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

(MARK ONE)
                                    FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

                                       OR

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

FOR THE TRANSITION PERIOD FROM ______TO _______
COMMISSION FILE NUMBER: 0-30587

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

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

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

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

Securities registered under section 12(b) of the act:

     Title of each class          Name of each exchange on which registered

            None                                Not Applicable
            ----                                --------------

Securities Registered Under Section 12(G) Of The Act:

                         Common stock, par value $0.001
                         ------------------------------
                                (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

<PAGE>

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company:

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

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of the
last business day of the registrant's most recently completed second fiscal
quarter. $24,701,458 on June 30, 2008

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 108,433,262 shares of common
stock are issued and outstanding as of April 6, 2009.

                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980). None.

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                                TABLE OF CONTENTS
                                                                        Page No.
                                                                        --------
                                     Part I
Item 1.     Business. ..................................................       4
Item 1A.    Risk Factors ...............................................      13
Item 1B.    Unresolved Staff Comments. .................................      20
Item 2.     Properties. ................................................      20
Item 3.     Legal Proceedings. .........................................      21
Item 4.     Submission of Matters to a Vote of Security Holders. .......      22
                                     Part II
Item 5.     Market for Registrant's Common Equity, Related Stockholder
            Matters and Issuer Purchases of Equity Securities. .........      22
Item 6.     Selected Financial Data ....................................      24
Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operation. ........................      24
Item 7A.    Quantitative and Qualitative Disclosures About
            Market Risk. ...............................................      36
Item 8.     Financial Statements and Supplementary Data. ...............      36
Item 9.     Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure. .......................      36
Item 9A.(T) Controls and Procedures. ...................................      36
Item 9B.    Other Information. ........................................       38
                                    Part III
Item 10.    Directors, Executive Officers and Corporate Governance. ....      39
Item 11.    Executive Compensation. ....................................      42
Item 12.    Security Ownership of Certain Beneficial Owners
            and Management and Related Stockholder Matters. ............      50
Item 13.    Certain Relationships and Related Transactions,
            and Director Independence. .................................      52
Item 14.    Principal Accountant Fees and Services. ....................      53
                                     Part IV
Item 15.    Exhibits, Financial Statement Schedules. ...................      53

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

         Certain statements in this annual report contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, our ability to raise sufficient capital
to fund our ongoing operations and satisfy our obligations as they become due,
our ability to implement our strategic initiatives, economic, political and
market conditions and fluctuations, government and industry regulation, interest
rate risk, U.S. and global competition, and other factors. Most of these factors
are difficult to predict accurately and are generally beyond our control. You
should consider the areas of risk described in connection with any
forward-looking statements that may be made herein. Readers are cautioned not to
place undue reliance on these forward-looking statements and readers should
carefully review this annual report in its entirety, including the risks
described in Part I. Item 1A. Risk Factors. Except for our ongoing obligations
to disclose material information under the Federal securities laws, we undertake
no obligation to release publicly any revisions to any forward-looking
statements, to report events or to report the occurrence of unanticipated
events. These forward-looking statements speak only as of the date of this
annual report, and you should not rely on these statements without also
considering the risks and uncertainties associated with these statements and our
business.

                           OTHER PERTINENT INFORMATION

         When used in this annual report, the terms "Spare Backup," " we,"
"our," and "us" refers to Spare Backup, Inc., a Delaware corporation formerly
known as Newport International Group, Inc., and our subsidiaries.

                                      - 3 -
<PAGE>

                                     PART I

ITEM 1.  BUSINESS.

         We are a developer and marketer of a line of software products
specifically designed for consumers as well as the small business and home
business users. Our products are designed and developed so that technical skills
are not necessary to use or manage the software. Our Spare line of software
products includes our Spare Backup service, Spare Backup software and our Spare
Switch PC data migration software.

OUR PRODUCTS AND SERVICES

         Our flagship product is Spare Backup, a fully-automated remote backup
solution designed and developed especially for the small office or home
environment which automatically and efficiently backs up all data on selected
laptop or desktop computers. As a result, we believe consumers and small
companies can ensure file safety in personal computers (PCs) and laptops for
backup and retrieval. We launched our Spare Back-up service and software product
version 1.0 in March 2005 and are currently offering version 5.0 of the product.
Our Spare Switch software enables users to complete the transfer of personal
files from one PC to another via a high speed Internet connection. Our software
has unique characteristics of additional coding that enables easy to scale
infrastructure and support elements which we believe provides a competitive
advantage over other providers whose products require large investments in
hardware, as well as professional installation, training and support.

         Spare Backup offers:

         o  An automatic program installation that requires absolutely no user
            interaction to configure backups,

         o  No complicated file selection - Spare Backup scans the user's
            computer and has a number of presets which it backs up
            automatically, such as:

            o  All contacts, email messages and attachments, address book,
               contacts, folders and contents, signature files from Outlook

            o  Word, Excel, PowerPoint files, templates and settings from MS
               Office,

            o  My Documents, My Music, My Pictures, Quicken, QuickBooks, MS
               Money, Turbo Tax and Tax Cut; and

            o  All desktop files.

         In addition, users can manually include any files that are not in the
         present group.

         o  Simple, fast data recovery of individual files or the complete
            desktop

         o  Open file backup, giving the user the ability to back up while a
            particular program is open

         o  Reports automatically available to users in Spare Backup

         o  Redundant file support - select a restore from the last five backups

         o  Online file retrieval from any Internet connection - using Spare Key

         o  Provides files security via 256 Rijndael AES 256 block cipher with
            unique user encryption key

         o  Decryption protected by Spare Key in the user's computer and with
            broker so complete loss of the computer is not a problem

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<PAGE>

         The VeriSign/Starfield Technology high assurance certificates provide
authenticity for web based transactions. The encryption we use for ensuring
privacy is the 256 Rijndael AES, a block cypher adopted as an encryption
standard by the U.S. Government. The data is protected in transit and
communication via Secure Sockets Layer (SSL), a cryptographic protocol which
provides secure communications over the public Internet.

         An overview of customer benefits includes:

         o Ease-of-use - Spare Backup provides fast, easy and fully automated
data protection. Users benefit from automated data file selection, which
distinguishes user data files from operating system and application files. As a
result, users do not have to remember where all of their data files are stored.
Spare Backup allows users to retrieve multiple past versions of a file, not just
the most recently backed-up version.

         o Impenetrable Security and Protection of Corporate Data - Spare Backup
ensures that all data is encrypted with advanced 256-bit encryption on the
user's machine using a user provided "key" or password. The data is encrypted a
second time using SSL, or secure sockets layer, while it is being transmitted
and a third time before it is stored on the RAID, or redundant array of
independent disc, servers using a strong private key.

         o SSL Support - SSL based protocol enhancements to address security
parameters during: registration, upgrade, backup and retrieve.

         Spare Switch is used by either downloading the software from the
Internet or by inserting an installation CD into the old computer. Spare Switch
then scans the hard drive and inventories of personal directories, giving the
user a detailed report of the documents and other files. From that inventory,
the user can then select the exact files that he or she wishes to transfer to
the new PC. Spare Switch avoids the need for PC-to-PC transfer cable by
compacting, encrypting and then transferring the files via the Internet. Spare
Switch's data center can then hold the data for as long as a week, giving the
user the flexibility to choose when to download the files to the new PC. The
files are downloaded from our secure Spare Switch data center using the Spare
Switch CD. Spare Switch uses a 256-bit encryption cipher with non-algorithmic
key to ensure that the information is impervious to hackers at every step of the
process. Spare Switch pricing is done on a case by case basis per partner.

         Spare Backup software comes with the monthly service and enables users
to also back up to local storage devices with or without using the online
service.

         Our offers vary depending on partnerships, in some cases we offer new
users a free 14-day trial, other could be an allocation of space of 1 gigabyte.
Spare Backup services cost $6.99 per month for up to 50 gigabytes of data
storage bought directly from the Company, along with annual plans that are
available.

         We developed new products and integrated new feature functionality into
our Spare Backup(R) software. The new offerings in our Spare line of software
products include: Spare Room, Spare Mobile and Spare Sync. Below provide certain
information regarding our new line of products and features:

         Spare Room(R) is designed to complement the Spare Backup(R) software.
We anticipate to launch this product in the second quarter of fiscal 2009. This
is a first step to digital contract management and cloud computing for Spare
Backup users. This feature will be distributed and available to our active Spare
backup users by downloading and installing the software which will be obtainable
in our website. We are currently in the development stage for the last six
months on the first version to enhance the feature and functionality of this
product.

                                      - 5 -
<PAGE>

         The Spare Backup software easily and automatically backs up a user's
files from the user's desktop to the Spare Backup's cloud. Once files are stored
securely in the cloud, the Spare Room application allows a user to take
advantage of a wide range of sharing and social networking tools. The solution
allows the user to get the most out of available tools and services on the
Internet while providing the security of online backup. Spare Backup is the
start, cloud computing and services are the goal.

         The first version of the Spare Room application will include the Spare
Room Photo Page where users can manage and share photos as well as photo
processing and retouching. Future versions of Spare Room will include additional
features beyond photo sharing to include Video, Contact Management,
Synchronization, Mobile, and Calendar management. These features will be
displayed on the Spare Room Dashboard allowing a user to easily navigate Spare
Room and manage their digital data stored in the Spare cloud from a variety of
devices.

         Spare Mobile was launched in the beginning of second quarter of fiscal
2008 in a limited beta form with a full version to be expected in the second
quarter of fiscal 2009. For the initial phase of Spare Mobile, a user must first
have an active Spare Backup account and have access to Spare Room. The
downloadable installation will be readily available to anyone who visits and has
the Spare Backup software itself, and can be downloaded from the Spare room and
the Spare Mobile website. We are currently in the development stage for the last
six months on this version along with Spare Room.

         Spare Mobile will provide a user with the ability to backup data and
settings from their phone to the Spare cloud without the need to connect the
mobile device to a PC via a cable.

         *  Backup will be performed via the users mobile network.

               o  Mobile network usage charges may apply.

         *  Backup will capture data stored both on the Mobile devices onboard
            memory as well as any add on memory devices such as a memory card.

         *  Backup will capture all pertinent user data and configuration if
            feasible.

         *  A user will have the ability to configure the frequency that backups
            occur.

         *  The Spare Mobile software will detect files that should be backed up
            automatically.

               o  Users will have the ability to customize which files will be
                  backed up and which will not o A user will have the ability to
                  recover a backed up file(s) to their mobile device.

         *  If a user also has a Spare Backup account, the user will have the
            ability to retrieve mobile files to their desktop PC.

         *  Spare Mobile will support the following Mobile device operating
            systems:

               o  Windows Mobile
               o  Java
               o  RIM
               o  Apples iPhone
               o  Carry specific OS platforms
                  ***NOTE: Due to differences in OS functionality the Spare
                  Mobile application may differ slightly in appearance between
                  each supported OS. The functionality however shall remain
                  static.

                                      - 6 -
<PAGE>

         Spare Mobile will work in conjunction with a users Spare Backup and
Spare Room accounts. Spare Room will provide an interface for a user to manage
their mobile device and the files contained on their mobile device.

         Another feature functionality that we have developed is Spare Sync. In
order to take advantage of the synchronization functionality, the user must
first possess an active Spare Backup account with Spare Room. Synchronization
will be an add on product to a users standard Family Pack account. We are
currently in the development stage for the last six months on this feature along
with Spare Room and the Spare family of products. Spare Sync is defined as the
mirroring or synchronization of content across multiple machines. Spare Backup
defines synchronization rules based on file types. A user who chooses to
synchronize pictures will synchronize all pictures that exist on two machines.
Photos on both machines will be replicated between the two machines so that when
the synchronization process is complete the same files will exist on both
machines.

         The user will configure their Synchronization preferences from within
Spare Room. Each machine that is to be synchronized must have the Spare Backup
client software installed and have an active connection to the internet.

         The user will not need to make any configuration changes to their
existing Spare Backup client. However the client software will provide the user
a link to Spare Room from the client software. If the user chooses this link
from within the Spare Backup client software the user will be re-directed to the
Spare Room website and automatically logged in.

OUR TARGET CUSTOMERS

         We focus on owners and executives of businesses which do not have an IT
(information technology) department that use technology to support their
businesses as well as small business users and consumers who desire to secure
the redundancy of available files and documents vital to the continuity of their
operations, business, or personal information. Since our products and services
allow non-technical users to quickly, easily and thoroughly secure and backup
their files or data archiving and storage, we believe that our business is
uniquely relevant to enabling small companies to succeed using technology. Our
products and services also support individual business professionals working in
companies of all sizes. Other unique characteristics are additional coding that
enables easy to scale infrastructure and support elements. We believe that this
characteristic provides a competitive advantage over other providers whose
products require large investments in hardware, as well as professional
installation, training and support. Spare Backup now has a SMB product directed
toward the small to mid-size business with 500 or less computers. The same ease
of use that the consumer product is known for the SMB product has with an ease
to use administrative dashboard for set up, grouping of departments and storage
controls. In fiscal 2008 and 2007, approximately 77% and 61%, respectively, of
our total net revenues were primarily attributable to the establishment of an
international partner relationship with DSG International focusing in Europe.

HOW WE MARKET OUR PRODUCTS AND SERVICES

         Our strategy is to partner with leading companies such as computer
manufacturers (OEMs), high speed cable providers (MSOs), retailers and warranty
and service companies that have established brands as a way to gain acceptance
for, and create a demand for, our products and services. We believe that by
bundling our products and services as one feature of a value-added service
offered by major national and international brands that we will be able to
leverage their brand recognition and marketing efforts to accelerate our market
acceptance and significantly increase our adoption rates.

         Our products are sold direct to the customer via our web site for
online distribution. Users may try our products and services at no cost for a
limited trial period by downloading our software.

                                      - 7 -
<PAGE>

         In January 2008, we entered into a License Agreement with Sony
Electronics, Inc. under which we granted Sony a non-exclusive, world-wide
license to our Spare Backup fully-automated remote backup solution and software
tools, including the right to reproduce, publish, prepare derivative works and
sell the product, as well as the right to use our trade name, trademarks and
other identifying logos. Under a one year program, Sony may preinstall our Spare
Backup service and software tools, on hardware, and or other Sony products it
sells, as it determines, on a royalty-free basis. Sony will receive a percentage
of each subscription sold to the end user during the term of the agreement and
for 24 months after its termination.

         Under the terms of the agreement, we are responsible for delivery of
the service to Sony's end users as well as providing for training, at our
expense, to Sony's technical support personnel. We have indemnified Sony in
connection with claims related to our products and service raising from
non-performance. The agreement, which may be renewed for successive 12 month
terms, may be immediately terminated by Sony in the event we should directly or
indirectly defraud Sony, for any misrepresentation or breach of any warranty
made by us in the agreement, or in the event of our bankruptcy or insolvency. We
have shipped the product in the third and fourth quarter of fiscal 2008.

         In July 2008, we have received a purchase order amounting to $50,000
from VAIO North America, a division of Sony Electronics in connection with our
enterprise-level "Corporate Protection Products" in which certain divisions of
Sony are now using this custom product. This product focus on enterprise-level
solutions, bringing its reliable, automated data storage services to IT managers
and business executives at large corporations. This product is now currently
being used and all payments has been collected in full.

         During fiscal 2007 and 2008, our marketing efforts were primarily
invested in marketing strategies and initiatives such as direct mail, marketing
materials, in store promotion and bundling with other services with respect to
our ongoing relationship with DSG International.

DSG RETAIL LIMITED

         In February 2007 we entered into an exclusive agreement with DSG Retail
Limited under which we will provide our Spare Backup PC backup services for DSG
Retail Limited's customers in approximately 27 countries in Europe. DSG Retail
Limited is part of DSG International Plc ("DSGI"), Europe's leading specialist
electronic retailing group that sells through 1,450 stores and online and
employing 40,000 people and more than 100 million customers shop in-store and
online with it every year. Its brands include PC World, Currys and Dixons.co.uk
in the UK and Ireland, Elkj0p in the Nordic countries, UniEuro in Italy,
Kotsovolos in Greece, Electro World in central Europe, PC City in France, Spain,
Italy and Sweden, and Pixmania.com across Europe.

         Under the terms of the agreement, DSG intends to provide Spare Backup's
service through its entire network. Distribution points include but are not
exclusive to:

         o  all currently subscribed PC Performance agreements, (service
            agreements),

         o  all PC Performance agreements sold during the duration of the
            agreement,

         o  embedded within the images of computers that are provided by DSGI or
            branded DSGI as an icon on the desktop , and

         o  in addition to direct sales through its network of sales associates.

         DSG Retail has agreed to use its reasonable best efforts to promote our
products. Spare Backup has agreed to provide initial training information and
marketing materials for DSGI's network of sales associates. Sales of our
products will be facilitated through direct links from various points within the
DSGI network in addition to associate referrals to the co-branded website.

                                      - 8 -
<PAGE>

         The initial term of the agreement was 12 months, with provisions for
automatic renewals on each anniversary date of the agreement for an additional
12-month term, unless otherwise terminated by either of the parties on 60 days'
prior written notice. On February 13, 2008, the parties agreed to renew the
agreement for an additional 12 months with DSG emphasizing that is seeking to
renegotiate current terms in anticipation of a potential new three-year deal. On
November 19, 2008, we have agreed to a two-year extension regarding our online
Backup Agreement of February 2007. We have provided DSGI with the right to
acquire additional warrants equal to five percent (5%) of Spare Backup's
currently outstanding common stock at an exercise price of $0.30 per share
provided DSGI meets certain monthly sales targets which start on an average of
20,000 units per month over a 6-month period. Warrants will not be issued if
DSGI does not meet the targets. Currently, DSGI has not met its target.

         The agreement contains customary confidentiality provisions. In
addition, during the term of the agreement we have agreed not to enter into any
other arrangement or agreement for the provision of similar services within the
countries covered by the agreement through other multiple electronic or PC
retailer or nationwide supermarket, other than our existing agreements with
Computer Associates and Hewlett Packard without prior consent.

         In furtherance of our relationship with DSG International, in October
2007 DSG International has agreed to embed our Spare Backup software in its
private label personal computers such as Philips, Advent and EI System's. Our
offer will be launched upon the initialization of the new computer, icons and
welcome centers and is covered under the terms of the current agreements between
the two companies. We anticipate that our software will be available to
approximately 1,000,000 customers through this deployment method. Our Spare
Backup software are continuously loaded on their private label computers and we
keep defining the message to the end users to increase our adoption rates.
Additionally, in March 2009, we have entered into an agreement with DSG
International to offer Spare Room(R) version incorporated in its Spare Backup(R)
subscription service in PC World store locations throughout the UK and in its
upcoming launch in Curry's stores.

         On September 17, 2008, we have signed a Master Service Agreement (MSA)
with Sony of America (VAIO division). The MSA will serve as the primary
agreement whereby all contracts and statements of work ("SOW") will reside under
the MSA. Future SOW will include unique terms specific to the project or
program.

         On November 5, 2008, we entered into a data storage services agreement
with The Carphone Warehouse Limited, a company incorporated under the laws of
England and Wales, for purposes of providing data backup services for Carphone's
customers. The agreement is for a 12-month term subject to initial renewal
periods as elected by the parties. Carphone is obligated to provide its
reasonable best efforts to promote the Company's backup service, and Spare
Backup designed the data backup service and will create a backup Web site for
Carphone. We will invoice Carphone customers directly for all monthly and annual
fees and Carphone will be paid in a commission basis.

         In February 2009, we entered into a 1 year agreement with privately
held Cydcor whereby Cydcor will market our line of backup services for consumers
and small businesses throughout its business to business direct sales network.
Cydcor is a market leader in outsourced direct sales with over 3,000 direct
sales professionals servicing hundreds of thousands of business clients in North
America. Their clients represent some of the brands, covering many different
industries, including telecommunications, cable, internet, office products,
merchant services and energy. Under the terms of the agreement, Cydcor will
offer Spare Backup's business data storage solutions to its network of business
clients. Cydcor will be paid in a commission basis on all customer orders that
has an authorization for customer payment received via the efforts of Cydcor. In
addition, Cydcor will receive volume bonuses based on total number of sales
generated in any given calendar month.

                                      - 9 -
<PAGE>

CUSTOMER SUPPORT

         We provide our tier 1 and tier 2 support for our services. Our tier 1
customer support provides initial call resolution and direct linking
capabilities to our tier 2 customer support. Tier 2 customer support is managed
by an internal group of specialists who are co-located within our Network
Operation Center and software development headquarters in Palm Desert.
Co-location with the software development group allows for the resolution of
highly specific technical issues as well as identification of potential
application flaws. Our support services were initially available from during
evening hours during the week and extended hours on weekends. In March 2007 we
began offering 24/7/365 customer support.

RESEARCH AND DEVELOPMENT

         Our products were developed primarily by our employees assisted by
contractors in certain specialty areas. We have invested approximately $1.3
million and approximately $2.3 million in research and development during fiscal
2008 and fiscal 2007, respectively.

TECHNOLOGY

         Our products use a sophisticated combination of hardware, software, and
networking to intelligently select files and settings from a customer's computer
and reliably transfer these to secure redundant data centers, making the data
highly available.

         The networking systems used by us were designed to use outbound
Internet connections for all communications, thus allowing many users who are
behind a firewall access to the backup services. The proprietary software
designed by us has been developed to remove the technical knowledge required to
use other backup products by selecting files and backup settings for the user.

         We own all of our servers and utilize hosting in geographically
dispersed TIA-964 Tier-3 rated collocation facilities. Our server architecture
employs multiple servers and switching equipment to provide redundancy and high
availability to Spare Backup service users. The entire storage area network
(SAN) storage system is replicated in near real-time to a secondary SAN to
backup the primary one, which will automatically become available in the event
of an outage at the primary storage array. Our servers use the latest enterprise
level operating system available from Microsoft and use industry standard
networking and communication protocols. This provides a highly available network
that can scale rapidly using off the shelf hardware. These systems are fully
redundant and we anticipate our reliability at 99.9%. We can expand our network
capacity quickly and with highly predictable costs.

         Our business will suffer if our systems fail or our third-party
facilities become unavailable. A reduction in the performance, reliability and
availability of our systems and network infrastructure may harm our ability to
distribute our products and services to our customers and other users, as well
as harm our reputation and ability to attract and retain customers. Our systems
and operations are susceptible to, and could be damaged or interrupted by,
outages caused by fire, flood, power loss, telecommunications failure, Internet
breakdown, earthquake and similar events. If for some reason we should not have
redundancy in our facilities, any damage or destruction to our systems would
significantly harm our business. Our systems are also subject to human error,
security breaches, power losses, computer viruses, break-ins, "denial of
service" attacks, sabotage, intentional acts of vandalism and tampering designed
to disrupt our computer systems, Web sites and network communications which are
beyond our control. This could lead to slower response times or system failures.

                                     - 10 -
<PAGE>

         Our computer and communications infrastructure is located in a leased
facility in Arizona. While our infrastructure is fully redundant and Tier 3
rated, our insurance coverage covers lost profits and accordingly we may not
have adequate business interruption insurance to compensate us for losses that
may occur from a system outage. Despite our efforts, our network infrastructure
and systems could be subject to service interruptions or damage and any
resulting interruption of services could harm our business, operating results
and reputation.

COMPETITION

         We face intense and increasing competition in the web-based backup
solutions market. If we do not compete effectively or if we experience reduced
market share from increased competition, our business will be harmed. In
addition, the more successful we are in the emerging market for web-based
storage solutions, the more competitors are likely to emerge. We believe that
the principal competitive factors in our market include:

         o  Service functionality, quality and performance;

         o  Ease of use, reliability and security of services;

         o  Establishment of a significant base of customers and distribution
            partners;

         o  Ability to introduce new services to the market in a timely manner;

         o  Customer service and support; and

         o  Pricing.

         Our primary competitors are various Internet-based backup providers
broadcasters, such as Connected.com, Livevault, and backup.com, Carbonite and
EMC/Mozy. These companies provide services similar to ours and each have to
various degrees a market presence. We also compete with providers of traditional
backup technologies, such as Veritas and Symantec (swampdrive) (Norton 360).

         Substantially most of our competitors have more capital, longer
operating histories, greater brand recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These competitors may also engage in more extensive development of their
technologies, adopt more aggressive pricing policies and establish more
comprehensive marketing and advertising campaigns than we can. Our competitors
may develop products and service offerings that we do not offer or that are more
sophisticated or more cost effective than our own. For these and other reasons,
our competitors' products and services may achieve greater acceptance in the
marketplace than our own, limiting our ability to gain market share and customer
loyalty and to generate sufficient revenues to achieve a profitable level of
operations. Our failure to adequately address any of the above factors could
harm our business and operating results.

INTELLECTUAL PROPERTY

         Our intellectual property is critical to our business, and we may seek
to protect our intellectual property through copyrights, trademarks, patents,
trade secrets, confidentiality provisions in our customer, supplier, potential
investors, and strategic relationship agreements, nondisclosure agreements with
third parties, and invention assignment agreements with our employees and
contractors, although we do not execute such agreements in every case. Our
protection efforts may prove to be unsuccessful, and unauthorized parties may
copy or infringe upon aspects of our technology, services or other intellectual
property rights. In addition, these parties may develop similar technology
independently. Existing trade secret, copyright and trademark laws offer only
limited protection and may not be available in every country in which we will
offer our services.

                                     - 11 -
<PAGE>

         A non-provisional patent application for the client side technology
utilized by Spare Backup was filed in the United States Patent and Trademark
Office on June 27, 2006. A non-provisional patent application for the server
side technology utilized by Spare Backup was filed in the United States Patent
and Trademark Office on August 10, 2006. Both applications are currently pending
in the Patent Office and awaiting examination. We are currently looking at
expanding our portfolio of intellectual property and we expect to file new
applications in the second quarter of fiscal 2009. We are also exploring our
abilities to file for patents to include living document functions. The
applications we plan to file may fail to result in any patents being issued.
Even if one or more of these patents are issued, any patent claims allowed may
not be sufficiently broad to protect our technology. In addition, any patents
may be challenged, invalidated or circumvented and any right granted thereunder
may not provide meaningful protection to us. The failure of any patents may not
provide meaningful protection to us. The failure of any patent to provide
protection for our technology would make it easier for other companies or
individuals to develop and market similar systems and services without
infringing any of our intellectual property rights.

GOVERNMENT REGULATION

         Although there are currently relatively few laws and regulations
directly applicable to the Internet, it is likely that new laws and regulations
will be adopted in the United States and elsewhere covering issues such as
limitations on the use of mass-delivered e-mails, broadcast license fees,
copyrights, privacy, pricing, sales taxes and the characteristics and quality of
Internet services. The adoption of restrictive laws or regulations could slow
Internet growth. The application of existing laws and regulations governing
Internet issues such as property ownership, libel and personal privacy is also
subject to substantial uncertainty. There can be no assurance that current or
new government laws and regulations, or the application of existing laws and
regulations (including laws and regulations governing issues such as property
ownership, taxation, defamation and personal injury), will not expose us to
significant liabilities, slow Internet growth or otherwise hurt us financially.

EMPLOYEES

         As of March 30, 2009 we had 40 full-time employees, including all of
our executive officers. None of our employees are covered by collective
bargaining agreements, and we believe our relationships with our employees to be
good.

OUR HISTORY

         We were incorporated in Delaware on December 27, 1999 under the name
First Philadelphia Capital Corp. to serve as a vehicle to effect a merger,
exchange of common stock, asset acquisition or other business combination with
domestic or foreign private business. On October 30, 2000, we completed a
business combination with Conservation Anglers Manufacturing, Inc., a real
estate holding and development company that was originally organized in Florida
on February 7, 2000. The combination was a stock-for-stock merger that was
accounted for as a "pooling-of-interests". In connection with the merger, we
issued 235,000 shares of our common stock in exchange for all the outstanding
stock of Conservation Anglers Manufacturing, Inc. In January 2001 we changed our
name to Newport International Group, Inc. to better reflect and describe our
then current strategic direction.

         As a result of the transaction with Conservation Anglers Manufacturing,
Inc. we became a real estate holding company that intended to specialize in
large-scale commercial, industrial and residential mixed-use property
development. At the time of the transaction with Conservation Anglers
Manufacturing, Inc. we did not own any real estate and our activities were
limited to securing acquisition financing for a projects that we proposed to
acquire and develop.

                                     - 12 -
<PAGE>

         In November 2000, Mr. Soloman Lam, our then president and CEO, executed
certain land contracts to purchase approximately 3,300 acres of land for a total
of $11,389,600 which we intended to develop in the future. These contracts were
due to close on September 1, 2001, but were extended to March 1, 2002 at the
sellers' request. Mr. Lam personally deposited $180,000 into escrow pending
closing and we had agreed to reimburse him when he assigned the contracts to us.
On February 12, 2002, the land contracts were cancelled and the $180,000 deposit
was returned to Mr. Lam. Simultaneously, on February 12, 2002, Mr. Lam executed
a new land contract to purchase approximately 2,300 acres of land for
$15,000,000. We deposited $10,000 in escrow pending closing on April 30, 2002.
The closing on this contract was subsequently extended until July 29, 2002 and
as consideration we released the $10,000 to the seller that was in escrow.
Subsequently, the closing was again extended to September 30, 2002, in
consideration for a $25,000 non-refundable deposit. The closing was again
extended to December 30, 2002, then to March 31, 2003, then to July 31, 2003,
then to October 30, 2003, and subsequently to January 30, 2004, with no
additional deposit required. The check representing the $25,000 deposit was
never negotiated and in December 2003 it was voided. We do not intend to proceed
with this project. We have forfeited the $10,000 deposit and all rights and
obligations of this project have been assigned by us to Newport International
Group, Inc., a Florida corporation formerly known as Linda Development
Corporation, a company affiliated with Mr. Clint Beckwith, a former officer and
director of our company.

         In December 2001, Mr. Lam entered into purchase contracts to acquire 45
acres of vacant land, representing nine lots, in Wellington, Florida for a total
purchase price of $470,000. In April 2002, Mr. Lam closed on two of the nine
lots and in May 2002, closed on a third lot. The remaining six lots were to be
purchased when and if financing becomes available. Mr. Lam agreed to transfer
the vacant land to us in exchange for a purchase price equal to cost. Deposits
totaling $15,000 were paid by us in 2002 in conjunction with this land. The lots
were never transferred to us, the $15,000 became a receivable from Mr. Lam and
in December 2003 was expensed as an addition to our additional paid-in capital.

         On February 6, 2004, we closed an Agreement and Plan of Merger with
Grass Roots Communications Inc., a Delaware corporation. Grass Roots was a
development stage company incorporated in Delaware in June 2002 initially to
create, produce, deliver and track targeted multimedia communications over the
Internet. Under the terms of this agreement, Grass Roots became our wholly-owned
subsidiary. At the effective time of the merger, the stockholders of Grass Roots
exchanged their securities for approximately 12,300,000 shares of our common
stock, representing approximately 93% of our common stock. Contemporaneous with
this transaction, Grass Roots' President and Chief Executive Officer, Mr. Cery
B. Perle, was elected as a member of our Board of Directors and appointed CEO,
and Mr. Lam resigned his positions with our company. Mr. Richard Galterio, the
other member of our Board of Directors before the transaction remained as a
director, and Mr. Edward L. Hagan, Secretary of Grass Roots, was appointed our
secretary. Mr. Perle, the principal stockholder of Grass Roots, and members of
his family/household received an aggregate of 46% of our shares of common stock
as a result of the exchange upon the merger.

         Effective August 16, 2006 we changed our name to Spare Backup, Inc. The
corporate name change was brought about by a merger of a wholly-owned subsidiary
into Newport International Group, Inc. with Newport International Group, Inc.
surviving but renamed Spare Backup, Inc.

ITEM 1A. RISK FACTORS

         An investment in our common stock involves a significant degree of
risk. You should not invest in our common stock unless you can afford to lose
your entire investment. You should consider carefully the following risk factors
and other information in this annual report before deciding to invest in our
common stock. If any of the following risks and uncertainties develop into
actual events, our business, financial condition or results of operations could
be materially adversely affected and you could lose your entire investment in
our company.

                                     - 13 -
<PAGE>

WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT. WE ANTICIPATE CONTINUING
LOSSES MAY RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS. THE REPORT ON
OUR FINANCIAL STATEMENTS FOR FISCAL 2008 CONTAINS AN EXPLANATORY PARAGRAPH
REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.

         Our net losses for the fiscal years ended December 31, 2008 and 2007
were $15,132,558 and $26,084,897, respectively. We have never generated
sufficient revenues to fund our ongoing operations. Our operating losses for
fiscal 2008 and fiscal 2007 were $10,625,232 and $18,765,117, respectively, and
these losses are primarily attributable to our sales, general and administrative
expense. The report of our independent registered public accounting firm on our
financial statements for the year ended December 31, 2008 contains an
explanatory paragraph regarding our ability to continue as a going concern based
upon our net losses, cash used in operations and working capital deficit. Our
ability to continue as a going concern is dependent upon our ability to raise
additional capital as described below. The financial statements included in this
annual report do not include any adjustments to reflect future adverse effects
on the recoverability and classification of assets or amounts and classification
of liabilities that may result if we are not able to continue as a going
concern.

OUR REVENUES ARE NOT SUFFICIENT TO FUND OUR OPERATING EXPENSES AND WE WILL NEED
TO RAISE ADDITIONAL CAPITAL.

         While our operating expenses have decreased approximately 37% for
fiscal 2008 over fiscal 2007, we will need to significantly increase our
revenues to fund these costs. At December 31, 2008 we had approximately $19,000
of cash on hand and a working capital deficit of approximately $6.86 million. We
have raised subsequent to December 31, 2008, approximately $300,000 from the
sale of our common stock, and borrowed an aggregate of $803,000 under an 18
month note. The proceeds are being used for working capital purposes. However,
our current working capital is not sufficient to pay our operating expenses, our
obligations as they become due or certain tax liabilities nor is our working
capital sufficient to fund any expansion of our company.

         While we are constantly evaluating our cash needs and existing burn
rate in order to make appropriate adjustments in operating expenses, we need to
raise additional debt or equity capital to provide funding for ongoing and
future operations and to satisfy our obligations as they become due. While we
have historically been able to raise capital, the current capital markets are
very challenging and there are no assurances that we will be successful in
obtaining additional capital, or that such capital will be available on terms
acceptable to us. Our continued existence is dependent upon, among other things,
our ability to raise capital and to market and sell our products successfully.
If we are unable to raise capital as needed, it is possible that we would be
required to cease operations in which event you would lose your entire
investment in our Company.

WE CANNOT PREDICT OUR FUTURE REVENUES OR WHETHER OUR PRODUCTS WILL BE ACCEPTED.
IF THE MARKETS FOR OUR PRODUCTS AND SERVICES DO NOT DEVELOP, OUR FUTURE RESULTS
OF OPERATIONS WILL BE ADVERSELY AFFECTED.

         Net revenues from the sales of our Spare Backup line of products have
been limited and insufficient to fund our ongoing operations. We reported net
revenues of $1,381,443 and $260,350, respectively, for the fiscal years ended
December 31, 2008 and 2007. While our net revenues significantly increased for
fiscal 2008 over fiscal 2007, our net revenues will need to significantly
increase if we are to provide cash to fund our operating expenses. We cannot
guarantee either that the demand for our Spare Backup line of software products
will develop, that such demand will be sustainable or that we will ever
effectively compete in our market segment. In addition, we cannot predict what
impact, if any, the reduction in discretionary spending will have on future
sales of our products. If we are unable to generate any significant net revenues
from our products and services our business, operating results, and financial
condition in future periods will be materially and adversely affected and we may
not be able to continue our business as presently operated, if at all.

                                     - 14 -
<PAGE>

WE HAVE APPROXIMATELY $170,000 OF DEBT WHICH IS PRESENTLY PAST DUE AND AN
ADDITIONAL $3,121,000 WHICH WILL BECOME DUE DURING 2009 AND WE DO NOT HAVE THE
FUNDS NECESSARY TO PAY THESE OBLIGATIONS.

         In addition to funding our operating expenses, we need capital to pay
various debt obligations totaling approximately $3,291,000 which are either
current past due or which are due in the current fiscal year. Currently, there
are $170,000 principal amount of the 10% notes which have already become due in
September 2008, $436,000 principal amount of the 10% notes which due dates have
been extended between August 2009 and September 2009, the remaining $185,000 of
the 10% notes and $2,500,000 of the 8% notes of short term debts becomes due
between February 2009 to August 2009. The Company has not redeemed the required
monthly redemption beginning in September 2008 in connection with the 10%
Convertible Senior Unsecured promissory notes amounting to $170,000.
Additionally, there are $1,053,000 principal amount of the 8% long term notes
which becomes due between February 2010 and September 2010. Under the terms of
various of the short-term notes in the aggregate principal amount of $2,500,000,
we have the right to force a conversion of those obligations into equity
providing that we have registered the shares of common stock issuable upon such
conversions prior to the maturity dates of the notes. We have not filed the
requisite registration statement and unless we are successful in extending the
maturity dates of these obligations it is not likely we will be able to avail
our company of this opportunity before the notes become due. The existence of
these obligations provide additional challenges to us in our efforts to raise
capital to fund our operations. If we are unable to restructure these notes and
we are unable to raise the capital necessary to satisfy the obligations, it is
possible we will be forced to cease operations.

WE WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON
ACCEPTABLE TERMS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL AS NEEDED, OUR
CONTINUED OPERATIONS WILL BE ADVERSELY AFFECTED AND THE FUTURE GROWTH OF OUR
BUSINESS AND OPERATIONS WILL BE SEVERELY LIMITED.

         Historically, our operations have been financed primarily through the
issuance of equity and debt. Because we have a history of losses and have never
generated sufficient revenue to fund our ongoing operations, we are dependent on
our continued ability to raise working capital through the issuance of equity or
debt to fund our present operations. Because our operating expenses have
continued to grow and we do not know if our net revenues will grow at a pace
sufficient to fund our current operations, the continuation of our operations
and any future growth will depend upon our ability to raise additional capital,
possibly through the issuance of long-term or short-term indebtedness or the
issuance of our equity securities in private or public transactions. While the
actual amount of our future capital requirements, however, depend on a number of
factors, including our ability to grow our net revenues and manage our business,
it is likely we will need to raise a significant amount of capital during fiscal
2009 if we are to continue our current operations and satisfy our obligations as
they become due. In addition to the challenges facing the capital markets today
which make raising equity capital much more difficult for a company such as our
than in prior years, the existence of a number of short term notes which are
either currently past due or which will become due in 2009, together with the
pending litigation facing our company and the piggy-back registration rights we
have granted a number of investors serve to also make it harder to raise the
capital we need. There can be no assurance that acceptable financing can be
obtained on suitable terms, if at all. If we are unable to raise additional
working capital as needed, our ability to continue our current business will be
adversely affected and may be forced to curtail some or all of our operations.

                                     - 15 -
<PAGE>

WE ARE DEPENDENT ON OUR RELATIONSHIP WITH DSG INTERNATIONAL FOR A MAJORITY OF
OUR REVENUES.

         During 2008 approximately 77% of our net revenues were derived by sales
through our relationship with DSG International. While we are materially
dependent upon the continued effort of that company to sell our products, we
have no control direct control over the efforts of its sales force on our
behalf. A reduction in the revenues generated through our relationship with DSG
International until such time as we broaden our distribution base to remove this
dependence, assuming we are successful in those efforts, will materially
adversely affect our results of operations in future periods.

WE ARE PAST DUE IN THE PAYMENT OF PAYROLL TAXES.

         At December 31, 2008 we had $665,000 of accrued but unpaid payroll
taxes due the federal government and since that date through March 31, 2009 the
amount has increased to $946,000. We do not have the funds necessary to satisfy
this obligation. If we are unable to raise the funds necessary, it is possible
that we will be subject to significant additional fines and penalties, Mr.
Perle, our President, could be personally subject to a 100% penalty on the
amount of unpaid taxes and the government could file liens against our company
and our bank accounts until such time as the amounts have been paid.

OUR PRICING MODEL FOR OUR PRODUCTS AND SERVICES IS UNPROVEN AND MAY BE LESS THAN
ANTICIPATED, WHICH MAY HARM OUR GROSS MARGINS.

         The pricing model of our products and services may be lower than
expected as a result of competitive pricing pressures, promotional programs and
customers who negotiate price reductions in exchange for longer term purchase
commitments or otherwise. Our pricing model depends on the duration of the
agreement, the specific requirements of the order, purchase volumes, the sales
and service support and other contractual agreements. We expect to experience
pricing pressure and anticipate that the average selling prices and gross
margins for our products may decrease over product life cycles. We may not be
successful in developing and introducing on a timely basis new products with
enhanced features and services that can be sold at higher gross margins.

WE ARE A DEFENDANT IN A NUMBER OF LAWSUITS.

         We are currently a defendant in five separate lawsuits in which the
plaintiffs are seeking approximately $1,040,000 together with attorney's fees,
costs and prejudgment interest. We are also incurring additional legal fees in
our efforts to defend these actions. While we believe our defenses are
meritorious in each of these cases, should we not prevail in one or more of the
actions we could be forced to pay significant amounts which, given our current
cash position and need for working capital, could materially adversely affect
our ability to continue as a going concern.

THE EXERCISE OF OUTSTANDING WARRANTS AND THE CONVERSION OF OUTSTANDING NOTES
WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS.

         As of April 6, 2009 the following securities which are convertible or
exercisable into shares of our common stock were outstanding:

         o  common stock purchase warrants to purchase a total of 46,466,879
            shares of our common stock at prices ranging between $0.20 to $1.30
            per share;

         o  21,468,750 shares of our common stock issuable upon the possible
            conversion of the outstanding $4,344,000 principal amount 8% and 10%
            convertible promissory notes due between September 2008 and July
            2010, and

         o  21,496,930 shares of our common stock issuable upon exercise of
            outstanding options with exercise prices ranging from $0.001 to
            $1.75.

                                     - 16 -
<PAGE>

         The exercise of these warrants and the conversion of the notes may
materially adversely affect the market price of our common stock and will have a
dilutive effect on our existing stockholders.

OUR QUARTERLY FINANCIAL RESULTS WILL CONTINUE TO FLUCTUATE MAKING IT DIFFICULT
TO FORECAST OUR OPERATING RESULTS.

         Our quarterly operating results have fluctuated in the past and we
expect our net revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which are beyond our
control, including:

         o  the announcement or introduction of new services and products by us
            and our competitors;

         o  our ability to upgrade and develop our products in a timely and
            effective manner;

         o  our ability to retain existing customers and attract new customers
            at a steady rate, and maintain customer satisfaction;

         o  the amount and timing of operating costs and capital expenditures
            relating to expansion of our business and operations;

         o  government regulation; and

         o  general economic conditions and economic conditions specific to
            development and marketing of software products, the market
            acceptance of new products offered by us, our competitors and
            potential competitors.

         Our limited operating history and unproven business model further
contribute to the difficulty of making meaningful quarterly comparisons. Our
current and future levels of expenditures are based primarily on our growth
plans and estimates of expected future net revenues. Such expenditures are
primarily fixed in the short term and our sales cycle can be lengthy.
Accordingly, we may not be able to adjust spending or generate new revenue
sources timely to compensate for any shortfall in net revenues. If our operating
results fall below the expectations of investors, our stock price will likely
decline significantly.

BECAUSE WE EXPECT TO CONTINUE TO INCUR NET LOSSES, WE MAY NOT BE ABLE TO
IMPLEMENT OUR BUSINESS STRATEGY AND THE PRICE OF OUR STOCK MAY DECLINE.

         We have incurred net losses quarterly from inception through December
31, 2008, and at December 31, 2008 we had an accumulated deficit of
approximately $89 million. We expect to continue to incur net losses for the
foreseeable future absent a significant increase in our revenues, of which there
are no assurances. Accordingly, our ability to operate our business and
implement our business strategy may be hampered by negative cash flows in the
future, and the value of our stock may decline as a result. Our capital
requirements may vary materially from those currently planned if, for example,
we incur unforeseen capital expenditures, unforeseen operating expenses or
investments to maintain our competitive position. If this is the case, we may
have to delay or abandon some or all of our development plans or otherwise
forego market opportunities. We will need to generate significant additional net
revenues to be profitable in the future and we may not generate sufficient net
revenues to be profitable on either a quarterly or annual basis in the future.
To address the risks and uncertainties facing our business strategy, we must,
among other things:

         o  Achieve broad customer adoption and acceptance of our products and
            services;

         o  Successfully raise additional capital in the future;

                                     - 17 -
<PAGE>

         o  Successfully integrate, leverage and expand our product
            distribution;

         o  Successfully scale our current operations;

         o  Implement and execute our business and marketing strategies;

         o  Address intellectual property rights issues that affect our
            business;

         o  Develop and maintain strategic relationships to enhance the
            development and marketing of our existing and new products and
            services; and

         o  Respond to competitive developments in the software industry.

         We might not be successful in achieving any or all of these business
objectives in a cost-effective manner, if at all, and the failure to achieve
these could have a serious adverse impact on our business, results of operations
and financial position. Each of these objectives may require significant
additional expenditures on our part. Even if we ultimately do achieve
profitability, we may not be able to sustain or increase profitability, we may
not be able to sustain or increase profitability on a quarterly or annual basis.

WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

         Recent Federal legislation, including the Sarbanes-Oxley Act of 2002,
has resulted in the adoption of various corporate governance measures designed
to promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The Nasdaq Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges are those that
address board of directors' independence, audit committee oversight, and the
adoption of a code of ethics. Although we have adopted a Code of Ethics, we have
not yet adopted any of these other corporate governance measures and, since our
securities are not yet listed on a national securities exchange, we are not
required to do so. We have not adopted corporate governance measures such as an
audit or other independent committees of our board of directors as we presently
have only two independent directors. If we expand our board membership in future
periods to include additional independent directors, we may seek to establish an
audit and other committees of our board of directors. It is possible that if we
were to adopt some or all of these corporate governance measures, stockholders
would benefit from somewhat greater assurances that internal corporate decisions
were being made by disinterested directors and that policies had been
implemented to define responsible conduct. For example, in the absence of audit,
nominating and compensation committees comprised of at least a majority of
independent directors, decisions concerning matters such as compensation
packages to our senior officers and recommendations for director nominees may be
made by a majority of directors who have an interest in the outcome of the
matters being decided. Prospective investors should bear in mind our current
lack of corporate governance measures in formulating their investment decisions.

WE CANNOT BE CERTAIN THAT WE WILL BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY,
AND WE MAY BE FOUND TO INFRINGE ON PROPRIETARY RIGHTS OF OTHERS, WHICH COULD
HARM OUR BUSINESS

                                     - 18 -
<PAGE>

         Our intellectual property is critical to our business, and we seek to
protect our intellectual property through copyrights, trademarks, patents, trade
secrets, confidentiality provisions in our customer, supplier, potential
investors, and strategic relationship agreements, nondisclosure agreements with
third parties, and invention assignment agreements with our employees and
contractors. We cannot assure you that measures we take to protect our
intellectual property will be successful or that third parties will not develop
alternative solutions that do not infringe upon our intellectual property.

         In addition, we could be subject to intellectual property infringement
claims by others. Claims against us, and any resultant litigation, should it
occur in regard to any of our services and applications, could subject us to
significant liability for damages including treble damages for willful
infringement. In addition, even if we prevail, litigation could be
time-consuming and expensive to defend and could result in the diversion of our
time and attention. Any claims from third parties may also result in limitations
on our ability to use the intellectual property subject to these claims.
Further, we plan to offer our services and applications to customers worldwide
including customers in foreign countries that may offer less protection for our
intellectual property than the United States. Our failure to protect against
misappropriation of our intellectual property, or claims that we are infringing
the intellectual property of third parties could have a negative effect on our
business, revenues, financial condition and results of operations.

COMPETITION MAY DECREASE OUR MARKET SHARE, NET REVENUES, AND GROSS MARGINS.

         We face intense and increasing competition in the web-base backup
solutions market. If we do not compete effectively or if we experience reduced
market share from increased competition, our business will be harmed. In
addition, the more successful we are in the emerging market for web-based
storage solutions, the more competitors are likely to emerge. We believe that
the principal competitive factors in our market include:

         o  Service functionality, quality and performance;

         o  Ease of use, reliability and security of services;

         o  Establish a significant base of customers and distribution partners;

         o  Ability to introduce new services to the market in a timely manner;

         o  Customer service and support; and

         o  Pricing.

         Our primary competitors are various Internet-based backup providers
broadcasters, such as Connected.com, Novastar, Livevault, firstbackup.com,
Carbonate, EMC/Mozy and Norton 360 a product of Symantac. These companies
provide services similar to ours and each have to various degrees a market
presence. We also compete with providers of traditional backup technologies,
such as EMC and VERITAS along with CommVault Systems.

         Substantially all of our competitors may have more capital, longer
operating histories, greater brand recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These competitors may also engage in more extensive development of their
technologies, adopt more aggressive pricing policies and establish more
comprehensive marketing and advertising campaigns than we can. Our competitors
may develop products and service offerings that we do not offer or that are more
sophisticated or more cost effective than our own. For these and other reasons,
our competitors' products and services may achieve greater acceptance in the
marketplace than our own, limiting our ability to gain market share and customer
loyalty and to generate sufficient net revenues to achieve a profitable level of
operations. Our failure to adequately address any of the above factors could
harm our business and operating results.

                                     - 19 -
<PAGE>

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKEOVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS. WE RECENTLY
ISSUED OUR CEO A SERIES OF SUPER VOTING PREFERRED STOCK WHICH INCREASED HIS
ABILITY TO CONTROL THE OUTCOME OF STOCKHOLDER VOTES.

         Provisions of our certificate of incorporation and bylaws may be deemed
to have anti-takeover effects, which include when and by whom special meetings
of our stockholders may be called, and may delay, defer or prevent a takeover
attempt. In addition, certain provisions of Delaware law also may be deemed to
have certain anti-takeover effects which include that control of shares acquired
in excess of certain specified thresholds will not possess any voting rights
unless these voting rights are approved by a majority of a corporation's
disinterested stockholders.

         In addition, our certificate of incorporation authorizes the issuance
of up to 5,000,000 shares of preferred stock with such rights and preferences as
may be determined by our board of directors. Our board of directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion or voting rights that could adversely affect the voting power or
other rights of our common stockholders. In January 2008 we created a series of
50,000 shares of Series A Preferred Stock which carries super voting rights of
400 votes per share which were issued to our CEO as additional compensation.
Prior to the issuance of the shares of Series A Preferred Stock to Mr. Perle he
controlled the vote of approximately 10% of our outstanding voting securities.
As a result of the issuance of these securities, Mr. Perle now controls the vote
of approximately 24.7% of our outstanding voting securities. This action was
approved by our Board of Directors of which Mr. Perle is a member in accordance
with the provisions of our certificate of incorporation.

OUR COMMON STOCK IS CURRENTLY QUOTED ON THE OTCBB, BUT TRADING IN OUR STOCK IS
LIMITED. BECAUSE OUR STOCK CURRENTLY TRADES BELOW $5.00 PER SHARE, AND IS QUOTED
ON THE OTC BULLETIN BOARD, OUR STOCK IS CONSIDERED A "PENNY STOCK" WHICH CAN
ADVERSELY EFFECT ITS LIQUIDITY.

         The market for our common stock is extremely limited and there are no
assurances an active market for our common stock will ever develop. Accordingly,
purchasers of our common stock cannot be assured any liquidity in their
investment. In addition, the trading price of our common stock is currently
below $5.00 per share and we do not anticipate that it will be above $5.00 per
share in the foreseeable future. Because the trading price of our common stock
is less than $5.00 per share, our common stock is considered a "penny stock,"
and trading in our common stock is subject to the requirements of Rule 15g-9
under the Securities Exchange Act of 1934. Under this rule, broker/dealers who
recommend low-priced securities to persons other than established customers and
accredited investors must satisfy special sales practice requirements. SEC
regulations also require additional disclosure in connection with any trades
involving a "penny stock," including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its
associated risks. These requirements severely limit the liquidity of our
securities in the secondary market because few broker or dealers are likely to
undertake these compliance activities.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

         Not applicable to a smaller reporting company.

ITEM 2.  PROPERTIES.

         In November 2006 we entered into a five year lease agreement,
commencing January 1, 2007, with an unrelated third party for approximately
6,850 square feet which serves as our principal executive offices. Under the
terms of the lease our initial annual base rent is approximately $152,000 and we
will be responsible for our pro-rata share of common area expenses. The annual
rent will escalate annually during the term of the lease to approximately
$171,000 in the fifth year. We believe this facility meets our operational needs
for the foreseeable future.

                                     - 20 -
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         We are a party to a litigation in the Los Angeles Superior Court, Case
No. 08E06019, which was filed on May 19, 2008 by Sharf, Woodward & Associate,
Inc., a placement agency, for failure to pay commissions for recruitment
services. We contend that no commissions were earned because the recruited
employees did not successfully complete their probationary period. The vendor is
suing for damages of approximately $21,250 with an additional interest rate of
10% per annum from November 19, 2007 plus reasonable attorneys fees. The suit is
in its initial stages and the court has already referred the matter to
mediation. If the case proceeds, we intend to respond aggressively to the
litigation and management believes that there is a low likelihood of an
unfavorable outcome.

         We are a party to litigation in the Superior Court California-Riverside
County, Case No. INC078707, which was filed on July 19, 2008 by PeopleFind LLC,
a placement agency, for failure to pay commissions in connection with
recruitment services. We contend that no commissions were earned because the
recruited employees did not successfully complete their probationary period. The
vendor is suing for damages of approximately $42,350 with an additional interest
rate of 6.75% per month. The suit is in its initial stages and the court has
already referred the matter to mediation. If the case proceeds, we intend to
respond aggressively to the litigation and management believes that there is a
low likelihood of an unfavorable outcome.

         We are a party to litigation in the District Court of New Jersey, Civil
Action No. 08-cv-5568, which was filed on November 25, 2008 by Sungard
Availability Services for failure to pay contract fees in connection with a data
center rental agreement. Sungard failed to deliver promised facilities and
reliable bandwidth as our customer based are rapidly expanding. The case is in
the initial stages. The vendor is suing for damages of approximately $724,000
plus interest, attorneys' fees and all other related fees. If the case proceeds,
we intend to respond aggressively to the litigation and management believes that
there is a moderate likelihood of an unfavorable outcome.

         In January 2009, we filed a declaratory relief in connection with an
investment banking agreement entered into fiscal 2008 against Merriman Curhan
Ford & Co. in the Supreme Court of California - County of Riverside Case No.
083346. In February 2009, we received a notice of petition for order compelling
arbitration in the Superior Court California- San Francisco County, Case No. CFP
09-509186, which was filed on January 28, 2009 by a placement agent, Merriman
Curhan Ford & Co., for failure to pay fees for services associated with an
investment banking agreement. The placement agent is seeking for the
reimbursement for out of pocket fees of approximately $31,000, payment of notes
payable with principal amount of $161,200 and 370,370 shares of the Company. We
contend that the agreement was obtained by misrepresentations and concealment
and that it is unenforceable and void. If the case proceeds, we intend to
respond aggressively to the arbitration and management believes that there is a
very low likelihood of an unfavorable outcome.

         We are a party to litigation in the Superior Court California-Orange
County, Case No. 00115691, which was filed on December 4, 2008 by Raptor
Networks Technology for failure to pay service fees and computer hardware. The
vendor is suing for damages of approximately $60,000 and attorney fees. There
has been minimal action in this case. The case is in the initial stages and once
the case is at issue, we intend to pursue resolution through mediation.
Management believes that there is a low likelihood of an unfavorable outcome.

                                     - 21 -
<PAGE>

         We are a party to litigation in Cole County, Missouri, Case No.
07AC-CC01045, which was filed on November 15, 2007 by Ozark Management Inc.
related to an aircraft lease agreement entered into by us in July 2007. This
lawsuit arose out of the early termination of the aircraft lease agreement by
us. In January 2009, we formally settled for $100,000 payable in five equal
monthly installments. If we fail to make the required payment, Ozark shall have
the right to file a motion to enforce this agreement in the Federal District
Court for the Western District of Missouri, Central Division. We have made
settlement payments for a total amount of $40,000 between February 2009 and
March 2009.

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

         None.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES

         Our common stock is quoted on the OTCBB under the symbol SPBU. The
reported high and low sales prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.

                                                          HIGH          LOW
                                                        --------     ----------
Fiscal 2007

First quarter ended March 31, 2007 ..................   $   1.07     $    0.50
Second quarter ended June 30, 2007 ..................   $   1.01     $    0.75
Third quarter ended September 30, 2007 ..............   $   0.91     $    0.40
Fourth quarter ended December 31, 2007 ..............   $   0.70     $    0.42

Fiscal 2008

First quarter ended March 31, 2008 ..................   $   0.50     $    0.315
Second quarter ended June 30, 2008 ..................   $   0.40     $    0.23
Third quarter ended September 30, 2008 ..............   $   0.30     $    0.08
Fourth quarter ended December 31, 2008 ..............   $   0.19     $    0.07

Fiscal 2009

First quarter ended March 31, 2009 ..................   $   0.25     $    0.22

         On March 31, 2009, the last sale price of our common stock as reported
on the OTCBB was $0.21. As of April 6, 2009, there were approximately 313 record
owners of our common stock.

DIVIDEND POLICY

         We have never paid cash dividends on our common stock. Under Delaware
law, we may declare and pay dividends on our capital stock either out of our
surplus, as defined in the relevant Delaware statutes, or if there is no such
surplus, out of our net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. If, however, the capital of our
company, computed in accordance with the relevant Delaware statutes, has been
diminished by depreciation in the value of our property, or by losses, or
otherwise, to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, we are prohibited from declaring and
paying out of such net profits any dividends upon any shares of our capital
stock until the deficiency in the amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets shall have been repaired.

                                     - 22 -
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth securities authorized for issuance under
any equity compensation plans approved by our stockholders as well as any equity
compensation plans not approved by our stockholders as of December 31, 2008.
<TABLE>
<CAPTION>
                                                                                       NUMBER OF
                                                                                       SECURITIES
                                                                                       REMAINING
                                                   NUMBER OF                         AVAILABLE FOR
                                                 SECURITIES TO                      FUTURE ISSUANCE
                                                BE ISSUED UPON   WEIGHTED AVERAGE     UNDER EQUITY
                                                  EXERCISE OF     EXERCISE PRICE      COMPENSATION
                                                  OUTSTANDING     OF OUTSTANDING    PLANS (EXCLUDING
                                                   OPTIONS,          OPTIONS,          SECURITIES
                                                 WARRANTS AND      WARRANTS AND       REFLECTED IN
                                                  RIGHTS (A)        RIGHTS (B)      COLUMN (A)) (C)
                                                --------------   ----------------   ----------------
<S>                                             <C>              <C>                <C>
Plan category Plans approved by stockholders:
    2002 Stock Option and Stock Award Plan...     19,041,930           $0.29           3,594,046
Plans not approved by stockholders...........           none             n/a                 n/a
</TABLE>
         A description of each of these plans is contained later in this report
under Part III, Item 11. Executive Compensation - Stock Option Plans.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

In November 2008 we issued 58,500 shares of our common stock valued at $7,605 to
an accredited investor as compensation for public relations services to be
rendered to us under the terms of a consulting agreement in a transaction exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.

Between November 2008 and December 2008, we issued in aggregate 2,700,000 shares
of our common stock to four purchasers and issued those purchasers three year
common stock purchase warrants to purchase 2,700,000 shares of our common stock
exercisable at a price of $0.20 per share in a private placement exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act. We received gross proceeds of
approximately $432,000. We used the net proceeds for general working capital.
The recipients were accredited investors who had such knowledge and experience
in business matters that they were capable of evaluating the merits and risks of
the prospective investment in our securities. The recipients had access to
business and financial information concerning our company.

In December 2008, we issued in aggregate of 156,250 shares of our common stock
to an accredited investor who was a holder of our 10% debenture in connection
with the conversion of $25,000 principal amount of debentures. The issuances
were exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 3(a)(9) of that act.

Between January 2009 and March 2009, we issued in aggregate 1,875,000 shares of
our common stock to seven purchasers and issued those purchasers three year
common stock purchase warrants to purchase 1,875,000 shares of our common stock
exercisable at a price of $0.20 per share in a private placement exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act. We received gross proceeds of
approximately $300,000. We used the net proceeds for general working capital.
The recipients were accredited investors who had such knowledge and experience
in business matters that they were capable of evaluating the merits and risks of
the prospective investment in our securities. The recipients had access to
business and financial information concerning our company.

                                     - 23 -
<PAGE>

In January 2009, we issued 489,896 shares stock to 20 accredited investors in
connection with the payment of interest on our 8% promissory notes and 10%
convertible debentures. The fair value of such shares issued amounted to
approximately $77,000. The issuances were exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 3(a)(9) of
that act.

In March 2009 we issued 100,000 shares of our common stock valued at $24,000 to
an accredited investor as compensation for public relations services rendered to
us under the terms of a consulting agreement in a transaction exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.

In March 2009 we issued 400,000 shares of our common stock valued at $88,000 to
an accredited investor as compensation for investor relations services rendered
to us under the terms of a consulting agreement in a transaction exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.

ITEM 6.  SELECTED FINANCIAL DATA.

         Not applicable to a smaller reporting company.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION

OVERVIEW

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

         We recently expanded our partnership with DSG International. With the
new offerings, we launched in fourth quarter of fiscal 2008 our 1 year pre-paid
subscription in 169 PC World stores. The product is being positioned at the
service counter called "The Tech Guys", next to the computers and hard drives,
whereby consumers and store employee can frequently be reminded of the service.
The roll out began in November 2008. Management has been in continues effort to
go to stores to help merchandise and train the employees, as they start to
scorecard our product throughout the DSG International chain, we anticipate that
we will expand our sales figures in several key metrics, as minimum numbers are
being agreed to be sold per store. Additionally, in March 2009, we have entered
into an agreement with DSG International to offer Spare Room(R) version
incorporated in its Spare Backup(R) subscription service in PC World store
locations throughout the UK and in its upcoming launch in Curry's stores. On

                                     - 24 -
<PAGE>

November 19, 2008, we have agreed to a two-year extension regarding our online
Backup Agreement of February 2007. We have provided DSGI with the right to
acquire additional warrants equal to five percent (5%) of Spare Backup's
currently outstanding common stock at an exercise price of $0.30 per share
provided DSGI meets certain monthly sales targets which start on an average of
20,000 units per month over a 6-month period. Warrants will not be issued if
DSGI does not meet the targets. Currently, DSGI has not met its target.

         During the year ended December 31, 2008, we spent significant
resources, both financial and management time, in implementing our distribution
model and broadening our partnership relationships the accomplishment of these
goals. These costs included approximately $995,498 for sales and marketing
advertising and business development expenses as well as approximately $529,000
of travel and travel related expenses, and approximately $806,000 of costs
associated with technology service which includes engineering development,
software and hardware related to the ongoing provision of our services. During
this year we also spent approximately $1,271,000 on research and development.
The research and development expenses were primarily related to compensation
expenses paid to our software engineers, employees and consultants in
conjunction with the development or enhancement of our products.

         Going forward in fiscal 2009 we are now seeing results from 2008 from
our DSGI launch, as we are seeing significant monthly increases in our
subscription revenue business. In the second quarter of fiscal 2009, we are
launching in the Curry's chain of stores, and we plan on launching in other
countries by third quarter of fiscal 2009. Currys is one of the companies
operated by DSGI.

         We are also spending significant time with our new partner Cydcor,
which has over 3000 door to door sales people starting to sell our SMB products.
In February 2009, we entered into a 1 year marketing agreement with Cydcor Inc.
whereby Cydcor will market our services and perform marketing campaigns as it
may determine from time to time. Cydcor will be paid in a commission basis on
all customer orders that has an authorization for customer payment received via
the efforts of Cydcor. In addition, Cydcor will receive volume bonuses based on
total number of sales generated in any given calendar month.

         In 2009 Spare will form its Enterprise division, as we have had a
successful launch of its product with Sony Corp.

         Also in second quarter of fiscal 2009, Spare will introduce it new
advertising division, which will have the ability to sell or cross market
products to it data base of clients. Spare can partner with its exiting clients
and or solicit new customers to cross market products based on the end users
behavior.

         Subject to the availability of sufficient working capital, while it is
likely we will continue to expend research and development costs during the
fiscal 2009, we do not presently anticipate that our sales and marketing and
related expenses will approach 2008 levels, including with respect to our
ongoing relationship with DSG International.

         While not reaching the levels in the fiscal 2007, our sales, general
and administrative expenses remain high. Notwithstanding that approximately
$4,370,000 of our selling, general and administrative expenses for the year
ended December 31, 2008 are non-cash expenses, our net revenues are not
sufficient to pay our operating costs and we have historically relied upon the
sale of debt and equity securities to fund our business. During the year ended
December 31, 2008 we raised approximately $5,200,000 in working capital through
the issuance of short and long term notes, the sale of common stock and the
exercise of warrants and options. Subsequent to December 31, 2008, we have
raised approximately $300,000 from the sale of our common stock, and borrowed an
aggregate of $803,000 under an 18 month note.

                                     - 25 -
<PAGE>

         Perhaps the greatest challenge facing our company in 2009 is our
ability to satisfy our continuing capital needs. We will need to raise
significant additional capital during 2009 to fund our operating expenses until
such time, if ever, that our revenues are sufficient. In addition to funding our
operating expenses, we need capital to pay various debt obligations totaling
approximately $3,291,000 which are either current past due or which are due in
the current fiscal year. Currently, there are $170,000 principal amount of the
10% notes which have already become due in September 2008, $436,000 principal
amount of the 10% notes which due dates have been extended between August 2009
and September 2009, the remaining $185,000 of the 10% notes and $2,500,000 of
the 8% notes of short term debts becomes due between February 2009 to August
2009. The Company has not redeemed the required monthly redemption beginning in
September 2008 in connection with the 10% Convertible Senior Unsecured
promissory notes amounting to $170,000. Additionally, there are $1,053,000
principal amount of the 8% long term notes which becomes due between February
2010 and September 2010.

         Under the terms of various of the short-term notes in the aggregate
principal amount of $2,500,000, we have the right to force a conversion of those
obligations into equity providing that we have registered the shares of common
stock issuable upon such conversions prior to the maturity dates of the notes.
We have not filed the requisite registration statement and unless we are
successful in extending the maturity dates of these obligations it is not likely
we will be able to avail our company of this opportunity before the notes become
due.

         In addition to these debt obligations, at December 31, 2008, we owe
approximately $665,000 of unpaid payroll taxes and we have accrued an additional
approximate $281,000 through March 31, 2009.

         We do not have sufficient cash to repay these obligations or past-due
taxes and there are no assurances that the holders of our short-term debt will
convert prior to the due dates of the obligations. We are also a defendant in a
number of lawsuits which are described elsewhere herein in which the various
plaintiffs are seeking an aggregate of approximately $1,040,000 in addition to
pre-judgment interest and court costs. While we are hopeful that we will prevail
in some or all of these pending suits, if we are found liable in any of these
actions, in addition to the attorney's fees we are incurring, we will be
required to pay the various plaintiffs substantial sums. We also recently
settled litigation with another party which requires us to pay $100,000 over
five months beginning in January 2009. We have made settlement payments for a
total amount of $40,000 between February 2009 and March 2009.

         We do not have any firm commitments for this additional capital and
while we have been successful in raising capital in prior years, the current
uncertainties, however, in the capital markets which may adversely impact our
ability to continue to raise capital during 2009. Although we are optimistic
that we will be able to raise additional capital, we are unable at this time,
however, to predict the ultimate amount of proceeds we may receive or the timing
of those funds. If we are not successful in raising the necessary capital, even
if we are successful in extending the due dates of the short-term obligations we
may be forced to curtail some or all of our operations and take certain steps to
reduce our operating expenses which could adversely impact our ability to expand
our business. As described elsewhere herein, there are no assurances we will be
able to continue as a going concern in which event you would lose your entire
investment in our company.

                                     - 26 -
<PAGE>

GOING CONCERN

         We have generated minimal revenue since our inception on September 12,
2002, and have incurred net losses of approximately $89 million since inception
through December 31, 2008. Our current operations are not an adequate source of
cash to fund our current operations and we have relied on funds raised from the
sale of our securities to provide sufficient cash to operate our business. The
report of our independent registered public accounting firm on our financial
statements for the year ended December 31, 2008 contains an explanatory
paragraph regarding our ability to continue as a going concern based upon our
net losses and cash used in operations. Our ability to continue as a going
concern is dependent upon our ability to obtain the necessary financing to meet
our obligations and repay our liabilities when they become due and to generate
profitable operations in the future. We have no firm commitments from any third
party to provide this financing and we can offer no assurances that we will be
successful in raising working capital as needed particularly in the current
economic climate. If we are unable to raise capital as needed, it is possible
that we would be required to cease operations. The financial statements included
in this report do not include any adjustments to reflect future adverse effects
on the recoverability and classification of assets or amounts and classification
of liabilities that may result if we are not successful.

CRITICAL ACCOUNTING POLICIES

         A summary of significant accounting policies is included in Note 2 to
the audited consolidated financial statements included elsewhere in this annual
report. We believe that the application of these policies on a consistent basis
enables our company to provide useful and reliable financial information about
the company's operating results and financial condition.

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

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

         The Company follows the guidance of the Securities and Exchange
Commission's Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements". The Company records revenue when persuasive evidence of
an arrangement exists, on-line back-up services have been rendered, the sales
price to the customer is fixed or determinable, and collectability is reasonably
assured. Online back up service fees received in advance are reflected as
deferred revenue on the accompanying balance sheet. Deferred revenue as of
December 31, 2008 amounted to $240,436 and will be recognized as revenue over
the respective service period.

         Revenue consists of the gross value of billings to clients. The Company
reports this revenue gross in accordance with EITF 99-19 because it is
responsible for fulfillment of the service, has substantial latitude in setting
price and assumes the credit risk for the entire amount of the sale, and it is
responsible for the payment of all obligations incurred for sales marketing and
commissions.

                                     - 27 -
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

         On January 1, 2008, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value as used in numerous accounting
pronouncements, establishes a framework for measuring fair value and expands
disclosure of fair value measurements. In February 2008, the Financial
Accounting Standards Board ("FASB") issued FASB Staff Position, "FSP FAS
157-2--Effective Date of FASB Statement No. 157" ("FSP 157-2"), which delays the
effective date of SFAS 157 for one year for certain nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).
Excluded from the scope of SFAS 157 are certain leasing transactions accounted
for under SFAS No. 13, "Accounting for Leases." The exclusion does not apply to
fair value measurements of assets and liabilities recorded as a result of a
lease transaction but measured pursuant to other pronouncements within the scope
of SFAS 157. The Company does not expect that the adoption of the provisions of
FSP 157-2 will have a material impact on its financial position, cash flows or
results of operations.

         In March 2008, the FASB issued SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities ("SFAS 161"). This statement
requires companies to provide enhanced disclosures about (a) how and why they
use derivative instruments, (b) how derivative instruments and related hedged
items are accounted for under Statement 133 and its related interpretations, and
(c) how derivative instruments and related hedged items affect a company's
financial position, financial performance, and cash flows. SFAS 161 is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. The Company will adopt the new disclosure requirements
on or before the required effective date and thus will provide additional
disclosures in its financial statements when adopted.

         In April 2008, FASB Staff Position No. 142-3, Determination of the
Useful Life of Intangible Assets (FSP 142-3) was issued. This standard amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company does not expect that the adoption of this provision
will have a material impact on its financial position, cash flows or results of
operations.

         In May 2008, the FASB issued FAS No. 162, The Hierarchy of Generally
Accepted Accounting Principles" which identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) in the United States (the GAAP hierarchy). This
statement is effective 60 days following the SEC's approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles". The
Company does not expect that the adoption of this pronouncement will have a
significant impact on its financial condition, results of operations and cash
flows.

         In May 2008, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 163, "Accounting for Financial Guarantee Insurance Contracts-and
interpretation of FASB Statement No. 60". SFAS No. 163 clarifies how Statement
60 applies to financial guarantee insurance contracts, including the recognition
and measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS No. 163 is effective for fiscal years beginning on or after December 15,
2008, and interim periods within those years. SFAS No. 163 has no effect on the
Company's financial position, statements of operations, or cash flows at this
time.

                                     - 28 -
<PAGE>

         In June 2008, the FASB issued FASB Staff Position EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the
computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share."
FSP EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 and earlier adoption is prohibited. We
are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF
03-6-1 would have material effect on our financial position and results of
operations if adopted.

         In December 2008, the FASB issued FASB Staff Position (FSP) FAS 140-4
and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities. The document
increases disclosure requirements for public companies and is effective for
reporting periods (interim and annual) that end after December 15, 2008. This
FSP amends FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, to require public entities
to provide additional disclosures about transfers of financial assets. It also
amends FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, to require public enterprises, including sponsors
that have a variable interest in a variable interest entity, to provide
additional disclosures about their involvement with variable interest entities.
The Company does not expect that the adoption of this pronouncement will have a
significant impact on its financial condition, results of operations and cash
flows.

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

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 2008 ("FISCAL 2008") AS COMPARED TO THE FISCAL
YEAR ENDED DECEMBER 31, 2007 ("FISCAL 2007")

NET REVENUES

         Our net revenues increased substantially in the year ended December 31,
2008 from the fiscal year of 2007. These increases in revenues reflects the
increased adoption rate of our products by trial users who convert to
subscriptions. For the year ended December 31, 2008, approximately 77% of our
total net revenues were primarily attributable to the establishment of an
international partner relationship with DSG International focusing in Europe.
Although we realized net revenues related to the DSG International relationship,
a significant portion of such net revenues was not received by us and was
applied against amounts we owed to DSG International for marketing expenses
which have been satisfied in full in July 2008 and certain percentage of such
revenues generated from DSG International partner relationship were paid as
sales commissions amounting to approximately $437,000 during fiscal 2008. During
the year ended December 31, 2008, approximately $377,000 of net revenues related
to the DSG International were used to reduce our outstanding balance owed to DSG
International by the corresponding amount. Accordingly, upon satisfaction of our
outstanding balance to DSG International, as of December 31, 2008, we have
recorded accounts receivable from DSG International amounting to approximately
$132,000 primarily related to DSG revenues. In February 2009, we have collected
such account receivable.

                                     - 29 -
<PAGE>

TOTAL OPERATING EXPENSES

         Our total operating expenses for the year ended December 31, 2008
decreased from fiscal 2007. Our operating expenses included expenses related to
research and development and selling, general and administrative expenses. Below
provide certain information regarding our operating expenses:

Research and development

         Research and development expenses consist primarily of compensation
expenses paid to our software engineers, employees and consultants in
conjunction with the development or enhancement of our products. We spent
$1,270,776 on research and development expenses for fiscal 2008 as compared to
$2,312,573 for fiscal 2007. Research and development expenses represented
approximately 11% of our total operating expenses for fiscal 2008 and 12% for
same period in 2007. Our research and development expenses for fiscal 2008
include costs associated with continued development of user interfaces and
additional products, including version 5.0 of Spare-Backup, a family pack, and
our SMB (small to medium business) products, including Workgroup, and reflected
increased research and development efforts to successfully meet various
deadlines set by our OEM partners. Included in research and development expenses
for the year ended December 31, 2008 are non-cash expenses of $196,000 which
represents the fair value of stock issued to a key employee in lieu of cash
compensation. The decrease in our research and development expenses when
compared to the comparable periods in 2007 is primarily attributable to
decreased use of consultants for research and development of our product due to
lack of working capital. Subject to the availability of sufficient working
capital, we anticipate that we will continue to incur research and development
expenses in future periods as a result of the addition of new features, the
launch of new versions of our products and the expansion of our engineering
staff, however we are not able at this time to quantify the amount of such
expenditures. In some cases as we develop or co-develop additional services and
products, we may from time to time get our partners to contribute funding for
some of these projects.

Sales, General, and Administrative Expenses

         For fiscal 2008, our selling, general and administrative expenses were
$10,735,899 as compared to $16,712,894 for fiscal 2007, a decrease of
$5,976,995, or approximately 36%. Sales, general and administrative expenses
represented approximately 89% and 88%, respectively, of our total operating
expenses for fiscal 2008 and 2007.

         The following table provide certain information on the approximate
amounts of components of our sales, general and administrative expenses for each
the fiscal 2008 and fiscal 2007 periods:

                                         THE YEAR ENDED
                                          DECEMBER 31,
                                     ---------------------
                                       2008         2007
                                     ---------   ---------
Sales, marketing, advertising
  and business development .. ..     1,525,000   5,131,000
Employee related costs .........     3,198,000   2,661,000
Technology service .............       806,000   1,412,000
Non-cash expenses ..............     3,654,000   4,810,000
General overhead expenses ......     1,553,000   2,699,000

                                     - 30 -
<PAGE>

         o The sales and marketing and advertising and business development
expenses decreased approximately 70% in fiscal 2008 to approximately $1,525,000
from approximately $5,131,000 in fiscal 2007. Sales and marketing, advertising
and business development expenses which includes costs associated with the
various marketing programs discussed earlier as well as travel and travel
related expenses associated with our efforts to further develop and broaden our
OEM partner base. The decrease in sales and marketing, advertising and business
development expenses was primarily attributable to decrease in non cash
expenses. For fiscal 2008, non-cash expenses of approximately $238,000,
associated with the amortization of the value of a warrant granted to DSG
International, Plc. in fiscal 2007 which was fully amortized during the period
and stock based expense for marketing services rendered as compared to
approximately $1,823,000 for fiscal 2007. In addition, a decreased of
approximately $1,523,000 was related to test various marketing programs in the
U.K., including collateral materials during the fiscal year 2007 as compared to
$0 in the same period in fiscal 2008, as well as decreased travel expenses of
approximately $598,000 and advertising expense of approximately $230,000. Travel
expenses were approximately $529,000 in fiscal 2008 as compared to approximately
$1,128,000 in fiscal 2007, a decrease of approximately 53%.We presently
anticipate that travel expenses for fiscal 2009 will be relatively constant or
slightly higher with fiscal 2008 as it could vary depending upon our expansion
in Europe. While a portion of these expenses during the 2008 periods were
one-time expenses such as the non cash expenses describe earlier amounting to
approximately $238,000, and we anticipate that we will continue to incur sales,
marketing, and commission expenses which are calculated based upon a percentage
of the revenue volume generated from DSG International partner relationship
during fiscal 2009, we are not able to quantify the amount of such expenses,

         o Employee related costs which includes salaries and employee costs,
recruiting expenses, 401k contributions and stock based compensation increased
approximately 20% in fiscal 2008 to approximately $3,198,000 from approximately
$2,661,000 in fiscal 2007. The increase represents non-cash expenses of $477,000
during fiscal 2008 related to stock-based compensation expense which includes
approximately $102,000 attributable to shares issued to our chief executive
officer and approximately $162,000 to a key employee who accepted shares of our
common stock in lieu of his regular cash compensation as compared to $94,000
during fiscal 2007. This increase is also attributable to regular annual
increases in compensation levels of certain of our employees. Subject to the
availability of sufficient working capital, we anticipate that we will hire
additional software engineers and other staff to support our projected growth.
Our offices are in a geographic location which is not tech heavy and we face
competition in hiring qualified employees and consultants. Our experience has
been that in order to recruit qualified employees we are required to pay
recruiting expenses and offer relocation packages. If we are able to hire the
personnel we presently deem necessary, our selling, general and administrative
expenses will increase although we are presently unable to quantify the amount
of projected increase,

         o Technology service which includes engineering development, software
and hardware related to the ongoing provision of our services. Technology
service decreased $606,000, or approximately 43% to $806,000 for fiscal 2008
from $1,412,000 for fiscal 2007. This decrease is primarily attributable to the
engineering development cost to our custom software design for Gateway during
fiscal 2007 of approximately $650,000 as compared to $0 for the same period in
fiscal 2008. During fiscal 2007, we encountered certain technical issues in the
installation of our software on the Gateway platforms which we were unable to
correct and had discontinued our efforts with Gateway. We anticipate that these
costs will be relatively constant during fiscal 2009 from fiscal 2008 levels and
that as we increase the number of paid subscribers our cost per customer for
delivering service will be reduced as we spread the expense over a greater
number of subscribers,

                                     - 31 -
<PAGE>

         o Non-cash expense which includes option expense associated with
options granted to our executive officers and other employees for fiscal 2008
and 2007 ($1,846,000 and $3,838,000, respectively), depreciation ($829,000 and
$701,000, respectively) and stock based consulting fees ($980,000 and $270,000,
respectively), and

         For fiscal 2008 and fiscal 2007 we recorded non-cash expenses of
approximately $829,000 and $701,000, respectively, related to depreciation
expenses. The increase is primarily attributable to the purchase of
approximately $230,000 of computer equipment and software for the continued
expansion of our technological infrastructures as our subscribers increased
during fiscal 2008,

         Options expense consists of the fair value of options issued to
employees. For fiscal 2008 and fiscal 2007 we recorded non-cash expenses of
$1,845,705 and $3,838,404, respectively, related to stock-based compensation
expense, which includes approximately $1,084,000 and $3,200,000 attributable to
options granted to our executive officers, key employees and directors during
fiscal 2008 and 2007, respectively. Stock-based compensation - options
represented approximately 15% of our total operating expenses for fiscal 2008 as
compared to approximately 20% for fiscal 2007. Under SFAS No. 123(R), which was
effective January 1, 2006, companies are now required to measure the
compensation costs of share-based compensation arrangements based on the grant
date fair value and recognize the costs in the financial statements over the
period during which employees are required to provide services. This decrease is
primarily attributable to the decrease in fair values (utilizing the Black
Scholes model) at grant dates during fiscal 2008 as compared to fiscal 2007,

         During fiscal 2008 and 2007, we issued stocks, options and warrants to
consultants as compensation for business advisory, marketing and public
relations services to us. For fiscal 2008 and fiscal 2007 we recorded non-cash
expenses of $979,869 and $269,890, respectively, related to stock-based
consulting expense. This represented an increase of $709,979, or approximately
263%, from fiscal 2007. The increase was primarily attributable to an increase
in use of consultants for investor relations, business development and advisory
services during fiscal 2008 as compared to fiscal 2007,

         o Other general overhead expense includes rent, insurance, legal and
accounting fees, utilities, and other general operating expenses. The decrease
in general overhead expense for fiscal 2008 is primarily attributable to
decrease in professional legal and accounting fees of approximately $561,000.
The decrease in legal fees is related to decrease litigation matters during
fiscal 2008. Additionally, this decrease represents the decrease of
approximately $583,000 related to an aircraft lease which was terminated during
fiscal 2007.

TOTAL OTHER EXPENSES

         Our total other expenses, net for fiscal 2008 decreased $2,812,454, or
approximately 38%, from the same period in fiscal 2007. The non-cash component
of our total other expenses for fiscal 2008 was $4,273,119 as compared to
$7,556,772 for fiscal 2007, a decrease of approximately 44%. The decrease in
total other expenses for fiscal 2008 from fiscal 2007 was primarily attributable
to the following:

CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITIES AND DERIVATIVE LIABILITIES
EXPENSE

         Change in fair value of derivative liabilities and derivative
liabilities expense consist of income or expense associated with the change in
the fair value of derivative liabilities as a result of the application of EITF

                                     - 32 -
<PAGE>

Issue No. 00-19 to our financial statements. The difference in fair value of the
derivative liabilities between the date of their issuance and their measurement
date, which amounted to an increase of approximately $0 and $5.3 million for
fiscal 2008 and 2007, respectively, and derivative liability expense of
approximately $0 and $334,000 for fiscal 2008 and 2007, respectively has been
recognized as other income/expense in those periods. We did not have a
comparable other expense during fiscal 2008 due to our having satisfied all of
the 8% convertible promissory notes and 12.5% convertible subordinated
promissory debentures during fiscal 2007, the terms of which resulted in the
application of EITF Issue No. 00-19 to our financial statements, thus
eliminating such derivative liabilities.

         While at December 31, 2008 we no longer had any derivative liabilities,
we have historically been at a disadvantage in negotiating terms of financing
transactions which have resulted in the recognition of these derivative
liabilities. We have reassessed at December 31, 2008, the number of authorized
but unissued shares and taking into consideration the floorless feature in
connection with the redemption provision on the 10% Convertible Senior Unsecured
Promissory Debentures and have concluded that our authorized shares is
sufficient to satisfy the maximum number of equivalent shares that could be
settled in stocks. Accordingly, at December 31, 2008, management has determined
that a derivative liability is not necessary.

GAIN FROM LITIGATIION SETTLEMENT

         During fiscal 2007 we settled three ongoing litigation matters which
resulted in a one-time net gain of $280,000.

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

         In April 2008, we settled for $18,000 in connection with a settlement
demand from plaintiff Creditors Adjustment Bureau, Inc. We were released from
further action and have been dismissed from this litigation. During fiscal 2008,
this amount was included as a loss/gain from litigation settlement in the
accompanying consolidated statements of operations. Based on this settlement, we
paid the four equal monthly installments in the amount of $4,500 each beginning
May 1, 2008.

FOREIGN CURRENCY GAIN

         Under the terms of our agreement with DSG International we are required
to make certain payments in British Pound Sterling. Foreign currency gain of
$20,202 and $17,625, respectively, for fiscal 2008 and 2007.

INTEREST EXPENSE

         Interest expense consists primarily of interest recognized in
connection with the amortization of debt discount and interest on our
convertible promissory notes. The increase in interest expense during the 2008
periods when compared to the 2007 periods is primarily attributable to the
amortization of the debt discount amounting to $2.6 million associated with the
8% Convertible Subordinated Promissory Debenture and $1.7 million associated
with the 10% convertible promissory notes which were sold during fiscal 2007.

                                     - 33 -
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. The following table provides certain selected balance sheet
comparisons between December 31, 2008 and December 31, 2007:
<TABLE>
<CAPTION>
                                                         DECEMBER 31,   DECEMBER 31,      $ OF        % OF
                                                           2008 ($)       2007 ($)       CHANGE      CHANGE
                                                         ------------   ------------   -----------   ------
<S>                                                      <C>            <C>            <C>           <C>
Working capital (deficit) ............................    (6,859,969)   (2,634,060)    (4,225,909)     160%
Cash .................................................        18,946        527,402      (508,456)     -96%
Accounts receivable ............................. ....       132,389              0       132,389      100%
Prepaid marketing expenses ...........................        97,630        181,238       (83,608)     -46%
Total current assets .................................       248,965        708,640      (459,675)     -65%
Property and equipment, net ..........................     1,093,732      1,652,077      (558,345)     -34%
Other assets .........................................        56,985              0        56,985      100%
Total assets .........................................     1,399,682      2,360,717      (961,035)     -41%

Accounts payable and accrued expenses ................     3,499,152      2,878,014       621,138      +22%
8% convertible promissory notes, net - current portion     2,500,000        416,376     2,083,624     +500%
10% convertible promissory notes, net ................       776,008              0       776,008     +100%
Accrued interest on convertible promissory notes .....        78,338         33,310        45,028     +135%
Deferred revenue......................................       240,436              0       240,436     +100%
Due to stockholder ...................................        15,000         15,000             0       n/a
Total current liabilities ............................     7,108,934      3,342,700     3,766,234     +113%
8% convertible promissory notes, net - long term .....       190,321              0       190,321     +100%
Total liabilities ....................................     7,299,255      3,342,700     3,956,555      118%

NM = not meaningful
</TABLE>

         We have experienced losses and negative cash flows from operations
since inception and the report of our independent registered public accounting
firm on our financial statements for fiscal 2008 contains an explanatory
paragraph regarding our ability to continue as going concern. While we have
raised approximately $5,207,000 during the year ended December 31, 2008, our
operations do not generate sufficient cash to pay our operating expenses,
especially as DSG International retains a significant portion of revenues
generated through that agreement during fiscal 2008. Approximately $377,000 of
the total DSG revenues were offset against marketing expenses we owe that
company and certain percentage of such revenues amounting to approximately
$437,000 generated from DSG International partner relationship were paid as
sales commissions to that company out of the total DSG revenues of approximately
$1,058,000 during fiscal 2008. In July 2008, we have satisfied the balance due
to DSG International. Upon satisfaction of our outstanding balance to DSG
International, we have recorded accounts receivable from DSG International
amounting to approximately $132,000 primarily related to DSG revenues in fiscal
2008. At December 31, 2008, we had cash on hand of $18,946 and subsequent to
that date we have raised an additional $300,000 through the sale of our common
stock and borrowed an aggregate of $803,000 under an 18 month note.

         At December 31, 2008, we had a working capital deficiency of
approximately $6,860,000 which reflects current assets of $248,965 less current
liabilities of $7,108,934. At December 31, 2007 we had a working capital deficit
of $2,634,060. Our current assets decreased by $459,675 from December 31, 2007
to December 31, 2008. Included in these changes is an increase of:

         o $132,389 in accounts receivable related to DSG revenues,

         o $621,138 in accounts payable and accrued expenses. Included in our
accounts payable and accrued expenses at December 31, 2008 was approximately
$398,000 which has been reserved for possible expenses in conjunction with our
early termination of an aircraft lease, $100,000 which we have accrued for the
possible payment of commission on sale of the 10% Debentures sold through the
efforts of a broker dealer and approximately $665,000 of unpaid payroll taxes as
of December 31, 2008.

                                     - 34 -
<PAGE>

         o $2,083,624 in amounts due under 8% convertible subordinated
promissory debentures. During fiscal 2007 we issued and sold new convertible
promissory notes aggregating $2,975,000, and recognized interest expense from
amortization of its debt discount of $2,558,624 during the year ended December
31, 2008. During the year ended December 31, 2008, eight holders of these notes
converted amounting to approximately $475,000 into shares of our common stock.
We have a remaining debt discount of $0 as of December 31, 2008,

         o $776,008 in amounts due under 10% convertible subordinated promissory
debentures. During the year ended December 31, 2008, we issued and sold new
convertible promissory notes aggregating $1,758,500. During the year ended
December 31, 2008, the holders of these notes converted earlier issued 10% notes
amounting to approximately $845,000 into shares of our common stock pursuant to
the terms of the instruments, made principal payment amounting to $62,500 and
recognized interest expense from amortization of its debt discount of $1,683,508
during the year ended December 31, 2008. We have a remaining debt discount of
$74,992 as of December 31, 2008,

         o $78,338 of accrued interest under the 8% and 10% convertible
promissory debentures. During fiscal 2008, we issued 1,210,976 shares in
connection with the payment of interest on the 8% and 10% convertible promissory
notes. In January 2009, we issued 489,896 shares in connection with the payment
of accrued interest as of December 31, 2008 on the 8% and 10% convertible
promissory notes.

         These increases were offset by decreases of:

         o $508,456 in cash which we used for general working capital,

         o $83,608 in prepaid marketing expenses which represents the value of
the warrant we issued to DSG International Plc which were fully amortized during
the year ended December 31, 2008 and prepaid commissions paid to DSG which will
be amortized over a year,

         During the year ended December 31, 2008, our total long term
liabilities increased by $190,321. In February 2008 we issued and sold new
convertible promissory note of $250,000, and recognized interest expense from
amortization of its debt discount of $11,846 during the year ended December 31,
2008.

         During the year ended December 31, 2008, our cash decreased by
$508,456. This decrease consisted of $5,107,086 in cash provided by financing
activities which was offset by $5,345,079 of cash used in operating activities
and $270,463 of cash used in investing activities.

         Net cash used in operating activities for the year ended December 31,
2008 decreased $3,182,788 from the same period in 2007. Included in this change
is a decrease in our net loss for the period to $15,132,558, as compared to a
net loss of $26,084,897 for the same period in fiscal 2007. The decrease in net
cash used in operating activities is also primarily due to a decrease in changes
in assets and liabilities which includes restricted cash of $872,820, accounts
payable and accrued expenses of $1,439,699. Additionally, the decrease is
primarily attributable to the effect of decreased expenses for fiscal 2008
related to non-cash transactions, including the losses associated with
derivative liabilities, amortization of prepaid marketing expense, deferred
compensation, and fair value of options and warrants for services.

         Net cash used in investing activities was $270,463 for fiscal 2008 as
compared to net cash used in investing activities of $1,849,731 for fiscal 2007.
This change is attributable to the purchase of servers and other computer
equipment for the New Jersey data center during fiscal 2007. We did not have any
comparable purchases during fiscal 2008.

                                     - 35 -
<PAGE>

         Net cash provided by financing activities was $5,107,086 for fiscal
2008 as compared to $10,758,682 for fiscal 2007. During fiscal 2008, we received
net proceeds of $1,917,000 from the issuance of our common stock, $1,281,664
from the exercise of stock warrants and options, and $2,008,500 proceeds from
issuance of convertible promissory notes. During fiscal 2007, we received net
proceeds of $4,207,101 from the issuance of our common stock, $3,423,061 from
the exercise of stock warrants and options, and $4,300,000 proceeds from
issuance of convertible promissory notes which was offset by the $1,250,000
(less $100,000 previously paid) repurchase of shares of our common stock
associated with the exercise of a put right by Robinson Reed, Inc. and $21,480
principal repayments on the 12.5% subordinated convertible promissory debentures
and 8% convertible promissory notes.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable to smaller reporting companies.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Our financial statements are contained in pages F-1 through F-34, which
appear at the end of this annual report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

         None.

ITEM 9A(T). CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

         Our Chief Executive Officer is responsible for establishing and
maintaining disclosure controls and procedures for us. Disclosure controls and
procedures are controls and procedures designed to reasonably assure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this report, is recorded, processed, summarized
and reported within the time periods prescribed by SEC rules and regulations,
and to reasonably assure that such information is accumulated and communicated
to our management, including our Chief Executive Officer who also acts as our
principal financial and principal accounting officer, to allow timely decisions
regarding required disclosure.

         Our management does not expect that our disclosure controls or our
internal controls will prevent all error and fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. In addition, the
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within a company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people or by management override of the
control. The design of any systems of controls also is based in part upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Over time, controls may become inadequate because
of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of these inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.

                                     - 36 -
<PAGE>

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of December 31, 2008, the end of the period covered by this report, our
management concluded its evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. As of the evaluation date,
our CEO who also serves as our principal financial and accounting officer,
concluded that we maintain disclosure controls and procedures that are effective
in providing reasonable assurance that information required to be disclosed in
our reports under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods prescribed by SEC rules and
regulations, and that such information is accumulated and communicated to our
management to allow timely decisions regarding required disclosure.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

         Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those
policies and procedures that:

         o pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets;

         o provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our management and
directors; and

         o provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a
material effect on the financial statements.

         Because of the inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

         Our management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2008. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Management's assessment included an evaluation of the design of our
internal control over financial reporting and testing of the operational
effectiveness of these controls.

         Based on this assessment, our management has concluded that as of
December 31, 2008, our internal control over financial reporting was effective
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles.

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

                                     - 37 -
<PAGE>

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         There have been no changes in our internal control over financial
reporting during our fourth fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B. OTHER INFORMATION.

         In November 2008 we issued 58,500 shares of our common stock valued at
$7,605 to an accredited investor as compensation for public relations services
to be rendered to us under the terms of a consulting agreement in a transaction
exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.

         Between November 2008 and December 2008, we issued in aggregate
2,700,000 shares of our common stock to four purchasers and issued those
purchasers three year common stock purchase warrants to purchase 2,700,000
shares of our common stock exercisable at a price of $0.20 per share in a
private placement exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act. We received gross
proceeds of approximately $432,000. We used the net proceeds for general working
capital. The recipients were accredited investors who had such knowledge and
experience in business matters that they were capable of evaluating the merits
and risks of the prospective investment in our securities. The recipients had
access to business and financial information concerning our company.

         In December 2008, we issued in aggregate of 156,250 shares of our
common stock to an accredited investor who was a holder of our 10% debenture in
connection with the conversion of $25,000 principal amount of debentures. The
issuances were exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 3(a)(9) of that act.

         Between January 2009 and March 2009, we issued in aggregate 1,875,000
shares of our common stock to eight purchasers and issued those purchasers three
year common stock purchase warrants to purchase 1,875,000 shares of our common
stock exercisable at a price of $0.20 per share in a private placement exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act. We received gross proceeds of
approximately $300,000. We used the net proceeds for general working capital.
The recipients were accredited investors who had such knowledge and experience
in business matters that they were capable of evaluating the merits and risks of
the prospective investment in our securities. The recipients had access to
business and financial information concerning our company.

         In January 2009, we issued 489,896 shares stock to 20 accredited
investors in connection with the payment of interest on our 8% promissory notes
and 10% convertible debentures. The fair value of such shares issued amounted to
approximately $77,000. The issuances were exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 3(a)(9) of
that act.

         In March 2009 we issued 100,000 shares of our common stock valued at
$24,000 to an accredited investor as compensation for public relations services
rendered to us under the terms of a consulting agreement in a transaction exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.

         In March 2009 we issued 400,000 shares of our common stock valued at
$88,000 to an accredited investor as compensation for investor relations
services rendered to us under the terms of a consulting agreement in a
transaction exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.

                                     - 38 -
<PAGE>

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

DIRECTORS AND EXECUTIVE OFFICERS

         The following individuals serve as our executive officers and members
of our Board of Directors:

NAME                     AGE         POSITIONS
----                     ---         ---------
Cery B. Perle             46         Chief Executive Officer,
                                     President and Chairman of the Board
Edward Hagan              35         Secretary and Director
Robert Binkelle           45         Director

         CERY B. PERLE. Mr. Perle has served as our President, CEO and Chairman
since February 2004. Mr. Perle co-founded Grass Roots in June of 2002. Mr. Perle
has experience in numerous start-up ventures. A primary focus of Mr. Perle's
experience has been on the sales and marketing of innovative ideas and products.
Prior to Grass Roots, from 2001 to 2002, he was director of Crystal Consulting
Group, a business-consulting firm. From 2000 to 2001, he was engaged as a
consultant to Rxalternative.com, an alternative healthcare web site. From 1994
to 1998, he was President and Chief Executive Officer of Waldron & Co., a
California-based registered broker-dealer, where he established four branch
offices in addition to the West Coast based corporate office of the investment
firm.

         EDWARD L. HAGAN. Mr. Hagan has been a member of our Board of Directors
and our Secretary since February 2004. Mr. Hagan co-founded Grass Roots in June
2002 and has been a director and secretary of that company since inception, and
served as Chief Financial Officer from inception through September 2, 2002.
Since 1990, he has owned and managed Hagan Farms Partnership, a commercial
agricultural company and since 2003 he has owned SeaBreeze Nursery, a commercial
container nursery.

         ROBERT BINKELLE. Mr. Binkelle is the founder and CEO of The Estate
Planning Team, Inc., a company that has grown to service over 2200 securities
advisors, CPA's, attorneys and other professionals nationwide with tax
strategies, estate and pension planning. Mr. Binkelle is the Indian Wells, CA
wealth manager for J.P. Turner & Company, LLC. a national full service
registered broker dealer. Mr. Binkelle has participated in many public
offerings, and has become very knowledgeable in high tech and medical companies
and is well versed in the financial needs of small emerging growth companies and
the means to satisfy them. Prior to joining Atlanta based J.P. Turner & Company,
Mr. Binkelle was a wealth manager with Brook Street Securities and Raymond James
Financial Services Inc., a highly regarded national brokerage based in St.
Petersburg, FL. Prior to Raymond James Financial Services, Mr. Binkelle was an
Academic All American football player for the University of Utah where he
majored in finance. Mr. Binkelle continued his football career as a professional
football player for the San Francisco Forty-Niners during 1985 and 1986.

         There are no family relationships between any of the executive officers
and directors, except as set forth above. Each director is elected at our annual
meeting of stockholders and holds office until the next annual meeting of
stockholders, or until his successor is elected and qualified.

KEY EMPLOYEES

         Following is biographical information on those persons whom we consider
key employees of our company:

NAME                AGE         TITLE
----                ---         -----
Ivor Newman          44         Vice President of Operations
Darryl Adams         34         Director of Software Operations

                                     - 39 -
<PAGE>

         IVOR A. NEWMAN. Mr. Newman, 44, has served as Vice President of
Operations of our Spare Backup subsidiary since May 2006. Mr. Newman has over 20
years of program management and product marketing experience. Prior to joining
Spare Backup, from November 1999 to May 2006, Mr. Newman was the Worldwide cross
line of business (X-Lob) Program Manager for Dell Inc. where he was responsible
for the successful creation and implementation of global services programs. Mr.
Newman joined Dell in 1999 and was intimately involved with the global services
division.

         DARRYL ADAMS. Mr. Adams, 34, has served as our Director of Software
Operations since October 2006. Mr. Adams is experienced in software development.
Prior to joining our company, from March 2003 until October 2006 he was employed
by Automated Trading Desk, LLC, a South Carolina based high-tech brokerage and
market maker that applies sophisticated algorithmic methods to equities trading,
as a team member responsible for implementation and analysis of various stock
price prediction engines. From December 2001 to March 2003 he operated
Cinderblock Inc., a North Carolina-based consulting firm that he founded which
provided custom software solutions for technology companies and from September
1999 to October 2001 he was employed by ClickRadio, Inc., a provider of Internet
based music entertainment software, where he participate in the development of
software elements and was responsible for client configuration management and
build processes needed to release software and upgrades to the public. Mr. Adams
received a B.S. with honors in mathematics from the College of Charleston.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us under Rule 16a-3(d) of the Securities Exchange Act during the
fiscal year ended December 31, 2008 and Forms 5 and amendments thereto furnished
to us with respect to the fiscal year ended December 31, 2008, as well as any
written representation from a reporting person that no Form 5 is required, we
are aware that the above Board members failed to file on a timely basis, as
disclosed in the aforementioned Forms, reports required by Section 16(a) of the
Securities Exchange Act during the fiscal year ended December 31, 2008, except
as set forth below:

         During 2008, Mr. Cery Perle did not timely file on three occasions
reporting:

         o  The receipt of an option grant for 100,000 shares of common stock,

         o  The gift of 100,000 shares to trusts held for the benefit of his
            child,

         o  The gift of 100,000 shares to trusts held for the benefit of his
            child.

         During 2008, Mr. Edward Hagan did not timely file on three occasions
reporting:

         o  The purchase of 187,500 shares,

         o  The gift of 969,000 shares to trusts held for the benefit of his
            trust,

         o  The gift of 344,000 shares to trusts held for the benefit of his
            wife.

         During 2008, Mr. Robert Binkelle did not timely file on one occasion
reporting:

         o  The receipt of a warrant grant for 250,000 shares of common stock,

Mr. Perle, Mr. Hagan and Mr. Binkelle have not filed the delinquent reports.

                                     - 40 -
<PAGE>

CODE OF BUSINESS CONDUCT AND ETHICS

         We have adopted a Code of Business Conduct and Ethics to provide
guiding principles to all of our employees. Our Code of Business Conduct and
Ethics does not cover every issue that may arise, but it sets out basic
principles to guide our employees and provides that all of our employees must
conduct themselves accordingly and seek to avoid even the appearance of improper
behavior. Any employee who violates our Code of Business Conduct and Ethics will
be subject to disciplinary action, up to an including termination of his or her
employment. Generally, our Code of Business Conduct and Ethics provides
guidelines regarding:

         o  compliance with laws, rules and regulations,
         o  conflicts of interest,
         o  insider trading,
         o  corporate opportunities,
         o  competition and fair dealing,
         o  discrimination and harassment,
         o  health and safety,
         o  record keeping,
         o  confidentiality,
         o  protection and proper use of company assets,
         o  payments to government personnel,
         o  waivers of the Code of Business Conduct and Ethics,
         o  reporting any illegal or unethical behavior, and
         o  compliance procedures.

         In addition, we have also adopted a Code of Ethics for our Chief
Executive Officer and Senior Financial Officers. In addition to our Code of
Business Conduct and Ethics, our CEO and senior financial officers are also
subject to specific policies regarding:

         o  disclosures made in our filings with the SEC,

         o  deficiencies in internal controls or fraud involving management or
            other employees who have a significant role in our financial
            reporting, disclosure or internal controls,

         o  conflicts of interests, and

         o  knowledge of material violations of securities or other laws, rules
            or regulations to which we are subject.

         A copy of our Code of Business Conduct and Ethics has been filed with
the Securities and Exchange Commission as an exhibit to this annual report. We
will provide a copy, without charge, to any person desiring a copy of the Code
of Business Conduct and Ethics, by written request to, 17257 Fred Waring Drive,
Palm Desert, CA 92260, Attention: Corporate Secretary.

COMMITTEES OF THE BOARD OF DIRECTORS

         Our Board of Directors has not established any committees, including an
Audit Committee, a Compensation Committee or a Nominating Committee, any
committee performing a similar function. The functions of those committees are
being undertaken by the entire board as a whole. Because of the small size of
our company and the even number of independent directors, our Board of Directors
believes that the establishment of committees of the Board would not provide any
benefits to our company and could be considered more form than substance.

         We do not have a policy regarding the consideration of any director
candidates which may be recommended by our stockholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be
followed. Our Board has not considered or adopted any of these policies as we

                                     - 41 -
<PAGE>

have never received a recommendation from any stockholder for any candidate to
serve on our Board of Directors. Given our relative size and lack of directors
and officers insurance coverage, we do not anticipate that any of our
stockholders will make such a recommendation in the near future. While there
have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the consideration
of director nominees.

         None of our directors is an "audit committee financial expert" within
the meaning of Item 401(e) of Regulation S-B. In general, an "audit committee
financial expert" is an individual member of the audit committee or Board of
Directors who:

         o  understands generally accepted accounting principles and financial
            statements,

         o  is able to assess the general application of such principles in
            connection with accounting for estimates, accruals and reserves,

         o  has experience preparing, auditing, analyzing or evaluating
            financial statements comparable to the breadth and complexity to our
            financial statements,

         o  understands internal controls over financial reporting, and

         o  understands audit committee functions.

         Since our formation we have relied upon the personal relationships of
our CEO to attract individuals to our Board of Directors. While we would prefer
that one or more of our directors be an audit committee financial expert, the
individuals whom we have been able to attract to our Board do not have the
requisite professional backgrounds. As with most small companies until such time
our company further develops its business, achieves a stronger revenue base and
has sufficient working capital to purchase directors and officers insurance, we
do not have any immediate prospects to attract independent directors. When we
are able to expand our Board of Directors to include one or more additional
independent directors, we intend to establish an Audit Committee of our Board of
Directors. It is our intention that one or more of these additional independent
directors will also qualify as an audit committee financial expert. Our
securities are not quoted on an exchange that has requirements that a majority
of our Board members be independent and we are not currently otherwise subject
to any law, rule or regulation requiring that all or any portion of our Board of
Directors include "independent" directors, nor are we required to establish or
maintain an Audit Committee or other committee of our Board of Directors.

ITEM 11. EXECUTIVE COMPENSATION.

         The following table summarizes all compensation recorded by us in the
last completed fiscal year for

         o  our principal executive officer or other individual serving in a
            similar capacity,

         o  our two most highly compensated executive officers other than our
            principal executive officer who were serving as executive officers
            at December 31, 2008 as that term is defined under Rule 3b-7 of the
            Securities Exchange Act of 1934. In the case of our company this
            includes two key employees of our company, and

         o  up to two additional individuals for whom disclosure would have been
            required but for the fact that the individual was not serving as an
            executive officer at December 31, 2008.

         For definitional purposes in this annual report these individuals are
sometimes referred to as the "named executive officers." The value attributable
to any option awards is computed in accordance with FAS 123R.

                                     - 42 -
<PAGE>
<TABLE>
<CAPTION>
                                              SUMMARY COMPENSATION TABLE
                                              --------------------------
                                                               NON-EQUITY     NONQUALIFIED       ALL
NAME AND                                  STOCK    OPTION    INCENTIVE PLAN     DEFERRED        OTHER
PRINCIPAL             SALARY    BONUS    AWARDS    AWARDS     COMPENSATION    COMPENSATION   COMPENSATION     TOTAL
POSITION       YEAR     ($)      ($)       ($)       ($)          ($)         EARNINGS ($)       ($)           ($)
   (A)          (B)     (C)      (D)       (E)       (F)          (G)             (H)            (I)           (J)
------------   ----   -------   ------   -------   -------   --------------   ------------   ------------   ---------
<S>            <C>    <C>       <C>      <C>                 <C>              <C>            <C>            <C>
Cery Perle     2008   269,923        0   101,160   603,810                0              0        195,073   1,169,966
(1)            2007   245,989        0    33,401   468,000                0              0        204,696     952,086

Ivor Newman    2008    98,963        0   161,735    31,810                0              0         16,011     308,519
(2)            2007   180,000   15,800    17,190   250,000                0              0         14,679     477,669

Darryl Adams   2008   156,750        0   138,326   200,137                0              0          4,189     499,402
(3)            2007   246,429        0    17,602   561,000                0              0         34,734     859,765
</TABLE>
(1) Mr. Perle has served as our president and CEO since February 2004. During
2008 in addition to his salary, Mr. Perle's compensation included stock awards
of 353,180 shares of our common stock which were valued at $101,160, and option
awards to purchase a total of 2,600,000 shares of our common stock at an
exercise prices ranging from $0.11 to $0.30 per share which were valued at
$603,810. Other compensation for fiscal 2008 included $25,000 of payment of
unused vacation pay, $96,967 for payment of personal expenses, $10,123 for
payment of health, dental and life insurance and $62,983 for automobile expense.
For fiscal 2007 in addition to his salary, Mr. Perle's compensation included
stock awards of 22,335 shares of our common stock which were valued at $13,401,
stock award of 1,000,000 shares of our common stock as a result of a cashless
exercise valued at $20,000, and option awards to purchase a total of 700,000
shares of our common stock at an exercise prices ranging from $0.44 to $0.93 per
share which were valued at $468,000. Other compensation for fiscal 2007 included
$45,000 of payment of unused vacation and sick pay, $50,193 for payment of
personal expenses, $40,801 for payment of health, dental and life insurance and
$68,702 for automobile expense.

(2) Mr. Newman has served as our Vice President of Operations since May 2006. In
addition to his salary, Mr. Newman's fiscal 2008 compensation included stock
awards of 804,639 shares of our common stock which were valued at $161,735 and
option awards to purchase a total of 200,000 shares of our common stock at an
exercise prices ranging from $0.11 to $0.30 per share which were valued at
$31,810. Other compensation for fiscal 2008 included $16,011 for payment of
health and dental insurance. For fiscal 2007 Mr. Newman's compensation included
stock awards of 28,650 shares of our common stock which were valued at $17,190
and option awards to purchase a total of 500,000 shares of our common stock at
an exercise prices ranging from $0.44 to $0.93 per share which were valued at
$250,000. Other compensation for fiscal 2007 included $14,679 for payment of
health and dental insurance.

(3) Mr. Adams has served as our Director of Software Operations since October
2006. In addition to his salary, Mr. Adams' fiscal 2008 compensation included
stock awards of 351,848 shares of our common stock which were valued at $138,326
and option awards to purchase a total of 1,504,018 shares of our common stock at
an exercise prices ranging from $0.01 to $0.30 per share which were valued at
$200,137. Other compensation for fiscal 2008 included $4,189 for payment of
health and dental insurance. In addition to his salary, Mr. Adams' fiscal 2007
compensation included stock awards of 29,337 shares of our common stock which
were valued at $17,602 and option awards to purchase a total of 1,100,000 shares
of our common stock at an exercise prices ranging from $0.48 to $0.51 per share
which were valued at $561,000. Other compensation for fiscal 2007 included
$3,532 for payment of health and dental insurance, $11,567 for automobile
expense and $19,635 for temporary housing expenses.

                                     - 43 -
<PAGE>

EMPLOYMENT AGREEMENTS AND NARRATIVE REGARDING EXECUTIVE COMPENSATION

Employment Agreement with Cery Perle

         On January 1, 2003 we entered into a two-year employment agreement with
Mr. Cery B. Perle to serve as our president. The agreement automatically renews
for an additional two-year term upon its expiration, with a 10% increase in his
base salary annually. In January 2009, the agreement automatically renews for an
additional three-year term. Under the terms of this agreement, we currently pay
Mr. Perle an annual base salary of $300,000. We initially granted him an option
to purchase 2,000,000 shares of our common stock at an exercise price of $0.01
per share as additional compensation. This option vested ratably over the
two-year term of the agreement. Upon the renewal of the agreement in January
2006 we granted him options to purchase an additional 2,000,000 shares of common
stock with an exercise price of $0.45 per share, which vest ratably over a
24-month period. During fiscal 2008 as additional compensation approved by our
Board of Directors of which he is a member we issued him 353,180 shares of our
common stock which were valued at $101,160, and granted him options to purchase
a total of 2,600,000 shares of our common stock at an exercise prices ranging
from $0.11 to $0.30 per share which were valued at $603,810. In addition, during
fiscal 2008 we paid him certain additional compensation set forth in the
foregoing table which was approved by our Board of Directors. During fiscal 2007
we issued him 22,335 shares of our common stock which were valued at $13,401,
1,000,000 shares of our common stock as a result of a cashless exercise valued
at $20,000, and granted options to purchase a total of 700,000 shares of our
common stock at an exercise prices ranging from $0.44 to $0.93 per share which
were valued at $468,000. These issuances of securities and the additional
compensation paid to him in 2007 as described in the foregoing table were
approved by our Board of Directors. The agreement also provides for an
automobile allowance which is presently $5,000 per month, paid vacation, fringe
benefits commensurate with his duties and responsibilities and benefits in the
event of disability, as well as containing certain non-disclosure and
non-competition provisions. Under the terms of the agreement, we may terminate
Mr. Perle's employment either with or without cause. If the agreement is
terminated by us without good cause, or by Mr. Perle with cause, we would be
obligated to pay him his base salary though the end of the term of the
agreement, continue his benefits through the end of the term and all options
would continue to vest during the remaining period of the term. To the extent
that Mr. Perle is terminated for cause, or he voluntarily resigns, no severance
benefits will be paid.

How Mr. Newman's compensation was determined

         On April 26, 2006, we entered into an employment agreement with Mr.
Newman to serve as our Vice President of Operations. Under the terms of this
agreement, Mr. Newman's base salary was $156,000. We currently pay Mr. Newman an
annual base salary of $180,000. We initially granted him an option to purchase
350,000 shares of our common stock at an exercise price of $0.40 per share as
additional compensation. This option vested ratably over the two-year term of
the agreement. Mr. Newman's employment with the company is "at will" basis.

How Mr. Adams's compensation was determined

         On September 20, 2006, we entered into an employment agreement with Mr.
Adams to serve as our Director of Software Operations. Under the terms of this
agreement, Mr. Adam's base salary is $260,000. In addition, Mr. Adams will
receive a guaranteed bonus of $80,000 whereby Mr. Adams has an option of
accepting bonus payment in cash or stocks. We currently pay Mr. Adam an annual
base salary of $260,000. We initially granted him an option to purchase
1,000,000 shares of our common stock at an exercise price of $0.51 per share as
additional compensation. This option vested ratably over the two-year term of
the agreement. Mr. Adams orally agreed to accept stock options as payment of
bonus during fiscal 2007 and 2008. Mr. Adam's employment with the company is "at
will" basis.

                                     - 44 -
<PAGE>

                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

         The following table provides information concerning unexercised
options, stock that has not vested and equity incentive plan awards for each
named executive officer outstanding as of December 31, 2008:
<TABLE>
<CAPTION>
                               OPTION AWARDS                                            STOCK AWARDS
         --------------------------------------------------------------  -------------------------------------------
                                                                                                          Equity
                                                                                                          incentive
                                                                                   Market    Equity       plan
                                                                         Number    value     incentive    awards:
                                                                         of        of        plan         Market or
                                     Equity                              shares    shares    awards:      payout
                                     incentive                           or        or        Number of    value of
                                     plan awards:                        units     units     unearned     unearned
         Number of    Number of      Number of                           of        of        shares,      shares,
         securities   securities     securities                          stock     stock     units or     units or
         underlying   underlying     underlying                          that      that      other        other
         unexercised  unexercised    unexercised   Option                have      have      rights       rights
         options      options        unearned      exercise  Option      not       not       that have    that have
         (#)          (#)            options       price     expiration  vested    vested    not vested   not vested
Name     exercisable  unexercisable  (#)           ($)       date        (#)       ($)       (#)          (#)
(a)      (b)          (c)            (d)           (e)       (f)         (g)       (h)       (i)          (j)
-------  -----------  -------------  ------------  --------  ----------  -------   -------   ----------   ----------
<S>      <C>          <C>            <C>           <C>       <C>         <C>       <C>       <C>          <C>
Cery B.      100,000                                   0.30    03/21/10
Perle        500,000                                   0.30    06/30/10
           2,000,000                                   0.30    01/14/11
             500,000                                   0.30    05/31/11
             118,000                                   0.30    07/26/11
              50,000                                   0.30    10/12/11
             100,000                                   0.30    01/09/12
             500,000                                   0.30    04/05/12
             100,000                                   0.30    09/26/12
           1,000,000      1,000,000                    0.30    01/16/13
             500,000                                   0.30    03/26/13
             100,000                                   0.11    10/15/13

Ivor         100,000                                   0.30    07/27/11
Newman       350,000                                   0.30    08/01/11
             200,000                                   0.30     8/23/11
              50,000                                   0.30    10/13/11
             100,000                                   0.30    01/09/12
             100,000                                   0.30    05/04/12
             100,000                                   0.30    06/21/12
             100,000                                   0.30    09/13/12
             100,000                                   0.30    10/19/12
             100,000                                   0.30    01/18/13
             100,000                                   0.11    10/15/13

Darryl     1,000,000                                   0.30    01/05/12
Adams        100,000                                   0.30    09/26/12
              25,000                                   0.30    01/18/13
             713,478                                   0.01    09/22/13
             128,788                                   0.01    10/01/13
             108,974                                   0.01    10/15/13
             100,000                                   0.11    10/15/13
              88,542                                   0.01    10/31/13
             118,056                                   0.01    11/15/13
             221,180                                   0.01    12/31/13
</TABLE>

                                     - 45 -
<PAGE>

2002 STOCK OPTION AND STOCK AWARD PLAN

OVERVIEW

         On August 9, 2002, our board of directors authorized, and holders of a
majority of our outstanding common stock approved and adopted, our 2002 Stock
Option and Stock Award Plan covering 1,000,000 shares of common stock. On April
20, 2004, the plan was amended to increase the number of shares covered by the
plan to 12,000,000 shares to accommodate grants previously provided under the
Grass Roots Communications, Inc. compensation program, and on May 31, 2006 the
plan was again amended to further increase the number of shares covered by the
plan to 27,000,000 shares.

         The purpose of the plan is to encourage stock ownership by our
officers, directors, key employees and consultants, and to give such persons a
greater personal interest in the success of our business and an added incentive
to continue to advance and contribute to us. Our board of directors, or a
committee of the board, will administer the Plan including, without limitation,
the selection of the persons who will be awarded stock grants and granted
options, the type of options to be granted, the number of shares subject to each
option and the exercise price.

         Plan options may either be options qualifying as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended, or
non-qualified options. In addition, the plan allows for the inclusion of a
reload option provision, which permits an eligible person to pay the exercise
price of the option with shares of common stock owned by the eligible person and
receive a new option to purchase shares of common stock equal in number to the
tendered shares. Furthermore, compensatory stock amounts may also be issued. Any
incentive option granted under the plan must provide for an exercise price of
not less than 100% of the fair market value of the underlying shares on the date
of grant, but the exercise price of any incentive option granted to an eligible
employee owning more than 10% of our outstanding common stock must not be less
than 110% of fair market value on the date of the grant. The term of each plan
option and the manner in which it may be exercised is determined by the board of
directors or the committee, provided that no option may be exercisable more than
10 years after the date of its grant and, in the case of an incentive option
granted to an eligible employee owning more than 10% of the common stock, no
more than five years after the date of the grant.

         During fiscal 2008 we granted options to purchase an aggregate of
9,241,270 shares of our common stock at exercise prices ranging from $0.01 to
$0.48 per share to our executive officers, directors, employees and consultants.
At each of December 31, 2008 and April 6, 2009 we had 3,594,046 shares and
1,139,046 shares, respectively, available for grant under the plan.

ELIGIBILITY

         Our officers, directors, key employees and consultants are eligible to
receive stock grants and non-qualified options under the plan. Only our
employees are eligible to receive incentive options.

ADMINISTRATION

         The plan will be administered by our board of directors or an
underlying committee. The board of directors or the committee determines from
time to time those of our officers, directors, key employees and consultants to
whom stock grants or plan options are to be granted, the terms and provisions of
the respective option agreements, the time or times at which such options shall
be granted, the type of options to be granted, the dates such plan options
become exercisable, the number of shares subject to each option, the purchase
price of such shares and the form of payment of such purchase price. All other
questions relating to the administration of the plan, and the interpretation of
the provisions thereof and of the related option agreements, are resolved by the
board of directors or committee.

                                     - 46 -
<PAGE>

SHARES SUBJECT TO AWARDS

         We have currently reserved 27,000,000 of our authorized but unissued
shares of common stock for issuance under the plan, and a maximum of 27,000,000
shares may be issued, unless the plan is subsequently amended, subject to
adjustment in the event of certain changes in our capitalization, without
further action by our board of directors and stockholders, as required. Subject
to the limitation on the aggregate number of shares issuable under the plan,
there is no maximum or minimum number of shares as to which a stock grant or
plan option may be granted to any person. Shares used for stock grants and plan
options may be authorized and unissued shares or shares reacquired by us,
including shares purchased in the open market. Shares covered by plan options
which terminate unexercised will again become available for grant as additional
options, without decreasing the maximum number of shares issuable under the
plan, although such shares may also be used by us for other purposes.

         The plan provides that, if our outstanding shares are increased,
decreased, exchanged or otherwise adjusted due to a share dividend, forward or
reverse share split, recapitalization, reorganization, merger, consolidation,
combination or exchange of shares, an appropriate and proportionate adjustment
will be made in the number or kind of shares subject to the plan or subject to
unexercised options and in the purchase price per share under such options. Any
adjustment, however, does not change the total purchase price payable for the
shares subject to outstanding options. In the event of our proposed dissolution
or liquidation, a proposed sale of all or substantially all of our assets, a
merger or tender offer for our shares of common stock, the board of directors
may declare that each option granted under the Plan terminates as of a date to
be fixed by the board of directors; provided that not less than 30 days written
notice of the date so fixed shall be given to each participant holding an
option, and each such participant shall have the right, during the period of 30
days preceding such termination, to exercise the participant's option, in whole
or in part, including as to options not otherwise exercisable.

TERMS OF EXERCISE

         The plan provides that the options granted thereunder shall be
exercisable from time to time in whole or in part, unless otherwise specified by
the committee or by the board of directors.

         The plan provides that, with respect to incentive stock options, the
aggregate fair market value (determined as of the time the option is granted) of
the shares of common stock, with respect to which incentive stock options are
first exercisable by any option holder during any calendar year shall not exceed
$100,000.

EXERCISE PRICE

         The purchase price for shares subject to incentive stock options must
be at least 100% of the fair market value of our common stock on the date the
option is granted, except that the purchase price must be at least 110% of the
fair market value in the case of an incentive option granted to a person who is
a "10% stockholder." A "10% stockholder" is a person who owns, within the
meaning of Section 422(b)(6) of the Internal Revenue Code of 1986, at the time
the incentive option is granted, shares possessing more than 10% of the total
combined voting power of all classes of our outstanding shares. The plan
provides that fair market value shall be determined by the board of directors or
the committee in accordance with procedures which it may from time to time
establish. If the purchase price is paid with consideration other than cash, the
Board or the Committee shall determine the fair value of such consideration to
us in monetary terms.

         The exercise price of non-qualified options shall be determined by the
board of directors or the committee, but shall not be less than the par value of
our common stock on the date the option is granted.

                                     - 47 -
<PAGE>

         The per share purchase price of shares issuable upon exercise of a plan
option may be adjusted in the event of certain changes in our capitalization,
but no such adjustment shall change the total purchase price payable upon the
exercise in full of options granted under the plan.

MANNER OF EXERCISE

         Plan options are exercisable by delivery of written notice to us
stating the number of shares with respect to which the option is being
exercised, together with full payment of the purchase price therefore. Payment
shall be in cash, checks, certified or bank cashier's checks, promissory notes
secured by the shares issued through exercise of the related options, shares of
common stock or in such other form or combination of forms which shall be
acceptable to the board of directors or the committee, provided that any loan or
guarantee by us of the purchase price may only be made upon resolution of the
board of directors or committee that such loan or guarantee is reasonably
expected to benefit us.

OPTION PERIOD

         All incentive stock options shall expire on or before the tenth
anniversary of the date the option is granted except as limited above. However,
in the case of incentive stock options granted to an eligible employee owning
more than 10% of the common stock, these options will expire no later than five
years after the date of the grant. Non-qualified options shall expire 10 years
and one day from the date of grant unless otherwise provided under the terms of
the option grant.

TERMINATION

         All plan options are non-assignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee shall die while
our employee or within three months after termination of employment by us
because of disability, or retirement or otherwise, such options may be
exercised, to the extent that the optionee shall have been entitled to do so on
the date of death or termination of employment, by the person or persons to whom
the optionee's right under the option pass by will or applicable law, or if no
such person has such right, by his executors or administrators.

         In the event of termination of employment because of death while an
employee or because of disability, the optionee's options may be exercised not
later than the expiration date specified in the option or one year after the
optionee's death, whichever date is earlier, or in the event of termination of
employment because of retirement or otherwise, not later than the expiration
date specified in the option or one year after the optionee's death, whichever
date is earlier.

         If an optionee's employment by us terminates because of disability and
such optionee has not died within the following three months, the options may be
exercised, to the extent that the optionee shall have been entitled to do so at
the date of the termination of employment, at any time, or from time to time,
but not later than the expiration date specified in the option or one year after
termination of employment, whichever date is earlier.

         If an optionee's employment shall terminate for any reason other than
death or disability, optionee may exercise the options to the same extent that
the options were exercisable on the date of termination, for up to three months
following such termination, or on or before the expiration date of the options,
whichever occurs first. In the event that the optionee was not entitled to
exercise the options at the date of termination or if the optionee does not
exercise such options (which were then exercisable) within the time specified
herein, the options shall terminate.

                                     - 48 -
<PAGE>

         If an optionee's employment shall terminate for any reason other than
death, disability or retirement, all right to exercise the option shall
terminate not later than 90 days following the date of such termination of
employment.

         If an optionee's employment with us is terminated for any reason
whatsoever, and within three months after the date thereof optionee either (i)
accepts employment with any competitor of, or otherwise engages in competition
with us, or (ii) discloses to anyone outside our company or uses any
confidential information or material of our company in violation of our policies
or any agreement between the optionee and our company, the committee, in its
sole discretion, may terminate any outstanding stock option and may require
optionee to return to us the economic value of any award that was realized or
obtained by optionee at any time during the period beginning on that date that
is six months prior to the date optionee's employment with us is terminated.

         The committee may, if an optionee's employment with us is terminated
for cause, annul any award granted under this plan to such employee and, in such
event, the committee, in its sole discretion, may require optionee to return to
us the economic value any award that was realized or obtained by optionee at any
time during the period beginning on that date that is six months prior to the
date optionee's employment with us is terminated.

MODIFICATION AND TERMINATION OF PLAN

         The board of directors or committee may amend, suspend or terminate the
plan at any time. However, no such action may prejudice the rights of any holder
of a stock grant or optionee who has prior thereto been granted options under
the plan. Further, no amendment to this plan which has the effect of (a)
increasing the aggregate number of shares subject to this plan (except for
adjustments due to changes in our capitalization), or (b) changing the
definition of "Eligible Person" under the plan, may be effective unless and
until approved by our stockholders in the same manner as approval of this plan
is required. Any such termination of the plan shall not affect the validity of
any stock grants or options previously granted thereunder. Unless the plan shall
theretofore have been suspended or terminated by the board of directors, the
plan will terminate on August 9, 2012.

DIRECTOR COMPENSATION

         Our Board of Directors is comprised of Messrs. Perle, Binkelle and
Hagan. Mr. Perle, who is also an executive officer of our company, does not
receive any compensation specifically for his Board services. The following
table provides information concerning the compensation of Messrs. Hagan,
Binkelle and Galterio for services as members of our Board of Directors for
fiscal 2008. The value attributable to any option awards is computed in
accordance with FAS 123R.
<TABLE>
<CAPTION>
                                        DIRECTOR COMPENSATION
                                        ---------------------
                                    Warrant    Non-equity
                 Fees                and       incentive     Nonqualified
               earned or   Stock    Option        plan         deferred      All other
                paid in    awards   awards    compensation   compensation   compensation    Total
    Name       cash ($)     ($)       ($)         ($)        earnings ($)        ($)         ($)
     (a)          (b)       (c)       (d)         (e)             (f)            (g)         (h)
------------   ---------   ------   -------   ------------   ------------   ------------   -------
<S>            <C>         <C>      <C>       <C>            <C>            <C>            <C>
Edward L.              0        0    57,500              0              0              0    57,500
Hagan (1)

Richard                0        0   115,000              0              0              0   115,000
Galterio (2)

Robert                 0        0    60,350              0              0              0    60,350
Binkelle (3)
</TABLE>

                                     - 49 -
<PAGE>

(1) Represents the value of options to purchase 250,000 shares of our common
stock with an exercise price of $0.32 per share.

(2) Represents the value of options to purchase 500,000 shares of our common
stock with an exercise price of $0.32 per share.

(3) Represents the value of warrants to purchase 500,000 shares of our common
stock with an exercise price of $0.13 per share.

         We have not established standard compensation arrangements for our
directors and the compensation payable to each individual for their service on
our Board is determined from time to time by our Board of Directors based upon
the amount of time expended by each of the directors on our behalf.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         At April 6, 2009 we had 108,433,262 shares of common stock and 50,000
shares of Series A Preferred Stock issued and outstanding. Each share of common
stock entitles the holder to one vote and each share of Series A Preferred Stock
entitles the holder to 400 votes at any meeting of our stockholders and the
shares of common stock and Series A Preferred Stock vote together on all matters
submitted to a vote of our stockholders.

         The following table sets forth information known to us as of April 6,
2009 relating to the beneficial ownership of shares of our voting securities by:

         o  each person who is known by us to be the beneficial owner of more
            than five percent of our outstanding voting stock;

         o  each director;

         o  each named executive officer; and

         o  all named executive officers and directors as a group.

         Unless otherwise indicated, the business address of each person listed
is in care of 17257 Fred Waring Drive, Palm Desert, California 92260. The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on that date and all shares of our common stock issuable to that holder in the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by that person at that date which are exercisable within 60
days of that date. Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all shares of our common stock
owned by them, except to the extent that power may be shared with a spouse.
<TABLE>
<CAPTION>
                                              AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
                                       ------------------------------------------------------
                                             COMMON STOCK           SERIES A PREFERRED STOCK
                                       -------------------------    -------------------------    % OF
             NAME                      # OF SHARES    % OF CLASS    # OF SHARES    % OF CLASS    VOTE
-----------------------------------    -----------    ----------    -----------    ----------    -----
<S>                                    <C>            <C>           <C>            <C>           <C>
Cery B. Perle (1) .................     13,486,668         11.5%         50,000          100%    24.7%
Edward L. Hagan (2) ...............      2,789,025          2.5%              0           n/a     2.1%
Robert Binkelle (3) ...............        599,487           *                0           n/a      *
Ivor Newman (4) ...................      1,400,000          1.3%              0           n/a     1.0%
Darryl Adams (5) ..................      2,624,018          2.4%              0           n/a     2.0%
All named executive officers and
directors as a group (five persons)
(1),(2),(3),(4) and (5) ...........     20,899,198         17.1%         50,000          100%    29.0%
Gimmel Partners, LP (6) ...........     19,545,378         15.6%              0           n/a    13.5%
</TABLE>
* represents less than 1%

                                     - 50 -
<PAGE>

(1) The number of shares beneficially owned by Mr. Perle includes:

   o  a total of 7,502,002 shares of our common stock which are presently
      outstanding, including 1,077,502 shares held by Mr. Perle, 4,000,000
      shares held by a trust for his benefit, 924,500 shares held in trust for
      his minor children, and 1,500,000 shares of common stock held by Preston &
      Price, S.A., over which Mr. Perle can exercise voting rights,

   o  options to purchase 5,884,666 shares of common stock with an exercise
      price of $0.30 per share, and

   o  options to purchase 100,000 shares of common stock with an exercise price
      of $0.11 per share.

   The number of shares of common stock beneficially owned by Mr. Perle excludes
   583,334 shares underlying options exercisable at $0.30 per share which have
   not yet vested.

(2) The number of shares beneficially owned by Mr. Hagan includes:

   o  37,500 shares of our common stock which owned by him,

   o  1,119,000 shares of our common stock held in trust over which he has
      voting and dispositive control,

   o  244,000 shares of our common stock held by his wife Stephanie,

   o  100,000 shares of our common stock as custodian for his child,

   o  312,000 shares of our common stock held as custodian for the benefit of
      minor children, and

   o  options to purchase 976,525 shares of our common stock with an $0.30 per
      share.

(3) The number of shares beneficially owned by Mr. Binkelle includes:

   o  99,487 shares of our common stock which are presently outstanding, and

   o  500,000 shares of our common stock underlying warrants exercisable at
      $0.13 per share.

(4) The number of shares beneficially owned by Mr. Newman includes: o 1,300,000
    shares of our common stock underlying options exercisable at $0.30 per
    share, and

   o  100,000 shares of our common stock underlying options exercisable at $0.11
      per share,

(5) The number of shares beneficially owned by Mr. Adams includes:

   o  20,000 shares of our common stock which are presently outstanding,

   o  1,125,000 shares of our common stock underlying options exercisable at
      $0.30 per share; and

   o  1,379,018 shares of our common stock underlying options exercisable at
      $0.01 per share.

   o  100,000 shares of our common stock underlying options exercisable at $0.11
      per share.

                                     - 51 -
<PAGE>

(6) The number of shares beneficially owned by Gimmel Partners, LP includes:

   o  3,537,797 shares of our common stock which are presently outstanding,

   o  3,636,364 shares of our common stock underlying warrants exercisable at
      $0.25 per share,

   o  454,550 shares of our common stock underlying warrants exercisable at
      $1.00 per share,

   o  666,667 shares of our common stock underlying warrants exercisable at
      $0.25 per share,

   o  10,000,000 shares of our common stock underlying an 8% convertible note in
      the principal amount of $2,500,000 due August 2009 which is convertible at
      $0.25 per share; and

   o  1,250,000 shares of our common stock underlying a 10% convertible note in
      the principal amount of $200,000 due September 2009 which is convertible
      at $0.16 per share.

   The address for Gimmel Partners, LP is 767 Third Avenue, 6th Floor, New York,
   New York 10017.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE.

         Mr. Perle, our CEO, has made an available home owned by him for our use
as temporary housing for new employees at monthly rental costs which we believe
are below market. During each of these years we used this home for approximately
70% of the year. We reimburse each of Mr. Perle for the actual mortgage payment
and pay ordinary operating expenses associated with such home including
utilities, maintenance and insurance. During fiscal 2008 and 2007 we made rental
payments to Mr. Perle of $40,200 and $12,500, respectively.

         In January 2008 we issued Mr. Cery Perle, our CEO and a member of our
Board of Directors, 50,000 shares of a newly created Series A Preferred Stock as
additional compensation valued at $.001 per share or $50.00. The designations,
rights and preferences of the Series A Preferred Stock includes:

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

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

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

         o  the shares are not subject to redemption, and

         o  so long as the shares are outstanding we have agreed not to alter or
            change the rights of the security in a manner which would adversely
            affect the Series A Preferred Stock, or take any action which would
            result in the taxation of the holder under Section 305 of the
            Internal Revenue Code

         Prior to the issuance of the shares of Series A Preferred Stock to Mr.
Perle, he controlled the vote of approximately 10% of our outstanding voting
securities. As a result of the issuance of these securities, Mr. Perle presently
controls the vote of approximately 24.7% of our outstanding voting securities.
These actions were approved by our Board of Directors of which Mr. Perle is a
member.

                                     - 52 -
<PAGE>

DIRECTOR INDEPENDENCE

         Messrs. Hagan and Binkelle are "independent" within the meaning of
Marketplace Rule 4200 of the NASDAQ Stock Market, Inc.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         Sherb & Co., LLP served as our independent registered public accounting
firm for fiscal 2008 and fiscal 2007. The following table shows the fees that
were billed for the audit and other services provided by such firm for fiscal
2008 and fiscal 2007.

                                      FISCAL 2008     FISCAL 2007
                                      -----------     -----------
         Audit Fees ...............      $ 67,500        $ 60,000
         Audit-Related Fees .......             0               0
         Tax Fees .................             0          12,000
         All Other Fees ...........             0               0
                                      -----------     -----------
                          Total ...      $ 67,500        $ 72,000

         Audit Fees -- This category includes the audit of our annual financial
statements, review of financial statements included in our Form 10-Q Quarterly
Reports and services that are normally provided by the independent auditors in
connection with engagements for those fiscal years. This category also includes
advice on audit and accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements.

         Audit-Related Fees -- This category consists of assurance and related
services by the independent auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.

         Tax Fees -- This category consists of professional services rendered by
our independent auditors for tax compliance and tax advice. The services for the
fees disclosed under this category include tax return preparation and technical
tax advice.

         All Other Fees -- This category consists of fees for other
miscellaneous items.

         Our Board of Directors has adopted a procedure for pre-approval of all
fees charged by the our independent auditors. Under the procedure, the Board
approves the engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the Board, or, in the period between
meetings, by a designated member of Board. Any such approval by the designated
member is disclosed to the entire Board at the next meeting. The audit and tax
fees paid to the auditors with respect to fiscal year 2008 were pre-approved by
the entire Board of Directors.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

         The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:

2.1    Acquisition Agreement and Plan of Merger(3)
2.     Agreement and Plan of Merger(4)
3.1    Certificate of Incorporation(1)
3.2    By-Laws (1)
3.3    Certificate of Incorporation, as amended(2)
3.4    Certificate of Amendment to the Certificate of Incorporation(5)
3.5    Certificate of Amendment to the Certificate of Incorporation (8)

                                     - 53 -
<PAGE>

3.6    Certificate of Ownership merging Spare Backup, Inc. into Newport
       International Group, Inc. (19)
3.7    Certificate of designations, rights and preferences of Series A
       Preferred Stock (23)
4.1    Form of Investor Warrant to Purchase Common Stock issued with 8%
       promissory note (12)
4.2    Form of Common Stock Purchase Warrant issued with 10% secured note (12)
4.3    Form of Common Stock Purchase Warrant issued to Robinson Reed Inc. and
       First Capital Holdings International, Inc.(11)
4.4    Form of $0.75 Investor Warrant (11)
4.5    Common stock purchase warrant issued March 31, 2005 to purchase 256,667
       shares of common stock issued to Jenelle Fontes (10)
4.6    Common stock purchase warrant issued March 31, 2005 to purchase  280,000
       shares of common stock issued to Curtis Lawler (10)
4.7    Form of $1.30 common stock purchase warrant (13)
4.8    Form of common stock purchase warrant issued to Langley Park Investment
       Trust, PLC (16)
4.9    Form of placement agent warrant issued to Brookstreet Securities
       Corporation (20)
4.10   Option to Purchase Common Stock issued to Wolfe Axlerod Weinberger (20)
4.11   Option to Purchase Common Stock issued to The Sterling Group (20)
4.12   Form of warrant issued to DSG Plc.(24)
10.1   2002 Stock Option and Stock Award Plan (15)
10.2   Lease for principal executive offices (24)
10.3   Stock Purchase Agreement with Langley Park Investment Trust PLC (9)
10.4   Employment Agreement with Cery B. Perle (11)
10.5   Common Stock and Warrant Purchase Agreement dated as of August 27, 2004
       (9)
10.6   Registration Rights Agreement dated as of August 27, 2004 (9)
10.7   Amendment No. 1 to Common Stock and Warrant Purchase Agreement dated as
       of November 2, 2004 (9)
10.8   Settlement Agreement and Release between Newport International Group,
       Inc., Robinson Reed, Inc., First Capital Holdings International, Inc.,
       Continental Blue Limited and E-Holdings, Inc. (11)
10.9   Supplier Agreement with CompUSA (12)
10.10  Form of Settlement Agreement between Newport International Group, Inc,
       Robinson Reed, Inc. and First Capital Holdings International, Inc. (14)
10.11  Amendment No. 1 to the 2002 Stock Option and Stock Award Plan (6)
10.12  Form of Repurchase Agreement with Langley Park Investment Trust PLC (16)
10.13  Form of Amendment to Escrow Agreement with Langley Park Investment Trust
       PLC (16)
10.14  Amendment No. 2 to the 2002 Stock Option and Stock Award Plan (17)
10.15  Customer Technical Support Services Agreement with Circuit City Stores,
       Inc. (18)
10.16  Standard Services Agreement and Statement of Work with Hewlett-Packard
       Company (20)
10.17  Finder's Agreement dated February 5, 2007 between Spare Backup, Inc. and
       Skyebanc, Inc. (21)
10.18  Agreement Regarding Put Option dated as of May 8, 2007 by and among Spare
       Backup, Inc., Robinson Reed, Inc. and First Capital Holdings
       International, Inc. (22)
10.19  Software License and Distribution Agreement with Gateway Companies, Inc.
       (22) Portions of this agreement have been omitted and separately filed
       with the Securities and Exchange Commission with a request for
       confidential treatment.
10.20  Data Storage Services Agreement dated February 2, 2007 between DSG Retail
       and Spare Backup, Inc. (24) Portions of this agreement have been omitted
       and separately filed with the Securities and Exchange Commission with a
       request for confidential treatment.
14.1   Code of Business Conduct and Ethics and Code of Ethics for the Chief
       Executive Officer and Senior Financial Officers (11)
21.1   Subsidiaries of the registrant (11)
23.1   Consent of Sherb & Co., LLP *
31.1   Section 302 Certificate of Chief Executive Officer *
31.2   Section 302 Certificate of principal accounting and financial officer *
32.1   Section 906 Certificate of Chief Executive Officer and principal
       financial and accounting officer *

                                     - 54 -
<PAGE>

* filed herewith

(1)    Incorporated by reference to the Quarterly Report on Form 10-QSB as filed
       with the SEC on May 10, 2000.
(2)    Incorporated by reference to the Current Report on Form 8-K as filed with
       the SEC on February 5, 2001.
(3)    Incorporated by reference to the Current Report on Form 8-K filed with
       the SEC on November 6, 2000.
(4)    Incorporated by reference to the Current Report on Form 8-K filed with
       the SEC on February 13, 2004.
(5)    Incorporated by reference to the definitive Information Statement on
       Schedule 14C as filed with the SEC on November 14, 2003.
(6)    Incorporated by reference to the registration statement on Form S-8 as
       filed with the SEC on August 8, 2004.
(7)    Intentionally omitted.
(8)    Incorporated by reference to the quarterly report on Form 10-QSB for the
       three and six months ended June 30, 2004.
(9)    Incorporated by reference to the Quarterly Report on Form 10-QSB for the
       three and nine months ended September 30, 2004.
(10)   Incorporated by reference to the Current Report on Form 8-K as filed with
       the SEC on May 5, 2005.
(11)   Incorporated by reference to the registration statement on Form SB-2, as
       amended, file number 333-123096, as declared effective on May 19, 2005.
(12)   Incorporated by reference to the Quarterly Report on Form 10-QSB for the
       three and six months ended June 30, 2005. Portions of this agreement have
       been omitted and separately filed with the Securities and Exchange
       Commission with a request for confidential treatment.
(13)   Incorporated by reference to the registration statement on Form SB-2, SEC
       file number 333-128980, as amended, as declared effective by the SEC on
       November 14, 2005.
(14)   Incorporated by reference to the Current Report on Form 8-K as filed with
       the SEC on December 15, 2005.
(15)   Incorporated by reference to the registration statement on Form S-8, SEC
       File No. 333-98229, as filed on August 16, 2002.
(16)   Incorporated by reference to the Current Report on Form 8-K as filed on
       May 31, 2006.
(17)   Incorporated by reference to the Current Report on Form 8-K as filed on
       June 6, 2006.
(18)   Incorporated by reference to the Current Report on Form 8-K as filed on
       August 18, 2006. Portions of this agreement have been omitted and marked
       with a [_] and separately filed with the Securities and Exchange
       Commission with a request for confidential treatment.
(19)   Incorporated by reference to the Current Report on Form 8-K as filed on
       August 16, 2006.
(20)   Incorporated by reference to the registration statement on Form SB-2, SEC
       File No. 333-139138, as amended, as declared effective by the SEC on
       February 13, 2007.
(21)   Incorporated by reference to the Annual Report on Form 10-KSB for the
       fiscal year ended December 31, 2006 as filed on April 2, 2007.
(22)   Incorporated by reference to the Quarterly Report on Form 10-QSB for the
       period ended March 31, 2007 as filed on May 21, 2007.
(23)   Incorporated by reference to the Current Report on Form 8-K as filed on
       January 18, 2008.
(24)   Incorporated by reference to the Annual Report on Form 10-K for the
       fiscal year ended December 31, 2007 as filed on April 14, 2008.

                                     - 55 -
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                               SPARE BACKUP, INC.

                               By: /s/ Cery Perle
                                   --------------
                                 Cery Perle, Chief Executive Officer, President,
                                 director, principal executive officer and
                                 principal accounting and financial officer

                                 Date: April 15, 2009


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


/s/ Cery Perle            Chief Executive Officer, President,     April 15, 2009
--------------            Chairman of the Board
Cery Perle


/s/ Edward Hagan          Secretary and Director                  April 15, 2009
----------------
Edward Hagan


/s/ Robert Binkelle       Director                                April 15, 2009
-------------------
Robert Binkelle

                                     - 56 -
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                    CONTENTS

Report of Independent Registered Public Accounting Firm......................F-2

Financial Statements:

   Consolidated Balance Sheets at December 31, 2008 and 2007.................F-3

   Consolidated Statements of Operations -
      For the Years Ended December 31, 2008 and 2007.........................F-4

   Consolidated Statements of Changes in Stockholders' Deficit -
      For the Years Ended December 31, 2008 and 2007.........................F-5

   Consolidated Statements of Cash Flows -
      For the Years Ended December 31, 2008 and 2007.........................F-6

Notes to Consolidated Financial Statements...........................F-7 to F-34

                                       F-1

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Spare Backup, Inc.

We have audited the accompanying consolidated balance sheets of Spare Backup,
Inc. and Subsidiary as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the 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 purposes 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spare Backup, Inc.
as of December 31, 2008 and 2007, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company had net losses, cash used in
operations and a working capital deficit of $15,132,558, $5,345,079 and
$6,859,969, respectively, for the year ended December 31, 2008. This raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

                                                      /s/ Sherb & Co., LLP
                                                      --------------------
                                                  Certified Public Accountants

Boca Raton, Florida
March 24, 2009

                                       F-2
<PAGE>
<TABLE>
                                 SPARE BACKUP, INC. AND SUBSIDIARY
                                    CONSOLIDATED BALANCE SHEETS
<CAPTION>
                                                                         Year ended December 31,
                                                                          2008            2007
                                                                      ------------    ------------
<S>                                                                   <C>             <C>
                                               ASSETS
Current Assets:
  Cash ............................................................   $     18,946    $    527,402
  Accounts receivable .............................................        132,389               -
  Prepaid marketing expense .......................................         97,630         181,238
                                                                      ------------    ------------
     Total current assets .........................................        248,965         708,640

  Property and equipment, net of accumulated depreciation .........      1,093,732       1,652,077
  Other assets ....................................................         56,985               -
                                                                      ------------    ------------

     Total Assets .................................................   $  1,399,682    $  2,360,717
                                                                      ============    ============

                               LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts payable and accrued expenses ...........................   $  3,499,152    $  2,878,014
  8% Convertible promissory notes, net of debt discount of $0 and
    $2,558,624, respectively ......................................      2,500,000         416,376
  10% Convertible promissory notes, net of debt discount of $74,992
    and $0, respectively ..........................................        776,008               -
  Accrued interest on convertible promissory notes ................         78,338          33,310
  Deferred revenue ................................................        240,436               -
  Due to stockholder ..............................................         15,000          15,000
                                                                      ------------    ------------

     Total Current Liabilities ....................................      7,108,934       3,342,700

  8% Convertible promissory notes, net of debt discount of $59,679
    and $0, respectively ..........................................        190,321               -
                                                                      ------------    ------------

     Total Liabilities ............................................      7,299,255       3,342,700

Stockholders' Deficit:
  Preferred stock; $.001 par value, 5,000,000 shares authorized,
    50,000 issued and outstanding .................................             50               -
  Common stock; $.001 par value, 300,000,000 shares authorized,
    105,193,730 and 77,221,052 issued and outstanding, respectively        105,194          77,221
  Additional paid-in capital ......................................     82,772,427      72,585,482
  Accumulated deficit .............................................    (88,777,244)    (73,644,686)
                                                                      ------------    ------------

     Total Stockholders' Deficit ..................................     (5,899,573)       (981,983)
                                                                      ------------    ------------

     Total Liabilities and Stockholders' Deficit ..................   $  1,399,682    $  2,360,717
                                                                      ============    ============

                          See Notes to Consolidated Financial Statements.

                                                F-3
</TABLE>
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       For the Years Ended
                                                           December 31,
                                                   ----------------------------
                                                       2008            2007
                                                   ------------    ------------

Net Revenues ...................................   $  1,381,443    $    260,350

Operating expenses:
  Research and development .....................      1,270,776       2,312,573
  Sales, general and administrative ............     10,735,899      16,712,894
                                                   ------------    ------------

     Total operating expenses ..................     12,006,675      19,025,467
                                                   ------------    ------------

     Operating loss ............................    (10,625,232)    (18,765,117)
                                                   ------------    ------------

Other income (expense):
  Other expenses- employee settlement ..........              -        (136,500)
  Change in fair value of derivative liabilities              -      (5,275,067)
  Derivative liability expense .................              -        (334,030)
  Interest income ..............................              -             167
  Gain from litigation settlement ..............         35,713         280,000
  Foreign currency gain ........................         20,202          17,625
  Interest expense .............................     (4,563,241)     (1,871,975)
                                                   ------------    ------------
     Total other expense .......................     (4,507,326)     (7,319,780)
                                                   ------------    ------------

Net loss .......................................   $(15,132,558)   $(26,084,897)
                                                   ============    ============

Basic and diluted net loss per common share ....   $      (0.17)   $      (0.38)
                                                   ============    ============

Basic and diluted weighted average common
  shares outstanding ...........................     88,033,460      68,621,565
                                                   ============    ============

                 See Notes to Consolidated Financial Statements.

                                       F-4
<PAGE>
<TABLE>
                                                 SPARE BACKUP, INC. AND SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                      FOR THE PERIOD FROM JANUARY 1, 2007 TO DECEMBER 31, 2008

<CAPTION>
                            Preferred Stock         Common Stock          Additional
                            ---------------   ------------------------     Paid-in      Subscription   Accumulated
                            Shares   Amount      Shares       Amount       Capital       Receivable      Deficit          Total
                            ------   ------   ------------   ---------   ------------   ------------   ------------   ------------
<S>                         <C>      <C>      <C>            <C>         <C>            <C>            <C>            <C>
Balance December 31, 2006        -   $    -     55,843,863   $  55,845   $ 36,309,616   $   (100,000)  $(47,559,789)  $(11,294,328)

Issuance of common stock
  pursuant to exercise of
  stock options ..........       -        -        654,745         655        317,453              -              -        318,108
Issuance of common stock
  pursuant to the exercise
  of warrants ............       -        -      6,334,967       6,335      2,857,190              -              -      2,863,525
Issuance of common stock
  for cash, net of
  financing costs ........       -        -      8,021,201       8,021      2,841,049              -              -      2,849,070
Issuance of common stock
  to pay interest on
  convertible promissory
  notes ..................       -        -         69,408          69         39,518              -              -         39,587
Issuance of common stock
  to consultants for
  services rendered ......       -        -        242,960         243        178,477              -              -        178,720
Issuance of common stock
  to employees for
  services rendered ......       -        -      1,610,679       1,610         92,387              -              -         93,997
Issuance of common stock
  for leasehold
  improvements ...........       -        -         24,194          25         14,975              -              -         15,000
Issuance of common stock
  pursuant to conversion
  of convertible
  promissory notes .......       -        -      4,811,442       4,811      1,967,218              -              -      1,972,029
Issuance of common stock
  to pay accrued expenses        -        -         51,429          51         35,949              -              -         36,000
Cancellation of common
  stock ..................       -        -       (312,500)       (313)           313              -              -              -
Cancellation of common
  stock due to repurchase
  of shares ..............       -        -       (331,336)       (331)    (1,249,669)       100,000              -     (1,150,000)
Issuance of common stock
  and stock options in
  connection with a
  settlement agreement ...       -        -        200,000         200         97,800              -              -         98,000
Fair value of options
  issued to a former
  employee in connection
  with a settlement
  agreement ..............       -        -              -           -         28,500              -              -         28,500
Reclassification of
  liability contract to
  equity .................       -        -              -           -     22,147,932              -              -     22,147,932
Beneficial conversion on
  convertible notes
  payables ...............       -        -              -           -      2,975,000              -              -      2,975,000
Fair value of options
  issued to employees ....       -        -              -           -      3,838,404              -              -      3,838,404
Amortization of deferred
  compensation ...........       -        -              -           -         93,370              -              -         93,370
Net loss .................       -        -              -           -              -              -    (26,084,897)   (26,084,897)
                            ------   ------   ------------   ---------   ------------   ------------   ------------   ------------
Balance December 31, 2007        -        -     77,221,052      77,221     72,585,482              -    (73,644,686)      (981,983)

                                                            (continued)

                                                                F-5A
</TABLE>
<PAGE>
<TABLE>
                                                 SPARE BACKUP, INC. AND SUBSIDIARY
                                    CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                      FOR THE PERIOD FROM JANUARY 1, 2007 TO DECEMBER 31, 2008
                                                            (continued)
<CAPTION>
                            Preferred Stock         Common Stock          Additional
                            ---------------   ------------------------     Paid-in      Subscription   Accumulated
                            Shares   Amount      Shares       Amount       Capital       Receivable      Deficit          Total
                            ------   ------   ------------   ---------   ------------   ------------   ------------   ------------
<S>                         <C>      <C>      <C>            <C>         <C>            <C>            <C>            <C>
Issuance of common stock
  pursuant to exercise of
  stock options ..........       -        -        569,371         570        139,330              -              -        139,900
Issuance of common stock
  pursuant to the exercise
  of warrants ............       -        -      5,448,664       5,449      1,136,316              -              -      1,141,765
Issuance of common stock
  for cash, net of
  financing costs ........       -        -     10,833,333      10,833      1,906,167              -              -      1,917,000
Issuance of common stock
  to pay interest on
  convertible promissory
  notes ..................       -        -      1,210,976       1,211        243,884              -              -        245,095
Issuance of common stock
  to consultants for
  services rendered ......       -        -      2,748,972       2,749        730,758              -              -        733,507
Issuance of stock warrants
  to consultants for
  services rendered ......       -        -              -           -         72,253              -              -         72,253
Issuance of common stock
  to employees for
  services rendered ......       -        -      3,150,526       3,150        687,286              -              -        690,436
Issuance of preferred
  stock for services
  rendered ...............  50,000       50              -           -              -              -              -             50
Issuance of common stock
  pursuant to conversion
  of convertible
  promissory notes .......       -        -      4,765,340       4,765      1,315,235              -              -      1,320,000
Issuance of stock warrants
  to placement agent in
  connection with
  convertible promissory
  notes ..................       -        -              -           -         21,010              -              -         21,010
Cancellation of common
  stock issued for
  services rendered ......       -        -       (754,504)       (754)      (129,786)             -              -       (130,540)
Fair value of options
  issued to a consultant .       -        -              -           -        310,874              -              -        310,874
Beneficial conversion on
  convertible notes
  payables ...............       -        -              -           -      1,847,563              -              -      1,847,563
Fair value of warrants
  issued to employee .....       -        -              -           -         60,350              -              -         60,350
Fair value of options
  issued to employees ....       -        -              -           -      1,845,705              -              -      1,845,705
Net loss .................       -        -              -           -              -              -    (15,132,558)   (15,132,558)
                            ------   ------   ------------   ---------   ------------   ------------   ------------   ------------
Balance December 31, 2008   50,000   $   50    105,193,730   $ 105,194   $ 82,772,427   $          -   $(88,777,244)  $ (5,899,573)
                            ======   ======   ============   =========   ============   ============   ============   ============

                                          See Notes to Consolidated Financial Statements.

                                                                F-5B
</TABLE>
<PAGE>
<TABLE>
                                    SPARE BACKUP, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                                 For the Years Ended
                                                                                     December 31,
                                                                             ---------------------------
                                                                                 2008           2007
                                                                             ------------   ------------
<S>                                                                          <C>            <C>
Cash flows from operating activities:
Net loss ..................................................................  $(15,132,558)  $(26,084,897)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Fair value of derivatives at issuance in connection with
   services rendered ......................................................             -        217,520
  Derivative liability expense ............................................             -        334,030
  Change in fair value of derivative liabilities ..........................             -      5,275,067
  Fair value of options and warrants issued to employees ..................     1,906,055      3,838,404
  Fair value of options issued to consultants .............................       310,874              -
  Fair value of warrants issued to consultants ............................        72,253              -
  Amortization of debt discount ...........................................     4,271,516      1,821,175
  Amortization of deferred compensation ...................................             -         93,370
  Amortization of prepaid marketing expense ...............................       181,238      1,823,362
  Fair value of shares and options issued in connection with a settlement
   agreement ..............................................................             -        126,500
  Fair value of shares issued in connection with
   services rendered ......................................................     1,293,402        272,717
  Fair value of shares of preferred stock issued in connection with
   services rendered ......................................................            50              -
  Depreciation ............................................................       828,808        701,472
  Amortization of deferred financing costs ................................         1,603              -
Changes in operating assets and liabilities
  Restricted cash .........................................................             -        872,820
  Accounts receivable .....................................................      (132,389)             -
  Prepaid expenses and other current assets ...............................        10,292         75,380
  Accounts payable and accrued expenses ...................................       621,140      2,060,839
  Deferred revenues .......................................................       132,514              -
  Accrued interest on convertible promissory notes ........................       290,123         50,800
  Other liabilities .......................................................             -         (6,426)
                                                                             ------------   ------------

Net cash used in operating activities .....................................    (5,345,079)    (8,527,867)
                                                                             ------------   ------------

Cash flows from investing activities:
  Purchases of property and equipment .....................................      (270,463)    (1,849,731)
                                                                             ------------   ------------

Net cash used in investing activities .....................................      (270,463)    (1,849,731)
                                                                             ------------   ------------

Cash flows from financing activities:
  Principal repayments on convertible promissory notes ....................             -        (21,480)
  Repurchase of shares of common stock ....................................             -     (1,150,000)
  Proceeds from issuance of convertible promissory notes ..................     2,008,500      4,300,000
  Net proceeds from issuance of common stock for cash .....................     1,917,000      4,207,101
  Net proceeds from exercise of warrants ..................................     1,141,765      3,104,953
  Proceeds from exercise of stock options .................................       139,899        318,108
  Payments of convertible promissory notes ................................       (62,500)             -
  Payments of deferred financing costs ....................................       (37,578)             -
                                                                             ------------   ------------

Net cash provided by financing activities .................................     5,107,086     10,758,682
                                                                             ------------   ------------

(Decrease) Increase in cash ...............................................      (508,456)       381,084

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

Cash at end of year .......................................................  $     18,946   $    527,402
                                                                             ============   ============

                                               (continued)

                                                   F-6A
</TABLE>
<PAGE>
<TABLE>
                                    SPARE BACKUP, INC. AND SUBSIDIARY
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (continued)
<CAPTION>
                                                                                 For the Years Ended
                                                                                     December 31,
                                                                             ---------------------------
                                                                                 2008           2007
                                                                             ------------   ------------
<S>                                                                          <C>            <C>
Supplemental disclosures of cash flow information:
  Cash paid during the year for interest ..................................  $          -   $          -
                                                                             ============   ============

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

Supplemental schedule of non-cash financing and investing activities:

Fair value of warrants  and embedded conversion features issued in
  connection with the issuance of convertible promissory notes and
  corresponding debt discount .............................................  $  1,847,563   $  4,300,000
                                                                             ============   ============

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

Reclassification of liability contracts to equity .........................  $          -   $ 22,147,932
                                                                             ============   ============

Fair value of shares of common stock for leasehold improvement ............  $          -   $     15,000
                                                                             ============   ============

Conversion of convertible promissory notes into shares of common stock ....  $  1,320,000   $  1,972,029
                                                                             ============   ============

Fair value of shares of common stock issued for payment of accrued interest  $    245,095   $     39,587
                                                                             ============   ============

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

                             See Notes to Consolidated Financial Statements.

                                                   F-6B
</TABLE>
<PAGE>

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

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

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

The accompanying consolidated financial statements have been prepared on a going
concern basis. The Company has generated minimal revenue since its inception on
June 12, 2002 and has incurred net losses of approximately $15 million and $26
million during the years ended December 31, 2008 and 2007, respectively. The
Company had cash used in operations and a working capital deficit of $5,345,079
and $6,859,969 respectively, for the year ended December 31, 2008. The Company's
ability to continue as a going concern is dependent upon its ability to obtain
the necessary financing to meet its obligations and repay its liabilities
arising from normal business operations when they come due, to fund possible
future acquisitions, and to generate profitable operations in the future.
Management plans to continue to provide for its capital requirements by issuing
additional equity securities and debt. The outcome of these matters cannot be
predicted at this time and there are no assurances that if achieved, the Company
will have sufficient funds to execute its business plan or generate positive
operating results.

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

EARNINGS PER SHARE

Basic earnings per share is calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share is computed using the weighted-average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options and warrants (calculated using the reverse treasury
stock method). The outstanding options, warrants and shares equivalent issuable
pursuant to embedded conversion features amounted to 74,367,956 and 41,368,897
at December 31, 2008 and 2007, respectively. The outstanding options, warrants
and shares equivalent issuable pursuant to embedded conversion features and
warrants at December 31, 2008 and 2007 are excluded from the loss per share
computation for that period due to their antidilutive effect.

                                       F-7
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

RISKS AND UNCERTAINTIES

The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $250,000. At December 31, 2008, the Company
had not reached bank balances exceeding the FDIC insurance limit. To reduce its
risk associated with the failure of such financial institutions, the Company
evaluates at least annually the rating of the financial institutions in which it
holds deposits.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

ACCOUNTS RECEIVABLE

The Company has a policy of reserving for uncollectible accounts based on its
best estimate of the amount of probable credit losses in its existing accounts
receivable. The Company periodically reviews its accounts receivable to
determine whether an allowance is necessary based on an analysis of past due
accounts and other factors that may indicate that the realization of an account
may be in doubt. Account balances deemed to be uncollectible are charged to the
bad debt expense after all means of collection have been exhausted and the
potential for recovery is considered remote. At December 31, 2008, management
has determined that an allowance is not necessary.

PROPERTY AND EQUIPMENT

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

SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of software products are expensed
as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED OR OTHERWISE MARKETED. The Company believes that the current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility. Accordingly, no software development
costs have been capitalized as of December 31, 2008. Instead, such amounts are
included in the statement of operations under the caption "Research and
development".

                                      F-8
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

SHARE-BASED PAYMENTS

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

RECLASSIFICATION

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

FOREIGN CURRENCY TRANSACTIONS

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

REVENUE RECOGNITION

The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial
Statements". The Company records revenue when persuasive evidence of an
arrangement exists, on-line back-up services have been rendered, the sales price
to the customer is fixed or determinable, and collectability is reasonably
assured. Online back up service fees received in advance or collected up front
are reflected as deferred revenue on the accompanying balance sheet. Deferred
revenue as of December 31, 2008 amounted to $240,436 and will be recognized as
revenue over the respective service period.

Revenue consists of the gross value of billings to clients. The Company reports
this revenue gross in accordance with EITF 99-19 because it is responsible for
fulfillment of the service, has substantial latitude in setting price and
assumes the credit risk for the entire amount of the sale, and it is responsible
for the payment of all obligations incurred for sales marketing and commissions.

                                       F-9
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

ADVERTISING

Advertising is expensed as incurred. Advertising expenses for the year ended
December 31, 2008 and 2007 totaled approximately $7,000 and $234,000,
respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2008, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 157, "Fair Value Measurements" ("SFAS 157").
SFAS 157 defines fair value as used in numerous accounting pronouncements,
establishes a framework for measuring fair value and expands disclosure of fair
value measurements. In February 2008, the Financial Accounting Standards Board
("FASB") issued FASB Staff Position, "FSP FAS 157-2--Effective Date of FASB
Statement No. 157" ("FSP 157-2"), which delays the effective date of SFAS 157
for one year for certain nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Excluded from the scope of
SFAS 157 are certain leasing transactions accounted for under SFAS No. 13,
"Accounting for Leases." The exclusion does not apply to fair value measurements
of assets and liabilities recorded as a result of a lease transaction but
measured pursuant to other pronouncements within the scope of SFAS 157. The
Company does not expect that the adoption of the provisions of FSP 157-2 will
have a material impact on its financial position, cash flows or results of
operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities ("SFAS 161"). This statement requires
companies to provide enhanced disclosures about (a) how and why they use
derivative instruments, (b) how derivative instruments and related hedged items
are accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect a company's financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company will adopt the new disclosure requirements on or
before the required effective date and thus will provide additional disclosures
in its financial statements when adopted.

In April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life
of Intangible Assets (FSP 142-3) was issued. This standard amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
Company does not expect that the adoption of this provision will have a material
impact on its financial position, cash flows or results of operations.

In May 2008, the FASB issued FAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles" which identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements in conformity with generally accepted accounting principles
(GAAP) in the United States (the GAAP hierarchy). This statement is effective 60
days following the SEC's approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles". The Company does not expect that
the adoption of this pronouncement will have a significant impact on its
financial condition, results of operations and cash flows.

                                      F-10
<PAGE>

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In May 2008, the Financial Accounting Standards Board ("FASB") issued SFAS No.
163, "Accounting for Financial Guarantee Insurance Contracts-and interpretation
of FASB Statement No. 60". SFAS No. 163 clarifies how Statement 60 applies to
financial guarantee insurance contracts, including the recognition and
measurement of premium revenue and claims liabilities. This statement also
requires expanded disclosures about financial guarantee insurance contracts.
SFAS No. 163 is effective for fiscal years beginning on or after December 15,
2008, and interim periods within those years. SFAS No. 163 has no effect on the
Company's financial position, statements of operations, or cash flows at this
time.

In June 2008, the FASB issued FASB Staff Position EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities, ("FSP EITF 03-6-1"). FSP EITF 03-6-1 addresses whether
instruments granted in share-based payment transactions are participating
securities prior to vesting, and therefore need to be included in the
computation of earnings per share under the two-class method as described in
FASB Statement of Financial Accounting Standards No. 128, "Earnings per Share."
FSP EITF 03-6-1 is effective for financial statements issued for fiscal years
beginning on or after December 15, 2008 and earlier adoption is prohibited. We
are not required to adopt FSP EITF 03-6-1; neither do we believe that FSP EITF
03-6-1 would have a material effect on our financial position and results of
operations if adopted.

In December 2008, the FASB issued FASB Staff Position (FSP) FAS 140-4 and FIN
46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of
Financial Assets and Interests in Variable Interest Entities. The document
increases disclosure requirements for public companies and is effective for
reporting periods (interim and annual) that end after December 15, 2008. This
FSP amends FASB Statement No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, to require public entities
to provide additional disclosures about transfers of financial assets. It also
amends FASB Interpretation No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, to require public enterprises, including sponsors
that have a variable interest in a variable interest entity, to provide
additional disclosures about their involvement with variable interest entities.
The Company does not expect that the adoption of this pronouncement will have a
significant impact on its financial condition, results of operations and cash
flows.

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

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                        Estimated    December 31,   December 31,
                                          life           2008           2007
                                      ------------   ------------   ------------
Computer and office equipment .....   3 to 5 years   $ 2,616,646    $ 2,361,360
 Leasehold improvements ...........     5 years          202,298        187,122
                                                     -----------    -----------
                                                       2,818,944      2,548,482
 Less: Accumulated depreciation ...                   (1,725,212)      (896,405)
                                                     -----------    -----------
                                                     $ 1,093,732    $ 1,652,077
                                                     ===========    ===========

Depreciation expense amounted to $828,808 and $701,472 during fiscal years ended
2008 and 2007, respectively.

                                      F-11
<PAGE>

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

NOTE 4 - CONVERTIBLE PROMISSORY NOTES-CURRENT

Convertible promissory notes consist of the following as of:

                                                     December 31,   December 31,
                                                         2008           2007
                                                     -----------    -----------
8% Convertible promissory notes, bearing interest
at 8% per annum, maturing in August 2009. Interest
payable commencing the quarter ended December 31,
2007, payable within thirty (30) days of the end
of the quarter. Interest may be paid in cash or
common stock at the option of the Company.
Interest paid in common stock will be calculated
at ninety percent (90%) of the average closing
price for the common stock for the five (5)
trading days preceding the interest payment date.
The promissory notes are convertible at any time
at the option of the holder, into shares of common
stock at a effective conversion rate of $0.25. ...   $ 2,500,000    $ 2,975,000

Less: unamortized discount .......................            (-)    (2,558,624)
                                                     -----------    -----------
Convertible promissory notes-short-term ..........   $ 2,500,000    $   416,376
                                                     ===========    ===========

10% Convertible promissory notes, bearing interest
at 10% per annum, maturing three to twelve months
from the date of closing. Interest payable
commencing the quarter ended September 30, 2008,
payable within thirty (30) days of the end of the
quarter. Interest may be paid in cash or common
stock at the option of the Company. Interest paid
in common stock will be calculated at the volume
weighted average price for the common stock for
the ten (10) trading days preceding the interest
payment date. The promissory notes are convertible
at any time at the option of the holder, into
shares of common stock at a rate ranging from
$0.16 to $0.25 ...................................   $   851,000    $         -

Less: unamortized discount .......................       (74,992)            (-)
                                                     -----------    -----------
Convertible promissory notes-short-term ..........   $   776,008    $         -
                                                     ===========    ===========

Between October 2007 and November 2007, the Company issued convertible
promissory notes totaling $475,000. In connection with the issuance of these
notes payable, the Company granted 950,000 warrants to investors exercisable at
a price of $0.75 per share for a period of three years. These promissory notes
are convertible at $0.50 per share of common stock. In the event the Company
issues any shares of its common stock at an exercise price or conversion price
per share less than $0.50 per share while these notes remain outstanding, then
the exercise price of the warrants issued pursuant to the subsequent financing
will reset to such lower price. The Company recognized a total debt discount of
approximately $475,000 in connection with the issuance of these 8% convertible
promissory notes.

                                      F-12
<PAGE>

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

NOTE 4 - CONVERTIBLE PROMISSORY NOTES-CURRENT (continued)

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

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

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

In April 2008, the Company issued 75,757 shares in connection with the
conversion of an 8% convertible promissory note principal amount of $25,000. The
fair value of such shares issued amounted to approximately $25,000 or $0.33 per
share.

In August 2008 the Company entered into a note extension agreement with the
holder of a $2,500,000 principal amount 8% convertible subordinated promissory
debenture whereby the due date of that note was extended from November 14, 2008
to August 14, 2009. Additionally, based on this agreement, the current
conversion price and exercise price of warrants related to this note has been
reset to $0.25.

In connection with the 10% Convertible Subordinated Promissory Debentures issued
in July 2008, the exercise price of the warrants issued and the conversion price
per share of the 8% convertible promissory notes pursuant to the subsequent
financing was reset to such lower price or $0.25 per share.

In August 2008, the Company issued 1,800,000 shares in connection with the
conversion of 8% convertible promissory notes. The fair value of such shares
issued amounted to approximately $450,000 or at the effective conversion price
of $0.25 per share.

Between February 14, 2008 and June 6, 2008, the Company sold an aggregate of
$1,571,000 principal amount 10% Convertible Senior Unsecured Promissory
Debentures (the "10% Debentures") to accredited investors and issued those
investors five year common stock purchase warrants to purchase 5,236,665 shares
of its common exercisable at a price of approximately $0.309 per share. The
Company received gross proceeds of $1,571,000. In connection with the recent
private placement in third quarter of fiscal 2008, the Company issued an
additional 2,423,113 warrants to these investors, the exercise price of the
warrants issued were reset to $0.20 per share and the conversion price per share

                                      F-13
<PAGE>

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

NOTE 4 - CONVERTIBLE PROMISSORY NOTES-CURRENT (continued)

of these 10% Convertible Senior Unsecured Promissory Debentures pursuant to the
subsequent financing was reset to such lower price or $0.16 per share. The 10%
Debentures bear interest at 10% per annum and the principal and all accrued
interest is due three months from the closing date with the exception of one 10%
debenture amounting to $60,000 which matures twelve months from the date of
closing. The principal and accrued but unpaid interest is convertible at the
option of the holder into shares of the Company's common stock at a conversion
price of $0.30 per share, subject to proportional adjustment in the event of
stock splits, stock dividends, or similar corporate events. In the event the
Company issues any shares of its common stock at an exercise price or conversion
price per share less than $0.30 per share within fifteen (15) months following
the closing of these 10% convertible promissory notes, then the exercise price
or conversion price, as the case may be, of these notes and warrants shall be
reset to such lower price with no floor. The Company recognized a total debt
discount of $1,571,000 in connection with the issuance of these 10% convertible
promissory notes. These promissory notes are convertible at $0.30 per share of
common stock.

The holders are entitled to convert all or any portion of the principal amount
of the 10% Debenture and accrued but unpaid interest into securities that the
Company may offer in a subsequent financing of $5,000,000 or more. In the event
the 10% Debentures have not been converted into the securities offered in such
subsequent financing because the financing has not closed prior to the due date
of the debentures, the Company is required to redeem 1/12th of the principal
amount of the 10% Debentures every month beginning on August 1, 2008 at a
redemption price equal to the face value of the debentures plus accrued but
unpaid interest. At the option of the holders the redemption price is payable in
cash or shares of our common stock valued at 90% of the VWAP (as that term is
defined in the 10% Debenture). The Company has reassessed at December 31, 2008,
the number of authorized but unissued shares and taking into consideration the
floorless feature in connection with this redemption provision and has concluded
that the Company has sufficient authorized shares to satisfy the maximum number
of equivalent shares that could be settled in stocks. At December 31, 2008,
management has determined that a derivative liability is not necessary.

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

Under the terms of the Securities Purchase Agreement with the investors, the
Company agreed to file a registration statement with the SEC covering the shares
of its common stock underlying the 10% Debentures and the warrants so as to
permit the public resale thereof. Should the Company complete any additional
financings prior to the filing of such registration statement, the Company
agreed to offer the same registration rights granted those purchasers to the
purchasers of the 10% Debentures to the extent more favorable to the 10%
Debenture holders. In connection with the transaction, the holder of a
$2,500,000 principal amount 8% convertible subordinated promissory note due in
August 2009 entered into a Subordination Agreement whereby that debt was
subordinated to the 10% Debentures.

In September 2008, $691,000 principal amount of the 10% Convertible Senior
Unsecured Promissory Debentures have already become due. The Company has not
redeemed the required monthly redemption beginning in September 2008. Between
October 2008 and January 2009, the Company entered into a note extension
agreements with the holders of $496,000 principal amount 10% Convertible Senior

                                      F-14
<PAGE>

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

NOTE 4 - CONVERTIBLE PROMISSORY NOTES-CURRENT (continued)

Unsecured promissory debentures whereby the due dates of those notes were
extended from September 2008 to maturity dates between August 2009 and September
2009. Additionally, based on these agreements, the current conversion price has
been reset to $0.16 and exercise price of warrants related to this note has been
reset to $0.20. As of December 31, 2008, the Company has approximately $170,000
principal amount of the 10% notes that are past due.

In June 2008, the Company sold a $100,000 principal amount 10% Convertible
Subordinated Promissory Debentures to an accredited investor and issued the
investor five year common stock purchase warrants to purchase 400,000 shares of
its common at an exercise price of $0.25. The Company received gross proceeds of
$100,000. The principal and accrued but unpaid interest is convertible at the
option of the holder into shares of the Company's common stock at a fixed
conversion price of $0.25 per share. The principal and all accrued interest is
due in July 2009.

In July 2008, the Company sold an aggregate of $87,500 principal amount 10%
Convertible Subordinated Promissory Debentures to accredited investors and
issued those investors five year common stock purchase warrants to purchase
350,000 shares of its common at an exercise price of $0.25. The principal and
accrued but unpaid interest is convertible at the option of the holder into
shares of our common stock at a fixed conversion price of $0.25 per share. The
Company received gross proceeds of $87,500. The principal and all accrued
interest is due in July 2009. Between August 2008 and October 2008, the Company
paid $62,500 of these 10% Convertible Subordinated Promissory Debentures.

In June 2008, the Company issued 2,733,333 shares in connection with the
conversion of 10% Convertible Senior Unsecured promissory notes with an
aggregate principal amount of $820,000. The fair value of such shares issued
amounted to approximately $820,000 or $0.30 per share.

In December 2008, the Company issued 156,250 shares in connection with the
conversion of 10% Convertible Senior Unsecured promissory notes with an
aggregate principal amount of $25,000. The fair value of such shares issued
amounted to approximately $25,000 or $0.16 per share.

Total amortization of debt discounts for the convertible promissory notes -
current amounted to approximately $4.2 million and $1.8 million during the year
ended December 31, 2008 and 2007, respectively, and is included in interest
expense.

NOTE 5 - CONVERTIBLE PROMISSORY NOTES - LONG TERM

Convertible promissory notes consist of the following as of:

                                                     December 31,   December 31,
                                                         2008           2007
                                                     -----------    ------------
8% Convertible promissory notes, bearing interest
at 8% per annum, maturing between February 2010
and June 2010. The promissory notes are
convertible at any time at the option of the
holder, into shares of common stock at a effective
conversion rate of $0.16 .........................   $   250,000    $         -

Less: unamortized discount .......................       (59,679)            (-)
                                                     -----------    -----------
Convertible promissory notes-long term ...........   $   190,321    $         -
                                                     ===========    ===========

                                      F-15
<PAGE>

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

NOTE 5 - CONVERTIBLE PROMISSORY NOTES - LONG TERM (continued)

In February 2008, the Company issued a convertible promissory note amounting to
$50,000. In connection with the issuance of this note payable, the Company
granted 25,000 warrants to an investor exercisable at a price of $0.50 per share
for a period of three years. The note payable bears 8% interest per annum and
matures in February 2010. This promissory note is convertible at $0.33 per share
of common stock. In the event the Company issues any shares of its common stock
at an exercise price or conversion price per share less than $0.33 per share
following the closing of the 8% Convertible Promissory Notes, then the exercise
price of the warrants issued pursuant to the subsequent financing will reset to
such lower price. The Company recognized a total debt discount of approximately
$26,000 in connection with the issuance of these 8% convertible debentures. In
connection with the recent private placement in third quarter of fiscal 2008 the
conversion price per share pursuant to the subsequent financing will reset to
such lower price or $0.16 per share and the Company issued an additional 131,250
warrants which resulted in an additional debt discount of approximately $24,000.

In December 2008, the Company issued 8% 18-month convertible promissory notes
amounting to $200,000. In connection with the issuance of these convertible
notes payable, the Company granted 1,250,000 warrants to investors exercisable
at a price of $0.20 per share for a period of two years. The note payable bears
8% interest per annum. The principal and any unpaid accrued interest thereon
shall be due and payable on the date which is 18 months from the date of
issuance. This promissory note is convertible at $0.16 per share of common
stock. The Company recognized a total debt discount of approximately $39,000 in
connection with the issuance of these 8% convertible notes. In addition, the
Company paid cash commissions of approximately $38,000 and issued 150,000 five
year common stock purchase warrants to its placement agent at an exercise price
of $0.20 per share valued at approximately $21,000 (using the black scholes
model) which has been classified as other assets and will be amortized over the
maturity date of the convertible notes.

Amortization of other assets- deferred financing costs amounted to approximately
$1,600 and $0 during the years ended December 31, 2008 and 2007, respectively,
and is included in interest expense.

Total amortization of debt discounts for the convertible promissory notes - long
term amounted to approximately $29,000 during the year ended December 31, 2008,
and is included in interest expense.

NOTE 6 - STOCKHOLDERS' DEFICIT

On August 15, 2008, the Company obtained through a vote of majority of its
shareholders the approval to increase the authorized common shares from
150,000,000 to 300,000,000 shares of common stock at $0.001 par value and
approval for a 1-for-10 reverse stock split of its issued and outstanding common
stock.

The Company filed a Certificate of Amendment to its certificate of incorporation
increasing the number of authorized shares of its common stock to 300,000,000
shares. Additionally, the stockholders granted the Company's Board of Directors
the authority to decide within six months from the date of the special meeting
to implement a reverse stock split, set the timing for such split, and select a
ratio for the reverse split up to a maximum of a one for ten (1:10). The Company
did not implement a reverse stock split during the six months period.

                                      F-16
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

ISSUANCE OF PREFERRED STOCK PURSUANT TO SERVICES PERFORMED

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

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

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

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

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

      o  the shares are not subject to redemption, and

      o  so long as the shares are outstanding, the Company has agreed not to
         alter or change the rights of the security in a manner which would
         adversely affect the Series A Preferred Stock, or take any action which
         would result in the taxation of the holder under Section 305 of the
         Internal Revenue Code.

Immediately following the creation of this class of security the Company issued
Mr. Cery Perle, the Company's CEO, 50,000 shares of Series A Preferred Stock
valued at $50. These actions were approved by the Company's Board of Directors.
The Company recognized compensation expense of $50 or equal to the liquidation
preference of the shares of Series A Preferred Stock issued to the Company's
CEO.

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

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

The Company issued 90,271 shares in connection with the payment of interest of
approximately $33,000 on the 8% convertible promissory notes during January
2008. The fair value of such shares issued amounted to approximately $33,000 or
$0.40 per share.

In April 2008, the Company issued 190,931 shares in connection with the payment
of interest of approximately $59,000 on the 8% convertible promissory notes. The
fair value of such shares issued amounted to approximately $59,000 or $0.31 per
share.

                                      F-17
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

In July 2008, the Company issued 275,655 shares in connection with the payment
of interest of approximately $75,000 on the 8% and 10% convertible promissory
notes. The fair value of such shares issued amounted to approximately $75,000 or
$0.27 per share.

In October 2008, the Company issued 654,119 shares in connection with the
payment of interest of approximately $78,000 on the 8% and 10% convertible
promissory notes. The fair value of such shares issued amounted to approximately
$78,000 or $0.12 per share.

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

In January 2007, the Company issued 24,194 shares of common stock for leasehold
improvements. The fair value of such shares amounted to approximately $15,000.

On February 28, 2007, the Company issued 50,000 shares of common stock to a
consultant for a 60 day consulting agreement. The fair value of such shares
amounted to approximately $49,000. The nature of the services rendered in
connection with the issuance of these shares was for marketing purposes. The
Company has recognized stock based consulting expense of $49,000 during the year
ended December 31, 2007.

In April 2007, the Company issued 51,429 shares of common stock for accrued
legal services. The fair value of such shares amounted to approximately $36,000.
The Company has allocated the fair value against accrued expenses during the
year ended December 31, 2007.

In August 2007, the Company issued 92,960 shares of common stock to a Company's
vendor. The fair value of such shares amounted to approximately $70,000. The
nature of the services rendered in connection with the issuance of these shares
was for research and development purposes. The Company has recognized research
and development expense of $70,000 during the year ended December 31, 2007.

Between August and September 2007, the Company issued in aggregate 105,322
shares of common stock to the Company's Chief Executive Officer and to various
employees of the Company for services rendered. The fair value of such shares
amounted to approximately $64,000. The Company has recognized stock based
compensation expense of approximately $64,000 during the year ended December 31,
2007.

The Company issued 100,000 shares of common stock to a broker-dealer and its
designees in connection with a placement agency agreement entered into on
September 30, 2007. The fair value of such shares amounted to approximately
$60,000. The Company has recognized stock based consulting expense of $60,000
during the year ended December 31, 2007.

In December 2007, the Company entered into a settlement agreement and mutual
release of claims with a former key employee who served as Director of Marketing
of the Company. Based on the settlement agreement, the Company shall issue an
aggregate of 505,357 shares from the cashless exercise of 505,357 stock options
granted to the former key employee in January 2003 and August 2005 in
consideration for past services performed. In connection with the cashless
exercise of 505,357 stock options, the Company has recognized stock based
compensation expense of $10,005 during the year ended December 31, 2007.

During 2007, in connection with a cashless exercise of 1,000,000 stock options
by the Chief Executive Officer, the Company issued 1,000,000 shares of common
stock and has recognized stock based compensation expense of approximately
$20,000 during the year ended December 31, 2007.

                                      F-18
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

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

In February 2008, the Company issued in aggregate 210,648 shares of common stock
to the Company's Chief Executive Officer (69,444 shares) and certain employees
(141,204 shares) of the Company for services rendered. The fair value of such
shares amounted to approximately $95,000 and has been recognized as stock based
compensation expense.

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

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

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

In May 2008, the Company issued in aggregate 138,566 shares of common stock to
three employees of the Company for services rendered. The fair value of such
shares amounted to approximately $48,000 and has been recognized as stock based
compensation expense.

In June 2008, the Company issued 300,000 restricted shares of common stock for
investor relations services. The Company valued these common shares at the fair
market value on the date of grant at $0.27 per share or $81,000 and has been
recognized as stock based consulting expense.

In July 2008, the Company issued in aggregate 121,000 shares of common stock to
certain employees and non employees for services rendered. The fair value of
such shares amounted to approximately $29,000 and has been recognized as stock
based compensation expense.

Between August 2008 and September 2008, the Company issued in aggregate
1,564,115 shares of common stock to the Company's Chief Executive Officer
(192,308 shares) and certain employees (1,371,807 shares) of the Company for
services rendered. The fair value of such shares amounted to approximately
$265,000 and has been recognized as stock based compensation expense.

In July 2008, the Company issued 300,000 restricted shares of common stock for
business development services. The Company valued these common shares at the
fair market value on the date of grant at $0.26 per share or $78,000.

Between July 2008 and September 2008, the Company issued in aggregate 175,500
restricted shares of common stock for public relations services. The Company
valued these common shares at the fair market value on the date of grant ranging
from $0.15 to $0.29 per share or a total of $37,440.

In July 2008, the Company issued 906,472 restricted shares of common stock for
business advisory services. The Company valued these common shares at the fair
market value on the date of grant at $0.30 per share or $272,000.

                                      F-19
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

In July 2008, the Company issued 500,000 shares of common stock for business
advisory services. The Company valued these common shares at the fair market
value on the date of grant at $0.26 per share or $130,000.

In August 2008, the Company issued 300,000 shares of common stock for marketing
services. The Company valued these common shares at the fair market value on the
date of grant at $0.19 per share or $57,000.

Between October 2008 and December 2008, the Company issued in aggregate 699,958
shares of common stock to certain employees of the Company for services
rendered. The fair value of such shares amounted to approximately $92,000 and
has been recognized as stock based compensation expense.

Between October 2008 and November 2008, the Company issued in aggregate 117,000
restricted shares of common stock for public relations services. The Company
valued these common shares at the fair market value on the date of grant ranging
from $0.12 to $0.13 per share or a total of $15,000.

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

During the year ended December 31, 2007, in connection with the exercise of
stock warrants, the Company issued 6,261,095 shares of common stock for net
proceeds of $3,104,953. During the year ended December 31, 2007, the Company
paid commissions to placement agent of approximately $217,000 in cash and
granted 402,381 warrants valued at $241,428 (using the black scholes model)
which has been allocated against paid in capital.

Between April and May 2007, in connection with a cashless exercise of 132,276
stock warrants, the Company issued 73,872 shares of common stock.

During the year ended December 31, 2007, in connection with the exercise of
stock options, the Company issued 654,745 shares of common stock to employees
and non employees for net proceeds of $318,108.

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

In February 2008, the Company reduced the exercise price of warrants to purchase
an aggregate of 5,000,000 shares of common stock to $0.33 per share in
connection with the 8% convertible promissory notes issued in November 2007 (See
Note 4 - Convertible Promissory Notes- Current). In February 2008, the Company
issued 1,060,606 shares (included in the 1,489,606 shares above) of common stock
for net proceeds of approximately $0.33 per share or $350,000 in connection with
the exercise of stock warrants. Accordingly, in connection with the 8%
convertible promissory notes issued in fiscal 2007, the exercise price of the
warrants issued and the conversion price per share pursuant to the Follow-on
Financing will reset to such lower price or $0.33 per share.

In June 2008, in connection with the exercise of stock warrants, the Company
issued 626,654 shares of common stock for net proceeds of approximately
$200,000.

In July 2008, in connection with the exercise of stock warrants, the Company
issued 669,904 shares of common stock for net proceeds of approximately
$207,000.

In September 2008, in connection with the exercise of stock warrants, the
Company issued 2,662,500 shares of common stock for net proceeds of
approximately $240,000.

                                      F-20
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

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

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

In April 2008 and June 2008, in connection with the exercise of stock options,
the Company issued 62,500 shares of common stock to the Company's director and
1,720 shares of common stock to an employee for total net proceeds of
approximately $20,000.

In June 2008, in connection with the exercise of stock options, the Company
issued 250,000 shares of common stock to a non employee for net proceeds of
approximately $50,000.

In September 2008, in connection with the exercise of stock options, the Company
issued 10,348 shares of common stock to an employee for net proceeds of
approximately $10.

ISSUANCE OF COMMON STOCK PURSUANT TO CONVERSION OF CONVERTIBLE PROMISSORY NOTES

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

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

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

In April 2008, the Company issued 75,757 shares in connection with the
conversion of an 8% convertible promissory note principal amount of $25,000. The
fair value of such shares issued amounted to approximately $25,000 or $0.33 per
share.

In June 2008, the Company issued 2,733,333 shares in connection with the
conversion of 10% Convertible Senior Unsecured promissory notes with an
aggregate principal amount of $820,000. The fair value of such shares issued
amounted to approximately $820,000 or $0.30 per share.

In August 2008, the Company issued 1,800,000 shares in connection with the
conversion of an 8% convertible promissory notes with an aggregate principal
amount of $450,000. The fair value of such shares issued amounted to
approximately $450,000 or $0.25 per share.

In December 2008, the Company issued 156,250 shares in connection with the
conversion of 10% Convertible Senior Unsecured promissory notes with a principal
amount of $25,000. The fair value of such shares issued amounted to
approximately $25,000 or $0.16 per share.

                                      F-21
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

ISSUANCE OF COMMON STOCK PURSUANT TO PRIVATE PLACEMENTS

During the year ended December 31, 2007, the Company issued 7,971,201 shares
pursuant to private placements which generated net proceeds of approximately
$4,207,101. Additionally, the Company has allocated $1,358,031 of the fair value
of warrants granted to investors in connection with these private placements
including warrants granted to placement agents and has been initially recorded
as derivative liabilities and allocated against paid in capital. During the year
ended December 31, 2007, in connection with these private placements, the
Company paid commissions to its placement agents of approximately $42,000 in
cash, issued 50,000 shares of common stock and granted 151,059 warrants which
have been allocated against paid in capital.

In March 2008, the Company issued in aggregate 1,185,715 shares pursuant to a
private placement which generated gross proceeds of approximately $415,000. In
connection with this private placement, the Company issued 592,857 warrants
exercisable at a price of $0.50 per share. The warrants expire in March 2011.
Subsequent to the closing of this offering, the Company reduced the offering
price of the common stock included in the offering from $0.35 per share to $0.30
per share and reduced the exercise price of the warrants to $0.309 per share. As
a result of this repricing, the Company issued an additional 197,618 shares of
common stock and 98,809 warrants.

Between August 2008 and September 2008, the Company issued in aggregate
3,625,000 shares pursuant to a private placement which generated gross proceeds
of approximately $580,000. In connection with this private placement, the
Company issued 3,625,000 warrants exercisable at a price of $0.20 per share. The
warrants expire in three years from the date of grant. In connection with these
private placements, the Company paid commissions to its placement agent of
approximately $10,000 in cash.

Between October and December 2008, the Company issued in aggregate 5,825,000
shares pursuant to a private placement which generated gross proceeds of
approximately $932,000. In connection with this private placement, the Company
issued 5,825,000 warrants exercisable at a price of $0.20 per share. The
warrants expire in three years from the date of grant.

CANCELLATION OF COMMON STOCK

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

During 2007, the Company cancelled 312,500 shares of common stock and recorded
its par value against paid in capital.

In March 2008, the Company cancelled 50,000 shares of common stock previously
issued to a consultant. The fair value of such shares at the date of grant
amounted to approximately $49,000 or $0.98 per share. In connection with the
return of the 50,000 shares of common stock, the Company reduced stock-based
compensation expense by $21,000 based on the fair market value of the common
stock on the date of cancellation of $0.42 per share.

In May 2008, the Company cancelled 100,000 shares of common stock previously
issued to a consultant. The fair value of such shares at the date of grant
amounted to approximately $45,000 or $0.45 per share. In connection with the
return of the 100,000 shares of common stock, the Company reduced stock-based
compensation expense by $37,000 based on the fair market value of the common
stock on the date of cancellation of $0.37 per share.

                                      F-22
<PAGE>

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

NOTE 6 - STOCKHOLDERS' DEFICIT (continued)

In September 2008, the Company cancelled 604,504 shares of common stock
previously issued to a key employee. The aggregate fair value of such shares
which ranges from $0.19 to $0.35 per share at the date of grant amounted to
approximately $128,000 . In connection with the return of the 604,504 shares of
common stock, the Company reduced stock-based compensation expense by
approximately $73,000 based on the fair market value of the common stock on the
date of cancellation of $0.12 per share.

ISSUANCE OF COMMON STOCK PURSUANT TO A SETTLEMENT AGREEMENT

In December 2007, the Company entered into a settlement agreement and mutual
release of claims with a former key employee who served as Director of Marketing
of the Company. Based on the settlement agreement, the Company shall issue an
aggregate of 505,357 shares from the cashless exercise of 505,357 stock options
granted to the former key employee in January 2003 and August 2005 in
consideration for past services performed. In connection with the cashless
exercise of 505,357 stock options, the Company has recognized stock based
compensation expense of $10,005 during the year ended December 31, 2007. The
Company also granted 200,000 five-year stock options to purchase common stock in
connection with this settlement agreement at an exercise price of $.001 per
share. The Company valued these options utilizing the Black-Scholes options
pricing model at approximately $0.49 or $98,000. Such options were exercise
during December 2007 by the former key employee. As defined in the stock option
agreements, all the remaining 475,000 stock options of the former key employee
shall remain in effect until earlier of exercise or expiration of such stock
options. Additionally, the Company shall continue to pay medical, dental
coverage, and car allowance until June 2008 amounted to approximately $10,000
and has been included in accrued expenses. The Company has recorded a total of
$108,000 in connection with this settlement agreement and has been included in
other expenses - employee settlement as reflected in the accompanying
consolidated statements of operations.

NOTE 7 - STOCK OPTIONS AND WARRANTS

WARRANTS

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

On January 24, 2007, the Company granted a five-year warrant to purchase 100,000
shares of common stock to a consultant at an exercise price of $0.475 per share
for marketing strategy and business development services rendered. The Company
valued these warrants utilizing the Black-Scholes options pricing model at
approximately $0.675 or $67,520 and recorded stock-based consulting expense of
$67,520 for the year ended December 31, 2007. The fair value of such warrants
was initially recorded as derivative liabilities.

On March 19, 2007, in connection with a 12-month retailer marketing agreement
entered into on February 2, 2007, the Company granted a three-year warrant to
purchase 2,000,000 shares of common stock to an electronic retailing group in
Europe at an exercise price of $1.25 per share. The Company valued these
warrants utilizing the Black-Scholes options pricing model at approximately
$1.00 or $2,004,600 which will be amortized over the 12 month retail marketing
agreement. The fair value of such warrants was initially recorded as derivative
liabilities. For the year ended December 31, 2007, the Company recorded
marketing expense of $1,823,362. At December 31, 2007, the balance of prepaid
marketing expense amounted to $181,238.

                                      F-23
<PAGE>

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

NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)

During the year ended December 31, 2007, the Company paid commissions to a
placement agent for proceeds received from the exercise of certain stock
warrants of approximately $217,000 in cash and granted 402,381 warrants valued
at $241,429 (using the black scholes model) which has been allocated against
paid in capital. These warrants are exercisable at $.45 per share and expire in
May 2012. The fair value of such warrants was initially recorded as derivative
liabilities.

During the year ended December 31, 2007, the Company granted a five-year warrant
to purchase 3,985,615 shares of common stock to investors and 151,059 warrants
to placement agents in connection with private placements. The Company has
allocated $1,358,031 of the fair value of warrants granted in connection with
these private placements and has been initially recorded as derivative
liabilities and allocated against paid in capital. These warrants are
exercisable at $1.00 per share.

Between October 2007 and November 2007, the Company received $475,000 in
consideration for the issuance of the 8% convertible promissory notes. The
Company also issued a three-year common stock purchase warrant to purchase
950,000 shares of the Company's common stock at $0.75 per share.

In November 2007, the Company received $2,500,000 in consideration for the
issuance of the 8% convertible promissory notes. The Company also issued a
three-year common stock purchase warrant to purchase 5,000,000 shares of the
Company's common stock at $0.50 per share.

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

In February 2008, the Company issued a convertible promissory note amounting to
$50,000. In connection with the issuance of this note payable, the Company
granted 25,000 warrants to an investor exercisable at a price of $0.50 per share
for a period of three years. In connection with the recent private placement in
third quarter of fiscal 2008, the Company issued an additional 131,250 warrants
to this investor.

In March 2008, the Company granted a three-year warrant to purchase 592,857
shares of common stock to investors in connection with private placements. These
warrants are exercisable at $0.50 per share. Subsequent to the closing of this
offering, the Company reduced the offering price of the common stock included in
the offering and reduced the exercise price of the warrants to $0.309 per share.
As a result of this repricing, the Company issued an additional 98,809 warrants.

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

In April 2008, the Company granted 250,000 five-year stock warrants to purchase
common stock in connection with an investment banking consulting agreement. The
Company valued these options utilizing the Black-Scholes options pricing model
at $0.21 per share or approximately $53,000.

                                      F-24
<PAGE>

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

NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)

Between February 14, 2008 and June 6, 2008, the Company issued 10% Convertible
Senior Unsecured Promissory Debentures amounting to $1,571,000. In connection
with the issuance of these notes payable, the Company granted 5,236,665 warrants
to an investor exercisable at a price of $0.309 per share for a period of five
years. In connection with the recent private placement in third quarter of
fiscal 2008, the Company issued an additional 2,423,113 warrants to these
investors.

In June 2008, the Company issued 10% Convertible Subordinated Promissory
Debentures amounting to $100,000. In connection with the issuance of this note
payable, the Company granted 400,000 five year common stock purchase warrants to
an investor at an exercise price of $0.25 per share.

In June 2008, in connection with the exercise of stock warrants, the Company
issued 626,654 shares of common stock for net proceeds of approximately
$200,000.

In July 2008, in connection with the exercise of stock warrants, the Company
issued 669,904 shares of common stock for net proceeds of approximately
$207,000.

In July, 2008, the Company issued 10% Convertible Subordinated Promissory
Debentures amounting to $87,500. In connection with the issuance of these notes
payable, the Company granted 350,000 five year common stock purchase warrants to
investors at an exercise price of $0.25 per share.

In July 2008, the Company granted 300,000 five-year stock warrants to purchase
common stock in connection with an advisory agreement. The Company valued these
warrants utilizing the Black-Scholes options pricing model amounting to
approximately $100,000.

In September 2008, in connection with the exercise of stock warrants, the
Company issued 2,662,500 shares of common stock for net proceeds of
approximately $240,000.

In September 2008, the Company granted 500,000 three-year stock warrants to
purchase common stock to the Company's Director. The Company valued these
options utilizing the Black-Scholes options pricing model at $0.12 per share or
approximately $60,000.

Between August 2008 and September 2008, the Company granted a three-year warrant
to purchase 3,625,000 shares of common stock to investors in connection with
private placements. These warrants are exercisable at $0.20 per share.

Between October 2008 and December 2008, the Company granted a three-year warrant
to purchase 5,825,000 shares of common stock to investors in connection with
private placements. These warrants are exercisable at $0.20 per share.

In December 2008, the Company issued 8% 18-month Convertible promissory notes
amounting to $200,000. In connection with the issuance of these convertible
notes payable, the Company granted 1,250,000 two year common stock purchase
warrants to investors at an exercise price of $0.20 per share. In addition, the
Company paid commission and issued 150,000 five year common stock purchase
warrants to its placement agent at an exercise price of $0.20 per share valued
at approximately $21,000 (using the black scholes model) which has been included
in other assets.

                                      F-25
<PAGE>

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

NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)

In December 2008, the Company granted 625,000 three-year stock warrants to
purchase common stock in connection with an extended business advisory
agreement. The Company valued these warrants utilizing the Black-Scholes options
pricing model at $0.03 per share or approximately $19,000.

Stock warrant activity for the years ended December 31, 2008 and 2007 is
summarized as follows:
<TABLE>
<CAPTION>
                                      Year Ended December 31, 2008   Year Ended December 31, 2007
                                      ----------------------------   ----------------------------
                                       Number of  Weighted Average    Number of  Weighted Average
                                       Warrants    Exercise Price     Warrants    Exercise Price
                                      ----------  ----------------   ----------  ----------------
<S>                                   <C>             <C>            <C>             <C>
Balance at beginning of year ......   28,029,348      $   0.70       20,438,943      $   0.60
Granted ...........................   21,782,694          0.21       13,983,776          0.70
Exercised .........................   (5,448,664)         0.21       (6,393,371)         0.50
Expired ...........................   (5,392,499)         0.61                -             -
                                      ----------      --------       ----------      --------
Balance at end of year ............   38,970,879      $   0.38       28,029,348      $   0.70
                                      ==========      ========       ==========      ========

Warrants exercisable at end of year   38,970,879      $   0.38       28,029,348      $   0.70
                                      ==========      ========       ==========      ========
Weighted average fair value of
warrants granted during the year ..                   $   0.21                       $   0.70
</TABLE>

The weighted average remaining contractual life and weighted average exercise
price of warrants outstanding and exercisable at December 31, 2008, for selected
exercise price ranges, is as follows:

                        Warrants              Weighted
                      outstanding         Average Remaining     Weighted Average
Exercise prices      and exercisable      Contractual Life       Exercise Price
---------------      ---------------      -----------------     ----------------
  $  0.13                 500,000               2.70                 $ 0.13
     0.20              18,580,833               3.18                   0.20
     0.25               5,053,031               2.60                   0.25
  0.30 - 0.60           7,461,676               2.70                   0.42
  1.00 - 1.30           7,375,339               2.50                   1.12

STOCK OPTIONS

In 2002, the Company adopted the 2002 Stock Plan under which stock awards or
options to acquire shares of the Company's common stock may be granted to
employees and non-employees of the Company. The Company has authorized
12,000,000 shares of the Company's common stock for grant under the 2002 Plan.
The 2002 Plan is administered by the Board of Directors and permits the issuance
of options for the purchase of up to the number of available shares outstanding.
Options granted under the 2002 Plan vest in accordance with the terms
established by the Company's stock option committee and generally terminates ten
years after the date of issuance.

During the year ended December 31, 2007, in connection with the exercise of
stock options, the Company issued 654,745 shares of common stock to employees
and non employees for net proceeds of $318,108.

                                      F-26
<PAGE>

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

NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)

During 2007, in connection with a cashless exercise of 1,000,000 stock options
by the Chief Executive Officer, the Company issued 1,000,000 shares of common
stock and has recognized stock based compensation expense of approximately
$20,000 during the year ended December 31, 2007.

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

During the year ended December 31, 2007, the Company granted 5,707,500 five-year
stock options to purchase common stock to employees (including 1,450,000 options
granted to two officers and a director of the Company) at exercise prices
ranging from $0.44 to $0.97 per share. For the years ended December 31, 2007 and
2006, total stock-based compensation charged to operations for option-based
arrangements amounted to $3,838,404 and $2,250,330, respectively. At December
31, 2007, there was approximately $663,000 or total unrecognized compensation
expense related to non-vested option-based compensation arrangements under the
Plan. These costs are expected to be recognized over a weighted average period
of 1.10 years

In December 2007, the Company entered into a settlement agreement and mutual
release of claims with a former key employee who served as Director of Marketing
of the Company. The Company granted 200,000 five-year stock options to purchase
common stock in connection with this settlement agreement at an exercise price
of $.001 per share. The Company valued these options utilizing the Black-Scholes
options pricing model at approximately $0.49 or $98,000. In connection with
these options, the Company recorded $98,000 and has been included in other
expenses - employee settlement as reflected in the accompanying consolidated
statements of operations. Such options were exercise during December 2007 by the
former key employee.

In December 2007, the Company entered into a settlement agreement and mutual
release of claims with a former employee of the Company. As defined in the
agreement, all remaining options to purchase an aggregate of 149,002 shares of
our common stock at exercise prices of $0.34 to $0.50 per share which had been
previously granted to her under the terms of our 2002 Stock Option and Stock
Award Plan will remain exercisable until their original termination dates
between July 2011 and October 2012. Additionally, the Company shall continue to
pay medical and dental coverage until March 2008. The Company valued these
options with adjusted terms utilizing the Black-Scholes options pricing model
ranging from $0.05 to $0.13 or $28,500. In connection with these options, the
Company recorded $28,500 and has been included in other expenses - employee
settlement as reflected in the accompanying consolidated statements of
operations.

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

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

                                      F-27
<PAGE>

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

NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)

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

In April 2008 and June 2008, in connection with the exercise of stock options,
the Company issued 62,500 shares of common stock to the Company's director and
1,720 shares of common stock to an employee for total net proceeds of
approximately $20,000.

In June 2008, in connection with the exercise of stock options, the Company
issued 250,000 shares of common stock to a non employee for net proceeds of
approximately $50,000.

Between April 2008 and June 2008, the Company granted 1,021,848 five-year stock
options to purchase common stock in connection with consulting agreements. The
Company valued these options utilizing the Black-Scholes options pricing model
ranging from $0.05 to $0.34 per share or approximately $94,000.

In September 2008, in connection with the exercise of stock options, the Company
issued 10,348 shares of common stock to an employee for net proceeds of
approximately $10.

Between August 2008 and September 2008, the Company granted in aggregate 650,404
three to five year stock options to purchase common stock in connection with a
consulting and financial advisory agreement. The Company valued these options
utilizing the Black-Scholes options pricing model ranging from $0.10 to $0.21
per share or approximately $67,000 and recorded stock-based consulting expense
for the year ended December 31, 2008.

In December 2008, the Company granted 250,000 three-year stock options to
purchase common stock in connection with an extended business advisory
agreement. The Company valued these warrants utilizing the Black-Scholes options
pricing model at $0.03 per share or approximately $8,000.

During the year ended December 31, 2008, the Company granted 6,719,018 five-year
stock options to purchase common stock to employees (including 3,350,000 options
granted to the Company's Chief Executive Officer and two directors of the
Company) at exercise prices ranging from $0.01 to $0.35 per share. For the year
ended December 31, 2008 and 2007, total stock-based compensation charged to
operations for option-based arrangements amounted to approximately $1,846,000
and $3,838,000, respectively. At December 31, 2008, there was approximately
$317,000 of total unrecognized compensation expense related to non-vested
option-based compensation arrangements under the Plan.

In May 2008, the Company reduced the exercise price of stock options to purchase
an aggregate of 14,716,035 shares of common stock to $0.30 per share. The
Company valued the re-priced options utilizing the Black-Scholes option pricing
model using the following assumptions: estimated volatility of 70%, risk-free
interest rate ranging from 1.90% to 2.68%, no dividend yield, and an expected
life ranging from 0.54 to 4.96 years, and recorded approximately $370,000 as
stock based compensation during the year ended December 31, 2008.

                                      F-28
<PAGE>

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

NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)

Stock option activity for the years ended December 31, 2008 and 2007 is
summarized as follows:
<TABLE>
<CAPTION>
                                      Year Ended December 31, 2008   Year Ended December 31, 2007
                                      ----------------------------   ----------------------------
                                       Number of  Weighted Average    Number of  Weighted Average
                                       Options     Exercise Price     Options    Exercise Price
                                      ----------  ----------------   ----------  ----------------
<S>                                   <C>             <C>            <C>             <C>
Balance at beginning of year ......   13,339,549      $   0.54       11,575,485      $   0.42
Granted ...........................    9,241,270          0.22        6,107,500          0.64
Exercised .........................     (569,371)         0.22       (2,360,102)         0.15
Expired ...........................   (2,969,518)         0.34       (1,983,334)         0.80
                                      ----------      --------       ----------      --------
Balance at end of year ............   19,041,930      $   0.29       13,339,549      $   0.54
                                      ==========      ========       ==========      ========

Options exercisable at end of year    17,802,485      $   0.28       11,808,496      $   0.54
                                      ==========      ========       ==========      ========
Weighted average fair value of
options granted during the year ...                   $   0.22                       $   0.55
</TABLE>

The following table summarizes information concerning stock options outstanding
and exercisable at December 31, 2008:
<TABLE>
<CAPTION>
                   Options Outstanding                          Options Exercisable
----------------------------------------------------------  ---------------------------
  Range of                Weighted Average    Weighted                      Weighted
  Exercise      Number       Remaining         Average        Number         Average
   Price     Outstanding  Contractual Life  Exercise Price  Exercisable  Exercise Price
-----------  -----------  ----------------  --------------  -----------  --------------
<C>          <C>          <C>               <C>             <C>          <C>
$0.001-0.02    1,861,605     4.34 Years        $  0.01        1,861,605     $  0.01
  0.10-0.97   17,095,325     3.05 Years           0.31       15,855,880        0.31
  1.25-1.75       85,000     0.84 Years           1.59           85,000        1.59
             -----------                       --------     -----------     -------
              19,041,930                       $  0.29       17,802,485     $  0.54
             ===========                       ========     ===========     =======
</TABLE>

Nonvested stock options activity for the year ended December 31, 2008 is
summarized as follows:

                                                   Year Ended December 31, 2008
                                                  ------------------------------
                                                   Number of    Weighted Average
                                                    Options      Exercise Price
                                                  -----------   ----------------
Nonvested balance at beginning of year ........    1,531,053         $ 0.55
Granted .......................................    2,770,000           0.30
Vested ........................................   (2,246,608)          0.30
Forfeited .....................................     (815,000)          0.43
                                                  ----------         ------
Nonvested balance at end of year ..............    1,239,445         $ 0.29
                                                  ==========         ======

                                      F-29
<PAGE>

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

NOTE 8 - INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred taxes, at December 31, 2008 and 2007 are as follows:

                                                 December 31,      December 31,
                                                     2008              2007
                                                 ------------      ------------
Deferred tax assets:
    Net operating loss carryforward ........     $ 18,500,000      $ 16,000,000

Less:  Valuation allowance .................      (18,500,000)      (16,000,000)
                                                 ------------      ------------
Total net deferred tax assets ..............     $          -      $          -
                                                 ============      ============

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported, if any, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Management has determined that a valuation allowance of at December 31, 2008 and
2007 is necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized. The change in the valuation allowance during 2008
and 2007 was approximately $2.5 million and $3.3 million, respectively.

The Company has incurred net operating losses since inception. At December 31,
2008, the Company had net operating loss carryforwards amounting to
approximately $47.5 million for U.S. tax purposes that expire in various amounts
through 2028. The Company has had a change of ownership as defined by the
Internal Revenue Code Section 382. As a result, a substantial annual limitation
may be imposed upon the future utilization of its net operating loss
carryforwards. Furthermore, the Company has not always filed tax returns on a
consolidated basis which may result in separate company loss limitations which
may reduce the utilization of combined net operating loss carryforwards to
offset future taxable income. Accordingly, separate company net operating losses
may be limited.

The federal statutory tax rate reconciled to the effective tax rate during 2008
and 2007, respectively, is as follows:

                                                 2008      2007
                                                 ----      ----
Tax at U.S. statutory rate: .................    35.0%     35.0%
State tax rate, net of federal benefits .....     6.0       6.0
Permanent differences .......................   (18.0)    (15.6)
Change in valuation allowance ...............   (23.0)    (25.4)
                                                -----     -----
Effective tax rate ..........................     0.0%      0.0%
                                                =====     =====

In July 2006, the Financial Accounting Standard Board (FASB) issued FASB
Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes".
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with SFAS NO. 109, "Accounting
for Income Taxes". FIN 48 requires a company to evaluate whether tax position
taken by a company will more likely than not be sustained upon examination by
the appropriate taxing authority. It also provides guidance on how a company
should measure the amount of benefit that the company is to recognize in its
financial statements. FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning after
December 15, 2006.

                                      F-30
<PAGE>

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

NOTE 8 - INCOME TAXES (continued)

The Company adopted FIN 48 as of January 1, 2007. As a result of the
implementation of FIN 48, the Company concluded that it has not taken any
uncertain tax positions on any of its open income tax returns filed through the
period ended December 31, 2008 that would materially distort its financial
statement. The Company's methods of accounting are based on established income
tax principles approved in the Internal Revenue Code (IRC) and are properly
calculated and reflected within its income tax returns.

The Company re-assesses the validity of its conclusions regarding uncertain
income tax positions on a quarterly basis to determine if facts or circumstances
have arisen that might cause the Company to change its judgment regarding the
likelihood of a tax position's sustainability under audit. The impact of this
reassessment for the year ended December 31, 2008 did not have any impact on its
results of operations, financial conditions or liquidity.

NOTE 9 - SEGMENTS

During 2008, the Company operated in one segment. The percentages of sales by
geographic region for fiscal 2008 and 2007 were approximately:

                     2008     2007
                     ----     ----

United States...      23%      39%
Europe .........      77%      61%

NOTE 10 - COMMITMENTS AND CONTINGENCIES

LITIGATION

In January 2008, the Company executed a mutual release and settlement agreement
with a certain vendor. Both parties claim a breach of their obligation under a
Master Services Agreement dated in January 2007. The Company has an outstanding
balance of approximately $179,000 which has been included in accounts payable
prior to this settlement. Pursuant to this agreement, the Company settled for
$125,000 payable in four monthly equal installments of $31,250 beginning on
January 15, 2008 and were released from further claim. The Company has
recognized a gain from debt settlement of approximately $54,000 during the year
ended December 31, 2008.

In April 2008, the Company settled for $18,000 in connection with a settlement
demand from plaintiff Creditors Adjustment Bureau, Inc. The Company was released
from further claim and has been dismissed from this litigation. During the year
ended December 31, 2008, the Company has recognized $18,000 and the amount was
included as a loss/gain from litigation settlement in the accompanying
consolidated statements of operations.

The Company is a party to a litigation in the Los Angeles Superior Court, Case
No. 08E06019, which was filed on May 19, 2008 by a vendor for failure to pay
commissions for recruitment services. The Company contends that no commissions
were earned because the recruited employees did not successfully complete their
probationary period. The vendor is suing for damages of approximately $21,250
with an additional interest rate of 10% per annum from November 19, 2007 plus
reasonable attorneys fees. The suit is in its initial stages and the court has
already referred the matter to mediation. If the case proceeds, the Company
intends to respond aggressively to the litigation and management believes that
there is a low likelihood of an unfavorable outcome.

                                      F-31
<PAGE>

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)

The Company is a party to litigation in the Superior Court California-Riverside
County, Case No. INC078707, which was filed on July 19, 2008 by a vendor for
failure to pay commissions in connection with recruitment services. The Company
contends that no commissions were earned because the recruited employees did not
successfully complete their probationary period. The vendor is suing for damages
of approximately $42,350 with an additional interest rate of 6.75% per month.
The suit is in its initial stages and the court has already referred the matter
to mediation. If the case proceeds, the Company intends to respond aggressively
to the litigation and management believes that there is a low likelihood of an
unfavorable outcome.

The Company is a party to litigation in the District Court of New Jersey, Civil
Action No. 08-cv-5568, which was filed on November 25, 2008 by a vendor for
failure to pay contract fees in connection with a data center rental agreement.
The vendor failed to deliver promised facilities and reliable bandwidth as our
customer based are rapidly expanding. The case is in the initial stages.. The
vendor is suing for damages of approximately $724,000 plus interest, attorneys'
fees and all other related fees. If the case proceeds, the Company intends to
respond aggressively to the litigation and management believes that there is a
moderate likelihood of an unfavorable outcome.

In January 2009, the Company filed a complaint for fraud and declaratory relief
in connection with an investment banking agreement entered into April 2008
against Merriman Curhan Ford & Co. in the Supreme Court of California - County
of Riverside Case No. 083346. In February 2009, the Company received a notice of
petition for order compelling arbitration in the Superior Court California- San
Francisco County, Case No. CFP 09-509186, which was filed on January 28, 2009 by
Merriman Curhan Ford & Co. for failure to pay fees for services associated with
an investment banking agreement. The Merriman Curhan Ford & Co. is seeking for
the reimbursement for out of pocket fees of approximately $31,000, payment of
notes payable with principal amount of $161,200 and 370,370 shares of the
Company. The Company contends that the agreement was obtained by
misrepresentations and concealment and that it is unenforceable and void. If the
case proceeds, the Company intends to respond aggressively to the arbitration
and management believes that there is a very low likelihood of an unfavorable
outcome.

The Company is a party to litigation in the Superior Court California-Orange
County, Case No. 00115691, which was filed on December 4, 2008 by a vendor for
failure to pay service fees and computer hardware. The vendor is suing for
damages of approximately $60,000 and attorney fees. There has been minimal
action in this case. The case is in the initial stages and once the case is at
issue, the Company intends to pursue resolution through mediation. Management
believes that there is a low likelihood of an unfavorable outcome.

EMPLOYMENT CONTRACT

The Company entered into an employment agreement with its Chief Executive
Officer which expires in December 2008 and is renewable for additional 3-year
term. The employment agreement provides for an annual base salary of $239,800
with a 10% increase in his base salary annually. The Company has the obligation
to pay the Chief Executive Officer's compensation through December 31, 2008 in
the event 1) it terminates the employment without cause, 2) of the death of the
Chief Executive Officer, and 3) of the consummation of a merger or disposition
of substantially all assets of the Company. In January 2009, this agreement
automatically renews for an additional 3-year term.

                                      F-32
<PAGE>

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

NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)

OPERATING LEASES

The Company entered into a new lease effective November 2006. The monthly base
rent amounts to $12,667 per month and matures in December 2011.

Future annual minimum payments, net of sublease income, required under operating
lease obligations at December 31, 2008 are as follows:

                               Future Minimum
                               Lease Payments
                               --------------
         2010 .............       $152,000
         2011 .............       $139,000

NOTE 11 - RELATED PARTY TRANSACTIONS

The Company made rental payments for property owned by the Chief Executive
Officer of the Company during fiscal 2008 and 2007 amounting $40,200 and
$12,500, respectively. The rental property was used for temporary employee
housing during fiscal year 2008 and 2007, respectively.

NOTE 12 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

During the year ended December 31, 2008, the Company recorded a liability
related to unpaid payroll taxes for the period May 16, 2008 to December 31, 2008
for approximately $665,000 and since that date through March 31, 2009 the amount
has increased to $946,000. This amount has been included in accrued expenses in
the accompanying consolidated financial statements.

NOTE 13 - SUBSEQUENT EVENTS

The Company is a party to litigation in Cole County, Missouri, Case No.
07AC-CC01045, which was filed on November 15, 2007 by a lessor related to an
aircraft lease agreement entered into by the Company in July 2007. This lawsuit
arose out of the early termination of the aircraft lease agreement by the
Company. In January 2009, the Company formally settled for $100,000 payable in
five equal monthly installments. The Company made settlement payments for a
total amount of $40,000 between February 2009 and March 2009.

In January 2009 we entered into a note extension agreement with a holder of
$100,000 principal amount 10% convertible unsecured promissory debenture whereby
the due date of this note was extended from September 2008 to maturity date of
September 2009. Additionally, based on this agreement, the current conversion
price has been reset to $0.16 and exercise price of warrants related to this
note has been reset to $0.20.

In January 2009, the Company issued 489,896 shares in connection with the
payment of accrued interest as of December 31, 2008 of approximately $77,000 on
the 8% and 10% convertible promissory notes. The fair value of such shares
issued amounted to approximately $77,000 or $0.16 per share.

In January 2009, the Company granted 400,000 restricted shares of common stock
in connection with an investor relations agreement. The Company valued these
common shares at the fair market value on the date of grant at $0.22 per share
or $88,000 and has been recognized as stock based consulting expense.

                                      F-33
<PAGE>

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

NOTE 13 - SUBSEQUENT EVENTS (continued)

In January 2009, the Company entered into a finder's fee agreement. The Company
will pay a 10% commission of the gross cash proceeds received and warrants to
purchase common stock of the Company equal to 10% of the shares sold via their
efforts. The warrants are exercisable at a price of $0.20 per share. The
warrants expire three years from the date of grant.

Between January 2009 and March 2009, the Company issued in aggregate 8% 18-month
convertible promissory notes amounting to $803,000. In connection with the
issuance of these convertible notes payable the Company granted 5,018,750
warrants to investors exercisable at a price of $0.20 per share for a period of
two years. In addition, the Company paid cash commissions of approximately
$80,000 and granted 602,250 five year common stock purchase warrants to its
placement agent at an exercise price of $0.20.

Between January 2009 and February 2009, the Company issued in aggregate
1,500,000 five-year stock options to purchase common stock to the Company's CEO
(650,000 stock options), board of directors (500,000 stock options) and to
certain employees (350,000 stock options) of the Company for services rendered.
The Company valued these options utilizing the Black-Scholes options pricing
model at $0.18 per share or approximately $270,000.

In February 2009, the Company entered into a 1 year marketing agreement with
Cydcor Inc. whereby Cydcor will market the Company's services and perform
marketing campaigns as it may determine from time to time. Cydcor will be paid
in a commission basis on all customer orders that has an authorization for
customer payment received via the efforts of Cydcor. In addition, Cydcor will
receive volume bonuses based on total number of sales generated in any given
calendar month. In addition, the Company granted 250,000 three-year stock
options to purchase common stock to Cydcor. The Company valued these options
utilizing the Black-Scholes options pricing model at $0.09 per share or
approximately $23,000.

In February 2009, the Company issued in aggregate 700,000 five-year stock
options to purchase common stock for legal services with a vesting period of 12
months. The Company valued these options utilizing the Black-Scholes options
pricing model at $0.24 per share or approximately $133,000.

Between January 2009 and March 2009, the Company issued in aggregate 1,875,000
shares pursuant to a private placement which generated gross proceeds of
approximately $300,000. In connection with this private placement, the Company
issued 1,875,000 warrants exercisable at a price of $0.20 per share. The
warrants expire three years from the date of grant.

In March 2009, the Company issued 100,000 restricted shares of common stock for
investor relations services. The Company valued these common shares at the fair
market value on the date of grant at $0.24 per share or $24,000 and has been
recognized as stock based consulting expense.

In March 2009, the Company issued 375,000 shares in connection with the
conversion of 10% Convertible Senior Unsecured promissory notes with a principal
amount of $60,000. The fair value of such shares issued amounted to
approximately $60,000 or $0.16 per share.

                                      F-34