SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549


____________________________________________________





FORM
10-KSB





þ
              ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIESANDEXCHANGE ACT OF
      1934




For
the Fiscal Year Ended July 31, 2008


OR





o
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIESANDEXCHANGE ACT OF
      1934




for
the transaction period from  to


Commission
File Number 0-02555







(Name of
Small Business Issuer in its charter)





Nevada
                88-0456274(State
      or other jurisdiction of incorporation)
                (I.R.S.
      Employer Identification No.)2121
      Sage Road, Suite 200, Houston, Texas
                77056(Address
      of principal executive offices)
                (Zip
      code)





Securities
registered under Section 12(g) of the Exchange Act:


Common
Stock


(Title of
class)





(Title of
class)


Check
whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act.o


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  þ    
No  o


Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.o


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


State
issuer’s revenues for its most recent fiscal year. $0.


State the
aggregate market value of the voting stock held by non-affiliates computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such stock, as of a specified date within the past 60 days. The
aggregate market value of the common stock held by non-affiliates of the
registrant was $20,929,094.56, based on the closing price on the OTCBB market on
November 10, 2008.





As of
November 10, 2008, 401,878,548 shares of the registrant's common stock were
outstanding.












EXOBOXTECHNOLOGIES CORP.


INDEX TO
FORM 10-KSB





PAGEPART I.
                    
                    
                    3ITEM
      1.
                    
                    DESCRIPTION OF
      BUSINESS
                    3ITEM
      2.
                    
                    DESCRIPTION OF
      PROPERTY
                    12ITEM
      3.
                    
                    LEGAL
      PROCEEDINGS
                    12ITEM
      4.
                    
                    SUBMISSION OF MATTERS TO A VOTE OF
      THE SECURITY HOLDERS
                    12PART II
                    
                    
                    13ITEM
      5.
                    
                    MARKET FOR COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
      SECURITIES
                    13ITEM
      6.
                    
                    MANAGEMENT'S DISCUSSION AND ANALYSIS
      OR PLAN OF OPERATION
                    15ITEM
      7.
                    
                    FINANCIAL STATEMENTS AND RELATED
      FOOTNOTES
                    18ITEM
      8.
                    
                    CHANGES IN AND DISAGREEMENTS WITH
      ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
    DISCLOSURE
                    30ITEM
      8A.
                    
                    CONTROLS AND
      PROCEDURES
                    30ITEM
      8B.
                    
                    OTHER
      INFORMATION
                    31PART III.
                    
                    
                    32ITEM
      9.
                    
                    DIRECTORS, EXECUTIVE OFFICERS,
      PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
      EXCHANGE ACT
                    32ITEM
      10.
                    
                    EXECUTIVE
      COMPENSATION
                    34ITEM
      11.
                    
                    SECURITY OWNERSHIP OF CERTAIN
      BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS
                    36ITEM
      12.
                    
                    CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS
                    37ITEM
      13.
                    
                    EXHIBITS
                    38ITEM
      14.
                    
                    PRINCIPAL ACCOUNTANT FEES AND
      SERVICES
                    38Signatures
                    39


2
 Index




FORWARD
LOOKING STATEMENTS





This Form
10K-SB contains forward-looking statements. These statements relate to future
events or future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause Exobox Technologies Corp.
(“Exobox,” “Company,” “our” or “we”) or its industry’s actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
the forward-looking statements.





In some
cases, you can identify forward-looking statements by terminology such as “may,”
“will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “potential,” or the negative of these terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.





Although
the Company believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Moreover, neither the Company nor any
other person assumes responsibility for the accuracy and completeness of these
forward-looking statements. The Company is under no duty to update any of the
forward-looking statements after the date of this report to conform its prior
statements to actual results.





Further,
this report contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933 (the “Securities Act”) and Section 21E of the
Securities Exchange Act of 1934 (The “Exchange Act”)that involve substantial
risks and uncertainties. Such statements include, without limitation, all
statements as to expectation or belief and statements as to our future results
of operations, the progress of any research, product development and clinical
programs, the need for, and timing of, additional capital and capital
expenditures, partnering prospects, the protection of and the need for
additional intellectual property rights, effects of regulations, the need for
additional facilities and potential market opportunities. The Company’ actual
results may vary materially from those contained in such forward-looking
statements because of risks to which the Company is subject, such as lack of
available funding, competition from third parties, intellectual property rights
of third parties, regulatory constraints, litigation and other risks to which
the Company is subject.








PART
1





ITEM1. DESCRIPTION OF BUSINESS




Overview





Exobox
was established a network and data security development company to capitalize
upon the growing need for a modern, reliable, efficient, effective and proactive
network and data security solution.   Keeping computers, networks
and data safe continues to be a pressing problem and traditional solutions have
been ineffective in providing a strong platform for protection. We believe the
products we are developing products that will provide proactive solutions that
assist IT users in managing and protecting their infrastructure assets and
data.





Over time
we intend to deliver a comprehensive and diverse set of security products and
services to large enterprises, governments, small and medium-sized businesses,
and consumers on a worldwide basis. We plan to develop a product delivery
ecosystem for our products that includes direct, inside, and channel sales
resources, as well as various relationships with original equipment
manufacturers, or OEMs





Key
drivers of our product development include the ever-increasing quantity of data
being collected, and the need for that data to be protected, recoverable, and
accessible at all times. Other factors driving demand for our solutions include
the increasing number of Internet users, PDA’s, computing devices, and companies
conducting business online, and the increasing importance of document retention
and regulatory compliance solutions.





Over the
last three years, we have developed proprietary, patented and patent-pending
software technologies that we believe meet this need by providing computers and
data such protection while differentiating ourselves from our
competitors.





History





We were
originally incorporated in December 1999 in the State of Nevada and we changed
our name to Exobox Technologies Corp. in September 2005. On September 15, 2005,
TMI Acquisition Corp., a newly formed, wholly-owned subsidiary of Exobox Nevada,
merged into Exobox Technologies Corp., a Delaware corporation, and the
shareholders of Exobox Delaware received 3,513,845 shares of Exobox Nevada
convertible preferred stock.





During
August, September and October 2007, substantially all of the holders of the all
of our Class A Common Stock, Series A Preferred Stock, Series B Preferred Stock
and Series D Preferred Stock converted into shares of our common stock. 
Due to the conversions we exchanged (i) 9,939,101 shares of common stock for
9,939,101 shares of our Class A Common Stock, (ii) 187,062,449 shares of our
common stock for 2,031,986 shares of Series A Preferred Stock, (iii)
58,041,041shares of our common stock for 660,132 shares of Series B Preferred
Stock and (iv) 14,013,930 shares of our common stock for 104,992 shares of
Series D Preferred Stock.  Therefore, as of January 7, 2008, there are no
longer any shares of Class A Common Stock, Series A Preferred Stock, Series
B Preferred Stock and Series D Preferred Stock.


3
 Index




Effective
September 10, 2007, we entered into a settlement agreement and mutual
release with Manillo Investments, Ltd (“Manillo Settlement”), pursuant to which
we agreed to issue Manillo Investment, Ltd a new promissory note in the
principal amount of $500,000 with principal and accrued interest due in five
years in exchange for Manillo Investment, Ltd. (i) cancelling a convertible note
with an outstanding balance as of July 31, 2007 of $105,000, (ii) terminating
the securities purchase agreement issued in connection with the convertible
note, and (iii) assigning the Series C Preferred Stock owned by Manillo
Investment, Ltd. to us.  Therefore as a result of the Manillo
Settlement, there is no Series C Preferred Stock outstanding. On June 12, 2008
we paid off the $500,000 Manillo promissory note for $100,000 in
cash.





The
Industry and Markets





Keeping
data and computer networks safe continues to be a pressing problem for
individuals, banks, government institutions and millions of businesses. One
security compromise alone can wipe out thousands of dollars worth of vital
transactions or destroy costly equipment.  One stolen or lost laptop
can result in thousands or millions of personal information records reaching the
wrong hands.   While some large companies have worked to
strengthen network security, most have accepted data loss and security
compromises as the cost of doing business in the information age.





Securing
a network and its data and complying with policies and regulations has been a
difficult and expensive process.  Most security approaches are
difficult to deploy and maintain or lack
effectiveness.  Unfortunately, hackers are proving they can stay ahead
of the curve and are too often capable of defeating current
defenses.  The modern enterprise needs a modern approach for
protection.  Our information-dependent society, with its expanding
e-commerce economy needs a real solution to this serious and ever-increasing
threat.





Historically,
traditional enterprise, network security market (ENP) and endpoint computer
security market (EPP), have been historically characterized by endpoint
antivirus, personal firewall (PFW) and other related software and appliances.
This simplified security framework has been eclipsed by a broader suite of
related security technologies. Basic component technologies in EPP suites
include antivirus, antispyware, host-based intrusion prevention (HIPS) and a
PFW. These have become tools in a broader toolkit of an enterprise’s complete
security solutions suite. Advanced ENP and EPP suites now include more targeted
security functionalities such as network access control (NAC) and data
protection technologies, such as DLP and full disk encryption. By combining
multiple technologies into a single management framework, advanced ENPs and EPPs
will provide lower costs and broader scope as they expand their reach into both
network security and data security.





Due to
the fundamental architecture of our technology, our goal is to develop
variations which will result in several different products reaching across the
spectrum of EPP, including, but not limited to:





·
            Enterprise
      & endpoint security





·
            Data
      leak/loss prevention





·
            Data
      access & change control





·
            Data
      retention & recovery





·
            Data
      auditing & reporting





·
            Data
      and environment mobility





·
            Software
      piracy protection





The
market for security technology continues to experience attractive growth as
global use of the Internet becomes more ubiquitous and governmental regulation
relating to data security becomes increasingly stringent. Consider the following
market statistics:




·
            According
      to Internet World Stats, 1.407 billion people used the internet as of June
      30, 2008 and it is expected to grow to approximately 1.650 billion by
      2010.





·
            According
      to Gartner, Inc., worldwide spending on security technology was $35
      billion in 2007 of which:





o
            Network
      security equipment represented 16%





o
            Security
      software represented 27%, and





o
            Security
      services represented 57%.


4
 Index





·
            Also
      according to Gartner, Inc., worldwide security software sales were $7.4
      billion in 2005, projected to be $10.5 billion in 2008, and reach $13
      billion in 2012.





·
            Based
      on market research, the market for our first product, ExoboxDLP, has experienced a
      compound annual growth rate exceeding 270% over the last 3 years, and is
      estimated by us to soon grow to greater that $2.5billion
      annually.





Products
Under Development





The
Exobox SECURETM Solutions Suite (f.k.a. SUEZ) is a proactive, complete, data
protection solution currently under development. Our first product of this suite
is focused on data loss prevention (“DLP”). We expect to have this product to
market in the first half of 2009.





ExoboxDLP
(f.k.a. IP Tracking Module) –  Our DLP product, the first application
of our information lifecycle management suite, is designed to control who can
look at or alter any data accessible by endpoint users and other applications
providing an essential layer of security for an enterprises’ sensitive and
confidential data. We believe this will provide users with the tools necessary
for an enterprise to protect its intellectual property (“IP”), as well as meet
the requirements of regulatory compliance relating to sensitive and confidential
data control, privacy, and protection. Due to the fundamental architecture of
our technology, our goal is to develop variations which will result in several
different products reaching across the spectrum of Enterprise Network Protection
(“ENP”) and Endpoint Protection (“EPP”).





Current
market penetration levels of DLP type solutions within the medium to large
enterprise segment is below five percent.  If our anticipation is
correct, market penetration levels will increase to close to 100% as regulations
enforce proactive DLP as mandatory for compliance.





Exobox
Confidential Data Discovery & Identification –Exobox / Data Discovery
automatically scans the enterprise in search for critical data enabling to
discover where critical data exists in an enterprise.   Sources
of data can be flat files, databases, structured or unstructured sources of
data, emails and any data created on the network (printed documents, memory
sticks, email attachments, etc.) on literally any device that connects with the
network.  Classification is done by scanning data segments inside of
files that match confidential data patterns. Once data has been identified as
critical, it is centrally monitored enabling continuous tracking similar to the
way packages are tracked by FedEx or UPS.  Auditors can see at any
time where confidential data is, where it was, who accessed it and what its
intended life cycle is.





Exobox Data Audit
& Reporting (f.k.a. Policy Enforcement Module) –This product provides
information needed for compliance reviews by providing businesses concrete
evidence of who accessed or changed corporate data and IT administrators help in
identifying the where-abouts of (sensitive) data. Functionally, it logs every
access to a file, every movement of sensitive data, stores information on a
central server and contains standard presentation interfaces with a dashboard UI
and reporting features. This products falls under the data life cycle management
security segment and plays with compliance standards such as GLBA, HIPAA, SOX,
among others.





Exobox Data
Access & Change Control (formerly part of SUEZ Policy Enforcement) –
This product controls who can look at or alter any data accessible by an
endpoint such as users or other applications. Based on out-of-the box policies
that meet the vast majority of regulatory compliance standards enforcement, this
application functionally performs file request evaluation at end user nodes, and
based on policy, indicates whether the requestor can access or change the
requested file. If a potential breach occurs, the application will log the
event, stop the request, prompt the user, and perform any other activities
defined by the policy. Unless specified by other Identity Management and Access
Control systems the enterprise may have in place, default policy states that
applications can only change data under that application.  It also
states that the application can only look at its own data, other than operating
system executables. This product falls under the anti-virus segment and assists
in complying with regulation standards – HIPAA, SOX, FISMA, GLBA, PCI. Virtually
all industries are candidates for this product.





Exobox Data
Retention & Recovery (f.k.a. Disaster Recovery Module) – This product
controls how data will be phased out of use.  Policy defines what
happens to data after absolute or relative times, or use-based metrics such as
aggregate, archive, back up, delete, expectations related to accessing the data
after archive, incremental change-based backups, web relationship backups, etc.
This product falls under the data life cycle management business segment and
plays with compliance standards such as GBLA, SOX, HIPAA, among many
others.





Exobox Desktop
Mobility (f.k.a. Data Stick) – This product allows users to transfer
his/her desktop/workspace as well as all data to any compatible computer that
can run the same OS. By plugging the Exobox Data Stick into any compatible
computer, the user causes that computer to replicate the user’s original
computing environment, including clock cycles, memory, operating system, as well
as the user’s wallpaper, URL history, documents, Outlook contacts and any other
unique settings the user chooses.  All data changes done during the
session(s) will be saved only to the Exobox Data Stick.  Upon
completion of working on the hosting computer, all traces of the mobile user
will be erased.  This product falls under the Mobile User segment and
plays an important role in enabling true security and data protection for the
Mobile user.


5
 Index









Key
technology functionalities





·
            Endpoint
      interception technology





o
            All
      file I/O requests





o
            Major
      applications: MS-Office





·
            Content
      Recognition





o
            Ability
      to take defined confidential data patterns and recognize data with
      matches





·
            Encryption





o
            High
      powered encryption protected by advanced key
  system





o
            Primary
      method of ensuring total data
security





·
            Centralized
      Encryption Key Management





o
            Totally
      controls the keys to the kingdom, while still allowing for needed
      (internal and external) business to take
place




·
            Allowance
      for portable data access





o
            Temporary
      keys with time or access expiration





o
            Other
      authentication mechanisms used with local
keys





o
            Local
      only version of key
server  access





Business
Model and Growth Strategy





The
global market for such software is expanding rapidly as more enterprises search
for proactive, effective solutions to ever increasing threats and the demands of
increasing regulatory compliance.  We intend to structure our business
on a business-to-business licensing model. In doing so, we plan to build an
efficient eco-system by identifying the key providers in certain industries,
geographic territories and market segments – including Internet service
providers, banks and financial institutions, government agencies, software
makers, computer hardware manufacturers, home PC users, business PC users,
educational institutions, and e-commerce companies – and license the software
for use by those institutions. We believe this model will eliminate significant
expenses for inventory control, distribution, end user tech support and
payroll.





Furthermore,
our business strategy is to license our technology on a selective and worldwide
basis to OEM, computer and software development and services companies which
design and implement software and network systems for end users.  Such
companies include, but are not limited to IBM, Accenture, Bearingpoint, HP/EDS,
CSC Computer Sciences Corp. and Perot Systems.  OEMs may include
companies such as Dell, HP, Apple, and Seagate, among many others.  To
date, we have not entered into any arrangement or agreement with any of the
above referenced companies.


6
 Index




Key
elements of the business model we intend to implement include:




Target Leading Systems Companies in
Multiple Large Markets. We intend to target systems companies in markets
that we believe represent the greatest potential for sales of our products. We
believe that by targeting these market leaders, we will place competitive
pressure on other industry participants to license our core technology. We
intend to actively participate with our licensees in their marketing and selling
efforts to systems companies, develop applications, notes and other technical
material to promote and support our technology in the marketplace, and provide
technical support to licensees which have adopted our products.





Leverage Business Model by Sharing
Research and Development Efforts with Licensees. We believe that
cooperative development efforts with our licensees will allow us to improve our
technology and bring additional products and variations of our technology to
market faster, cheaper and with broader support than would be possible if we
were to attempt to develop, manufacture or sell our products on our own. While
all the development of the fundamental technology and much of the specific
process implementation will be done by us, we envision that a significant
portion of the specific process implementation will be accomplished by the
partner licensees.  By spreading the cost of developing add-ons to our
technology among all our licensees, which we will consider to be our partners in
development, we believe our business model will permit us to maintain a
relatively low cost structure and devote a relatively large portion of our
resources to further research and development efforts which are directly related
to our fundamental technology.





Generate Revenue through a
Combination of Licensing Fees and Royalties. We anticipate that in
addition to gross royalties, licensees will generally pay a license fee to us.
Part of these fees may be due upon the achievement of certain milestones, such
as provision of certain deliverables by us.





Royalties,
which are generally a percentage of the gross revenues that will be received by
licensees on sales of their products based on our technology, will normally be
payable by a licensee on sales occurring during the license term. For a typical
systems application of our technology, we anticipate that we will receive
royalties from the sale as they are shipped by our licensees. We currently
anticipate that gross sales royalty rates will range from approximately 3% to
7%, to 50% to 70% depending on the product and volume and in some cases may
decline based on the passage of time or on the total volume. The exact rate and
structure of a royalty arrangement with a particular licensee may depend on a
number of negotiated factors, including the amount of the license fee to be paid
by the licensee and the marketing and engineering commitment made by the
licensee.




Maintain Technology
Leadership. We believe that we are developing advanced products for the
protection of data and computer and network security and we are committed to
continuing research and development efforts, both internally and in conjunction
with our future partner licensees, to further improve our products and
technologies. We plan to continue our emphasis on research and development by
assigning significant portions of our current and future engineering staff to
developing future generations of our fundamental technology.





Marketing
and Sales





Consistent
with our business model, we will focus our sales and marketing activities on two
parallel paths, Direct and Indirect.





The
Direct sales path is intended to establish the bridgehead of implemented
references and show case customers.  Brand awareness campaigns and
activities will compliment the Direct sales force efforts, leveraging the show
case successes.  Some of our sales efforts may be targeted to senior
executives and IT department personnel who are responsible for managing a
company’s IT initiatives. We will be vertically focused on well known, IT
Security thirsty companies especially those that have a strong need for
regulation compliancy and confidential mission critical businesses.





The
Indirect path is Exobox’s longer term strategy.  Our objective is to
streamline our business through a broad eco-system of collaborated partnerships,
which include value-added resellers, or VARs, large account resellers, or LARs,
distributors, system integrators, or SIs, and OEMs, that rely on and strengthen
each other, ultimately delivering solid added business value turn-key IT
security solutions.  We’re building relationships with a variety of
companies, such as integrators, value added resellers, security consultants and
technology alliances.  Ultimately, the Exobox customer will have a
turn key solution from definition to deployment from this
eco-system.  Building this eco-system requires a significant efforts,
and therefore needs a longer runway for take off.  We will always need
our in-house direct sales force to feed the channel with qualified leads and
hand hold the channel during sales efforts as necessary.





The
combination of Direct and Indirect sales efforts will ensure fast market
penetration while in parallel building and strengthening our long term strategy
of an Indirect channel model.





Hand in
hand with the sales strategy, we are building a strong awareness and lead
generation engine to feed the channel and sales organization.  Our
approach is to capitalize on traditional marketing activities such as industry
trade shows, webinar and seminar series, and the likes in parallel to aggressive
eMarketing initiatives, meaning SEO (Search Engine Optimization) and SEM (Search
Engine Marketing) efforts.  We are building our eMarketing foundation
on a Web2.0 architecture with tailored landing pages guiding the visitor through
a personalized visit, hand holding the visitor all the way through to the
purchasing of a solution/product.  Exobox’s team of Security experts
will be recognized bloggers, known for their subject matter expertise,
establishing Exobox in the market as the people that innovate and deliver
solutions that work and help companies.


7
 Index




Our
objective in our awareness campaign is to communicate the message that Exobox
Technologies is an innovative and evangelist company in the IT Security market,
building and delivering IT Security solutions that help our customers safely do
business, grow and thrive without having to feel the pain of eFraud and modern
IT Security threats.





Research
and Development





Our
research and development efforts over the last three years have resulted in the
filing of more than twenty-two patent applications for our technology with
additional patent applications forthcoming.  We intend to focus our
programming efforts on creating new applications from our current and new
technologies. Currently, we have identified several different applications which
we intend to build, if we obtain needed capital.





Competition





The
markets for the products we plan to build are intensely competitive and are
subject to rapid changes in technology. We expect competition to continue to
increase in the future. We believe that the principal competitive factors
affecting these markets include, but are not limited to performance,
functionality, quality, customer support, breadth of product group, frequency of
upgrades and updates, integration of products, manageability of products, brand
name recognition, reputation, global reach and price.





Most of
the companies we will be competing against have longer operating histories,
greater name recognition, stronger relationships with channel partners, larger
technical staffs, established relationships with hardware vendors and/or greater
financial, technical and marketing resources, all things that we do not have at
this time. These factors may provide our competitors with an advantage in
penetrating markets with their network security and management
products.





Data Leak/Loss Prevention.
Current market penetration levels of Data Loss Prevention (DLP)-type solutions
within the medium to large enterprise segment are below 5%.  If our
anticipation is correct, penetration levels will increase to close to 100% as
the continued tightening and strengthening of regulations enforce proactive DLP
as mandatory for compliance.





The
competitive landscape within the DLP segment includes large and small
vendors.  The currently low penetration level of DLP solutions is one
important indicator that the available products are not good enough to address
customer demands.  The products are difficult to implement, interfere
with workflow within a business and are expensive to own.  We see this
as an attractive opportunity to design and develop a product based on our
technology, that addresses the proactive DLP challenge as well as addresses the
short falls currently available products have.





Anti-Virus. Our principal
competitors in the anti-virus market are Symantec, McAfee and Computer
Associates. Trend Micro remains the strongest competitor in the Asian anti-virus
market. Sophos, F-secure, Panda Security, and Dr. Ahn’s are also showing
growth in their respective markets. As a result of its GeCAD Software
acquisition, at some point we may also compete directly against Microsoft in the
consumer market, although an OEM relationship is also a
possibility.





Network Security and Intrusion
Detection and Protection. Our principal competitors in the security
market vary by product type. For intrusion detection and prevention products, we
compete with Cisco Systems, Computer Associates, Fortinet, Internet Security
Systems, NetScreen, Sourcefire, Symantec and TippingPoint Technologies. The
markets for encryption and virtual private network, or VPN, products are highly
fragmented with numerous small and large vendors. VPN competitors include
hardware and software vendors, including telecommunications companies and
traditional networking suppliers.





Other Competitors.In addition to
competition from large technology companies such as HP, IBM, Intel, Microsoft,
and Novell that may offer network and system protection products as enhancements
to their operating systems, we also face competition from smaller companies and
shareware authors that may develop competing products.





Protection
of Intellectual Property





We have
filed twenty-two patent application and fifteen trademark application protecting
our intellectual property.  We attempt to protect our software
technology by relying on a combination of copyright, patent, trade secret and
trademark laws, restrictions on disclosure and other methods. In particular, we
have a number of registered trademarks and currently hold patents in the United
States, as well as patent holdings in other countries, relating to our
technology and trade names. We have regularly filed other applications for
patents and trademarks in order to protect proprietary intellectual property
that we believe are important to our business.





As we
develop products and begin to market them, we may face a number of risks
relating to our intellectual property, including unauthorized use and
unauthorized copying, or piracy of our software solutions. Litigation may be
necessary to enforce our intellectual property rights, to protect trade secrets
or trademarks, or to determine the validity and scope of the proprietary rights
of others. Furthermore, any patents that have been issued to us could be
determined to be invalid and may not be enforceable against competitive products
in every jurisdiction. Moreover, other parties have asserted and may, in the
future, assert infringement claims against us. These claims and any litigation
may result in invalidation of our proprietary rights. Litigation, even if not
meritorious, could result in substantial costs and diversion of resources and
management attention. In addition, third party licenses may not continue to be
available to us on commercially acceptable terms, or at all.


8
 Index




To
mitigate these risks, we intend to implement worldwide strategies on multiple
intellectual property fronts. As part of this comprehensive strategy, we intend
to initiate plans for our SOS (Secure Operating System, a foundational element
of our technology) technology in respect to both domestic and foreign
filings.  With regard to the foreign filings, patent applications
covering the SOS technology have been submitted in eleven different foreign
countries.





Employees





We
presently have seven employees.





Legal
Proceedings





We have
no legal proceedings at this time and are unaware of any legal proceedings that
may be pending against us.





Facilities





Our
current headquarters are located at 2121 Sage Rd, Suite 200, Houston,
Texas 77056.





Other
Information




Our
Internet address is www.exobox.com. We make
available free of charge on our website our annual reports on Form 10-K,
quarterly reports on Form 10-Q, and current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission, or SEC. Other than the information expressly set forth in
this annual report, the information contained, or referred to, on our website is
not part of this annual report.




The
public may also read and copy any materials we file with the SEC at the SEC’s
Public Reference Room at 100 F Street, NE, Room 1580, Washington,
DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
website at www.sec.govthat contains reports, proxy and information statements, and other
information regarding issuers, such as us, that file electronically with the
SEC.





Risk
Factors




We
have a limited operating history with significant losses and expect losses to
continue for the foreseeable future.




We have
incurred annual operating losses since our inception. As a result, at July 31,
2008, we had an accumulated deficit of $9,952,921. We had no gross revenues
for the year ended July 31, 2008, and a loss from operations of $3,217,597.
As we pursue our business plan, we expect our operating expenses to
increase significantly, especially in the areas of sales and marketing. As
a result we expect continued losses in fiscal 2009 and
thereafter.





We will not be able to continue our
business operations unless we raise additional financing.




We are a
development stage company and as such have generated no revenues or profits to
date.  Our success will depend on the ability to attract external
financing for our working capital needs and to develop our patent rights in
connection with our software solutions.  As of the date hereof, we do
not have sufficient funding to satisfy our working capital needs or to develop
the full line of products and, the failure to obtain sufficient funding, will
preclude us from conducting meaningful business operations. We have historically
financed our operations through best efforts private equity and debt
financings. We do not have any commitments for equity or debt funding at
this time, and additional funding may not be available to us on favorable
terms, if at all.




We may not be able to meet our
current and future liabilities and remain in operation until we receive
additional capital.




As of
July 31, 2008, we have current assets of $851,938 and current liabilities of
$482,668.  In connection with the Manillo Settlement, the $105,000
convertible note has been replaced with a long term note with an original
principal amount of $500,000.  In June of 2008, the $500,000 note was
paid in full.   Additionally, as a result of the Manillo
Settlement, in which the Series C Preferred Stock was returned to us, the
derivative liability of $2,025,042 was reversed in the quarter ending October
31, 2007 and is no longer reflected on our balance sheet on that
date.  Our current liquidity position only allows us to meet nominal
working capital needs.  We will need $6,000,000 to meet our working
capital needs through fiscal 2009.  Any failure to obtain such
financing could force us to abandon or curtail our operations.




We will need to raise additional
funds to fund product development and acquisitions.


9
 Index




Our cash
does not afford us adequate liquidity to fund our product
development.  In order to fund our full product development, including
marketing and testing, we will need to raise at least $9,000,000.  We
may also issue additional shares of common stock to finance future acquisitions.
We cannot predict the size of future issuances of our common stock or the
effect, if any, that future issuances and sales of shares of our common stock
will have on the market price of our common stock. Sales of substantial amounts
of our common stock, or the perception that such sales could occur, may
adversely affect prevailing market prices for our common stock. There is no
assurance that we can raise additional capital from external sources, the
failure of which could cause us to sell assets or curtail
operations.




Ours
auditor has substantial doubts as to our ability to continue as a going
concern.




Our
auditor's report on our July 31, 2008 financial statements expresses an opinion
that substantial doubt exists as to whether we can continue as an ongoing
business.  Because we do not have sufficient capital, we may be
required to suspend or cease the implementation of our business plans within 12
months. Because we have been issued an opinion by its auditors that substantial
doubt exists as to whether we can continue as a going concern it may be more
difficult for us to attract investors.  Our future is dependent upon
our ability to obtain financing and upon future profitable operations from the
sale of our products.




Additional capital may dilute
current stockholders.




In order
to provide capital for the operation of our business we may enter
into additional financing arrangements. These arrangements may involve the
issuance of new common stock, preferred stock that is convertible into
common stock, debt securities that are convertible into common stock or
warrants for the purchase of common stock. Any of these items could result
in a material increase in the number of shares of common stock outstanding
which would in turn result in a dilution of the ownership interest of
existing common shareholders. In addition, these new securities could
contain provisions, such as priorities on distributions and voting rights,
which could affect the value of our existing common stock.




The market price of our common stock
is very volatile and the value of your investment may be subject to sudden
decreases.




The
trading price for our common stock has been, and we expect it to continue
to be, volatile. For example, the price of our stock has
fluctuated between $1.15 per share and $0.03 per share since January 1,
2007. The price at which our common stock trades depends upon a number of
factors, including our historical and anticipated operating results, and
general market and economic conditions, which are beyond our control.
 In addition, the stock market has, from time to time, experienced
extreme price and volume fluctuations. These broad market fluctuations may
lower the market price of our common stock. Moreover, during periods of
stock market price volatility, share prices of many companies have often
fluctuated in a manner not necessarily related to their operating
performance. Accordingly, our common stock may be subject to greater price
volatility than the stock market as a whole.





We lack an operating history which
you can use to evaluate us, making any investment in us risky.




We lack
an operating history which investors can use to evaluate our previous earnings.
This makes it harder for you as an investor to predict how we may do in the
future. Therefore, an investment in us is risky because we have no business
history and it is hard to predict what kind of return our stock will have in the
future, if at all.




There can be no assurance that we
will successfully commercialize any products or services.





There can
be no assurance that we will successfully commercialize any products and
services based on our technology or manage the related manufacturing, marketing,
sales, licensing and customer support operations in a profitable manner. In
particular, our prospects must be considered in light of the problems, delays,
expenses and difficulties encountered by any company in the startup stage, many
of which may be beyond our control. These problems, delays, expenses and
difficulties include unanticipated problems relating to product development and
formulation, testing, quality control, production, inventory management, sales
and marketing and additional costs and competition, any of which could have a
material adverse effect on our business, financial condition and results of
operations. There can be no assurance that our products and services can be
successfully marketed or that it will ever achieve significant revenues or
profitable operations.





There
can be no assurance that we will ever be profitable.




To be
profitable, we must successfully commercialize our technologies. We are in the
early stages of development and will require significant further research,
development and testing, and are subject to the risks of failure inherent in the
development of products based on innovative or novel technologies.




Our industry changes rapidly due to
evolving technology standards and our future success will depend on our ability
to adapt to market change.




Our
future success will depend on our ability to address the
increasingly sophisticated needs of the market. We will have to
keep pace with technological developments, evolving industry standards and
changing customer requirements. We expect that we will have to respond
quickly to rapid technological change, changing customer needs, frequent
new product introductions and evolving industry standards that may render
our contemplated products obsolete. We may not have
sufficient resources to make the necessary investments, which could have
a material adverse effect on our business.


10
 Index




We depend upon our intellectual
property and our failure to protect existing intellectual property or secure and
enforce such rights for new proprietary technology could adversely affect our
future growth and success.




Our
ability to successfully protect our proprietary technology is essential to our
success. We have filed trademark and patent applications to protect
intellectual property rights for technology that we have developed. Our future
success also may depend upon our ability to obtain additional licenses for
other intellectual properties. We may not be successful in acquiring
additional intellectual property rights with significant commercial value
on acceptable terms. Even if we are successful in acquiring such rights, it can
provide no assurance that we will be successful in adapting or deploying
them as to the timing or cost of such development efforts or as to the
commercial success of the resulting products or services.





Our competitors may develop
non-infringing products or technologies that adversely affect our future growth
and revenues.




It is
possible that our competitors will produce proprietary technologies similar
to ours without infringing on our intellectual property rights. We
also rely on unpatented proprietary technologies. It is possible that
others will independently develop the same or similar technologies or
otherwise obtain access to the unpatented technologies upon which we rely
for future growth and revenues. Failure to meaningfully protect our trade
secrets, know-how or other proprietary information could adversely affect
our future growth and revenues.




Our success is dependent upon our
ability to protect our proprietary technologies.




Our
success is substantially dependent upon our proprietary technologies and our
ability to protect our intellectual property rights. Exobox received a formal
“Notice of Allowance” from the United States Patent and Trademark Office (USPTO)
for its second patent, Application No. 11/591,112, issued on August 9, 2007. We
currently have filed for 22 patent applications with the U.S. Patent Office and
other foreign patent offices that relate to software security solutions. We rely
upon our patent applications and trade secret laws, non-disclosure agreements
with our employees, consultants and third parties to protect our intellectual
property rights. The complexity of patent and common law, combined with our
limited resources, create risk that our efforts to protect our proprietary
technologies may not be successful. We cannot assure you that our patent
applications will be upheld or that third parties will not invalidate our patent
rights. In the event our intellectual property rights are not upheld, such an
event would have a material adverse effect on us. In addition, there is a risk
that third parties may independently develop substantially equivalent or
superior technologies.




Any litigation to protect our
intellectual property or any third party claims to invalidate our patents could
have a material adverse effect on our business.




Our
success depends on our ability to protect our intellectual property rights. In
the future, it may be necessary for us to commence patent litigation against
third parties whom we believe require a license to our patents. In addition, we
may be subject to third-party claims seeking to invalidate our patents. These
types of claims, with or without merit, may subject us to costly litigation and
diversion of management’s focus. In addition, based on our limited financial
resources, we may not be able to pursue litigation as aggressively as
competitors with substantially greater financial resources. Based on our limited
financial resources, it may be necessary for us to engage third party
professionals on a contingency basis pursuant to which such parties would be
entitled to share in the proceeds of any successful enforcement of our
intellectual property rights. If third parties making claims against us seeking
to invalidate our patent are successful, they may be able to obtain injunctive
or other equitable relief, which effectively could block our ability to license
or otherwise capitalize on our proprietary technologies. Successful litigation
against us resulting in a determination that our patent applications are invalid
would have a material adverse effect on us.




We may be unable to successfully
compete against companies with resources greater than ours, if we are unable to
protect our patent rights and trade secrets, or if we infringe on the
proprietary rights of third parties.




We will
need to obtain additional patents on our technology to protect our rights to our
technology. To obtain a patent on an invention, one must be the first to invent
it or the first to file a patent application for it. We cannot be sure that the
inventors of subject matter covered by patents and patent applications that we
own or may license in the future were the first to invent, or the first to file
patent applications for, those inventions. Furthermore, patents we own or may
license in the future may be challenged, infringed upon, invalidated, found to
be unenforceable, or circumvented by others, and our rights under any issued
patents may not provide sufficient protection against competing software or
otherwise cover commercially valuable software or processes.




We seek
to protect trade secrets and other un-patented proprietary information, in part
by means of confidentiality agreements with our collaborators, employees, and
consultants. If any of these agreements is breached, we may be without adequate
remedies. Also, our trade secrets may become known or be independently developed
by competitors.




Our industry is competitive and as
such competitive pressures could prevent us from obtaining profits, forcing us
to abandon or curtail our business plan and possibly liquidate our
assets.


11
 Index




One of
the main factors in determining in whether we will be able to realize any
profits and/or be able to continue its business plan will be whether or not we
are able to successfully compete in the software industry. The virus protection
software industry is highly competitive and we may be competing against
companies with greater resources and more experience in the industry. If we are
unable to compete in the marketplace and fail to generate any profits, we may be
forced to liquidate its assets and any investment in us could be
lost.





We rely upon key personnel and if
any one leaves us our business plan and our business operations could be
adversely effected.




We rely
on our executives for our success. Their experience and inputs create the
foundation for our business and they are responsible for the implementation and
control over our development activities. We currently have five employment
contracts and we do not hold “key man” insurance on any of these people. Moving
forward, should they be lost for any reason, we will incur costs associated with
recruiting replacement personnel and could face potential delays in operations.
If we are unable to replace any one of them with other suitably trained
individuals, we may be forced to scale back or curtail our business plan. As a
result of this, your securities in us could become devalued.




Investors may face significant
restrictions on the resale of our common stock due to federal regulations of
penny stocks.




Our
common stock is listed on the OTC Bulletin Board, however, it will be subject to
the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act,
as long as the price of our common stock is below $5.00 per share. Under such
rule, broker-dealers who recommend low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser’s
consent prior to the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990, also requires additional disclosure in connection with
any trades involving a stock defined as a penny stock. Generally, the Commission
defines a penny stock as any equity security not traded on an exchange or quoted
on Nasdaq that has a market price of less than $5.00 per share. The required
penny stock disclosures include the delivery, prior to any transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
with it. Such requirements could severely limit the market liquidity of the
securities and the ability of purchasers to sell their securities in the
secondary market.




ITEM2. DESCRIPTION OF PROPERTY





During
2008 we leased approximately 6,178 square feet of office space in a building
located at 2121 Sage Road, Suite 200, Houston, Texas 77056. The
premises are leased from an arms-length third party, pursuant to a lease
agreement at the rate of $9,781.83 per month.





ITEM3. LEGAL PROCEEDINGS




In
November 2006, we received a subpoena from the United States Securities &
Exchange Commission requesting the production of documents from January 1, 2000
until present and testimony; this formal inquiry following up an informal
inquiry commenced in September 2006. Documents requested included, without
limitation, formation documents, minutes, records relating to payments or
services rendered in exchange for as well as offering documents utilized in
connection with the issuance of shares of capital stock, any correspondence with
various current and former shareholders, vendors and other third parties,
documentation surrounding the 2005 reverse triangular merger, as well as
documentation relating to our business.





On July
29, 2008, Stephen Webster, Assistant Director in the Fort Worth office of the
United States Securities Exchange Commission (“Commission”), provided a letter
to Exobox indicating that the Commission’s formal investigation of the Company
and its management commenced in 2006 has been terminated (“Termination Letter”).
The Termination Letter, addressed to Thomas Pritchard of Brewer & Pritchard,
P.C. and Jason Lewis of Locke Lord Bissell & Liddell LLP, the Company’s
outside securities counsel, states that the Commission’s investigation of the
Company styled, In the Matter of Exobox Technologies Corp. (FW – 3056), “has
been completed as to Exobox Technologies Corp., its Chief Executive Officer,
Robert Dillon and its other officers and directors, against whom we do not
intend to recommend any enforcement action by the Commission.”





ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None.


12
 Index




PART
II





ITEM5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES





Market
Information




Our
common stock has been traded under the stock symbol “EXBX” on the
over-the-counter Pink Sheets market. The chart below breaks down the high and
the low prices for our last two fiscal years which quotations reflect
inter-dealer price, without retail mark-up, mark-down or commission, and may not
reflect actual transactions. The trading price for our common stock has been,
and we expect it to continue to be, volatile. During 2008, 2007 and 2006,
the high and low prices were as follows:




Quarter
      Ended
                  
                  High
                  
                  
                  LowJuly
      31, 2008
                  
                  $
                  0.30
                  
                  
                  $
                  0.078April
      30, 2008
                  
                  $
                  0.48
                  
                  
                  $
                  0.20January
      31, 2008
                  
                  $
                  0.30
                  
                  
                  $
                  0.03October 31,
      2007
                  
                  $
                  0.45
                  
                  
                  $
                  0.20July 31,
      2007
                  
                  $
                  0.55
                  
                  
                  $
                  0.35April
      30, 2007
                  
                  $
                  1.15
                  
                  
                  $
                  0.15January
      31, 2007
                  
                  $
                  0.55
                  
                  
                  $
                  0.35October 31,
      2006
                  
                  $
                  0.60
                  
                  
                  $
                  0.25







On
November 10, 2008 the last sales price of our common stock was $0.11 per
share.




Holders




The
approximate number of holders of record of our common stock is
2,148.




Dividends




We have
not paid any cash dividends on our equity security and our board of directors
has no present intention of declaring any cash dividends.





Recent
Sales of Securities





On
September 28, 2007, two unaffiliated third parties exercised warrants to
purchase an aggregate of 45,000 shares of our common stock at $0.20 per
share.





On
October 5, 2007, an unaffiliated third party exercised warrants to purchase an
aggregate of 22,500 shares of our common stock at $0.20 per share.





On
December 20, 2007, two unaffiliated third parties acquired 750,000 shares of our
common stock in consideration of $75,000.





On
January 10, 2008, two unaffiliated third parties acquired 500,000 shares of our
common stock in consideration of $50,000.





On
January 14, 2008, an unaffiliated third party acquired 250,000 shares of our
common stock in consideration of $25,000.





On
January 16, 2008, three unaffiliated third parties acquired 750,000 shares of
our common stock in consideration of $75,000.





On
January 18, 2008, three unaffiliated third parties acquired 750,000 shares of
our common stock in consideration of $75,000.





On
January 22, 2008, six unaffiliated third parties acquired 2,000,000 shares of
our common stock in consideration of $200,000.





On
January 23, 2008, two unaffiliated third parties acquired 500,000 shares of our
common stock in consideration of $50,000.


13
 Index




On
January 25, 2008, four unaffiliated third parties acquired 1,000,000 shares of
our common stock in consideration of $100,000.





On
January 30, 2008, three unaffiliated third parties acquired 1,500,000 shares of
our common stock in consideration of $150,000.





On
January 31, 2008, two unaffiliated third parties acquired 750,000 shares of our
common stock in consideration of $75,000.





On
February 1, 2008, 18 unaffiliated third parties acquired 5,250,000 shares of our
common stock in consideration of $525,000.





On
February 6, 2008, 10 unaffiliated third parties acquired 4,500,000 shares of our
common stock in consideration of $450,000.





On
February 7, 2008, 5 unaffiliated third parties acquired 1,500,000 shares of our
common stock in consideration of $150,000.





On
February 8, 2008, 5 unaffiliated third parties acquired 6,250,000 shares of our
common stock in consideration of $625,000.





On
February 12, 2008, 2 unaffiliated third parties acquired 500,000 shares of our
common stock in consideration of $50,000.





On
February 14, 2008, an unaffiliated third party acquired 250,000 shares of our
common stock in consideration of $25,000.





During
August, September and October 2007, most of the holders of the Company’s Class A
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series D
Preferred Stock converted into shares of the Company’s common stock.  Due
to the conversions the Company exchanged (i) 9,939,101 shares of common stock
for 9,939,101 shares of our Class A Common Stock, (ii) 186,475,319 shares of our
common stock for 2,025,608 shares of Series A Preferred Stock, (iii) 59,153,752
shares of our common stock for 642,564 shares of Series B Preferred Stock and
(iv) 14,013,939 shares of our common stock for 104,992 shares of Series D
Preferred Stock.  Therefore, as of October 17, there are no longer any
shares of Class A Common Stock and Series D Preferred Stock.





EQUITY
COMPENSATION PLAN INFORMATION




The
following table sets forth certain information, as of July 31, 2008, concerning
securities authorized for issuance under the 2007 Stock Option Plan and other
outstanding options, warrants and rights:





Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
      & Rights
                  (a)
                
                
                Weighted
      Averaged Exercise Price of Outstanding Options, Warrants &
      Rights
                  (b)
                
                
                Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (Excluding Securities Reflected in Column
      (a)
                  (c)Equity
      compensation plans approved by security holders:None
                
                
                --
                
                
                
                --
                
                
                
                --Equity
      compensations plans not approved by security holders:2007
      Directors, Officers and Consultants Stock Option, Stock Warrant and Stock
      Award Plan
                
                
                8,885,000
                (1)
                
                $
                .30
                
                
                
                11,115,000Total
                
                
                8,885,000
                
                
                $
                .30
                
                
                
                11,115,000


______________


(1)  The
Company has issued an aggregate of 6,935,000 shares to consultants during the
fiscal year ended July 31, 2008 and 450,000 in total shares in prior
years.  1,500,000 shares were granted under a warrant to a consultant
during the fiscal year ended July 31, 2008.  No options or other
rights were issued during this period.





(2)  Calculated
based on the fair market price of our common stock on the date of
issuance.


14
 Index




ITEM6MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





CRITICAL
ACCOUNTING POLICIES





In
December 2001, the Securities and Exchange Commission requested that all
registrants discuss their "critical accounting policies" in
management's discussion and analysis of financial condition and results of
operations. The SEC indicated that a "critical accounting policy" is one
that is both important to the portrayal of the company's financial
condition and results and that requires management's most difficult,
subjective or complex judgments. Such judgments are often the result of a
need to make estimates about the effect of matters that are inherently
uncertain. While Exobox’s significant accounting policies are more fully
described in Note 1 to its financial statements included elsewhere in this
annual report Exobox currently believes the following accounting policies
to be critical:





Development
Stage Company





Exobox is
considered to be in the development stage as defined in Statement of
Financial Accounting Standards (SFAS) No. 7, "Accounting and Reporting by
Development Stage Enterprises." Exobox has devoted substantially all of its
efforts to business planning, raising capital, research and development,
recruiting management and technical staff, and acquiring operating
assets.  We have experienced a loss since inception.





Start-up
Costs





In
accordance with the American Institute of Certified Public
Accountants Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities", Exobox expenses all costs incurred in connection with its start-up
and organization.





Research
and Development





Research
and development costs are related primarily to Exobox developing early
prototypes. Research and development costs are expensed
as incurred.





Income
Taxes





The
income tax benefit is computed on the pre-tax loss based on the current tax
law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates. No benefit is reflected for the fiscal year ended July 31,
2008.





Valuation
of the Embedded and Warrant Derivatives





The
valuation of our embedded derivatives and warrant derivatives are determined
primarily by the Black-Scholes option pricing model. An embedded derivative is a
derivative instrument that is embedded within another contract, which under the
convertible note (the host contract) includes the right to convert the note by
the holder, certain default redemption right premiums and a change of control
premium (payable in cash if a fundamental change occurs). In accordance with
FASB Statement No. 133, as amended, Accounting for Derivative Instruments and
Hedging Activities, these embedded derivatives are marked-to-market each
reporting period, with a corresponding non-cash gain or loss charged to the
current period. A warrant derivative liability is determined in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (“EITF 00-19”). Based on EITF 00-19, warrants which are determined to be
classified as derivative liabilities are marked-to-market each reporting period,
with a corresponding non-cash gain or loss charged to the current period. The
practical effect of this has been that when our stock price increases so does
our derivative liability, resulting in a non-cash loss charge that reduces our
earnings and earnings per share. When our stock price declines, we record a
non-cash gain, increasing our earnings and earnings per share.





To
determine the fair value of our embedded derivatives, management evaluates
assumptions regarding the probability of certain future events. Other factors
used to determine fair value include our period end stock price, historical
stock volatility, risk free interest rate and derivative term. The fair value
recorded for the derivative liability varies from period to period. This
variability may result in the actual derivative liability for a period either
above or below the estimates recorded on our consolidated financial statements,
resulting in significant fluctuations in other income (expense) because of the
corresponding non-cash gain or loss recorded.





Property
and Equipment and Other Identifiable Intangibles





Property
and Equipment is stated at cost and depreciated using the straight-line method
over the shorter of the estimated useful life of the asset or the least term,
ranging from three to five years.  Significant improvements and
betterments are capitalized.  Routine repairs and maintenance are
expensed when incurred.  When property and equipment is sold or
otherwise disposed of, the asset account and related accumulated depreciation
account are relieved, and any gain or loss is included in
operations.


15
 Index




Exobox
reviews property, plant, and equipment and certain identifiable intangibles,
excluding goodwill, for impairment in accordance with Statement of Financial
Accounts Standard (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived
Assets” and for “Long-Lived Assets to Be Disposed Of”. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable. Recoverability
of these assets is measured by comparison of its carrying amount to future
undiscounted cash flows the assets are expected to generate. If property, plant,
and equipment and certain identifiable intangibles are considered to be
impaired, the impairment to be recognized equals the amount by which the
carrying value of the assets exceeds its fair market value. The Company did
not record any impairments during 2008 and 2007.





Stock-based
Compensation





Exobox
adopted SFAS No. 123(R), in 2007 using the modified prospective method.
SFAS 123(R) requires companies to measure the cost of employee services received
in exchange for an award of an equity instrument based on the grant-date fair
value of the award. For stock-based awards granted on or after January 1, 2006,
stock-based compensation expense is recognized on a straight-line basis over the
requisite service period. We account for non-employee share-based awards in
accordance with EITF No. 96-18, “Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquisition, or in Conjunction with Selling,
Goods or Services.”





RESULTS
OF OPERATIONS THE TWELVE MONTHS ENDED JULY 31, 2008 COMPARED TO JULY 31,
2007





Net Sales. The Company has no
sales since inception.





Research and Development
Expenses. The Company had no research and development expenses for
the year ended July 31, 2008 and July 31, 2007. The Company has incurred
$288,259 in research and development expenses since inception but prior to
the fiscal year ending July 31, 2006.





General and Administrative Expense
("G&A"). The Company's G&A expenses for the years ended July
31, 2007 and 2008 increased from $245,776 to $324,179. The increase was
primarily due to the increased rent expense due to change in leases and
increased travel.





Loss/Gain on Derivatives.The
derivative liability is in connection with the convertible notes issued in
September 2006, which resulted in a loss of $1,925,042 for the year ended July
31, 2007.  The derivative liability was extinguished by July 31, 2008
resulting in a gain of $2,025,042.




Professional Fees. The
Company’s professional fees for the years ended increased from $200,202 to
$2,176,970. The increase was primarily due to stock and warrants issued for
services.





Payroll Expenses. The
Company’s payroll expenses for the years ended increased from $1,168,629 to
$2,646,755. The increase was primarily due to stock issuance.





Net Loss. The Company’s net
loss for the years ended decreased from $3,668,877 to $3,217,597. The decrease
was primarily due to the gain on derivatives.





LIQUIDITY
AND CAPITAL RESOURCES





As of
July 31, 2008, we have current assets of $851,938, mainly consisting of $767,338
of cash and cash equivalents and current liabilities of $482,668, of which
$429,217 is for accrued liabilities.  We have property and equipment
and other intangible assets which total $274,764 and no long-term
liabilities.





We had
working capital of $369,270 and a total deficit accumulated during the
development stage of $9,707,346 as of July 31, 2008.





We had
$1,642,996 of net cash used in operating activities for the year ended July 31,
2008, which was mainly due to $3,217,597 of net loss for the year offset by a
gain on derivatives of $2,025,042.  We had $216,759 of net cash used
in investing activities for the year ended July 31, 2008, which was mainly due
to the acquisition of property and equipment.  We had $2,618,700 of
net cash provided by financing activities for the year ended July 31, 2008,
which was mainly due to proceeds from sale of stock of $2,900,000.





Our
current liquidity position only allows us to meet nominal working capital
needs.  We will need $6,000,000 to meet our working capital needs
through fiscal 2009.  In order to fund our full product development,
including marketing and testing, we will need to raise at least an additional
$9,000,000.





Our
inability to obtain immediate financing from third parties will negatively
impact our ability to fund operations and execute our business
plan.  Any failure to obtain such financing could force us to abandon
or curtail our operations.  There is no assurance that we can raise
additional capital from external sources, the failure of which could cause
us to sell assets or curtail operations.  We have no credit
facilities in place or commitments to provide any financing and we have
historically relied on best efforts debt and equity
funding.   Our auditors have issued a going concern opinion for
our financial statements due to the substantial doubt about our ability to
continue as a going concern.


16
 Index




Off
Balance Sheet Arrangements




None.




Contractual
Commitments




None


17
 Index




ITEM7. FINANCIAL STATEMENTS AND RELATED FOOTNOTES








Report of Independent
Registered Public Accounting Firm





To the
Board of Directors


Exobox
Technologies Corp.


(a
development stage company)


Houston,
Texas





We have
audited the accompanying balance sheets of Exobox Technologies Corp. (the
“Company”) as of July 31, 2008 and 2007 and the related statements of
operations, stockholders’ equity (deficit), and cash flows for the years then
ended and for the period from October 21, 2002 (inception) through July 31,
2008. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Exobox Technologies Corp., as of
July 31, 2008 and 2007 and the results of its operations and its cash flows for
the years then ended and for the period from October 21, 2002 (inception)
through July 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.





The
accompanying financial statements have been prepared assuming that Exobox
Technologies Corp. will continue as a going concern. As discussed in Note 2 to
the financial statements, Exobox Technologies Corp. has suffered recurring
losses from operations, has negative cash flow from operations, and has an
accumulated deficit, which raise substantial doubt about its ability to continue
as a going concern. Management’s plans regarding these matters also are
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.








/s/ Malone & Bailey,
PC





www.malone-bailey.com


Houston,
Texas





November
10, 2008


18
 Index




EXOBOX
TECHNOLOGIES CORP.


(A
DEVELOPMENT STAGE COMPANY)


BALANCE
SHEETS


July 31,
2008 and July 31, 2007





ASSETSCurrent
      Assets:Cash
                
                $
                767,338
                
                
                $
                8,363Other
      Current Assets
                
                
                61,972
                
                
                
                14,000Prepaid
      Insurance
                
                
                22,628
                
                
                
                -Total
      Current Assets
                
                
                851,938
                
                
                
                22,363Property
      and equipment, net
                
                
                213,223
                
                
                
                12,164Other
      Assets:Patents,
      net
                
                
                53,590
                
                
                
                67,233Intangibles,
      net
                
                
                7,951
                
                
                
                3,290TOTAL
      ASSETS
                
                $
                1,126,702
                
                
                $
                105,050LIABILITIES
      AND STOCKHOLDERS' EQUITY(DEFICIT)Current
      Liabilities:Accounts
      Payable
                
                $
                53,451
                
                
                $
                46,148Accounts
      Payable-Stockholders
                
                
                -
                
                
                
                4,461Accrued
      Liabilities
                
                
                429,217
                
                
                
                1,391,853Advances
      from Stockholders
                
                
                -
                
                
                
                194,800Convertible
      Note Payable
                
                
                -
                
                
                
                105,000Derivative
      Liability
                
                
                -
                
                
                
                2,025,042Total
      Current Liabilities
                
                
                482,668
                
                
                
                3,767,304STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      stock:Series
      A convertible preferred stock, $0.001 par, 2,500,000 shares
      authorized, 6,378 and 2,031,986 shares issued and outstanding as of
      July 31, 2008 and 2007, respectively
                
                
                6
                
                
                
                2,032Series
      B convertible preferred stock, $0.001 par, 2,000,000 shares authorized,
      17,568 and 660,132 shares issued and outstanding at July 31, 2008 and
      2007, respectively
                
                
                18
                
                
                
                661Series
      C convertible preferred stock, $0.001 par, 20,000 authorized, 0 and 19,400
      shares outstanding at July 31, 2008 and 2007, respectively
                
                
                -
                
                
                
                19Series
      D convertible preferred stock, $0.001 par, 110,150 shares authorized, 0
      and 104,992 shares outstanding at July 31, 2008 and 2007,
      respectively
                
                
                -
                
                
                
                105Class
      A Common stock, $0.001 par value, 9,939,101 shares authorized, 0 and
      9,939,101 shares outstanding at July 31, 2008 and 2007,
      respectively
                
                
                -
                
                
                
                9,939Common
      stock, $0.001 par value, 500,000,000 shares authorized, 398,435,250 and
      78,172,639 shares issued and outstanding at July 31, 2008 and 2007,
      respectively
                
                
                398,435
                
                
                
                78,173Additional
      paid-in capital
                
                
                9,952,921
                
                
                
                2,736,566Deficit
      accumulated during development stage
                
                
                (9,707,346
                )
                
                
                (6,489,749
                )Total
      stockholders' equity (deficit)
                
                
                644,034
                
                
                
                (3,662,254
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                1,126,702
                
                
                $
                105,050




See
accompanying notes to the financial statements


19
 Index




EXOBOX
TECHNOLOGIES CORP.
 (A
DEVELOPMENT STAGE COMPANY)
 STATEMENTS
OF OPERATIONS
 For the
Years Ended July 31, 2008 and 2007,
 and
October 21, 2002 (Inception) to July 31, 2008
 
 Year
      Ended July 31,
                  
                  
                  Year
      Ended July 31,
                  
                  
                  October
      21, 2002 (Inception) To July 31,2008
                  
                  
                  2007
                  
                  
                  2008Revenues
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -General
      & administrative
                  
                  
                  324,179
                  
                  
                  
                  245,776
                  
                  
                  
                  883,788Depreciation
      and amortization
                  
                  
                  24,680
                  
                  
                  
                  8,671
                  
                  
                  
                  38,323Professional
      fees
                  
                  
                  2,176,970
                  
                  
                  
                  200,202
                  
                  
                  
                  3,416,223Payroll
      expenses
                  
                  
                  2,646,755
                  
                  
                  
                  1,168,629
                  
                  
                  
                  4,543,991Software
      development expense
                  
                  
                  75,000
                  
                  
                  
                  243
                  
                  
                  
                  521,393Research
      and development
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  288,259Total
      Operating Expenses
                  
                  
                  5,247,584
                  
                  
                  
                  1,623,521
                  
                  
                  
                  9,691,977Loss
      from Operations
                  
                  
                  5,247,584
                  
                  
                  
                  1,623,521
                  
                  
                  
                  9,691,977Other
      Income (Expenses)(Loss)
      Gain on derivatives
                  
                  
                  2,025,042
                  
                  
                  
                  (1,925,042)
                  
                  
                  
                  100,000Gain
      on extinguishment of note
                  
                  
                  7,137
                  
                  
                  
                  -
                  
                  
                  
                  7,137Interest
      income
                  
                  
                  2,089
                  
                  
                  
                  -
                  
                  
                  
                  2,089Interest
      expense
                  
                  
                  (4,281
                  )
                  
                  
                  (120,314)
                  
                  
                  
                  (124,595
                  )Total
      Other Income (Expenses)
                  
                  
                  2,029,987
                  
                  
                  
                  (2,045,356)
                  
                  
                  
                  (15,369)Loss
      Before Income Taxes
                  
                  
                  3,217,597
                  
                  
                  
                  3,668,877
                  
                  
                  
                  9,707,346Provision
      for Income Taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      Loss
                  
                  $
                  (3,217,597
                  )
                  
                  $
                  (3,668,877
                  )
                  
                  $
                  (9,707,346
                  )Basic
      and dilutedNet
      loss per common share-basic and diluted
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.11
                  )
                  
                  
                  n/aWeighted
      average shares outstanding-basic and diluted
                  
                  
                  313,297,790
                  
                  
                  
                  34,275,475
                  
                  
                  
                  n/a
 
 See
accompanying notes to the financial statements


20
 Index




EXOBOX
TECHNOLOGIES CORP.


(A
DEVELOPMENT STAGE COMPANY)


STATEMENTS
OF CASH FLOWS


For the
Years Ended July 31, 2008 and 2007,


and
October 21, 2002 (Inception) to July 31, 2008





Year
      Ended July 31,
                
                
                Year
      Ended July 31,
                
                
                October 21,
      2002 (Inception) to July 31,2008
                
                
                2007
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
                
                $
                (3,217,597
                )
                
                $
                (3,668,877
                )
                
                $
                (9,707,346
                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Share-based
      compensation
                
                
                1,552,800
                
                
                
                -
                
                
                
                2,302,800Warrant
      issued for consulting services
                
                
                434,165
                
                
                
                -
                
                
                
                446,660Stock
      issued for services
                
                
                1,193,767
                
                
                
                173,000
                
                
                
                1,366,768Depreciation
      and amortization
                
                
                24,680
                
                
                
                8,671
                
                
                
                38,323(Gain)
      Loss on derivative
                
                
                (2,025,042)
                
                
                
                2,030,042
                
                
                
                5,000(Gain)
      Loss on debt extinguishment
                
                
                (7,137)
                
                
                
                
                -
                
                
                (7,137)Changes
      in operating assets and  liabilitiesPrepaid
      and other current assets
                
                
                (70,600)
                
                
                
                (14,000)
                
                
                
                (84,600
                )Accounts
      payable
                
                
                7,306
                
                
                
                (37,305)
                
                
                
                53,453Accrued
      expenses
                
                
                469,153
                
                
                
                1,081,852
                
                
                
                1,861,734Accounts
      payables to stockholders
                
                
                (4,461)
                
                
                
                4,461
                
                
                
                0NET CASH
      USED IN OPERATING ACTIVITIES
                
                
                (1,642,966
                )
                
                
                (422,156
                )
                
                
                (3,724,345
                )CASH FLOW
      FROM INVESTING ACTIVITIESInvestment
      in patents
                
                
                -
                
                
                
                -
                
                
                
                (67,233
                )Investment
      in intangible assets
                
                
                (8,300)
                
                
                
                -
                
                
                
                (16,000
                )Investment
      in property and equipment
                
                
                (208,459)
                
                
                
                -
                
                
                
                (229,856
                )NET CASH
      USED IN INVESTING ACTIVITIES
                
                
                (216,759)
                
                
                
                -
                
                
                
                (313,089
                )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of stock
                
                
                2,900,000
                
                
                
                -
                
                
                
                4,774,000Advances
      from stockholders
                
                
                133,990
                
                
                
                260,262
                
                
                
                400,702Proceeds
      from warrants exercised
                
                
                13,500
                
                
                
                18,000
                
                
                
                31,500Repayment
      of advances from stockholders
                
                
                (328,790
                )
                
                
                (65,462)
                
                
                
                (401,430
                )Payments
      to third party
                
                
                (100,000)
                
                
                
                -
                
                
                
                (100,000)Convertible
      note proceeds
                
                
                -
                
                
                
                100,000
                
                
                
                100,000NET CASH
      PROVIDED BY FINANCING ACTIVITIES
                
                
                2,618,700
                
                
                
                312,800
                
                
                
                4,804,772NET
      CHANGE IN CASH AND CASH EQUIVALENTS
                
                
                758,975
                
                
                
                (109,356)
                
                
                
                767,338Cash
      and cash equivalents at beginning of period
                
                
                8,363
                
                
                
                117,719
                
                
                
                -Cash
      and cash equivalents at end of period
                
                $
                767,338
                
                
                $
                8,363
                
                
                $
                767,338SUPPLEMENTAL
      DISCLOSURESCash
      paid for interest
                
                $
                4,281
                
                
                $
                108,462Cash
      paid for income taxes
                
                
                -
                
                
                
                -NON-CASH
      TRANSACTIONSConversion
      of Preferred shares to Common Shares
                
                $
                259,643
                
                
                
                76,654Series
      C cancelled
                
                
                11,853
                
                
                
                -





See
accompanying notes to the financial statements


21
 Index




EXOBOX
TECHNOLOGIES CORP.


(A
DEVELOPMENT STAGE COMPANY)


STATEMENTS
OF STOCKHOLDERS’ DEFICIT


October
21, 2002, (inception) to July 31, 2008





Members'
                    
                    
                    
                    
                    
                    
                    
                    
                    Series
      A
                    
                    
                    Series
      B
                    
                    
                    Series
      C
                    
                    
                    Series
      D
                    
                    
                    Additional
                    
                    
                    Accumulated
      Deficit duringCapital
                    
                    
                    Common
      Stock
                    
                    
                    Preferred
      Stock
                    
                    
                    Preferred
      Stock
                    
                    
                    Preferred
      Stock
                    
                    
                    Preferred
      Stock
                    
                    
                    Paid
      in
                    
                    
                    DevelopmentAmount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Shares
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Stage
                    
                    
                    TotalOctober 21,
      2002 (LLC inception)
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    --Capital
      Contribution by Members
                    
                    
                    234,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    234,000Net
      Loss
                    
                    
                    (167,747
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,393
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (167,747
                    )Balances,
      July 31, 2003
                    
                    
                    66,253
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    66,253Capital
      Contribution by Members
                    
                    
                    140,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    140,000June
      28, 2004 (corporation inception)
                    
                    
                    (206,253
                    )
                    
                    
                    10,867,500
                    
                    
                    
                    10,868
                    
                    
                    
                    2,392,915
                    
                    
                    
                    2,393
                    
                    
                    
                    1,120,930
                    
                    
                    
                    1,121
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    359,618
                    
                    
                    
                    (167,747
                    )
                    
                    
                    -Net
      Loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (152,855
                    )
                    
                    
                    (152,855
                    )Balance
      July 31, 2004
                    
                    
                    
                    
                    
                    
                    10,867,500
                    
                    
                    
                    10,868
                    
                    
                    
                    2,392,915
                    
                    
                    
                    2,393
                    
                    
                    
                    1,120,930
                    
                    
                    
                    1,121
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    359,618
                    
                    
                    
                    (320,602
                    )
                    
                    
                    53,398Net
      Loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (11,939
                    )
                    
                    
                    (11,939
                    )Balance
      July 31, 2005
                    
                    
                    
                    
                    
                    
                    10,867,500
                    
                    
                    
                    10,868
                    
                    
                    
                    2,392,915
                    
                    
                    
                    2,393
                    
                    
                    
                    1,120,930
                    
                    
                    
                    1,121
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    359,618
                    
                    
                    
                    (332,541
                    )
                    
                    
                    41,459Issuance
      of capital stock series B in private placement for cash
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    110,150
                    
                    
                    
                    110
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    999,890
                    
                    
                    
                    
                    
                    
                    
                    1,000,000Shares
      issued for consulting services
                    
                    
                    
                    
                    
                    
                    50,000
                    
                    
                    
                    50
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    749,950
                    
                    
                    
                    
                    
                    
                    
                    750,000Issuance
      of capital stock series C for cash under Security Purchase Agreement
      w/  Manillo Investors, Ltd.
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    20,000
                    
                    
                    
                    20
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    499,980
                    
                    
                    
                    
                    
                    
                    
                    500,000Warrant
      Issued for consulting services
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    12,495
                    
                    
                    
                    
                    
                    
                    
                    12,495Net
      Loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,488,331
                    )
                    
                    
                    (2,488,331
                    )Balance
      July 31, 2006 (restated)
                    
                    
                    
                    
                    
                    
                    10,917,500
                    
                    
                    
                    10,918
                    
                    
                    
                    2,392,915
                    
                    
                    
                    2,393
                    
                    
                    
                    1,231,080
                    
                    
                    
                    1,231
                    
                    
                    
                    20,000
                    
                    
                    
                    20
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,621,933
                    
                    
                    
                    (2,820,872
                    )
                    
                    
                    (184,377
                    )Conversion
      of Series B to Series D
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (110,150
                    )
                    
                    
                    (110
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    110,150
                    
                    
                    
                    110
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    -Conversion
      of Preferred to Common Stock
                    
                    
                    
                    
                    
                    
                    76,654,240
                    
                    
                    
                    76,654
                    
                    
                    
                    (360,929
                    )
                    
                    
                    (361
                    )
                    
                    
                    (460,798
                    )
                    
                    
                    (460
                    )
                    
                    
                    (600
                    )
                    
                    
                    (1
                    )
                    
                    
                    (5,158
                    )
                    
                    
                    (5
                    )
                    
                    
                    (75,827
                    )
                    
                    
                    
                    
                    
                    
                    -Stock
      issued for services
                    
                    
                    
                    
                    
                    
                    450,000
                    
                    
                    
                    450
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    172,550
                    
                    
                    
                    
                    
                    
                    
                    173,000Stock
      issued under exercise of warrants
                    
                    
                    
                    
                    
                    
                    90,000
                    
                    
                    
                    90
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    17,910
                    
                    
                    
                    
                    
                    
                    
                    18,000Net
      Loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (3,668,877
                    )
                    
                    
                    (3,668,877
                    )Balance
      July 31, 2007
                    
                    
                    -
                    
                    
                    
                    88,111,740
                    
                    
                    
                    88,112
                    
                    
                    
                    2,031,986
                    
                    
                    
                    2,032
                    
                    
                    
                    660,132
                    
                    
                    
                    661
                    
                    
                    
                    19,400
                    
                    
                    
                    19
                    
                    
                    
                    104,992
                    
                    
                    
                    105
                    
                    
                    
                    2,736,566
                    
                    
                    
                    (6,489,749
                    )
                    
                    
                    (3,662,254
                    )Manillo
      Investors Settlement
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (19,400
                    )
                    
                    
                    (19
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    11,872
                    
                    
                    
                    
                    
                    
                    
                    11,853Stock
      issued to Employees
                    
                    
                    
                    
                    
                    
                    14,678,000
                    
                    
                    
                    14,678
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,955,922
                    
                    
                    
                    
                    
                    
                    
                    2,970,600Conversion
      of Preferred Stock to Common
                    
                    
                    
                    
                    
                    
                    259,643,010
                    
                    
                    
                    259,643
                    
                    
                    
                    (2,025,608
                    )
                    
                    
                    (2,026
                    )
                    
                    
                    (642,564
                    )
                    
                    
                    (643
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (104,992
                    )
                    
                    
                    (105
                    )
                    
                    
                    (256,869
                    )
                    
                    
                    
                    
                    
                    
                    -Stock
      Issued through Private Placement
                    
                    
                    
                    
                    
                    
                    29,000,000
                    
                    
                    
                    29,000
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,043,453
                    
                    
                    
                    
                    
                    
                    
                    2,072,453Warrants
      issued in relation to PPM
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    827,547
                    
                    
                    
                    
                    
                    
                    
                    827,547Stock
      Issued under exercise of Warrant
                    
                    
                    
                    
                    
                    
                    67,500
                    
                    
                    
                    67
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    13,433
                    
                    
                    
                    
                    
                    
                    
                    13,500Warrants
      Granted
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    434,165
                    
                    
                    
                    
                    
                    
                    
                    434,165Stock
      Issued for Consulting Services
                    
                    
                    
                    
                    
                    
                    6,935,000
                    
                    
                    
                    6,935
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    1,186,832
                    
                    
                    
                    
                    
                    
                    
                    1,193,767Net
      Loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (3,217,597
                    )
                    
                    
                    (3,217,597
                    )Balance
      July 31, 2008
                    
                    
                    
                    
                    
                    
                    398,435,250
                    
                    
                    $
                    398,435
                    
                    
                    
                    6,378
                    
                    
                    $
                    6
                    
                    
                    
                    17,568
                    
                    
                    $
                    18
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    9,952,921
                    
                    
                    $
                    (9,707,346
                    )
                    
                    $
                    644,034




See accompanying notes to the
financial statements


22
 Index





EXOBOX
TECHNOLOGIES CORP.


(A
DEVELOPMENT STAGE COMPANY)


NOTES TO
THE FINANCIAL STATEMENTS





NOTE 1 –
NATURE OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES





Nature of
Business. Exobox Technologies Corp. (formerly known as Exobox Technologies LLC),
referred to as “Exobox” or the “Company”, was incorporated in Delaware on June
28, 2004 to patent and market proprietary internet security technology. Exobox
Technologies LLC was incorporated in Texas on October 21, 2002 (inception) and
legally dissolved with the formation of Exobox Technologies Corp. Kilis, Inc.
was originally incorporated in Nevada on December 8, 1999.  OnJune 22,
2005, Kilis,
Inc. changed its name to JinPin, Inc.  On September 14, 2005, JinPin,
Inc. changed its name to Exobox Technologies Corp.  On September 15,
2005, Exobox (Nevada) acquired Exobox Technologies Corp., a Delaware corporation
(Exobox) in exchange for 3,513,845 shares of Exobox (Nevada) convertible
preferred stock (2,392,915 shares of Series A convertible preferred stock and
1,120,930 shares of Series B convertible preferred stock).  On the
effective date, all of the issued and outstanding shares of common stock of
Exobox (Nevada) were converted into the 3,513,845 shares of preferred stock of
Exobox (Nevada) with the Exobox shareholders owning 100% of Exobox’s outstanding
shares of preferred stock and constituted a change in control.




Exobox
was established as an enterprise and home user network and data security
development company to capitalize upon the growing need for a modern, reliable,
efficient, effective and proactive network and data security
solution.





Use of
Estimates. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 amount of revenues and
expenses during the reporting period.  Actual results could differ
from those estimates.





Development
Stage Company.  Exobox follows the presentation and disclosure
requirements of SFAS No. 7 “Accounting and Reporting by Development
Stage Enterprises” as we are in the development stage therein defined as of and
for the year ended July 31, 2008.





Property
and Equipment.  Property and Equipment is stated at cost and
depreciated using the straight-line method over the shorter of the estimated
useful life of the asset or the least term, ranging from three to five
years.  Significant improvements and betterments are
capitalized.  Routine repairs and maintenance are expensed when
incurred.  When property and equipment is sold or otherwise disposed
of, the asset account and related accumulated depreciation account are relieved,
and any gain or loss is included in operations.





The
Company reviews property, plant, and equipment and certain identifiable
intangibles, excluding goodwill, for impairment in accordance with Statement of
Financial Accounts Standard (“SFAS”) No. 144, “Accounting for the Impairment of
Long-Lived Assets” and for “Long-Lived Assets to Be Disposed Of”. Long-lived
assets are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of these assets is measured by comparison of its carrying
amount to future undiscounted cash flows the assets are expected to generate. If
property, plant, and equipment and certain identifiable intangibles are
considered to be impaired, the impairment to be recognized equals the amount by
which the carrying value of the assets exceeds its fair market value.
The Company did not record any impairments during 2008 and
2007.


23
 Index




Income
Taxes. In accordance with SFAS No. 109, “Accounting for Income Taxes”, the
provision for income taxes is computed using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently enacted tax
rates and laws. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be
realized.





Earnings
Per Share.  Basic and diluted earnings or loss per share (EPS) amounts
in the financial statements are computed in accordance with SFAS No. 128,
"Earnings Per Share." Basic EPS is based on the weighted average number of
common shares outstanding. Diluted EPS is based on the weighted average number
of common shares outstanding and dilutive common stock equivalents. Basic EPS is
computed by dividing net income/loss available to common stockholders
(numerator) by the weighted average number of common shares outstanding
(denominator) during the period. Weighted average number of shares used to
calculate basic and diluted loss per share is considered the same as the effect
of dilutive shares is anti-dilutive.





Fair
Value of Financial Instruments.  Fair value is described as the amount
at which the instrument could be exchanged in a current transaction between
informed willing parties, other than a forced liquidation.  Cash and
cash equivalents, accounts payable, accrued expenses and other current
liabilities are reported on the balance sheet at carrying value which
approximates fair value due to the short-term maturities of these
instruments.  Exobox does not have any off balance sheet financial
instruments.





Derivatives.  The
valuation of our embedded derivatives and warrant derivatives are determined
primarily by the Black-Scholes option pricing model. An embedded derivative is a
derivative instrument that is embedded within another contract, which under the
convertible note (the host contract) includes the right to convert the note by
the holder, certain default redemption right premiums and a change of control
premium (payable in cash if a fundamental change occurs). In accordance with
FASB Statement No. 133, as amended, Accounting for Derivative Instruments and
Hedging Activities, these embedded derivatives are marked-to-market each
reporting period, with a corresponding non-cash gain or loss charged to the
current period. A warrant derivative liability is determined in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (“EITF 00-19”). Based on EITF 00-19, warrants which are determined to be
classified as derivative liabilities are marked-to-market each reporting period,
with a corresponding non-cash gain or loss charged to the current period. The
practical effect of this has been that when our stock price increases so does
our derivative liability, resulting in a non-cash loss charge that reduces our
earnings and earnings per share. When our stock price declines, we record a
non-cash gain, increasing our earnings and earnings per share.





To
determine the fair value of our embedded derivatives, management evaluates
assumptions regarding the probability of certain future events. Other factors
used to determine fair value include our period end stock price, historical
stock volatility, risk free interest rate and derivative term. The fair value
recorded for the derivative liability varies from period to period. This
variability may result in the actual derivative liability for a period either
above or below the estimates recorded on our consolidated financial statements,
resulting in significant fluctuations in other income (expense) because of the
corresponding non-cash gain or loss recorded.





Research
and Product Development. Research and product development includes all research
and development expenses and software development costs. We expense all research
and development expenses as incurred. We expense all software development costs
associated with establishing technological feasibility, which we define as
completion of beta testing. Because of the insignificant amount of costs
incurred between completion of beta testing and general customer release, we
have not capitalized any software development costs in the accompanying
financial statements.





Stock-based
Compensation.  Exobox adopted SFAS No. 123(R), in 2007 using the
modified prospective method. SFAS 123(R) requires companies to measure the cost
of employee services received in exchange for an award of an equity instrument
based on the grant-date fair value of the award. For stock-based awards granted
on or after January 1, 2006, stock-based compensation expense is recognized on a
straight-line basis over the requisite service period. We account for
non-employee share-based awards in accordance with EITF No. 96-18, “Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquisition,
or in Conjunction with Selling, Goods or Services.” There were no stock options
granted during the fiscal year 2008 and 2007.  There were warrants
granted for services and in relation to PPM in fiscal year 2008, but none in
2007.





During
year ended July 31, 2008 and 2007, the fair value of each warrant award was
determined as of the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:





Assumption:
                
                2008
                
                
                2007Expected
      Volatility
                
                263.77
      - 273.25%
                
                
                n/aExpected
      term (years)
                
                2.0
      - 2.5
                
                
                n/aRisk-free
      interest rate
                
                1.93
      - 4.14%
                
                
                n/aExpected
      dividend yield
                
                -
                
                
                n/a






Expected
volatility is based solely on historical volatility of our common stock over the
period that approximates the expected term. We rely solely on historical
volatility as we do not have traded options .  The expected term
calculation is based on the simplified method. The risk-free interest rate is
based on the U.S. Treasury yield in effect at the time of grant for an
instrument with a maturity that is commensurate with the expected term. The
dividend yield of zero is based on the fact that we have never paid cash
dividends on our common stock, and we have no present intention to pay cash
dividends.


24
 Index


Recent
Accounting Pronouncements.





Exobox
does not expect the adoption of any recently issued accounting pronouncements to
have a significant impact on their financial position, results of operations or
cash flows.







NOTE 2 -
GOING CONCERN





From
Inception to July 31, 2008, Exobox has accumulated losses of $9,707,346. The
ability of Exobox to emerge from the development stage with respect to any
planned principal business activity is dependent upon its success in raising
additional equity financing and/or attaining profitable operations. Management
has plans to seek additional capital if it feels the $2.9 million that has
been raised isn’t sufficient to continue its coding of its software and
introduce the resulting product to market. There is no guarantee that Exobox
will be able to complete any of the above objectives. These factors raise
substantial doubt regarding Exobox's ability to continue as a going
concern.








NOTE 3 -
PROPERTY AND EQUIPMENT





Property
and equipment consisted of the following at July 31, 2008:





Description
                                  
                                  Life
                                  
                                  
                                  AmountFurniture
      and fixtures
                                  
                                  5
      years
                                  
                                  
                                  $
                                  98,338Leashold
      improvements
                                  
                                  5
      years
                                  
                                  
                                  
                                  59,016Computers
                                  
                                  3
      years
                                  
                                  
                                  
                                  49,172Telephone
      system
                                  
                                  5
      years
                                  
                                  
                                  
                                  19,042Copier
                                  
                                  5
      years
                                  
                                  
                                  
                                  4,286229,854Less:
      accumulated depreciation
                                  
                                  
                                  
                                  
                                  (16,631)$ 213,223






Depreciation
expense totaled $ 7,398 and $ 6,151 in fiscal 2008 and 2007,
respectively.








NOTE 4 –
PATENTS





Exobox
has two technological inventions with patents pending in United States and
throughout the world.   The rights and interest include, among
other things, (i) the patent applications and any changes or amendments thereto,
(ii) the invention, (iii) the technical information, trade secrets, identities
of customers, studies, plans, drawings, blueprints and specifications,
production methods, (iv) the embodiment of any claim described and claimed in
any valid claim of the patent application, (v) right to file foreign patent
applications, and (vi) any all patents resulting from current patent
applications.


25
 Index


Patents
are mainly comprised of legal services paid to a shareholder and patent
application fees.  Exobox began amortizing these costs since the
patents have been granted.  Amortization totaled $13,643 and $0 in
fiscal 2008 and 2007, respectively.








NOTE 5 -
INCOME TAXES





Exobox
has incurred net losses since inception and, therefore, has no tax
liability.  The net deferred tax asset generated by the loss
carry-forward has been fully reserved. The cumulative net operating loss
carry-forward is approximately $6 million at July 31, 2008, and will expire in
the years 2026 through 2028.





At July
31, 2008, deferred tax assets consisted of the following:





Deferred
      tax assets
                  
                  $
                  2,158,704Valuation
      allowance
                  
                  
                  (2,158,704
                  )Net
      deferred taxes
                  
                  $
                  0






NOTE 6 –
RELATED PARTIES





Accounts
payable to stockholders represent amounts owed to stockholders primarily for
reimbursement of general and administrative costs paid on behalf of
Exobox.  Accounts payable to stockholders totaled $0 at July 31, 2008
and $4,461 at July 31, 2007.





Certain
of Exobox’s stockholders have advanced cash to the company for working capital
purposes.  The advances are payable upon demand and do not accrue
interest.  Advances totaled $0 at July 31, 2008 and $194,800 at July
31, 2007.








NOTE 7 –
COMMITMENTS





Leases





Beginning
in September 2004, Exobox leased an office in Houston, Texas through a verbal
agreement from a third party for $500 per month.  The lease is on a
month-to-month basis.  The lease was terminated in April
2008.





Beginning
in April 2007, Exobox leased facilities in Houston, Texas from a third
party for $2,045 per month for the first six months and $2,093 per month for the
second six months.  The lease is now on a month-to-month
basis.





Beginning
in November 2007, Exobox leased offices in Houston, Texas from a third party for
$3,911 per month.  The lease is on a month-to-month
basis.  The lease was terminated in April 2008.





In 2008,
Exobox leased 6,178 square feet of office space in Houston, Texas from a third
party for $9,781.83 per month.  The lease is for a five (5) year
term.





Rent
expense totaled approximately $60,000 for the year ended July 31, 2008 and
$29,000 for the year ended July 31, 2007.





Future
minimum lease payments under a non-cancelable operating lease is as
follows:





Year
      Ending July 31,2009
                  
                  $
                  118,4622010
                  
                  
                  118,4622011
                  
                  
                  118,4622012
                  
                  
                  118,4622013
                  
                  
                  49,359After
      2013
                  
                  
                  0


26
 Index




Contingencies





In the
normal course of business, Exobox may become subject to lawsuits and other
claims and proceedings. Such matters are subject to uncertainty and outcomes are
not predictable with assurance. Management is not aware of any pending or
threatened lawsuits or proceedings which would have a material effect on
Exobox’s financial position, liquidity, or results of operations.








NOTE 8 –
DEBT





On
September 14, 2006, Exobox received $100,000 cash from a Preferred Shareholder
in exchange for a 10% Convertible Promissory Note for $100,000 due on January 1,
2007. The conversion option of this note was determined to be a derivative which
established a Derivative Liability as of July 31, 2007 of
$2,025,042.  The note payable was in default at July 31, 2007.
Effective September 10, 2007, we entered into a settlement agreement and
mutual release with Manillo Investments, Ltd (“Manillo Settlement”), pursuant to
which we agreed to issue Manillo Investment, Ltd a new promissory note in the
principal amount of $500,000 with principal and accrued interest due within five
years in exchange for Manillo Investment, Ltd. (i) cancelling a convertible note
with an outstanding balance as of July 31, 2007 of $105,000, (ii) terminating
the securities purchase agreement issued in connection with the convertible
note, and (iii) assigning the Series C Preferred Stock to us.  Exobox
evaluated the modification under EITF 96-19 and concluded that this modification
is an extinguishment of the original debt.





Therefore
as a result of the Manillo Settlement, there are no Series C Preferred Stock
outstanding, the difference in the principal amounts resulted in a Loss on
Extinguishment of Debt of $395,000, and the derivative liability was
extinguished which resulted in a Gain on Derivative of $2,025,042 during fiscal
2008.





The
$500,000 promissory note gave Exobox the right to prepay in full the principal
and all accrued interest prior to the date of maturity without penalty as
follows:


·
            If
      paid within one year of the note issuance date, the prepayment price is
      $100,000


·
            If
      paid within two years of the note issuance date, the prepayment price is
      $200,000


·
            If
      paid within three years of the note issuance date, the prepayment price is
      $300,000


·
            If
      paid within four years of the note issuance date, the prepayment price is
      $400,000





In June
of 2008, the $500,000 note was paid in full at the prepayment price of
$100,000.  Since the prepayment was made within one year of the
issuance date, this payment eliminated the note in full which created a Gain on
Extinguishment of Debt of $400,000 and Exobox recognized the accrued interest as
a Gain on Extinguishment of Debt of $2,137.








NOTE 9 –
STOCKHOLDERS’ EQUITY





Exobox is
authorized to issue 500,000,000 shares of Class A common stock and undesignated
common stock, $.001 par value, and 4,630,150 shares of preferred stock, $.001
par value, of which 2,500,000 shares have been designated Series A convertible
preferred stock, 2,000,000 shares have been designated Series B convertible
preferred stock, 20,000 shares have been designated Series C convertible
preferred stock and 110,150 shares have been designated Series D convertible
preferred stock.





Common
Stock





Holders
of common stock are entitled to one vote per share on all matters to be voted
upon by the shareholders. Except as otherwise provided by law, the holders of
shares of common stock vote as one class.





Each
share of common stock shall have the same relative powers, preferences and
rights as, and shall be identical in all respects with, all our other shares of
common stock.





Preferred
Stock





Exobox is
authorized to issue 4,630,150 shares of preferred stock in one or more
series.





Series A
Convertible Preferred Stock. Exobox designated 2,500,000 shares as “Series A
convertible preferred stock." The shares of the Series A preferred stock rank
prior to the common stock, and prior to any class or series of capital stock now
outstanding or hereafter created. No dividends shall be payable to the holder of
shares of Series A preferred stock, except dividends in liquidation. Each share
of Series A preferred stock has the number of votes equal to the number
authorized by the shares of Class A common stock into which such share of Series
A preferred stock is then convertible. Except as otherwise required by law, the
holders of shares of common stock and Series A preferred stock shall vote
together and not as separate classes.





Series A
preferred stock is convertible 12 months after issue into common
stock.  The shares of Series A preferred, along with the shares of
Series B preferred, are convertible into 92% of the total outstanding common
before the issuance of any shares of Series C preferred stock. The holders of
Series A preferred vote on an as converted basis.





Series B
Preferred Stock. Exobox has designated 2,000,000 shares as Series B convertible
preferred stock. The shares of the Series B preferred stock rank prior to the
common stock; and prior to any class or series of capital stock now outstanding
or hereafter created. No dividends shall be payable to the holder of shares of
Series B preferred stock, except dividends in liquidation. Each share of
outstanding Series B preferred stock has the number of votes equal to the number
of shares of common stock into which such share of Series B preferred stock is
then convertible. Except as otherwise required by law or by the Articles, the
holders of shares of common stock and Series B preferred stock shall vote
together and not as separate classes.


27
 Index




Series B
preferred stock is convertible 12 months after issue into common stock. The
shares of Series B preferred, along with the shares of Series A preferred, are
convertible into 92% of the total outstanding common before the issuance of any
shares of Series C preferred stock. The holders of Series B preferred vote on an
as converted basis.





Series C
Preferred Stock. Exobox has designated 20,000 shares as Series C convertible
preferred stock each in the face amount of $25. No dividends shall be payable to
the holders of shares of Series C preferred stock.





The
Shares of Series C preferred stock are collectively convertible into five (5%)
percent of the total number of outstanding shares of all classes of common stock
immediately after conversion of all outstanding shares of Series A and Series B
preferred stock.





Series D
Preferred Stock. Exobox has designated 110,150 shares as Series D convertible
preferred stock each in the face amount of $0.001. No dividends shall be payable
to the holders of shares of Series D preferred stock.





The
Shares of Series D preferred stock are collectively convertible into 4.00064800%
of the total number of outstanding shares of all classes of common stock
immediately after conversion of all outstanding shares of Series A, Series B,
and Series C preferred stock.





During
August, September and October 2007, all of the holders of Exobox’s Class A
Common Stock and Series D Preferred Stock and most of the Series A and B
Preferred Stock converted into shares of Exobox’s common stock.  Due to the
conversions, Exobox exchanged (i) 9,939,101 shares of common stock for 9,939,101
shares of our Class A Common Stock, (ii) 186,475,319 shares of our common stock
for 2,025,608 shares of Series A Preferred Stock, (iii) 59,153,752 shares of our
common stock for  642,564 shares of Series B Preferred Stock and (iv)
14,013,939 shares of our common stock for 104,992 shares of Series D Preferred
Stock.  Therefore,  there are no longer any shares of
Class A Common Stock and Series D Preferred Stock.





Stock
Option, Stock Warrant and Stock Award Plan





On
September 15, 2005, Exobox adopted a stock option, stock warrant and stock award
plan for officers, directors, consultants and key employees of Exobox. Exobox
reserved 1,630,125 shares of common stock, warrants, options, preferred stock or
any combination thereof for the plan.





On June
18, 2007 Exobox filed with the SEC an S-8 registration statement registering
20,000,000 shares reserved for officers, directors, consultants and key
employees of Exobox.








WARRANTS





At July
31, 2008, Exobox had outstanding and exercisable warrants to purchase an
aggregate of 11,692,500 shares of


common
stock. The weighted average remaining life is 2.98 years and the weighted
average price per share is $0.61 per share.





The
status of the warrants as of July 31, 2008, is as follows:





Warrants
      Outstanding and Exercisable
                    
                    Warrants
                    
                    
                    Weighted
      Average Exercise PriceOUTSTANDING,
      July 31, 2006
                    
                    
                    4,550,000
                    
                    
                    $
                    0.20Granted
                    
                    
                    -
                    
                    
                    
                    -Expired
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    (90,000
                    )
                    
                    
                    0.20OUTSTANDING,
      July 31, 2007
                    
                    
                    4,460,000
                    
                    
                    $
                    0.20Granted
                    
                    
                    7,300,000
                    
                    
                    
                    0.86Expired
                    
                    
                    -
                    
                    
                    
                    -Exercised
                    
                    
                    (67,500)
                    
                    
                    
                    0.20OUTSTANDING,
      July 31, 2008
                    
                    
                    11,692,500
                    
                    
                    $
                    0.61


28
 Index




Following
is the details of warrants outstanding as of July 31, 2008:





Number
      of Common Stock Equivalents
                        
                        Expiration
      Date
                        
                        Remaining
      Contracted Life (Years)
                        
                        
                        Exercise
      Price4,342,500
                        
                        10/31/2010
                        
                        
                        2.25
                        
                        
                        $
                        0.201,500,000
                        
                        9/24/2012
                        
                        
                        4.17
                        
                        
                        $
                        0.3050,000
                        
                        7/31/2011
                        
                        
                        3.00
                        
                        
                        $
                        0.255,800,000
                        
                        12/31/2011
                        
                        
                        3.52
                        
                        
                        $
                        1.00






For the
year ended July 31, 2008, 67,500 warrants were exercised at an exercise price of
$0.20 per share for total proceeds of $13,500.





For the
year ended July 31, 2008, 7,300,000 warrants were granted as
follows:


·
            1,500,000
      to Kevin P Regan on September 24, 2007 for consulting
      services.  Exercise price is $.30 per share, and Regan has 5
      years to exercise.  These warrants vested immediately,
      therefore, Exobox recognized $434,165 of
  expense.


·
            5,800,000
      to various PPM holders in conjunction with stock issued for
      cash.  Exercise price is $1.00 per share, and holders have until
      December 31, 2011 to exercise.  The value of these warants was
      applied to the fair value of the PPM which resulted in $827,547 of
      additional paid-in-capital.




Assumption:
                
                2008
                
                
                2007Expected
      Volatility
                
                
                263.77
      - 273.25%
                
                
                n/aExpected
      term (years)
                
                
                2.0
      - 2.5
                
                
                n/aRisk-free
      interest rate
                
                
                1.93
      - 4.14%
                
                
                n/aExpected
      dividend yield
                
                
                -
                
                
                n/a






Expected
volatility is based solely on historical volatility of our common stock over the
period that approximates the expected term. We rely solely on historical
volatility as we do not have traded options .  The expected term
calculation is based on the simplified method. The risk-free interest rate is
based on the U.S. Treasury yield in effect at the time of grant for an
instrument with a maturity that is commensurate with the expected term. The
dividend yield of zero is based on the fact that we have never paid cash
dividends on our common stock, and we have no present intention to pay cash
dividends.


29
 Index




ITEM8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





None





ITEM8A. CONTROLS AND PROCEDURES





We have
carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer (the "CEO") and
our Chief Financial Officer (the "CFO"), of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Act")) as of the end of the fiscal quarter covered by this
report. Based upon that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures are not effective in providing
reasonable assurance that (a) the information required to be disclosed by
us in the reports that we file or submit under the Act is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and (b) such
information is accumulated and communicated to our management, including
our CEO and CFO, as appropriate to allow timely decisions regarding
required disclosure. Specifically, our independent auditor
identified weaknesses in our disclosure controls related to valuing and
accounting for share based payments, derivative financial instruments and
accrued expenses. We plan to remediate this deficiency in disclosure
controls by increasing the supervision and training of accounting
employees.





There has
been no change in our internal control over financial reporting during the
fiscal year covered by this report that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting





Disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities  Exchange Act of 1934 (the "Exchange  Act")) are
designed to ensure that information required to be disclosed in reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported
within the time periods  specified in Securities and Exchange
Commission rules and forms and that such information is accumulated and
communicated to management, including the Chief  Executive Officer and
Principal Accounting Officer, to allow timely decisions regarding required
disclosures.





In
connection with the preparation of this Annual Report on Form10-KSB, our
management, with the participation of our Chief Executive Officer and our
Principal Accounting Officer, carried out an evaluation of the effectiveness of
our disclosure controls and procedures as of July 31, 2008, as required by Rule
13a-15 of the Exchange Act.  Based on the evaluation described above,
our management, including our principal executive officer and principal
accounting officer, have concluded that, as of July 31, 2008, our disclosure
controls and procedures were not effective.





Notwithstanding
the existence of the material weaknesses described below, we concluded that the
consolidated financial statements in this Annual Report on Form 10-KSB present
fairly, in all material respects, the Company's financial condition, results of
its operations and cash flows for the year ended July 31, 2008, in conformity
with U.S. generally accepted accounting principles ("GAAP").





Management's
Report on Internal Control over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act.  Internal control over financial
reporting is a process designed under the supervision of our principal executive
and principal financial officers to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with GAAP.





Due to
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements and, even when determined to be effective, can only
provide reasonable, not absolute, assurance with respect to financial statement
preparation and presentation.  Projections of any evaluation of
effectiveness to future periods are subject to risk that controls may become
inadequate as a result of changes in conditions or deterioration in the degree
of compliance.





Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Principal Accounting Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting as of July
31, 2008, based on the criteria framework established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission ("COSO").





As a
result of the material weaknesses described below, management concluded that as
of July 31, 2008, we did not maintain effective internal control over financial
reporting based on the criteria established in Internal Control - Integrated
Framework, issued by COSO.


30
 Index




A
material weakness in internal controls is a significant deficiency, or a
combination of significant deficiencies, that results in more than a remote
likelihood that a material misstatement of the financial statements would not be
prevented or detected on a timely basis by the Company.  While our
control deficiencies have not resulted in any material misstatements of account
balances or disclosures that we are aware of, they could result in misstatements
or disclosures which could cause a material misstatement of annual or interim
financial statements that would not be prevented or
detected.  Accordingly, management has determined that these control
deficiencies constitute a material weakness.  An evaluation of entity
level and process level controls was completed during the year.  In
connection with management's evaluation of our internal control over financial
reporting, we identified the following material weaknesses in our internal
control over financial reporting as of July 31, 2008, that had not been fully
remedied:





1.
            Deficiency
      in the Company’s Entity Level Controls.  The Company’s entity
      level controls environment did not sufficiently promote effective internal
      controls over financial reporting throughout the
      organization.  This material weakness exists as a result of a
      deficiency to attract a “financial expert” to the Audit
      Committee.  The Principal Accounting Officer is actively
      involved in the preparation and approval of financial schedules and
      journal entries, and therefore cannot provide an independent review and
      quality assurance function within the accounting and financial reporting
      group.  The limited number of accounting personnel and a lack of
      a “financial expert” on the Audit Committee results in an inability to
      have independent review and of financial accounting entries and the
      financial statements and related footnotes.  There is a risk
      that a material misstatement of the financial statements could be caused,
      or at least not be detected in a timely manner, due to insufficient
      financial expert oversight.





2.
            Deficiency
      in Segregation of Duties.  There is a lack of segregation of
      duties between the custody of assets and the recording of
      transactions.  Specifically, the Principal Accounting Officer
      signs checks, receives and reviews unopened bank statements and cancelled
      checks and performs bank reconciliations. This condition could provide an
      opportunity for misappropriation of funds and concealment of such
      activity.  There is a risk for fraud or management override due
      to the lack of segregation of duties between the custody of assets and the
      recording of transactions.





Remediation
Initiatives





During
fiscal 2009, we plan to implement a number of remediation measures to address
the material weaknesses described above.  These organizational and
process changes will improve our internal controls environment.  The
changes made through the date of this annual report includes our retention of an
outside consulting  firm to assist us in the evaluation and testing of
our internal control system and to identify improvement opportunities
related  to our accounting and financial reporting processes in
order  to streamline and improve the effectiveness of these
processes.  The Company's remediation plans include complete
implementation and execution of controls and procedures identified in
management's assessment of the entity level, financial reporting and other
process level controls.





Management
recognizes that many of these enhancements require continual monitoring and
evaluation for effectiveness.  The development of these actions is an
iterative process and will evolve as the Company continues to evaluate and
improve our internal controls over financial reporting.  The results
of management's assessment were reviewed with our Board of
Directors.





Management
will review progress on these activities on a consistent and ongoing basis at
the Chief Executive Officer and senior management level in conjunction with our
Board of Directors.  We also plan to take additional steps to elevate
Company awareness about, and communication of, these important issues through
formal channels such as Company meetings, departmental meetings, and
training.





This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by the
company's registered public accounting firm pursuant to rules of the Securities
and Exchange Commission that permit the company to provide only management's
report in this annual report.




ITEM8B OTHER INFORMATION





There is
no information required to be disclosed in a report Form 8-K during the fourth
quarter of the year covered by this Form 10-KSB, but not reported on a Form
8-K.


31
 Index


PART
III





ITEM9. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT





Directors and Executive
Officers.





The
position(s) held by each of our executive officers and Directors as of July 31,
2008 are shown in the following table. Biographical information for each is set
forth following the table. Each Director serves until a successor is elected and
has qualified.





Name
                  
                  Age
                  
                  
                  PositionRobert B. Dillon
                  
                  58
                  
                  
                  President,
      Chief Executive Officer and Chairman of the BoardScott Copeland
                  
                  42
                  
                  
                  Executive
      Vice President of Research & Development and
  DirectorMarc Pernia
                  
                  41
                  
                  
                  Chief
      Product Development Administrator and DirectorMichael G. Wirtz
                  
                  48
                  
                  
                  Vice
      President-Chief Financial OfficerRichard A. Evans,
      M.D.
                  
                  64
                  
                  
                  DirectorMichael S. Studdard
                  
                  58
                  
                  
                  Director





RobertB.Dillon, a 1971 graduate of
the University of Texas and a 1974 graduate of the University of Texas School of
Law, is a practicing attorney and seasoned executive with thirty (30) years of
litigation and transactional experience.  Mr. Dillon has served
as CEO, President and Chairman of the Board since April 2004.  Prior
thereto, Mr. Dillon was engaged in the private practice of
law.





ScottCopeland, a co-founder of
Exobox and co-inventor of its technology, is an expert programmer with
world-wide experience in internet security gained during his employment with
Compaq, Gateway, Matrix and Axis Host.  Mr. Copeland has served
as vice president and director since 2002. Prior to that time, Mr. Copeland
was a self-employed computer consultant.




MarcPernia has served as chief
product development administrator and director since July 2003.  From
1999 to 2002, Mr. Pernia was a Senior Unix Systems Administrator with
Electronic Arts.   Mr. Pernia is a Senior Unix Systems
Administrator with an A.S. degree in Computer Science from Foothill College in
1994 and Computer Science studies at Stanford University, has extensive computer
systems program development and administrative experience in the industry over
the last 10 years for such Silicon Valley entities as Electronic Arts, Mind
Source, the SETI Institute and the NASA Ames Research Center, as well as
considerable experience in the configuration and maintenance of such software
applications as Veritas, Weblogic, Netscape, iPlanet, Marimba, LDAP and *SQL,
Tomcat, Apache and WebX.





MichaelG.Wirtz has served as vice
president and chief financial officer since 2005.  Prior to working
with the Company, Mr. Wirtz was self employed.  Mr. Wirtz is
a 1984 MBA graduate of Texas Tech University who also earned a B.S.
degree in Accounting from the University of Mary. He is a financial professional
with experience as a corporate comptroller for a group of marine companies and
previously managed another public corporation.





RichardA.Evans,M.D. has served as a director
since 2005.  Mr. Evans is self employed and has been a practicing
physician for the last 5 years .  Mr. Evans received his Bachelor
of Arts degree from Rice University in Houston, and his Doctor of Medicine
and Master of Science (physiology and immunology) degrees from Tulane University
School of Medicine in New Orleans. He pursued specialty training in general
surgery at the University of California, School of Medicine, San Francisco and
at Stanford University School of Medicine in Palo Alto. Dr. Evans completed
his general surgery training at St. Joseph Hospital in Houston. This
included training at the University of Texas M. D. Anderson Cancer Center and a
one year fellowship in surgical oncology working under world renowned cancer
specialist, Dr. John S. Stehlin, Jr. Dr. Evans
maintains a private practice in oncology and alternative medicine in Houston,
Texas. He founded the Texas Cancer Center, a 501(c)(3) nonprofit
organization in 1998.





MichaelS.Studdard was appointed
to the Exobox board on April 4, 2008. Mr. Studdard has served for almost
two years as President and a Director of Wentworth Energy, Inc., a
publicly-traded oil and gas exploration and development company based in
Palestine, Texas, for which he successfully arranged $32.35 million in
financing. Mr. Studdard has more than 25 years experience in operating
several diversified companies in the oil and gas industry and brings strong,
independent general business skills to the Exobox Board of
Directors.





On
November 6, 2008, Jonathan Kim was elected to serve as a member of the Board of
Directors, filling the 6th Board seat.




32
 Index




Code
of Ethics for the CEO, CFO and Senior Financial Officers





In 2005,
in accordance with SEC rules, the Board of Directors adopted the Code of
Business Conduct and Ethics. The Board of Directors believes that each officer,
director and employee must set an exemplary standard of conduct, particularly in
the areas of accounting, internal accounting control, auditing and finance. This
code sets forth ethical standards to which the designated officers must adhere
and other aspects of accounting, auditing and financial
compliance.  The Code of Ethics may be found on the Company’s website
at www.exobox.com




Audit
Committee and Audit Committee Financial Expert; Nominating
Directors





Other
than Dr. Evans and Mr. Studdard, none of the directors are independent
as defined by Rule 10A-3 of the Exchange Act.  The Company’s Audit
Committee is comprised of Mr. Studdard (Chairman of the Audit Committee),
Dr. Evans, Mr. Dillon and Mr. Copeland. The Company does not have
an “Audit Committee Financial Expert” as a member of its audit committee. The
Company does not have available any person with the requisite background and
experience, nor has the Company been able to attract anyone to its Board with
the requisite background.  We have not adopted any procedures
regarding security holders’ nominating directors.





Compliance
with Section 16(a) of The Exchange Act





To our
knowledge, based solely on a review of the copies of the reports furnished to us
and written representations that no other reports were required, during
the year ended July 31, 2008, all Section 16(a) filing requirements
applicable to our officers, directors and greater than 10% beneficial owners
were complied with and no reports or transactions were filed late except for the
following:  Reginald Goodman failed to timely report a transaction on
Form 4 for a July 30, 2007, sale, which was subsequently reported on a Form 4 on
August 2, 2007, transactions on Form 4 for a October 10, 2007, sales, which were
subsequently reported on a Form 4 on October 15, 2007, a transaction on Form 4
for a October 2, 2007, conversion of stock, which was subsequently reported on a
Form 4 on October 26, 2007, a transaction on Form 4 for a November 20, 2007,
acquisition, which was subsequently reported on a Form 4 on November 23, 2007, a
transaction on Form 4 for a January 11, 2008, sal, which was subsequently
reported on a Form 4 on January 15, 2008,  and a transaction on Form 4
for a May 16, 2008, gift, which was subsequently reported on a Form 4 on May 19,
2008;  Michael C. Wittenburg failed to timely report transactions on Form 4
for August 9, 2007 and August 10, 2007, sales, which were subsequently reported
on a Form 4 on August 14, 2007, transactions on Form 4 for August 13, 2007 and
August 15, 2007, sales, which were subsequently reported on a Form 4 on August
20, 2007, transaction on Form 4 for October 2, 2007, sale, which was
subsequently reported on a Form 4 on October 10, 2007,  transaction on
Form 4 for October 16, 2007, conversion of stock, which was subsequently
reported on a Form 4 on October 29, 2007, a transaction on Form 4 for a November
20, 2007, acquisition, which was subsequently reported on a Form 4 on November
26, 2007, transaction on Form 4 for November 29, 2007, sale, which was
subsequently reported on a Form 4 on December 4, 2007, transactions on Form 4
for January 5 and 30, 2008, sales, which were subsequently reported on a Form 4
on February 8, 2008, and  transactions on Form 4 for May 23, 24 and 25,
2007, sales, which were subsequently reported on a Form 4 on May 20, 2008; Scott
R. Copeland failed to timely report transactions on Form 4 for August 14, 17, 20
and 21, 2007, sales, which were subsequently reported on a Form 4 on August 24,
2007, transactions on Form 4 for  September 11 and 12, 2007, sales,
which were subsequently reported on a Form 4 on September 18, 2007, transaction
on Form 4 for a October 5, 2007, sale, which was subsequently reported on a Form
4 on October 10, 2007,  transactions on Form 4 for October 12, 15, 16
and 17, 2007, sales, which were subsequently reported on a Form 4 on October 23,
2007, transaction on Form 4 for a October 16, 2007, conversion of stock, which
was subsequently reported on a Form 4 on October 26, 2007, transactions on Form
4 for October 19 and 23, 2007, sales, which were subsequently reported on a Form
4 on October 26, 2007, transaction on Form 4 for a November 20, 2007,
acquisition, which was subsequently reported on a Form 4 on November 26, 2007,
transaction on Form 4 for a February 4, 2008, sale, which was subsequently
reported on a Form 4 on February 8, 2008, transactions on Form 4 for May 5 and
6, 2008, sales, which were subsequently reported on a Form 4 on May 9, 2008,
transactions on Form 4 for May 8 and 9, 2008, sales, which were subsequently
reported on a Form 4 on May 12, 2008, transaction on Form 4 for a May 13, 2008,
sale, which was subsequently reported on a Form 4 on May 19, 2008, transaction
on Form 4 for a May 16, 2008, gift, which was subsequently reported on a Form 4
on May 19, 2008, transactions on Form 4 for May 28 and 29, 2008, sales, which
were subsequently reported on a Form 4 on June 2, 2008, and transactions on Form
4 for June 12 and 13, 2008, sales, which were subsequently reported on a Form 4
on June 17, 2008; Michael G. Wirtz failed to timely report a transaction on Form
4 for October 2, 2007, conversions of stock, which were subsequently reported on
a Form 4 on October 25, 2007, transaction on Form 4 for a November 20, 2007,
acquisition, which was subsequently reported on a Form 4 on November 26, 2007,
and transaction on Form 4 for a May 16, 2008, gift, which was subsequently
reported on a Form 4 on May 19, 2008; Marcos B. Pernia failed to timely report
transactions on Form 4 for May 1, 4 and 15, 2007, August 6, 9 and 10, 2007,
sales, which were subsequently reported on a Form 4 on October 25, 2007,
transactions on Form 4 for September 24, 25 and 26, 2007 and October 5, 2007,
which were subsequently reported on a Form 4 on October 30, 2007, a transaction
on Form 4 for a November 20, 2007, acquisition, which was subsequently reported
on a Form 4 on November 30, 2007, and a transaction on Form 4 for a May 16,
2008, gift, which was subsequently reported on a Form 4 on May 20,
2008;     and  Robert B. Dillon failed to
timely report transactions on Form 4 for August 24 and 29, 2007, September 6, 7,
10 and 13, 2007, sales, which were subsequently reported on a Form 4 on
September 18, 2007, transactions on Form 4 for September 18, 19, 24, 26 and 28,
2007and October 1, 2, 3 and 4, 2007, sales, which were subsequently reported on
a Form 4 on October 10, 2007, a transaction on Form 4 for a October 16, 2007,
conversion, which was subsequently reported on a Form 4 on October 25, 2007, a
transaction on Form 4 for a November 20, 2007, acquisition, which was
subsequently reported on a Form 4 on November 26, 2007, transactions on Form 4
for November 20, 21, 23, 26 and 28, 2007 and January 16, 18 and 22, 2008, sales,
which were subsequently reported on a Form 4 on February 1, 2008,
and  transactions on Form 4 for April 10, 11, 18,21 & 30, 2008 and
May 2, 5, 8, 9, 12, & 15, 2008, sales, which were subsequently reported on a
Form 4 on May 19, 2008.


33
 Index


ITEM10. EXECUTIVE COMPENSATION





Compensation
of Management




The
following table sets forth the compensation paid to our Chief Executive Officer
or such other officer who fulfilled the duties of the Chief Executive Officer
for the periods indicated. Except for the individuals named, no executive
officers had a total annual salary and bonus of $100,000 or more.




Summary
Compensation Table


Name
                                                        Principal
      Position
                                                      
                                                      
                                                      
                                                      Salary
                                                      
                                                      
                                                      Bonus
                                                      
                                                      
                                                      Stock
      Awards
                                                      
                                                      
                                                      Option
      Awards
                                                      
                                                      
                                                      Non-Equity
      Incentive Plan Compensation
                                                      
                                                      
                                                      All
      Other Compensation
                                                      
                                                      
                                                      TotalRobert B. Dillon
                                                      
                                                      7/31/2008
                                                      
                                                      $
                                                      290,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      290,000Chairman,
      CEO, Pres. & Director
                                                      
                                                      7/31/2007
                                                      
                                                      $
                                                      240,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      240,0007/31/2006
                                                      
                                                      $
                                                      132,250
                                                      
                                                      
                                                      $
                                                      10,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      142,250Scott Copeland
                                                      
                                                      7/31/2008
                                                      
                                                      $
                                                      215,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      215,000Vice
      President-Operations & Director
                                                      
                                                      7/31/2007
                                                      
                                                      $
                                                      242,900
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      242,9007/31/2006
                                                      
                                                      $
                                                      131,857
                                                      
                                                      
                                                      $
                                                      10,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      141,857Marc Pernia
                                                      
                                                      7/31/2008
                                                      
                                                      $
                                                      200,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      200,000Chief
      Product Development Admin. & Director
                                                      
                                                      7/31/2007
                                                      
                                                      $
                                                      244,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      244,0007/31/2006
                                                      
                                                      $
                                                      131,923
                                                      
                                                      
                                                      $
                                                      10,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      141,923Michael G. Wirtz
                                                      
                                                      7/31/2008
                                                      
                                                      $
                                                      174,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      174,000Vice
      Pres. & CFO
                                                      
                                                      7/31/2007
                                                      
                                                      $
                                                      133,500
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      133,5007/31/2006
                                                      
                                                      $
                                                      79,750
                                                      
                                                      
                                                      $
                                                      10,000
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      $
                                                      89,750








Executive
Employment Agreements




Mr. Dillon’s
employment agreement provides for an annual salary of $300,000, is effective
through March 1 2010, and automatically renews for successive one-year terms
unless terminated. In addition, Mr. Dillon is eligible to receive an annual
bonus based on performance criteria as determined by the compensation committee
of the board of directors.  Mr. Dillon receives
customary fringe benefits.


34
 Index




Mr. Copeland’s
employment agreement provides for an annual salary of $150,000, is effective
through March 1 2010, and automatically renews for successive one-year
terms unless terminated. In addition, Mr. Copeland is eligible to receive
an annual bonus based on performance criteria as determined by the compensation
committee of the board of directors.  Mr. Copeland receives
customary fringe benefits.





Mr. Pernia’s
employment agreement provides for an annual salary of $120,000, is effective
through March 1 2010, and automatically renews for successive one-year
terms unless terminated. In addition, Mr. Pernia is eligible to receive an
annual bonus based on performance criteria as determined by the compensation
committee of the board of directors.  Mr. Pernia receives
customary fringe benefits.





Mr. Wirtz’s
employment agreement provides for an annual salary of $180,000, is effective
through March 1 2010, and automatically renews for successive one-year
terms unless terminated. In addition, Mr. Wirtz is eligible to receive an
annual bonus based on performance criteria as determined by the compensation
committee of the board of directors.  Mr. Wirtz receives
customary fringe benefits.




Business Protection, Severance and
Non-Compete Agreements.Pursuant to the terms
of each employment agreement with the executives listed above, each executive is
subject to business protection, non-solicitation and non-compete covenants.
These agreements contain restrictive covenants including a confidentiality
provision and non-solicitation of employees and customers provisions that apply
for one year after termination of employment. The non-compete provisions
generally provides that the executive will not compete with us for a period
ranging from one year after termination of employment, and in the event that
termination is by us without cause, we are obligated to pay the executive his
salary for such period.




Change in Control Agreements.Included in the employment agreements of each of the officers identified
above are change of control provisions.  The agreements have a term equal
to the term of each employment agreement (subject to extension in our sole
discretion) and provide certain benefits to the executive in the event the
executive is terminated without cause or if the executive terminates his
employment for good reason (as defined in the agreement). Upon a termination as
a result of the change of control provision, we are obligated to pay an amount
equal to 24 months of the executives then-current base salary, and all the
rights and benefits the executive may have under all employee benefit, bonus
and/or stock option plans and programs of or agreements with us.




Outstanding Equity Awards at Fiscal
Year End




The
Company did not grant compensation in the form of stock options to the chief
executive officer or the other executive officers listed within the Summary
Compensation Table during fiscal year ended July 31, 2008. The Company has no
outstanding exercised or unexercised stock options granted for compensation to
any executive officer and as such has no aggregated option exercises in the last
fiscal year or fiscal year end stock option value to report related to
compensation. The Company did not provide compensation awards under any
long-term incentive plan in fiscal year ended July 31, 2008.





Director
Compensation





Directors
receive $2,500 in compensation for personally attending Board of Directors
meetings. All directors are reimbursed for ordinary and necessary expenses
incurred in attending any meeting of the board of directors or any board
committee or otherwise incurred in their capacities as directors.







ITEM11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT




The
following table sets forth, as of October 17, 2008, information regarding the
beneficial ownership of shares of common stock by each person known by us to own
five percent or more of the outstanding shares of common stock, and by each of
the named executive officers, directors, and all officers and directors as a
group.


35
 Index




NAME
      AND ADDRESS OF BENEFICAL OWNER
                      
                      SHARES
      OF COMMON STOCK
                        BENEFICIALLY
      OWNEDNUMBER
                      
                      
                      %Scott Copeland(1)
                      
                      
                      80,435,933
                      
                      
                      
                      20.19
                      %Marc Pernia
                      
                      
                      23,886,200
                      
                      
                      
                      6.00
                      %First
      Brampton Corporation (2)
                      
                      
                      17,974,847
                      
                      
                      
                      4.51
                      %Robert B. Dillon
      (3)
                      
                      
                      -
                      
                      
                      
                      -Michael G. Wirtz
                      
                      
                      4,699,427
                      
                      
                      
                      1.18
                      %Richard Evans(4)
      (5)
                      
                      
                      7,931,407
                      
                      
                      
                      1.99
                      %Michael S. Studdard
                      
                      
                      -
                      
                      
                      
                      -Reginald Goodman
                      
                      
                      76,686,238
                      
                      
                      
                      19.25
                      %Officer
      and Directors (6 persons)
                      
                      
                      134,927,814
                      
                      
                      
                      33.86
                      %








Beneficial
ownership has been determined in accordance with Rule 13d-3 of the Exchange Act.
Under this rule, shares may be deemed to be beneficially owned by more than one
person (if, for example, persons share the power to vote or the power to dispose
of the shares). In addition, shares are deemed to be beneficially owned by a
person if the person has the right to acquire shares (for example, upon exercise
of an option) within 60 days of the date of this table. In computing the
percentage ownership of any person, the amount of shares includes the amount of
shares beneficially owned by the person by reason of these acquisition rights.
As a result, the percentage of outstanding shares of any person does not
necessarily reflect the person’s actual voting power.





To our
knowledge, except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them.  Unless otherwise indicated, the business
address of the individuals listed is 2121 Sage Road, Suite 200, Houston,
Texas 77056.


36
 Index


(1)
            Mr
      Copeland’s address is 1710 Effie Lane, Pasadena,
      Texas 77501.


(2)
            Mr.
      Dillon has investment and voting control for First Brampton
      Corporation.


(3)
            Mr.
      Dillon does not own any shares of record but is deemed to be the
      beneficial owner of the shares owned of record by First Brampton
      Corporation.


(4)
            Dr
      Evans’ address is 1709 Haver, Houston,
  Texas 77006.


(5)
            This
      includes a warrant to purchase 90,000 shares of our common stock at $0.20
      per share.




ITEM12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; DIRECTORS
INDEPENDENCE




Mr. Dillon
advanced an aggregate principal amount of $0 to us during the fiscal year ended
July 31, 2008, and the loans do not bear interest.  We repaid principal of
$1,800 on all of the advances during the most recent fiscal year and the
principal amount outstanding on July 31, 2008 was $0.




First
Brampton Corporation, a corporation owned by the
Robert B. Dillon 2005 Trust, advanced an aggregate principal
amount of $500 to us during the fiscal year ended July 31, 2008, and the loans
do not bear interest.  We repaid principal of $83,500 on all of the
advances during the most recent fiscal year and the principal amount outstanding
on July 31, 2008 was $0.




Mr. Wittenburg
advanced an aggregate principal amount of $13,000 to us during the fiscal year
ended July 31, 2008, and the loans do not bear interest.  We repaid
principal of $28,000 on all of the advances during the most recent fiscal year
and the principal amount outstanding on July 31, 2008 was $0.




Mr. Pernia
advanced an aggregate principal amount of $0 to us during the fiscal year ended
July 31, 2008, and the loans do not bear interest.  We repaid principal of
$50,000 during the most recent fiscal year and the principal amount outstanding
on July 31, 2008 was $0.




Mr. Wirtz
advanced an aggregate principal amount of $14,490 to us during the fiscal year
ended July 31, 2008, and the loans do not bear interest.  We repaid
principal of $39,490 on all of the advances during the most recent fiscal year
and the principal amount outstanding on July 31, 2008 was $0.




Mr. Goodman
advanced an aggregate principal amount of $44,000 to us during the fiscal year
ended July 31, 2008, and the loans do not bear interest.  We repaid
principal of $64,000 on all of the advances during the most recent fiscal year
and the principal amount outstanding on July 31, 2008 was $0.




In
October 2007, First Brampton Corporation, an entity owned by Mr. Dillon,
converted 196,028 shares of Series A Preferred Stock into 18,046,127 shares of
Class A Common Stock, which were subsequently converted into an aggregate
18,046,127 shares of our common stock.





In
October 2007, Mr. Copeland converted 783,161 shares of Series A Preferred
Stock into 72,096,961 shares of Class A Common Stock, which were subsequently
converted into an aggregate 72,096,961 shares of our common stock.




In
October 2007, Mr. Wittenburg converted 184,339 shares of Series A Preferred
Stock into 16,970,050 shares of Class A Common Stock, which were subsequently
converted into an aggregate 16,970,050 shares of our common stock.




In
October 2007, Mr. Wirtz converted 8,784 shares of Series A Preferred Stock
and 24,319 shares of Series B Preferred Stock into an aggregate 3,047,427 shares
of our common stock.




In
October 2007, Mr. Goodman converted 844,492 shares of Series A Preferred
Stock into 77,743,027 shares of our common stock.




In
October 2007, Mr. Evans converted 2,203 shares of Series D Preferred Stock
into 294,048 shares of our common stock.




Other
than Dr. Evans and Mr. Studdard, none of the directors are independent
as defined by Rule 10A-3 of the Exchange Act.


37
 Index




ITEM13. EXHIBITS





EXHIBIT
                  NUMBER
                
                DESCRIPTION
      OF EXHIBIT3.1
                
                Amended
      and Restated Articles of Incorporation Exobox Technologies Corp. (1)3.2
                
                Bylaws
      of Exobox Technologies Corp. (1)3.3
                
                Certificate
      of Amendment to Articles of Incorporation (3)4.1
                
                Designation
      of Class A Common Stock (included in Exhibit 3.1) (1)4.2
                
                Designation
      of Series A Convertible Preferred Stock (included in Exhibit
      3.1) (1)4.3
                
                Designation
      of Series B Convertible Preferred Stock (included in Exhibit
      3.1) (1)4.4
                
                Designation
      of Series C Convertible Preferred Stock (included in Exhibit
      3.1) (1)4.5
                
                Designation
      of Series D Convertible Preferred Stock (included in Exhibit
      3.1) (1)4.6
                
                Form
      of Warrants to purchase shares of common stock (1)10.1*
                
                2007
      Stock Option Plan (2)10.2*
                
                Employment
      Agreement between Exobox Technologies Corp. and
      Robert B. Dillon (3)10.3*
                
                Employment
      Agreement between Exobox Technologies Corp. and
      Michael C. Wittenburg (3)10.4*
                
                Employment
      Agreement between Exobox Technologies Corp. and
      Michael G. Wirtz (3)10.5*
                
                Employment
      Agreement between Exobox Technologies Corp. and
      Marcos Pernia (3)10.6*
                
                Employment
      Agreement between Exobox Technologies Corp. and
      Reginald Goodman (3)10.7*
                
                Employment
      Agreement between Exobox Technologies Corp. and
      Scott Copeland (3)10.8
                
                Securities
      Purchase Agreement covering Series C Convertible Preferred
      Stock (1)14.1
                
                Code
      of Business Conduct and Ethics (1)21.1
                
                Subsidiaries
      of the Registrant(1)23.1
                
                Consent
      of auditors for Registrants Form S-8 (2)31.1
                
                Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
                
                Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
                
                Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
                
                Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002




*
Management contract or compensatory plan or arrangement.




(1) Incorporated
herein by reference to the Registrant’s Form 10-SB12, filed on December 21,
2005.


(2)
Incorporated herein by reference to the Registrant’s Form S-8, filed on June 29,
2007.


(3)
Incorporated herein by reference to the Registrant’s Form 10-SB12G/A, filed on
February 3, 2006.





ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





During
2007 and 2008 the Company’s principal accountants have been and remain Malone
& Bailey, PC. They have been the company’s principal accountant since the
Company’s triangular merger in September, 2005.





AUDIT
FEES





The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the Company’s principal accountants for the audit of the
Company’s annual financial statements and review of financial statements
included in the Company’s 10-KSB and 10-QSB filings were approximately: 2008
$60,000 and 2007 $30,000.





AUDIT
RELATED FEES





The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the Company’s principal accountants for audit related fees:
2008 $ 0 and 2007 $ 0.





TAX
FEES





Services
have been provided to date under this caption for the fiscal years of 2005,
2006, 2007 or 2008.  The Company will retain its principal accountants
to prepare its annual tax return for the year ending July 31, 2008.





ALL
OTHER FEES





No other
fees were billed in either 2008 or 2007 by the Company’s principal
accountants.


38
 Index




EXOBOXTECHNOLOGIES CORP.





SIGNATURES





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





EXOBOX
TECHNOLOGIES CORP.





Dated:
      November 12, 2008
              By:  /s/
      Robert B. DillonRobert B. DillonChief
      Executive Officer(Principal
      Executive Officer)








Dated:
      November 12, 2008
              By:
      /s/ Michael G. WirtzMichael G. WirtzChief
      Financial Officer(Principal
      Financial and Accounting Officer)






39