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

                                   FORM 10-KSB
(Mark One)

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

                   For the fiscal year ended December 31, 2006

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

                  For the transition period from _____ to _____

                         Commission file number: 0-30687

                               Spare Backup, Inc.
                               ------------------
                 (Name of small business issuer 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)

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

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

      Title of each class        Name of each exchange on which registered

            None                                not applicable
            ----                                --------------

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

                    common stock, par value $0.001 per share
                    ----------------------------------------
                                (Title of class)

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

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

         Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB. [ ]

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         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 issuer's revenues for its most recent fiscal year. $73,046 for
the fiscal year ended December 31, 2006.

         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 a specified date within the past 60 days. $50,521,638 on March 27,
2007

         State the number of shares outstanding of each of the issuer's class of
common equity as of the latest practicable date. 61,158,172 shares of common
stock are issued and outstanding as of March 26, 2007.

                       DOCUMENTS INCORPORATED BY REFERENCE

         If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (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) of the Securities Act of 1933 ("Securities Act"). The
listed documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1990). Not
Applicable.

     Transitional Small Business Disclosure Form (check one): Yes ___ No _X_

           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 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 1.
Description of Business - 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.

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         We are a developer and marketer of a line of software products
specifically designed for 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 and our Spare Switch PC data migration software.

OUR PRODUCTS AND SERVICES

         SPARE BACK-UP

         Spare Backup, a fully-automated remote backup solution designed and
developed especially for the small office or home environment, 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 are currently offering version 3.1 of the product.

         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 backs up:

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

            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

            o  All desktop files

         o  Simple, fast data recovery

         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

         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.

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         An overview of customer benefits includes:

         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.

         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.

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

         We offer new users a free 14-day trial. Spare Backup services costs
$6.99 per month for up to 50 gigabytes of storage. We do not back up
applications, only data. For users interested in using Spare Backup service on
their own local storage device, we includes a software version in our offering
of services that backups to a local drive.

         SPARE BACKUP INTERNET SECURITY AND SPARE BACKUP ANTIVIRUS.

         In September 2006 we entered into a joint marketing and software
distribution agreement with CA, Inc. Under the agreement, CA, Inc. is to provide
us with virus scanning on data uploaded by customers to our services for remote
encrypted backup and we are to provide CA, Inc.'s customers with certain bundled
offerings to provide protection against viruses, hackers, identity thieves, spy
ware, Spam and other online threats. Following this agreement we have introduced
Spare Backup Internet Security and Spare Backup Antivirus.

         These new products bundle Spare Backup's remote backup and restoration
services, with CA's home and home office Internet security software, augmenting
our product portfolio for home users, small business customers and OEM partners.
Spare Backup Antivirus enables virus scanning on data uploaded to Spare Backup
servers for remote encrypted backup, helping to ensure that critical files are
protected from viruses, Trojans and other forms of malware. Spare Backup
Internet Security Suite provides an added layer of security by integrating CA
Internet Security Suite 2007. The Suite, which includes Anti-Virus,
Anti-Spyware, Anti-Spam, and Personal Firewall delivers comprehensive PC
protection against viruses, hackers, identity thieves, spyware, Spam and other
online threats that can jeopardize privacy, data or a PCs' performance.

         LIFELINE

         We have also released Lifeline, automated and live technical support
service. Lifeline enables customers to access automated tasks that detect,
diagnose and resolve problems without technician intervention. If service desk
assistance is required, Lifeline allows for remote and live chat support, remote
diagnosis, repair of problems and connection to live technicians. If the problem
remains unsolved, problem information is automatically delivered to the
technician, further accelerating the resolution process.

         SPARE SWITCH

         Spare Switch enables users to complete the transfer of personal files
from an old personal computer (PC) to a new one via a high speed Internet
connection. Spare Switch locates, packs and transfers files securely without the
need for transfer cables or other accessories. Spare Switch, designed for both
individual and business use, ensures that not only the files transfer easily,
but that they will look, feel and work on the new computer in the same manner
with all the personal settings and layouts built into them. We launched Spare
Switch in August 2005 and relaunched the newest version in October 2006.

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         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 is priced at $14.99 and supports one user.

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 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.

HOW WE MARKET OUR PRODUCTS AND SERVICES

         Our strategy is to partner with leading companies such as computer
manufacturers, high speed cable providers, 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 online distribution.
Users may try our products and services at no cost for a limited trial period by
downloading our software.

         In addition, we are establishing a network of affiliates that also
distribute our products online, as well as a partnership network that will
promote and/or resell our products. The primary focus of our partnership efforts
will be with key retailers, such as Circuit City and DSG International Plc,
original equipment manufacturers (OEMs), and distributors such as CA. As of the
date of this annual report our products are distributed by a number of OEMs,
resellers and corporate partners, including:

         o  Systemax Computers        o  Motorola
         o  CompUSA                   o  The Hammer Hard Drive
         o  Computers4Sure.com        o  PC Mall Sales, Inc.
         o  PC Connectin.com Inc.     o  Tech Depot (an Office Depot subsidiary)
         o  eCOST.com

         In March 2006, we launched our co-marketing efforts with Systemax, Inc.
under which Systemax is incorporating the Spare Backup solution in shipments of
PCs ordered through Systemax's various distribution channels. Under the terms of
the memorandum of understanding, Spare Backup is embedded as an offering icon,
which will open upon the initial customer start up of the new PC. Each Systemax
PC customer will receive a 60-day free trial of Spare Backup and Systemax is
entitled to a percentage of the monthly subscriptions revenue from those
customers who subscribe for the Spare Backup service at the end of the trial
period. In addition, we will support the project in our data centers at no
charge to Systemax as well as providing sales training.

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         HEWLETT-PACKARD

         In June 2006, we entered into a Standard Services Agreement with
Hewlett-Packard Company for a trial PC backup service. Under the agreement we
were to provide a co-branded Web site powered by Spare Backup for the use of
Hewlett-Packard qualified technicians for the purpose of assisting customers in
a trial PC backup service as appropriate for delivering customer support and
solutions. The program consisted of referring Hewlett-Packard customers to the
co-branded Web site for purposes of offering a trial PC backup service in
Hewlett-Packard's outsourced support centers and internal sites. The goal was to
provide Hewlett-Packard customers with a trial online PC backup service to
protect and save customer data that including repair, and upgrades. The period
of the online PC backup pilot trial was from August 1, 2006 through October 31,
2006. During the trial period, the parties divided revenues generated receive
revenue for its services. We were recently advised by Hewlett Packard that it
believed that the pilot program had been deemed a success and, as a result, the
program will be expended; a 12 month renewable contract has now been
implemented. Under the terms of this new agreement we will receive revenue for
our services.

         In January 2007 we entered into an additional statement of work with
Hewlett Packard under which the covered territories have been expanded. The
trial period runs from February 2007 through April 2007 during which we began
offering a similar HP-branded website to customers within England and Sweden.
Upon the successful completion of the pilot, the program will be expanded to
include France, Spain, Italy, the Netherlands, Belgium, Germany, Austria,
Switzerland, Portugal, Denmark, Finland and Norway. As with the initial
statement of work, the parties will divide the revenues generated during the
trial period and if the program is continued we will receive additional revenues
for our services.

         In February 2007 we entered into a third statement of work which covers
HP's small business customers who purchase off the shelf notebook and/or desktop
computers and/or other computing products, software and devices directly from a
retail location or an e-commerce site. During the pilot period which will be
from April 1, 2007 to June 30, 2007 we will provide PC backup services through
our Spare Backup and Spare Switch products. During phase one of the program HP
customers that participate in the program are required to register for the
services and will be entitled to one gigabyte of online storage and data
migration service free of charge. HP customers will also be able to purchase
additional storage and five-user and 10-user company subscriptions. Following
the successful phase one implementation, HP will work to facilitate the
inclusion of our Space Backup service on notebook and desktop computers sold to
small businesses using traditional retail and e-commerce channels. As with the
two prior statements of work, the parties will divide the revenues generated
during the trial period and if the program is continued we will receive
additional revenues for our services.

         CA, INC.

         In January 2007, we entered into a Software License and Distribution
Agreement with CA, Inc. under which we granted CA, Inc. a worldwide
non-exclusive license to market, distribute, and sub-license Spare Backup's
products and services as part of its ecommerce and onsite program offerings.
Sales under the agreement are expected to commence in April 2007. Under the
terms of the agreement, CA, Inc. and its onsite retailers will serve as
non-exclusive distributors for us and CA, Inc. will pay us royalty payments
related to CA sales of the Spare Backup products.

         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. It is
anticipated that we will generate revenues from usage fees and sales of our
products by DSG Retail. The program is planned to launch in April 2007. The

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agreement, which may be renewed for additional one year terms, 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.

         CIRCUIT CITY

         In August 2006, we entered in a technical support services agreement
with Circuit City Stores, Inc. which provides that Circuit City will market and
support our Spare Back-Up product. In February 2007 we entered into an amended
and restated agreement with Circuit City. Under the terms of the amended and
restated agreement, the Circuit City customers will be entitled to purchase an
initial 60 day trial period of our Spare Backup service for $4.99. The Circuit
City customer can choose to have the software installed by firedogSM, Circuit
City's branded personal computer services at no charge, or download the software
from the co-branded web site at firedog.com/online. The agreement is for a
one-year term subject to automatic one year renewals unless terminated in
accordance with the agreement.

         Under the terms of the agreement we deposited $1,000,000 in an escrow
account to secure the obligations associated with compensation to Circuit City
under this agreement. Circuit City will be entitled to earn a maximum fee for
each customer which includes the amount of the 60 day trial paid directly to
Circuit City either from a customer for an in-store purchase or collected by us
for purchases made through the co-branded website and an amount for every
Circuit City customer who purchases as Spare Backup service after the initial 60
day trial period. These amounts will be disbursed to Circuit City from the
escrowed funds until the funds are depleted; thereafter, we are required to pay
Circuit City within 15 days of the end of the month in which the fee was earned.
Through December 31, 2006 approximately $127,000 was disbursed to Circuit City
under the terms of the agreement. Upon the effective date of the amended and
restated agreement, an additional $572,680 of the escrowed funds were disbursed
to Circuit City. The remaining $300,000 of escrowed funds will be disbursed to
Circuit City.

DIALAGEEK(R)

         In February 2007 we entered into a memorandum of understanding with
DialAGeek(R), a 24/7 technical support company supplying support services to
computer users, to provide Spare Backup services for its customers in the United
States, Germany, Japan and Australia. Under the terms of the memorandum of
understanding we will supply one gigabyte of online storage to each customer
that purchases a DialAGeek(R) service contract. If the customer's storage
requirements exceed one gigabyte, the customer will be automatically enrolled in
a monthly subscription by DialAGeek(R) upon notice to the customer. The monthly
subscription includes online data storage of up to 50 gigabytes. We share the
revenue from sales by DialAGeek(R) with that company.

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. In addition, we intend to train our
tier two support agents trained in our Lifeline product which could have the
ability to generate revenue for the company.

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RESEARCH AND DEVELOPMENT

         Our products were developed primarily by our employees assisted by
contractors in certain specialty areas. We have invested approximately $851,000
and approximately $782,000 in research and development during fiscal 2006 and
fiscal 2005, 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 predicable 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.

         Our computer and communications infrastructure is located in multiple
leased facilities in Arizona, California and New Jersey. While our
infrastructure is fully redundant and Tier 3 rated, 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.

OUR CONGA LINE OF PRODUCTS

         Following our transaction with Grass Roots International, Inc. in
August 2004, our operations included the sale of our Conga line of products. The
Conga products were web-based and broadband-enabled software applications, which
focused on improving remote communications and automating data archiving and
storage for the non-technical owners and managers of small and medium sized
businesses. During fiscal 2004 and the first six months of fiscal 2005 our Conga
line of products represented 100% of our sales. The video conferencing market is
very competitive and we were never able to generate any significant revenues
from the Conga product line. Following our introduction of Space Backup in the
second quarter of fiscal 2005 we began devoting substantially all of our
resources to the marketing of the Spare family of products and we have
discontinued all marketing and sales efforts related to the Conga line.

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COMPETITION

         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  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
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 Symantac (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.

         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 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.

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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 26, 2007 we had 24 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.

         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.

                                       8
<PAGE>

         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.

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.

WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT. WE ANTICIPATE CONTINUING
LOSSES MAY RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS.

         Our net losses for the fiscal years ended December 31, 2006 and 2005
were $14,478,439 and $7,831,803, respectively. We have never generated
meaningful revenues to fund our ongoing operations. At December 31, 2006 we had
approximately $146,000 of cash on hand, excluding restricted cash of
approximately $870,000 at December 31, 2006 which is held in escrow under the
terms of our agreement with Circuit City described earlier in this annual
report. We believe our working capital, including funds we have raised
subsequent to December 31, 2006 from the exercise of outstanding warrants, is
sufficient to fund our operating expenses for the next approximate six months.
We are constantly evaluating our cash needs and existing burn rate in order to
make appropriate adjustments in operating expenses. We will need to raise
additional debt or equity capital within the next six to 12 months to provide
funding for ongoing and future operations and to satisfy our obligations as they
become due. No assurances can be given 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 services successfully. 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 successful.

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.

                                       9
<PAGE>

         Revenues from the sales of our Spare Backup line of products have been
limited. We reported revenues of $73,046 and $23,920, respectively, for the
fiscal years ended December 31, 2006 and 2005. 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. If we are unable to generate any significant 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.

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 we do not know if our 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. The actual amount of our future capital requirements, however,
depends on a number of factors, including our ability to grow our revenues and
manage our business. If we raise additional capital through the issuance of
debt, this will result in increased interest expense. If we raise additional
funds through the issuance of equity or convertible debt securities, the
percentage ownership of our company held by existing stockholders will be
reduced and those stockholders may experience significant dilution. In addition,
new securities may contain certain rights, preferences or privileges that are
senior to those of our common stock. There can be no assurance that acceptable
financing 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.

CERTAIN OF OUR OUTSTANDING SECURITIES ARE CONSIDERED DERIVATIVE LIABILITIES. WE
HAVE RECOGNIZED NON-CASH INCOME AND LOSSES IN FISCAL 2005 AND FISCAL 2004, WHICH
HAVE HAD A MATERIAL EFFECT ON OUR FINANCIAL STATEMENTS.

         In connection with the issuance of the 8% promissory notes in March
2004, we granted a subsequent financing conversion reset right, which expired on
March 1, 2006. We issued similar rights to the holders of our 12.5% convertible
subordinated promissory debentures. The conversion reset is considered an
embedded conversion feature pursuant to EITF Issue No. 00-19. Additionally,
because there was no explicit number of shares that are to be delivered upon
satisfaction of subsequent financing conversion reset feature, we were unable to
assert that we had sufficient authorized and unissued shares to settle such
feature. Accordingly, all of our previously issued and outstanding instruments,
such as warrants and options issued to non-employees pursuant to rendered
services as well as those issued in the future, were classified as liabilities,
effective with the granting of the subsequent financing conversion reset
feature. This application of EITF Issue No. 00-19 resulted in an expense of
$5,139,975 in fiscal 2004. As described in Note 6 to the financial statements
which are included elsewhere in this annual report, the application of EITF
Issue No. 00-19 on our financial statements for fiscal 2005 resulted in other
income to us of $11,689,725 and other income to us of $179,927 for fiscal 2006.
While these income items are non-cash transactions, in each of the years the
application of the accounting standard had a significant impact on our net loss
for the period through a reduction in our net loss of $11,689,725 for fiscal
2005 and $179,927 for fiscal 2006. In addition, at December 31, 2006 our balance
sheet reflects a current liability of $11,392,225 related to the derivative
liability. This derivative liability has materially adversely impacted our
working capital. While we cannot predict the impact of this accounting standard
on our financial statement in future periods as the income/expense calculation
is based upon a current market value of our common stock, it is likely that it
will have similar impacts on our financial statement in future periods.

                                       10
<PAGE>

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.

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

         As of March 29, 2007 the following securities which are convertible or
exercisable into shares of our common stock were outstanding:

         o 16,419,860 common stock purchase warrants to purchase a total of
16,419,860 shares of our common stock at prices ranging between $0.32 to $1.25
per share;

         o 1,171,875 shares of our common stock issuable upon the possible
conversion of the outstanding $375,000 principal amount 12.5% convertible
subordinated promissory debentures due March 2007, and

         o 11,964,485 shares of our common stock issuable upon exercise of
outstanding options with exercise prices ranging from $0.001 to $2.25.

         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.

                                       11
<PAGE>

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 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 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 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, 2006, and we expect to continue to incur net losses for the foreseeable
future. 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 revenues to be profitable in the
future and we may not generate sufficient 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;
         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.

                                       12
<PAGE>

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
only have one independent director. 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

         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, 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:

                                       13
<PAGE>

         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 and X-drive (a division of AOL). 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 Symantec
(Norton).

         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 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.

RESULT IN PRODUCT LIABILITY OR DECREASE MARKET ACCEPTANCE OF OUR SERVICES AND
APPLICATIONS.

         The technology underlying services and applications are complex and
include software that is internally developed and software licensed from third
parties. These software products may contain errors or defects, particularly
when first introduced or when new versions or enhancements are released. We may
not discover software defects that affect our current or new services and
applications or enhancements until after they are sold. Furthermore, because our
services and applications are designed to work in conjunction with various
platforms and applications, we are susceptible to errors or defects in
third-party applications that can result in a lower quality product for our
customers. Because our customers depend on us for communications management, any
interruptions could:

         o  Damage our reputation;
         o  Cause our customers to initiate product liability suits against us;
         o  Increase our product development resources;
         o  Cause us to lose revenues; and
         o  Delay market acceptance of our services and applications.

         Our operations also depend on receipt of timely feeds from our content
providers, and any failure or delay in the transmission or receipt of such feeds
could disrupt our operations. We also depend on Web browsers, ISPs and online
service providers to provide access over the Internet to our product and service
offerings. Many of these providers have experienced significant outages or
interruptions in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These types of
interruptions could continue or increase in the future.

         Our digital distribution activities are managed by sophisticated
software and computer systems. We must continually develop and update these
systems over time as our business and business needs grow and change, and these
systems may not adequately reflect the current needs of our business. We may
encounter delays in developing these systems, and the systems may contain
undetected errors that could cause system failures. Any system error or failure
that causes interruption in availability of products or content or an increase
in response time could result in a loss of potential or existing business
services customers, users, advertisers or content providers. If we suffer
sustained or repeated interruptions, our products, services and Web sites could
be less attractive to such entities or individuals and our business could be
harmed.

                                       14
<PAGE>

         Significant portions of our business are dependent on providing
customers with efficient and reliable services to enable customers to broadcast
content to large audiences on a live or on-demand basis. Our operations are
dependent in part upon transmission capacity provided by third-party
telecommunications network providers. Any failure of such network providers to
provide the capacity we require may result in a reduction in, or interruption
of, service to our customers. If we do not have access to third-party
transmission capacity, we could lose customers and, if we are unable to obtain
such capacity on terms commercially acceptable to us our business and operating
results could suffer.

         While we have fully redundant systems, 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.

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.

         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.

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.

                                       15
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

         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 will 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.

ITEM 3.  LEGAL PROCEEDINGS

         We are a party to a litigation pending in the Superior Court of the
State of California in and for the County of Los Angeles, No. BC 354880, styled
Newport International Group, Inc., Plaintiff, vs. Mads Ulrich, Fidelity Capital,
Inc., E-Holdings, Inc. and Does 1 through 100, Defendants. This lawsuit, which
we filed on July 5, 2006, arose out of our transaction with Langley Park
Investment Trust, PLC which is described later in this section. We are alleging
damages under California Corporate Code ss.25501.5, common law fraud, violations
of Rule 10b-5 of the Securities Exchange Act of 1934, breach of fiduciary duty,
negligence, breach of contract, breach of covenant of good faith and fair
dealing and unjust enrichment. We are seeking a return of the approximately
$1,600,000 we paid E-Holdings, Inc. in transaction-based compensation, together
with damages of at least $10,000,000 and attorneys' fees and costs. On November
8, 2006, the Court denied Ulrich's motion to quash, finding that he was not
subject to jurisdiction in California. After the court sustained two demurrers
to various claims, we filed a second amended complaint on March 20, 2007. No
trial date has been set.

         We are a party to litigation in Riverside County Superior Court, Case
No. INC 057586, which was filed on March 22, 2006 by a former employee who
alleges that she suffered harassment and infliction of emotional distress during
her brief employment from July to October 2005, and that we breached a purported
employment contract with her upon her resignation. We deny the former at-will
employee's claims. On November 15, 2006, the Court entered an order sustaining
in part and overruling in part our demurrer to that complaint, and an amended
complaint was filed December 8, 2006, against which we filed a second demurrer.
No trial date has been set.

         On March 14, 2007, we filed an action in Riverside Superior Court, Case
No. INC 065722, against our landlord, Greenwood Property Management, for breach
of our lease for the premises at 72575 Waring Drive, Palm Desert, California.
Our complaint alleges the landlord failed to deliver the premises in compliance
with all applicable building and safety codes, regulations and ordinances, which
caused us damages exceeding $213,000.00 in repair costs. No trial date has been
set.

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

         None.

                                       16
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         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 2004

January 1, 2004 through March 31, 2004            $2.45         $1.75
April 1, 2004 through June 30, 2004               $2.45         $1.20
July 1, 2004 through September 30, 2004           $2.95         $1.20
October 1, 2004 through December 31, 2004         $3.25         $0.40

Fiscal 2005

January 1, 2005 through March 31, 2005            $1.65         $0.40
April 1, 2005 through June 30, 2005               $0.60         $0.34
July 1, 2005 through September 30, 2005           $1.55         $0.44
October 1, 2005 through December 31, 2005         $1.39         $0.61

Fiscal 2006

January 1, 2006 through March 31, 2006            $0.85         $0.50
April 1, 2006 through June 30, 2006               $0.52         $0.24
July 1, 2006 through September 30, 2006           $0.51         $0.33
October 1, 2006 through December 31, 2006         $0.59         $0.399

         On March 27, 2007, the last sale price of our common stock as reported
on the OTCBB was $0.95. As of March 26, 2007, there were approximately 360
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.

RECENT SALES OF UNREGISTERED SECURITIES

         None.

                                       17
<PAGE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

         During March 2005 we launched Spare Backup, our fully automated online
backup service, and in August 2005 we introduced our Spare Switch software 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 our
products and services are designed for use by non-technical users. Our software
has unique characteristics of additional coding that enables easy to scale
infrastructure and support elements which we believe provides a competitive
advantage over other providers whose products require large investments in
hardware, as well as professional installation, training and support.

         We believe fiscal 2006 was a significant year in the life of our
company. During fiscal 2006 our company achieved certain milestones in the
development of our business as discussed below which we believe are crucial to
our ability to increase our revenues in future periods. These milestones
included a change in our distribution model and successfully entering into
partner relationships with several leading national and international companies,
as well as raising approximately $7.7 million in additional capital, unwinding
an earlier transaction which resulted in a reduction in the number of our
outstanding common shares and reducing our debt by approximately $775,000.

         Our initial business model for the distribution of our products and
services was the sale of a stand alone software either directly from our website
or through a reseller network focusing on retailers and original equipment
manufacturers (OEMs). During the first part of fiscal 2006 we devoted
significant focus to creating bundling opportunities with computer OEMs whereby
our software is pre-loaded on the hardware and the purchaser is given a free
trial. We believed this strategy would provide us more opportunity to retain the
customer after the trial period. While we were successful in our initial efforts
to develop the network of resellers and OEMs, including CompUSA, Fry and
Systemax, we did not experience the adoption rate either we or our marketing
partners had anticipated following the end of the trial period.

         This became particularly evident in our original distribution agreement
with Circuit City. A trial version of our software was pre-loaded on personal
computers sold by Circuit City and the purchasers were entitled to a free 60 day
trial. Generally it was found that when a consumer purchased a new computer the
method the purchaser would eventually use to backup of the data to be stored on
that device was not a principal concern as they had no data on the new computer.
While we found that while there was a demand for our products and services, our
brand was unknown and those products and services were not as attractive on a
standalone basis. Our adoption model was based on an "opt in" model in which the
trial user was required to make an affirmative decision to purchase our product
at the end of the trial period. While the process was streamlined, it required
the completion of a simple form and providing us with a credit card. Most trial
users had not experienced a catastrophic computer failure during the trial
period thereby validating the need to purchase the software service at the end
of the trial period. Accordingly, our adoption rates were lower than expected.

         It became evident that having the icon on a desktop and offering the
free trial service was not sufficient to convert potential users to subscribers.
We modified our strategy to focus our efforts on partnering with leading
companies such as computer manufacturers, high speed cable providers, 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. We also believe that
by securing the payment information upfront upon purchase of the bundled
service, it will increase the retention of our customer base. This strategy also
permits us to more effectively use our financial resources.

                                       18
<PAGE>

         During fiscal 2006 our change in strategy resulted in the establishment
of an international partner relationship with Hewlett Packard, a partner
relationship with CA, Inc. and a revised distribution strategy with Circuit
City. To date in fiscal 2007 we have also added DSG International and
DialAGeek(R) to our list of partner companies. Our market segment is relatively
new and unproven. We believe that our ability during fiscal 2006 to successfully
evolve our distribution strategy through cooperative discussions with our
marketing partners validates the demand for our products and services within our
target user base.

         Generally, we pay these partner companies a percentage of the sales for
a specific period of time, after which we retain all revenue generated from the
end users. We believe that this financial structure will significantly reduce
our per end user acquisition cost while significantly increasing our market
visibility as our success is shared with our business partners.

         The evolution of our distribution strategy and the establishment of
these partner relationships represent some of the major milestones of our
company for fiscal 2006. For example, we believe the relationship with DSG
International will be of particular significance to our company in the coming
years. DSG International, while not a "household" name in the U.S., it is
Europe's leading specialist electronic retailing group with more than 1,200
stores and online stores, operating in 27 countries with 40,000 employees. More
than 100 million customers shop on line and in store with DSG International
annually. Our adoption model with DSG International is an "opt out" model. At
the beginning of the trial service, at which time the subscriber accepts all
terms and conditions associated with the offer, the customer gives us a credit
card number to which we can automatically charge the customer if they go over
the allotted offer, one gigabyte or for a period of time, for example 30 days.
Upon expiration of the trial period the customer is then required to make an
affirmative effort to cancel the service. We believe that the difference between
an "opt in" model and the "opt out" model will significantly increase our
adoption rates following the initial 1 gigabyte trial period.

         Since June 2006 we have also been able to convert an initial, limited
agreement with Hewlett-Packard Company for a trial PC backup service for U.S.
consumers into an expanded 12 month renewable contract. In January 2007 we
entered into an additional statement of work with Hewlett Packard under which
the covered territories were expanded to include England and Sweden during a
trial period running beginning in April 2007 when we will be offering a similar
HP branded website to customers within those countries. It the pilot is
successful, the program will be expanded to include France, Spain, Italy, the
Netherlands, Belgium, Germany, Austria, Switzerland, Portugal, Denmark, Finland
and Norway. In February 2007 we entered into a third statement of work which
covers HP's small business customers who purchase off the shelf notebook and/or
desktop computers and/or other computing products, software and devices directly
from a retail location or an e-commerce site. During the pilot period of April
1, 2007 to June 30, 2007 we will provide PC backup services through our Spare
Backup and Spare Switch products. If this pilot is successful, HP will work to
facilitate the inclusion of our Space Backup service on notebook and desktop
computers sold to small businesses using traditional retail and e-commerce
channels. Additionally, Spare Backup is now included in the HP Media Vault, once
again establishing additional channels within our distribution network.

         During fiscal 2006 we also gained valuable experience in our ability to
do business with large national and international companies. We believe that one
of the greatest obstacles in doing business with the larger companies is the
organizational structure and processes inside the corporation. From the
perspective of a small, agile company these larger companies sometimes do not
work as fast we might like and our experience has been that these companies
typical do not meet deadlines. For example, under our agreement with CA, Inc.
the product launch was set for February 15, 2007 and we were ready in advance of
that date. However, as a result of internal difficulties with certain of their
resources CA, Inc. has pushed back the launch date to May 1, 2007. The knowledge
we have gained through our experiences will enable us to better forecast launch
dates.

                                       19
<PAGE>

         Perhaps an equally significant milestone for fiscal 2006 was the
success of our capital raising efforts. During fiscal 2006 we raised
approximately $7.7 million in proceeds from the sale of equity and debt
instruments, net of repayments of debt and offering costs of approximately
$690,000. Included in our capital raises during fiscal 2006 was the sale of
$1,500,000 principal amount 8% convertible promissory notes which automatically
converted into equity upon our subsequent equity private placement. We used the
offering proceeds we received in fiscal 2006 to provide the $1,000,000 escrow
funds required under our agreement with Circuit City, to reduce our obligations
and for general working capital.

         We also used approximately $633,000 of the offering proceeds as partial
consideration for the repurchase of 5,882,352 shares of our common stock which
we had sold to Langley Park Investment Trust Plc in July 2004 as described later
in this section. Those shares have been cancelled and returned to our company
thereby reducing the number of our outstanding common shares.

         During fiscal 2006 we were also able to reduce our debt obligations. At
the beginning of fiscal 2006 our outstanding debt included approximately
$790,000 due under 8% promissory notes due March 2006 and approximately $650,000
due under 12.5% convertible subordinated promissory debentures due between March
2007 and June 2007. During fiscal 2006 the holders of approximately $496,000 of
the 8% promissory notes converted the notes to equity. Subsequent to December
31, 2006 the holders of an additional $292,000 of the 8% promissory notes have
converted these notes to equity. We have issued an aggregate of 912,594 shares
of our common stock upon these conversions and we had previously registered
under the Securities Act of 1933 the resale of the shares issuable upon the
conversion of these debt instruments.

         Lastly, like many new companies in the beginning it was difficult for
us to hire sufficiently qualified individuals. As we have matured we have been
able to attract individuals with the experience and talent we believe is
necessary to enable our company to grow to the next level. During fiscal 2006 we
expanded our senior staff through the addition of Alton Hoover and Ivor Newman.
Both of these individuals bring significant professional expertise to our
company. Al Hoover has more than 20 years experience in computer operations,
applications development and networking technologies. Prior to joining our
company he was CTO for Luna Imaging, Inc., CTO of Capstar Network Systems, CTO
of ClickRadio, Inc. and Senior VP with FAME Information Services. Ivor Newman
has over 19 years of program management and product marketing experience, most
recently as 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. In 2007 we further expanded our
senior staff through the addition of Darryl Adams as our Director of Software
Development.

         Our goals for fiscal 2007 include:

1) improve our agility in expanding our network infrastructure to accommodate
   our anticipated growth

2) enhance features and functionalities of our product offerings as well as
   provide translated versions of our our existing and enhanced product
   offerings to expand our customer base

3) expand our customer service capabilities to accommodate the our anticipated
   growth in the United States and in Europe

4) increase our resources in marketing programs to expand our distribution
   channels to other major computer manufacturers and resellers and distributors

5) Secure additional financing to accommodate our anticipated growth of
   operations.

                                       20
<PAGE>

         To accomplish these goals we will need to:

         o Manufacture CD and collateral materials for in store use as well as
free product giveaways to existing customers of retail partners and computer
manufacturers together with with extensive training of sales people;

         o increase our data center capacity to handle the anticipated increases
in our subscriber base. During fiscal 2006 we maintained data centers in Arizona
and Chicago and in February 2007 we added a third data center in New Jersey. We
anticipate that we will not renew our agreement for the Chicago data center when
it is scheduled for renewal in June 2007. During fiscal 2007 we would like to
invest approximately $1 million in our data center infrastructure, including the
purchase of additional storage arrays and hardware to meet current and
anticipated future demands. Our current architecture provides us with the
flexibility to add additional servers within days. Our current lead time from
our vendors on additional hardware is approximately two weeks;

         o continue to update our software through the addition of new features.
During fiscal 2006 we completed several updates of our code which allows it to
mature and reduces the number of errors inherent in software code. In January
2007 we introduced version 3.0 of our Spare Backup software which offers a
continuous backup feature and in the second or third quarter of fiscal 2007 we
anticipate that we will introduce version 4.0. This latest version will have a
new user interface with a new "look and feel," be more user friendly, include
built-in antivirus or Internet security features together with additional
value-added services. During fiscal 2007 we will also release our new
small-to-medium sized business product for between two to 25 users with Hewlett
Packard followed by other computer manufacturers which we believe will
accelerate our entry into the small business segment of our target market. We
anticipate that we will need to invest approximately $1 million in the
development of new software, updating of our existing software and a new user
interface in fiscal 2007 to stay current with market demands;

         o complete the conversion of our customer services to a 24/7/365 basis
which is scheduled for the end of the first quarter of fiscal 2007. We
anticipate that our overseas sales will warrant this increased availability and
we are seeking to include staff fluent in a number of additional languages such
as French, German and Spanish. If we are unable to hire a sufficient number of
appropriately qualified individuals in our customer service center we may
consider outsourcing our tier 1 customer service; and

         o hire additional technical and mid-management staff. Our sales
resources are presently on-staff and the program management is on retainer. As
our revenues increase we expect to increase our headcount in areas of program
management, marketing, development and customer service. Our approach is to
outsource as many of these functions as possible to suppliers who are experts in
the various disciplines, while only hiring senior staff for the purpose of
interaction with suppliers. We believe this strategy will allow us to keep
expenses flat while growing our revenue base. Our offices are in a geographic
location which is not tech heavy and we face competition in hiring qualified
employees and consultants. If we are able to hire the personnel we presently
deem necessary, our selling, general and administrative expenses will increase
although we are presently unable to quantify the amount of projected increase.

         Our ability to meet our goals in fiscal 2007 is dependent on our
ability to continue to raise sufficient additional capital, as well as our
ability to successfully conclude the trial programs with Hewlett-Packard as well
as additional computer OEMs and other partner relationships. We anticipate that
our cash needs for fiscal 2007 are approximately $3 million to $8 million, which
includes approximately $1 for general working capital. Historically the types of
financing transactions we have engaged in have resulted in the recognition of
non-cash derivative liabilities related to the components of those financings.
As described later in this section, at December 31, 2006 our balance sheet
reflects a derivative liability of approximately $11.4 million. If we are

                                       21
<PAGE>

successful in eliminating the debt related to our 8% promissory notes and 12.5%
convertible subordinated promissory debentures during fiscal 2007 we will
eliminate the derivative liabilities from our balance sheet, absent additional
transactions which require similar accounting treatment. While we have
historically been at a disadvantage in negotiating terms of financing
transactions which have resulted in the recognition of these derivative
liabilities, we believe that we may be able to structure transactions which do
not require this adverse treatment during fiscal 2007 based upon the operational
progress of our company during fiscal 2006. There are, of course, no assurances
we are correct.

GOING CONCERN

         We have generated minimal revenue since our inception on June 12, 2002,
and have incurred net losses of approximately $47.5 million since inception
through December 31, 2006. As a result, our current operations are not an
adequate source of cash to fund future operations. The report of our independent
registered public accounting firm on our financial statements for the year ended
December 31, 2006 contains an explanatory paragraph regarding our ability to
continue as a going concern based upon our net losses and cash used in
operations. Our ability to continue as a going concern is dependent upon our
ability to obtain the necessary financing to meet our obligations and repay our
liabilities when they become due and to generate profitable operations in the
future. We plan to continue to provide for our capital requirements through the
sale of equity securities and debt, however, we have no firm commitments from
any third party to provide this financing and we cannot assure you we will be
successful in raising working capital as needed. There are no assurances that we
will have sufficient funds to execute our business plan, pay our obligations as
they become due or generate positive operating results.

CRITICAL ACCOUNTING POLICIES

         A summary of significant accounting policies is included in Note 2 to
the audited consolidated financial statements included elsewhere in this 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.

         We account for stock options issued to employees in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation cost is measured on the date of grant as the excess of the current
market price of the underlying stock over the exercise price. Such compensation
amounts, if any, are amortized over the respective vesting periods of the option
grant. We adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based Compensation
-Transition and Disclosure", which permits entities to provide pro forma net
income (loss) and pro forma earnings (loss) per share disclosures for employee
stock option grants as if the fair-valued based method defined in SFAS No. 123
had been applied. We account for stock options and stock issued to non-employees
for goods or services in accordance with the fair value method of SFAS 123.

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

                                       22
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

         In November 2004, the Financial Accounting Standards Board issued
Statement No. 151 (SFAS 151), Inventory costs, an amendment of ARB No. 43,
Chapter 4. SFAS 151 clarifies that abnormal amounts of idle facility expense,
freight, handling costs and wasted materials should be recognized as current
period charges. In addition, SFAS 151 requires that allocation of fixed
production overhead to inventory be based on the normal capacity of the
production facilities. SFAS 151 is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We currently believes that the
adoption of SFAS 151 will not have a material impact on its financial position,
results of operations and cash flows.

         In December 2004, the FASB issued SFAS 123 (revised 2004) "Share-Based
Payment". This Statement requires that the cost resulting from all share-based
transactions be recorded in the financial statements. The Statement establishes
fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement
in accounting for share-based payment transactions with employees. The Statement
also establishes fair value as the measurement objective for transactions in
which an entity acquires goods or services from non-employees in share-based
payment transactions. The Statement replaces SFAS 123 "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for
Stock Issued to Employees". The provisions of this Statement were effective for
our company beginning with our fiscal year ended December 31, 2006.

         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 U.S. Securities and Exchange Commission adopted
a new rule amending the compliance dates for SFAS 123R. 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. We expect that any expense associated with the adoption
of the provisions of SFAS 123R will have a material impact on our results of
operations. Effective January 1, 2006, we have fully adopted the provisions of
SFAS No. 123R and related interpretations as provided by SAB 107.

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

                                       23
<PAGE>

         In June 2005, the Emerging Issues Task Force ("EITF") issued EITF 05-2,
"The Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19".
EITF 05-2 retained the definition of a conventional convertible debt instrument
as set forth in EITF 00-19, and which is used in determining certain exemptions
to the accounting treatments prescribed under SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities". EITF 05-2 also clarified that
certain contingencies related to the exercise of a conversion option would not
be outside the definition of "conventional" and determined that convertible
preferred stock with a mandatory redemption date would also qualify for similar
exemptions if the economic characteristics of the preferred stock are more akin
to debt than equity. EITF 05-2 is effective for new instruments entered into and
instruments modified in periods beginning after June 29, 2005. We adopted the
provisions of EITF 05-2 on July 1, 2005, which did not have a material effect on
our financial statements.

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

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

                                       24
<PAGE>

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 2006 ("FISCAL 2006") AS COMPARED TO THE FISCAL
YEAR ENDED DECEMBER 31, 2005 ("FISCAL 2005")
<TABLE>
<CAPTION>
                                                     FISCAL YEAR ENDED            INCREASE/       INCREASE/
                                                        DECEMBER 31,            (DECREASE) $    (DECREASE) %
                                                    2006            2005        2006 VS 2005    2006 VS 2005
                                                ------------    ------------    ------------    ------------
<S>                                             <C>             <C>                   <C>       <C>
Revenues ....................................   $     73,046    $     23,920          49,126           +205%

Operating expenses:
 Research and development ...................        850,982         782,150          68,832           +8.8%
 Sales, general and administrative ..........     11,155,486       5,206,366       5,949,120           +114%
                                                ------------    ------------    ------------         -------
          Total operating expenses ..........     12,006,468       5,988,516       6,017,952         +100.5%

Operating loss ..............................    (11,933,422)     (5,964,596)      5,968,826         +100.1%

Other income - derivative liabilities .......        762,713      11,689,725     (10,927,012)             NM
Other expenses - settlement with stockholders              0        (730,000)        730,000              NM
Other expenses - derivative liabilities .....       (582,786)              0         582,786              NM
Transfer - unrealized gain - investment held
for sale to trading security ................        112,509               0         112,509              NM
Unrealized loss - transfer of available for
sale securities to trading securities .......              0      (4,999,263)     (4,999,263)             NM
Unrealized loss - trading securities ........              0        (270,384)       (270,384)             NM
Realized loss - trading securities ..........       (111,624)     (5,777,843)     (5,666,219)             NM
Interest expense ............................     (2,725,829)     (1,779,442)       (946,387)           +53%
                                                ------------    ------------    ------------         -------
          Total other expenses, net .........     (2,545,017)     (1,867,207)        677,810            +36%
                                                ------------    ------------    ------------         -------
Net Loss ....................................   $(14,478,439)   $ (7,831,803)      6,646,636          +84.8%
Transfer of previous unrealized loss on
restricted investment .......................              0       4,999,263              NM              NM
Transfer of available for sale securities to
trading securities ..........................              0       4,999,263              NM              NM
Unrealized gain (loss) - restricted
investment ..................................       (112,509)        112,509              NM              NM
Comprehensive income (loss) .................   $(14,590,948)   $  2,279,232              NM              NM
</TABLE>
NM = not meaningful

REVENUES

         The increase in revenues for fiscal 2006 as compared to fiscal 2005
reflects our continuing efforts to market our Spare Back-Up product offerings.
Included in our revenues for fiscal 2006 were deferred revenues of $12,684 we
had recorded in fiscal 2005. While we have begun establishing our distribution
channels and anticipate that our revenues for fiscal 2007 will exceed those for
fiscal 2006, we are unable to predict with any certainty our revenues in future
periods.

OPERATING EXPENSES

         Our total operating expenses for fiscal 2006 increased $6,017,952, or
approximately 100%, from fiscal 2005. Our operating expenses included expenses
related to research and development and selling, general and administrative
expenses.

                                       25
<PAGE>

Research and Development

         Research and development expenses consist primarily of compensation
expenses paid to our software engineers, employees and consultants. We spent
$850,982 on research and development expenses in fiscal 2006 as compared to
$782,150 in fiscal 2005. Research and development expenses represented
approximately 7% of our total operating expenses for fiscal 2006 as compared to
approximately 13% for fiscal 2005. The increase in our increase in research and
development expenses for fiscal 2006 when compared to the comparable period in
fiscal 2005 is primarily due to reallocation of additional internal resources
during fiscal 2006 to develop additional features and enhancements for our Spare
Back-Up product. We anticipate that we will continue to incur research and
development expenses in future periods as a result of the addition of new
features and the launch of new versions of our products, however we are not able
at this time to quantify the amount of such expenditures.

Sales, General, and Administrative Expenses

         For fiscal 2006 our selling, general and administrative expenses were
$11,155,486 as compared to $5,206,366 for fiscal 2005. Selling, general and
administrative expenses represented approximately 93% and approximately 65% of
our total operating expenses for fiscal 2006 and fiscal 2005, respectively. The
principal changes in selling, general and administrative expenses from fiscal
2005 to fiscal 2006 include the following:

         o During fiscal 2006 we hired two consultants in Europe to render
marketing and public relations services to us. issued options and warrants to
consultants as compensation for marketing and public relations services to us.
We paid these consultants $525,000 in cash and issued them warrants to purchase
3,300,000 shares of our common stock at exercise prices ranging from $0.35 to
$0.60 per share as compensation for their services. During fiscal 2006 in
addition to the cash compensation expense of $525,000 we recorded non-cash
expense related to the fair value of these warrants of $1,029,000, which such
amount was included in the aggregate expense of the fair value of derivatives at
issuance of $1,537,550 for fiscal 2006. This represented an increase of
$1,254,500, or approximately 443%, from fiscal 2005.

         o Amortization of deferred compensation consists primarily of the value
of shares issued as compensation for consulting services prior to December 31,
2006 which were not substantially completed at the time of the issuance of the
shares. We recorded non-cash expenses related to amortization of deferred
compensation of $1,855,601 and $823,404 for fiscal 2005. Amortization of
deferred compensation represented approximately 16% and approximately 14% of our
total operating expenses for fiscal 2006 and fiscal 2005, respectively. The
increase in amortization of deferred compensation during fiscal 2006 is
primarily due to shares we issued for services during the second half of fiscal
2005 and the first half of fiscal 2006 for strategic and marketing services to
be rendered over periods of up to one year. At December 31, 2006 there remained
$93,370 of deferred compensation related to these agreement which has not yet
been recognized. As a result of the amortization of this deferred compensation
expense during fiscal 2007, we will recognize an expense related thereto in the
first quarter of fiscal 2007. In addition, if we enter into other consulting
agreement the term of which are greater than 12 months under generally accepted
accounting principles we will be required to recognize a portion of that
consulting expense as deferred compensation. As we have from time to time
entered into these type of agreements, it is possible that we will continue to
recognize similar expenses during future periods, although we are unable to
predict the amount of or timing of such expenses.

                                       26
<PAGE>

         o Stock-based compensation consists of the fair value of options. For
fiscal 2006 and fiscal 2005 we recorded non-cash expenses of $2,250,330 and
$456,631, respectively, related to stock-based compensation expense. Stock-based
compensation - options represented approximately 19% of our total operating
expenses for fiscal 2006 as compared to approximately 8% for fiscal 2005. The
increase in stock-based payment during fiscal 2006 is primarily attributable to
the implementation of SFAS 123(R). 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.

         o Payroll expenses increased $77,474, or approximately 13% to $662,544
for fiscal 2006 from $585,070 for fiscal 2005. This increase represents the
additional of two employees during the year as well as increases in compensation
levels of certain of our employees As described earlier in this section, while
we anticipate payroll expenses will increase during fiscal 2007 we are presently
unable to quantify the amount of such anticipated increase.

         o As described elsewhere in this annual report, during fiscal 2006 we
entered into an agreement with Circuit City for the distribution of products.
Under the terms of the agreement we deposited $1,000,000 in an escrow account to
secure the obligations associated with compensation to Circuit City under this
agreement. Through December 31, 2006 we recognized expenses associated with this
agreement of approximately $379,000 for which there was no comparable expense in
fiscal 2005. During fiscal 2007 we will continue to incur similar expenses under
the terms of the agreement with Circuit City.

         o Travel expenses were approximately $1,100,000 in fiscal 2006 as
compared to approximately $793,000 in fiscal 2005, an increase of approximately
39%. This increase reflected costs associated with our capital raising
activities as well as the expansion of our partner agreements. We anticipate
that travel expenses will remain constant in fiscal 2007 from fiscal 2006
levels, or increase slightly, as we continue our efforts to expand our revenues.

         o Marketing and advertising fees and costs increased approximately 104%
in fiscal 2006 to approximately $882,000 from approximately $433,000 in fiscal
2005.

         o Legal fees increased to approximately $384,000 in fiscal 2006 from
approximately $218,000 in fiscal 2005.

         o Other sales, general and administrative expenses, which includes
accounting fees, rent, and general overhead and operating expenses, decreased
approximately 13% to approximately $1,400,000 for fiscal 2006 from approximately
$1,616,000 for fiscal 2005. We anticipate that other sales, general and
administrative expenses for fiscal 2007 will reflect a modest increase from
fiscal 2006 levels.

TOTAL OTHER EXPENSES, NET

         Our total other expenses, net for fiscal 2006 increased $667,810, or
approximately 36%, from fiscal 2005. This increase included the following:

Other Income - Derivative Liabilities and Other Expenses- Derivative Liabilities

         Other income - derivative liabilities and other expenses - derivative
liabilities consist of income or expense associated with the change in the fair
value of derivative liabilities as a result of the application of EITF Issue No.
00-19 to our financial statements. The difference in fair value of the
derivative liabilities between the date of their issuance and their measurement
date, which amounted to an increase of approximately $180,000 and approximately
$12.0 million for fiscal 2006 and fiscal 2005, respectively, has been recognized
as other income in those periods. Please see Note 6 - Derivative Liabilities of
the Notes to Consolidated Financial Statements at December 31, 2006 appearing
elsewhere in this annual report for a more complete description of the
components of derivative liabilities and their impact on our financial
statements.

                                       27
<PAGE>

         So long as the 8% promissory notes and/or the 12.5% convertible
subordinated promissory debentures remain outstanding we will recognize other
income or expense in future periods based upon the fluctuation of the market
price of our common stock. This non-cash income or expense has materially
impacted our results of operations in prior periods and is reasonably
anticipated to materially affect our net loss or net income in future periods.
We are, however, unable to estimate the amount of such income/expense in future
periods as the income/expense is partly based on the market price of our common
stock at the end of a future measurement date. In addition, in the future if we
issue securities which are classified as derivatives we will incur expense and
income items in future periods. Investors are cautioned to consider the impact
of this non-cash accounting treatment on our financial statements.

Other Expenses - Settlement with Stockholders

         Other expenses - settlement with stockholders consisted of the fair
value of 1,000,000 shares of our common stock issued during fiscal 2005 as
settlement of a dispute in connection with the sale of securities to Robinson
Reed, Inc. and First Capital Holdings International, Inc. during fiscal 2004. We
did not have a comparable expense during fiscal 2006.

Transfer-Unrealized Gain-Investment Held for Sale to Trading Securities and
Unrealized Loss-Transfer of Available-For-Sale Securities to Trading Securities

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

Unrealized and Realized Loss Trading Securities

         Unrealized and realized loss- trading securities consist of realized
losses on trading securities which were sold during the fiscal 2005. Such sales
were one-time events and we do not expect that such sales will occur in the
foreseeable future.

Interest Expense

         Interest expense consists primarily of interest recognized in
connection with the amortization of debt discount and interest on our
convertible promissory notes. The increase in interest expense during the fiscal
2006 when compared to fiscal 2005 is primarily attributable to the amortization
of the debt discount amounting to $1.5 million associated with the 8%
convertible promissory notes which were sold during the second quarter of fiscal
2006. These notes were subsequently converted into equity during fiscal 2006
pursuant to their terms.

COMPREHENSIVE INCOME (LOSS)

         For fiscal 2006 we recognized a loss of $112,509 on the transfer of
unrealized gain - investment held for sale to trading security and during fiscal
2005 we recognized income of $10,304,724 related to transfer of previous
realized loss on restricted investment ($4,999,263), transfer of available for
sale securities to trading securities ($4,999,263) and unrealized gain -
restricted investments of $270,384. As described in Note 2 - Summary of
Significant Accounting Policies to the Notes to Consolidated Financial
Statements at December 31, 2006 appearing elsewhere in this annual report, the
items of income and expense were one-time events and we do not expect to report
similar expense or income in future periods. These one-time, non-cash items,
however, increased our net loss by $112,509 for fiscal 2006 and resulted in
comprehensive income for fiscal 2005 of $2,279,232.

                                       28
<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, 2006 and December 31, 2005:
<TABLE>
<CAPTION>
                                                        DECEMBER 31,    DECEMBER 31,      $ CHANGE      % CHANGE
                                                            2006            2005         2006 V 2005     (+/-)
                                                        ------------    ------------    ------------    --------
<S>                                                     <C>             <C>             <C>             <C>
Working capital (deficit) ...........................   $(11,852,100)   $ (6,875,700)      4,976,400      +72.4%
Cash ................................................   $    146,318    $    165,938         (19,620)     -11.8%
Restricted cash .....................................   $    872,820    $     60,000         812,820     +1,355%
Total current assets ................................   $  1,019,138    $    225,938         793,200       +351%
Property and equipment, net of depreciation .........   $    488,818    $    330,584         158,234      +47.9%
Restricted investment in marketable securities ......   $          0    $    246,430        (246,430)      -100%
Deferred financing costs, net of amortization .......   $          0    $     42,720         (42,720)      -100%
Other assets ........................................   $     75,380    $     27,983          47,397       +169%
Total assets ........................................   $  1,583,336    $    873,657         709,679      +81.2%

Accounts payable and accrued expenses ...............   $    853,176         506,572         346,604      +68.4%

8% convertible promissory notes, net of debt discount   $    293,509    $    694,421        (400,912)     -57.7%
12.5% convertible note, net of debt discount (1) ....   $    295,201    $         -          295,201          NM
Accrued interest on convertible promissory notes ....   $     22,097    $     37,575         (15,478)     -41.2%
Derivative liabilities ..............................   $ 11,392,255    $  5,828,454       5,563,801      +95.5%
Due to stockholder ..................................   $     15,000    $     15,000               0         - %
Total current liabilities ...........................   $ 12,871,238    $  7,101,638       5,769,600      +81.2%
12.5% convertible notes, net of debt discount (1)....   $          -    $    269,853        (269,853)         NM
Total liabilities ...................................   $ 12,877,664    $  7,377,916       5,499,748      +74.5%
Total stockholders' (deficit) .......................   $(11,294,328)   $ (6,504,259)      4,790,069      +73.6%
</TABLE>

NM = not meaningful

(1) $300,000 principal amount of the 12.5% convertible notes are due in March
2007 and the remaining $60,000 principal amount are due in May 2007 and June
2007. Accordingly, at December 31, 2005 these notes were classified as a
long-term liability on our balance sheet but at December 31, 2006 these notes
are now considered a current liability and are classified accordingly on our
balance sheet.

         We have experienced losses and negative cash flows from operations
since inception and the report of our independent registered public accounting
firm on our financial statements for fiscal 2006 contains an explanatory
paragraph regarding our ability to continue as going concern. At December 31,
2006, we had cash on hand of approximately $146,000[, exclusive of restricted
cash in escrow under the terms of our agreement with Circuit City.

         At December 31, 2006, we had a working capital deficiency of
approximately $11.8 million. A significant component of this working capital
deficiency is a derivative liability of approximately $11.4 million which we
have recognized in connection with the grant or the issuance of various embedded
conversion features, liquidated damages, and freestanding warrants. As discussed
earlier in this section, we anticipate that we will recognize changes in these
liabilities in future periods based upon the fluctuation of the market price of
our common stock. This non-cash liability materially impacts our balance sheet
at December 31, 2006. Based upon the value associated with the liability at
future measurement dates, the amount of the liability could significantly
increase or decrease in future periods, however, we are unable to quantify the
amount of the liabilities associated with these derivatives in those future
periods.

         During fiscal 2006, our cash decreased $19,620. This decrease consisted
of $6,901,251 in cash provided by financing activities which was offset by
$6,686,667 of cash used in operating activities and $234,204 of cash used in
investing activities.

                                       29
<PAGE>

         Net cash used in operating activities for fiscal 2006 increased
$2,561,435 from fiscal 2005. Included in this change is an increase in our net
loss for the period to $14,478,439, as compared to a net loss of $7,831,803 for
fiscal 2005, and is primarily attributable to an increase of $5,949,120 in our
sales general and administrative expenses for the fiscal 2006 from fiscal 2005
and the effect of increased expenses in the 2006 period related to non-cash
transactions including the losses associated with derivative liabilities,
amortization of debt discounts and deferred compensation and the value of shares
issued as compensation. In addition, during fiscal 2006 changes in operating
assets and liabilities included an increase of $812,820 associated the deposit
of that amount in escrow account to secure certain obligations associated with
compensation to Circuit City, together with a decrease in other assets of
$50,000 which was offset by increases in accounts payable and accrued expenses
of $346,604.

         Net cash used in investing activities was $201,165 for fiscal 2006 as
compared to net cash provided by investing activities of $485,272 for fiscal
2005. This change is attributable to a reduction in cash received from the sale
of marketable securities and proceeds from the issuance of notes during fiscal
2006 as compared to fiscal 2005, together with a decrease in cash used for the
purchase of equipment in fiscal 2006 as compared to fiscal 2005.

         Net cash provided by financing activities increased $4,734,087 during
fiscal 2006 from fiscal 2005. During fiscal 2006 we received $8,424,224 from the
issuance of securities which was offset by the repayment of lease obligations,
principal repayments on notes, payment of financing costs and the repurchase of
shares of our common stock from Langley Park Investment Trust PLC in the
aggregate amount of $1,523,095. During the fiscal 2005 period we received
$2,478,105 from the issuance of convertible promissory notes and the exercise of
options which was offset by the repayment of convertible notes, the payment of
financing costs and principal repayments of lease obligations in the aggregate
amount of $310,941.

         At December 31, 2006 we had approximately $293,509 outstanding under
our 8% promissory notes were due March 1, 2006 which have substantially been
converted into 912,564 shares of our common stock, together with an additional
$295,201 outstanding under our 12.5% convertible subordinated promissory
debentures that are due between March 2007 and June 2007, which will be
converted or satisified during the first half of 2007. As set forth earlier in
this section, both of these securities are convertible into shares of our common
stock at the option of the holders and we have previously registered the resale
of the underlying shares.

         In connection with the sales of shares of our common stock to Robinson
Reed, Inc. in fiscal 2004 we granted Robinson Reed, Inc. a put option covering
an aggregate of 2,000,000 shares of our common stock. In February and March
2007, we received notifications from Robinson Reed indicating its intent to
exercise the right to sell its remaining 1,617,228 shares that are subject to
these put options at a put option price of $1.25 per share. To satisfy its
obligations under the put option rights, The Company will pay $1,250,000, less
$100,000 previously paid to repurchase 1,000,000 shares from Robinson Reed, Inc.
and Robinson Reed, Inc. will retain the remaining 617,228 shares and the Company
will issue an additional 668,664 restricted shares to Robinson Reed, Inc.

         We have generated minimal revenues since inception and our current
operations are not an adequate source of cash to fund future operations absent a
significant increase in our revenues during fiscal 2007. Historically we have
relied on private placement issuances of equity and debt financing instruments.
Our future capital requirements depend primarily on the rate at which we
increase our revenues and correspondingly decrease our use of cash to fund
operations. As described earlier in this section, during fiscal 2007 we will
need to raise additional working capital to fund our ongoing operations and
growth. The amount our future capital requirements depend primarily on the rate
at which we increase our revenues and correspondingly decrease our use of cash
to fund operations. Cash used for operations will be affected by numerous known
and unknown risks and uncertainties including, but not limited to, our ability
to successfully market our products and services and the degree to which
competitive products and services are introduced to the market. As long as our
cash flow from operations remains insufficient to completely fund operations, we
will continue depleting our financial resources and seeking additional capital
through equity and/or debt financing. If we raise additional capital through the

                                       30
<PAGE>

issuance of debt, this will result in increased interest expense. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our company held by existing stockholders will be
reduced and those stockholders may experience significant dilution. In addition,
new securities may contain certain rights, preferences or privileges that are
senior to those of our common stock.

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

RECENT CAPITAL RAISING TRANSACTIONS

         During February 2006 and March 2006, we sold an aggregate of 4,200,000
shares of our common stock at an offering price of $0.50 per share to 36
accredited investors in a private offering resulting in gross proceeds to us of
$2,100,000 We used the net proceeds for general working capital.

         During February 2006 and March 2006, we sold 1,123,750 shares of our
common stock to three accredited investors at an offering price of $0.40 per
share, and issued those purchasers five year common stock purchase warrants to
purchase an aggregate of 561,875 shares of our common stock at an exercise price
of $0.40 per share, in a private offering resulting in gross proceeds to us of
$449,500. We paid Skyebanc, Inc., an NASD member firm of which one our directors
is an officer, a commission of $34,950 and issued it warrants to purchase
175,000 shares of our common stock at an exercise price of $0.40 per share. We
used the net proceeds for general working capital.

         We agreed to file a registration statement with the SEC covering the
shares of our common stock issued in this offering, including the shares
underlying the warrants, within 60 days of the closing of the offering. This
registration statement, which was filed on December 6, 2006 was filed to fulfill
this contractual obligation. We have agreed to use our best efforts to respond
to SEC comments on the registration statement within 10 days of receipt and to
use our best efforts to have the registration statement declared effective by
the SEC within 90 days of April 15, 2006. If we fail to conform to any of these
deadlines, or if the registration statement does not remain effective for 60
consecutive days once it has been declared effective by the SEC, we have agreed
to issue the purchasers additional warrants at the rate of 2% for each 30 day
period. As we failed meet both of these filing deadlines, at December 31, 2006
we were obligated to issue the purchasers additional warrants to purchase an
aggregate of 78,652 shares of our common stock. As a result of this contractual
requirement, these securities are considered derivative liabilities. We have
agreed to pay all costs associated with the filing of the registration statement
and any Rule 144 or other legal opinions required in connection with the
transfer of these securities.

         In June 2006 we sold an aggregate of $1,500,000 principal amount 8%
convertible promissory notes to 18 accredited investors in a private placement
exempt from registration in reliance on exemptions provided by Regulation D and
Section 4(2) of the Securities Act of 1933. Brookstreet Securities Corporation,
which acted as placement agent in the offering, purchased $250,000 principal
amount of the 8% convertible notes. The notes, which were due 18 months from the
date of issuance, bore interest at the rate of 8% per annum which was payable on
the maturity date. As compensation for its services as placement agent,
Brookstreet Securities Corporation, an NASD member firm, received a cash
commission of 11% of the gross proceeds of the offering $165,000 and a five year
common stock warrant to purchase 1,071,429 shares of our common stock with an
exercise price of $0.40 per share. We used the proceeds for working capital,
including the repayment of debt, and the repurchase of our stock from Langley
Park Investment Trust PLC.

         Under the terms of our 8% convertible promissory notes, at such time as
we received gross proceeds of at least $1,000,000 in any financing the principal
and accrued interest of the notes automatically converted into units of our
securities (the "Conversion Units") at a conversion rate of $1.75 per unit. As a
result of our 2006 unit private placement which closed in October 2006 as
described below, the 8% convertible promissory notes automatically converted
into the Conversion Units. Each Conversion Unit is comprised of five shares of

                                       31
<PAGE>

common stock and two two-year warrant to purchase shares of our common stock
with an exercise price of $0.40 per share (the "Conversion Warrant"). We issued
an aggregate of 4,353,692 shares of our common stock and 1,741,476 Conversion
Warrants.

         During March 2007, we issued to holders of such warrants a warrant
call. Holders of an aggregate of 1,741,476 warrants exercised those warrants and
we received gross proceeds of $696,589. We will pay Brookstreet Securities
Corporation a cash fee of $48,761 and issued them warrants to purchase an
aggregate of 121,903 shares of our common stock with an exercise price of $0.40
per share as compensation in connection with the warrant call.

         Between July and November 2006 we sold an aggregate of 2,060,245 units
of our securities to 111 accredited investors in a private transaction exempt
from registration under the Securities Act of 1933 in reliance on exemptions
provided by Regulation D, Rule 506 and Section 4(2) of that act. Each unit
consisted of five shares of our common stock and two common stock purchase
warrants, each two year warrant entitling the holder to purchase one share of
our common stock at an exercise price of $0.60 per share. The offering price of
the unit was $2.25 and we received gross proceeds of $4,635,500 from this
offering. Brookstreet Securities Corporation acted as placement agent for us in
this offering. We paid Brookstreet Securities Corporation a sales commission of
$231,775 (5% of the gross offering proceeds) and a non-accountable expense
allowance of $278,130 (6% of the offering proceeds), and we agreed to reimburse
Brookstreet Securities Corporation for out-of-pocket marketing and due diligence
expenses. We issued that firm a five year Placement Agent Warrant to purchase
2,575,285 shares of our common stock (representing 25% of the shares included in
the units sold in the offering at an exercise price of $0.45 per share. We also
agreed to pay Brookstreet Securities Corporation a cash commission of 7% of the
total funds we receive upon the exercise of any of the warrants included in the
units and issue that firm additional five year warrants at an exercise price of
$0.45 per share equal to a number which represents 7% of the shares underlying
the warrants so exercised. During March 2007, we notified the holders of such
warrants to exercise their warrants pursuant to our right to call such warrants.
We received gross proceeds of $1,232,266 pursuant to the exercise of 4,120,444
warrants during March 2007. . We will pay Brookstreet Securities Corporation a
cash fee of $86,259 and issued them warrants to purchase an aggregate of 288,431
shares of our common stock with an exercise price of $0.45 per share as
compensation in connection with this warrant call.

TRANSACTION WITH LANGLEY PARK INVESTMENT TRUST PLC

         In July 2004, we issued 5,882,352 shares of our common stock to Langley
Park Investment Trust PLC in exchange for 6,484,840 ordinary shares of Langley
Park. Langley Park's ordinary shares were quoted on the London Stock Exchange
and the shares we acquired in the transaction were freely saleable by us,
subject to the escrow provisions. Langley Park agreed not to sell or otherwise
dispose of our shares of common stock it acquired for a period of two years from
the date of the transaction. At the time of the transaction we placed 3,242,420
of the Langley Park ordinary shares we acquired in an escrow account with
Gottbetter & Partners, LLP as a downside price protection for Langley Park.
These shares were to remain in escrow for up to two years, subject to early
termination upon the consent of the parties. If at the end of the two year
period the average of the 10 closing bid prices per share of our common stock
during the 10 trading days immediately preceding July 30, 2006 was below $2.01,
a proportion of the Langley Park ordinary shares held in escrow would be
returned to Langley Park in the same ratio as the average closing bid price is
to $2.01. Following the initial transaction, we sold the remaining 3,242,420
ordinary shares of Langley Park we had acquired in July 2004 and received net
proceeds of approximately $632,717.

         In August 2004 we entered into an agreement with E-Holdings, Inc. in
connection with this transaction. Pursuant to this agreement, as a finder's fee,
we agreed to transfer 877,500 shares of Langley Park to E-Holdings, Inc., and
grant a put option to E-Holdings, Inc. whereby we agreed to repurchase the
877,500 Langley Park ordinary shares transferred to E-Holdings, Inc. for
(pound)1.00 per share for a period of one year from the date of the agreement.
During fiscal 2004, we paid approximately $1,600,000 in lieu of transferring the
agreed 877,500 shares of Langley Park to E-Holdings, Inc.

                                       32
<PAGE>

         On May 26, 2006 we entered into a Repurchase Agreement with Langley
Park wherein we repurchased the 5,882,352 shares of our common stock sold to
Langley Park in July 2004. As consideration, we:

         o  sold Langley Park the remaining 3,242,420 ordinary shares of Langley
            Park which were deposited into the escrow account,
         o  paid Langley Park a cash payment of approximately $633,000 which
            represented the net proceeds we had received to date from the sale
            of Langley Park ordinary shares, and
         o  issued Langley Park a two year common stock purchase warrant for
            3,000,000 shares of our common stock with an exercise price of $1.00
            per share.

         Langley Park agreed to a two-year lock up on the shares of common stock
it will acquire upon any exercise of the warrant, and thereafter to limit its
monthly sales of the shares to no more than 10% of the average volume of our
common stock during the preceding month. We have registered the resale of the
shares of common stock issuable upon the exercise of the warrant.

         Under the terms of the Repurchase Agreement, the parties exchanged
general releases, except for any claims that we may have against Mr. Mads Ulrich
and entities owned or controlled by him including First Fidelity Capital, Inc.
and E-Holdings, Inc. (collectively, "Ulrich"). We agreed to indemnify Langley
Park against legal fees or costs associated with any claim or cause of action we
may bring against Ulrich up to $100,000 and in connection therewith deposited
$50,000 and 150,000 shares of our common stock issued in the name of Langley
Park into escrow. If we did not file any claim or cause of action against Ulrich
on or before December 1, 2006, the escrow agent was required to return the
$50,000 and the 150,000 shares of common stock to us and Ulrich would have
automatically been considered a released party under the terms of the general
release of Langley Park by our company. If, however, we did file a claim or
cause of action against Ulrich prior to December 1, 2006, the escrow agent is
thereafter authorized to use all or any portion of the $50,000 to pay Langley
Park's legal fees and costs and, if such legal fees and costs exceed the
$50,000, to sell all or any portion of the 150,000 shares of common stock up to
$50,000 worth and apply those proceeds to Langley Park's legal fees and costs.
Following a final judgment or settlement in any Ulrich claim or cause of action,
the escrow agent will return to us any unused portion of cash or stock. As
described earlier in this annual report under Part I., Item 3. Legal
Proceedings," in November2006 we filed a lawsuit against Ulrich.

         Concurrently, we entered into an Amendment to Escrow Agreement under
Gottbetter & Partners under which we deposited a demand promissory note to
Langley Park in the principal amount of (pound)32,424 (approximately $60,642 on
May 26, 2006), and Langley Park deposited a demand promissory note to us in the
principal amount of (pound)32,424. Gottbetter & Partners was to continue to hold
the 3,242,420 ordinary shares of Langley Park which were originally deposited in
escrow with it in July 2004 and the two promissory notes until the two-year
anniversary of the closing of the July 2004 agreement with Langley Park, at
which time Gottbetter & Partners delivered the escrowed shares to Langley Park
and destroyed the two promissory notes.

ITEM 7.  FINANCIAL STATEMENTS

         Our financial statements are contained in pages F-1 through F-25,
which appear at the end of this annual report.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None.

                                       33
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of December 31, 2006, the end of the period covered by this report, our
management concluded its evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. Disclosure controls and
procedures are controls and procedures designed to reasonably assure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this report, is recorded, processed, summarized
and reported within the time periods prescribed by SEC rules and regulations,
and to reasonably assure that such information is accumulated and communicated
to our management, including our Chief Executive Officer who also acts as our
principal financial and principal accounting officer, to allow timely decisions
regarding required disclosure.

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

         Based upon the evaluation, our Chief Executive Officer has concluded
that our disclosure controls and procedures are effective for timely gathering,
analyzing and disclosing the information we are required to disclose in our
reports filed under the Securities Exchange Act of 1934. Our management, which
includes our Chief Executive Officer, concluded that our disclosure controls and
procedures are effective to (i) give reasonable assurance that the information
required to be disclosed by us in reports that we file under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's rules and
forms, and (ii) ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is accumulated
and communicated to our management, including our CEO, to allow timely decisions
regarding required disclosure.

         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 8B. OTHER INFORMATION

         None.

                                       34
<PAGE>

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS

NAME                     AGE         POSITIONS
----                     ---         ---------
Cery B. Perle            44          President, CEO and Chairman of the Board
Edward L. Hagan          34          Secretary and director
Richard Galterio         42          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.

         In September 1998, the Securities and Exchange Commission commenced a
civil action against Mr. Perle and Waldron & Co., a broker-dealer registered
with the Commission. The civil action alleged that Mr. Perle and Waldron
artificially raised the market price of Shopping.com, an Internet retailer whose
initial public offering was underwritten by Waldron & Co. In February 1999, the
United States District Court for the Central District of California, acting upon
the Commission's allegations, entered a permanent injunction against Mr. Perle,
enjoining him from violating Section 17(a) of the Securities Act of 1933 and
Sections 10(b) and 15(c)(1) of the Securities Exchange Act of 1934 and Rules
10b-5 and 15cl-2 thereunder, and required Mr. Perle to pay a $110,000 civil
penalty. As a result of the February 1999 injunction, in October 1999, Mr. Perle
was barred from association with any broker-dealer. In June 2001, Mr. Perle was
barred by the National Association of Securities Dealers, Inc. from any
association with any NASD member in any capacity. The sanction was based upon
findings that Mr. Perle received $30,000 of checks from customers for the
purchase of Shopping.com IPO stock prior to the IPO registration statement being
declared effective by the Commission. In April 1998, a class action lawsuit was
filed against Shopping.com, Mr. Perle and Waldron in the United States District
Court for the Central District of California. Mr. Perle filed for personal
bankruptcy in 2001 for which a final decree was granted in March 2002. In
January 2001 the U.S. Department of Labor brought an action against Waldron &
Co. and Mr. Perle in the U.S. District Court for the Central District of
California for violations of the Employee Retirement Income Security Act of 1974
(ERISA) alleging that violations of ERISA occurred when Waldron & Co. and Mr.
Perle failed to forward contributions of approximately $50,000 withheld from
employee paychecks to Waldron & Co.'s 401(k) Plan. Among other relief's, the
suit sought to permanently bar Mr. Perle from serving as a fiduciary of or
service provider to any plan covered by ERISA. Although Mr. Perle was never
formally notified of the outcome of the action, he has assumed that such an
order was issued.

         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.

                                       35
<PAGE>

         RICHARD GALTERIO. Mr. Galterio has been a member of our Board of
Directors since July 2003. Since September 2004 he has been Chief Operating
Officer, Chief Compliance Officer and Secretary of Skyebanc, Inc., an NASD
member firm. From October 1998 until September 2004 he was Managing Director of
Private Equity for vFinance, Inc., an investment banking firm which is a member
of the NASD, a position he had held since the acquisition in September 1998 by
vFinance, Inc. of First Level Capital, a NASD member firm which he co-founded in
1998. Mr. Galterio is also a member of the Board of Directors of ResQnet. During
his tenure at First Level Capital, Mr. Galterio served as Compliance and
Operations Director. Mr. Galterio was employed by Commonwealth Associates, an
NASD member firm, from 1991 to 1998, initially in the capacity as a registered
representative (1991 to 1993) and then as Managing Director (1994 to 1998) where
his responsibilities included branch management and compliance. From 1986 to
1991, Mr. Galterio was Director of Research for Barry Leeds and Associates, a
firm specializing in sales tracking research for the banking industry. Mr.
Galterio received a B.S. in Business Management with honors from Villanova
University. Mr. Galterio holds Series 27, 7 and 55 licenses from the NASD.

         There are no family relationships between any of the executive officers
and directors. 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

         ALTON HOOVER. Mr. Hoover, 52, has been Vice President of Engineering of
our Spare Backup subsidiary since May 2006. Mr. Hoover has more than 20 years
experience in computer operations, applications development and networking
technologies. Prior to joining Spare Backup, from 2003 to 2005, Mr. Hoover was
the Chief Technology Officer for Luna Imaging, Inc. where he was responsible for
Lunas Insight suite of software and services for managing and cataloging
multi-media content and was responsible for software development, quality
assurance, production operations and customer support. Mr. Hoover served as
Chief Technology Officer for both Capstar Network Systems (from 2001 to 2003)
and ClickRadio, Inc. (from 1999 to 2001), as well as held a Senior VP position
with FAME Information Services, Inc. (from 1995 to 1999). Mr. Hoover holds a
BS/BA from the University of Central Florida and an MBA from Georgia State
University.

         IVOR A. NEWMAN. Mr. Newman, 41, has served as Vice President of
Operations of our Spare Backup subsidiary since May 2006. Mr. Newman has over 19
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.

         JENELL FONTES. Ms. Fontes, 40, has served as Director of Marketing
since inception of Grass Roots in 2003. From 1992 to 2002, Ms. Fontes was the
founder and operator of Empressas Castell, Inc., a chain of five Mexican
specialty restaurants located in Palm Springs, California. From 1991 to 1993,
she served as a National Account Manager for Coors Distributing Company. Ms.
Fontes received a BA in Business with a marketing emphasis from San Diego State
University and an Executive Masters in Business Administration from California
State University, San Bernardino. Ms. Fontes is Mr. Perle's fiancee.

         DARRYL ADAMS. Mr. Adams, 31, has served as our Director of Software
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.

                                       36
<PAGE>

DIRECTOR COMPENSATION

         Messrs. Perle, Hagan and Galterio are the members of our Board of
Directors. 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. The
following table provides information concerning the compensation of Messrs.
Hagan and Galterio for their services as members of our Board of Directors for
the fiscal year ended December 31, 2006. Mr. Perle did not receive any
compensation specifically for his services as a director.
<TABLE>
                                           DIRECTOR COMPENSATION
<CAPTION>
                                                                     Non-
                       Fees                           Non-Equity     Qualified
                       Earned or                      Incentive      Deferred
                       Paid in     Stock    Option    Plan           Compensation   All Other
                       Cash        Awards   Awards    Compensation   Earnings       Compensation   Total
Name                   ($)         ($)      ($)       ($)            ($)            ($)            ($)
(a)                    (b)         (c)      (d)       (e)            (f)            (g)            (h)
--------------------   ---------   ------   -------   ------------   ------------   ------------   -------
<S>                    <C>         <C>      <C>       <C>            <C>            <C>            <C>
Edward L. Hagan (1)    0           0        102,500   0              0              0              102,500
Richard Galterio (2)   0           0        205,000   0              0              0              205,000
</TABLE>

(1) During fiscal 2006 Mr. Hagan was granted options to purchase 250,000 shares
of our common stock with an exercise price of $0.41 per share as compensation
for his services as a director. The value attributable to this option granted
was computed in accordance with Financial Accounting Standards (FAS) 123R.

(2) During fiscal 2006 Mr. Galterio was granted options to purchase 500,000
shares of our common stock with an exercise price of $0.41 per share as
compensation for his services as a director. The value attributable to this
option granted was computed in accordance with Financial Accounting Standards
(FAS) 123R.

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, 2006 and Forms 5 and amendments thereto furnished
to us with respect to the fiscal year ended December 31, 2006, 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, 2006, except
as set forth below:

         During 2006, Cery Perle did not timely filed on three occasions the
reporting of grant of options aggregating the right to purchase 800,000 shares

         During 2006, Rich Galterio did not timely filed on one occasion the
reporting of grant of options the right to purchase 500,000 shares

         During 2006, Edward Hagan did not timely filed on one occasion the
reporting of grant of options the right to purchase 250,000 shares

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 which 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:

                                       37
<PAGE>

         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 we do not have any
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
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.

                                       38
<PAGE>

         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, early stage 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 independent directors, we intend to establish an Audit
Committee of our Board of Directors. It is our intention that one or more of
these 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 10. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

         The following table summarizes all compensation recorded by us in each
of the last two completed fiscal years for our principal executive officer, each
other executive officer serving as such whose annual compensation exceeded
$100,000 and up to two additional individuals for whom disclosure would have
been made in this table but for the fact that the individual was not serving as
an executive officer of our company at December 31, 2006. The value attributable
to any option awards is computed in accordance with FAS 123R.
<TABLE>
                                             SUMMARY COMPENSATION TABLE
                                             --------------------------
<CAPTION>
                                                               NON-EQUITY
                                                               INCENTIVE      NONQUALIFIED   ALL
NAME AND                                    STOCK    OPTION    PLAN           DEFERRED       OTHER
PRINCIPAL                 SALARY    BONUS   AWARDS   AWARDS    COMPENSATION   COMPENSATION   COMPENSATION   TOTAL
POSITION           YEAR   ($)       ($)     ($)      ($)       ($)            EARNINGS ($)   ($)            ($)
(A)                (B)    (C)       (D)     (E)      (F)       (G)            (H)            (I)            (J)
-----------------  ----   -------   -----   ------   -------   ------------   ------------   ------------   -------
<S>                <C>    <C>       <C>     <C>      <C>       <C>            <C>            <C>            <C>
Cery B. Perle (1)  2006   243,650   0       0        571,908   0              0              34,383         849,941
                   2005   221,500   0       0        199,929   0              0              14,400         435,829

Jenell Fontes (2)  2006   120,000   0       0        267,800   0              0              0              387,800
                   2005   120,000   0       0         73,500   0              0              0              193,500
</TABLE>

(1) Mr. Perle has served as our president and CEO since February 2004. For
fiscal 2006 in addition to his salary Mr. Perle's compensation included option
awards to purchase a total of 2,800,000 shares of our common stock at an
exercise prices ranging from $0.34 to $0.45 per share which were valued at
$571,908, together with other compensation which included $19,983 of additional
vacation pay and $14,400 of reimbursement of automobile expenses. For fiscal
2005 All other compensation paid to him represents reimbursement for automobile
expenses. In addition, Option Awards during fiscal 2005 includes options to
purchase an aggregate of 49,822 shares of our common stock with an exercise
price of $0.001 per share valued at $19,929 were granted to him as additional
compensation and options to purchase 100,000 shares of our common stock with an
exercise price of $0.45 per share as additional compensation valued at $20,000
granted to him in March 2005. During fiscal 2005 we also issued Mr. Perle
options to purchase 500,000 shares of our common stock with an exercise price of
$0.45 as compensation for his board services. The exercise price of the options
equaled the fair market value of our common stock on the date of grant and were
valued at $160,000.

(2) Ms. Fontes is our Director of Marketing and Mr. Perle's fiancee. In addition
to her salary, Ms. Fontes' 2006 compensation includes options to purchase
375,000 shares of our common stock with exercise prices ranging from $0.34 to
$0.45 per share valued at $267,800, and her 2005 compensation includes options
to purchase 108,928 shares of our common stock with exercise prices ranging from
$0.0001 to $0.45 per share valued at $73,500. Mr. Perle disclaims beneficial
ownership over any securities held by Ms. Fontes.

                                       39
<PAGE>

EMPLOYMENT AGREEMENT WITH MR. 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 renewed
for an additional two-year term upon its expiration, with a 10% increase in his
base salary annually. Under the terms of this agreement, we currently pay Mr.
Perle an annual base salary of $239,800. 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. The agreement also provides for an automobile allowance which is
presently $2,500 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.

                  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, 2006:
<TABLE>
<CAPTION>
                                                                                                            EQUITY
                                                                                                            INCENTIVE
                                                                                                EQUITY      PLAN
                                                                                                INCENTIVE   AWARDS:
                                                                                       MARKET   PLAN        MARKET
                                                                              NUMBER   VALUE    AWARDS:     OR
                                        EQUITY                                OF       OF       NUMBER      PAYOUT
                                        INCENTIVE                             SHARES   SHARES   OF          VALUE OF
                                        PLAN                                  OR       OR       UNEARNED    UNEARNED
                                        AWARDS:                               UNITS    UNITS    SHARES,     SHARES,
          NUMBER OF     NUMBER OF       NUMBER OF                             OF       OF       UNITS OR    UNITS OR
          SECURITIES    SECURITIES      SECURITIES                            STOCK    STOCK    OTHER       OTHER
          UNDERLYING    UNDERLYING      UNDERLYING                            THAT     THAT     RIGHTS      RIGHTS
          UNEXERCISED   UNEXERCISED     UNEXERCISED   OPTION                  HAVE     HAVE     THAT        THAT
          OPTIONS       OPTIONS         UNEARNED      EXERCISE   OPTION       NOT      NOT      HAVE NOT    HAVE NOT
          (#)           (#)             OPTIONS       PRICE      EXPIRATION   VESTED   VESTED   VESTED      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.     1,000,000                                     0.02     12/31/07
Perle         100,000                                     0.45      3/21/10
               11,250                                   0.0001      5/24/10
               11,250                                   0.0001      5/30/10
               11,250                                   0.0001      6/14/10
               11,250                                   0.0001      6/29/10
              500,000                                     0.45      6/30/10
                4,822                                   0.0001      9/14/10
            2,000,000                                     0.45      1/14/11
              500,000                                     0.41      5/31/11
              250,000                                     0.34      7/26/11
               50,000                                     0.43     10/12/11

Jenell        500,000                                     0.02     12/31/07
Fontes        100,000                                     0.45      3/22/10
                5,357                                   0.0001      8/31/10
              350,000                                     0.45      1/14/11
               25,000                                     0.34      7/26/11
</TABLE>
                                       40
<PAGE>

2002 STOCK OPTION AND STOCK AWARD PLAN

         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.. At December 31, 2006 we have granted options to
purchase an aggregate of 10,933,699 shares of our common stock.

         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.

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.

                                       41
<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.

         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.

                                       42
<PAGE>

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 therefor. 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 nonassignable 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.

         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.

                                       43
<PAGE>

         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.

                                       45
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         At March 26, 2007 we had 61,568,172 shares of our common stock issued
and outstanding. The following table sets forth information regarding the
beneficial ownership of our common stock as of March 26, 2007, 2007 by:

         o  each person known by us to be the beneficial owner of more than 5%
            of our common stock;
         o  each of our directors;
         o  each of our executive officers; and
         o  our executive officers, directors and director nominees 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.

                                            AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER                    BENEFICIAL OWNERSHIP      % OF CLASS
------------------------                    --------------------      ----------

Cery B. Perle1,(1)(6) ................           11,220,322              12.1%
Edward L. Hagan (2) ..................            2,225,000               2.4%
Richard Galterio (3) .................            1,275,000               1.3%
All officers and directors as a group
 (three persons)(1)(2)(3)(6) .........           14,521,822              15.8%
First Capital Holdings International,
 Inc. (4) ............................            3,087,863               3.4%
Brookstreet Securities Corporation.(5)            4,864,062               5.2%
Langley Park Investment Trust, PLC (6)            3,150,000               3.4%

* represents less than 1%

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

      o  a total of 4,698,000 shares of our common stock which are presently
         outstanding,
      o  664,500 shares held in trust for his minor children,
      o  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 904,000 shares of common stock with an exercise
         price of $0.02 per share,
      o  options to purchase 49,822 shares of common stock with an exercise
         price of $0.001 per share;
      o  options to purchase 2,600,000 shares of common stock with an exercise
         price of $0.45 per share;
      o  options to purchase 250,000 shares of common stock with an exercise
         price of $0.34 per share;
      o  options to purchase 500,000 shares of common stock with an exercise
         price of $0.41 per share, and
      o  options to purchase 50,000 shares of common stock with an exercise
         price of $0.43 per share.
      o  options to purchase 100,000 shares of common stock with an exercise
         price of $0.44 per share.

         The shares beneficially owned by Mr. Perle excludes options to purchase
1,583,335 shares of our common stock with an exercise price of $0.45 per share
which have not yet vested and securities owned by his fiancee, Jenelle Del Rio
(Fontes), over which he disclaims any beneficial ownership.

                                       46
<PAGE>

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

      o  969,000 shares of our common stock which are presently outstanding,
      o  344,000 shares of our common stock held by his wife Stephanie,
      o  250,000 shares of our common stock held by his daughter, Makena Hagan,
      o  62,000 shares held by his son, Edward, and
      o  options to purchase 600,000 shares of our common stock at $0.45 per
         share.

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

      o  500,000 shares of our common stock underlying options exercisable at
         $0.45 per share;
      o  100,000 shares underlying options exercisable at $0.45 per share;
      o  500,000 shares underlying options exercisable at $0.45 per share; and
      o  175,000 shares underlying warrants exercisable at $0.40 per share held
         by Skyebanc, Inc. Mr. Galterio is a 40% owner of Skyebanc, Inc. and
         holds joint voting and dispositive control over securities owned by
         Skyebanc, Inc.

(4) The number of shares beneficially owned by First Capital Holdings
International, Inc. includes 2,806,613 shares of our common stock which are
presently outstanding and warrants to purchase 281,250 shares of our common
stock exercisable at $1.49 per share. Mr. Andri Athanasiou is the control person
of First Capital Holdings International, Inc.

(5) Includes 516,290 shares which are presently outstanding and 1,484,056 shares
of common stock underlying common stock purchase warrants with an exercise price
of $0.40 per share and 2,863,716 shares of common stock underlying common stock
purchase warrants with an exercise price of $0.45 per share. Brookstreet
Securities Corporation, a broker-dealer and member of the NASD, acted as
placement agent for us in two offerings of our securities. See "Management's
Discussion and Analysis - Recent Capital Raising Transactions" which appears
earlier in this annual report.

It appears from a review of filings with the Securities and Exchange Commission
that Brookstreet Securities Corporation has not made any filings with regards to
its securities pursuant to Section 13 (d) of the Securities and Exchange Act of
1934.

(6) Includes 150,000 shares which are presently outstanding and 3,000,000 shares
of common stock underlying a common stock purchase warrant with an exercise
price of $1.00 per share. Messrs. Alstair Rae and Harry Pearl have voting and
dispositive control over securities held by Langley Park Investment Trust, PLC.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

The following table sets forth securities authorized for issuance under equity
compensation plans, including individual compensation arrangements, by us under
our 2002 Stock Option and Stock Award Plan and any compensation plans not
previously approved by our stockholders as of December 31, 2006.
<TABLE>
<CAPTION>
                                                                                          NUMBER OF
                                                                                          SECURITIES
                                                         NUMBER OF                        REMAINING
                                                         SECURITIES TO                    AVAILABLE FOR
                                                         BE ISSUED       WEIGHTED         FUTURE ISSUANCE
                                                         UPON            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)
                                                         -------------   --------------   ----------------
<C>                                                      <C>             <C>              <C>
Plan category

2002 Stock Option and Stock Award Plan                   11,575,485      $0.40            13,989,964

Equity compensation plans not approved by stockholders   none            n/a              none
</TABLE>

         A description of each of these plans is contained later in this report
under Part II, Item 10. Executive Compensation - 2002 Stock Option and Stock
Award Plan.

                                       47
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
         INDEPENDENCE

         Mr. Richard Galterio, a member of our Board of Directors, is an officer
and director of Skyebanc, Inc., a broker-dealer and member of the NASD. In 2006
Skyebanc, Inc. acted as a placement agent or a selling agent for us in two
private offerings. As compensation for its services to us which resulted in
gross proceeds to us of $349,500, we paid Skyebanc, Inc. a commission of $34,950
and issued it warrants to purchase 175,000 shares of common stock with an
exercise price of $0.40 per share.

         On March 31, 2005 we sold $575,000 principal amount 12.5% convertible
subordinated promissory debentures to two accredited investors and issued these
investors four year common stock purchase warrants to purchase an aggregate of
536,667 shares of our common stock in a private transaction exempt from
registration under the Securities Act of 1933, as amended, in reliance on an
exemption provided by Section 4(2) of that act. The purchasers included Ms.
Jenell Fontes, an employee of our company and the fiancee of Cery B. Perle our
CEO and President. Mr. Perle disclaims beneficial ownership of the debenture and
underlying securities owned by Ms. Fontes. Between June 2006 and September 2006
we made a principal repayment of an aggregate of $275,000 to Ms. Fontes on a
12.5% convertible subordinated promissory debenture held her thus retiring the
obligation.

DIRECTOR INDEPENDENCE

         None of the members of our Board of Directors are "independent" within
the meaning of Marketplace Rule 4200 of the National Association of Securities
Dealers, Inc.

ITEM 13. EXHIBITS

2.1      Acquisition Agreement and Plan of Merger(3)
2.2      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 (9)
3.6      Certificate of Ownership merging Spare Backup, Inc. into Newport
         International Group, Inc. (22)
4.1      Form of 8% promissory note (12)
4.2      Form of 10% secured note (9)
4.3      Form of Investor Warrant to Purchase Common Stock issued with 8%
         promissory note (12)
4.4      Form of Common Stock Purchase Warrant issued with 10% secured note (12)
4.5      Form of Common Stock Purchase Warrant issued to Robinson Reed Inc. and
         First Capital Holdings International, Inc.(12)
4.6      Form of $0.75 Investor Warrant (12)
4.7      $275,000 principal amount convertible promissory debenture dated March
         31, 2005 issued to Jenelle Fontes (11).
4.8      $300,000 principal amount convertible promissory debenture dated March
         31, 2005 issued to Curtis Lawler (11)
4.9      Common stock purchase warrant issued March 31, 2005 to purchase 256,667
         shares of common stock issued to Jenelle Fontes (11)
4.10     Common stock purchase warrant issued March 31, 2005 to purchase 280,000
         shares of common stock issued to Curtis Lawler (11)
4.11     Form of $1.30 common stock purchase warrant (14)
4.12     Form of common stock purchase warrant issued to Langley Park Investment
         Trust, PLC (19)
4.13     Form of $0.40 common stock purchase warrant (23)
4.14     Form of placement agent warrant issued to Brookstreet Securities
         Corporation(23)
4.15     Option to Purchase Common Stock issued to Wolfe Axlerod Weinberger (23)
4.16     Option to Purchase Common Stock issued to The Sterling Group ***

                                       48
<PAGE>

10.1     2002 Stock Option and Stock Award Plan (16)
10.2     Lease for principal executive offices *
10.3     Stock Purchase Agreement with Langley Park Investment Trust PLC (10)
10.4     Escrow Agreement with Langley Park Investment Trust PLC(12)
10.5     Employment Agreement with Cery B. Perle (12)
10.6     Common Stock and Warrant Purchase Agreement dated as of August 27, 2004
         (10)
10.7     Registration Rights Agreement dated as of August 27, 2004 (10)
10.8     Amendment No. 1 to Common Stock and Warrant Purchase Agreement dated as
         of November 2, 2004 (10)
10.9     Settlement Agreement and Release between Newport International Group,
         Inc., Robinson Reed, Inc., First Capital Holdings International, Inc.,
         Continental Blue Limited and E-Holdings, Inc. (12)
10.10    Finder's Fee Agreement with E-Holdings, Inc. (12)
10.11    Supplier Agreement with CompUSA (13)
10.12    Form of Settlement Agreement between Newport International Group, Inc,
         Robinson Reed, Inc. and First Capital Holdings International, Inc. (15)
10.13    Amendment No. 1 to the 2002 Stock Option and Stock Award Plan (7)
10.14    Form of Repurchase Agreement with Langley Park Investment Trust PLC
         (19)
10.15    Form of Amendment to Escrow Agreement with Langley Park Investment
         Trust PLC (19)
10.16    Amendment No. 2 to the 2002 Stock Option and Stock Award Plan (20)
10.17    Customer Technical Support Services Agreement with Circuit City Stores,
         Inc. (21)
10.18    Standard Services Agreement and Statement of Work with Hewlett-Packard
         Company (24)
10.19    Form of Investors' Rights Agreement (23)
10.20    Data Storage Services Agreement between Spare Backup, Inc. and DSG
         Retail Limited *(25)
10.21    Finder's Agreement dated February 5, 2007 between Spare Backup, Inc.
         and Skyebanc, Inc. *
14.1     Code of Business Conduct and Ethics and Code of Ethics for the Chief
         Executive Officer and Senior Financial Officers (12)
21.1     Subsidiaries of the registrant (12)
23.1     Consent of Sherb & Co., LLP *
31.1     Section 302 Certificate of Chief Executive Officer *
31.2     Section 302 Certificate of principal financial and accounting officer *
32.1     Section 906 Certificate of Chief Executive Officer *

*    filed herewith

(1)  Incorporated by reference to the Form 10-SB as filed with the SEC on May
     10, 2000.
(2)  Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on February 5, 2001.
(3)  Incorporated by reference to the Report on Form 8-K filed with the SEC on
     November 6, 2000.
(4)  Incorporated by reference to the 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 Report on Form 8-K as filed with the SEC
     on June 3, 2003.
(7)  Incorporated by reference to the registration statement on Form S-8 as
     filed with the SEC on August 8, 2004.
(8)  Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on December 16, 2004.
(9)  Incorporated by reference to the quarterly report on Form 10-QSB for the
     three and six months ended June 30, 2004.
(10) Incorporated by reference to the quarterly report on Form 10-QSB for the
     three and nine months ended September 30, 2004.
(11) Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on May 5, 2005. (12) Incorporated by reference to the registration
     statement on Form SB-2, as amended, file number 333-123096, as declared
     effective on May 19, 2005.

                                       49
<PAGE>

(13) 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.
(14) 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.
(15) Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on December 15, 2005.
(16) Incorporated by reference to the Registration Statement on Form S-8, SEC
     File No. 333-98229, as filed on August 16, 2002.
(17) Incorporated by reference to the Registration Statement on Form SB-2, SEC
     File No. 333-128980, as amended.
(18) Incorporated by reference to the Registration Statement on Form SB-2, SEC
     File No. 333-123096, as amended.
(19) Incorporated by reference to the Current Report on Form 8-K as filed on May
     31, 2006.
(20) Incorporated by reference to the Current Report on Form 8-K as filed on
     June 6, 2006.
(21) 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.
(22) Incorporated by reference to the Current Report on Form 8-K as filed on
     August 16, 2006.
(23) Incorporated by reference to the Registration Statement on Form SB-2, SEC
     File No. 333-139138, as amended.
(24) Incorporated by reference to the Registration Statement on Form SB-2, SEC
     File No. 333-139138, as amended. 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.
(25) 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.

                                       50
<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Sherb & Co., LLP served as our independent registered public accounting
firm for fiscal 2006 and fiscal 2005. The following table shows the fees that
were billed for the audit and other services provided by this firm for fiscal
2006 and 2005.

                                               FISCAL 2006     FISCAL 2005
                                               -----------     -----------

         Audit Fees ....................         $42,000         $57,870
         Audit-Related Fees ............               0               0
         Tax Fees ......................               0               0
         All Other Fees ................               0               0
                                                 -------         -------
                                   Total         $42,000         $57,870

         Audit Fees -- This category includes the audit of our annual financial
statements, review of financial statements included in our Form 10-QSB 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 2006 were pre-approved by
the entire Board of Directors.

                                       51
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                      Spare Backup, Inc.

April 2, 2007                         By: /s/ Cery B. Perle
                                          -----------------
                                      Cery B. Perle, CEO and President,
                                      principal executive officer and
                                      principal financial and accounting officer


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


     SIGNATURE                          TITLE                           DATE

/s/ Cery B. Perle         President, Chief Executive Officer,      April 2, 2007
-----------------         principal executive officer and
Cery B. Perle             principal financial and
                          accounting officer


/s/ Edward L. Hagan       Secretary and director                   April 2, 2007
-------------------
Edward L. Hagan


/s/ Richard Galterio      Director                                 April 2, 2007
--------------------
Richard Galterio


                                       52
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors
Spare Backup, Inc.


We have audited the accompanying consolidated balance sheet of Spare Backup,
Inc. and its Subsidiary as of December 31, 2006, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
ended December 31, 2006 and 2005. 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 audit.

We conducted our audits 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. An audit includes examining on a
test basis, evidence supporting the amount and disclosures in the consolidated
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.
and Subsidiaries as of December 31, 2006, and the results of their operations
and their cash flows for the years ended December 31, 2006 and 2005, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying 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 working capital deficit of $14,478,439, $6,719,706 and
$11,852,100 respectively, for the year ended December 31, 2006. This raises
substantial doubt about its 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 30, 2007

                                       F-1
<PAGE>

                               SPARE BACKUP, INC.
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2006

                                     ASSETS

Current Assets:
  Cash ........................................................    $    146,318
  Restricted cash .............................................         872,820
                                                                   ------------
    Total current assets ......................................       1,019,138

  Property and equipment, net of accumulated depreciation
   of $161,895 ................................................         488,818
  Other assets ................................................          75,380
                                                                   ------------

     Total assets .............................................    $  1,583,336
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts payable and accrued expenses .......................    $    853,176
  8% Convertible promissory notes .............................         293,509
  12.5% Convertible promissory notes, net of debt discount
   of $79,799 .................................................         295,201
  Accrued interest on convertible promissory notes ............          22,097
  Derivative liabilities ......................................      11,392,255
  Due to stockholder ..........................................          15,000
                                                                   ------------

     Total current liabilities ................................      12,871,238

  Other liabilities ...........................................           6,426
                                                                   ------------

     Total liabilities ........................................      12,877,664


Stockholders' Deficit:
  Preferred stock; $.0001 par value, 5,000,000 shares
   authorized, none issued and outstanding ....................               -
  Common stock; $.001 par value, 150,000,000 shares
   authorized, 55,843,863 issued and outstanding ..............          55,845
  Additional paid-in capital ..................................      36,402,986
  Subscription receivable .....................................        (100,000)
  Accumulated deficit .........................................     (47,559,789)
  Deferred compensation .......................................         (93,370)
                                                                   ------------

     Total stockholders' deficit ..............................     (11,294,328)
                                                                   ------------

     Total liabilities and stockholders' deficit ..............    $  1,583,336
                                                                   ============

                 See Notes to Consolidated Financial Statements.

                                       F-2
<PAGE>

                               SPARE BACKUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                         For the year ended
                                                            December 31,
                                                        2006            2005
                                                   ------------    ------------

Revenues .......................................   $     73,046    $     23,920

Operating expenses:
  Research and development .....................        850,982         782,150
  Sales, general and administrative ............     11,155,486       5,206,366
                                                   ------------    ------------

     Total operating expenses ..................     12,006,468       5,988,516
                                                   ------------    ------------

     Operating loss ............................    (11,933,422)     (5,964,596)
                                                   ------------    ------------

Other income-derivative liabilities ............        762,713      11,689,725
Other expenses-settlement with stockholders ....              -        (730,000)
Other expenses-derivative liabilities ..........       (582,786)              -
Transfer- unrealized gain- investment held for
 sale to trading security ......................        112,509               -
Unrealized loss-transfer of available-for-sale
 securities to trading securities ..............              -      (4,999,263)
Unrealized loss-trading securities .............              -        (270,384)
Realized loss- trading securities ..............       (111,624)     (5,777,843)
Interest expense ...............................     (2,725,829)     (1,779,442)
                                                   ------------    ------------
  Total other expenses, net ....................     (2,545,017)     (1,867,207)
                                                   ------------    ------------
Net loss .......................................   $(14,478,439)   $ (7,831,803)
                                                   ============    ============

Transfer of previous unrealized loss on
 restricted investment .........................              -       4,999,263
Transfer of available-for-sale securities to
 trading securities ............................              -       4,999,263
Unrealized gain (loss)- restricted investments .              -         112,509
Transfer- unrealized gain- investment held for
 sale to trading security ......................       (112,509)              -
                                                   ------------    ------------

Comprehensive income (loss) ....................   $(14,590,948)   $  2,279,232
                                                   ============    ============

Basic net loss per common share ................   $      (0.31)   $      (0.26)
                                                   ============    ============

Diluted net loss per share .....................   $      (0.32)   $      (0.64)
                                                   ============    ============

Basic weighted average common
shares outstanding .............................     46,168,841      30,311,261
                                                   ============    ============

Diluted weighted average common
shares outstanding .............................     46,168,841      30,311,261
                                                   ============    ============

                 See Notes to Consolidated Financial Statements.

                                       F-3
<PAGE>
<TABLE>
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                       FOR THE PERIOD FROM JANUARY 1, 2005 TO DECEMBER 31, 2006

<CAPTION>

                                                 Common Stock             Additional
                                         ----------------------------      Paid-in       Subscription
                                            Shares          Amount          Capital       Receivable
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
Balance at January 1, 2005 ...........     26,400,061    $     26,400    $ 21,351,026    $          -

Issuance of common stock pursuant to
 exercise of stock options ...........        652,643             653          18,107               -
Issuance of common stock for cash,
 net of financing costs ..............      2,779,543           2,780       1,312,859               -
Issuance of common stock in connection
 with settlement with stockholders ...      1,000,000           1,000         589,667               -
Issuance of common stock to pay
 interest on convertible promissory
 notes ...............................        237,582             237         158,808               -
Issuance of common stock to partially
 repay convertible promissory notes ..         75,610              75          48,675               -
Issuance of common stock to
 consultants for services rendered ...      3,915,500           3,916       2,513,399               -
Issuance of common stock for failure
 to timely file registration statement         92,903              93         132,758               -
Issuance of common stock pursuant to
 conversion of convertible promissory
 notes ...............................      2,508,644           2,509         938,232               -
Issuance of common stock to partially
 satisfy accounts payable ............        259,489             259         306,375               -
Issuance of common stock pursuant to
 the exercise of warrants ............        760,751             761         279,833               -
Fair value of options issued to
 employees ...........................              -               -         456,631               -
Amortization of deferred compensation               -               -               -               -
Transfer of unrealized loss on
 restricted investment ...............              -               -               -               -
Transfer of available-for-sale
 securities ..........................              -               -               -               -
Unrealized gain on investment in
 marketable securities ...............              -               -               -               -
Net loss .............................              -               -               -               -
                                         ------------    ------------    ------------    ------------
                                           38,682,726          38,683      28,106,370               -
                                         ============    ============    ============    ============

Issuance of common stock pursuant to
 exercise of stock options ...........        300,241             300          79,900               -
Issuance of common stock for cash, net
 of financing costs ..................     15,624,891          15,625       3,444,652        (100,000)
Issuance of common stock to pay
 interest on convertible promissory
 notes ...............................        180,919             181         116,002               -
Issuance of common stock to
 consultants for services rendered ...      1,325,000           1,325         332,175               -
Issuance of common stock pursuant to
 conversion of convertible promissory
 notes ...............................      5,862,438           5,863       2,017,738               -
Cancellation of shares issued for
 services ............................       (250,000)           (250)        (64,750)              -
Repurchase of shares .................     (5,882,352)         (5,882)     (1,661,641)              -
Reclassification of liability contract
 to equity ...........................              -               -       1,782,210               -
Fair value of options issued to
 employees ...........................              -               -       2,250,330               -
Amortization of deferred compensation               -               -               -               -
Transfer of unrealized gain on
 restricted investment ...............              -               -               -               -
Net loss .............................              -               -               -               -
                                         ------------    ------------    ------------    ------------
                                           55,843,863    $     55,845    $ 36,402,986    $   (100,000)
                                         ============    ============    ============    ============
                                                                                          (continued)
                            See Notes to Consolidated Financial Statements.

                                                 F-4A
</TABLE>
<PAGE>
<TABLE>
                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                       FOR THE PERIOD FROM JANUARY 1, 2005 TO DECEMBER 31, 2006
                                              (continued)
<CAPTION>
                                                                         Accumulated
                                                                            Other
                                         Accumulated     Comprehensive    Deferred
                                           Deficit           Loss        Compensation       Total
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
Balance at January 1, 2005 ...........   $(25,249,547)   $ (9,998,526)   $          -    $(13,870,647)

Issuance of common stock pursuant to
 exercise of stock options ...........              -               -               -          18,760
Issuance of common stock for cash,
 net of financing costs ..............              -               -               -       1,315,639
Issuance of common stock in connection
 with settlement with stockholders ...              -               -               -         590,667
Issuance of common stock to pay
 interest on convertible promissory
 notes ...............................              -               -               -         159,045
Issuance of common stock to partially
 repay convertible promissory notes ..              -               -               -          48,750
Issuance of common stock to
 consultants for services rendered ...              -               -      (2,503,875)         13,440
Issuance of common stock for failure
 to timely file registration statement              -               -               -         132,851
Issuance of common stock pursuant to
 conversion of convertible promissory
 notes ...............................              -               -               -         940,741
Issuance of common stock to partially
 satisfy accounts payable ............              -               -               -         306,634
Issuance of common stock pursuant to
 the exercise of warrants ............              -               -               -         280,594
Fair value of options issued to
 employees ...........................              -               -               -         456,631
Amortization of deferred compensation               -               -         823,404         823,404
Transfer of unrealized loss on
 restricted investment ...............              -       4,999,263               -       4,999,263
Transfer of available-for-sale
 securities ..........................              -       4,999,263               -       4,999,263
Unrealized gain on investment in
 marketable securities ...............              -         112,509               -         112,509
Net loss .............................     (7,831,803)              -               -      (7,831,803)
                                         ------------    ------------    ------------    ------------
                                          (33,081,350)        112,509      (1,680,471)     (6,504,259)
                                         ============    ============    ============    ============

Issuance of common stock pursuant to
 exercise of stock options ...........              -               -               -          80,200
Issuance of common stock for cash, net
 of financing costs ..................              -               -               -       3,360,277
Issuance of common stock to pay
 interest on convertible promissory
 notes ...............................              -               -               -         116,183
Issuance of common stock to
 consultants for services rendered ...              -               -        (333,500)              -
Issuance of common stock pursuant to
 conversion of convertible promissory
 notes ...............................              -               -               -       2,023,601
Cancellation of shares issued for
 services ............................              -               -          65,000               -
Repurchase of shares .................              -               -               -      (1,667,523)
Reclassification of liability contract
 to equity ...........................              -               -               -       1,782,210
Fair value of options issued to
 employees ...........................              -               -               -       2,250,330
Amortization of deferred compensation               -               -       1,855,601       1,855,601
Transfer of unrealized gain on
 restricted investment ...............              -        (112,509)              -        (112,509)
Net loss .............................    (14,478,439)              -               -     (14,478,439)
                                         ------------    ------------    ------------    ------------
                                         $(47,559,789)   $          -    $    (93,370)   $(11,294,328)
                                         ============    ============    ============    ============

                            See Notes to Consolidated Financial Statements.

                                                 F-4B
</TABLE>
<PAGE>
<TABLE>
                                                SPARE BACKUP, INC.
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         For the year ended December 31,

<CAPTION>
                                                                                        2006            2005
                                                                                    ------------    ------------
<S>                                                                                 <C>             <C>
Cash flows from operating activities:
Net loss ........................................................................   $(14,478,439)   $ (7,831,803)
Adjustments to reconcile net loss to net cash used in operating activities:
  Unrealized loss-transfer of available-for-sale securities to trading securities              -       4,999,263
  Realized loss on trading securities ...........................................        111,624       5,777,843
  Transfer- unrealized gain- investment held for sale to trading security .......       (112,509)              -
  Unrealized loss-trading securities ............................................              -         270,384
  Fair value of derivatives at issuance related to consulting services ..........      1,537,550         283,050
  Fair value of derivatives at issuance of financing instruments ................        582,837         557,620
  Decrease in fair value of derivative liabilities ..............................       (762,713)    (12,525,595)
  Fair value of options issued to employees .....................................      2,250,330         456,631
  Amortization of debt discount .................................................      1,899,246       1,339,387
  Amortization of deferred compensation .........................................      1,855,601         823,404
  Fair value of shares of common stock issued in payment
    of interest on convertible promissory note ..................................        115,982         159,045
  Fair value of shares issued in connection with the failure
    to timely file the registration statement ...................................              -         132,851
  Excess of fair value of shares issued in satisfaction of accounts payable .....              -         181,634
  Fair value of shares issued in connection with services rendered ..............              -          13,440
  Fair value of shares issued in connection with settlement with stockholders ...              -         730,000
  Depreciation ..................................................................         75,972          90,838
  Amortization of deferred financing costs ......................................        671,976         112,316
Changes in operating assets and liabilities
  Restricted cash ...............................................................       (812,820)        (60,000)
  Accounts receivable ...........................................................              -        (233,037)
  Provision for returns .........................................................              -         233,037
  Other assets ..................................................................        (50,000)         33,318
  Security deposits .............................................................          2,603               -
  Accounts payable and accrued expenses .........................................        397,424         284,319
  Deferred revenues .............................................................        (12,684)         12,684
  Accrued interest on note receivable ...........................................              -           1,200
  Accrued interest on convertible promissory notes ..............................          8,314            (100)
                                                                                    ------------    ------------

Net cash used in operating activities ...........................................     (6,719,706)     (4,158,271)
                                                                                    ------------    ------------

Cash flows from investing activities:
  Proceeds from disposition of marketable securities ............................              -          68,925
  Proceeds from disposition of trading securities ...............................              -         642,117
  Proceeds from note receivable .................................................              -          85,000
  Purchases of property and equipment ...........................................       (201,165)       (310,770)
                                                                                    ------------    ------------

Net cash (used in) provided by investing activities .............................       (201,165)        485,272
                                                                                    ------------    ------------

Cash flows from financing activities:
  Principal repayments on lease obligations .....................................         (6,932)        (10,566)
  Principal repayments on convertible promissory note ...........................       (275,000)              -
  Repurchase of shares of common stock ..........................................       (633,602)              -
  Proceeds from issuance of convertible promissory notes ........................              -         650,000
  Proceeds from issuance of bridge notes ........................................      1,500,000               -
  Proceeds from issuance of shares ..............................................      6,924,224       1,528,750
  Proceeds from exercise of warrants ............................................              -         280,594
  Proceeds from exercise of stock options .......................................            122          18,761
  Payments of convertible promissory notes ......................................              -        (265,000)
  Payments of deferred financing costs ..........................................       (190,000)              -
  Payments of financing costs ...................................................       (417,561)        (35,375)
                                                                                    ------------    ------------

Net cash provided by financing activities .......................................      6,901,251       2,167,164
                                                                                    ------------    ------------

Decrease in cash ................................................................        (19,620)     (1,505,835)

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

Cash, end of year ...............................................................   $    146,318    $    165,938
                                                                                    ============    ============
                                                                                                     (continued)
                                 See Notes to Consolidated Financial Statements.

                                                       F-5A
</TABLE>
<PAGE>
<TABLE>
                                                SPARE BACKUP, INC.
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                         For the year ended December 31,
                                                   (continued)
<CAPTION>
                                                                                        2006            2005
                                                                                    ------------    ------------
<S>                                                                                 <C>             <C>
Supplemental disclosures of cash flow information:
  Cash paid during the year for interest ........................................   $      8,664    $      3,909
                                                                                    ============    ============

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

Supplemental schedule of non-cash financing and investing activities:

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

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

Fair value of investment released in connection with the repurchase of
 shares of common stock .........................................................   $    134,806    $          -
                                                                                    ============    ============

Fair value of warrants and embedded conversion features issued in
 connection with the issuance of common stock and corresponding
 increase in derivative liabilities .............................................   $  3,149,081    $    177,736
                                                                                    ============    ============

Reclassification of liability contracts to equity ...............................   $  1,782,210    $          -
                                                                                    ============    ============


Exercise of stock options and corresponding satisfaction of accounts payable ....   $     80,063    $          -
                                                                                    ============    ============

Conversion of convertible promissory notes in shares of common stock ............   $    503,020    $    827,307
                                                                                    ============    ============

Fair value of shares of common stock issued to consultants for services .........   $    333,500    $  1,586,250
                                                                                    ============    ============

                                 See Notes to Consolidated Financial Statements.

                                                       F-5B
</TABLE>
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

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, through one of its subsidiaries, Spare Backup, Inc., sells on-line
backup solutions software and services to individuals, business professionals,
small office and home office companies, and small to medium sized businesses.
The Company has substantially discontinued its marketing and development efforts
under GrassRoots.

The accompanying financial statements have been prepared on a going concern
basis. The Company has generated minimal revenue since its inception on June 12,
2002 and has used net cash in its operating activities of approximately $6.7
million during 2006. The Company's ability to continue as a going concern is
dependent upon its ability to obtain the necessary financing to meet its
obligations and repay its liabilities arising from normal business operations
when they come due, to fund possible future acquisitions, and to generate
profitable operations in the future. Management plans to continue to provide for
its capital requirements by issuing additional equity securities and debt. The
outcome of these matters cannot be predicted at this time and there are no
assurances that if achieved, the Company will have sufficient funds to execute
its business plan or generate positive operating results.

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

RECLASSIFICATION

The Company has reclassified certain captions of its 2005 statement of
operations as well as its cash flows to conform them to its 2006 financial
presentation.

EARNINGS PER SHARE

Basic earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options and warrants (calculated using the reverse treasury
stock method). The outstanding options, warrants and shares equivalent issuable
pursuant to embedded conversion features amounted to 39,763,265 and 20,100,095
at December 31, 2006 and 2005, respectively. The outstanding options, warrants
and share equivalents issuable pursuant to embedded conversion features and
warrants at December 31, 2006 and 2005 are excluded from the loss per share
computation for that period due to their anti-dilutive effect.

                                       F-6
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following sets forth the computation of basic and diluted earnings per share
for the year ended December 31,:

                                                        2006            2005
                                                        ----            ----
Numerator:
Net (loss) income ................................  $(14,478,439)  $ (7,831,803)
Adjustments:
Other income, net-derivative liabilities .........      (179,927)   (11,689,725)
                                                    ------------   ------------
Adjusted net loss for diluted earnings per share .  $(14,658,366)  ($19,521,528)
                                                    ============   ============

Denominator:
Denominator for basic earnings per share-weighted
 average shares outstanding ......................    46,168,841     30,311,261

Effect of dilutive warrants, embedded conversion
features and liquidated damages ..................             -              -

Denominator for diluted earnings per share-
 weighted average shares outstanding .............    46,168,841     30,311,261
                                                    ============   ============


Basic earnings (loss) per share ..................  $      (0.31)  $      (0.26)
                                                    ============   ============
Diluted earnings (loss) per share ................  $      (0.32)  $      (0.64)
                                                    ============   ============

RISKS AND UNCERTAINTIES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                       F-7
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENT IN EQUITY SECURITIES AND COMPREHENSIVE LOSS

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

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

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

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

During July 2005, the Company sold 3,242,420 shares of the Investee used as
collateral for the Company's possible obligation to repurchase 2,500,000 shares
it has issued in a private placement during November 2004 ("Put Option"),
generating proceeds of approximately $640,000. The decrease in the carrying and
the fair value of this investment of approximately $5.3 million as of June 30,
2005 has been recorded as unrealized loss in the statement of operations of
approximately $5.0 million and as an unrealized loss of approximately $270,000.

                                       F-8
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of software products are expensed
as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED OR OTHERWISE MARKETED. The Company believes that the current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility; accordingly, no software development
costs have been capitalized as of December 31, 2006.

PROPERTY AND EQUIPMENT

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

DEFERRED FINANCING COSTS

Deferred financing costs represent costs incurred in connection with the
issuance of the convertible promissory notes. Deferred financing costs were
amortized over the terms of the related debt agreements, which range between one
to two years, or earlier, if the debt is satisfied prior to maturity.

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.

                                       F-9
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The following pro forma information is to reflect the change from applying the
provisions of FAS 123 and APB 25:
                                                            December 31,
                                                        2006           2005
                                                        ----           ----

Net (loss) income ................................  $(14,478,439)  ($ 7,831,803)
Adjustments:
Other (income)- derivative liabilities ...........      (179,927)   (11,689,725)
                                                    ------------   ------------
Adjusted net loss for diluted earnings per share .  $(14,658,366)  $(19,521,528)
Add:  Stock-based compensation expense included
 in reported net (loss) income, net of related
 tax effects: ....................................             -        456,631

Deduct:  Total stock-based employee compensation
 expense determined under fair value based method
 for all awards, net of related tax effects
 excluded from net (loss) income .................             -     (1,902,127)
                                                    ------------   ------------
Net (loss) income pro forma ......................  $(14,658,366)  $(20,967,024)
                                                    ============   ============
Proforma earnings per share:
Basic ............................................  $      (0.31)  $      (0.69)
                                                    ============   ============
Diluted ..........................................  $      (0.32)  $      (0.69)
                                                    ============   ============

The fair value of the options granted during 2005 was determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest of 3.32-4.39%; stock volatility of 36-86%; no dividends; and estimated
life of 36 months.

DERIVATIVE LIABILITIES

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

                                      F-10
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

REVENUE RECOGNITION, ACCOUNTS RECEIVABLE, AND PROVISION FOR RETURNS

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

                                      F-11
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

In September 2006, the FASB issued FASB Statement No. 157. This Statement
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, the Board having
previously concluded in those accounting pronouncements that fair value is a
relevant measurement attribute. Accordingly, this Statement does not require any
new fair value measurements. However, for some entities, the application of this
Statement will change current practices. This Statement is effective for
financial statements for fiscal years beginning after November 15, 2007. Earlier
application is permitted provided that the reporting entity has not yet issued
financial statements for that fiscal year. Management believes this Statement
will have no impact on the financial statements of the Company once adopted.

NOTE 3 - RESTRICTED CASH

The Company's restricted cash consists primarily of approximately $873,000 at
December 31, 2006, and is held in escrow to fund the sales and marketing
expenses incurred by the Company with a US retailer.

                                      F-12
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment and related accumulated depreciation at December 31, 2006
consist of the following:

Computer equipment ............   $ 650,713
Accumulated depreciation ......    (161,895)
                                  ---------
Property and equipment, net ...   $ 488,818
                                  =========

Depreciation expense amounted to approximately $76,000 and $91,000 during 2006
and 2005, respectively.

NOTE 5 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following as of December 31, 2006:

8% Convertible promissory notes, bearing interest at 8% per annum,
matured on March 1, 2006. Interest payable June 30, 2004 and every
quarter thereafter either in cash or common stock. Interest paid in
common stock is convertible using the 10-day average closing bid of
the stock prior to the end of the quarter. Each occurrence of
interest not paid within 30 days following the end of each quarter
causes a reduction of 10% in the conversion price of the promissory
notes and the exercise price of the related warrants. The
promissory notes are convertible at any time at the option of the
holder, into shares of common stock at a rate of $0.375. ..........  $  293,509

Less:  unamortized discount                                                  (-)
                                                                     ----------
Convertible promissory notes-short-term                              $  293,509
                                                                     ==========

12.5% Convertible promissory notes, bearing interest at 12.5% per
annum, maturing between March and June 2007. Interest payable June
30, 2005 and every quarter thereafter either in cash or common
stock. Interest paid in common stock is convertible using the 5-day
average closing price of the stock prior to the end of the quarter.
Each occurrence of interest not paid within 30 days following the
end of each quarter causes a reduction of 10% in the conversion
price of the promissory notes and the exercise price of the related
warrants. The promissory notes are convertible into shares of
common stock at a rate of $0.32. ..................................  $  375,000

Less: unamortized discount ........................................     (79,799)
                                                                     ----------
Convertible promissory notes-short term ...........................  $  295,201
                                                                     ==========

                                      F-13
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 5 - CONVERTIBLE PROMISSORY NOTES (CONTINUED)

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

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

The convertible rates for the 8% and 12.5% Convertible promissory notes interest
accrued as of December 31, 2006 amounted to $0.44 per share. The Company issued
180,919 and 237,582 shares in connection with the payment of interest on the
Convertible promissory notes during 2006 and 2005, respectively. The fair value
of such shares issued during 2006 and 2005 amounted to approximately $116,000
and $159,000, respectively. Furthermore, the Company issued 51,250 shares in
January 2007 in connection with the payment of accrued interest of approximately
$23,000 as of December 31, 2006.

Certain note holders of 8% convertible promissory notes and the 8% Bridge
promissory notes converted their promissory notes and accrued interest amounting
to approximately $2.0 million in 5,862,438 shares of common stock, respectively,
during 2006 and $941,000 in 2,508,644 shares of common stock, respectively,
during 2005.

During 2006 and 2005, the Company received $1,500,000 and $650,000 in
consideration for the issuance of the bridge promissory notes and convertible
promissory notes, respectively.

During 2006, the Company made principal repayments of approximately $275,000 on
a 12.5% Convertible promissory note held by the fiancee of the Company's Chief
Executive officer.

In the event the Company issues any shares of its common stock or issues any
options, warrants, convertible preferred stock or convertible debt issuable or
convertible into common stock of the Company at an exercise price or conversion
price per share less than $0.75 per share within two years following the closing
of the 12.5% Convertible Promissory Notes, then the exercise price of the
warrants issued pursuant to the Follow-on Financing will reset to such lower
price. As of December 31, 2006, the exercise price of such warrants are $0.32.

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

The Company has the right to call all of the 8% Bridge promissory notes and
related warrants, if the stock underlying the warrants has been registered (and
that registration statement is still effective), the lock-up restriction, as
defined in the agreement, on the common stock has been lifted, and after the
lock-up restriction has been lifted the stock maintains a closing bid price
above $0.75 for 15 business days. The Company may redeem the warrants for $0.01
if not exercised within 30 days of the call notification.

                                      F-14
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 5 - CONVERTIBLE PROMISSORY NOTES (CONTINUED)

The Company recognized a debt discount of $1,500,000 and $650,000 in connection
with the issuance of the convertible promissory notes during 2006 and 2005,
respectively.

The Company paid financing fees of $190,000 to the placement agent in connection
with the issuance of the Bridge promissory notes. Additionally, the Company
issued 1,071,429 warrants to the placement agent. The fair value of the
warrants, which amounted to approximately $439,000 together with the financing
fees have been recorded as deferred financing costs during 2006.

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

Amortization of the debt discount amounted to approximately $1.9 million and
$1.3 million during 2006 and 2005, respectively, and is included in interest
expense.

Amortization of the deferred financing costs amounted to approximately $672,000
and $112,000 during, 2006 and 2005, respectively, and is included in interest
expense.

Accrued interest on the convertible promissory notes amounted to approximately
$22,000 as of December 31, 2006.

NOTE 6 - DERIVATIVE LIABILITIES

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

The Company recognized liabilities for the following derivatives at the date of
their issuance during 2006 and 2005, respectively:

                                      F-15
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 6 - DERIVATIVE LIABILITIES (CONTINUED)

                                           At issuance 2006     At issuance 2005
                                           ----------------     ----------------
Embedded conversion features
12.5% convertible notes ............          $        -            $  934,000
8% bridge notes ....................           1,500,000                     -
Freestanding warrants and options
12.5% convertible notes ............                   -               273,620
8% bridge notes ....................             582,786                     -
Other warrants and options .........           6,025,938               531,836
Liquidated damages .................                   -               139,333
                                              ----------            ----------
                                              $8,108,724            $1,878,789
                                              ==========            ==========

The fair value of the derivative liabilities at December 31, 2006 are as
follows:

               Embedded conversion features ....      $   578,283
               Freestanding warrants and options        9,696,452
               Common stock subject to put .....        1,041,667
               Liquidated damages ..............           75,853
                                                      -----------
                                                      $11,392,255
                                                      ===========

The Company used the following assumptions to measure the identified derivatives
at issuance during 2006 and 2005 and at December 31, 2006, as follows:

                                   Year ended December 31,       At December 31,
                                    2006            2005              2006
                                    ----            ----         ---------------
Market price:                   $0.41-$0.59      $0.40-$0.62               $0.48
Exercise or conversion price:
                                $0.32-$1.00     $0.188-$0.85       $0.188- $1.75
Term:                           1.5-5 years        3-5 years     1.25-4.75 years
Volatility:                        221-225%              86%                225%
Risk-free interest rate:          4.18-5.1%            3.32%               4.69%
Maximum liability:
Convertible notes                                                       $856,009
Put                                                                   $2,500,000
Liquidated damages                                                       $75,853
Outstanding warrants and
options                                                               22,350,380


                                      F-16
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 6 - DERIVATIVE LIABILITIES (CONTINUED)

The embedded conversion features are as follows:

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

Liquidated Damage Clause: 22%, which is the difference, in months between the
time the underlying shares are free-trading and the grace period to obtain a
registration statement, multiplied by the liquidated damage rate of 2% per
month.

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

The fair value of the derivatives issued during 2006 and 2005 were allocated as
follows:

                                                        At issuance  At issuance
                                                            2006         2005
                                                        -----------  -----------
Debt discount from the issuance of embedded conversion
  features ...........................................   $1,500,000   $  650,000
Other expenses from the excess of the fair value of
  derivative liabilities over proceeds received from
  issuance of liability contracts ....................      582,786      557,620
Sales, general, and administrative expenses from the
  issuance of warrants and options for services
  rendered by consultants ............................    1,537,550      283,050
Offset against additional paid-in capital from net
  proceeds of issuance of shares of common stock from
  the issuance of warrants and liquidated damages ....    3,149,132      388,119
Deferred offering costs from the issuance of warrants
  to a placement agent ...............................      439,256            -
Offset against additional paid-in capital in
  connection with repurchase of shares ...............      900,000            -
                                                         ----------   ----------
                                                         $8,108,724   $1,878,789
                                                         ==========   ==========

                                      F-17
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 6 - DERIVATIVE LIABILITIES (CONTINUED)

During 2006, the Company reclassified the embedded conversion features of
certain convertible promissory notes as equity contracts, upon their conversion.
The fair value of the embedded conversion features at the date of conversion
amounted to approximately $1.8 million. This reclassification resulted in an
increase in additional paid-in capital and a decrease in derivative liabilities
of the corresponding amount.

The difference in fair value of the derivative liabilities between the date of
their issuance and the appropriate measurement dates, which amounted to a
decrease of approximately $763,000 and $11.7 million for 2006 and 2005,
respectively, has been recognized as other income.

NOTE 7 - STOCKHOLDERS' DEFICIT

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

During 2006 and 2005, the Company issued 1,325,000 and 3,915,500 shares of
common stock, respectively, to consultants for services performed. The fair
value of such shares amounted to approximately $334,000 and $2.5 million during
2006 and 2005, respectively. The nature of the services rendered in connection
with the issuance of these shares were for marketing purposes. Some of these
services are provided for periods up to 12 months. The Company has recognized
amortization of deferred compensation of approximately $1.9 million and $823,000
during 2006 and 2005, respectively, in connection with the issuance of these
shares.

                                      F-18
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

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

The Company issued 180,919 and 237,582 shares in connection with the payment of
interest on the Convertible promissory notes during 2006 and 2005, respectively.
The fair value of such shares issued during 2006 and 2005 amounted to
approximately $116,000 and $159,000, respectively. Furthermore, the Company
issued 51,250 shares in January 2007 in connection with the payment of accrued
interest of approximately $23,000 as of December 31, 2006.

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

During 2005, the Company issued 92,903 shares of common stock pursuant to its
failure to timely file its registration statement. The fair value of such shares
amounted to approximately $133,000 and is included in selling, general, and
administrative expenses.

ISSUANCE OF COMMON STOCK PURSUANT TO PRIVATE PLACEMENTS

During 2006, the Company issued 15,624,891 shares pursuant to three private
placements which generated net proceeds of approximately $6.5 million.

During 2005, the Company issued 2,779,543 shares pursuant to a private placement
which generated net proceeds of approximately $1.5 million. During 2005, the
Company settled claims from certain investors by issuing 1,000,000 shares to
such investors. The fair value of the shares in connection with the settlement
amounted to $730,000. Pursuant to the settlement, the Company also reduced
certain put rights to 2,000,000 shares at a price of $1.25. The put rights
expire by March 2007.

REPURCHASE AND CANCELLATION OF COMMON STOCK

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

                                      F-19
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 8 - STOCK OPTIONS AND WARRANTS

A summary of the activity of the Company's outstanding warrants during 2006 and
2005 is as follows:

                                                                    Weighted
                                                                     Average
                                                     Warrants     Exercise Price
                                                     --------     --------------

Outstanding, January 1, 2005 ...................     4,338,126        $1.13
Granted ........................................     1,653,891         0.94
Exercised ......................................      (862,001)        0.375
Expired ........................................             -          -
                                                    ----------        ------
Outstanding and exercisable at December 31, 2005     5,130,016         0.67

Granted ........................................    15,588,928         0.60
Exercised ......................................             -          -
Expired ........................................      (280,001)        1.25
                                                    ----------        ------
Outstanding and exercisable at December 31, 2006    20,438,943        $0.60
                                                    ==========        ======

The weighted average remaining contractual life and weighted average exercise
price of warrants outstanding and exercisable at December 31, 2006, for selected
exercise price ranges, is as follows:

                    Warrants            Weighted Average
Exercise          outstanding              Remaining            Weighted Average
 prices          and exercisable        Contractual Life         Exercise Price
 ------          ---------------        ----------------        ----------------

 $0.32                596,000                 3.4                    $0.32
  0.375             2,402,499                 1.8                     0.375
  0.40              3,523,215                 4.4                     0.40
  0.45              3,137,785                 4.4                     0.45
  0.50              2,100,000                 4.1                     0.50
  0.60              4,120,490                 4.8                     0.60
  0.75                125,000                 4.8                     0.75
  1.00              3,000,000                 1.4                     1.00
  1.25                332,500                 2.4                     1.25
  1.30                976,454                 3.9                     1.30
  1.50                125,000                 2.0                     1.50

The weighted average remaining contractual life of the terms of the warrants is
3.6 years.

All warrants issued during 2006 and 2005 have been accounted for as derivative
liabilities.

                                      F-20
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)

STOCK OPTIONS

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

The Company granted 4,337,773 options with below market exercise prices during
2005. The issuance of such options to employees resulted in compensation expense
pursuant to APB Opinion No. 25 amounting to approximately $457,000 during 2005.

The Company granted 957,500 and 565,000 options to consultants for services
rendered during 2006 and 2005, respectively. The fair value of such options has
been recorded as derivative liabilities.

A summary of the activity of the Company's stock option plan is presented below:

                                                                    Weighted
                                                                     Average
                                                     Options      Exercise Price
                                                    ----------    --------------

Outstanding at January 1, 2005 .................     5,616,500        $ 1.51

Granted ........................................     8,430,028          0.49
Exercised ......................................      (652,643)         0.03
Expired ........................................    (4,432,312)         1.00
                                                    ----------        ------

Outstanding at December 31, 2005 ...............     8,961,573        $ 0.53
                                                    ==========        ======

Granted ........................................     6,741,683          0.47
Exercised ......................................      (300,241)         0.27
Expired ........................................    (3,827,530)         0.58
                                                    ----------        ------
Outstanding at December 31, 2006 ...............    11,575,485          0.42

Exercisable at December 31, 2006 ...............     9,512,152        $ 0.38
                                                    ==========        ======

                                      F-21
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)

The weighted average remaining contractual life and weighted average exercise
price of options outstanding and options exercisable at December 31, 2006, for
selected exercise price ranges, is as follows:

Options outstanding:
                                        Weighted average
   Range of            Number of            remaining           Weighted average
exercise prices         options         contractual life         exercise price
---------------         -------         ----------------        ----------------

  $0.001-0.02          1,847,985              1.1                    $ 0.02
   0.34-0.75           9,007,500              4.1                      0.44
   0.90-0.95              60,000              3.7                      0.93
   1.60-1.75             660,000              1.83                     1.69


Options vested and exercisable:

                                        Weighted average
   Range of            Number of            remaining           Weighted average
exercise prices         options         contractual life         exercise price
---------------         -------         ----------------        ----------------

  $0.001-0.02          1,847,985              1.1                    $ 0.02
   0.34-0.75           6,944,167              3.6                      0.47
   0.90-0.95              60,000              3.7                      0.93
   1.60-2.25             660,000              3.8                      1.72


The options outstanding vest over periods of up to two years. During 2006, the
Company recorded a share-based payment expense amounting to approximately $2.3
million in connection with all options outstanding. The weighted average fair
value of the options issued to employees during 2006 amounted to $0.48.

The share-based payment is based on the fair value of the outstanding options
amortized over the requisite period of service for optionholders, which is
generally the vesting period of the options. The fair value of the options is
based on the Black Scholes Model using the following assumptions:

Exercise price :                    $0.001-$0.74
Market price at date of grant :     $0.34-$0.74
Volatility :                        221-225%
Expected dividend rate :            0%
Risk-free interest rate :           4.18-5.1%

The total compensation cost related to nonvested awards not yet recognized
amounted to approximately $1.7 million at December 31, 2006 and the Company
expects that it will be recognized over the following weighted-average period of
22 months.

                                      F-22
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 9 - 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, 2006 are as follows:

Deferred tax assets:
Net operating loss carryforward ...   $ 12,710,000
Less valuation allowance ..........    (12,710,000)
                                      ------------
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 $ 14.6 million at
December 31, 2006 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 2006 and 2005 was $4.3 million and $5.7 million, respectively.

The Company has incurred net operating losses since inception. At December 31,
2006, the Company had a net operating loss carryforward amounting to
approximately $31.0 million for U.S. tax purposes that expire in various amounts
through 2026. 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.

The federal statutory tax rate reconciled to the effective tax rate during 2006
and 2005, respectively, is as follows:

                                               2006       2005
                                               ----       ----
Tax at U.S. statutory rate: ...............    35.0%      35.0%
State tax rate, net of federal benefits ...     6.0        6.0
Change in valuation allowance .............   (41.0)     (41.0)
                                              -----      -----
Effective tax rate ........................     0.0%       0.0%
                                              =====      =====

                                      F-23
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 10 - COMMITMENTS AND CONTINGENCIES

LITIGATION

During 2005, certain arbitrators awarded two consultants certain compensation
amounting to approximately $150,000 payable by Grassroots, one of the Company's
subsidiaries. The Company has recorded a corresponding liability in the
accompanying financial statements.

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

EMPLOYMENT CONTRACT

The Company entered in 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. 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.

OPERATING LEASES

The Company has 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, 2006 are as follows:

                    Future Minimum
                    Lease Payments
                    --------------
         2007          $152,000
         2008           152,000
         2009           152,000
         2010           152,000
         2011           139,000

                                      F-24
<PAGE>

                               SPARE BACKUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 11 - RELATED PARTY TRANSACTIONS

During 2005, the Company issued a 12.5% Convertible Promissory Note to the
fiancee of its Chief Executive Officer. The note amounted to $275,000. In
connection with this note, the Company issued 256,667 warrants. The warrants
have an exercise price of $0.32. The Company satisfied this note during 2006

NOTE 12 - SUBSEQUENT EVENTS

The Company generated proceeds of approximately $1.9 million pursuant to the
exercise of 5,861,917 warrants during 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 to repurchase 1,000,000 shares, the holders of
the put will retain the remaining 617,228 shares and the Company will issue an
additional 668,664 shares to the holders of the put to satisfy its obligations
under this arrangement.

                                      F-25