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

                                   FORM 10-QSB

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

                For the quarterly period ended September 30, 2007

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

                For the transition period from _______ to _______

                        Commission file number 000-30451

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

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

                 72757 Fred Waring Drive, Palm Desert, CA 92260
                 ----------------------------------------------
                    (Address of principal executive offices)

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

                                 not applicable
                                 --------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 75,753,761 shares of common stock
issued and outstanding at November 7, 2007.

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

<PAGE>

           CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

         Certain statements in this Quarterly Report on Form 10-QSB contain or
may contain forward-looking statements that are subject to known and unknown
risks, uncertainties and other factors which may cause actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements were based on various factors and
were derived utilizing numerous assumptions and other factors that could cause
our actual results to differ materially from those in the forward-looking
statements. These factors include, but are not limited to, our ability to
significantly increase our revenues, our ability to raise working capital as
necessary to fund our ongoing operations and satisfy our obligations as they
become due, economic, political and market conditions and fluctuations,
government and industry regulation, interest rate risk, U.S. and global
competition, and other factors. Most of these factors are difficult to predict
accurately and are generally beyond our control. You should consider the areas
of risk described in connection with any forward-looking statements that may be
made herein. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
Readers should carefully review this quarterly report in its entirety, including
but not limited to our financial statements and the notes thereto appearing
elsewhere herein. Except for our ongoing obligations to disclose material
information under the federal securities laws, we undertake no obligation to
release publicly any revisions to any forward-looking statements, to report
events or to report the occurrence of unanticipated events.

                           OTHER PERTINENT INFORMATION

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

                                      INDEX
                                                                        Page No.
                                                                        --------
Part I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Consolidated Balance Sheet at September 30, 2007 (unaudited) ..................3

Consolidated Statements of Operations for the three months and
  nine months ended September 30, 2007 and 2006 (unaudited) ...................4

Consolidated Statements of Cash Flows for the nine months ended
  September 30, 2007 and 2006 (unaudited) .....................................5

Notes to Unaudited Consolidated Financial Statements ..........................6

Item 2.  Management's Discussion and Analysis or Plan of Operation ...........22

Item 3.  Controls and Procedures .............................................32

Part II  OTHER INFORMATION....................................................33

                                      - 2 -
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL INFORMATION

                        SPARE BACKUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                               September 30, 2007
                                   (Unaudited)

                                     ASSETS
Current Assets:
  Accounts receivable ...........................................  $     53,804
  Prepaid marketing expense .....................................       686,507
  Prepaid expenses ..............................................        60,000
  Other current assets ..........................................        58,157
                                                                   ------------
    Total current assets ........................................       858,468

  Property and equipment, net of accumulated depreciation
    of $693,739 .................................................     1,797,099
                                                                   ------------

     Total assets ...............................................  $  2,655,567
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses .........................  $  2,429,788
  Overdraft liability ...........................................        35,264
  Due to stockholder ............................................        15,000
                                                                   ------------

     Total liabilities ..........................................     2,480,052


Stockholders' Equity:
  Preferred stock; $.0001 par value, 5,000,000 shares authorized,
    none issued and outstanding .................................             -
  Common stock; $.001 par value, 150,000,000 shares authorized,
    75,574,523 issued and outstanding ...........................        75,573
  Additional paid-in capital ....................................    68,460,388
  Accumulated deficit ...........................................   (68,360,446)
                                                                   ------------

     Total stockholders' equity .................................       175,515
                                                                   ------------

     Total liabilities and stockholders' equity .................     2,655,567
                                                                   ============

            See Notes to Unaudited Consolidated Financial Statements.

                                      - 3 -
<PAGE>
<TABLE>
                                        SPARE BACKUP, INC. AND SUBSIDIARY
                                      CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
                                                    For the three months ended      For the nine months ended
                                                           September 30,                   September 30,
                                                       2007            2006            2007            2006
                                                   ------------    ------------    ------------    ------------
                                                    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
<S>                                                <C>             <C>             <C>             <C>
Revenues .......................................   $     78,002    $     13,913    $    115,373    $     47,558

Operating expenses:
  Research and development .....................        278,073         134,150       1,225,808         567,268
  Sales, general and administrative ............      4,754,974       2,491,078      12,939,829       8,228,482
                                                   ------------    ------------    ------------    ------------

     Total operating expenses ..................      5,033,047       2,625,228      14,165,637       8,795,750
                                                   ------------    ------------    ------------    ------------

     Operating loss ............................     (4,955,045)     (2,611,315)    (14,050,264)     (8,748,192)
                                                   ------------    ------------    ------------    ------------

Other income (expense):
  Change in fair value of derivative liabilities              -      (3,255,344)     (5,275,067)     (3,187,343)
  Derivative liability expense .................              -               -        (334,030)       (582,887)
  Transfer- unrealized gain- investment held for
    sale to trading security ...................              -               -               -         112,509
  Interest income ..............................            163               -             166               -
  Realized loss- trading securities ............              -               -               -        (111,624)
  Gain from litigation settlements .............        280,000               -         280,000               -
  Foreign currency gain ........................            827               -             827               -
  Interest expense .............................              -      (2,145,467)     (1,422,289)     (2,624,176)
                                                   ------------    ------------    ------------    ------------
     Total other expenses ......................        280,990      (5,400,811)     (6,750,393)     (6,393,521)

Net loss .......................................   $ (4,674,055)   $ (8,012,126)   $(20,800,657)   $(15,141,713)
                                                   ============    ============    ============    ============

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

Comprehensive loss .............................   $ (4,674,055)   $ (8,012,126)   $(20,800,657)   $(15,254,222)
                                                   ============    ============    ============    ============

Basic net loss per common share ................   $      (0.06)   $      (0.20)   $      (0.31)   $      (0.37)
                                                   ============    ============    ============    ============

Diluted net loss per share .....................   $      (0.06)   $      (0.20)   $      (0.31)   $      (0.37)
                                                   ============    ============    ============    ============

Basic weighted average common
  shares outstanding ...........................     73,710,490      39,573,617      66,528,640      41,078,439
                                                   ============    ============    ============    ============

Diluted weighted average common
  shares outstanding ...........................     73,710,490      39,573,617      66,528,640      41,078,439
                                                   ============    ============    ============    ============

                            See Notes to Unaudited Consolidated Financial Statements.

                                                      - 4 -
</TABLE>
<PAGE>
<TABLE>
                                     SPARE BACKUP, INC. AND SUBSIDIARY
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                               For the nine months ended
                                                                                      September 30,
                                                                                  2007            2006
                                                                              ------------    ------------
                                                                               (Unaudited)     (Unaudited)
<S>                                                                           <C>             <C>
Cash flows from operating activities:
Net loss ..................................................................   $(20,800,657)   $(15,141,713)
Adjustments to reconcile net loss to net cash used in operating activities:
  Fair value of derivatives at issuance related to consulting services ....              -       1,066,500
  Derivative liability expense ............................................        334,030         582,887
  Change in fair value of derivative liabilities ..........................      5,275,067       3,187,394
  Fair value of options issued to employees ...............................      3,007,830       1,960,441
  Amortization of debt discount ...........................................      1,404,799       1,823,811
  Amortization of deferred compensation ...................................        142,370       1,655,427
  Amortization of prepaid marketing expense ...............................      1,318,093               -
  Fair value of shares of common stock issued in payment of interest on
    convertible promissory note ...........................................              -          90,265
  Fair value of shares issued in connection with services rendered ........        351,232               -
  Depreciation ............................................................        498,805          49,340
  Amortization of deferred financing costs ................................              -         671,976
Changes in operating assets and liabilities
  Restricted cash .........................................................        872,820      (1,000,000)
  Accounts receivable .....................................................        (53,804)              -
  Prepaid expenses and other current assets ...............................         17,223               -
  Other assets ............................................................              -         (50,000)
  Security deposits .......................................................              -           1,603
  Accounts payable and accrued expenses ...................................      1,612,612         110,217
  Deferred revenues .......................................................              -         (12,684)
  Accrued interest on convertible promissory notes ........................         17,490          11,914
  Other liabilities .......................................................         (6,426)              -
                                                                              ------------    ------------

Net cash used in operating activities .....................................     (6,008,516)     (4,992,622)
                                                                              ------------    ------------

Cash flows from investing activities:
  Purchases of property and equipment .....................................     (1,792,086)       (142,535)
                                                                              ------------    ------------

Net cash used in investing activities .....................................     (1,792,086)       (142,535)
                                                                              ------------    ------------

Cash flows from financing activities:
  Principal repayments on lease obligations ...............................              -          (6,932)
  Principal repayments on convertible promissory notes ....................        (21,480)       (275,000)
  Repurchase of shares of common stock ....................................     (1,150,000)       (633,602)
  Proceeds from issuance of convertible promissory notes ..................      1,325,000               -
  Proceeds from issuance of bridge notes ..................................              -       1,500,000
  Net proceeds from issuance of shares for cash ...........................      4,207,101       5,647,600
  Net proceeds from exercise of warrants ..................................      2,942,455               -
  Cash Overdraft ..........................................................         35,264               -
  Proceeds from exercise of stock options .................................        315,944             115
  Payments of deferred financing costs ....................................              -        (190,000)
  Payments of financing costs .............................................              -        (417,561)
                                                                              ------------    ------------

Net cash provided by financing activities .................................      7,654,284       5,624,620
                                                                              ------------    ------------

Increase (decrease) in cash ...............................................       (146,318)        489,463

Cash, beginning of period .................................................        146,318         165,938
                                                                              ------------    ------------

Cash, end of period .......................................................   $          -    $    655,401
                                                                              ============    ============

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

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

Supplemental schedule of non-cash financing and investing activities:

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

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

Fair value of warrants and embedded conversion features issued in
  connection with the issuance of common stock and corresponding increase
  in derivative liabilities ...............................................   $  1,599,459    $  1,686,308
                                                                              ============    ============

Reclassification of liability contracts to equity .........................   $ 22,147,932    $  1,585,714
                                                                              ============    ============

Conversion of convertible promissory notes in shares of common stock ......   $  1,972,029    $    104,906
                                                                              ============    ============

Fair value of shares of common stock issued for payment of accrued interest   $     39,587    $          -
                                                                              ============    ============

Fair value of shares of common stock issued for prepaid expense ...........   $     60,000    $          -
                                                                              ============    ============

Fair value of shares of common stock issued for payment of accrued expenses   $     36,000    $          -
                                                                              ============    ============

                         See Notes to Unaudited Consolidated Financial Statements.

                                                   - 5 -
</TABLE>
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

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-QSB and Article 10 of
Regulation S-B. Accordingly, they do not include all the information and
disclosures required for annual financial statements. These financial statements
should be read in conjunction with the consolidated financial statements and
related footnotes as of and for the year ended December 31, 2006, included in
the Annual Report filed on Form l0-KSB.

In the opinion of management, all adjustments (consisting of normal recurring
items) necessary to present fairly the Company's financial position as of
September 30, 2007, and the results of operations and cash flows for the nine
months ending September 30, 2007 have been included. The results of operations
for the nine months ended September 30, 2007 are not necessarily indicative of
the results to be expected for the full year. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's Annual Report filed on Form l0-KSB as filed with the Securities and
Exchange Commission for the year ended December 31, 2006.

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.

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 $20.8
million during the nine months ended September 30, 2007. The Company's ability
to continue as a going concern is dependent upon its ability to obtain the
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due, to fund possible future
acquisitions, and to generate profitable operations in the future. Management
plans to continue to provide for its capital requirements by issuing additional
equity securities and debt. The outcome of these matters cannot be predicted at
this time and there are no assurances that if achieved, the Company will have
sufficient funds to execute its business plan or generate positive operating
results.

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

                                      - 6 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

EARNINGS PER SHARE

Basic earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options and warrants (calculated using the reverse treasury
stock method). The outstanding options, warrants and shares equivalent issuable
pursuant to embedded conversion features amounted to 38,321,492 and 36,914,790
at September 30, 2007 and 2006, respectively. The outstanding options, warrants
and shares equivalent issuable pursuant to embedded conversion features and
warrants at September 30, 2007 and 2006 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. During the nine months ended
September 30, 2007, the Company had 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
receivable, accounts payable and accrued expenses and due to stockholder
approximate their estimated fair values due to the short-term maturities of
those financial instruments.

                                      - 7 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATION

Certain amounts in the 2006 consolidated financial statements have been
reclassified to conform to the 2007 presentation. Such reclassifications had no
effect on the reported net loss.

INVESTMENT IN EQUITY SECURITIES AND COMPREHENSIVE LOSS

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

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

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

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

During July 2005, the Company sold 3,242,420 shares of the Investee used as
collateral for the Company's possible obligation to repurchase 2,500,000 shares
it has issued in a private placement during November 2004 ("Put Option"),
generating proceeds of approximately $640,000.

During 2006, the Company repurchased 5,882,352 shares of its common stock and as
consideration, paid to the Investee approximately $630,000, issued 3,000,000
warrants and assigned its investment in the Investee's shares to the Investee.
The aggregate consideration for the repurchase of the Company's shares of common
stock amounted to approximately $1.7 million. At September 30, 2007, investment
in equity securities amounted to $0.

ACCOUNTS RECEIVABLE

The Company has a policy of reserving for uncollectible accounts based on its
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to

                                      - 8 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote. At September 30, 2007, management has
determined that an allowance is not necessary.

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 September 30, 2007 such amount are included in
the statement of operations under the caption "Research and development".

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.

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

                                      - 9 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.

DERIVATIVE LIABILITIES

The Company accounted for its liquidated damages during 2006 and 2005 pursuant
to Emerging Issue Task Force ("EITF ")05-04, View C, "The Effect of a Liquidated
Damages Clause on a Freestanding Financial Instrument Subject to EITF Issue No.
00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock". In December 2006, FASB issued
FASB Staff Position No. EITF 00-19-2 "Accounting for Registration Payment
Arrangements" ("FSP 00-19-2"), which superseded EITF 05-04. FSP 00-19-2 provides
that the contingent obligation to make future payments or otherwise transfer
consideration under a registration payment arrangement, should be separately
recognized and measured in accordance with FASB Statement No.5, "Accounting for
Contingencies". The registration statement payment arrangement should be
recognized and measured as a separate unit of account from the financial
instrument(s) subject to that arrangement. If the transfer of consideration
under a registration payment arrangement is probable and can be reasonably
estimated at inception, such contingent liability is included in the allocation
of proceeds from the related financing instrument. Pursuant to EITF 05-04, View
C, the liquidated damages paid in cash or stock are accounted for as a separate
derivative, which requires a periodical valuation of its fair value and a
corresponding recognition of liabilities associated with such derivative.
FSP00-19-2 did not have an impact on the Company's accounting of the liquidated
damages.

The Company accounts for its embedded conversion features and freestanding
warrants pursuant to SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which requires a periodic valuation of their fair value and
a corresponding recognition of liabilities associated with such derivatives. The
recognition of derivative liabilities related to the issuance of shares of
common stock is applied first to the proceeds of such issuance, at the date of
issuance, and the excess of derivative liabilities over the proceeds is
recognized as other expense in the accompanying consolidated financial
statements. The recognition of derivative liabilities related to the issuance of
convertible debt and associated warrants or other derivatives is applied first
to the proceeds of such issuance as a debt discount, at the date of issuance,
and the excess of derivative liabilities over the proceeds is recognized as
other expense in the accompanying consolidated financial statements. Any
subsequent increase or decrease in the fair value of the derivative liabilities
is recognized as other expense or other income, respectively.

                                     - 10 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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
operations of the period incurred.

REVENUE RECOGNITION, ACCOUNTS RECEIVABLE, AND PROVISION FOR RETURNS

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

The Company markets its software through multiple channel resellers and retail
stores. The Company provides for unlimited rights of return to its customers.
The Company has only recently licensed its products through such multiple
channels and does not have a historical pattern of returns. Additionally, such
customers generally pay software vendors based on their own sell-thru and return
the unsold products to the software vendor.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109." This interpretation provides guidance
for recognizing and measuring uncertain tax positions, as defined in SFAS No.
109, "Accounting for Income Taxes." FIN No. 48 prescribes a threshold condition
that a tax position must meet for any of the benefit of an uncertain tax
position to be recognized in the financial statements. Guidance is also provided
regarding de-recognition, classification, and disclosure of uncertain tax
positions. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company does not expect that this interpretation will have a material
impact on its financial position, results of operations, or cash flows.

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 is currently
evaluating the timing of adoption and the impact that adoption might have on its
financial position or results of operations.

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

                                     - 11 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (continued)

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 is currently assessing the impact, if any,
the adoption of SFAS 159 will have on its 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.

                                     - 12 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 3 - CONVERTIBLE PROMISSORY NOTES

Between April and June 2007, the Company issued 1,109,375 shares of common stock
to satisfy the remaining balance of the 12.5% convertible promissory notes
amounting to approximately $355,000 and paid $20,000 in cash. The balance of the
12.5% convertible promissory notes as of September 30, 2007 is $0.

Between February and March 2007, the Company issued 912,594 shares of common
stock to satisfy the 8% convertible promissory notes amounting to approximately
$292,000. The balance of the 8% convertible promissory notes as of September 30,
2007 is $0.

The Company issued 69,408 shares of common stock in connection with the payment
of interest on the 8% and 12.5% Convertible promissory notes during the nine
months ended September 30, 2007. The fair value of such shares issued during the
nine months ended September 30, 2007 amounted to approximately $40,000.

During the nine months ended September 30, 2007, the Company received $1,325,000
in consideration for the issuance of the bridge promissory notes. The Company
also issued a five-year common stock purchase warrants to purchase 1,394,721
shares of the Company's common stock at $0.475 per share. The bridge promissory
note of $1,325,000 converted into 2,789,473 shares of the Company's common stock
in March 2007. Additionally, during the nine months ended September 30, 2007,
the Company paid financing fees of $25,000 to the placement agent in connection
with the issuance of the Bridge promissory notes which was included in general
and administrative expenses as reflected in the accompanying consolidated
statements of operations.

The Company recognized a debt discount of $1,325,000 in connection with the
issuance of the 8% Bridge promissory notes and 1,394,721 common stock purchase
warrants. The debt discount relates to the recognition of derivative liabilities
associated with the 8% Bridge promissory notes.

Total amortization of debt discounts amounted to approximately $1.4 million and
$1.8 million during the nine months ended September 30, 2007 and 2006,
respectively, and is included in interest expense.

Amortization of the deferred financing costs amounted to approximately $0 and
$672,000 during the nine months ended September 30, 2007 and 2006, respectively,
and is included in interest expense.

                                     - 13 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The Company has recorded a liability related to unpaid payroll taxes from May
2007 to September 2007 for approximately $287,000. This amount has been included
in accounts payable and accrued expenses in the accompanying consolidated
financial statements. The Company has subsequently satisfied these unpaid
payroll taxes.

NOTE 5 - DERIVATIVE LIABILITIES

During March 2004, the Company closed its 8% Convertible Promissory Notes
private placement. In connection with the issuance of the 8% Convertible
Promissory Notes, the Company granted a subsequent financing conversion reset
right which expired on March 1, 2006. Subsequently, the Company issued similar
rights to the holders of its 12.5% Convertible promissory notes. The subsequent
financing conversion reset is considered an embedded conversion feature pursuant
to EITF Issue No. 00-19. Additionally, because there is no explicit number of
shares that are to be delivered upon satisfaction of subsequent financing
conversion reset feature, the Company is unable to assert that it had sufficient
authorized and unissued shares to settle such feature. Accordingly, all of the
Company's previously issued and outstanding instruments, such as warrants and
options issued to non-employees pursuant to rendered services as well as those
issued in the future, would be classified as liabilities, effective with the
granting of the subsequent financing conversion reset feature. During the nine
months ended September 30, 2007, the Company has satisfied all of the 8% and
12.5% Convertible Promissory Notes and accordingly, has reclassified all of
derivative liabilities amounting to $22,147,932 to paid in capital as a result
of the repayment and conversion of the 8% and 12.5% Convertible Promissory Notes
into common stock. At September 30, 2007, derivative liabilities amounted to $0.

Between January and February 2007, the Company allocated $1,659,030 of the fair
value of the derivatives issued in connection with the debt, at their date of
issuance, to debt discount. The excess of the fair value of the derivative
liabilities over the debt discount has been recognized as derivative liability
expense, which amounts to $334,030 during the nine months ended September 30,
2007.

During the nine months ended September 30, 2007, the Company allocated $217,520
of the fair value of the derivatives issued in connection with services
performed by consultants to consulting expenses, $1,599,459 of the fair value of
derivatives from the granting of warrants in connection with private placements
allocated against paid in capital and $2,004,600 of the fair value of
derivatives in connection with the granting of warrants related to a twelve
month retail marketing agreement allocated to prepaid marketing expenses (See
Note 7 - Stock options and warrants).

The variation in fair value of the derivative liabilities between measurement
dates amounted to an increase of approximately $5.3 million and $3.2 million
during the nine months ended September 30, 2007 and 2006, respectively. The
increase/decrease in fair value of the derivative liabilities has been
recognized as other expense/income.

                                     - 14 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 6 - STOCKHOLDERS' EQUITY

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

The Company issued 69,408 shares of common stock in connection with the payment
of interest on the 8% and 12.5% Convertible promissory notes during the nine
months ended September 30, 2007. The fair value of such shares issued during the
nine months ended September 30, 2007 amounted to approximately $40,000.

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

In January 2007, the Company issued 24,194 shares of common stock to a
consultant. The fair value of such shares amounted to approximately $15,000. The
nature of the services rendered in connection with the issuance of these shares
was for leasehold improvements. The Company has recognized leasehold
improvements of $15,000.

On February 28, 2007, the Company issued 50,000 shares of common stock to a
consultant for a 60 day consulting agreement. The fair value of such shares
amounted to approximately $49,000. The nature of the services rendered in
connection with the issuance of these shares was for marketing purposes. The
Company has recognized stock based consulting expense of $50,000 during the nine
months ended September 30, 2007.

In April 2007, the Company issued 51,429 shares of common stock for accrued
legal services. The fair value of such shares amounted to approximately $36,000.
The Company has allocated the fair value against accrued expenses during the
nine months ended September 30, 2007.

In August 2007, the Company issued 92,960 shares of common stock to a Company's
vendor. The fair value of such shares amounted to approximately $70,000. The
nature of the services rendered in connection with the issuance of these shares
was for research and development purposes. The Company has recognized research
and development expense of $70,000 during the nine months ended September 30,
2007.

Between August and September 2007, the Company issued in aggregate 105,322
shares of common stock to the Company's CEO and to various employees of the
Company for services rendered. The fair value of such shares amounted to
approximately $64,000. The Company has recognized stock based compensation
expense of approximately $64,000 during the nine months ended September 30,
2007.

The Company issued 100,000 shares of common stock to a broker-dealer and its
designees in connection with a placement agency agreement entered into on
September 30, 2007. The fair value of such shares amounted to approximately
$60,000. The Company has recognized a prepaid expense of $60,000 to be amortized
over the term of this agreement.

                                     - 15 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

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

During the nine months ended September 30, 2007, in connection with the exercise
of stock warrants, the Company issued 5,992,865 shares of common stock for net
proceeds of $2,942,455. During the nine months ended September 30, 2007, the
Company paid commissions to placement agent of approximately $217,000 in cash
and granted 402,381 warrants valued at $241,429 (using the black scholes model)
which has been allocated against paid in capital.

Between April and May 2007, in connection with a cashless exercise of stock
warrants, the Company issued 73,872 shares of common stock.

During the nine months ended September 30, 2007, in connection with the exercise
of stock options, the Company issued 743,175 shares of common stock to employees
and non employees for net proceeds of $315,944.

ISSUANCE OF COMMON STOCK PURSUANT TO CONVERSION OF CONVERTIBLE PROMISSORY NOTES

Between January and February 2007, the Company received $1,325,000 in
consideration for the issuance of the bridge promissory notes. The Company also
issued five-year common stock purchase warrants to purchase 1,394,721 shares of
the Company's common stock at $0.475 per share. The bridge promissory note of
$1,325,000 converted into 2,789,473 shares of the Company's common stock in
March 2007.

Between February and March 2007, the Company issued 912,594 shares of common
stock to satisfy the 8% convertible promissory notes amounting to approximately
$292,000.

Between April and June 2007, the Company issued 1,109,375 shares of common stock
to satisfy the 12.5% convertible promissory notes amounting to approximately
$355,000.

ISSUANCE OF COMMON STOCK PURSUANT TO PRIVATE PLACEMENTS

During the nine months ended September 30, 2007, the Company issued 7,971,201
shares pursuant to private placements which generated net proceeds of
approximately $4.2 million. Additionally, the Company has allocated $1,332,992
of the fair value of warrants granted in connection with these private
placements which has been initially recorded as derivative liabilities and
allocated against paid in capital. During the nine months ended September 30,
2007, in connection with these private placements, the Company paid commissions
to its placement agents of approximately $42,000 in cash, issued 50,000 shares
of common stock valued at $43,000 and granted 151,059 warrants valued at
approximately $96,000 which have been allocated against paid in capital.

                                     - 16 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)

REPURCHASE AND CANCELLATION OF COMMON STOCK

In March 2007, the holders of a put have exercised their options to have the
Company repurchase 1,617,228 shares of its common stock. The Company paid
$1,250,000 (less $100,000 previously paid) to the holders of the put and the
holders will retain the remaining 1,285,892 shares. The Company cancelled the
remaining 331,336 shares of the put to satisfy its obligations under this
arrangement.

NOTE 7 - STOCK OPTIONS AND WARRANTS

WARRANTS

Between January and February 2007, the Company received $1,325,000 in
consideration for the issuance of the bridge promissory notes. The Company also
issued a five-year common stock purchase warrant to purchase 1,394,721 shares of
the Company's common stock at $0.475 per share (See Note 3 - Convertible
Promissory Notes).

On January 24, 2007, the Company granted a five-year warrant to purchase 100,000
shares of common stock to a consultant at an exercise price of $0.475 per share
for marketing strategy and business development services rendered. The Company
valued these warrants utilizing the Black-Scholes options pricing model at
approximately $0.675 or $67,520 and recorded stock-based consulting expense of
$67,520 for the nine months ended September 30, 2007. The fair value of such
warrants was initially recorded as derivative liabilities.

On March 19, 2007, in connection with a 12-month retailer marketing agreement
entered into on February 2, 2007, the Company granted a three-year warrant to
purchase 2,000,000 shares of common stock to an electronic retailing group in
Europe at an exercise price of $1.25 per share. The Company valued these
warrants utilizing the Black-Scholes options pricing model at approximately
$1.00 or $2,004,600 which will be amortized over the 12 month retail marketing
agreement. The fair value of such warrants was initially recorded as derivative
liabilities. For the nine months ended September 30, 2007, the Company recorded
marketing expense of $1,318,093. At September 30, 2007, the balance of prepaid
marketing expense amounted to $686,507.

During the nine months ended September 30, 2007, the Company paid commissions to
a placement agent for proceeds received from the exercise of certain stock
warrants of approximately $217,000 in cash and granted 402,381 warrants valued
at $241,429 (using the black scholes model) which has been allocated against
paid in capital. These warrants are exercisable at $.45 per share and expire in
May 2012. The fair value of such warrants was initially recorded as derivative
liabilities.

                                     - 17 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 7 - STOCK OPTIONS AND WARRANTS (CONTINUED)

During the nine months ended September 30, 2007, the Company granted a five-year
warrant to purchase 3,985,615 shares of common stock in connection with private
placements. The Company has allocated $1,332,992 of the fair value of warrants
granted which was initially recorded as derivative liabilities and allocated
against paid in capital. These warrants are exercisable at $1.00 per share.
Additionally, the Company issued 50,000 shares of common stock valued at $43,000
and granted 151,059 warrants valued at approximately $96,000 (using the black
scholes model) as commissions to placement agents which has been allocated
against paid in capital. These warrants are exercisable ranging from $0.55 to
$1.00 per share and expire 5 years from the date of issuance. The fair value of
such warrants was initially recorded as derivative liabilities.

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.

During the nine months ended September 30, 2007, in connection with the exercise
of stock options, the Company issued 743,175 shares of common stock to employees
and non employees for net proceeds of $315,944.

On April 5, 2007, the Company granted 200,000 five-year stock options to
purchase common stock for services performed at an exercise price of $.93 per
share. The Company valued these options utilizing the Black-Scholes options
pricing model at approximately $0.75 or $150,000. In connection with these
options, the Company recorded professional fees of $150,000 for professional
services performed.

During the nine months ended September 30, 2007, the Company granted 4,927,500
five-year stock options to purchase common stock to employees at exercise prices
ranging from $.44 to $.97 per share. For the nine months ended September 30,
2007 and 2006, total stock-based compensation charged to operations for
option-based arrangements amounted to $3,007,830 and $1,960,441, respectively.
At September 30, 2007, there was approximately $1,503,581 or total unrecognized
compensation expense related to non-vested option-based compensation
arrangements under the Plan.

                                     - 18 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

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:

                                                  September 30,
                                           --------------------------
                                               2007           2006
                                           -----------    -----------
         Expected volatility .........       73%-94%        0%-225%
         Expected term ...............       5 years        5 years
         Risk-free interest rate .....     4.18%-5.05%     2.78%-5.1%
         Expected dividend yield .....          0%            0%

NOTE 8 - COMMITMENTS AND CONTINGENCIES

LITIGATION

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

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

The Company is a party to litigation in Riverside County Superior Court, Case
No. INC 057586, which was filed on March 22, 2006 by a former employee who
alleges that she suffered harassment and infliction of emotional distress during
her brief employment from July to October 2005, and that the Company breached a
purported employment contract with her upon her resignation. The Company denies
the former at-will employee's claims. On November 15, 2006, the Court entered an
order sustaining in part and overruling in part our demurrer to that complaint,
and an amended complaint was filed December 8, 2006, against which we filed a
second demurrer. No trial date has been set. In August 2007, the Company,
through a formal mediation, settled for $10,000. The Company was released from
further action and has been dismissed from this litigation. The amount was
included as a loss/gain from litigation settlement in the accompanying
consolidated statements of operations.

In September 2007, the Company executed a settlement agreement with an unrelated
party who claims that an obligation of Grassroots, the Company's subsidiary, has
not been satisfied. The Company settled for $20,000 and was released from
further claim. The amount was included as a loss/gain from litigation settlement
in the accompanying consolidated statements of operations.

                                     - 19 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company is a party to a litigation pending in the Superior Court of the
State of California in and for the County of Los Angeles, No. BC 354880, styled
Newport International Group, Inc., Plaintiff, vs. Mads Ulrich, Fidelity Capital,
Inc., E-Holdings, Inc. and Does 1 through 100, Defendants. This lawsuit, which
the Company filed on July 5, 2006, arose out of the transaction with Langley
Park Investment Trust, PLC. The Company is alleging damages under California
Corporate Code ss.25501.5, common law fraud, violations of Rule 10b-5 of the
Securities Exchange Act of 1934, breach of fiduciary duty, negligence, breach of
contract, breach of covenant of good faith and fair dealing and unjust
enrichment. In September 2007, the Company was successful with the claim and
settled the litigation for payment of $310,000 and was included as a gain from
litigation settlement in the accompanying consolidated statements of operations.

NOTE 9 - SUBSEQUENT EVENTS

In October 2007, in connection with the exercise of stock warrants, the Company
issued 342,102 shares of common stock for net proceeds of approximately
$162,000.

Between October 31, 2007 and November 5, 2007, the Company issued convertible
promissory notes aggregating to $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. The notes
payable bear 8% interest per annum and mature on October 31, 2008. 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 following the closing of
the 8% Convertible Promissory Notes, then the exercise price of the warrants
issued pursuant to the Follow-on 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 debentures.

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 Debentures and Warrants.

On October 8, 2007, the Company received a written notice of default for failure
to make the required monthly payment and for the early termination of the
Aircraft lease agreement. Based on the terms of the agreement, the Company is in
default on October 18, 2007; however, the Company plans to defend any and all
claims as the Company returned the plane due to mechanical failure on numerous
times.

                                     - 20 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2007

NOTE 9 - SUBSEQUENT EVENTS (CONTINUED)

On November 14, 2007, the Company issued convertible promissory notes amounting
to $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. The notes payable bear 8% interest per
annum and mature in November 2008. 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 following the closing of the 8% Convertible Promissory Notes,
then the exercise price of the warrants issued pursuant to the Follow-on
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 debentures.

                                     - 21 -
<PAGE>

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

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 2005and we are
currently offering version 4.0 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.

         During the nine months ended September 30, 2007 we spent significant
resources, both financial and management time, towards the implement our
distribution model and broaden our partnership relationships the accomplishment
of these goals. These costs included approximately $3,498,000 for sales and
marketing, advertising and business development expenses which included
approximately $800,000 to test various marketing programs in the U.K., including
collateral materials, as well as approximately $953,000 of travel and travel
related expenses, and approximately $1,272,000 of costs associated with
technology service which includes engineering development, software and hardware
related to the ongoing provision of our services. These costs were consistent
with our business model. During this period we also spent approximately
$1,200,000 on research and development. The research and development and
technology service expenses were related to the user interface for our products
as well as the development of Workgroup for Hewlett Packard and the media vault
family of products.

         Our efforts to date during fiscal 2007 have been focused in Europe and
our OEM partner DSG International Plc. During the period we undertook a number
of marketing trials with our DSG International Plc. During the nine months ended
September 30, 2007 we have spent approximately $702,000 on these marketing
trials, together with other marketing and training expenses directly related to

                                     - 22 -
<PAGE>

the DSG International Plc relationship. We continue to incur expenses related to
marketing and training for DSG International Plc, however, the complete roll out
of the product has been delayed more than two months which has adversely
impacted our ability to generate higher revenues from this relationship during
the third quarter of fiscal 2007. We presently anticipate the roll out will be
complete in November 2007 to the UK stores. We presently have in excess of
approximately 25,000 subscribers in our opt-out model and approximately 7,000
paid subscribers. We believe that our conversion rate to fully paid subscribers
continues to increase and the retention rates of those subscribers are high.

         During the nine months ended September 30, 2007 we also continued to
devote resources to our relationship with Hewlett-Packard. In June 2007 we
announced our Spare Backup Workgroup software would be included in a number of
HP products designed for small and medium businesses (SMBs) and we previously
disclosed that in the fourth quarter of fiscal 2007 purchasers of HP computers
sold online will be offered Spare Switch. Following HP's internal reallocation
of resources, we are unsure as to when these programs will be rolled out.

         In May 2007 we entered into a Software License and Distribution
Agreement with Gateway Companies, Inc. We have completed the custom software
design for Gateway and began the roll out this program during the third quarter
of fiscal 2007. There are currently in excess of 200,000 users and we are
presently making technical corrections related to our ability to message them
with our services. Once these technical corrections are complete we anticipate
that we will begin generating revenues from this source.

         We are also continuing our efforts to add additional OEM partners such
as Packard Bell, HP and Gateway and we are also focusing our efforts on large
channel distribution outlets such as DSG International and Circuit City in the
retail space and MSO (multi-system operators) as we believe it allows us the
greatest chance of significantly increasing our subscriber base while ultimately
reducing our customer acquisition costs.

         To date, during fiscal 2007 we have raised approximately $11,928,000 in
working capital through the issuance of notes, the sale of common stock and the
exercise of warrants and options, which includes approximately $3,137,500
received after September 30, 2007. While our revenues continue to increase, our
operating expenses have grown at a significantly higher rate. As set forth
elsewhere herein, we will need to raise additional working capital during the
balance of fiscal 2007 and into fiscal 2008 to pay the costs associated with our
sales and marketing efforts, expanding our customer base and for our general
operating expenses. We have engaged a broker-dealer to assist us in raising the
necessary capital. 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.

GOING CONCERN

         We have generated minimal revenue since our inception on September 12,
2002, and have incurred net losses of approximately $68.4 million since
inception through September 30, 2007, which includes non-cash losses which are
principally related to stock compensation expense, including approximately
$1,300,000 related to the value of warrants issued to DSG International Plc, and
expenses associated with derivative liabilities in prior periods. As a result,
our current operations are not an adequate source of cash to fund future

                                     - 23 -
<PAGE>

operations. The report of our independent registered public accounting firm on
our financial statements for the year ended December 31, 2006 contains an
explanatory paragraph regarding our ability to continue as a going concern based
upon our net losses and cash used in operations. Our ability to continue as a
going concern is dependent upon our ability to obtain the necessary financing to
meet our obligations and repay our liabilities when they become due and to
generate profitable operations in the future. We plan to continue to provide for
our capital requirements through the sale of equity securities and debt,
however, we have no firm commitments from any third party to provide this
financing and we cannot assure you we will be successful in raising working
capital as needed. There are no assurances that we will have sufficient funds to
execute our business plan, pay our 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 in our Form 10-KSB for
the year ended December 31, 2006. 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 Payment," 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.

RECENT ACCOUNTING PRONOUNCEMENTS

         In July 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109." This interpretation provides guidance
for recognizing and measuring uncertain tax positions, as defined in SFAS No.
109, "Accounting for Income Taxes." FIN No. 48 prescribes a threshold condition
that a tax position must meet for any of the benefit of an uncertain tax
position to be recognized in the financial statements. Guidance is also provided
regarding de-recognition, classification, and disclosure of uncertain tax
positions. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company does not expect that this interpretation will have a material
impact on its financial position, results of operations, or cash flows.

                                     - 24 -
<PAGE>

         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 is currently evaluating the timing of adoption and the impact that
adoption might have on its financial position or results of operations.

         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 is currently assessing the impact, if any,
the adoption of SFAS 159 will have on its 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.

                                     - 25 -
<PAGE>

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 2007 (UNAUDITED) AS COMPARED TO THE NINE MONTHS
ENDED SEPTEMBER 30, 2006 (UNAUDITED)

         Following a comparative information on certain selected income
statement items.
<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED
                                                         SEPTEMBER 30,
                                                 ----------------------------
                                                     2007            2006        $ OF CHANGE    % OF CHANGE
                                                 ------------    ------------    -----------    -----------
<S>                                              <C>             <C>             <C>             <C>
Revenues .....................................   $    115,373    $     47,558         67,815       +143%

Operating expenses:
Research and development .....................      1,225,808         567,268        658,540       +116%
Sales, general and administrative ............     12,939,829       8,228,482      4,711,347        +57%
                                                 ------------    ------------
         Total operating expenses ............     14,165,637       8,795,750      5,369,887        +61%

Operating loss ...............................    (14,050,264)     (8,748,192)     5,302,072        +61%

Other income (expense):
Change in fair value of derivative liabilities     (5,275,067)      3,187,343     (2,087,724)         NM
Derivative liability expense .................       (334,030)       (582,887)       248,857          NM
Interest income ..............................            166               -            166          NM
Transfer - unrealized gain - investment held
   for sale ..................................              -         112,509       (112,509)         NM
Realized loss- trading securities ............              -        (111,624)       111,624          NM

Gain from litigation settlement ..............        280,000               -        280,000          NM
Foreign currency gain ........................            827               -            827          NM
Interest expense .............................     (1,422,289)     (2,624,176)     1,201,887        +46%
                                                 ------------    ------------
         Total other expenses ................     (6,750,393)     (6,393,521)       356,872          NM

Net loss .....................................   $(20,800,657)   $(15,141,713)     5,658,944        +37%
Comprehensive loss ...........................   $(20,800,657)   $(15,254,222)     5,546,435        +36%

Basic and diluted loss per common share ......   $      (0.31)   $      (0.37)          0.06          NM
Basic and diluted weighted average common
   shares outstanding ........................     66,528,640      41,078,439     25,450,201          NM

NM = not meaningful
</TABLE>

REVENUES

         The increase in revenues of approximately $67,815 for the nine months
ended September 30, 2007 as compared to the same period in fiscal 2006 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 third quarter of fiscal 2007 to over 25,000 subscribers from approximately
11,000 subscribers during the second quarter of fiscal 2007, or a 140% increase
We expect the number of subscribers to dramatically increase by the end of
fiscal 2007.

                                     - 26 -
<PAGE>

OPERATING EXPENSES

         Our total operating expenses for the nine months ended September 30,
2007 increased $5,369,887, or approximately 61%, from the nine months ended
September 30, 2006. 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
$1,225,808 on research and development expenses for the nine months ended
September 30, 2007 as compared to $567,268 for the nine months ended September
30, 2006. Research and development expenses represented approximately 9% of our
total operating expenses for the nine months ended September 30, 2007 as
compared to approximately 6% for same period in 2006. Our research and
development expenses for the nine months ended September 30, 2007 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. During the nine months ended September 30, 2007 we hired three
additional software engineers and a product manager and, subject to the
availability of additional capital, will need to hire three additional engineers
before the end of fiscal 2007. 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.

Sales, General, and Administrative Expenses

         For the nine months ended September 30, 2007, our selling, general and
administrative expenses were $12,939,829 as compared to $8,228,482 for the same
period in fiscal 2006, an increase of $4,711,347, or approximately 57%. Sales,
general and administrative expenses represented approximately 91% and
approximately 94% of our total operating expenses for the nine months ended
September 30, 2007 and 2006, respectively. Included in our sales, general and
administrative expenses for the nine months ended September 30, 2007 were:

         o approximately $3,498,000 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 associated with the granting of a warrant to
DSG International, Plc. While a significant portion of these expenses in the
nine months ended September 30, 2007 were one-time expenses, we anticipate that
we will continue to incur similar sales and marketing, advertising and business
development expenses during the balance of fiscal 2007 and beyond,

         o approximately $2,489,000 of employee related costs which includes
salaries and employee costs, recruiting expenses and 401k contributions. We
anticipate that we will be required to hire additional software engineers and
other staff to support our projected growth. Our offices are in a geographic
location which is tech heavy and we face competition in hiring qualified
employees and consultants. 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,

                                     - 27 -
<PAGE>

         o approximately $1,272,000 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 balance of fiscal 2007,

         o approximately $1,908,000 of general overhead expense, including rent,
insurance, legal and accounting fees and other general operating expenses, and

         o approximately $3,717,000 of non-cash expense including option expense
associated with options granted to our executive officers and other employees
($3,007,830), depreciation ($498,805) and stock based consulting fees
$(209,890).

         We anticipate that our general and administrative expenses will
continue to increase in the balance of the fiscal 2007 periods as we continue to
expand our partner base and our operations. We are unable at this time, however,
to quantify the amount of such increases.

TOTAL OTHER EXPENSES

         Our total other expenses, net for the nine months ended September 30,
2007 increased $356,872, or approximately 6%, from the same period in fiscal
2006. This increase 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 $5.3 million and $3.2
million for the nine months ended September 30, 2007 and 2006, respectively, has
been recognized as other expense/income in those periods. In addition, during
the nine months ended September 30, 2007, we have satisfied all of the 8%
convertible promissory notes and 12.5% convertible subordinated promissory
debentures and accordingly, has reclassified all of derivative liabilities
amounting to $22,147,932 to paid in capital as a result of the repayment and
conversion of the 8% convertible promissory notes and 12.5% convertible
subordinated promissory debentures into common stock. At September 30, 2007,
derivative liabilities amounted to $0.

         While at September 30, 2007 we no longer had any derivative
liabilities, as a result of the financings described later in this report we
anticipate that we will recognize other income or expense in future periods
based upon the fluctuation of the market price of our common stock. This
non-cash income or expense has materially impacted our results of operations in
prior periods and is reasonably anticipated to materially affect our net loss or
net income in future periods. We are, however, unable to estimate the amount of
such income/expense in future periods as the income/expense is partly based on
the market price of our common stock at the end of a future measurement date.
Investors are cautioned to consider the impact of this non-cash accounting
treatment on our financial statements.

                                     - 28 -
<PAGE>

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 increase in interest expense during the nine
months ended September 30, 2007 when compared to the nine months ended September
30, 2006 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 nine months ended September 30, 2007. These notes
were subsequently converted into equity during March 2007 pursuant to their
terms.

Comprehensive Loss

         For the nine months ended September 30, 2006 we recognized a loss of
$112,509 on the transfer of unrealized gain - investment held for sale to
trading security. The item of expense was a one-time event and we do not expect
to report similar expense in future periods. This one-time, non-cash item,
however, increased our net loss by $112,509 for the nine months ended September
30, 2006.

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 September 30, 2007 (unaudited) and December 31, 2006:
<TABLE>
<CAPTION>
                                                              SEPTEMBER       DECEMBER
                                                              30, 2007        31, 2006      $ OF CHANGE    % OF CHANGE
                                                            ------------    ------------    -----------    -----------
<S>                                                         <C>             <C>             <C>            <C>
Working capital (deficit) ...............................   $ (1,621,584)   $(11,852,100)    10,230,516          NM
Cash ....................................................   $          0    $    146,318       (146,318)      -100%
Restricted cash .........................................   $          0    $    872,820       (872,820)      -100%
Accounts receivable .....................................   $     53,804    $          0         53,804          NM
Prepaid marketing expenses ..............................   $    686,507    $          0        686,507       +100%
Prepaid expenses ........................................   $     60,000    $          0         60,000       +100%
Other current assets ....................................   $     58,157    $          0         58,157       +100%
Total current assets ....................................   $    858,468    $  1,019,138       (160,670)       -16%
Property and equipment, net .............................   $  1,797,099    $    488,818      1,308,281       +268%
Other assets ............................................   $          0    $     75,380        (75,380)      -100%
Total assets ............................................   $  2,655,567    $  1,583,336      1,072,231        +68%

Accounts payable and accrued expenses ...................   $  2,429,788    $    853,176      1,576,612       +185%
8% convertible promissory notes .........................   $          0    $    293,509       (293,509)      -100%
12.5% convertible subordinated promissory debentures, net   $          0    $    295,201       (295,201)      -100%
Accrued interest on convertible promissory notes ........   $          0    $     22,097        (22,097)      -100%
Overdraft liability .....................................   $     35,264    $          0         35,264       +100%
Derivative liabilities ..................................   $          0    $ 11,392,255    (11,392,255)      -100%
Due to stockholder ......................................   $     15,000    $     15,000              0         n/a
Total current liabilities ...............................   $  2,480,052    $ 12,871,238    (10,391,186)         NM
Total liabilities .......................................   $  2,480,052    $ 12,877,664    (10,397,612)         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 2006 contains an explanatory
paragraph regarding our ability to continue as going concern. At September 30,
2007, we had cash on hand of $0.

                                     - 29 -
<PAGE>

         At September 30, 2007, we had a working capital deficiency of
approximately $1,622,000 which reflects current assets of $858,468 less current
liabilities of $2,480,052. Our current assets decreased by $160,670 from
December 31, 2006 to September 30, 2007. Included in these changes is an
increase of:

         o $686,507 in prepaid marketing expenses which represents the value of
the warrant we issued to DSG International Plc which is being amortized for the
remaining period of the agreement,

         o $60,000 in prepaid expenses related to a placement agency agreement

         o $1,576,612 in accounts payable and accrued expenses. Include in this
amount was approximately $1,600,000 of servers and other computer equipment for
the co-location of a data center in New Jersey which will handle all European
traffic that we purchased during the first quarter of fiscal 2007. This purchase
served also increase our property and equipment assets. Additionally, included
in this amount was approximately $287,000 of unpaid payroll tax liabilities at
September 30, 2007. We have subsequently satisfied these liabilities in full.

         These increases were offset by decreases of:

         o $146,318 in cash which we used for general working capital,

         o $872,820 in restricted cash. Under the terms of an agreement with
Circuit City, in fiscal 2006 we deposited $1,000,000 in an escrow account to
secure the obligations associated with compensation to Circuit City under this
agreement. Circuit City will be entitled to earn a maximum fee of $20 for each
customer which includes the amount of the 60 day trial paid directly to Circuit
City either from a customer for an in-store purchase or collected by us for
purchases made through the co-branded website and an amount for every Circuit
City customer who purchases as Spare Backup service after the initial 60 day
trial period. These amounts will be disbursed to Circuit City from the escrowed
funds until the funds are depleted; thereafter, we are required to pay Circuit
City within 15 days of the end of the month in which the fee was earned. Through
December 31, 2006 approximately $127,000 was disbursed to Circuit City under the
terms of the agreement. In February 2007 we amended the terms of the escrow to
reduce the amount covered by the account. Pursuant to the amendment, an
additional $72,680 of the escrowed funds was disbursed to Circuit City as
marketing expenses and approximately $800,000 of the escrowed funds were
returned to us. We used those monies for general working capital. At September
30, 2007, $0 remained on deposit in the escrow account,

         o $610,807 in amounts due under 8% convertible promissory notes, 12.5%
convertible subordinated promissory debentures, net of debt discount of $79,799,
and accrued interest on these notes. During the nine months ended September 30,
2007 the holders of these notes converted the notes and $39,587 of accrued
interest into an aggregate of 69,408 shares of our common stock pursuant to the
terms of the instruments, and

         o $11,392,255 in derivative liabilities. As described earlier in this
section, as a result of the satisfaction of the 8% convertible promissory notes
and 12.5% convertible subordinated promissory debentures, this non-cash
liability was reclassified to paid in capital.

                                     - 30 -
<PAGE>

         During the nine months ended September 30, 2007, our cash decreased
$146,318. This decrease consisted of $7,654,284 in cash provided by financing
activities which was offset by $6,008,516 of cash used in operating activities,
which is net of a reduction of $800,000 in restricted cash held in escrow under
the terms of our Circuit City agreement which was released back to us as
described later in this report, and $1,792,086 of cash used in investing
activities.

         Net cash used in operating activities for the nine months ended
September 30, 2007 increased $1,015,894 from the same period in 2006. Included
in this change is an increase in our net loss for the period to $20,800,657, as
compared to a net loss of $15,141,713 for the nine months ended September 30,
2006, and is primarily attributable to the effect of increased expenses for the
nine months ended September 30, 2007 related to non-cash transactions including
the losses associated with derivative liabilities, amortization of debt
discounts, prepaid marketing expense, deferred compensation, depreciation and
the value of stock options issued as compensation. In addition, during the nine
months ended September 30, 2007, changes in above, together with a decrease in
other current assets of $17,223, increases in accounts payable and accrued
expenses of $1,612,612 related to our purchase of equipment as described
elsewhere herein and unpaid payroll tax liabilities from May 2007 to September
2007 amounting to approximately $287,000.

         Net cash used in investing activities was $1,792,086 for the nine
months ended September 30, 2007 as compared to net cash used in investing
activities of $142,535 for the comparable period in 2006. This change is
attributable to the purchase of servers and other computer equipment for the New
Jersey data center as described above. We did not have any comparable purchases
during the nine months ended September 30, 2006.

         Net cash provided by financing activities increased by $2,029,664 for
the nine months ended September 30, 2007 as compared to the same period in 2006.
During the nine months ended September 30, 2007, we received proceeds of
$4,207,101 from the issuance of our common stock, $3,258,399 from the exercise
of stock warrants and options, and $1,325,000 proceeds from issuance of
convertible promissory notes which offset by the $1,250,000 (less $100,000
previously paid) repurchase of shares of our common stock associated with the
exercise of a put right by Robinson Reed, Inc. and $21,480 principal repayments
on the 12.5% subordinated convertible promissory debentures and 8% convertible
promissory notes. During the nine months ended September 30, 2006, we received
$5,647,600 from the issuance of our common stock and $1,500,000 from issuance of
bridge notes which was offset by the payment of financing costs and principal
repayments of lease obligations in the aggregate amount of $614,493.
Additionally, we made principal repayments on a convertible promissory note
amounting to $275,000 and repurchase of 5,882,352 shares of our common stock
from Langley Park Investment Trust PLC for $633,602.

         We have generated minimal revenues since inception and our current
revenues are not an adequate source of cash to fund our operating expenses. Our
sales, general and administrative expenses for the nine months ended September
30, 2007 increased approximately $4,700,000, or approximately 57%, from the
comparable period in fiscal 2006 and our accounts payable and accrued expenses
have increased approximately 185% at September 30, 2007 from December 31, 2006.
A material amount of these payables are aged. In addition, included in that
amount at September 30, 2007 was approximately $287,000 of unpaid payroll taxes.
These liabilities have subsequently been satisfied in full. Historically we

                                     - 31 -
<PAGE>

have relied on private placement issuances of equity and debt financing
instruments to provide capital for our company. Between October 2007 and
November 2007 we raised approximately $2,975,000 in gross proceeds through the
issuance of one year convertible debentures. We are using the proceeds from this
offering for general working capital, including the reduction of payables. We
anticipate that these funds will satisfy our current needs for approximately
four to six months. Thereafter, in order to our operations, pay our obligations
as they become due and grow our business we will need to raise additional
working capital. The actual amount our future capital requirements depends
primarily on the rate at which we increase our 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 revenues, we are unable at this time to predict when
our revenues will be sufficient to fund our operating expenses. We do not have
any external sources for working capital and we do not have any commitments by
any third party to provide capital to us. We recently engaged a broker-dealer to
assist us in raising additional capital and we are also in early stage
discussions with certain of our strategic partners concerning possible equity
investments in our company. There can be no 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, 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.  CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of September 30, 2007, the end of the period covered by this report, our
management concluded its evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. Disclosure controls and
procedures are controls and procedures designed to reasonably assure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this report, is recorded, processed, summarized
and reported within the time periods prescribed by SEC rules and regulations,
and to reasonably assure that such information is accumulated and communicated
to our management, including our Chief Executive Officer who also acts as our
principal financial and principal accounting officer, to allow timely decisions
regarding required disclosure.

         Our management does not expect that our disclosure controls and
procedures will prevent all error and all fraud. A control system, no matter how
well designed and operated, can provide only reasonable, not absolute, assurance
that the control system's objectives will be met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur
because of simple error or mistake. The design of any system of controls 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.

                                     - 32 -
<PAGE>

         As of the evaluation date, our Chief Executive Officer who also serves
as our principal financial and accounting officer, concluded that we do not
maintain disclosure controls and procedures that are effective in providing
reasonable assurance that information required to be disclosed in our reports
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods prescribed by SEC rules and regulations, and
that such information is accumulated and communicated to our management to allow
timely decisions regarding required disclosure. Our CEO is not a financial or
accounting professional, and we do not have any other employees, including a
chief financial officer, comptroller or similarly titled senior financial
officer, or any accounting staff who are sufficiently trained in the application
of generally accepted accounting principles. As a result of our limited
financial resources, we do not anticipate that we will be in a position to
engage such properly trained professional accounting personnel or a senior
financial officer in the foreseeable future. Until we are able to engage a
qualified financial officer, and/or properly trained accounting staff, we may
continue to experience material weaknesses in our disclosure controls that may
result in errors in our financial statements in future periods.

         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 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         Between July 2007 and August 2007 we sold 3,469,271 shares of our
common stock and issued warrants to purchase an additional 1,734,651 shares to
11 accredited investors in a private offering exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act and Rule 506 of Regulation D. We received gross proceeds of $1,908,100
from this offering. We did not pay any commissions or finder's fees in this
offering. We used the net proceeds from this offering for working capital.

         In August 2007 we issued 92,960 shares valued at $70,000 to an entity
as compensation for research and development services rendered to us. The
recipient was an accredited or otherwise sophisticated investor who had such
knowledge and experience in business matters that it was capable of evaluating
the merits and risks of the prospective investment in our securities. The
recipient had access to business and financial information concerning our
company. The securities were issued in reliance on an exemption from
registration provided by Section 4(2) of the Securities Act of 1933.

         Between August 2007 and September 2007 we issued an aggregate of
105,322 shares of our common stock valued at $64,000 to our Chief Executive
Officer and four employees of our company as compensation for their services.
Our Chief Executive Officer is an accredited investor and the other recipients
were accredited or otherwise sophisticated 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. The
securities were issued in reliance on an exemption from registration provided by
Section 4(2) of the Securities Act of 1933.

                                     - 33 -
<PAGE>

         Between October 2007 and November 2007 we issued 8% convertible
debentures aggregating $475,000 and issued three year common stock purchase
warrants to purchase an additional 950,000 shares at an exercise price of $0.75
per share to eight accredited investors in a private offering exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act. The debentures, which are due October 31,
2008, are convertible at the option of the holder at a conversion price of $0.50
per share, which is subject to adjustment if we issue any shares of our common
stock at a price of less than $0.50 per share. These debentures include a
mandatory conversion feature whereby we can cause the conversion of the
debentures upon written notice providing that (i) we has received gross proceeds
of $4,000,000 ore more from one or more completed financing transactions, and
(ii) a registration statement covering the shares of common stock underlying the
debentures and common stock purchase warrants issued in the transaction is
effective. We used the net proceeds from this offering for working capital.

         In November 2007 we issued and sold a one year $2,500,000 principal
amount 8% convertible subordinated promissory debenture to an accredited
investor in a private transaction exempt from registration under the Securities
Act of 1933 in reliance on an exemption provided by Section 4(2) of that act.
The debenture is convertible at the option of the holder into shares of our
common stock at a conversion price of $0.50 per share, subject to adjustment as
hereinafter set forth. In conjunction therewith, we issued the purchaser a three
year common stock purchase warrant to purchase 5,000,000 shares of our common
stock at an exercise price of $0.50 per share, subject to adjustment as
hereinafter set forth. We granted the purchaser registration rights for the
shares of common stock underlying the debenture and the warrant. The conversion
price of the debenture and the exercise price of the warrant is subject to
proportional adjustment for stock splits, recapitalizations and similar
corporate events. In addition, if we issue any shares of common stock at a price
of less than $0.50 per share (or lesser price resulting from any subsequent
reset price below $0.50), prior to the filing of a registration statement with
the Securities and Exchange Commission registering the shares of common stock
issuable upon the conversion of the debenture or the exercise of the warrant,
the exercise and/or conversion prices will be reset to such lower price. We used
the net proceeds from this offering for working capital.

ITEM 3.  DEFAULTS ON SENIOR SECURITIES

         None.

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

         None.

ITEM 5.  OTHER INFORMATION

         None.

ITEM 6.  EXHIBITS

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

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

                                     - 34 -
<PAGE>

                                    SIGNATURE

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

SPARE BACK UP, INC.


By: /s/ Cery B. Perle                                          November 19, 2007
    -----------------                                          -----------------
    Cery B. Perle                                              Date
    President, Chief Executive Officer & Director
    (Principal executive officer and
    principal financial and accounting officer)

                                     - 35 -