercisable at a price of
approximately $0.36 per share for a period of five years.

The 10% Debentures bear interest at 10% per annum and the principal and all
accrued interest is due three months from the closing date. The principal and
accrued but unpaid interest is convertible at the option of the holder into
shares of our common stock at a conversion price of $0.30 per share, subject to
proportional adjustment in the event of stock splits, stock dividends, or
similar corporate events. In the event the Company issues any shares of its
common stock at an exercise price or conversion price per share less than $0.30
per share within fifteen (15) months following the closing of these 10%
convertible promissory notes, then the exercise price or conversion price, as
the case may be, of these notes and warrants shall be reset to such lower price
with no floor. The Company recognized a total debt discount of approximately
$293,000 in connection with the issuance of these 10% convertible promissory
notes.

The holders are entitled to convert all or any portion of the principal amount
of the 10% Debenture and accrued but unpaid interest into securities that the
Company may offer in a subsequent financing of $5,000,000 or more. In the event
the 10% Debentures have not been converted into the securities offered in such
subsequent financing because the financing has not closed prior to the due date
of the debentures, the Company is required to redeem 1/12th of the principal
amount of the 10% Debentures every month beginning on August 1, 2008 at a
redemption price equal to the face value of the debentures plus accrued but
unpaid interest. At the option of the holders the redemption price is payable in
cash or shares of our common stock valued at 90% of the VWAP (as that term is
defined in the 10% Debenture).

                                      -17-
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2008

NOTE 10 - SUBSEQUENT EVENTS (CONTINUED)

The 10% Debentures are senior in right of payment to all of the Company's
existing indebtedness. In the event the 10% Debentures are not converted or
redeemed prior to maturity and the Company issued new debt which is senior to
the 10% Debentures, the Company is required to immediately redeem the 10%
Debentures for 110% of the face value plus accrued but unpaid interest. The
Company has agreed not to issue any senior debt prior to maturity except as part
of the aforedescribed subsequent financing.

Under the terms of the Securities Purchase Agreement with the investors, the
Company agreed to file a registration statement with the SEC covering the shares
of its common stock underlying the 10% Debentures and the warrants so as to
permit the public resale thereof. Should the Company complete any additional
financings prior to the filing of such registration statement, the Company
agreed to offer the same registration rights granted those purchasers to the
purchasers of the 10% Debentures to the extent more favorable to the 10%
Debenture holders. In connection with the transaction, the holder of a
$2,500,000 principal amount 8% convertible subordinated promissory note due in
November 2008 entered into a Subordination Agreement whereby that debt was
subordinated to the 10% Debentures.

Prior to the aforedescribed offering, in April 2008 the Company sold a $200,000
principal amount 10% Debenture and issued that investor five year common stock
purchase warrants to purchase 200,000 shares of its common stock at an exercise
price of approximately $0.36 per share. The Company did not pay a commission or
finder's fee in this transaction. The terms of the 10% Debenture and warrants
are identical to those described above. The Company recognized a total debt
discount of approximately $79,000 in connection with the issuance of these 10%
convertible promissory notes.

                                      -18-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

OVERVIEW

         Our flagship product is Spare Backup, a fully-automated remote backup
solution designed and developed especially for the small office or home
environment which automatically and efficiently backs up all data on selected
laptop or desktop computers. As a result, we believe small companies can ensure
file safety in PCs and laptops for backup and retrieval. We launched our Spare
Back-up service and software product version 1.0 in March 2005 and we are
currently offering version 5.0 of the product. Our Spare Switch software which
enables users to complete the transfer of personal files from one personal
computer (PC) to another via a high speed Internet connection. We focus on
owners and executives of businesses that use technology to support their
businesses, but do not have an IT (information technology) department, as well
as consumers who desire to secure the redundancy of available files and
documents vital to the continuity of their operations, business, or personal
information. Our concept is to develop a suite of complementary products and
services which are designed for use by technical and non-technical users
featuring a user interface that can cross both sets of users. Our software has
unique characteristics of additional coding that enables easy to scale
infrastructure and support elements which we believe provides a competitive
advantage over other providers whose products require large investments in
hardware, as well as professional installation, training and support.

         We believe that by bundling our products and services as one feature of
a value-added service, offered by major national and international brands, that
we will be able to leverage their brand recognition and marketing efforts to
accelerate our market acceptance and significantly increase our adoption rates.
We use an "opt-out" adoption model which varies from partner to partner but
requires the user to provide us with enrollment information and a credit card at
the time of activation. The initial trial generally provides a certain amount of
free storage space once activated and the ability to easily continue the service
at the end of the trial period or upgrade the storage capacity. Generally, the
terms of these agreements have provided that we will pay these partner companies
a percentage of the sales for a specific period of time, after which we retain
all revenue generated from the end users.

         In fiscal 2007 we established a business relationship with DSG
International. While not a "household" name in the U.S., DSG International is
Europe's leading specialist electronic retailing group with more than 1,200
stores and online stores, operating in 27 countries with 40,000 employees.
Following the February 2007 execution of the initial agreement, in September
2007 we successfully completed a pilot program and in the fourth quarter of
fiscal the product roll out was complete and we launched an extensive marketing
campaign. Revenues from our partner agreement with DSG International represented
approximately 76% of our total net revenues for the three months ended March 31,
2008.

         Under the terms of our agreement with DSG International we agreed to
provide initial training information and provide marketing materials for DSGI's
network of sales associates. During the pilot program a number of marketing
strategies and initiatives were undertaken in an effort to determine the most
effective approach, including direct mail, email blasts, in store promotions and
bundling with other services. During 2007 we were required to spend more time
than initially anticipated in the training of the DSG sales associates. When our
DSG program was launched, the marketing program included an in store free CD
giveaway. While we initially distributed CD's in this promotion, we found that
DSG's sales associates required additional training if the value of a back up
service was to be effectively promoted to the customer. We have recently

                                      -19-
<PAGE>

completed an additional training video to assist DSG's sales associates in
marketing our products and services and expect to relaunch this program during
the second quarter in fiscal 2008. In the meantime, we currently offer one
gigabyte of free backup service to all DSG customers who participate in its
PCextended warranty program. As of April 2008 we have in excess of 10,000 paid
subscribers from our DSG program and we believe that our conversion rate to
fully paid subscribers in the first quarter of fiscal 2008 continues to increase
and the retention rates of those subscribers will remain high.

         As described above, during the three months ended March 31, 2008, we
spent significant resources, both financial and management time, in implementing
our distribution model and broadening our partnership relationships the
accomplishment of these goals. These costs included approximately $213,000 for
sales and marketing, advertising and business development expenses as well as
approximately $139,000 of travel and travel related expenses, and approximately
$197,000 of costs associated with technology service which includes engineering
development, software and hardware related to the ongoing provision of our
services. During this period we also spent approximately $523,000 on research
and development. The research and development expenses were primarily related to
compensation expenses paid to our software engineers, employees and consultants
in conjunction with the development or enhancement of our products.

         In addition to significant expenditures for sales and marketing and
research and development during the three months ended March 31, 2008, we also
spent approximately $2,351,000 on sales, general and administrative expenses
during the three months ended March 31, 2008 which includes non-cash expenses of
approximately $1,142,000 attributable to depreciation, stock based compensation
to our chief executive officer and certain employees, stock based consulting
fees, and amortization of prepaid marketing associated with the value of a
warrant granted to DSG International, Plc. Our net revenues are not sufficient
to pay our operating costs and as with prior periods we are materially dependent
on our ability to raise capital through the sale of our securities to provide
cash to fund our operations. During first quarter of fiscal 2008 we raised
approximately $1,090,000 in working capital through the issuance of notes, the
sale of common stock and the exercise of warrants and options. Subsequent to
March 31, 2008, we have raised approximately $965,000 in working capital through
the issuance of short term notes and the exercise of options.

         While it is likely we will continue to expend research and development
costs during the remainder of fiscal 2008, we do not presently anticipate that
our sales and marketing and related expenses will approach 2007 levels,
including with respect to our ongoing relationship with DSG International.
Additional early stage partnerships on which our management is currently
concentrating, do not require the same level of financial participation on our
part in the marketing and launch of our products. In addition, we are seeking to
further refine our revenue model with new partners to a cost based model in an
effort to increase our revenue share.

         While our net revenues continue to increase, our operating expenses are
still significantly high. As set forth elsewhere herein, we will need to raise
additional working capital during the remainder of fiscal 2008 to pay the costs
associated with our sales and marketing efforts, expanding our customer base and
for our general operating expenses. In April 2008 we entered into a 12 month
investment banking agreement with a broker dealer and FINRA member firm pursuant
to which it agreed to act as an exclusive financial advisor and lead underwriter
for us in connection with capital raising transactions to be undertaken on a
best efforts basis. We will pay this firm a commission fee based on the total
amount we have received from the sale of our securities to investors introduced
to us as described in the agreement. Between April 2008 and May 2008 we sold
$945,000 principal amount senior unsecured convertible promissory debentures due
in three months in a private placement for which the investment banking firm
served as placement agent.

                                      -20-
<PAGE>

         There are, of course, no assurances that we will be able to raise the
additional capital necessary to continue to implement our business model. If
this capital is not available to us, we may be forced to curtail some or all of
our growth plans and/or operations. If these efforts are not sufficient, it is
possible that we could be forced to cease operations.

GOING CONCERN

         We have generated minimal revenue since our inception on September 12,
2002, and have incurred net losses of approximately $77 million since inception
through March 31, 2008. Our current operations are not an adequate source of
cash to fund our current operations and we have relied on funds raised from the
sale of our securities to provide sufficient cash to operate our business. The
report of our independent registered public accounting firm on our financial
statements for the year ended December 31, 2007 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 seek to provide for
our capital requirements through the sale of equity securities and debt, and
have recently engaged a broker dealer that is a FINRA member firm to assist us
in these efforts. However, we have no firm commitments from any third party to
provide this financing and we cannot assure investors we will be successful in
raising working capital as needed. In addition, the terms of a number of
securities that we sold during fiscal 2007 contain price resets which may
inhibit our ability to attract investors. Finally, we have approximately
$3,920,000 of short term debt coming due during third and fourth quarters of
fiscal 2008 and do not presently have sufficient funds to pay these obligations.
There are no assurances that we will have sufficient funds to execute our
business plan, pay our operating expenses and 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 elsewhere in this report.
We believe that the application of these policies on a consistent basis enables
our company to provide useful and reliable financial information about the
company's operating results and financial condition.

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

         Effective January 1, 2006, we adopted the provisions of SFAS No.
123(R), "Share-Based Payments," under the modified prospective method. SFAS No.
123(R) eliminates accounting for share-based compensation transactions using the
intrinsic value method prescribed under APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and requires instead that such transactions be
accounted for using a fair-value-based method. Under the modified prospective
method, we are required to recognize compensation cost for share-based payments
to employees based on their grant-date fair value from the beginning of the
fiscal period in which the recognition provisions are first applied. For periods
prior to adoption, the financial statements are unchanged, and the pro forma
disclosures previously required by SFAS No. 123, as amended by SFAS No. 148,
will continue to be required under SFAS No. 123(R) to the extent those amounts
differ from those in the Consolidated Statement of Operations.

                                      -21-
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

         In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements. The Statement is to be effective for the Company's financial
statements issued in 2008; however, earlier application is encouraged. The
Company has determined that this interpretation does not have a material impact
on its financial position, results of operations, or cash flows.

         In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when quantifying
Misstatements in Current Year Financial Statements ("SAB 108"). SAB 108 requires
companies to evaluate the materiality of identified unadjusted errors on each
financial statement and related financial statement disclosure using both the
rollover approach and the iron curtain approach, as those terms are defined in
SAB 108. The rollover approach quantifies misstatements based on the amount of
the error in the current year financial statement, whereas the iron curtain
approach quantifies misstatements based on the effects of correcting the
misstatement existing in the balance sheet at the end of the current year,
irrespective of the misstatement's year(s) of origin. Financial statements would
require adjustment when either approach results in quantifying a misstatement
that is material. Correcting prior year financial statements for immaterial
errors would not require previously filed reports to be amended. If a Company
determines that an adjustment to prior year financial statements is required
upon adoption of SAB 108 and does not elect to restate its previous financial
statements, then it must recognize the cumulative effect of applying SAB 108 in
fiscal 2006 beginning balances of the affected assets and liabilities with a
corresponding adjustment to the fiscal 2006 opening balance in retained
earnings. SAB 108 is effective for interim periods of the first fiscal year
ending after November 15, 2006. The adoption of SAB 108 did not have an impact
on the Company's consolidated financial statements.

         In December 2006, FASB Staff Position No. EITF 00-19-2, "Accounting for
Registration Payment Arrangements," was issued. The FSP specifies that the
contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, whether issued as a
separate agreement or included as a provision of a financial instrument or other
agreement, should be separately recognized and measured in accordance with SFAS
No. 5, "Accounting for Contingencies." The Company believes that its current
accounting is consistent with the FSP.

         In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115", under which entities will now be permitted to measure many
financial instruments and certain other assets and liabilities at fair value on
an instrument-by-instrument basis. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of a fiscal year that begins on
or before November 15, 2007, provided the entity also elects to apply the
provisions of SFAS 157. The Company has determined that this interpretation does
not have a material impact on its financial position, results of operations, or
cash flows.

         In May 2007, the FASB issued FASB Staff Position No. FIN 48-1,
Definition of Settlement in FASB Interpretation No. 48 ("the FSP"). The FSP
provides guidance about how an enterprise should determine whether a tax
position is effectively settled for the purpose of recognizing previously
unrecognized tax benefits. Under the FSP, a tax position could be effectively
settled on completion of examination by a taxing authority if the entity does
not intend to appeal or litigate the result and it is remote that the taxing
authority would examine or re-examine the tax position. The Company does not
expect that this interpretation will have a material impact on its financial
position, results of operations, or cash flows.

                                      -22-
<PAGE>

         In December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations," which replaces SFAS No. 141, " Business Combinations," which,
among other things, establishes principles and requirements for how an acquirer
entity recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed (including intangibles) and any
noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We are currently evaluating what impact our adoption of SFAS
No. 141(R) will have on our financial statements.

         In December 2007, the FASB issued SFAS No. 160, "Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51."
SFAS No. 160 amends ARB 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also amends certain of ARB 51's consolidation procedures for
consistency with the requirements of SFAS No. 141(R). SFAS No. 160 is effective
for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. We are currently evaluating what impact our adoption of
SFAS No. 160 will have on our financial statements.

         Other accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the consolidated
financial statements upon adoption.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2008 (UNAUDITED) AS COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 2007 (UNAUDITED)

         Following is a comparative information on certain selected income
statement items.
<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED
                                                           MARCH 31,
                                                 ----------------------------
                                                     2008             2007       $ OF CHANGE     % OF CHANGE
                                                 ------------    ------------    ------------    -----------
<S>                                              <C>             <C>             <C>             <C>
Revenues .....................................   $    203,060    $     20,942         182,118          +870%

Operating expenses:
Research and development .....................        522,954         695,217        (172,263)          -25%
Sales, general and administrative ............      2,350,858       2,663,800        (312,942)          -12%
         Total operating expenses ............      2,873,812       3,359,017        (485,205)          -14%

Operating loss ...............................     (2,670,752)     (3,338,075)        667,323           -20%

Other income (expense):
Change in fair value of derivative liabilities              -     (13,966,577)     13,966,577             NM
Derivative liability expense .................              -        (334,030)        334,030             NM
Gain from debt settlement ....................         53,713               -          53,713             NM
Foreign currency gain ........................            582               -             582             NM
Interest expense .............................       (787,266)     (1,415,485)        628,219           -44%
         Total other expenses ................       (732,971)    (15,716,092)     14,983,121           -95%

Net loss .....................................   $ (3,403,723)   $(19,054,167)     15,650,444           -82%

Basic and diluted loss per common share ......   $      (0.04)   $      (0.33)   $       0.29             NM
Basic and diluted weighted average common
shares outstanding ...........................     78,553,471      57,873,524      20,679,947             NM

NM = not meaningful
</TABLE>
                                      -23-
<PAGE>

REVENUES

         The increase in revenues of approximately $182,000 for the three months
ended March 31, 2008 as compared to the same period in fiscal 2007 reflects the
increased adoption rate of our products by trial users who convert to
subscriptions. Management believes that we have doubled our subscriber base in
the first quarter of fiscal 2008 from the fourth quarter of fiscal 2007 and
currently have over 50,000 subscribers. In addition, we currently have in excess
of 14,000 paid subscribers and over 35,000 in our opt-out model and we expect
that number to dramatically increase by the end of fiscal 2008. For the three
months ended March 31, 2008, approximately 76% of our total net revenues were
primarily attributable to the establishment of an international partner
relationship with DSG International focusing in Europe. Although we realized net
revenues related to the DSG International relationship, the actual cash
attributable to such net revenues was not received by us and is currently
applied against amounts we owe DSG International for marketing expenses which
was approximately $492,000 at March 31, 2008. During the first quarter of 2008,
we realized net revenues of approximately $154,000 related to the DSG
International and such amount reduced our outstanding balance owed to DSG
International by the corresponding amount. Additionally, we have paid DSG
International approximately $260,000 during April 2008. Although our sales
increased during the three months ended March 31, 2008 as compared to the three
months ended March 31, 2007, our net revenues are still not sufficient to pay
our operating expenses or to satisfy our obligations as they become due. There
can be no assurances that we will continue to recognize similar net revenue
increases in future periods or that we will ever report profitable operations.

OPERATING EXPENSES

         Our total operating expenses for the three months ended March 31, 2008
decreased $485,205, or approximately 14%, from the three months ended March 31,
2007. Our operating expenses included expenses related to research and
development and selling, general and administrative expenses.

RESEARCH AND DEVELOPMENT

         Research and development expenses consist primarily of compensation
expenses paid to our software engineers, employees and consultants in
conjunction with the development or enhancement of our products. We spent
$522,954 on research and development expenses for the three months ended March
31, 2008 as compared to $695,217 for the three months ended March 31, 2007.
Research and development expenses represented approximately 18% of our total
operating expenses for the three months ended March 31, 2008 as compared to
approximately 21% for same period in 2007. Our research and development expenses
for the three months ended March 31, 2008 include costs associated with
continued development of user interfaces and additional products, including
version 4.0 of Spare-Backup, a family pack, and our SMB (small to medium
business) products, including Workgroup, and reflected increased R&D efforts to
successfully meet various deadlines set by our OEM partners. Additionally, for
the first quarter of 2008, we recorded non-cash expenses of $134,000, related to
stock-based compensation expense attributable to shares issued to our key
employee in lieu of cash compensation. The decrease in our research and
development expenses when compared to the comparable period in 2007 is primarily
attributable to decreased use of consultants for research and development of our
product due to lack of working capital. We anticipate that we will continue to
incur research and development expenses in future periods as a result of the
addition of new features, the launch of new versions of our products and the
expansion of our engineering staff, however we are not able at this time to
quantify the amount of such expenditures.

                                      -24-
<PAGE>

SALES, GENERAL, AND ADMINISTRATIVE EXPENSES

         For the three months ended March 31, 2008, our selling, general and
administrative expenses were $2,350,858 as compared to $2,663,800 for the same
period in fiscal 2007, a decrease of $312,942, or approximately 12%. Sales,
general and administrative expenses represented approximately 82% and
approximately 79% of our total operating expenses for the three months ended
March 31, 2008 and 2007, respectively. Included in our sales, general and
administrative expenses for the three months ended March 31, 2008 were:

         o approximately $213,000 of sales and marketing, advertising and
business development expenses which includes costs associated with the various
pilot marketing programs discussed earlier as well as travel and travel related
expenses associated with our efforts to further develop and broaden our OEM
partner base and non-cash expenses of approximately $181,000 associated with the
amortization of the value of a warrant granted to DSG International, Plc. in
fiscal 2007 which was fully amortized during the period. While a significant
portion of these expenses during the three months ended March 31, 2008 were
one-time expenses and we anticipate that we will continue to incur sales and
marketing, advertising and business development expenses during the remainder of
fiscal 2008, we are not able to quantify the amount of such expenses,

         o approximately $653,000 of employee related costs which includes
salaries and employee costs, recruiting expenses, 401k contributions and stock
based compensation. For the first quarter of 2008, we recorded non-cash expenses
of $123,000 related to stock-based compensation expense which includes
approximately $114,000 attributable to shares issued to our chief executive
officer and a key employee in lieu of cash compensation. Subject to the
availability of sufficient working capital, we anticipate that we will hire
additional software engineers and other staff to support our projected growth.
Our offices are in a geographic location which is not tech heavy and we face
competition in hiring qualified employees and consultants. Our experience has
been that in order to recruit qualified employees we are required to pay
recruiting expenses and offer relocation packages. If we are able to hire the
personnel we presently deem necessary, our selling, general and administrative
expenses will increase although we are presently unable to quantify the amount
of projected increase,

         o approximately $197,000 of costs associated with technology service
which includes engineering development, software and hardware related to the
ongoing provision of our services. We anticipate that these costs will be
relatively constant during the remainder of fiscal 2008 from fiscal 2007 levels
and that as we increase the number of paid subscribers our cost per customer for
delivering service will be reduced as we spread the expense over a greater
number of subscribers,

         o approximately $838,000 of non-cash expense including option expense
associated with options granted to our executive officers and other employees
($585,477), depreciation ($199,591) and stock based consulting fees ($53,000),
and

         o approximately $450,000 of general overhead expense, including rent,
insurance, legal and accounting fees, travel, utilities, and other general
operating expenses.

         We anticipate that sales, general and administrative expenses for the
remainder of fiscal 2008 will reflect a modest decrease from fiscal 2007 levels.
We are unable at this time, however, to quantify the amount of such decreases.

                                      -25-
<PAGE>

TOTAL OTHER EXPENSES

         Our total other expenses, net for the three months ended March 31, 2008
decreased $14,983,121, or approximately 95%, from the same period in fiscal
2007. This decrease was primarily attributable to the following:

CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES AND DERIVATIVE LIABILITIES
EXPENSE

         Change in fair value of derivative liabilities and derivative
liabilities expense consist of income or expense associated with the change in
the fair value of derivative liabilities as a result of the application of EITF
Issue No. 00-19 to our financial statements. The difference in fair value of the
derivative liabilities between the date of their issuance and their measurement
date, which amounted to an increase of approximately $0 and $14 million for the
three months ended March 31, 2008 and 2007, respectively, has been recognized as
other expense/income in those periods. We did not have a comparable other
expense during the three months ended March 31, 2008 due to our having satisfied
all of the 8% convertible promissory notes and 12.5% convertible subordinated
promissory debentures during fiscal 2007, the terms of which resulted in the
application of EITF Issue No. 00-19 to our financial statements, thus
eliminating such derivative liabilities.

         While at March 31, 2008 we no longer had any derivative liabilities, we
have historically been at a disadvantage in negotiating terms of financing
transactions which have resulted in the recognition of these derivative
liabilities, we believe that we may be able to structure transactions which do
not require this adverse treatment during the remainder of fiscal 2008 based
upon the operational progress of our company during fiscal 2007. There are, of
course, no assurances that we are correct.

GAIN FROM DEBT SETTLEMENT

         In January 2008, we executed a mutual release and settlement agreement
with a certain vendor. Both parties claim a breach of their obligation under a
Master Services Agreement dated in January 2007. We have an outstanding balance
of approximately $179,000 which has been included in accounts payable prior to
this settlement. Pursuant to this agreement, we settled for $125,000 payable in
four monthly equal installments beginning on January 15, 2008 and was released
from further claim. We have recognized a gain from debt settlement of
approximately $54,000 during the three months ended March 31, 2008.

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 three
months ended March 31, 2008 when compared to the three months ended March 31,
2007 is primarily attributable to the amortization of the debt discount
amounting to $1.4 million associated with the 8% convertible promissory notes
which were sold during the three months ended March 31, 2007. These notes were
subsequently converted into equity during March 2007 pursuant to their terms.

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. The following table provides certain selected balance sheet
comparisons between March 31, 2008 (unaudited) and December 31, 2007:

                                      -26-
<PAGE>
<TABLE>
<CAPTION>
                                                    MARCH 31,     DECEMBER 31,
                                                      2008           2007        $ OF CHANGE    % OF CHANGE
                                                   -----------    -----------    -----------    -----------
<S>                                                <C>            <C>            <C>            <C>
Working capital (deficit) ......................   $(3,952,633)   $(2,634,060)   (1,318,573)             NM
Cash ...........................................   $    25,455    $   527,402      (501,947)           -95%
Prepaid marketing expenses .....................   $      --      $   181,238      (181,238)          -100%
Total current assets ...........................   $    25,455    $   708,640      (683,185)           -96%
Property and equipment, net ....................   $ 1,586,198    $ 1,652,077       (65,879)            -4%
Total assets ...................................   $ 1,611,653    $ 2,360,717      (749,064)           -32%

Accounts payable and accrued expenses ..........   $ 2,760,814    $ 2,878,014      (117,200)            -4%
8% convertible promissory notes- current .......   $ 1,143,162    $   416,376       726,786            175%
Accrued interest on convertible promissory notes   $    59,112    $    33,310        25,802             77%
Due to stockholder .............................   $    15,000    $    15,000             0              NM
Total current liabilities ......................   $ 3,978,088    $ 3,342,700       635,388              NM
8% convertible promissory notes- long term .....   $    25,716    $         -        25,716            100%
Total liabilities ..............................   $ 4,003,804    $ 3,342,700       661,104              NM

NM = not meaningful
</TABLE>
         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 2007 contains an explanatory
paragraph regarding our ability to continue as going concern. While we had
approximately $527,000 of cash on hand at December 31, 2007 and raised
approximately $1,090,000 during the three months ended March 31, 2008, as
described elsewhere herein our operations do not generate sufficient cash to pay
our operating expenses, especially as DSG International retains all revenues
generated through that agreement, which were approximately $155,000 for the
first quarter of 2008, to offset marketing expenses we owe that company. At
March 31, 2008, we had cash on hand of $25,455 and subsequent to that date we
have raised an additional $20,000 through the exercise of options by one of our
directors and $925,000 from the issuance of short term senior unsecured
convertible promissory debentures.

         At March 31, 2008, we had a working capital deficiency of approximately
$3,953,000 which reflects current assets of $25,455 less current liabilities of
$3,978,088. Our current assets decreased by $683,185 from December 31, 2007 to
March 31, 2008. Included in these changes is an increase of:

         o $726,786 in amounts due under 8% convertible subordinated promissory
debentures. During fiscal 2007 we issued and sold new convertible promissory
notes aggregating $2,975,000, and recognized interest expense from amortization
of its debt discount of $726,786 during the three months ended March 31, 2008,

         o $25,802 of accrued interest under the 8% convertible promissory
debentures. During April 2008, we issued 190,931 shares in connection with the
payment of interest on the 8% convertible promissory notes as of March 31, 2008.

         o During the three months ended March 31, 2008, our total long term
liabilities increased by $25,716. In February 2008 we issued and sold new
convertible promissory note of $50,000, and recognized interest expense from
amortization of its debt discount of $1,368 during the three months ended March
31, 2008.

         These increases were offset by decreases of:

         o $501,947 in cash which we used for general working capital,

         o $181,238 in prepaid marketing expenses which represents the value of
the warrant we issued to DSG International Plc which were fully amortized during
the three months ended March 31, 2008,

                                      -27-
<PAGE>

         o $117,200 in accounts payable and accrued expenses. Included in this
amount was approximately $398,000 which has been reserved for possible expenses
in conjunction with our early termination of an aircraft lease and $492,000 due
DSG International for marketing related expenses. As set forth above, DSG
International is offsetting this obligation through the retention of our portion
of net revenues earned by us from usage fees and the sale of our products by it,

         During the three months ended March 31, 2008, our cash decreased by
$501,497. This increase consisted of $1,089,592 in cash provided by financing
activities which was offset by $1,457,827 of cash used in operating activities
and $133,712 of cash used in investing activities.

         Net cash used in operating activities for the three months ended March
31, 2008 increased $1,476,580 from the same period in 2007. Included in this
change is a decrease in our net loss for the period to $3,403,723, as compared
to a net loss of $19,054,167 for the same period in fiscal 2007. The increase in
net cash used in operating activities is also primarily due to a decrease in
changes in assets and liabilities which includes restricted cash of $572,830,
accounts payable and accrued expenses of $1,740,046. Additionally, the increase
is primarily attributable to the effect of decreased expenses for the three
months ended March 31, 2008 related to non-cash transactions, including the
losses associated with derivative liabilities, amortization of prepaid marketing
expense, debt discount and deferred compensation.

         Net cash used in investing activities was $133,712 for the three months
ended March 31, 2008 as compared to net cash used in investing activities of
$1,685,525 for the comparable period in 2007. This decrease is attributable to
the purchase of servers and other computer equipment for the New Jersey data
center during the same period in fiscal 2007. We did not have any comparable
purchases during the three months ended March 31, 2008.

         Net cash provided by financing activities was $1,089,592 for the three
months ended March 31, 2008 as compared to $2,062,587 for the same period in
fiscal 2007. During three months ended March 31, 2008, we received net proceeds
of $475,000 from the issuance of our common stock, $564,592 from the exercise of
stock warrants and options, and $50,000 proceeds from issuance of a long term
convertible promissory note. During the three months ended March 31, 2007, we
received proceeds of $1,999,067 from the exercise of stock warrants and options
and $1,325,000 of proceeds from issuance of convertible promissory notes which
offset by the $1,250,000 repurchase of shares of our common stock associated
with the exercise of a put right by Robinson Reed and $11,480 principal
repayments on the 12.5% convertible subordinated promissory debentures and 8%
convertible promissory notes.

         We have generated minimal net revenues since inception and our current
net revenues are not an adequate source of cash to fund our operating expenses
or pay our obligations as they become due. In addition, we have $3,920,000 due
between the third and fourth quarters of 2008 as principal and interest payments
on our 8% convertible debentures and short term senior unsecured convertible
promissory debentures upon their maturity.

         Historically we have relied on private placement issuances of equity
and debt financing instruments to provide capital for our company. In order to
pay our obligations as they become due and grow our business we will need to
raise additional working capital. The actual amount of our future capital
requirements depends primarily on the rate at which we increase our net
revenues. While we continue to believe in the viability of our business model
and believe that our products and services will inevitably be accepted by
consumers at a rate which will translate to significantly increased net
revenues, we are unable at this time to predict when our net revenues will be
sufficient to fund our operating expenses. We do not have any external sources
for working capital. While we do not have any firm commitments by any third
party to provide capital to us, we recently engaged an investment banking firm
to assist us in raising capital on a best efforts basis. There can be no

                                      -28-
<PAGE>

assurance, however, that acceptable financing to fund our ongoing operations and
pay our obligations as they become due can be obtained on suitable terms, if at
all. If we are unable to obtain the financing necessary to support our
operations and pay our obligations as they become due, 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.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable for a smaller reporting company.

ITEM 4T. CONTROLS AND PROCEDURES.

         Evaluation of Disclosure Controls and Procedures. We maintain
"disclosure controls and procedures" as such term is defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934. In designing and evaluating our
disclosure controls and procedures, our management recognized that disclosure
controls and procedures, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of disclosure
controls and procedures are met. Additionally, in designing disclosure controls
and procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Based on her evaluation as of the
end of the period covered by this report, our President who also serves as our
principal financial and accounting officer, has concluded that our disclosure
controls and procedures were effective.

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

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

         None.

ITEM 1A. RISK FACTORS.

         Not applicable for a smaller reporting company.

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

         In March 2008, we issued in aggregate 1,357,143 shares of our common
stock to four purchasers and issued those purchasers three year common stock
purchase warrants to purchase 678,572 shares of our common stock exercisable at
a price of $0.50 per share in a private placement exempt from registration under
the Securities Act of 1933 in reliance on an exemption provided by Section 4(2)
of that act. We received gross proceeds of approximately $475,000. We used the
net proceeds for general working capital. The recipients were accredited
investors who had such knowledge and experience in business matters that they
were capable of evaluating the merits and risks of the prospective investment in
our securities. The recipients had access to business and financial information
concerning our company.

         In May 2008 we issued 50,000 shares of our common stock valued at
$18,500 as compensation for services under an agreement. The recipient was an
accredited investor and the issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.

                                      -29-
<PAGE>

         Effective May 12, 2008 we sold an aggregate of $745,000 principal
amount 10% Convertible Senior Unsecured Promissory Debentures (the "10%
Debentures") to 10 accredited investors and issued those investors five year
common stock purchase warrants to purchase 745,000 shares of our common stock in
a private placement exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) of that act and Regulation D. We
received gross proceeds of $745,000. Merriman Curhan Ford & Co., a broker dealer
and member of FINRA, acted as placement agent for us in the offering. We paid
that firm a commission of $122,000. We are using the net proceeds from this
offering for working capital.

         The 10% Debentures bear interest at 10% per annum and the principal and
all accrued interest is due three months from the closing date. Interest is
payable in cash or shares of our common stock. We have the option to prepay the
obligations at 110% of the face value plus accrued but unpaid interest. The
principal and accrued but unpaid interest is convertible at the option of the
holder into shares of our common stock at a conversion price of $0.30 per share,
subject to proportional adjustment in the event of stock splits, stock
dividends, or similar corporate events. In addition, if during the period of 15
months from the issuance date we should issue shares of our common stock or any
securities convertible or exchangeable into shares of our common stock at an
exercise or conversion price less than $0.30 per share, the conversion price of
the 10% Debentures will be automatically reset to such lower price with no
floor. This reset provision excludes stock options and warrants covered by a
registration statement on Form S-8 for employees, directors and consultants and
will not apply with respect to the issuance of securities approved in writing by
the holders of at least 67% of 10% Debentures.

         The holders are entitled to convert all or any portion of the principal
amount of the 10% Debenture and accrued but unpaid interest into securities we
may offer in a subsequent financing of $5,000,000 or more. In the event the 10%
Debentures have not been converted into the securities offered in such
subsequent financing because the financing has not closed prior to the due date
of the debentures, we are required to redeem 1/12th of the principal amount of
the 10% Debentures every month beginning on August 1, 2008 at a redemption price
equal to the face value of the debentures plus accrued but unpaid interest. At
the option of the holders the redemption price is payable in cash or shares of
our common stock valued at 90% of the VWAP (as that term is defined in the 10%
Debenture).

         The 10% Debentures are senior in right of payment to all of our
existing indebtedness. In the event the 10% Debentures are not converted or
redeemed prior to maturity and we issued new debt which is senior to the 10%
Debentures, we are required to immediately redeem the 10% Debentures for 110% of
the face value plus accrued but unpaid interest. We have agreed not to issue any
senior debt prior to maturity except as part of the aforedescribed subsequent
financing.

         The warrants are exercisable at $0.3577 per share and are exercisable
on a cashless basis. The exercise price of the warrants is subject to
proportional adjustment in the event of stock splits, stock dividends, or
similar corporate events. In addition, if during the period of 15 months from
the issuance date we should issue shares of our common stock or any securities
convertible or exchangeable into shares of our common stock at an exercise or
conversion price less than $0.30 per share, the exercise price of the warrants
will be automatically reset to such lower price with no floor. This reset
provision excludes stock options and warrants covered by a registration
statement on Form S-8 for employees, directors and consultants and will
immediately terminate upon the filing of the registration statement described
below. At such time as the warrants are exercised, we are obligated to pay the
placement agent an additional fee of 10% of the exercise price of the warrants,
if exercised on a cash basis, payable in cash or shares of our common stock at
our option.

                                      -30-
<PAGE>

         Under the terms of the Securities Purchase Agreement with the
investors, we agreed to file a registration statement with the SEC covering the
shares of our common stock underlying the 10% Debentures and the warrants so as
to permit the public resale thereof. Should we complete any additional
financings prior to the filing of such registration statement, we agreed to
offer the same registration rights granted those purchasers to the purchasers of
the 10% Debentures to the extent more favorable to the 10% Debenture holders. In
connection with the transaction, the holder of a $2,500,000 principal amount 8%
convertible subordinated promissory note due in November 2008 entered into a
Subordination Agreement whereby that debt was subordinated to the 10%
Debentures.

         Prior to the aforedescribed offering, in April 2008 we sold an
accredited investor a $200,000 principal amount 10% Debenture and issued that
investor five year common stock purchase warrants to purchase 200,000 shares of
our common stock in a private placement exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of
that act. We did not pay a commission or finder's fee in this transaction and we
are using the net proceeds for general working capital. The terms of the 10%
Debenture and warrants are identical to those described above.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         None.

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

         None.

ITEM 5.  OTHER INFORMATION.

         None.

ITEM 6.  EXHIBITS.

 No.                               Description
-----                              -----------

4.13     Form of 10% Senior Unsecured Convertible Promissory Debenture

4.14     Form of $0.3577 common stock purchase warrant

10.21    Form of Securities Purchase Agreement dated as of May 12, 2008

10.22    Form of Subordination Agreement dated as of May 12, 2008

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

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

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

                                      -31-
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


SPARE BACK UP, INC.


By: /s/ Cery B. Perle                                          May 15, 2008
    -----------------                                          ------------
    Cery B. Perle                                              Date
    President, Chief Executive Officer and Director
    (Principal  executive officer and principal financial
    and accounting officer)

                                      -32-