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

(MARK ONE)
                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

                                       OR

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

                 FOR THE TRANSITION PERIOD FROM ______TO _______

                         COMMISSION FILE NUMBER: 0-30687

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

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

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

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

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

     Title of each class          Name of each exchange on which registered

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

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

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

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

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

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

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

<PAGE>

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

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

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

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of the
last business day of the registrant's most recently completed second fiscal
quarter. $49,583,101 on June 29, 2007.

Indicated the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date. 81,079,398 shares of common
stock are issued and outstanding as of April 2, 2008.

                       DOCUMENTS INCORPORATED BY REFERENCE

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

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                                TABLE OF CONTENTS
                                                                        Page No.
                                                                        --------
Part I
Item 1.     Business. ..................................................       4
Item 1A.    Risk Factors ...............................................      11
Item 1B.    Unresolved Staff Comments. .................................      18
Item 2.     Properties. ................................................      18
Item 3.     Legal Proceedings. .........................................      18
Item 4.     Submission of Matters to a Vote of Security Holders. .......      19
Part II
Item 5.     Market for Registrant's Common Equity, Related Stockholder
            Matters and Issuer Purchases of Equity Securities. .........      19
Item 6.     Selected Financial Data ....................................      21
Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operation. ........................      21
Item 7A.    Quantitative and Qualitative Disclosures About
            Market Risk. ...............................................      33
Item 8.     Financial Statements and Supplementary Data. ...............      33
Item 9.     Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure. .......................      34
Item 9A.(T) Controls and Procedures. ...................................      34
Item 9B.    Other Information. ........................................       34
Part III
Item 10.    Directors, Executive Officers and Corporate Governance. ....      35
Item 11.    Executive Compensation. ....................................      39
Item 12.    Security Ownership of Certain Beneficial Owners
            and Management and Related Stockholder Matters. ............      46
Item 13.    Certain Relationships and Related Transactions,
            and Director Independence. .................................      49
Item 14.    Principal Accountant Fees and Services. ....................      49
Part IV
Item 15.    Exhibits, Financial Statement Schedules. ...................      51

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

                           OTHER PERTINENT INFORMATION

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

                                       3
<PAGE>

                                     PART I

ITEM 1.  BUSINESS.

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

OUR PRODUCTS AND SERVICES

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

         Spare Backup offers:

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

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

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

            o  All desktop files.

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

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

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

         o  Reports automatically available to users in Spare Backup

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

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

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

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

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

         An overview of customer benefits includes:

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

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

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

         Spare Switch is used by either downloading the software from the
Internet or by inserting an installation CD into the old computer. Spare Switch
then scans the hard drive and inventories of personal directories, giving the
user a detailed report of the documents and other files. From that inventory,
the user can then select the exact files that he or she wishes to transfer to
the new PC. Spare Switch avoids the need for PC-to-PC transfer cable by
compacting, encrypting and then transferring the files via the Internet. Spare
Switch's data center can then hold the data for as long as a week, giving the
user the flexibility to choose when to download the files to the new PC. The
files are downloaded from our secure Spare Switch data center using the Spare
Switch CD. Spare Switch uses a 256-bit encryption cipher with non-algorithmic
key to ensure that the information is impervious to hackers at every step of the
process. Spare Switch is priced at $14.99 and supports one user.

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

         We offer new users a free 14-day trial. Space Backup services cost
$6.99 per month for up to 50 gigabytes of data storage.

OUR TARGET CUSTOMERS

         We focus on owners and executives of businesses which do not have an IT
(information technology) department that use technology to support their
businesses as well as small business users and consumers who desire to secure
the redundancy of available files and documents vital to the continuity of their
operations, business, or personal information. Since our products and services
allow non-technical users to quickly, easily and thoroughly secure and backup
their files or data archiving and storage, we believe that our business is
uniquely relevant to enabling small companies to succeed using technology. Our
products and services also support individual business professionals working in
companies of all sizes. Other unique characteristics are additional coding that
enables easy to scale infrastructure and support elements. We believe that this
characteristic provides a competitive advantage over other providers whose
products require large investments in hardware, as well as professional
installation, training and support.

                                       5
<PAGE>

HOW WE MARKET OUR PRODUCTS AND SERVICES

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

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

         In November 2007, we reached an agreement with Comcast Cable in which
Comcast will undertake an internal trial program for our online backup service.
Both parties have been testing the product and are negotiating the final terms
of an agreement. We anticipate a roll out to all broadband subscribers in the
second quarter of 2008 with a variety of offerings under various programs.

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

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

         DSG RETAIL LIMITED

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

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

         o  all currently subscribed PC Performance agreements, (service
            agreements),
         o  all PC Performance agreements sold during the duration of the
            agreement,
         o  embedded within the images of computers that are provided by DSGI or
            branded DSGI as an icon on the desktop , and

                                       6
<PAGE>

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

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

         The initial term of the agreement was 12 months, with provisions for
automatic renewals on each anniversary date of the agreement for an additional
12-month term, unless otherwise terminated by either of the parties on 60 days'
prior written notice. On February 13, 2008, the parties agreed to renew the
agreement for an additional 12 months with DSG emphasizing that is seeking to
renegotiate current terms in anticipation of a potential new three-year deal.
The agreement contains customary confidentiality provisions. In addition, during
the term of the agreement we have agreed not to enter into any other arrangement
or agreement for the provision of similar services within the countries covered
by the agreement through other multiple electronic or PC retailer or nationwide
supermarket, other than our existing agreements with Computer Associates and
Hewlett Packard without prior consent.

         In furtherance of our relationship with DSG International, in October
2007 DSG International has agreed to embed our Spare Backup software in its
private label personal computers such as Philips, Advent and EI System's
beginning in the first quarter of 2008. Our offer will be launched upon the
initialization of the new computer, icons and welcome centers and is covered
under the terms of the current agreements between the two companies. We
anticipate that our software will be available to approximately 1,000,000
customers through this deployment method.

CUSTOMER SUPPORT

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

RESEARCH AND DEVELOPMENT

         Our products were developed primarily by our employees assisted by
contractors in certain specialty areas. We have invested approximately $1.2
million and approximately $851,000 in research and development during fiscal
2007 and fiscal 2006, 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

                                       7
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availability to Spare Backup service users. The entire storage area network
(SAN) storage system is replicated in near real-time to a secondary SAN to
backup the primary one, which will automatically become available in the event
of an outage at the primary storage array. Our servers use the latest enterprise
level operating system available from Microsoft and use industry standard
networking and communication protocols. This provides a highly available network
that can scale rapidly using off the shelf hardware. These systems are fully
redundant and we anticipate our reliability at 99.9%. We can expand our network
capacity quickly and with highly predictable costs.

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

         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, our insurance coverage
covers lost profits and accordingly we may not have adequate business
interruption insurance to compensate us for losses that may occur from a system
outage. Despite our efforts, our network infrastructure and systems could be
subject to service interruptions or damage and any resulting interruption of
services could harm our business, operating results and reputation.

COMPETITION

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

         o  Service functionality, quality and performance;

         o  Ease of use, reliability and security of services;

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

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

         o  Customer service and support; and

         o  Pricing.

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

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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.

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 20, 2008 we had 35 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.

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<PAGE>

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.

         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

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B. Perle, was elected as a member of our Board of Directors and appointed CEO,
and Mr. Lam resigned his positions with our company. Mr. Richard Galterio, the
other member of our Board of Directors before the transaction remained as a
director, and Mr. Edward L. Hagan, Secretary of Grass Roots, was appointed our
secretary. Mr. Perle, the principal stockholder of Grass Roots, and members of
his family/household received an aggregate of 46% of our shares of common stock
as a result of the exchange upon the merger.

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

ITEM 1A. RISK FACTORS

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

WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT. WE ANTICIPATE CONTINUING
LOSSES MAY RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS. THE REPORT ON
OUR FINANCIAL STATEMENTS FOR FISCAL 2007 CONTAINS AN EXPLANATORY PARAGRAPH
REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN.

         Our net losses for the fiscal years ended December 31, 2007 and 2006
were $26,084,897 and $14,478,439, respectively. We have never generated
meaningful revenues to fund our ongoing operations. Our operating losses for
fiscal 2007 and fiscal 2006 were $18,765,117 and $11,933,422, respectively, and
these losses are primarily attributable to our sales, general and administrative
expense which has risen approximately 59% for fiscal 2007 over fiscal 2006. At
December 31, 2007 we had approximately $527,000 of cash on hand. We have raised
subsequent to December 31, 2007, approximately $1,040,000 from the exercise of
outstanding warrants and options, the sale of our common stock, and borrowed
$50,000 under a two year note. The proceeds are being used for working capital
purposes. However, our current working capital is not sufficient to pay our
operating expenses and satisfy our obligations as they become due, including
approximately $2,975,000 of short term convertible debt due in the fourth
quarter of fiscal 2008. These notes are convertible into shares of our common
stock at a conversion price of $0.33 per share and we have the right to cause
the conversion of the $475,000 principal amount of these notes to maturity if we
receive gross proceeds of $4,000,000 or more from one or more completed
financing transactions and there is an effective registration statement covering
the resales of the shares underlying the debentures and warrants.

         While we are constantly evaluating our cash needs and existing burn
rate in order to make appropriate adjustments in operating expenses, we need to
raise additional debt or equity capital to provide funding for ongoing and
future operations and to satisfy our obligations as they become due. While we
recently engaged an investment banking firm to assist us in a capital raise, 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

                                       11
<PAGE>

capital and to market and sell our services successfully. If we are unable to
raise capital as needed, it is possible that we would be required to cease
operations. The financial statements included in this 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.

         Net revenues from the sales of our Spare Backup line of products have
been limited. We reported net revenues of $260,350 and $73,046, respectively,
for the fiscal years ended December 31, 2007 and 2006. While our net revenues
significantly increased for fiscal 2007 over fiscal 2006, our net revenues will
need to significantly increase if we are to provide cash to fund our operating
expenses. We cannot guarantee either that the demand for our Spare Backup line
of software products will develop, that such demand will be sustainable or that
we will ever effectively compete in our market segment. If we are unable to
generate any significant net revenues from our products and services our
business, operating results, and financial condition in future periods will be
materially and adversely affected and we may not be able to continue our
business as presently operated, if at all.

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

         Historically, our operations have been financed primarily through the
issuance of equity and debt. Because we have a history of losses and have never
generated sufficient revenue to fund our ongoing operations, we are dependent on
our continued ability to raise working capital through the issuance of equity or
debt to fund our present operations. Because our operating expenses have
continued to grow and we do not know if our net revenues will grow at a pace
sufficient to fund our current operations, the continuation of our operations
and any future growth will depend upon our ability to raise additional capital,
possibly through the issuance of long-term or short-term indebtedness or the
issuance of our equity securities in private or public transactions. While the
actual amount of our future capital requirements, however, depend on a number of
factors, including our ability to grow our net revenues and manage our business,
it is likely we will need to raise a significant amount of capital during fiscal
2008 if we are to continue our current operations and satisfy our obligations as
they become due. 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 2007 AND FISCAL 2006, 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

                                       12
<PAGE>

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
$5,609,097 in fiscal 2007. 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 2006 resulted in other
income to us of $179,927. 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 an addition (reduction) in our net
loss of $5,609,097 for fiscal 2007 and ($179,927) for fiscal 2006. At December
31, 2006 our balance sheet reflects a current liability of $11,392,255 related
to the derivative liability. During fiscal 2007 we have reclassified all of
derivative liabilities amounting to $22,147,932 to additional paid in capital as
a result of the repayment and conversion of the 8% convertible promissory notes
and conversion of the 12.5% convertible subordinated promissory debentures into
common stock. At December 31, 2007, derivative liabilities amounted to $0.

         While at December 31, 2007 we no longer had any derivative liabilities,
we have historically been at a disadvantage in negotiating terms of financing
transactions which have resulted in the recognition of these derivative
liabilities. As described elsewhere herein, we need to raise a significant
amount of additional capital to fund our ongoing operations and satisfy our
obligations as they become due, including approximately $2,975,000 of short-term
debt due during the fourth quarter of fiscal 2008. Accordingly, while we will
seek to negotiate terms for such financings which do not result in the
recognition of derivative liability expense, there are no assurances we will be
successful. In such event, it is possible that our financial statements will
reflect the impact of derivative liabilities in future periods which can
materially impact our balance sheet and results of operations.

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 April 2, 2008 the following securities which are convertible or
exercisable into shares of our common stock were outstanding:

         o  common stock purchase warrants to purchase a total of 27,243,314
            shares of our common stock at prices ranging between $0.32 to $1.50
            per share;

         o  9,166,666 shares of our common stock issuable upon the possible
            conversion of the outstanding $3,025,000 principal amount 8%
            convertible promissory notes due between October 2008 and February
            2010, and

         o  13,693,069 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.

                                       13
<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 net revenues and operating results may vary significantly from
quarter to quarter due to a number of factors, many of which are beyond our
control, including:

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

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

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

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

         o  government regulation; and

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

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

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

         We have incurred net losses quarterly from inception through December
31, 2007, and at December 31, 2007 we had an accumulated deficit of
approximately $74 million. We expect to continue to incur net losses for the
foreseeable future absent a significant increase in our revenues, of which there
are no assurances. Accordingly, our ability to operate our business and
implement our business strategy may be hampered by negative cash flows in the
future, and the value of our stock may decline as a result. Our capital
requirements may vary materially from those currently planned if, for example,
we incur unforeseen capital expenditures, unforeseen operating expenses or
investments to maintain our competitive position. If this is the case, we may
have to delay or abandon some or all of our development plans or otherwise
forego market opportunities. We will need to generate significant additional net
revenues to be profitable in the future and we may not generate sufficient net
revenues to be profitable on either a quarterly or annual basis in the future.
To address the risks and uncertainties facing our business strategy, we must,
among other things:

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

         o  Successfully raise additional capital in the future;

         o  Successfully integrate, leverage and expand our product
            distribution;

         o  Successfully scale our current operations;

                                       14
<PAGE>

         o  Implement and execute our business and marketing strategies;

         o  Address intellectual property rights issues that affect our
            business;

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

         o  Respond to competitive developments in the software industry.

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

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

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

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

         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.

                                       15
<PAGE>

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

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

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

         o  Service functionality, quality and performance;

         o  Ease of use, reliability and security of services;

         o  Establish a significant base of customers and distribution partners;

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

         o  Customer service and support; and

         o  Pricing.

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

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:

                                       16
<PAGE>

         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.

         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. WE RECENTLY
ISSUED OUR CEO A SERIES OF SUPER VOTING PREFERRED STOCK WHICH INCREASED HIS
ABILITY TO CONTROL THE OUTCOME OF STOCKHOLDER VOTES.

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

                                       17
<PAGE>

         In addition, our certificate of incorporation authorizes the issuance
of up to 5,000,000 shares of preferred stock with such rights and preferences as
may be determined by our board of directors. Our board of directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion or voting rights that could adversely affect the voting power or
other rights of our common stockholders. In January 2008, we created a series of
50,000 shares of Series A Preferred Stock which carries super voting rights of
400 votes per share which were issued to our CEO as additional compensation.
Prior to the issuance of the shares of Series A Preferred Stock to Mr. Perle he
controlled the vote of approximately 10% of our outstanding voting securities.
As a result of the issuance of these securities, Mr. Perle now controls the vote
of approximately 28.5% of our outstanding voting securities. This action was
approved by our Board of Directors of which Mr. Perle is a member in accordance
with the provisions of our certificate of incorporation.

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

         Not applicable to a smaller reporting company.

ITEM 2.  PROPERTIES.

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

ITEM 3.  LEGAL PROCEEDINGS.

         We are a party to litigation in Cole County, Missouri, Ozark
Management, Inc. vs. Spare Backup, Inc. Case No. 07AC-CC01045, which was filed
on November 15, 2007 by a lessor related to an aircraft lease agreement entered
into by us in July 2007. The plaintiff claims damages pursuant to the lease of
approximately $452,000 with an additional $15.82 per day, plus attorney's fees.
We have removed this case to the Federal District Court for the Western District
of Missouri. We have asserted in response to the plaintiff's allegations that
the plaintiff breached express and implied warranties concerning the condition
of the aircraft and that we rejected the aircraft and/or revoked our alleged
acceptance of the aircraft pursuant to the Uniform Commercial Code. We have

                                       18
<PAGE>

filed a Counterclaim against the plaintiff which alleges that it substantially
breached the lease agreement by providing an aircraft that was not fit for our
use and failed to cure the aircraft's deficiencies. The Counterclaim also
alleges that plaintiff negligently or intentionally misrepresented the condition
of the aircraft to us. We are claiming damages of $191,838.05 including a
deposit of $65,000.00, rent of $91,838.05 and a brokerage fee of $35,000.00
together with unspecified damages (at this time) for loss of business and pilot
fees, despite the aircraft's inoperable condition.

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

         None.

                                     PART II

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

         Our common stock is quoted on the OTCBB under the symbol SPBU. The
reported high and low sales prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.
                                                          HIGH          LOW
                                                        --------     ----------
Fiscal 2006

First quarter ended March 31, 2006 ..................   $   0.85     $    0.50
Second quarter ended June 30, 2006 ..................   $   0.52     $    0.24
Third quarter ended September 30, 2006 ..............   $   0.51     $    0.33
Fourth quarter ended December 31, 2006 ..............   $   0.59     $    0.399

Fiscal 2007

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

Fiscal 2008

First quarter ended March 31, 2008 ..................   $   0.50     $    0.315

         On April 8, 2008, the last sale price of our common stock as reported
on the OTCBB was $0.34. As of April 2, 2008, there were approximately 975 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.

                                       19
<PAGE>

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth securities authorized for issuance under
any equity compensation plans approved by our stockholders as well as any equity
compensation plans not approved by our stockholders as of December 31, 2007.
<TABLE>
<CAPTION>
                                                                                       NUMBER OF
                                                                                       SECURITIES
                                                                                       REMAINING
                                                   NUMBER OF                         AVAILABLE FOR
                                                 SECURITIES TO                      FUTURE ISSUANCE
                                                BE ISSUED UPON   WEIGHTED AVERAGE     UNDER EQUITY
                                                  EXERCISE OF     EXERCISE PRICE      COMPENSATION
                                                  OUTSTANDING     OF OUTSTANDING    PLANS (EXCLUDING
                                                   OPTIONS,          OPTIONS,          SECURITIES
                                                 WARRANTS AND      WARRANTS AND       REFLECTED IN
                                                  RIGHTS (A)        RIGHTS (B)      COLUMN (A)) (C)
                                                --------------   ----------------   ----------------
<S>                                             <C>              <C>                <C>
Plan category Plans approved by stockholders:
    2002 Stock Option and Stock Award Plan...     13,339,549           $0.54           9,865,798
Plans not approved by stockholders...........           none             n/a                 n/a
</TABLE>
         A description of each of these plans is contained later in this report
under Part III, Item 11. Executive Compensation - Stock Option Plans.

RECENT SALES OF UNREGISTERED SECURITIES

         In October 2007 we issued 100,000 shares of our common stock valued at
$60,000 to a broker-dealer that is a member of FINRA in connection with a
placement agent agreement. The recipient was an accredited investor and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.

         In January 2008 we issued 90,271 shares of our common stock to 10
accredited investors in connection with the payment of interest on the 8%
convertible promissory notes valued at approximately $33,000. The issuances were
exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.

         Between January 2008 and February 2008, in connection with the exercise
of outstanding common stock purchase warrants, we issued an aggregate of
1,489,606 shares of common stock to four accredited investors for net proceeds
of approximately $495,000. We did not pay a commission or finder's fee in
connection with such exercises. The issuances were exempt from registration
under the Securities Act of 1933 in reliance on an exemption provided by Section
3(a)(9) of that act.

         In February 2008 we issued 100,000 shares of common stock valued at
$45,000 to a consultant as compensation for consulting services in a private
transaction exempt from registration under the Securities Act of 1993 in
reliance on an exemption provided by Section 4(2) of that act. The recipient was
an accredited or otherwise sophisticated investor who had such knowledge and
experience in business matters that it was capable of evaluating the merits and
risks of the prospective investment in our securities. The recipient had access
to business and financial information concerning our company.

         In March 2008, we sold in aggregate 1,357,143 shares of our common
stock and issued warrants to purchase an additional 678,572 shares to an
accredited investor in a private offering exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act. We received gross proceeds of $475,000 from this offering. We are
using the net proceeds from this offering for working capital.

                                       20
<PAGE>

         In February 2008 we issued and sold a $50,000 principal amount
convertible subordinated promissory debenture to an accredited investor in a
private transaction exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act. In connection
with the transaction we issued the purchaser three year common stock purchase
warrants to purchase 25,000 shares of our common stock at an exercise price of
$0.50 per share. We received $50,000 of proceeds. Interest is payable quarterly
on the debenture beginning on March 31, 2008 at the rate of 8% per annum.
Interest is payable in cash or shares of our common stock which are either
valued at $0.33 per share, if there is no public market for the stock, or 90% of
the average closing price of our common stock for the five trading days
immediately preceding the interest payment date. The principal and any accrued
but unpaid interest is convertible into shares of our common stock at $0.33 per
share, subject to proportional adjustment for stock splits, stock dividends and
similar events. The conversion price is also subject to a reset if we issue any
shares of our common stock at less than $0.33 per share, subject to certain
exceptions. We granted the purchaser piggy-back registration rights covering the
shares underlying the debenture and warrant. The debenture is subject to a
mandatory conversion if we raise $4,000,000 or more in one or more financings
providing that the underlying shares are covered by an effective registration
statement.

         In April 2008 we entered into a 12 month investment banking agreement
with a FINRA member firm pursuant to which it agreed to act as a non-exclusive
investment banking consultant for us. As partial compensation we issued the firm
a five year common stock purchase warrant to purchase 250,000 shares of our
common stock at an exercise price of $0.40 per share. The recipient was an
accredited investor and the issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.

ITEM 6.  SELECTED FINANCIAL DATA.

         Not applicable to a smaller reporting company.

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

OVERVIEW

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

         We believe that by bundling our products and services as one feature of
a value-added service, offered by major national and international brands, that
we will be able to leverage their brand recognition and marketing efforts to
accelerate our market acceptance and significantly increase our adoption rates.
We use an "opt-out" adoption model which varies from partner to partner but

                                       21
<PAGE>

requires the user to provide us with enrollment information and a credit card at
the time of activation. The initial trial generally provides a certain amount of
free storage space once activated and the ability to easily continue the service
at the end of the trial period or upgrade the storage capacity. Generally, the
terms of these agreements have provided that we will pay these partner companies
a percentage of the sales for a specific period of time, after which we retain
all revenue generated from the end users.

         In fiscal 2007 we established a business relationship with DSG
International. While not a "household" name in the U.S., DSG International is
Europe's leading specialist electronic retailing group with more than 1,200
stores and online stores, operating in 27 countries with 40,000 employees.
Following the February 2007 execution of the initial agreement, in September
2007 we successfully completed a pilot program and in the fourth quarter of
fiscal the product roll out was complete and we launched an extensive marketing
campaign. Revenues from our partner agreement with DSG International represented
approximately 61% of our total net revenues for fiscal 2007.

         Under the terms of our agreement with DSG International we agreed to
provide initial training information and provide marketing materials for DSGI's
network of sales associates. During fiscal 2007 we spent approximately
$1,523,000 on these marketing trials, together with other marketing and training
expenses directly related to the DSG International Plc relationship. During the
pilot program a number of marketing strategies and initiatives were undertaken
in an effort to determine the most effective approach, including direct mail,
email blasts, in store promotions and bundling with other services. During 2007
we were required to spend more time than initially anticipated in the training
of the DSG sales associates. When our DSG program was launched, the marketing
program included an in store free CD giveaway. While we initially distributed
CD's in this promotion, we found that DSG's sales associates required additional
training if the value of a back up service was to be effectively promoted to the
customer. We have recently completed an additional training video to assist
DSG's sales associates in marketing our products and services and expect to
relaunch this program during the second quarter in fiscal 2008. In the meantime,
we currently offer one gigabyte of free backup service to all DSG customers who
participate in its PC extended warranty program. As of mid-March 2008 we have in
excess of 9,500 paid subscribers from our DSG program and we believe that our
conversion rate to fully paid subscribers in the first quarter of fiscal 2008
continues to increase and the retention rates of those subscribers will remain
high.

         During fiscal 2007 we also devoted a significant amount of time and
resources to our relationship with Hewlett-Packard which began in fiscal 2006.
The initial, limited agreement with Hewlett-Packard Company for a trial PC
backup service for U.S. consumers was expanded in fiscal 2007 to a 12 month
renewable contract which was further expanded by the inclusion of additional
covered territories and products directed to HP's small business customers. We
failed to gain adoptions at the anticipated level, due to a number of factors
related to the internal operations of HP which were beyond our control. We also
developed software that was included in the HP media server, however the product
failed in the retail establishments. During the summer of 2007 we engaged in a
number of discussions with HP centered around expanding our business
relationship; however, when no agreement was reached HP acquired certain
intellectual property which is similar to ours from a third party. Accordingly,
we are not continuing our efforts in relationship to HP.

         In May 2007 we also entered into a Software License and Distribution
Agreement with Gateway Companies, Inc. During fiscal 2007 we completed the
custom software design for Gateway and began the roll out of this program during
the third quarter of fiscal 2007. While we believe that our software has been
preloaded on in excess of 1,000,000 Gateway computers, we encountered certain
technical issues in the installation of our software on the Gateway platforms
which we were unable to correct and have discontinued our efforts with Gateway.
In addition, while we have encountered certain price point resistance from the
typical Gateway customer, we still believe we can find the right price point for
existing customers that have our software pre-installed on their computer.

                                       22
<PAGE>

         Notwithstanding the difficulties encountered in fiscal 2007 with HP and
Gateway, we remain engaged in efforts related to other OEM partners including
Sony and Packard Bell, and we are also continuing our efforts to add additional
OEM partners as well as to expand our other relationships in other potential
distribution channels including retail outlets and Internet service providers.
We believe that targeting these larger companies allows us the greatest chance
of significantly increasing our subscriber base while ultimately reducing our
customer acquisition costs.

         During fiscal 2007 we also began developing sufficient data to begin to
predict adoption trends. Based upon information known to us at this time,
approximately 55% of the free trial users exceed the one gigabyte of free
storage within five months from activation and we have a customer retention rate
of approximately 93% when transitioning those free trial users to a paid
subscription.

         As described above, during fiscal 2007, we spent significant resources,
both financial and management time, in implement our distribution model and
broaden our partnership relationships the accomplishment of these goals. These
costs included approximately $4,003,000 for sales and marketing, advertising and
business development expenses which included approximately $1,523,000 to test
various marketing programs in the U.K., including collateral materials, as well
as approximately $1,128,000 of travel and travel related expenses, and
approximately $1,412,000 of costs associated with technology service which
includes engineering development, software and hardware related to the ongoing
provision of our services. During this period we also spent approximately $1.2
million on research and development. The research and development and technology
service expenses were related to the user interface for our products as well as
the development of Workgroup for Hewlett Packard and the media vault family of
products.

         In addition to significant expenditures for sales and marketing and
research and development during fiscal 2007, our general and administrative
expenses also significantly increased during fiscal 2007. As described elsewhere
herein, these increases were attributable in part to increased operating costs
as we expand our company. Our net revenues are not sufficient to pay our
operating costs and as with prior periods we are materially dependent on our
ability to raise capital through the sale of our securities to provide cash to
fund our operations. During fiscal 2007 we raised approximately $11.9 million in
working capital through the issuance of notes, the sale of common stock and the
exercise of warrants and options. During the first quarter of fiscal 2008 to
date we have raised an additional approximate $1,090,000 from the exercise of
warrants and options, the sale of securities and a long-term loan.

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

         While our net revenues continue to increase, our operating expenses
have grown at a significantly higher rate. As set forth elsewhere herein, we
will need to raise additional working capital during fiscal 2008 to pay the
costs associated with our sales and marketing efforts, expanding our customer
base and for our general operating expenses. There are, of course, no assurances
that we will be able to raise the additional capital necessary to continue to
implement our business model. If this capital is not available to us, we may be
forced to curtail some or all of our growth plans and/or operations. If these
efforts are not sufficient, it is possible that we could be forced to cease
operations.

                                       23
<PAGE>

GOING CONCERN

         We have generated minimal revenue since our inception on September 12,
2002, and have incurred net losses of approximately $74 million since inception
through December 31, 2007. Our current operations are not an adequate source of
cash to fund our current operations and we have relied on funds raised from the
sale of our securities to provide sufficient cash to operate our business. The
report of our independent registered public accounting firm on our financial
statements for the year ended December 31, 2007 contains an explanatory
paragraph regarding our ability to continue as a going concern based upon our
net losses and cash used in operations. Our ability to continue as a going
concern is dependent upon our ability to obtain the necessary financing to meet
our obligations and repay our liabilities when they become due and to generate
profitable operations in the future. While we plan to continue to seek to
provide for our capital requirements through the sale of equity securities and
debt, we have no firm commitments from any third party to provide this financing
and we cannot assure investors we will be successful in raising working capital
as needed. In addition, the terms of a number of securities that we sold during
fiscal 2007 contain price resets which may inhibit our ability to attract
investors. Finally, we have approximately $2,975,000 of short term debt coming
due during fiscal 2008 and do not presently have sufficient funds to pay these
obligations. There are no assurances that we will have sufficient funds to
execute our business plan, pay our operating expenses and obligations as they
become due or generate positive operating results.

CRITICAL ACCOUNTING POLICIES

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

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

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

                                       24
<PAGE>

         In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines
fair value as used in numerous accounting pronouncements, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosure related to the use of fair value measures in financial
statements. The Statement is to be effective for our financial statements issued
in 2008; however, earlier application is encouraged. We are currently evaluating
the timing of adoption and the impact that adoption might have on our financial
position or results of operations.

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

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

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

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

         In December 2007, the FASB issued SFAS No. 141(R), "Business
Combinations," which replaces SFAS No. 141, " Business Combinations," which,
among other things, establishes principles and requirements for how an acquirer

                                       25
<PAGE>

entity recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed (including intangibles) and any
noncontrolling interests in the acquired entity. SFAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We are currently evaluating what impact our adoption of SFAS
No. 141(R) will have on our financial statements.

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


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

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 2007 ("FISCAL 2007") AS COMPARED TO THE FISCAL
YEAR ENDED DECEMBER 31, 2006 ("FISCAL 2006")

         Following is comparative information on certain selected income
statement items.
<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                           2007           2006       $ OF CHANGE    % OF CHANGE
                                                       ------------   ------------   ------------   -----------
<S>                                                    <C>            <C>            <C>            <C>
Net Revenues ........................................  $    260,350   $     73,046   $    187,304      +256%

Operating expenses:
Research and development ............................     1,248,185        850,982        397,203       +47%
Sales, general and administrative ...................    17,777,282     11,155,486      6,621,796       +59%
                                                       ------------   ------------
         Total operating expenses ...................    19,025,467     12,006,468      7,018,999       +58%

Operating loss ......................................   (18,765,117)   (11,933,422)     6,831,695       +57%

Other income (expense):
Change in fair value of derivative liabilities ......    (5,275,067)       762,713     (6,037,780)        NM
Derivative liability expense ........................      (334,030)      (582,786)       248,756     -42.7%
Interest income .....................................           167              -            167         NM
Transfer - unrealized gain - investment held for sale
  to trading ........................................             -        112,509       (112,509)        NM
Realized loss- trading securities ...................             -       (111,624)       111,624         NM
Gain from litigation settlement .....................       280,000              -        280,000      -100%
Other expense- employee settlement ..................      (136,500)             -       (136,500)        NM
Foreign currency gain ...............................        17,625              -         17,625         NM
Interest expense ....................................    (1,871,975)    (2,725,829)       853,854       +31%
                                                       ------------   ------------
         Total other expenses .......................    (7,319,780)    (2,545,017)     4,774,763       188%
                                                       ------------   ------------
Net loss ............................................  $(26,084,897)  $(14,478,439)    11,606,458       +80%
Comprehensive loss ..................................  $(26,084,897)  $(14,590,948)    11,493,949       +79%

Basic and diluted loss per common share .............  $      (0.38)  $      (0.31)  $       0.07         NM
Basic and diluted weighted average
 common shares outstanding ..........................    68,621,565     46,168,841     22,452,724         NM

NM = not meaningful
</TABLE>
                                       26
<PAGE>

NET REVENUES

         Under the terms of our various partner arrangements, the partner
companies are entitled to a portion of the revenues generated from user fees and
sales of our products. Accordingly, we report net revenues which is the actual
amount of revenue received by us after these payments to our partner companies.
Management believes that we have doubled our subscriber base in fiscal 2007 from
fiscal 2006 and currently have over 41,000 subscribers. In addition, we
currently have in excess of 12,000 paid subscribers in our opt-out model and we
expect that number to increase by fiscal 2008. For the year ended December 31,
2007, approximately 61% of our total net revenues were primarily attributable to
the establishment of an international partner relationship with DSG
International focusing in Europe. Although we realized net revenues related to
the DSG International relationship, the actual cash attributable to such net
revenues was not received by us and is currently applied against amounts we owe
DSG International for marketing expenses as described below which was
approximately $646,000 at December 31, 2007. Although our sales increased in
fiscal 2007 from fiscal 2006, our net revenues are still not sufficient to pay
our associated research and development costs or our sales, general and
administrative expenses. There can be no assurances that we will continue to
recognize similar net revenue increases in future periods or that we will ever
report profitable operations.

OPERATING EXPENSES

         Our total operating expenses for fiscal 2007 increased $7,018,999, or
approximately 58%, from fiscal 2006. Our operating expenses included expenses
related to research and development and sales, general and administrative
expenses.

Research and development

         Research and development expenses consist primarily of compensation
expenses paid to our software engineers, employees and consultants in
conjunction with the development or enhancement of our products. We spent
$1,248,185 on research and development expenses for fiscal 2007 as compared to
$850,982 for fiscal 2006. Research and development expenses represented
approximately 7% of our total operating expenses for fiscal 2007 and for same
period in 2006. Our research and development expenses for fiscal 2007 include
costs associated with continued development of user interfaces and additional
products, including version 5.0 of Spare-Backup, a family pack, and our SMB
(small to medium business) products, including Workgroup, and reflected
increased research and development efforts to successfully meet various
deadlines set by our OEM partners. While several of these OEM relationships are
not continuing, we believe that the products developed during fiscal 2007 will
have ultimate commercial use for our company. During fiscal 2007 we hired three
additional software engineers and a product manager and, subject to the
availability of additional capital, will need to hire three additional engineers
in fiscal 2008. We anticipate that we will continue to incur research and
development expenses in future periods as a result of the addition of new
features, the launch of new versions of our products and the expansion of our
engineering staff, however we are not able at this time to quantify the amount
of such expenditures.

Sales, General, and Administrative Expenses

         For fiscal 2007, our selling, general and administrative expenses were
$17,777,282 as compared to $11,155,486 for the same period in fiscal 2006, an
increase of $6,621,796, or approximately 59%. Sales, general and administrative
expenses represented approximately 93% of our total operating expenses for
fiscal 2007 and 2006. The non-cash portion of our sales, general and
administrative expenses for fiscal 2007 was $6,946,845 as compared to $5,719,453
for fiscal 2006, an increase of approximately 21%. This increase is primarily
attributable to the value of the warrant issued to DSG International as
described elsewhere herein. Included in our sales, general and administrative
expenses for fiscal 2007 were:

                                       27
<PAGE>

         o Marketing and advertising fees and costs increased approximately 354%
in fiscal 2007 to approximately $4,003,000 from approximately $882,000 in fiscal
2006. The increase in sales and marketing, advertising and business development
expenses which includes costs associated with the various pilot marketing
programs discussed earlier as well as travel and travel related expenses
associated with our efforts to further develop and broaden our OEM partner base
and non-cash expenses of approximately $1,823,000 associated with the granting
of a warrant to DSG International, Plc. Although we realized net revenues
related to the DSG International relationship of approximately $158,000 during
fiscal 2007, under the terms of our agreement with DSG International we agreed
to provide initial training and information and marketing materials for DSGI's
network of sales associates. Our costs for these marketing expenses, which is
exclusive of the non-cash expense associated with the aforedescribed warrant,
were approximately $1,523,000 in fiscal 2007. While a significant portion of
these expenses in fiscal 2007 were one-time expenses and we anticipate that we
will continue to incur sales and marketing, advertising and business development
expenses in fiscal 2008, we are not able to quantify the amount of such
expenses,

         o Payroll and employee related cost increased $2,070,000, or
approximately 124% to $3,725,000 for fiscal 2007 from $1,655,000 for fiscal
2006. Payroll and employee related costs which include salaries and employee
costs, related taxes, recruiting expenses, 401k contributions and stock based
compensations. This increase represents the net additional of approximately 11
employees during fiscal 2007 as well as increases in compensation levels of
certain of our employees, including our executive officers. Our offices are in a
geographic location which is not tech heavy and we face competition in hiring
qualified employees and consultants. Our experience has been that in order to
recruit qualified employees we are required to pay recruiting expenses and offer
relocation packages. If we are able to hire the personnel we presently deem
necessary, our selling, general and administrative expenses will increase
although we are presently unable to quantify the amount of projected increase,

         o Technology service increased $354,000, or approximately 33% to
$1,412,000 for fiscal 2007 from $1,058,000 for fiscal 2006 which includes
engineering development, software and hardware related to the ongoing provision
of our services. We anticipate that these costs will be relatively constant in
fiscal 2008 from fiscal 2007 levels and that as we increase the number of paid
subscribers our cost per customer for delivering service will be reduced as we
spread the expense over a greater number of subscribers,

         o For fiscal 2007 and fiscal 2006 we recorded non-cash expenses of
approximately $701,000 and $76,000, respectively, related to depreciation
expenses. The increase is primarily attributable to the purchase of
approximately $1,600,000 of servers and other computer equipment for the
co-location of a data center in New Jersey which will handle all European
traffic that we purchased during fiscal 2007,

         o Stock-based compensation consists of the fair value of options issued
to employees. For fiscal 2007 and fiscal 2006 we recorded non-cash expenses of
$3,838,404 and $2,250,330, respectively, related to stock-based compensation
expense, which includes approximately $3,200,000 attributable to options granted
to our executive officers, key employees and directors. Stock-based compensation
- options represented approximately 20% of our total operating expenses for
fiscal 2007 as compared to approximately 19% for fiscal 2006. Under SFAS No.
123(R), which was effective January 1, 2006, companies are now required to
measure the compensation costs of share-based compensation arrangements based on
the grant date fair value and recognize the costs in the financial statements
over the period during which employees are required to provide services. This
increase is primarily attributable to the increase in fair values (utilizing the
Black Scholes model) at grant dates during fiscal 2007 as compared to fiscal
2006,

         o Travel expenses were approximately $1,128,000 in fiscal 2007 as
compared to approximately $1,100,000 in fiscal 2006, an increase of
approximately 2%. This increase reflected costs associated with our capital
raising activities as well as the expansion of our partner agreements including
efforts involving DSG International. We do not presently anticipate that travel

                                       28
<PAGE>

expenses for fiscal 2008 will equal fiscal 2007 levels based upon our current
focus of partnership development,

         o Amortization of deferred compensation in 2007 consists primarily of
the remaining value of shares issued as compensation for consulting services
which has not yet been recognized prior to fiscal 2007. We recorded non-cash
expenses related to amortization of deferred compensation of $93,370 and
$1,855,601 for fiscal 2007 and 2006, respectively. Amortization of deferred
compensation represented approximately 1% and approximately 15% of our total
operating expenses for fiscal 2007 and fiscal 2006, respectively. Additionally,
we issued 150,000 shares of common stock for marketing and investor relations
services to us during fiscal 2007. The fair value of such shares amounted to
approximately $109,000,

         o During fiscal 2007 and 2006, we issued options and warrants to
consultants as compensation for marketing and public relations services to us.
We recognized fair value of derivatives at issuance related to such consulting
services of $67,520 and $1,537,550 during fiscal 2007 and 2006, respectively.
During 2007, we issued warrants to purchase 100,000 shares of our common stock
at an exercise price of $0.475 per share to a consultant as compensation for
consulting services rendered. During 2006, we paid 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
marketing and public relations services. This represented a decrease of
$1,319,980, or approximately 86%, from fiscal 2006,

         o Legal fees increased to approximately $671,000 in fiscal 2006 from
approximately $384,000 in fiscal 2006. The increase in legal fees are related to
general corporate matters, litigation matter against a former employee, and
other legal matters in which we are the plaintiff during fiscal 2007,

         o Other sales, general and administrative expenses, which includes rent
and general overhead expenses such as utilities and insurance, repairs and
maintenance as well as auto expense, meals and entertainment, professional fees
and general operating expenses, increased approximately 407% to approximately
$2,028,000 for fiscal 2007 from approximately $400,000 for fiscal 2006. The
increase is attributable to increased costs associated with the move to our new
principal offices during the first quarter of fiscal 2007, as well as increased
expenditures related to our operations. We anticipate that other sales, general
and administrative expenses for fiscal 2008 will reflect a modest decrease from
fiscal 2007 levels.

TOTAL OTHER EXPENSES

         Our total other expenses, net for fiscal 2007 increased $4,774,763, or
approximately 188%, from the same period in fiscal 2006. The non-cash component
of our total other expenses for fiscal 2007 was $7,556,772 as compared to
$2,506,392 for fiscal 2006, an increase of approximately 202%. The increase in
total other expenses for fiscal 2007 from fiscal 2006 was primarily attributable
to the following:

Change in Fair Value of Derivative Liabilities and Derivative Liabilities
expense

         Change in fair value of derivative liabilities and derivative
liabilities expense consist of income or expense associated with the change in
the fair value of derivative liabilities as a result of the application of EITF
Issue No. 00-19 to our financial statements. The difference in fair value of the
derivative liabilities between the date of their issuance and their measurement
date, which amounted to an increase of approximately $5.3 million and $763,000
for fiscal 2007 and 2006, respectively, has been recognized as other
expense/income in those periods. In addition, during fiscal 2007, we have
satisfied all of the 8% convertible promissory notes and 12.5% convertible
subordinated promissory debentures and accordingly, have reclassified all of
derivative liabilities amounting to $22,147,932 to additional paid in capital as
a result of the repayment and conversion of the 8% convertible promissory notes
and 12.5% convertible subordinated promissory debentures into common stock. At
December 31, 2007, derivative liabilities amounted to $0.

                                       29
<PAGE>

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

Interest Income and Interest Expense

         Interest income represents the amount we earn on funds on deposit which
was $167 for fiscal 2007 as compared to $0 for fiscal 2006. Interest expense
consists primarily of interest recognized in connection with the amortization of
debt discount, deferred cost and interest on our convertible promissory notes.
The decrease in interest expense during the fiscal 2007 when compared to fiscal
2006 is primarily attributable to the amortization of the deferred cost
amounting to approximately $672,000 in fiscal 2006 as compared to $0 in fiscal
2007 and decrease in interest expense as a result of the repayment and
conversion of the 8% convertible promissory notes and 12.5% convertible
subordinated promissory debentures into common stock during 2007.

Other Expense - Employee Settlement

         In December 2007, we entered into a settlement agreement and mutual
release of claims which served as a separation agreement with Jenell Fontes, a
former key employee who served as our Director of Marketing. In conjunction with
this agreement, we issued her an aggregate of 505,357 shares of our common stock
upon the cashless exercise of 505,357 stock options granted to her in
conjunction with her employment in January 2003 and August 2005 in consideration
for past services performed. In connection with this cashless exercise, we
recognized stock based compensation expense of $10,005 during the year ended
December 31, 2007. We also granted her 200,000 five-year stock options to
purchase common stock in connection with this settlement agreement at an
exercise price of $.0001 per share. We valued these options utilizing the
Black-Scholes options pricing model at approximately $0.49 or $98,000
Additionally, we agreed continue to pay her medical and dental coverage, provide
her continued exclusive use of a vehicle leased by us and provide her a car
allowance until June 2008. The value of these severance benefits in fiscal 2007
amounted to approximately $10,000 and has been included in accrued expenses. We
have recorded a total of $108,000 in connection with this settlement agreement
in fiscal 2007. We will record an additional approximate $12,000 in expense in
fiscal 2008 related to the value of the continued use of a vehicle leased by us.

         In December 2007, we also entered into a settlement agreement and
mutual release of claims which served as a separation agreement with a former
employee. Under the terms of the agreement, all remaining options to purchase an
aggregate of 149,002 shares of our common stock at exercise prices of $0.34 to
$0.50 per share which had been previously granted to her under the terms of our
2002 Stock Option and Stock Award Plan will remain exercisable until their
original termination dates between July 2011 and October 2012. Additionally, we
agreed to pay medical and dental coverage for her until March 2008. We have
recorded a total of $28,500 in connection with this settlement agreement in
fiscal 2007 and we do not expect to report similar expense in future periods.

Gain from Litigation Settlements

         During fiscal 2007 we settled three ongoing litigation matters which
resulted in a one-time net gain of $280,000. We did not have any comparable
gains in fiscal 2006.

Foreign currency gain

         Under the terms of our agreement with DSG International we are required
to make certain payments in British Pound Sterling. As of December 31, 2007, we
owed DSG International approximately $646,000 or (pound)324,000. Foreign
currency gain of $17,625 for fiscal 2007 represents a non-cash gain which

                                       30
<PAGE>

reflects the fluctuation of conversion rate of British Pound Sterling to U.S.
dollar from an average conversion rate of $2.06 between October 2007 and
November 2007 to a conversion rate of $1.99 on December 31, 2007.

Net Loss, Transfer - unrealized gain - Comprehensive Loss

         For fiscal 2007 we reported a net loss of $26,084,897, an increase of
$11,606,458, or approximately 80%, from fiscal 2006. For fiscal 2006 we
recognized a loss of $112,509 on the transfer of unrealized gain - investment
held for sale to trading security. The item of expense was a one-time event and
we did not report similar expense in fiscal 2007. This one-time, non-cash item,
however, increased our comprehensive loss in fiscal 2006 by $112,509 for fiscal
2006.

LIQUIDITY AND CAPITAL RESOURCES

         Liquidity is the ability of a company to generate funds to support its
current and future operations, satisfy its obligations and otherwise operate on
an ongoing basis. The following table provides certain selected balance sheet
comparisons between December 31, 2007 and December 31, 2006:
<TABLE>
<CAPTION>
                                                            DECEMBER 31,   DECEMBER 31,       $ OF        % OF
                                                              2007 ($)       2006 ($)        CHANGE      CHANGE
                                                            ------------   ------------   -----------    ------
<S>                                                         <C>            <C>            <C>
Working capital (deficit) ...............................    (2,634,060)   (11,852,100)     9,218,040      -78%
Cash ....................................................       527,402        146,318        381,084      260%
Restricted cash .........................................             0        872,820       (872,820)    -100%
Prepaid marketing expenses ..............................       181,238              0        181,238     +100%
Total current assets ....................................       708,640      1,019,138       (310,498)     -30%
Property and equipment, net .............................     1,652,077        488,818      1,163,259     +238%
Other assets ............................................             0         75,380        (75,380)    -100%
Total assets ............................................     2,360,717      1,583,336        777,381      +49%

Accounts payable and accrued expenses ...................     2,878,014        853,176      2,024,838     +237%
8% convertible promissory notes, net of debt discount ...       416,376        293,509        122,867       42%
12.5% convertible subordinated promissory debentures, net             0        295,201       (295,201)    -100%
Accrued interest on convertible promissory notes ........        33,310         22,097         11,213       51%
Derivative liabilities ..................................             0     11,392,255    (11,392,255)    -100%
Due to stockholder ......................................        15,000         15,000              0       n/a
Total current liabilities ...............................     3,342,700     12,871,238     (9,528,538)     -74%
Total liabilities .......................................     3,342,700     12,877,664     (9,534,964)     -74%

NM = not meaningful
</TABLE>
         We have experienced losses and negative cash flows from operations
since inception and the report of our independent registered public accounting
firm on our financial statements for fiscal 2007 contains an explanatory
paragraph regarding our ability to continue as going concern. At December 31,
2007, we had cash on hand of $527,402 and subsequent to that date we have raised
an additional $1,090,000. Our cash on hand, however, is not sufficient to fund
our ongoing operating expenses and satisfy our obligations as discussed below.

         At December 31, 2007, we had a working capital deficiency of
approximately $2,634,000 which reflects current assets of $708,640 less current
liabilities of $3,342,700. Our current assets decreased by $310,498 from
December 31, 2006 to December 31, 2007. Included in these changes is an increase
of:

         o $381,084 in cash which we used for general working capital,

         o $181,238 in prepaid marketing expenses which represents the value of
the warrant we issued to DSG International Plc which is being amortized for the
remaining period of the agreement,

                                       31
<PAGE>

         o $2,024,838 in accounts payable and accrued expenses. Included in this
amount was approximately $398,000 which has been reserved for possible expenses
in conjunction with our early termination of an aircraft lease and $646,000 due
DSG International for marketing related expenses. As set forth above, DSG
International is offsetting this obligation through the retention of our portion
of net revenues earned by us from usage fees and the sale of our products by it,

         o $122,867 in amounts due under 8% convertible subordinated promissory
debentures. During fiscal 2007, the holders of these notes converted earlier
issued 8% notes amounting to approximately $292,000 into shares of our common
stock pursuant to the terms of the instruments. Subsequent thereto, during
fiscal 2007 we issued and sold new convertible promissory notes aggregating
$2,975,000, net of debt discount of $2,558,624,

         o $11,213 of accrued interest under the 8% convertible promissory
debentures. During January 2008, we issued 90,271 shares in connection with the
payment of interest on the 8% convertible promissory notes.

         These increases were offset by decreases of:

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

         o $375,000 in amounts due under 12.5% convertible subordinated
promissory debentures, net of debt discount of $79,799, and accrued interest on
these notes. During fiscal 2007 the holders of these notes converted the notes
into shares of our common stock pursuant to the terms of the instruments, and

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

         During fiscal 2007, our cash increased $381,084. This increase
consisted of $10,758,682 in cash provided by financing activities which was
offset by $8,527,867 of cash used in operating activities, which is net of a
reduction of $872,820 in restricted cash held in escrow under the terms of our
Circuit City agreement which was released back to us as described in this
report, and $1,849,731 of cash used in investing activities.

         Net cash used in operating activities for fiscal 2007 increased
$1,808,161 from the same period in 2006. Included in this change is an increase
in our net loss for the period to $26,084,897, as compared to a net loss of
$14,478,439 for fiscal 2006, and is primarily attributable to the effect of
increased expenses for fiscal 2007 related to non-cash transactions, including
the losses associated with derivative liabilities, prepaid marketing expense,
value of shares issued for services and settlement agreement, depreciation and

                                       32
<PAGE>

the value of stock options issued as compensation, together with a decrease in
other current assets of $75,380, increases in accounts payable and accrued
expenses of $1,663,364, and an increase in accrued interest of $42,486.

         Net cash used in investing activities was $1,849,731 for fiscal 2007 as
compared to net cash used in investing activities of $201,165 for the comparable
period in 2006. This change is attributable to the purchase of servers and other
computer equipment for the New Jersey data center as described above. We did not
have any comparable purchases during fiscal 2006.

         Net cash provided by financing activities was $10,758,682 for fiscal
2007 as compared to $6,901,251 for fiscal 2006. During fiscal 2007, we received
net proceeds of $4,207,101 from the issuance of our common stock, $3,423,061
from the exercise of stock warrants and options, and $4,300,000 proceeds from
issuance of convertible promissory notes which was offset by the $1,250,000
(less $100,000 previously paid) repurchase of shares of our common stock
associated with the exercise of a put right by Robinson Reed, Inc. and $21,480
principal repayments on the 12.5% subordinated convertible promissory debentures
and 8% convertible promissory notes. During fiscal 2006, we received $6,924,224
from the issuance of our common stock and $1,500,000 from issuance of bridge
notes which was offset by the payment of financing costs and principal
repayments of lease obligations in the aggregate amount of $614,493.
Additionally, we made principal repayments on a convertible promissory note
amounting to $275,000 and repurchase of 5,882,352 shares of our common stock
from Langley Park Investment Trust PLC for $633,602.

         We have generated minimal net revenues since inception and our current
net revenues are not an adequate source of cash to fund our operating expenses
or pay our obligations as they become due. Our general and administrative
expenses for fiscal 2007 increased approximately $6,600,000, or approximately
59%, from the comparable period in fiscal 2006 and our accounts payable and
accrued expenses have increased approximately 237% at December 31, 2007 from
December 31, 2006. A material amount of these payables are aged. In addition, we
have $2,975,000 due between October 2008 and November 2008 as principal and
interest payments on our 8% convertible debentures upon their maturity.

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

ITEM 7A. QUANTATIVE AND QUALITATIVE DISCOURSES ABOUT MARKET RISK.

         Not applicable to smaller reporting companies.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Our financial statements are contained in pages F-1 through F-31,
which appear at the end of this annual report.

                                       33
<PAGE>

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

         None.

ITEM 9A(T). CONTROLS AND PROCEDURES.

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

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

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

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

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

         Our management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2007. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in Internal Control-Integrated
Framework. Management's assessment included an evaluation of the design of our
internal control over financial reporting and testing of the operational
effectiveness of these controls.

         Based on this assessment, our management has concluded that as of
December 31, 2007, our internal control over financial reporting was effective
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles.

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

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

ITEM 9B. OTHER INFORMATION.

         None.

                                       34
<PAGE>

                                    PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

DIRECTORS AND EXECUTIVE OFFICERS

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

NAME                     AGE         POSITIONS
----                     ---         ---------
Cery B. Perle             45         Chief Executive Officer,
                                     President and Chairman of the Board
Edward 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 FINRA (formerly 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 June 2003. Since March 2007 he has been an Executive Vice
President of China Direct, Inc. (AMEX: CDI). Prior thereto, from March 2005
until December 2007 he was Chief Operating Officer, Chief Compliance Officer and
Secretary of Skyebanc, Inc., a FINRA member firm. From January 2001 until March
2005 he was Managing Director of Private Equity for vFinance, Inc., an
investment banking firm which is a member of FINRA, a position he had held since
the acquisition in September 1998 by vFinance, Inc. of First Level Capital, a
FINRA 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, a FINRA 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 FINRA.

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

KEY EMPLOYEES

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

NAME                AGE         TITLE
----                ---         -----
Ivor Newman          42         Vice President of Operations
Darryl Adams         32         Director of Software Operations

         IVOR A. NEWMAN. Mr. Newman, 42, 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.

         DARRYL ADAMS. Mr. Adams, 32, has served as our Director of Software
Operations since October 2006. Mr. Adams is experienced in software development.
Prior to joining our company, from March 2003 until October 2006 he was employed
by Automated Trading Desk, LLC, a South Carolina based high-tech brokerage and
market maker that applies sophisticated algorithmic methods to equities trading,
as a team member responsible for implementation and analysis of various stock
price prediction engines. From December 2001 to March 2003 he operated
Cinderblock Inc., a North Carolina-based consulting firm that he founded which
provided custom software solutions for technology companies and from September
1999 to October 2001 he was employed by ClickRadio, Inc., a provider of Internet
based music entertainment software, where he participate in the development of
software elements and was responsible for client configuration management and
build processes needed to release software and upgrades to the public. Mr. Adams
received a B.S. with honors in mathematics from the College of Charleston.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us under Rule 16a-3(d) of the Securities Exchange Act during the
fiscal year ended December 31, 2007 and Forms 5 and amendments thereto furnished
to us with respect to the fiscal year ended December 31, 2007, as well as any
written representation from a reporting person that no Form 5 is required, we

                                       36
<PAGE>

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, 2007, except
as set forth below:

         o During 2007, Mr. Cery Perle did not timely file on five occasions
reporting:

            o  The receipt of an option grant for 100,000 shares of common
               stock,
            o  The exercise of an option to purchase 96,000 shares of common
               stock and the gifting of those shares to trusts held for the
               benefit of minor children,
            o  The receipt of an option grant for 500,000 shares of common
               stock,
            o  The receipt of an option grant for 100,000 shares of common
               stock, and
            o  The exercise of an option to purchase 904,000 shares of common
               stock.

         o During 2006, Mr. Rich Galterio did not timely file on one occasion
reporting the receipt of an option grant for 500,000 shares of common stock.

         o During 2006, Mr. Edward Hagan did not timely file on three occasions
reporting:

            o  The gift of 32,000 shares to trusts held for the benefit of minor
               children,
            o  The receipt of an option grant for 250,000 shares of common
               stock, and
            o  The gift by his wife of 30,000 shares to a trust held for the
               benefit of a minor child.

         Messrs. Perle, Hagan and Galterio have subsequently filed the
delinquent reports.

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:

         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:

                                       37
<PAGE>

         o  disclosures made in our filings with the SEC,

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

         o  conflicts of interests, and

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

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

         We do not have a policy regarding the consideration of any director
candidates which may be recommended by our stockholders, including the minimum
qualifications for director candidates, nor has our Board of Directors
established a process for identifying and evaluating director nominees. We have
not adopted a policy regarding the handling of any potential recommendation of
director candidates by our stockholders, including the procedures to be
followed. Our Board has not considered or adopted any of these policies as we
have never received a recommendation from any stockholder for any candidate to
serve on our Board of Directors. Given our relative size and lack of directors
and officers insurance coverage, we do not anticipate that any of our
stockholders will make such a recommendation in the near future. While there
have been no nominations of additional directors proposed, in the event such a
proposal is made, all members of our Board will participate in the consideration
of director nominees.

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

         o  understands generally accepted accounting principles and financial
            statements,

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

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

         o  understands internal controls over financial reporting, and

         o  understands audit committee functions.

         Since our formation we have relied upon the personal relationships of
our CEO to attract individuals to our Board of Directors. While we would prefer
that one or more of our directors be an audit committee financial expert, the
individuals whom we have been able to attract to our Board do not have the
requisite professional backgrounds. As with most small companies until such time

                                       38
<PAGE>

our company further develops its business, achieves a stronger revenue base and
has sufficient working capital to purchase directors and officers insurance, we
do not have any immediate prospects to attract independent directors. When we
are able to expand our Board of Directors to include one or more additional
independent directors, we intend to establish an Audit Committee of our Board of
Directors. It is our intention that one or more of these additional independent
directors will also qualify as an audit committee financial expert. Our
securities are not quoted on an exchange that has requirements that a majority
of our Board members be independent and we are not currently otherwise subject
to any law, rule or regulation requiring that all or any portion of our Board of
Directors include "independent" directors, nor are we required to establish or
maintain an Audit Committee or other committee of our Board of Directors.

ITEM 11. EXECUTIVE COMPENSATION.

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

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

         o  our two most highly compensated executive officers other than our
            principal executive officer who were serving as executive officers
            at December 31, 2007 as that term is defined under Rule 3b-7 of the
            Securities Exchange Act of 1934. In the case of our company this
            includes two key employees of our company, and

         o  up to two additional individuals for whom disclosure would have been
            required but for the fact that the individual was not serving as an
            executive officer at December 31, 2007.

         For definitional purposes in this annual report these individuals are
sometimes referred to as the "named executive officers." The value attributable
to any option awards is computed in accordance with FAS 123R.
<TABLE>
<CAPTION>
                                            SUMMARY COMPENSATION TABLE
                                            --------------------------
                                                              NON-EQUITY     NONQUALIFIED       ALL
NAME AND                                 STOCK    OPTION    INCENTIVE PLAN     DEFERRED        OTHER
PRINCIPAL             SALARY    BONUS    AWARDS   AWARDS     COMPENSATION    COMPENSATION   COMPENSATION    TOTAL
POSITION       YEAR     ($)      ($)      ($)       ($)           ($)        EARNINGS ($)        ($)         ($)
   (A)          (B)     (C)      (D)      (E)       (F)           (G)             (H)            (I)         (J)
------------   ----   -------   ------   ------   -------   --------------   ------------   ------------   -------
<S>            <C>    <C>        <C>     <C>      <C>       <C>              <C>            <C>            <C>
Cery Perle     2007   245,989        0   33,401   468,000                0              0        204,696   952,086
(1)
               2006   243,650        0        0   571,908                0              0         50,515   866,073

Ivor Newman    2007   180,000   15,800   17,190   250,000                0              0         14,679   477,669
(2)
               2006   101,080        0        0   318,500                0              0         18,360   437,940

Darryl Adams   2007   246,429        0   17,602   561,000                0              0         34,734   859,765
(3)
               2006   159,333        0        0         0                0              0              0   159,333
</TABLE>
(1) Mr. Perle has served as our president and CEO since February 2004. During
2007 in addition to his salary, Mr. Perle's compensation included stock awards
of 22,335 shares of our common stock which were valued at $13,401, stock award
of 1,000,000 shares of our common stock as a result of a cashless exercise
valued at $20,000, and option awards to purchase a total of 700,000 shares of
our common stock at an exercise prices ranging from $0.44 to $0.93 per share
which were valued at $468,000. Other compensation for fiscal 2007 included
$45,000 of payment of unused vacation and sick pay, $50,193 for payment of

                                       39
<PAGE>

personal expenses, $40,801 for payment of health, dental and life insurance and
$68,702 for automobile expense. 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 payment of unused vacation pay and $30,532 of automobile
expenses.

(2) Mr. Newman has served as our Vice President of Operations since May 2006. In
addition to his salary, Mr. Newman's fiscal 2007 compensation included stock
awards of 28,650 shares of our common stock which were valued at $17,190 and
option awards to purchase a total of 500,000 shares of our common stock at an
exercise prices ranging from $0.44 to $0.93 per share which were valued at
$250,000. Other compensation for fiscal 2007 included $14,679 for payment of
health and dental insurance. For fiscal 2006 in addition to his salary Mr.
Newman's compensation included option awards to purchase a total of 700,000
shares of our common stock at an exercise prices ranging from $0.34 to $0.43 per
share which were valued at $318,500, together with other compensation which
included $2,104 of automobile expenses and $16,256 for temporary housing
expenses.

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

AGREEMENT AND MUTUAL RELEASE OF CLAIMS WITH JENELL FONTES

         On December 31, 2007 we entered into an Agreement and Mutual Release of
Claims with Ms. Jenell Fontes. Ms. Fontes had served as our Director of
Marketing from 2003 until her resignation on December 31, 2007 and was formerly
the fiancee of our CEO, Mr. Perle. Under the terms of the agreement, we agreed
to provide paid medical and dental coverage for her and her dependents and a
monthly car allowance of $1,000 for a six month period following the termination
of her employment. We are also permitting her to continue the exclusive use of a
leased vehicle which was provided her during her employment through the term of
the lease. In addition, we granted her five year options to purchase 200,000
shares of our common stock at an exercise price of $0.001 per share. All
remaining options to purchase 475,000 shares of our common stock at exercise
prices of $0.34 to $0.45 per share which had been previously granted to her
under the terms of our 2002 Stock Option and Stock Award Plan will remain
exercisable until their original termination dates between March 2010 and July
2011. Finally, in conjunction with her exercise of options to purchase an
aggregate of 505,357 shares of our common stock which had been granted to her in
January 2003 and August 2005 we waived the payment of the aggregate exercise
price of $10,005 and has been recognized as stock based compensation expense
during fiscal 2007. The agreement contained a mutual release and a reaffirmation
of her obligations to maintain confidentiality of information related to our
company. In conjunction with this agreement we recognized settlement expense of
$108,000 during fiscal 2007 which includes expense of approximately $10,000 that
has been accrued as of December 31, 2007 related to the medical benefits and car
allowance we agreed to provide through June 2008. The costs associated with the
continued exclusive use of the leased vehicle through June 30, 2008 will be
recognized in fiscal 2008. Upon the expiration of this six month period, Mr.
Perle has orally agreed to personally pay the expenses associated with such
vehicle through the expiration of the lease term.

                                       40
<PAGE>

EMPLOYMENT AGREEMENTS AND NARRATIVE REGARDING EXECUTIVE COMPENSATION

         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. During fiscal 2007 we issued him 22,335 shares of our common stock which
were valued at $13,401, 1,000,000 shares of our common stock as a result of a
cashless exercise valued at $20,000, and granted options to purchase a total of
700,000 shares of our common stock at an exercise prices ranging from $0.44 to
$0.93 per share which were valued at $468,000. The agreement also provides for
an automobile allowance which is presently $4,000 per month, paid vacation,
fringe benefits commensurate with his duties and responsibilities and benefits
in the event of disability, as well as containing certain non-disclosure and
non-competition provisions. Under the terms of the agreement, we may terminate
Mr. Perle's employment either with or without cause. If the agreement is
terminated by us without good cause, or by Mr. Perle with cause, we would be
obligated to pay him his base salary though the end of the term of the
agreement, continue his benefits through the end of the term and all options
would continue to vest during the remaining period of the term. To the extent
that Mr. Perle is terminated for cause, or he voluntarily resigns, no severance
benefits will be paid.

                                       41
<PAGE>

                  OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

         The following table provides information concerning unexercised
options, stock that has not vested and equity incentive plan awards for each
named executive officer outstanding as of December 31, 2007:
<TABLE>
<CAPTION>
                               OPTION AWARDS                                            STOCK AWARDS
         --------------------------------------------------------------  -------------------------------------------
                                                                                                          Equity
                                                                                                          incentive
                                                                                   Market    Equity       plan
                                                                         Number    value     incentive    awards:
                                                                         of        of        plan         Market or
                                     Equity                              shares    shares    awards:      payout
                                     incentive                           or        or        Number of    value of
                                     plan awards:                        units     units     unearned     unearned
         Number of    Number of      Number of                           of        of        shares,      shares,
         securities   securities     securities                          stock     stock     units or     units or
         underlying   underlying     underlying                          that      that      other        other
         unexercised  unexercised    unexercised   Option                have      have      rights       rights
         options      options        unearned      exercise  Option      not       not       that have    that have
         (#)          (#)            options       price     expiration  vested    vested    not vested   not vested
Name     exercisable  unexercisable  (#)           ($)       date        (#)       ($)       (#)          (#)
(a)      (b)          (c)            (d)           (e)       (f)         (g)       (h)       (i)          (j)
-------  -----------  -------------  ------------  --------  ----------  -------   -------   ----------   ----------
<S>      <C>          <C>            <C>           <C>       <C>         <C>       <C>       <C>          <C>
Cery B.      100,000                                   0.45    03/21/10
Perle        500,000                                   0.45    06/30/10
           2,000,000                                   0.45    01/14/11
             500,000                                   0.41    05/31/11
             118,000                                   0.34    07/26/11
              50,000                                   0.43    10/12/11
             100,000                                  0.442    01/09/12
             500,000                                   0.93    04/05/12
             100,000                                   0.48    09/26/12

Ivor         100,000                                   0.34    07/27/11
Newman       247,917        102,083                    0.40    08/01/11
             133,333         66,667                    0.45     8/23/11
              50,000                                   0.43    10/13/11
             100,000                                  0.442    01/09/12
             100,000                                   0.93    05/04/12
             100,000                                   0.80    06/21/12
             100,000                                   0.45    09/13/12
             100,000                                   0.50    10/19/12

Darryl       500,000        500,000                    0.51    01/05/12
Adams        100,000                                   0.48    09/26/12
</TABLE>
2002 STOCK OPTION AND STOCK AWARD PLAN

         OVERVIEW

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

         The purpose of the plan is to encourage stock ownership by our
officers, directors, key employees and consultants, and to give such persons a
greater personal interest in the success of our business and an added incentive
to continue to advance and contribute to us. Our board of directors, or a

                                       42
<PAGE>

committee of the board, will administer the Plan including, without limitation,
the selection of the persons who will be awarded stock grants and granted
options, the type of options to be granted, the number of shares subject to each
option and the exercise price.

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

         During fiscal 2007 we granted options to purchase an aggregate of
6,107,500 shares of our common stock at exercise prices ranging from $0.001 to
$0.97 per share to our executive officers, directors, employees and consultants.
At each of December 31, 2007 and March 31, 2008 we had 9,865,798 shares and
6,230,798 shares, respectively, available for grant under the plan.

         ELIGIBILITY

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

         ADMINISTRATION

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

         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.

                                       43
<PAGE>

         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.

         MANNER OF EXERCISE

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

                                       44
<PAGE>

         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.

         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

                                       45
<PAGE>

us the economic value any award that was realized or obtained by optionee at any
time during the period beginning on that date that is six months prior to the
date optionee's employment with us is terminated.

         MODIFICATION AND TERMINATION OF PLAN

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

         DIRECTOR COMPENSATION

         Our Board of Directors is comprised of Messrs. Perle, Galterio and
Hagan. Mr. Perle, who is also an executive officer of our company, does not
receive any compensation specifically for his Board services. The following
table provides information concerning the compensation of Messrs. Hagan and
Galterio for services as members of our Board of Directors for fiscal 2007. The
value attributable to any option awards is computed in accordance with FAS 123R.
<TABLE>
<CAPTION>
                                          DIRECTOR COMPENSATION
                                          ---------------------
                                               Non-equity
                 Fees                          incentive     Nonqualified
               earned or   Stock    Option        plan         deferred      All other
                paid in    awards   awards    compensation   compensation   compensation
    Name       cash ($)     ($)       ($)         ($)        earnings ($)        ($)       Total ($)
     (a)          (b)       (c)       (d)         (e)             (f)            (g)          (h)
------------   ---------   ------   -------   ------------   ------------   ------------   ---------
<S>            <C>         <C>      <C>       <C>            <C>            <C>            <C>
Edward L.              0        0   187,500              0              0              0     187,500
Hagan (1)

Richard                0        0   375,000              0              0              0     375,000
Galterio (2)
</TABLE>
(1) Represents the value of options to purchase 250,000 shares of our common
stock with an exercise price of $0.93 per share.

(2) Represents the value of options to purchase 500,000 shares of our common
stock with an exercise price of $0.93 per share.

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

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

         At April 2, 2008 we had 81,079,398 shares of common stock and 50,000
shares of Series A Preferred Stock issued and outstanding. Each share of common
stock entitles the holder to one vote and each share of Series A Preferred Stock
entitles the holder to 400 votes at any meeting of our stockholders and the
shares of common stock and Series A Preferred Stock vote together on all matters
submitted to a vote of our stockholders, provided, however, that the Mr. Perle
is not eligible to vote the shares of Series A Preferred Stock in connection
with an amendment to increase the number of our authorized shares of common

                                       46
<PAGE>

stock if such amendment is proposed to our stockholders within four months from
the date of issuance of the shares in January 2008. The following table sets
forth information known to us as of April 2, 2008 relating to the beneficial
ownership of shares of our voting securities by:

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

         o  each director;

         o  each named executive officer; and

         o  all named executive officers and directors as a group.

         Unless otherwise indicated, the business address of each person listed
is in care of 17257 Fred Waring Drive, Palm Desert, California 92260. The
percentages in the table have been calculated on the basis of treating as
outstanding for a particular person, all shares of our common stock outstanding
on that date and all shares of our common stock issuable to that holder in the
event of exercise of outstanding options, warrants, rights or conversion
privileges owned by that person at that date which are exercisable within 60
days of that date. Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all shares of our common stock
owned by them, except to the extent that power may be shared with a spouse.
<TABLE>
<CAPTION>
                                              AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
                                       ------------------------------------------------------
                                             COMMON STOCK           SERIES A PREFERRED STOCK
                                       -------------------------    -------------------------    % OF
             NAME                      # OF SHARES    % OF CLASS    # OF SHARES    % OF CLASS    VOTE
-----------------------------------    -----------    ----------    -----------    ----------    -----
<S>           <C>                      <C>            <C>           <C>            <C>           <C>
Cery B. Perle (1) .................     10,914,694         12.9%         50,000          100%    29.5%
Edward L. Hagan (2) ...............      2,725,000          3.3%              0           n/a     2.7%
Richard Galterio (3) ..............      2,100,000          2.5%              0           n/a     2.0%
Ivor Newman (4) ...................      1,195,833          1.5%              0           n/a     1.2%
Darryl Adams (5) ..................      1,060,181          1.3%              0           n/a     1.0%
All named executive officers and
directors as a group (five persons)
(1),(2),(3),(4) and (5) ...........     17,995,708         20.0%         50,000          100%    34.6%

*  represents less than 1%
</TABLE>
(1) The number of shares beneficially owned by Mr. Perle includes:

   o  a total of 7,314,694 shares of our common stock which are presently
      outstanding, including 1,140,194 shares held by Mr. Perle, 4,000,000
      shares held by a trust for his benefit, 724,500 shares held in trust for
      his minor children, and 1,500,000 shares of common stock held by Preston &
      Price, S.A., over which Mr. Perle can exercise voting rights,

   o  options to purchase 2,100,000 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 50,000 shares of common stock with an exercise price
      of $0.425 per share,

   o  options to purchase 100,000 shares of common stock with an exercise price
      of $0.442 per share,

   o  options to purchase 100,000 shares of common stock with an exercise price
      of $0. 48 per share,

                                       47
<PAGE>

   o  options to purchase 500,000 shares of common stock with an exercise price
      of $0.93 per share, and

   o  options to purchase 500,000 shares of common stock with an exercise price
      of $0.32 per share.

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

   o  1,029,975 shares of our common stock which are presently outstanding,

   o  344,000 shares of our common stock held by his wife Stephanie,

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

   o  options to purchase 350,000 shares of our common stock with an $0.45 per
      share,

   o  options to purchase 189,025 shares of our common stock with an exercise
      price of $0.41 per share,

   o  options to purchase 250,000 shares of our common stock with an exercise
      price of $0.93 per share, and

   o  options to purchase 250,000 shares of our common stock with an exercise
      price of $0.32 per share.

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

   o  600,000 shares of our common stock underlying options exercisable at $0.45
      per share;

   o  500,000 shares of our common stock underlying options exercisable at $0.41
      per share;

   o  500,000 shares of our common stock underlying options exercisable at $0.93
      per share; and

   o  options to purchase 500,000 shares of our common stock with an exercise
      price of $0.32 per share.

(4) The number of shares beneficially owned by Mr. Newman includes:

   o  50,000 shares of our common stock which are presently outstanding,

   o  100,000 shares of our common stock underlying options exercisable at $0.34
      per share,

   o  320,833 shares of our common stock underlying options exercisable at $0.40
      per share,

   o  175,000 shares of our common stock underlying options exercisable at $0.45
      per share,

   o  50,000 shares of our common stock underlying options exercisable at $0.43
      per share,

   o  100,000 shares of our common stock underlying options exercisable at
      $0.442 per share,

   o  100,000 shares of our common stock underlying options exercisable at $0.93
      per share,

   o  100,000 shares of our common stock underlying options exercisable at $0.80
      per share,

   o  100,000 shares of our common stock underlying options exercisable at $0.45
      per share, and

                                       48
<PAGE>

   o  100,000 shares of our common stock underlying options exercisable at $0.50
      per share.

   The number of shares of common stock beneficially owned by Mr. Newman
   excludes 54,167 shares underlying options exercisable at prices ranging from
   $0.40 to $0.45 per share which have not yet vested.

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

   o  251,848 shares of our common stock which are presently outstanding,

   o  708,333 shares of our common stock underlying options exercisable at $0.51
      per share; and

   o  100,000 shares of our common stock underlying options exercisable at $0.48
      per share.

   The number of shares of common stock beneficially owned by Mr. Adams excludes
   291,667 shares issuable upon the exercise of options with an exercise price
   of $0.51 per share which have not yet vested.

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

         Mr. Perle, our CEO, and Ms. Fontes, who served as our Director of
Marketing until December 2007 and formerly Mr. Perle's fiancee, have made
available homes owned by them for our use as temporary housing for new employees
at monthly rental costs which we believe are below market. During each of these
years we used the homes for approximately 90% of the year. We reimburse each of
Mr. Perle and Ms. Fontes for the actual mortgage payment and pay ordinary
operating expenses associated with such homes including utilities, maintenance
and insurance. During fiscal 2007 we made rental payments to Mr. Perle of
$12,500. During fiscal 2007 and fiscal 2006 we made rental payments to Ms.
Fontes of $28,050 and $21,675, respectively.

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

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

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

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

         o  the shares are not subject to redemption, and

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

         Prior to the issuance of the shares of Series A Preferred Stock to Mr.
Perle, he controlled the vote of approximately 10% of our outstanding voting
securities. As a result of the issuance of these securities, Mr. Perle
controlled the vote of approximately 28.5% of our outstanding voting securities.
These actions were approved by our Board of Directors of which Mr. Perle is a
member.

                                       49
<PAGE>

         From time to time Skyebanc, Inc., a broker-dealer and member of FINRA,
serves as a selling agent for us in the private placement of our securities. Mr.
Rich Galterio, a member of our Board of Directors, is an affiliate of Skyebanc,
Inc. During fiscal 2007 we compensated Skyebanc, Inc. for services in two
offerings, including:

         o Between January 2007 and February 2007 we received gross proceeds of
$1,325,000 from the sale of units of our securities consisting of 8% convertible
promissory notes and common stock purchase warrants. We paid Skyebanc, Inc. a
fee of $25,000 in connection with this offering, and

         Between May 2007 and July 2007 we sold securities in a private
placement resulting in proceeds of $1,781,000. We paid Skyebanc, Inc. a
commission of $21,000 and issued it warrants to purchase 40,385 shares of our
common stock which were identical to the warrants issued to the investors.

DIRECTOR INDEPENDENCE

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         Sherb & Co., LLP served as our independent registered public accounting
firm for fiscal 2007 and fiscal 2006. The following table shows the fees that
were billed for the audit and other services provided by such firm for fiscal
2007 and fiscal 2006.

                                      FISCAL 2007     FISCAL 2006
                                      -----------     -----------
         Audit Fees ...............      $ 60,000        $ 42,000
         Audit-Related Fees .......             0               0
         Tax Fees .................        12,000               0
         All Other Fees ...........             0               0
                                      -----------     -----------
                          Total ...      $ 72,000        $ 42,000

         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 2007 were pre-approved by
the entire Board of Directors.

                                       50
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

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

2.1    Acquisition Agreement and Plan of Merger(3)
2.     Agreement and Plan of Merger(4)
3.1    Certificate of Incorporation(1)
3.2    By-Laws (1)
3.3    Certificate of Incorporation, as amended(2)
3.4    Certificate of Amendment to the Certificate of Incorporation(5)
3.5    Certificate of Amendment to the Certificate of Incorporation (8)
3.6    Certificate of Ownership merging Spare Backup, Inc. into Newport
       International Group, Inc. (19)
3.7    Certificate of designations, rights and preferences of Series A
       Preferred Stock (23)
4.1    Form of Investor Warrant to Purchase Common Stock issued with 8%
       promissory note (12)
4.2    Form of Common Stock Purchase Warrant issued with 10% secured note (12)
4.3    Form of Common Stock Purchase Warrant issued to Robinson Reed Inc. and
       First Capital Holdings International, Inc.(11)
4.4    Form of $0.75 Investor Warrant (11)
4.5    Common stock purchase warrant issued March 31, 2005 to purchase 256,667
       shares of common stock issued to Jenelle Fontes (10)
4.6    Common stock purchase warrant issued March 31, 2005 to purchase  280,000
       shares of common stock issued to Curtis Lawler (10)
4.7    Form of $1.30 common stock purchase warrant (13)
4.8    Form of common stock purchase warrant issued to Langley Park  Investment
       Trust, PLC (16)
4.9    Form of placement agent warrant issued to Brookstreet Securities
       Corporation (20)
4.10   Option to Purchase Common Stock issued to Wolfe Axlerod Weinberger (20)
4.11   Option to Purchase Common Stock issued to The Sterling Group (20)
4.12   Form of warrant issued to DSG Plc.*
10.1   2002 Stock Option and Stock Award Plan (15)
10.2   Lease for principal executive offices *
10.3   Stock Purchase Agreement with Langley Park Investment Trust PLC (9)
10.4   Employment Agreement with Cery B. Perle (11)
10.5   Common Stock and Warrant Purchase Agreement dated as of August 27, 2004
       (9)
10.6   Registration Rights Agreement dated as of August 27, 2004 (9)
10.7   Amendment No. 1 to Common Stock and Warrant Purchase Agreement dated as
       of November 2, 2004 (9)
10.8   Settlement Agreement and Release between Newport International Group,
       Inc., Robinson Reed, Inc., First Capital Holdings International, Inc.,
       Continental Blue Limited and E-Holdings, Inc. (11)
10.9   Supplier Agreement with CompUSA (12)
10.10  Form of Settlement Agreement between Newport International Group, Inc,
       Robinson Reed, Inc. and First Capital Holdings International, Inc. (14)
10.11  Amendment No. 1 to the 2002 Stock Option and Stock Award Plan (6)
10.12  Form of Repurchase Agreement with Langley Park Investment Trust PLC (16)
10.13  Form of Amendment to Escrow Agreement with Langley Park Investment Trust
       PLC (16)
10.14  Amendment No. 2 to the 2002 Stock Option and Stock Award Plan (17)
10.15  Customer Technical Support Services Agreement with Circuit City Stores,
       Inc. (18)
10.16  Standard Services Agreement and Statement of Work with Hewlett-Packard
       Company (20)
10.17  Finder's Agreement dated February 5, 2007 between Spare Backup, Inc. and
       Skyebanc, Inc. (21)
10.18  Agreement Regarding Put Option dated as of May 8, 2007 by and among Spare
       Backup, Inc., Robinson
       Reed, Inc. and First Capital Holdings International, Inc. (22)
10.19  Software License and Distribution Agreement with Gateway Companies, Inc.
       (22) Portions of this agreement have been omitted and separately filed
       with the Securities and Exchange Commission with a request for
       confidential treatment.

                                       51
<PAGE>

10.20  Data Storage Services Agreement dated February 2, 2007 between DSG Retail
       and Spare Backup, Inc. * Portions of this agreement have been omitted and
       separately filed with the Securities and Exchange Commission with a
       request for confidential treatment.
14.1   Code of Business Conduct and Ethics and Code of Ethics for the Chief
       Executive Officer and Senior Financial Officers (11)
21.1   Subsidiaries of the registrant (11)
23.1   Consent of Sherb & Co., LLP*
31.1   Section 302 Certificate of Chief Executive Officer *
31.2   Section 302 Certificate of principal accounting and financial officer *
32.1   Section 906 Certificate of Chief Executive Officer and principal
       financial and accounting officer*

* filed herewith

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

                                       52
<PAGE>
                                   SIGNATURES

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


                                 SPARE BACKUP, INC.

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

                                 Date: April 14, 2008


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


/s/ Cery Perle            Chief Executive Officer, President,     April 14, 2008
--------------            Chairman of the Board
Cery Perle


/s/ Edward Hagan          Secretary and Director                  April 14, 2008
----------------
Edward Hagan


/s/ Richard Galterio      Director                                April 14, 2008
--------------------
Richard Galterio

                                       53
<PAGE>

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

                                    CONTENTS

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

Financial Statements:

   Consolidated Balance Sheets at December 31, 2007 and 2006.................F-3

   Consolidated Statements of Operations -
      For the Years Ended December 31, 2007 and 2006.........................F-4

   Consolidated Statements of Changes in Stockholders' Deficit -
      For the Years Ended December 31, 2007 and 2006.........................F-5

   Consolidated Statements of Cash Flows -
      For the Years Ended December 31, 2007 and 2006.........................F-6

Notes to Consolidated Financial Statements...........................F-7 to F-31

                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors:
Spare Backup, Inc.

         We have audited the accompanying consolidated balance sheets of Spare
Backup, Inc. and subsidiary as of December 31, 2007 and 2006, and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Spare
Backup, Inc. as of December 31, 2007 and 2006, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated financial statements, the Company had net losses, cash
used in operations and a working capital deficit of $26,084,897, $8,527,867 and
$2,634,060 respectively, for the year ended December 31, 2007. This raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

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

Boca Raton, Florida
March 17, 2008

                                       F-2
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                                             December 31,
                                                          2007         2006
                                                     ------------  ------------
                                     ASSETS

Current Assets:
  Cash ............................................  $    527,402  $    146,318
  Restricted cash .................................             -       872,820
  Prepaid marketing expense .......................       181,238             -
                                                     ------------  ------------
     Total current assets .........................       708,640     1,019,138

  Property and equipment, net of accumulated
     depreciation .................................     1,652,077       488,818
  Other assets ....................................             -        75,380
                                                     ------------  ------------

     Total assets .................................  $  2,360,717  $  1,583,336
                                                     ============  ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts payable and accrued expenses ...........  $  2,878,014  $    853,176
  8% Convertible promissory notes, net of debt
     discount of $2,558,624 and $0, respectively ..       416,376       293,509
  12.5% Convertible promissory notes, net of debt
     discount of $79,799 ..........................             -       295,201
  Accrued interest on convertible promissory notes.        33,310        22,097
  Derivative liabilities ..........................             -    11,392,255
  Due to stockholder ..............................        15,000        15,000
                                                     ------------  ------------

     Total current liabilities ....................     3,342,700    12,871,238

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

     Total liabilities ............................     3,342,700    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, 77,221,052 and 55,843,863
     issued and outstanding, respectively .........        77,221        55,845
  Additional paid-in capital ......................    72,585,482    36,309,616
  Subscription receivable .........................             -      (100,000)
  Accumulated deficit .............................   (73,644,686)  (47,559,789)
                                                     ------------  ------------

     Total stockholders' deficit ..................      (981,983)  (11,294,328)
                                                     ------------  ------------

     Total liabilities and stockholders' deficit ..  $  2,360,717  $  1,583,336
                                                     ============  ============

                 See Notes to Consolidated Financial Statements.
                                       F-3
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                        For the years ended
                                                            December 31,
                                                        2007           2006
                                                    ------------   ------------

Net Revenues .....................................  $    260,350   $     73,046

Operating expenses:
  Research and development .......................     1,248,185        850,982
  Sales, general and administrative ..............    17,777,282     11,155,486
                                                    ------------   ------------

     Total operating expenses ....................    19,025,467     12,006,468
                                                    ------------   ------------

     Operating loss ..............................   (18,765,117)   (11,933,422)
                                                    ------------   ------------

Other income (expense):
  Change in fair value of derivative liabilities .    (5,275,067)       762,713
  Derivative liability expense ...................      (334,030)      (582,786)
  Other expenses- employee settlement ............      (136,500)             -
  Transfer- unrealized gain- investment
     held for sale to trading security ...........             -        112,509
  Interest income ................................           167              -
  Realized loss- trading securities ..............             -       (111,624)
  Gain from litigation settlements ...............       280,000              -
  Foreign currency gain ..........................        17,625              -
  Interest expense ...............................    (1,871,975)    (2,725,829)
                                                    ------------   ------------
  Total other expenses ...........................    (7,319,780)    (2,545,017)

Net loss .........................................  $(26,084,897)  $(14,478,439)
                                                    ============   ============

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

Comprehensive loss ...............................  $(26,084,897)  $(14,590,948)
                                                    ============   ============

Basic and diluted net loss per common share ......  $      (0.38)  $      (0.31)
                                                    ============   ============

Basic and diluted weighted average common
  shares outstanding .............................    68,621,565     46,168,841
                                                    ============   ============

                 See Notes to Consolidated Financial Statements.
                                       F-4
<PAGE>
<TABLE>
                                                  SPARE BACKUP, INC. AND SUBSIDIARY
                                     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                      FOR THE PERIOD FROM JANUARY 1, 2006 TO DECEMBER 31, 2007
<CAPTION>
                                                                                                         Accumulated
                                          Common Stock         Additional                                   Other
                                      ---------------------     Paid-in     Subscription  Accumulated   Comprehensive
                                        Shares      Amount      Capital      Receivable      Deficit         Loss          Total
                                      ----------   --------   ------------  ------------  ------------  -------------  ------------
<S>                                   <C>          <C>        <C>            <C>          <C>             <C>          <C>
Balance at January 1, 2006 .........  38,682,726   $ 38,683   $ 26,425,899   $       -    $(33,081,350)   $ 112,509    $ (6,504,259)

Issuance of common stock pursuant to
  exercise of stock options ........     300,241        300         79,900           -               -            -          80,200
Issuance of common stock for cash,
  net of financing costs ...........  15,624,891     15,625      3,444,652    (100,000)              -            -       3,360,277
Issuance of common stock to pay
  interest on convertible promissory
  notes ............................     180,919        181        116,002           -               -            -         116,183
Issuance of common stock to
  consultants for services rendered    1,325,000      1,325         (1,325)          -               -            -               -
Issuance of common stock pursuant to
  conversion of convertible
  promissory notes .................   5,862,438      5,863      2,017,738           -               -            -       2,023,601
Cancellation of shares issued for
  services .........................    (250,000)      (250)           250           -               -            -               -
Cancellation of common stock due to
  repurchase of shares .............  (5,882,352)    (5,882)    (1,661,641)          -               -            -      (1,667,523)
Reclassification of liability
  contract to equity ...............           -          -      1,782,210           -               -            -       1,782,210
Fair value of options issued to
  employees ........................           -          -      2,250,330           -               -            -       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)
                                      ----------   --------   ------------   ---------    ------------    ---------    ------------
Balance December 31, 2006 ..........  55,843,863     55,845     36,309,616    (100,000)    (47,559,789)           -     (11,294,328)

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

                                           See Notes to Consolidated Financial Statements.
                                                                 F-5
</TABLE>
<PAGE>
<TABLE>
                                                SPARE BACKUP, INC. AND SUBSIDIARY
                                              CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                                                         For the years ended
                                                                                                             December 31,
                                                                                                         2007           2006
                                                                                                     ------------   ------------
<S>                                                                                                  <C>            <C>
Cash flows from operating activities:
Net loss ..........................................................................................  $(26,084,897)  $(14,478,439)
Adjustments to reconcile net loss to net cash used in operating activities:
  Realized loss on trading securities .............................................................             -        111,624
  Unrealized gain-transfer of available-for-sale securities to trading securities .................             -       (112,509)
  Fair value of derivatives at issuance in connection with services rendered ......................       217,520      1,537,550
  Derivative liability expense ....................................................................       334,030        582,786
  Change in fair value of derivative liabilities ..................................................     5,275,067       (762,713)
  Fair value of options issued to employees .......................................................     3,838,404      2,250,330
  Amortization of debt discount ...................................................................     1,821,175      1,899,246
  Amortization of deferred compensation ...........................................................        93,370      1,855,601
  Amortization of prepaid marketing expense .......................................................     1,823,362              -
  Fair value of shares of common stock issued in payment of interest on convertible promissory note             -        115,982
  Fair value of shares and options issued in connection with a settlement agreement ...............       126,500              -
  Fair value of shares issued in connection with services rendered ................................       272,717              -
  Depreciation ....................................................................................       701,472         75,972
  Amortization of deferred financing costs ........................................................             -        671,976
Changes in operating assets and liabilities
  Restricted cash .................................................................................       872,820       (812,820)
  Prepaid expenses and other current assets .......................................................        75,380              -
  Other assets ....................................................................................             -        (50,000)
  Security deposits ...............................................................................             -          2,603
  Accounts payable and accrued expenses ...........................................................     2,060,839        397,475
  Deferred revenues ...............................................................................             -        (12,684)
  Accrued interest on convertible promissory notes ................................................        50,800          8,314
  Other liabilities ...............................................................................        (6,426)             -
                                                                                                     ------------   ------------
Net cash used in operating activities .............................................................    (8,527,867)    (6,719,706)
                                                                                                     ------------   ------------
Cash flows from investing activities:
  Purchases of property and equipment .............................................................    (1,849,731)      (201,165)
                                                                                                     ------------   ------------
Net cash used in investing activities .............................................................    (1,849,731)      (201,165)
                                                                                                     ------------   ------------
Cash flows from financing activities:
  Principal repayments on lease obligations .......................................................             -         (6,932)
  Principal repayments on convertible promissory notes ............................................       (21,480)      (275,000)
  Repurchase of shares of common stock ............................................................    (1,150,000)      (633,602)
  Proceeds from issuance of convertible promissory notes ..........................................     4,300,000              -
  Proceeds from issuance of bridge notes ..........................................................             -      1,500,000
  Net proceeds from issuance of common stock for cash .............................................     4,207,101      6,924,224
  Net proceeds from exercise of warrants ..........................................................     3,104,953              -
  Proceeds from exercise of stock options .........................................................       318,108            122
  Payments of deferred financing costs ............................................................             -       (190,000)
  Payments of financing costs .....................................................................             -       (417,561)
                                                                                                     ------------   ------------
Net cash provided by financing activities .........................................................    10,758,682      6,901,251
                                                                                                     ------------   ------------
Increase (decrease) in cash .......................................................................       381,084        (19,620)
Cash at beginning of year .........................................................................       146,318        165,938
                                                                                                     ------------   ------------
Cash at end of year ...............................................................................  $    527,402   $    146,318
                                                                                                     ============   ============
Supplemental disclosures of cash flow information:
     Cash paid during the year for interest .......................................................  $          -   $      8,664
                                                                                                     ============   ============
     Cash paid during the year for taxes ..........................................................  $          -   $          -
                                                                                                     ============   ============
Supplemental schedule of non-cash financing and investing activities:

Fair value of warrants  and embedded conversion features issued in connection with the
  issuance of convertible promissory notes and corresponding debt discount ........................  $  4,300,000   $  1,500,000
                                                                                                     ============   ============
Fair value of warrants issued in connection with the repurchase of shares of common stock .........  $          -   $    900,000
                                                                                                     ============   ============
Fair value of warrants and embedded conversion features issued in connection with the
  issuance  of common stock and corresponding increase in derivative liabilities ..................  $  1,599,459   $  3,149,081
                                                                                                     ============   ============
Reclassification of liability contracts to equity .................................................  $ 22,147,932   $  1,782,210
                                                                                                     ============   ============
Fair value of investment released in connection with the repurchase of shares of common stock .....  $          -   $    134,806
                                                                                                     ============   ============
Fair value of shares of common stock for leasehold improvement ....................................  $     15,000   $          -
                                                                                                     ============   ============
Conversion of convertible promissory notes into shares of common stock ............................  $  1,972,029   $    503,020
                                                                                                     ============   ============
Fair value of shares of common stock issued for payment of accrued interest .......................  $     39,587   $          -
                                                                                                     ============   ============
Exercise of stock options and corresponding satisfaction of accounts payable ......................  $          -   $     80,063
                                                                                                     ============   ============
Fair value of shares of common stock issued for payment of accrued expenses .......................  $     36,000   $          -
                                                                                                     ============   ============

                                         See Notes to Consolidated Financial Statements.
                                                               F-6
</TABLE>
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

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

The accompanying consolidated financial statements have been prepared on a going
concern basis. The Company has generated minimal revenue since its inception on
June 12, 2002 and has incurred net losses of approximately $26 million and $15
million during the years ended December 31, 2007 and 2006, respectively. The
Company's ability to continue as a going concern is dependent upon its ability
to obtain the necessary financing to meet its obligations and repay its
liabilities arising from normal business operations when they come due, to fund
possible future acquisitions, and to generate profitable operations in the
future. Management plans to continue to provide for its capital requirements by
issuing additional equity securities and debt. The outcome of these matters
cannot be predicted at this time and there are no assurances that if achieved,
the Company will have sufficient funds to execute its business plan or generate
positive operating results.

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

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

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

EARNINGS PER SHARE

Basic earnings per share is calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share is computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon the
exercise of stock options and warrants (calculated using the reverse treasury
stock method). The outstanding options, warrants and shares equivalent issuable
pursuant to embedded conversion features amounted to 41,368,897 and 39,763,265
at December 31, 2007 and 2006, respectively. The outstanding options, warrants
and shares equivalent issuable pursuant to embedded conversion features and
warrants at December 31, 2007 and 2006 are excluded from the loss per share
computation for that period due to their antidilutive effect.

                                       F-7
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RISKS AND UNCERTAINTIES

The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. At December 31, 2007, the Company
had reached bank balances exceeding the FDIC insurance limit. To reduce its risk
associated with the failure of such financial institutions, the Company
evaluates at least annually the rating of the financial institutions in which it
holds deposits.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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 which had 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 loss on
trading securities during the year ended December 31, 2006.

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

During 2006, the Company repurchased 5,882,352 shares of its common stock and as
consideration, paid to the Investee approximately $630,000, issued 3,000,000
warrants and assigned its investment in the Investee's shares to the Investee.
The aggregate consideration for the repurchase of the Company's shares of common
stock amounted to approximately $1.7 million. At December 31, 2007, investment
in equity securities amounted to $0.

                                       F-8
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

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

SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of software products are expensed
as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED OR OTHERWISE MARKETED. The Company believes that the current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility. Accordingly, no software development
costs have been capitalized as of December 31, 2007 instead, such amounts are
included in the statement of operations under the caption "Research and
development".

SHARE-BASED PAYMENTS

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

RECLASSIFICATION

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

                                       F-9
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVE LIABILITIES

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

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

FOREIGN CURRENCY TRANSACTIONS

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

REVENUE RECOGNITION

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

ADVERTISING

Advertising is expensed as incurred. Advertising expenses for the year ended
December 31, 2007 and 2006 totaled approximately $234,000 and $113,000,
respectively.

                                      F-10
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

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

In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, "Fair Value Measurements" ("FAS 157"). This Statement defines fair
value as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The Statement is to be effective for the Company's financial statements issued
in 2008; however, earlier application is encouraged. The Company is currently
evaluating the timing of adoption and the impact that adoption might have on its
financial position or results of operations.

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

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

                                      F-11
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS (continued)

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

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

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

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

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

NOTE 3 - RESTRICTED CASH

At December 31, 2006, the Company's restricted cash balance was approximately
$873,000 and was held in escrow to fund the sales and marketing expenses
incurred by the Company with a US retailer. In February 2007, the Company
amended the terms of the escrow to reduce the amount covered by the account.
Pursuant to the amendment, an additional $72,680 of the escrowed funds was
disbursed to the US retailer as marketing expenses and approximately $800,000 of
the escrowed funds were returned to the Company for general working capital. As
of December 31, 2007 the balance was $0.

                                      F-12
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

                                        Estimated    December 31,   December 31,
                                          life           2007           2006
                                      ------------   ------------   ------------

Computer and office equipment .....   3 to 5 years   $ 2,361,360    $   650,713

 Leasehold improvements ...........     5 years          187,122              -

 Less: Accumulated depreciation ...                     (896,405)      (161,895)
                                                     -----------    -----------
                                                     $ 1,652,077    $   488,818
                                                     ===========    ===========

Depreciation expense amounted to $701,472 and $75,972 during fiscal year ended
2007 and 2006, respectively.

NOTE 5 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consisted 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 at December 31, 2006 ..       $ 293,509
                                                                      =========

12.5% Convertible promissory notes, bearing interest at 12.5% per
annum, matured 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 at December 31, 2006 .......  $ 295,201
                                                                      =========

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.

During 2006, the Company received $1,500,000 in consideration for the issuance
of the 8 % Bridge promissory notes which matured between November and December
2007. The Bridge promissory notes were convertible into shares of common stock
at a rate of $0.35.

                                      F-13
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 5 - CONVERTIBLE PROMISSORY NOTES (CONTINUED)

During 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 into 5,862,438 shares of common stock.

Between April and June 2007, the Company issued 1,109,375 shares of common stock
to satisfy the remaining balance of the 12.5% convertible promissory notes (see
above table) amounting to approximately $355,000 and paid $20,000 in cash. The
balance of the 12.5% convertible promissory notes as of December 31, 2007 is $0.

Between February and March 2007, the Company issued 912,594 shares of common
stock to satisfy the 8% convertible promissory notes (see above table) amounting
to approximately $292,000 and paid $1,479 in cash.

The Company issued 69,408 and 180,919 shares in connection with the payment of
interest on the 8% and 12.5% Convertible promissory notes during 2007 and 2006,
respectively. The fair value of such shares issued during 2007 and 2006 amounted
to approximately $40,000 and $116,000, respectively.

Convertible promissory notes consist of the following as of December 31, 2007:

8% Convertible promissory notes, bearing interest at 8% per annum,
maturing between October and November 2008. Interest payable
commencing the quarter ended December 31, 2007, payable within
thirty (30) days of the end of the quarter. Interest may be paid in
cash or common stock at the option of the Company. Interest paid in
common stock will be calculated at ninety percent (90%) of the
average closing price for the common stock for the five (5) trading
days preceding the interest payment date. The promissory notes are
convertible at any time at the option of the holder, into shares of
common stock at a rate of $0.50. .................................. $ 2,975,000
Less:  unamortized discount ....................................... $(2,558,624)
                                                                    -----------
Convertible promissory notes-short-term at December 31, 2007 ...... $   416,376
                                                                    ===========

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

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

                                      F-14
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 5 - CONVERTIBLE PROMISSORY NOTES (CONTINUED)

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

In February 2008, the Company reduced the exercise price of warrants to purchase
an aggregate of 5,000,000 shares of common stock to $0.33 per share in
connection with the 8% convertible promissory notes issued in November 2007 (See
Note 13 - Subsequent Events) . In February 2008, the Company issued 1,060,606
shares of common stock for net proceeds of approximately $0.33 per share or
$350,000 in connection with the exercise of such stock warrants. Accordingly, in
connection with the 8% convertible promissory notes issued during 2007, the
exercise price of the warrants issued and the conversion price per share
pursuant to the Follow-on Financing will reset to such lower price or $0.33 per
share.

During the year ended December 31, 2007, the Company received $1,325,000 in
consideration for the issuance of the bridge promissory notes. The Company also
issued five-year common stock purchase warrants to purchase 1,394,721 shares of
the Company's common stock at $0.475 per share. The bridge promissory note of
$1,325,000 was converted into 2,789,473 shares of the Company's common stock in
March 2007. Additionally, during the year ended December 31, 2007, the Company
paid financing fees of $25,000 to the placement agent in connection with the
issuance of the Bridge promissory notes which was included in general and
administrative expenses as reflected in the accompanying consolidated statements
of operations. The Company recognized a debt discount of $1,325,000 in
connection with the issuance of the 8% Bridge promissory notes and 1,394,721
common stock purchase warrants.

Total amortization of debt discounts amounted to approximately $1.8 million and
$1.9 million during the years ended December 31, 2007 and 2006, respectively,
and is included in interest expense.

Amortization of the deferred financing costs amounted to approximately $0 and
$672,000 during the years ended December 31, 2007 and 2006, respectively, and is
included in interest expense.

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.

                                      F-15
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 6 - DERIVATIVE LIABILITIES (CONTINUED)

During the year ended December 31, 2007, the Company has satisfied all of the 8%
and 12.5% Convertible Promissory Notes and accordingly, has reclassified all of
derivative liabilities amounting to $22,147,932 to paid in capital as a result
of the repayment and conversion of the 8% and 12.5% Convertible Promissory Notes
into common stock.

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.

At December 31, 2007 and 2006, derivative liabilities amounted to $0 and
$11,392,255, respectively.

The Company recognized liabilities for the following derivatives at the date of
their issuance during 2007 and 2006, respectively:

                                            At issuance 2007    At issuance 2006
                                            ----------------    ----------------
Embedded conversion features
8% bridge notes ......................         $  808,250          $1,500,000
Freestanding warrants and options
8% bridge notes ......................            850,780             582,786
Other warrants and options ...........          3,821,579           6,025,938
                                               ----------          ----------
                                               $5,480,609          $8,108,724
                                               ==========          ==========

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 2007 and 2006 and at December 31, 2006, as follows:

                                                                At December 31,
                                    2007            2006             2006
                               --------------  -------------   -----------------
Market price: ...............  $0.82 - 0.96    $0.41 - $0.59       $ 0.48
Exercise or conversion price:  $0.32 - $1.30   $0.32 - $1.00    $0.188 - $1.75
Term: .......................  0 - 5.00 years  1.5 - 5 years   1.25 - 4.75 years
Volatility: .................   89 - 232%        221 - 225%          225%
Risk-free interest rate: ....  4.54 - 4.92%     4.18 - 5.1%         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. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 6 - DERIVATIVE LIABILITIES (CONTINUED)

The embedded conversion features used during 2007 and 2006 were 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%, this 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 2007 and 2006 were allocated as
follows:

                                                               At issuance
                                                             2007        2006
                                                          ----------  ----------
Debt discount from the issuance of embedded conversion
features ...............................................  $1,325,000  $1,500,000

Other expenses from the excess of the fair value of
derivative liabilities over proceeds  received from
issuance of liability contracts ........................     334,030     582,786

Sales, general, and administrative expenses from the
issuance of warrants and options for services rendered
by consultants and professionals .......................     217,520   1,537,550

Fair value of derivatives in connection with the
granting of warrants related to a twelve month retail
marketing agreement allocated to prepaid marketing
expenses ...............................................   2,004,600           -

Offset against additional paid-in capital from net
proceeds of issuance of shares of common stock from the
issuance of warrants and liquidated damages ............   1,599,459   3,149,132

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 .....................................           -     900,000
                                                          ----------  ----------
                                                          $5,480,609  $8,108,724
                                                          ==========  ==========

The variation in fair value of the derivative liabilities between measurement
dates amounted to an increase (decrease) of approximately $5.3 million and
$(760,000) during the years ended December 31, 2007 and 2006, respectively. The
increase/decrease in fair value of the derivative liabilities has been
recognized as other expense/income.

                                      F-17
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 7 - STOCKHOLDERS' DEFICIT

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

The Company issued 69,408 and 180,919 shares in connection with the payment of
interest on the 8% and 12.5% Convertible promissory notes during 2007 and 2006,
respectively. The fair value of such shares issued during 2007 and 2006 amounted
to approximately $40,000 and $116,000, respectively.

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

During 2006, the Company issued 1,325,000 shares of common stock to consultants
for services performed. The fair value of such shares amounted to approximately
$334,000 during 2006. The nature of the services rendered in connection with the
issuance of these shares were for marketing purposes. The Company has recognized
amortization of deferred compensation of approximately $1.9 million with the
granting of common stock to consultants in fiscal year 2006.

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

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

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

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

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

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

                                      F-18
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

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

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

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

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

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

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

ISSUANCE OF COMMON STOCK PURSUANT TO CONVERSION OF CONVERTIBLE PROMISSORY NOTES

During 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.

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

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

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

ISSUANCE OF COMMON STOCK PURSUANT TO PRIVATE PLACEMENTS

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

                                      F-19
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

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

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 which will expire in May 2008 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.

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

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

ISSUANCE OF COMMON STOCK PURSUANT TO A SETTLEMENT AGREEMENT

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

                                      F-20
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 8 - STOCK OPTIONS AND WARRANTS

WARRANTS

Between January and February 2007, the Company received $1,325,000 in
consideration for the issuance of the bridge promissory notes. The Company also
issued a five-year common stock purchase warrant to purchase 1,394,721 shares of
the Company's common stock at $0.475 per share (See Note 5 - Convertible
Promissory Notes).

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

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

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

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

Between October 2007 and November 2007, the Company received $475,000 in
consideration for the issuance of the 8% convertible promissory notes. The
Company also issued a three-year common stock purchase warrant to purchase
950,000 shares of the Company's common stock at $0.75 per share (See Note 5 -
Convertible Promissory Notes).

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

                                      F-21
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)

Stock warrant activity for the years ended December 31, 2007 and 2006 is
summarized as follows:
<TABLE>
<CAPTION>
                                      Year Ended December 31, 2007   Year Ended December 31, 2006
                                      ----------------------------   ----------------------------
                                       Number of  Weighted Average    Number of  Weighted Average
                                       Warrants    Exercise Price     Warrants    Exercise Price
                                      ----------  ----------------   ----------  ----------------
<S>                                   <C>             <C>            <C>             <C>
Balance at beginning of year ......   20,438,943      $   0.60        5,130,016      $   0.67
Granted ...........................   13,983,776          0.70       15,588,928          0.60
Exercised .........................   (6,393,371)         0.50                -             -
Expired ...........................            -             -         (280,001)         1.25
                                      ----------      --------       ----------      --------
Balance at end of year ............   28,029,348      $   0.70       20,438,943      $   0.60
                                      ==========      ========       ==========      ========

Warrants exercisable at end of year   28,029,348      $   0.70       20,438,943      $   0.60
                                      ==========      ========       ==========      ========
Weighted average fair value of
warrants granted during the year ..                   $   0.70                       $   0.60
</TABLE>

The weighted average remaining contractual life and weighted average exercise
price of warrants outstanding and exercisable at December 31, 2007, for selected
exercise price ranges, is as follows:

                        Warrants              Weighted
                      outstanding         Average Remaining     Weighted Average
Exercise prices      and exercisable      Contractual Life       Exercise Price
---------------      ---------------      -----------------     ----------------
  $  0.32                596,000                 2.4              $    0.32
     0.375             2,277,499                 0.75                  0.375
     0.40              1,663,194                 3.4                   0.40
     0.45              3,481,144                 3.5                   0.45
     0.475             1,152,619                 4.1                   0.475
     0.50              7,100,000                 2.9                   0.50
     0.55                 70,289                 4.6                   0.55
     0.60                113,264                 3.8                   0.60
     0.75              1,075,000                 2.6                   0.75
     1.00              7,066,385                 2.8                   1.00
     1.25              2,332,500                 2.1                   1.25
     1.30                976,454                 2.9                   1.30
     1.50                125,000                 1.0                   1.50

STOCK OPTIONS

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

                                      F-22
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)

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

During 2006, the Company recorded a share-based payment expense amounting to
approximately $2.3 million in connection with all options outstanding.

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

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

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

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

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

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

                                      F-23
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)

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

                                                       December 31,
                                            ------------------------------
                                                2007                2006
                                            -------------       ------------
Expected volatility .....................     71% - 94%         221% - 225%
Expected term ...........................      5 years            5 years
Risk-free interest rate .................   3.23% - 5.05%       2.78% - 5.1%
Expected dividend yield .................         0%                  0%

Stock option activity for the years ended December 31, 2007 and 2006 is
summarized as follows:
<TABLE>
<CAPTION>
                                      Year Ended December 31, 2007   Year Ended December 31, 2006
                                      ----------------------------   ----------------------------
                                       Number of  Weighted Average    Number of  Weighted Average
                                       Options     Exercise Price     Options    Exercise Price
                                      ----------  ----------------   ----------  ----------------
<S>                                   <C>             <C>            <C>             <C>
Balance at beginning of year ......   11,575,485      $   0.42        8,961,573      $   0.53
Granted ...........................    6,107,500          0.64        6,741,683          0.47
Exercised .........................   (2,360,102)         0.15         (300,241)         0.27
Expired ...........................   (1,983,334)         0.80       (3,827,530)         0.58
                                      ----------      --------       ----------      --------
Balance at end of year ............   13,339,549      $   0.54       11,575,485      $   0.42
                                      ==========      ========       ==========      ========

Options exercisable at end of year    11,808,496      $   0.54        9,512,152      $   0.38
                                      ==========      ========       ==========      ========
Weighted average fair value of
options granted during the year ...                   $   0.55                       $   0.48
</TABLE>

The following table summarizes information concerning stock options outstanding
and exercisable at December 31, 2007:
<TABLE>
<CAPTION>
                   Options Outstanding                          Options Exercisable
----------------------------------------------------------  ---------------------------
  Range of                Weighted Average    Weighted                      Weighted
  Exercise      Number       Remaining         Average        Number         Average
   Price     Outstanding  Contractual Life  Exercise Price  Exercisable  Exercise Price
-----------  -----------  ----------------  --------------  -----------  --------------
<C>          <C>          <C>               <C>             <C>          <C>
$0.001-0.02       74,231     2.48 Years        $  0.001          74,231     $  0.001
  0.34-0.75   11,092,818     3.43 Years           0.46        9,757,389        0.45
  0.80-0.97    2,062,500     4.28 Years           0.91        1,866,876        0.92
  1.25-2.25      110,000     1.81 Years           1.74          110,000        1.74
             -----------                       --------     -----------     -------
              13,339,549                       $  0.54       11,808,496     $  0.54
             ===========                       ========     ===========     =======
</TABLE>
                                      F-24
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 8 - STOCK OPTIONS AND WARRANTS (CONTINUED)

Nonvested stock options activity for the year ended December 31, 2007 is
summarized as follows:

                                                   Year Ended December 31, 2007
                                                  ------------------------------
                                                   Number of    Weighted Average
                                                    Options      Exercise Price
                                                  -----------   ----------------
Nonvested balance at beginning of year ........    2,063,333        $  0.42
Granted .......................................    2,732,500           0.56
Vested ........................................   (2,625,614)          0.50
Forfeited .....................................     (639,166)          0.50
                                                  ----------        -------
Nonvested balance at end of year ..............    1,531,053        $  0.55
                                                  ==========        =======

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, 2007 and 2006 are as follows:

                                                 December 31,      December 31,
                                                     2007              2006
                                                 ------------      ------------
Deferred tax assets:
    Net operating loss carryforward ........     $ 16,000,000      $ 12,710,000

Less:  Valuation allowance .................      (16,000,000)      (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 at December 31, 2007 and
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 2007
and 2006 was approximately $3.3 million and $4.3 million, respectively.

The Company has incurred net operating losses since inception. At December 31,
2007, the Company had net operating loss carryforwards amounting to
approximately $39 million for U.S. tax purposes that expire in various amounts
through 2027. The Company has had a change of ownership as defined by the
Internal Revenue Code Section 382. As a result, a substantial annual limitation
may be imposed upon the future utilization of its net operating loss
carryforwards. Furthermore, the Company has not filed tax returns on a
consolidated basis which may result in separate company loss limitations which
may reduce the utilization of combined net operating loss carryforwards to
offset future taxable income. Accordingly, separate company net operating losses
may be limited.

                                      F-25
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 9 - INCOME TAXES (CONTINUED)

The federal statutory tax rate reconciled to the effective tax rate during 2007
and 2006, 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
Permanent differences .......................   (15.6)    (17.8)
Change in valuation allowance ...............   (25.4)    (23.2)
                                                -----     -----
Effective tax rate ..........................     0.0%      0.0%
                                                =====     =====

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

The Company adopted FIN 48 as of January 1, 2007. As a result of the
implementation of FIN 48, the Company concluded that it has not taken any
uncertain tax positions on any of its open income tax returns filed through the
period ended December 31, 2006 that would materially distort its financial
statement. The Company's methods of accounting are based on established income
tax principles approved in the Internal Revenue Code (IRC) and are properly
calculated and reflected within its income tax returns.

The Company re-assesses the validity of its conclusions regarding uncertain
income tax positions on a quarterly basis to determine if facts or circumstances
have arisen that might cause the Company to change its judgment regarding the
likelihood of a tax position's sustainability under audit. The impact of this
reassessment for the year ended December 31, 2007 did not have any impact on its
results of operations, financial conditions or liquidity.

NOTE 10 - SEGMENTS

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

         United States...  39%
         Europe .........  61%

                                      F-26
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 11 - COMMITMENTS AND CONTINGENCIES

LITIGATION

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

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

In September 2007, the Company executed a settlement agreement with an unrelated
party who claims that an obligation of Grassroots, the Company's subsidiary, has
not been satisfied. The Company settled for $20,000 and was released from
further claim. The amount was included as a loss/gain from litigation settlement
in the accompanying consolidated statements of operations for the year ended
December 31, 2007.

The Company is a party to litigation in Riverside County Superior Court, Case
No. INC 057586, which was filed on March 22, 2006 by a former employee who
alleges that she suffered harassment and infliction of emotional distress during
her brief employment from July to October 2005, and that the Company breached a
purported employment contract with her upon her resignation. The Company denies
the former at-will employee's claims. On November 15, 2006, the Court entered an
order sustaining in part and overruling in part our demurrer to that complaint,
and an amended complaint was filed December 8, 2006, against which we filed a
second demurrer. No trial date has been set. In August 2007, the Company,
through a formal mediation, settled for $10,000. The Company was released from
further action and has been dismissed from this litigation. The amount was
included as a loss/gain from litigation settlement in the accompanying
consolidated statements of operations for the year ended December 31, 2007.

The Company is a party to a litigation pending in the Superior Court of the
State of California in and for the County of Los Angeles, No. BC 354880, styled
Newport International Group, Inc., Plaintiff, vs. Mads Ulrich, Fidelity Capital,
Inc., E-Holdings, Inc. and Does 1 through 100, Defendants. This lawsuit, which
the Company filed on July 5, 2006, arose out of the transaction with Langley
Park Investment Trust, PLC. The Company is alleging damages under California
Corporate Code ss.25501.5, common law fraud, violations of Rule 10b-5 of the
Securities Exchange Act of 1934, breach of fiduciary duty, negligence, breach of
contract, breach of covenant of good faith and fair dealing and unjust
enrichment. In September 2007, the Company was successful with the claim and
settled the litigation for payment of $310,000 and was included as a gain from
litigation settlement in the accompanying consolidated statements of operations
for the year ended December 31, 2007.

The Company is a party to litigation in Cole County, Missouri, Case No.
07AC-CC01045, which was filed on November 15, 2007 by a lessor related to an
Aircraft lease agreement entered into by the Company in July 2007. This lawsuit
arose out of the early termination of the Aircraft lease agreement by the
Company. The lessor alleges that the Company failed to make timely payments
under the lease and the required accelerated payments upon default. The lessor
is suing for damages of approximately $452,000 with an additional cost of $15.82
per day plus reasonable attorneys fees. The Company denies the allegations and
filed a counterclaim on January 10, 2008 that the aircraft was not fit for such
use and the lessor failed to cure said deficiencies. The Company has recorded a
liability of approximately $398,000 which represents rent in September 2007,
accelerated rent remaining under the lease term from October 2007 to December
2007, late fees, and incidental expenses for the year ended December 31, 2007.

                                      F-27
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

On March 14, 2007, the Company filed an action in Riverside Superior Court,
Spare Backup, Inc. vs. Greenwood Property Management, 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 in repair costs. In January 2008, the Company
entered into a settlement agreement and release of claims with the landlord.
Pursuant to the settlement agreement, the Company shall receive from the
landlord $75,000 and rent abatement in the total sum of $25,000 to be applied
against our rents beginning February 2008 in the amount of $5,000 per month
through June 2008. Additionally, the Company shall receive $25,000 from a third
party real estate company in connection with this settlement agreement. Based on
this agreement, the Company and the landlord mutually release each other from
any claims arising from these allegations.

EMPLOYMENT CONTRACT

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

OPERATING LEASES

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

Future annual minimum payments, net of sublease income, required under operating
lease obligations at December 31, 2007 are as follows:

                               Future Minimum
                               Lease Payments
                               --------------
         2008 .............       $156,564
         2009 .............       $161,260
         2010 .............       $166,098
         2011 .............       $171,081

NOTE 12 - RELATED PARTY TRANSACTIONS

The Company made rental payments for property owned by a former key employee of
the Company during fiscal year 2007 and 2006 amounting to $28,050 and $21,675,
respectively. The rental property was used for temporary employee housing during
fiscal year 2007 and 2006.

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

From time to time Skyebanc, Inc., a broker-dealer and member of FINRA, serves as
a selling agent for the Company in the private placement of our securities. Mr.
Rich Galterio, a member of the Company's Board of Directors, is an affiliate of
Skyebanc, Inc. During fiscal 2007 the Company compensated Skyebanc, Inc. for
services in two offerings, including:

                                      F-28
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 12 - RELATED PARTY TRANSACTIONS (continued)

         o Between January 2007 and February 2007 the Company received gross
proceeds of $1,325,000 from the sale of units of our securities consisting of 8%
convertible promissory notes and common stock purchase warrants. The Company
paid Skyebanc, Inc. a fee of $25,000 in connection with this offering, and

         o Between May 2007 and July 2007 the Company sold securities in a
private placement resulting in proceeds of $1,781,000. The Company paid
Skyebanc, Inc. a commission of $21,000 and issued it warrants to purchase 40,385
shares of the Company's common stock which were identical to the warrants issued
to the investors.

NOTE 13 - SUBSEQUENT EVENTS

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

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

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

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

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

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

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

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

   o  the shares are not subject to redemption, and

   o  so long as the shares are outstanding, the Company has agreed not to alter
      or change the rights of the security in a manner which would adversely
      affect the Series A Preferred Stock, or take any action which would result
      in the taxation of the holder under Section 305 of the Internal Revenue
      Code
                                      F-29
<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

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

In February 2008, in connection with the exercise of stock options, the Company
issued 60,975 shares of common stock to an employee for net proceeds of
approximately $25,000.

Between January 2008 and February 2008, the Company granted an aggregate of
2,325,000 five-year stock options to purchase common stock to the Chief
Executive Officer and certain employees of the Company at exercise prices
ranging from $0.35 to $0.41 per share. The Company valued these options
utilizing the Black-Scholes options pricing model ranging from $0.23 to $0.30
per share or approximately $561,000.

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

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

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

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

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

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

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<PAGE>

                        SPARE BACKUP, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2007

NOTE 13 - SUBSEQUENT EVENTS (CONTINUED)

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

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

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

In March 2008, the Company granted an aggregate of 1,350,000 five-year stock
options to purchase common stock to the Chief Executive Officer, two directors,
and certain employees of the Company at exercise prices ranging from $0.32 to
$0.40 per share. The Company valued these options utilizing the Black-Scholes
options pricing model ranging from $0.22 to $0.24 per share or approximately
$310,000.

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

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