UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                     ______________________________________

                                   FORM 10-QSB
                     ______________________________________


          |X|     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

                                       OR

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


                        Commission file number 000-30451


                        NEWPORT INTERNATIONAL GROUP, INC.
        (Exact name of small business issuer as specified in its charter)


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


            73061 EL PASEO, SUITE 202 PALM DESERT         92260
           (Address of principal executive offices)    (Zip Code)


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


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

Transitional Small Business Disclosure Format:  Yes |_|    No |X|

The total number of shares of the issuer's common stock, $.001 par value,
outstanding at August 4, 2005 was 28,636,663.

<PAGE>

When used in this quarterly report, the terms "Newport,", the Company", "we,"
and "us" refers to Newport International Group, Inc., a Delaware corporation,
and its subsidiaries, Spare Backup, Inc., a Delaware Corporation ("Spare") and
Grass Roots Communications, Inc., a Delaware corporation ("Grass Roots").

           CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB CONTAIN OR MAY
CONTAIN FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED
UTILIZING NUMEROUS ASSUMPTIONS AND OTHER FACTORS THAT COULD CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. THESE
FACTORS INCLUDE, BUT ARE NOT LIMITED TO, ECONOMIC, POLITICAL AND MARKET
CONDITIONS AND FLUCTUATIONS, GOVERNMENT AND INDUSTRY REGULATION, INTEREST RATE
RISK, U.S. AND GLOBAL COMPETITION, AND OTHER FACTORS. MOST OF THESE FACTORS ARE
DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. YOU SHOULD
CONSIDER THE AREAS OF RISK DESCRIBED IN CONNECTION WITH ANY FORWARD-LOOKING
STATEMENTS THAT MAY BE MADE HEREIN. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE OF
THIS REPORT. READERS SHOULD CAREFULLY REVIEW THIS ANNUAL REPORT IN ITS ENTIRETY,
INCLUDING BUT NOT LIMITED TO OUR FINANCIAL STATEMENTS AND THE NOTES THERETO AND
THE RISKS DESCRIBED IN "ITEM 1. DESCRIPTION OF BUSINESS--RISK FACTORS." EXCEPT
FOR OUR ONGOING OBLIGATIONS TO DISCLOSE MATERIAL INFORMATION UNDER THE FEDERAL
SECURITIES LAWS, WE UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY ANY REVISIONS TO
ANY FORWARD-LOOKING STATEMENTS, TO REPORT EVENTS OR TO REPORT THE OCCURRENCE OF
UNANTICIPATED EVENTS.

                                      - 2 -
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL INFORMATION

                        NEWPORT INTERNATIONAL GROUP, INC.
                           CONSOLIDATED BALANCE SHEET
                                  June 30, 2005
                                   (Unaudited)

                                     ASSETS
Current Assets:
  Cash ..........................................................  $     49,687
  Deposit .......................................................        25,000
                                                                   ------------
     Total current assets .......................................        74,687

  Investment in trading securities ..............................       642,117
  Property and equipment, net of accumulated depreciation
    of $66,000 ..................................................       164,976
  Deferred financing costs, net of accumulated amortization
    of $263,728 .................................................       170,882
  Other assets ..................................................        36,301
                                                                   ------------

     Total assets ...............................................  $  1,088,963
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities:
  Accounts payable and accrued expenses .........................  $    542,708
  Current portion of capitalized lease obligations ..............         4,139
  8% Convertible promissory notes, net of debt discount
    of $1,150,705 ...............................................       431,513
  Accrued interest on convertible promissory notes ..............        50,329
  Due to stockholder ............................................        15,000
                                                                   ------------

     Total current liabilities ..................................     1,043,689

  12.5% Convertible promissory notes, net of debt discount
    of $533,162 .................................................       101,838
  Capitalized lease obligations, net of current portion .........        10,805
  Other liabilities .............................................         6,426
                                                                   ------------

     Total liabilities ..........................................     1,162,758

  Common stock subject to put ...................................     5,000,000

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,
    27,489,251 issued and outstanding ...........................        27,489
  Additional paid-in capital ....................................    34,566,749
  Restricted investment in marketable securities ................      (795,311)
  Accumulated other comprehensive loss ..........................    (5,116,453)
  Accumulated deficit ...........................................   (28,756,269)
  Common stock subject to put ...................................    (5,000,000)
                                                                   ------------

     Total stockholders' deficit ................................    (5,073,795)
                                                                   ------------

     Total liabilities and stockholders' deficit ................  $  1,088,963
                                                                   ============

                 See Notes to Consolidated Financial Statements.
                                      - 3 -
<PAGE>
<TABLE>
                                     NEWPORT INTERNATIONAL GROUP, INC.
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
                                                (Unaudited)
<CAPTION>
                                                    For the three-month            For the six-month
                                                       periods ended                 periods ended
                                                         June 30,                      June 30,

                                                    2005           2004           2005           2004
                                                ------------   ------------   ------------   ------------
<S>                                             <C>            <C>            <C>            <C>
Revenues .....................................  $      9,582   $      3,390   $     13,428   $      3,390
                                                ------------   ------------   ------------   ------------

Operating expenses:
  Research and development ...................        91,065        168,029        331,148        361,057
  Sales, general and administrative ..........     1,227,999        927,524      2,230,939      1,842,053
                                                ------------   ------------   ------------   ------------

     Total operating expenses ................     1,319,064      1,095,553      2,562,087      2,203,110
                                                ------------   ------------   ------------   ------------

     Operating loss ..........................    (1,309,482)    (1,092,163)    (2,548,659)    (2,199,720)
                                                ------------   ------------   ------------   ------------

Other expenses ...............................             -              -       (172,929)             -
Unrealized loss-transfer of available-for-sale
 securities to trading securities ............    (4,999,263)             -     (4,999,263)             -
Unrealized loss-trading securities ...........      (270,384)             -       (270,384)             -
Interest expense .............................      (752,271)      (387,533)    (1,065,639)    (3,942,292)
                                                ------------   ------------   ------------   ------------
  Total other expenses, net ..................    (6,021,918)      (387,533)    (6,508,215)    (3,942,292)

Net loss .....................................  $ (7,331,400)  $ (1,479,696)  $ (9,056,874)  $ (6,142,012)
                                                ============   ============   ============   ============

Unrealized loss on restricted investment .....      (117,190)             -       (117,190)             -
Transfer of available-for-sale securities to
 trading securities ..........................     4,999,263              -      4,999,263              -
                                                ------------   ------------   ------------   ------------

Comprehensive loss ...........................  $ (2,449,327)  $ (1,479,696)  $ (4,174,801)  $ (6,142,012)
                                                ============   ============   ============   ============

Basic and diluted net loss per common share ..  $      (0.27)  $      (0.10)  $      (0.34)  $      (0.54)
                                                ============   ============   ============   ============

Basic and diluted weighted average common
 shares outstanding ..........................    27,092,909     14,302,494     26,941,846     11,356,923
                                                ============   ============   ============   ============

                              See Notes to Consolidated Financial Statements.
                                                   - 4 -
</TABLE>
<PAGE>
<TABLE>
                                     NEWPORT INTERNATIONAL GROUP, INC.
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 For the six-month periods ended June 30,
                                                (Unaudited)
<CAPTION>
                                                                                   2005           2004
                                                                               -----------    -----------
<S>                                                                            <C>            <C>
Cash flows from operating activities:
Net loss ...................................................................   $(9,056,874)   $(6,142,012)
Adjustments to reconcile net loss to net cash used in operating activities:
Unrealized loss-transfer of available-for-sale securities to trading
 securities ................................................................     4,999,263              -
Unrealized loss-trading securities .........................................       270,384              -
  Amortization of debt discount ............................................       853,174         81,967
  Excess of fair value of shares issued upon conversion of convertible
   promissory notes ........................................................        10,125              -
  Fair value of shares issued in connection with the settlement of
   pre-merger obligations ..................................................             -      3,482,382
  Fair value of shares of common stock isued in payment of interest on
   promissory notes ........................................................        72,315         34,561
  Fair value of shares issued in connection with the failure to timely file
   the registration statement ..............................................       132,851              -
  Depreciation .............................................................        37,876         27,558
  Amortization of deferred financing costs .................................       124,303         40,097
  Fair value of stock options issued to employees and consultants for
   services rendered .......................................................       282,130        497,938
  Common stock issued to consultants for services rendered .................        13,440        134,000
  Common stock issued in connection with note payable ......................             -        194,000
Changes in operating assets and liabilities
  Due from related party ...................................................             -         23,400
  Accounts payable and accrued expenses ....................................       195,487        291,731
  Accrued interest on note receivable ......................................         1,200              -
  Accrued interest on convertible promissory notes .........................        12,654         76,421
                                                                               -----------    -----------

Net cash used in operating activities ......................................    (2,051,672)    (1,257,957)
                                                                               -----------    -----------

Cash flows from investing activities:
  Cash acquired from merger ................................................             -         16,196
  Proceeds from disposition of marketable securities .......................        68,925              -
  Proceeds from note receivable ............................................        85,000              -
  Purchases of property and equipment ......................................       (92,199)       (45,046)
                                                                               -----------    -----------

Net cash (used in) provided by investing activities ........................        61,726        (28,850)
                                                                               -----------    -----------

Cash flows from financing activities:
  Principal repayments on lease obligations ................................        (2,553)        (4,792)
  Proceeds from issuance of convertible promissory notes ...................       635,000      1,401,023
  Advances from stockholder ................................................             -        225,000
  Proceeds from exercise of stock options ..................................           413            750
  Payments of convertible promissory notes .................................      (265,000)             -
  Payments of deferred financing costs .....................................             -       (145,069)
  Payments of notes payable ................................................             -       (250,000)
                                                                               -----------    -----------

Net cash provided by financing activities ..................................       367,860      1,226,912
                                                                               -----------    -----------

Decrease in cash ...........................................................    (1,622,086)       (59,895)

Cash, beginning of period ..................................................     1,671,773         80,702
                                                                               -----------    -----------

Cash, end of period ........................................................   $    49,687    $    20,807
                                                                               ===========    ===========
                                                                                              (continued)
                              See Notes to Consolidated Financial Statements.
                                                   - 5 -
</TABLE>
<PAGE>
<TABLE>
                                     NEWPORT INTERNATIONAL GROUP, INC.
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 For the six-month periods ended June 30,
                                                (Unaudited)
                                                (continued)
<CAPTION>
                                                                                   2005           2004
                                                                               -----------    -----------
<S>                                                                            <C>            <C>
Supplemental disclosures of cash flow information:
  Cash paid during the year for interest ...................................   $     3,601    $         -
                                                                               ===========    ===========

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

Supplemental schedule of non-cash financing and investing activities:

Fair value of warrants issued in connection with the issuance of the
convertible notes and corresponding debt discount ..........................   $   182,263    $   506,036
                                                                               ===========    ===========

Fair value of warrants issued to placement agent in connection with the
issuance of the convertible notes and corresponding increase in deferred
financing costs ............................................................   $         -    $    51,101
                                                                               ===========    ===========

Fair value of repricing of warrants issued to placement agent in connection
with the issuance of the 8% convertible notes and corresponding increase in
deferred financing costs ...................................................   $   140,149    $         -
                                                                               ===========    ===========

Fair value of repricing of warrants and beneficial conversion feature issued
in connection with the issuance of the 8% convertible notes and
corresponding debt discount ................................................   $ 1,154,635    $         -
                                                                               ===========    ===========

Beneficial feature resulting from issuance of convertible promissory notes
and corresponding debt discount ............................................   $   423,956    $   520,687
                                                                               ===========    ===========

Fair value of issuance of common stock in connection with the setllement of
pre-merger obligations .....................................................   $         -    $   544,368
                                                                               ===========    ===========

Conversion of convertible promissory notes in shares of common stock .......   $   200,625    $         -
                                                                               ===========    ===========

                              See Notes to Consolidated Financial Statements.
                                                   - 6 -
</TABLE>
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION, BASIS OF PRESENTATION AND GOING CONCERN

Newport International Group, Inc. (the "Company") was a development stage
company incorporated in Delaware in December 1999. During February 2004, the
Company acquired GrassRoots Communications, Inc. ("GrassRoots"). The Company,
through one of its subsidiaries, Spare Backup, Inc., sells on-line backup
solutions software and services to individuals, business professionals, small
office and home office companies, and small to medium sized businesses. The
Company has substantially discontinued its marketing and development efforts
under GrassRoots.

The acquisition of GrassRoots was treated as a reverse acquisition for financial
reporting purposes. As such, our financial statements have been prepared as
GrassRoots as the acquiror. The results of operations discussed below represent
the operations of GrassRoots through February 9, 2004. The results of operations
subsequent to that date reflect the consolidated operations of GrassRoots and
the Company. We have retroactively restated our net loss per share and the
stockholders' deficit section of our balance sheet to reflect the reverse
acquisition.

The accompanying financial statements have been prepared on a going concern
basis. The Company has generated minimal revenue since its inception on June 12,
2002, has incurred net losses of approximately $28.7 million. 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.

                                      - 7 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

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

LOSS PER SHARE

Loss per share is based on the weighted average number of common shares
outstanding. The outstanding warrants and stock options amounting to 4,488,343
and 7,400,189, respectively, as of June 30, 2005, and the outstanding warrants
and stock options as of June 30, 2004 are excluded from the loss per share
computation due to their antidilutive effect.

RISKS AND UNCERTAINTIES

The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. During 2005, the Company has
reached bank balances exceeding the FDIC insurance limit. To reduce its risk
associated with the failure of such financial institutions, the Company
evaluates at least annually the rating of the financial institutions in which it
holds deposits.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                      - 8 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INVESTMENT IN EQUITY SECURITIES

The Company holds 6,484,840 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 holds 3,242,420 shares of the Investee in an escrow account which
may not be released without the the Investee's permission until 2006. Until
these shares are released from escrow, the Company accounts for the value
attributable to such shares as restricted investment in marketable securities
and is included in the stockholders' deficit section of the balance sheet. The
decrease in the carrying and the fair value of these shares of approximately
$5.1 million as of June 30, 2005 has been recorded as other comprehensive loss
in stockholders' deficit.

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

COMPREHENSIVE LOSS

Comprehensive loss is defined as a change in equity during the period from
transactions and other events and circumstances from non-owner resources.
Included in this category is the change resulting from the difference between
the carrying value and the market value of the restricted investment in equity
securities amounting to approximately $5.1 million as of June 30, 2005.
Additionally, the Company is now accounting for the investment used as a
collateral for the Company's possible obligation to repurchase 2,500,000 shares
as investment in trading equity securities instead of investment in equity
securities available-for-sale. Accordingly, it has transferred an unrealized
loss of $4,999,263 from other comprehensive loss to unrealized loss in its
statement of operations.

                                      - 9 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SOFTWARE DEVELOPMENT COSTS

Costs incurred in the research and development of software products are expensed
as incurred until technological feasibility has been established. After
technological feasibility is established, any additional costs are capitalized
in accordance with SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO
BE SOLD, LEASED OR OTHERWISE MARKETED. The Company believes that the current
process for developing software is essentially completed concurrently with the
establishment of technological feasibility; accordingly, no software development
costs have been capitalized as of June 30, 2005.

PROPERTY AND EQUIPMENT

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

DEFERRED FINANCING COSTS

Deferred financing costs represent costs incurred in connection with the
issuance of the convertible promissory notes. Deferred financing costs are being
amortized over the terms of the related debt agreements, which range between one
to two years.

STOCK-BASED COMPENSATION

Stock-based awards to non-employees are accounted for using the fair value
method in accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
and EITF Issue No. 96-18, ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO
OTHER THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING GOODS OR
SERVICES. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the

                                     - 10 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable.

In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE,
effective for fiscal years ending after December 15, 2002. SFAS No. 148 amends
SFAS No. 123 to provide alternative methods of transition to the fair value
method of accounting for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of SFAS No. 123 to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
SFAS No. 148 does not amend SFAS No. 123 to require companies to account for
their employee stock-based awards using the fair value method. The disclosure
provisions are required for all companies with stock-based employee
compensation, regardless of whether they utilize the fair value method of
accounting described in SFAS No. 123 or the intrinsic value method described in
Accounting Principles Board ("APB") Opinion No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES.

The Company has adopted the disclosure requirements of SFAS No. 148 effective
January 1, 2003. The adoption of this standard did not have a significant impact
on the Company's financial condition or operating results.

The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB Opinion No. 25. As permitted by SFAS No.
123, as amended by SFAS No. 148, the Company has chosen to continue to account
for its employee stock-based compensation plans under APB Opinion No. 25 and
provide the expanded disclosures specified in SFAS No. 123, as amended by SFAS
No. 148. Had employee stock based compensation cost been determined using the
fair value method the Company's net loss for the respective three-month period
ended March 31 would have been adjusted to the proforma amounts indicated below:

                                     - 11 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                                                         2005           2004
                                                         ----           ----

Net loss as reported .............................   $(9,026,387)   $(6,142,012)
Add:
  Stock-based compensation expense included in
   reported net loss, net of related tax effects..       206,780         493,813
Deduct:
  Total stock-based compensation expense
   under fair value based method for all awards,
   net of related tax effects ....................      (288,050)      (186,768)
                                                     -----------    -----------

Pro forma net loss ...............................   $(9,107,657)   $(5,834,967)
                                                     ===========    ===========

The pro forma amounts reflected above may not be representative of future
disclosures since the estimated fair value of stock options is amortized to
expense as the options vest and additional options may be granted in future
years.

The fair value of the options granted during the six-month period ended June 30,
2005 and 2004 was determined using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest of 3.32%-3.95% and 3.0%,
respectively; stock volatility of 86% and 42%, respectively; no dividends; and
estimated life of 36 months.

INCOME TAXES

Income taxes are accounted for in accordance with SFAS No. 109, ACCOUNTING FOR
INCOME TAXES. SFAS No. 109 requires the recognition of deferred tax assets and
liabilities to reflect the future tax consequences of events that have been
recognized in the Company's financial statements or tax returns. Measurement of
the deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases of

                                     - 12 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Company's assets and liabilities result in a deferred tax asset, SFAS No. 109
requires an evaluation of the probability of being able to realize the future
benefits indicated by such assets. A valuation allowance related to a deferred
tax asset is recorded when it is more likely than not that some or all of the
deferred tax asset will not be realized.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS 123 (revised 2004) "Share-Based Payment".
This Statement requires that the cost resulting from all share-based
transactions be recorded in the financial statements. The Statement establishes
fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement
in accounting for share-based payment transactions with employees. The Statement
also establishes fair value as the measurement objective for transactions in
which an entity acquires goods or services from non-employees in share-based
payment transactions. The Statement replaces SFAS 123 "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for
Stock Issued to Employees". The provisions of this Statement will be effective
for the Company beginning with its fiscal year ending 2006. The Company is
currently evaluating the impact this new Standard will have on its financial
position, results of operations or cash flows.

                                     - 13 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following as of June 30, 2005:

8% Convertible promissory notes, bearing interest at 8% per
annum, maturing on March 1, 2006. Interest payable March 31, 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. ...............................................   $ 1,582,218
Less:  unamortized discount .....................................    (1,150,705)
                                                                    -----------
Convertible promissory notes-long-term ..........................   $   431,513
                                                                    ===========

12.5% Convertible promissory notes, bearing interest at 12.5% per
annum, maturing between March and June 2007. Interest payable
June 30, 2005 and every quarter thereafter either in cash or
common stock. Interest paid in common stock is convertible using
the 5-day average closing price of the stock prior to the end of
the quarter. Each occurrence of interest not paid within 30 days
following the end of each quarter causes a reduction of 10% in
the conversion price of the promissory notes and the exercise
price of the related warrants. The promissory notes are
convertible into shares of common stock at a rate of $0.375. ....   $   635,000
Less: unamortized discount ......................................      (533,162)
                                                                    -----------
Convertible promissory notes-short term .........................   $   101,838
                                                                    ===========

In connection with the issuance of the 8% convertible promissory notes, the
Company issued 1,501,875 warrants to purchase common stock of the Company at an
exercise price of $1.25 per share during 2004. The warrants are exercisable for
a period of five

                                     - 14 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - CONVERTIBLE PROMISSORY NOTES (CONTINUED)

years. The fair value of the warrants at the date of issuance of approximately
$366,000 has been recorded as a debt discount. The debt discount is amortized
over two years using the imputed interest rate method.

The convertible rates for the 8% convertible promissory notes interest accrued
as of June 30, 2005 amounted to $0.40 per share. The Company issued 69,840 and
12,204 shares in connection with the payment of interest on the 8% convertible
promissory notes during the six-month period ended June 30, 2005 and 2004,
respectively. The fair value of such shares amounted to approximately $35,000
and $35,000, respectively. Furthermore, the Company issued 126,315 shares in
July 2005 in connection with the payment of accrued interest of approximately
$50,000 as of June 30, 2005.

During the six-month ended June 30, 2005, the Company satisfied the remaining
10% Convertible Promissory Notes amounting to $325,000 by paying $265,000 and
issuing 75,000 shares of common stock. The fair value of the shares of common
stock amounted to $48,750.

During the six-month ended June 30, 2005, one of the noteholders of a 8%
convertible promissory note converted two promissory notes and accrued interest
amounting to approximately $154,000 in 410,947 shares of common stock valued at
approximately $164,000. The excess of the fair value of the converted shares
over the carrying value of the promissory notes and accrued interest, which
amounted to $10,125, was recorded as interest expense in the accompanying
statement of operations.

During the six-month period ended June 30, 2005 and 2004, the Company received
$635,000 and $1,401,023, respectively, in consideration for the issuance of the
convertible promissory notes.

In the event the Company issues any shares of its common stock or issues any
options, warrants, convertible preferred stock or convertible debt issuable or
convertible into common stock of the Company at an exercise price or conversion
price per share less than $0.75 per share within two years following the closing
of the 8% Convertible Promissory Notes , then the exercise price of the warrants
issued pursuant to the Follow-on Financing will reset to such lower price. As of
June 30, 2005, the exercise price of such warrants are $0.375.

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

                                     - 15 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - CONVERTIBLE PROMISSORY NOTES (CONTINUED)

Amortization of the debt discount and amortization of the deferred financing
costs amounted to approximately $854,000 and $124,000 and $82,000 and $40,000
during the six-month period ended June 30, 2005 and 2004, respectively, and are
included in interest expense in the accompanying consolidated statements of
operations.

Accrued interest on the Convertible Promissory Notes amounted to approximately
$50,000 as of June 30, 2005.

In accordance with EITF Issue No.00-27,"Application of Issue No. 98-5,
Accounting for convertible securities with beneficial conversion features of
contingently adjustable conversion ratios, to certain convertible instruments",
the Company recorded a beneficial conversion feature related to the Convertible
promissory notes. Under the terms of these notes, the intrinsic value of the
beneficial conversion feature was calculated assuming that the conversion date
was the same as the issue date. During the three-month period ended June 30,
2005 and 2004, the beneficial conversion feature amounted to approximately
$424,000 and $521,000. This beneficial conversion feature is reflected in the
accompanying consolidated financial statements as additional paid-in capital and
corresponding debt discount.

NOTE 4 - COMMON STOCK SUBJECT TO PUT

Pursuant to a private placement of shares of common stock finalized in November
2004, the investors have the right to have the Company reacquire all or a
portion of 2,000,000 and 2,500,000 shares purchased at a price of $1.25 and
$1.00 per share, respectively, in the event the average price per share is less
than $1.25 and $1.00, respectively, for a period of ten consecutive trading days
during an option period commencing eight months after the effective date of the
Company's registration statement and extending for a period of thirty-six months
thereafter. Such puts, valued at $5,000,000 as of June 30, 2005, are accounted
as temporary equity in the accompanying balance sheet. Such investors have
threatened to commence litigation and certain principals (See Note 7).

                                     - 16 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - STOCKHOLDERS' DEFICIT

ISSUANCE OF COMMON STOCK PURSUANT TO A SETTLEMENT OF DEBT

During February 2004, pursuant to a notification of default by the holder, the
Company settled its outstanding notes to a stockholder, its affiliated entity
and other participants. In connection with the settlement of all debt (the
$370,000 convertible debenture and the $10,000 loan along with the related
accrued loan premium of $100,000 and accrued interest of $158,368 due to a
stockholder, and the loan of $100,000 along with the accrued loan premium of
$50,000 and accrued interest of $6,000 to an affiliated entity), the Company
disbursed $250,000 in cash and 1,365,000 shares of common stock, and 530,000
shares of common stock were returned to the Company for cancellation, which
generated an interest expense of approximately $3.5 million during the six-month
period ended June 30, 2004.

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

During February 2005, the Company issued 28,000 shares of common stock to
vendors for services performed. The fair value of such shares amounted to
approximately $13,000 and has been recorded as selling general and
administrative expenses.

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

The Company issued 69,840 and 12,204 shares in connection with the payment of
interest on the 8% convertible promissory notes during the six-month period
ended June 30, 2005 and 2004, respectively. The fair value of such shares
amounted to approximately $35,000 and $35,000, respectively. Furthermore, the
Company issued 126,315 shares in July 2005 in connection with the payment of
accrued interest of approximately $50,000 as of June 30, 2005.

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

During the six-month period ended June 30, 2005, the Company issued 92,903
shares of common stock pursuant to its failure to timely file its registration
statement. The fair value of such shares amounted to approximately $133,000 and
is included in other expenses in the accompanying statement of operations.

                                     - 17 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - STOCK OPTIONS AND WARRANTS

WARRANTS

During the six-month period ended June 30, 2005, the Company issued 576,668
warrants in connection with the issuance of the 12.5% Convertible Promissory
Notes. The exercise price of the warrants is $0.375 per underlying share of
common stock. The warrants expire in December 2009. The fair value of the
warrants amounted to approximately $179,000 and has been recorded as an increase
in debt discount and a corresponding increase in additional-paid-in capital.

The issuance of the 12.5% Convertible Promissory Notes triggered an adjustment
in the exercise price of the following warrants:

      o  2,621,875 warrants issued to the holders of the 8% Convertible
         Promissory Notes. The exercise price of such warrants has been
         decreased from a range of $0.75- $1.25 to $0.375. The fair value of the
         decrease of the exercise price of the warrants and the beneficial
         conversion feature of approximately $452,000 and $702,000, respectively
         was recorded as an increase in debt discount and as an increase in
         additional paid-in capital;

      o  425,000 warrants issued to the placement agent of the 8% Convertible
         Promissory Notes. The exercise price of such warrants has been
         decreased from a range of $0.75- $1.25 to $0.375. The fair value of the
         decrease of the exercise price of the warrants of approximately
         $140,000 was recorded as an increase in deferred financing costs and as
         an increase in additional paid-in capital;

      o  562,500 warrants issued to shareholders in connection with the private
         placement closed in November 2004. The exercise price of such warrants
         has been decreased from a range of $1.55-1.60 to $1.49.

During the six-month period ended June 30, 2004, the Company issued 1,366,875
warrants in connection with the issuance of the 8% Convertible Promissory Notes.
The fair value of the warrants amounted to approximately $495,000 and has been
recorded as an increase in debt discount and a corresponding increase in
additional-paid-in capital.

The Company used the following assumption to value the warrants issued during
the three-month period ended June 30, 2005 and 2004: risk-free interest rate:
3.32%-3.95% and

                                     - 18 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - STOCK OPTIONS AND WARRANTS (CONTINUED)

3.0%, respectively; volatility of 86% and 42%, respectively; estimated life of 4
years; and no dividend expected during the term.

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.

The Company granted 185,000 and 200,000 options during the six-month period
ended June 30, 2005 and 2004, respectively, to purchase common stock to
non-employees for services performed. The exercise prices of such options ranged
from $0.001 to $1.62 during the six-months ended June 30, 2005 and amounted to
$2.40 for options granted during the six-month period ended June 30, 2004,
respectively. As a result, the Company recorded consulting expense of
approximately $75,000 and $80,000 during the six-month period ended June 30,
2005 and 2004, respectively, in accordance with SFAS No.123. Such consulting
expenses are included in selling, general, and administrative expenses in the
accompanying statement of operations.

The fair value of the options granted during the six-month period ended June 30,
2005 and 2004 was determined using the Black-Scholes option-pricing model with
the following assumptions: risk-free interest of 3.32-3.95% and 3.0%,
respectively; stock volatility of 86% and 42%, respectively; no dividends; and
estimated life of 36 months;

The Company issued 790,856 and 29,000 options with below market exercise prices
during the six-month period ended June 30, 2005 and 2004, respectively. The
issuance of such options to employees resulted in compensation expense pursuant
to APB Opinion No. 25 amounting to approximately $207,000 and $41,000 during the
six-month period ended June 30, 2005 and 2004, respectively.

                                     - 19 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - COMMITMENTS AND CONTINGENCIES

LITIGATION

   FOCUS FOCUS
   -----------

On January 6, 2003, the Company entered into a stock purchase agreement (the
"Agreement") with Focus Focus.com, Inc. ("Focus Focus") to purchase all of the
issued and outstanding capital stock of Focus Focus for cash of $150,000 and
promissory notes payable for $1,560,000. In May 2003, the Company received a
letter from counsel for the former owners of Focus Focus advising the Company
that it was in breach of the Agreement and promissory notes for failing to make
scheduled monthly payments. Shortly thereafter, the Company returned the
acquired assets and the Focus Focus stock to the former owners of Focus Focus.

In connection with the Agreement, the Company entered into three-month
consulting agreements with the former owners of Focus Focus to perform certain
consulting services for the Company. As consideration for the services rendered,
the Company granted options to purchase 500,000 shares of the Company's common
stock, which had an exercise price of $0.02 per share, and vested immediately.
The Company contends that the former owners of Focus Focus did not perform under
these consulting agreements, and accordingly, cancelled the options and recorded
no consulting expense in the 2004 and 2003 accompanying financial statements,
respectively.

No litigation has been filed by either party. However, in December 2004, the
Company has received notice from the counsel of the former owners of Focus Focus
that they are entitled to the options initially granted by the Company. The
Company believes that this claim is without merit.

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.

                                     - 20 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

   ROBINSON REED, INC. AND FIRST CAPITAL HOLDINGS INTERNATIONAL, INC.
   ------------------------------------------------------------------

Robinson Reed, Inc. and First Capital Holdings International, Inc. ("Robinson
Reed and First Capital") have recently threatened to bring litigation against
the Company, the Company's directors and/or the Company's management, and to
issue a press release in which they will disclose how $6.5 million of their
investment in the Company was obtained through misrepresentation, fraud and
failure to disclose material facts, and asserting that the Company acted in bad
faith in connection with the issuance of a promissory note pursuant to the
exercise of their put. Robinson Reed and First Capital have not specified the
amount of their purported damages and have not indicated exactly whom they would
sue or on what basis.

Since November 2004, the Company believes that Robinson Reed and First Capital
have engaged in a relentless campaign to exploit its position as a start-up and
to gain more stock and more benefits than was part of the original agreements
with them. Since November 2004:

      1) Robinson Reed and First Capital received an additional 1,500,000 shares
         of our common stock as part of a settlement agreement that provided for
         a general release of all parties involved;

      2) Robinson Reed and First Capital threatened to sue Cery Perle and
         Richard Galterio, two of the Company's directors, by asserting claims
         that were either completely unsubstantiated or fully released by the
         settlement agreement;

      3) Robinson Reed and First Capital threatened to initiate regulatory
         investigations if the Company did not pay them $6.5 million dollars
         plus interest accruing at 7% per annum;

      4) Either Robinson Reed or First Capital breached a mutual non-disclosure
         agreement and contacted a retail outlet with which the Company was
         engaged in confidential negotiations;

      5) Robinson Reed and First Capital issued a put option notice to the
         Company in the middle of negotiations at a time when the parties were
         seeking to agree when the put options would become effective; and

      6) Robinson Reed and First Capital repeatedly refused to accept a
         convertible promissory note delivered to them in conformity with the
         agreements, and unreasonably demanded that a registration statement to
         register the Company's shares of common stock issuable upon conversion
         of the promissory note be filed with the SEC just one day after they
         gave the Company a demand for registration. No such requirements
         relating to timing of the registration statement are set forth in our
         agreements with Robinson Reed or First Capital.

We further understand that Robinson Reed and First Capital may have breached
their stock purchase agreement with the Company, by transferring restricted
securities to "individual investors" shortly after our original issuance, at a
substantial mark-up from the original purchase price. Our stock purchase
agreement with Robinson Reed and First Capital contained representations that
they were purchasing the stock for their own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
neither

                                     - 21 -
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                  JUNE 30, 2005
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Robinson Reed or First Capital had any present intention of selling, granting
any participation in or otherwise distributing the same. The common stock the
Company issued to Robinson Reed and First Capital contained an appropriate
legend that the shares were not registered and could not be sold or transferred
without compliance with the Securities Act of 1933, as amended. Given the timing
of the transfer, which the Company's management understands to have taken place
very shortly after our original issuance, the Company is not certain if Robinson
Reed and First Capital had valid exemptions when they transferred its stock to
these "individual investors".

The Company believes that the demands and requests from Robinson Reed and First
Capital are unreasonable and unwarranted. Management intends to vigorously
defend any and all claims brought against the Company, its directors and its
management by Robinson Reed and or First Capital, and, if a lawsuit is filed,
management will assert various counterclaims against them. We have retained
counsel to represent us in the event of such litigation. Management is unable to
determine the outcome of this matter at this time

   SPENCE MCLAUGHLIN CONSULTING GROUP
   ----------------------------------

During the quarter ended June 30, 2005, an arbitrator awarded a consultant
certain compensation amounting to $81,250 payable by Grassroots, one of the
Company's subsidiaries. The Company has recorded a corresponding liability in
the accompanying financial statements.

NOTE 8 - SUBSEQUENT EVENTS

Between July 1 and August 4, 2005, the Company issued 734,817 shares pursuant to
the conversion of certain 8% convertible promissory notes amounting to $275,557.
Additionally, during the same period, the Company issued 286,250 shares pursuant
to the exercise of certain warrants which generated proceeds of approximately
$107,344.

The Company issued 126,315 shares in July 2005 in connection with the payment of
accrued interest of approximately $50,000 as of June 30, 2005.

On July 1, the Company granted 700,000 stock options to two of its directors and
500,000 stock options to its chief executive officer. The exercise price of such
options amounts to $0.45 per share, which represents the fair value of the price
per share at the time of grant.

                                     - 22 -
<PAGE>

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

   OVERVIEW

The acquisition of Grassroots was treated as a reverse acquisition for financial
reporting purposes. As such, our financial statements have been prepared as
Grassroots as the acquiror. The results of operations discussed below represent
the operations of Grassroots through February 9, 2004. The results of operations
subsequent to that date reflect the consolidated operations of Grassroots and
Newport. The equity section of the balance sheet and our net loss per share have
been retroactively restated to reflect the reverse acquisition.

   PLAN OF OPERATION

Over the course of the next twelve months, we intend to raise additional
operating capital, execute our business plan and focus our business development
efforts in the following four key areas:

   o  By enabling our customers to secure their files and documents more
      effectively through the use of web-conferencing services, collaborative
      tools and application sharing services;

   o  By diversifying our product and service offerings to enhance the
      usefulness of our solutions for customers who will have already adopted
      one or more products;

   o  By developing partnering relationships with wide-ranging sales and
      distribution channel leaders already serving our vertical market space in
      a way that assists them in developing new revenue streams and
      opportunities for additional sales and that also reduces their dependency
      on low margin products that may already be in the final stages of their
      product lifecycle.

We have substantially ceased all our marketing and development efforts for our
Conga line of products operated by Grassroots. We are now focusing all our
marketing and development efforts on Spare, which we believe will constitute a
substantial portion of our revenues and operating expenses in the future. Our
focus on Spare is the result of what we believe the be the best use of our
available resources and limited personnel and of our belief that this area will
provide a greater opportunity for earlier returns on this technology as compared
to video conferencing. We may refocus certain of our marketing and development
efforts back to our Conga line of products in future periods at such time as we
have sufficient available resources to devote to these products and if we
determine we can effectively compete in this product area.

Robinson Reed, Inc. and First Capital Holdings International, Inc. are
continuing to threaten us with litigation, which has been recurring since
November 2004. Additionally, during the three-month period ended June 30, 2005,
an arbitrator entered an award in the amount of $81,250 against GrassRoots (See
Part II- Other Information, Item 1. Legal Proceedings).

                                     - 23 -
<PAGE>

The Company has reduced its headcount during the three-month period ended June
30, 2005. Such reduction in headcount will provide for reduced costs of
operations in the foreseeable future. The Company is seeking distribution
agreements with retail companies and original equipment manufacturers to market
its Spare product offerings and has secured agreements with Hewlett Packard and
CompUSA.

To help fund its on-going operations and to help defray future legal
expenditures, we will incur related to threatened litigation brought by Robinson
Reed and First Capital Holdings International, we have sold 50% of our
investment in Langley Park Investment Trust in July 2005. The proceeds generated
from such sale amounted to approximately $640,000. Based on historical data, we
believe that we will continue to incur between $100,000 and $200,000 per year on
legal fees on matters related to Robinson Reed and First Capital for the
foreseeable future.

As the demand for our products and services increases, we intend to add
personnel who will primarily focus in the following areas: customer service and
quality monitoring as well as general and administrative to support growing
operations.

Once we raise sufficient capital, we also intend to invest in core technology
research and product development as well as sales and marketing personnel.

   GOING CONCERN

The Company has generated minimal revenue since its inception on June 12, 2002,
and has incurred net losses of approximately $28.7 million since its inception
through June 30, 2005. The report of the Company's independent registered public
accounting firm on our financial statements for the year ended December 31, 2004
contains an explanatory paragraph regarding our ability to continue as a going
concern based upon our net losses and cash used in operations. 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 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.

We have generated minimal revenues from operations since our inception and have
no assurance of any future revenues. We will require substantial additional
financing for continuing research and development of our products and for the
commercialization of our products. There can be no assurances that our
operations will become profitable or that we will be able to obtain sufficient
additional financings when they are needed, or that such financings will be
obtainable on terms satisfactory to us.

CRITICAL ACCOUNTING POLICIES

A summary of significant accounting policies is included in Note 2 to the
audited consolidated financial statements included in our filing on Form 10-KSB
as filed with the Securities and Exchange Commission for the year ended December
31, 2004. Management believes that the application of these policies on a
consistent basis enables the Company to provide useful and reliable financial
information about the company's operating results and financial condition.

                                     - 24 -
<PAGE>

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

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

We account for our investment in equity securities pursuant to Statement of
Financial Accounting Standards ("SFAS") No.115. This standard requires such
investments in equity securities that have readily determinable fair values be
measured at fair value in the balance sheet and that unrealized holding gains
and losses for investments in available-for-sale equity securities and
investments in trading equity securities be recorded as a component of
stockholders' equity and statement of operations, respectively.

RESULTS OF OPERATIONS

      Six-Month Period Ended June 30, 2005 and 2004

         REVENUES

We have generated minimal revenues since inception. Revenues recognized during
the six-month period ended June 30, 2005 consists of monthly licensing fees
generated from our Conga product offerings launched during 2004. We believe that
our revenues from our Conga offerings will decrease in the future and that our
revenues from our Spare-Backup will constitute the majority of our revenues in
the future.

         RESEARCH AND DEVELOPMENT

Research and development expenses consist primarily of compensation expenses
paid to our software engineers employees and consultants. Our research and
development expenses during the six-month period ended June 30, 2005 are
consistent with those incurred in the prior year period.

                                     - 25 -
<PAGE>

         SALES, GENERAL, AND ADMINISTRATIVE EXPENSES

Sales, general, and administrative expenses consist primarily of salaries and
related expenses paid to our employees and contractors as well as advertising
expenses. The increase in sales, general, and administrative expenses during the
six-month period ended June 30, 2005 is primarily due to advertising fees we
have incurred in connection with the launch of our new product Spare as well as
legal fees incurred in connection with our registration statement filed in 2005
and legal fees incurred in connection with the Robinson Reed transaction. We
have not incurred such costs in 2004.

         OTHER EXPENSES

Other expenses consist primarily of the fair value of shares issued pursuant to
penalties associated with the failure to timely file the registration statement
and loss on disposition of property and equipment. The increase in other
expenses during the six-month period ended June 30, 2005 consists primarily of
the fair value of the shares issued in January, February and March 2005. There
were no such shares issued in the six-month period ended June 30, 2004.

         INTEREST EXPENSE

Interest expense consists primarily of interest recognized in connection with
the settlement of pre-merger obligations as well as amortization of debt
discount and interest on our convertible promissory notes. The decrease in
interest expense during the six-month period ended June 30, 2005 is primarily
due to the recognition of interest expense of $3.4 million in connection with
the settlement of pre-merger obligations in February 2004. The interest expense
associated with the settlement of pre-merger obligations result from the
issuance of shares of our common stock valued at approximately $4.0 million in
consideration for the payment of $600,000 of pre-merger obligations. No such
convertible promissory notes were issued, nor any debt were settled during the
same period in 2005.

LIQUIDITY AND CAPITAL RESOURCES

We have generated minimal revenues since inception. As a result, our current
operations are not an adequate source of cash to fund future operations. To fund
our cash requirements, we have relied on private placement issuances of equity
and debt financing instruments.

During the six-month period ended June 30, 2005, we have received gross proceeds
of $635,000 from the issuance of convertible promissory notes. Such proceeds
were be used to fund our operations. From funds available at January 1, 2005, we
have also satisfied the remaining $325,000 10% convertible promissory by paying
$265,000 and fund our operating activities, amounting to $2.1 million.

During the six-month period ended June 30, 2004, we have funded our operating
activities of approximately $1.3 million, the satisfaction of pre-merger
obligations of $250,000 and the payment of financing costs of approximately
$140,000 by using the proceeds resulting from the issuance of convertible
promissory notes amounting to $1.4 million and by receiving advances from
shareholders amounting to $225,000.

                                     - 26 -
<PAGE>

We will need to raise a substantial amount of either debt or equity financing
over the course of the next twelve months to fund our current level of
operations. There can be no assurance, however, that such financing will be
available to us or, if it is available, that we will be able to structure such
financing on terms acceptable to us and that it will be sufficient to fund our
cash requirements until we can reach a level of profitable operations and
positive cash flows. If we are unable to obtain the financing necessary to
support our operations, we may be unable to continue as a going concern. We
currently have no commitments for any additional capital.

To help fund its on-going operations and to help defray future legal
expenditures, we will incur recurring threatened litigation brought by Robinson
Reed and First Capital Holdings International, we have sold 50% of our
investment in Langley Park Investment Trust in July 2005. The proceeds generated
from such sale amounted to approximately $640,000. Based on historical data, we
believe that we will continue to incur between $100,000 and $200,000 per year on
legal fees on matters related to Robinson Reed and First Capital for the
foreseeable future.

CERTAIN FACTORS WHICH MAY IMPACT FUTURE RESULTS

In addition to the other information in this report, the following factors
should be considered in evaluating our financial condition and prospects. These
factors may have a significant impact on our business and future operating
results.

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

         Our accumulated deficit since inception amounted to $28.7 million as of
June 30, 2005. At December 31, 2004, the report of our independent registered
public accounting firm on our financial statements for the year ended December
31, 2004 contains an explanatory paragraph as to our ability to continue as a
going concern.

         We have never generated sufficient revenues to fund our ongoing
operations. We are constantly evaluating our cash needs and existing burn rate,
in order to make appropriate adjustments in operating expenses. Depending on our
ongoing evaluation of cash needs, we may need to raise additional debt or equity
capital within the next 12 months to provide funding for ongoing future
operations, or to refinance existing indebtedness. No assurances can be given
that we will be successful in obtaining additional capital, or that such capital
will be available on terms acceptable to us. Our continued existence is
dependent upon, among other things, our ability to raise capital and to market
and sell our services successfully. The financial statements 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 HAVE A LIMITED OPERATING HISTORY, MAKING IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND YOUR INVESTMENT

         We have recently launched our products and services in 2004. We have
generated minimal revenues since inception. We therefore still have a very
limited operating history upon which you may evaluate our operations and future
prospects, as well as limited insights into emerging trends that may affect our
business. Additionally, the income potential of our business and from our
markets is unproven. Because of the emerging nature of the industry, our
executives have limited experience in it. As a young company operating in an
emerging market, we face risks and uncertainties relating to our ability to
implement our business plan successfully. You must consider these risks,
uncertainties and difficulties in evaluating our potential for future
profitability.

                                     - 27 -
<PAGE>

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.

         We reported minimal revenues since inception. The markets for our
products and services have only recently begun to develop, are rapidly evolving
and are increasingly competitive. Our competitors generally have greater brand
recognition and more resources and operating history that we do. It is difficult
to predict whether, or how fast, these markets will grow. We cannot guarantee
either that the demand for our products and services will continue to develop,
that such demand will be sustainable or that we will ever effectively compete in
our market segment. If we are unable to generate any significant revenues from
our products and services our business, operating results, and financial
condition in future periods will be materially and adversely affected and we may
not be able to continue our business as presently operated.

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

         Historically, our operations have been financed primarily through the
issuance of equity and debt. Because we have a history of losses and have never
generated sufficient revenue to fund our ongoing operations, we are dependent on
our continued ability to raise working capital through the issuance of equity or
debt to fund our present operations. Because we do not know if our revenues will
grow at a pace sufficient to fund our current operations, the continuation of
our operations and any future growth will depend upon our ability to raise
additional capital, possibly through the issuance of long-term or short-term
indebtedness or the issuance of our equity securities in private or public
transactions. The actual amount of our future capital requirements, however,
depends on a number of factors, including our ability to grow our revenues and
manage our business.

         If we raise additional capital through the issuance of debt, this will
result in increased interest expense. If we raise additional funds through the
issuance of equity or convertible debt securities, the percentage ownership of
our company held by existing stockholders will be reduced and those stockholders
may experience significant dilution. In addition, new securities may contain
certain rights, preferences or privileges that are senior to those of our common
stock. There can be no assurance that acceptable financing can be obtained on
suitable terms, if at all. If we are unable to raise additional working capital
as needed, our ability to continue our current business will be adversely
affected and may be forced to curtail some or all of our operations.

POSSIBLE DECLINE IN VALUE OF SHARES OF LANGLEY PARK INVESTMENTS, PLC.

         At July 31, 2005 we hold 3,242,420 shares of Langley Park Investments,
PLC, which were received pursuant to a stock exchange agreement with that
company. These shares are listed on the London Stock Exchange. At the date of
the stock exchange agreement, the Langley investment shares, including those
that we have recently sold, were valued at $11.8 million. Based on the
subsequent decline in the market price of these shares, we are reflecting as of
June 30, 2005 that the investment has lost approximately $10.4 million in value.
We have placed 3,242,420 of the Langley Park ordinary shares we acquired in an
escrow account as a downside price protection for Langley Park. These shares
will remain in an escrow account for up to two years, subject to early
termination upon the consent of the parties. If at the end of this two year
period the average of the 10 closing bid prices per share of our common stock

                                     - 28 -
<PAGE>

during the 10 trading days immediately preceding July 30, 2006 is below $2.01, a
proportion of the Langley Park ordinary shares held in escrow will be returned
to Langley Park in the same ratio as the average bid price is to $2.01. Under
the terms of our agreement, we have no guarantees as to the price of the Langley
Investment shares and no right to receive additional shares based on the decline
in the value of the investment. It is possible that the value of these shares
may decline further in the future, in which event the value of our restricted
investment will be reduced further, and the benefit to our financial position
may be substantially reduced or eliminated.

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

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

WE GRANTED THE PURCHASERS OF SHARES OF OUR COMMON STOCK A PUT. IF THIS PUT IS
EXERCISED, OUR RESULTS OF OPERATIONS IN FUTURE PERIODS WILL BE ADVERSLY
AFFECTED.

         In August 2004, in connection with the sale of 4,500,000 shares of our
common stock to Robinson Reed, Inc. and First Capital Holdings International,
Inc. we granted the purchasers an option to put the shares of our common stock
they acquired in this transaction back to us at the weighted average exercise
price of $1.11 per share in the event the average price of our common stock is
less than $1.00 and $1.25 for a period of 10 consecutive trading days during an
option period beginning eight months after the effective date of the
registration statement of which this prospectus is a part and extending 12
months thereafter. If exercised and not honored by us within 10 days from the
receipt of the put notice, we are required to issue the purchasers a convertible
promissory note with a conversion price equal to 85% of the average of the
closing bid prices of our common stock for the 10 trading days prior to
conversion. If the put option is exercised in full, we could be required to
either pay the holders $5,000,000 in cash or issue them a convertible promissory
note with a conversion price less than the then market value of our common
stock. If we satisfy the put option in cash, our working capital would be
proportionality reduced at a time when we might need the funds to pay our
ongoing obligations and we could have difficulty in raising additional capital.
If we issue the convertible note and the note was converted, we would be
required to issue a presently undeterminable number of shares of our common
stock at an effective price below the then current market value of our common
stock. This would result in not only an expense to us, but would be dilutive to
our stockholders and could adversely affect our ability to fund our ongoing
operations.

         In March 2005, a representative of Robinson Reed, Inc. and First
Capital Holdings, Inc. informed us that the put option related to 2,500,000
shares had been amended in December 2004 to allow the investors to exercise
their put option commencing on the effective date of the registration statement
and not eight months after the registration statement became effective. We
maintain that we have not agreed to the alleged amendment. We intend to
vigorously defend our position in the event the investors insist that the put
option commences immediately upon the effective date of the registration
statement.

                                     - 29 -
<PAGE>

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

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

         * Variability in demand and usage for our product and services;

         * Market acceptance of new and existing services offered by us, our
competitors and potential competitors; and

         * Governmental regulations affecting the use of the Internet, including
regulations concerning intellectual property rights and security features.

         Our limited operating history and unproven business model further
contribute to the difficulty of making meaningful quarterly comparisons. Our
current and future levels of expenditures are based primarily on our growth
plans and estimates of expected future revenues. Such expenditures are primarily
fixed in the short term and our sales cycle can be lengthy. Accordingly, we may
not be able to adjust spending or generate new revenue sources timely to
compensate for any shortfall in revenues. If our operating results fall below
the expectation 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 June 30,
2005, and we expect to continue to incur net losses for the foreseeable future.

         Accordingly, our ability to operate our business and implement our
business strategy may be hampered by negative cash flows in the future, and the
value of our stock may decline as a result. Our capital requirements may vary
materially from those currently planned if, for example, we incur unforeseen
capital expenditures, unforeseen operating expenses or make investments to
maintain our competitive position. If this is the case, we may have to delay or
abandon some or all of our development plans or otherwise forego market
opportunities. We will need to generate significant additional revenues to be
profitable in the future and we may not generate sufficient revenues to be
profitable on either a quarterly or annual basis in the future. To address the
risks and uncertainties facing our business strategy, we must, among other
things:

         * Achieve broad customer adoption and acceptance of our products and
services;
         * Successfully raise additional capital in the future;
         * Successfully integrate, leverage and expand our sales force;
         * Successfully scale our current operations;
         * Implement and execute our business and marketing strategies;
         * Address intellectual property rights issues that effect our business;
         * Develop and maintain strategic relationships to enhance the
development and marketing of our existing and new products and services; and
         * Respond to competitive developments in the web conferencing and
collaboration solutions 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.

                                     - 30 -
<PAGE>

WE MAY BE LIABLE OR ALLEGED TO BE LIABLE TO THIRD PARTIES FOR SOFTWARE AND OTHER
CONTENT THAT WE DISTRIBUTE OR MAKE AVAILABLE TO OUR CUSTOMERS.

         We may be liable or alleged to be liable to third parties software and
other content that we distribute or make available to our customers:

         * If the content or the performance of our services violates third
party copyright, trademark, or other intellectual property rights;

         * If our customers violate the intellectual property rights of others
by providing content trough our services; or

         * If content shared or distributed through our software and services is
deemed obscene, indecent, or defamatory.

         Any alleged liability could harm our business by damaging our
reputation, requiring us to incur legal costs in defense, exposing us to awards
of damages and costs and diverting management's attention which could have an
adverse effect on our business, results of operations and financial condition.
We anticipate require our customers to hold us harmless from claims arising from
their failure to have the right to distribute software and other content through
our software and services for that purpose. However, customers may contest this
responsibility or not have sufficient resources to defend claims and we have
limited insurance coverage for claims of this nature.

         We could be exposed to liability with respect to the unauthorized
duplication of content or unauthorized use of other parties' proprietary
technology. Any imposition of liability that is not covered by insurance or is
in excess of insurance coverage or any alleged liability could harm our
business.

         We cannot assure you that third parties will not claim infringement by
us with respect to past, current, or future technologies. We expect that
participants in our markets will be increasingly subject to infringement claims
as the number of services and competitors in our industry segment grows. In
addition, these risks are difficult to quantify in light of the continuously
evolving nature of laws and regulations governing the Internet. Any claim
relating to proprietary rights, whether meritorious or not, could be
time-consuming, result in costly litigation, cause service upgrade delays or
require us to enter into royalty or licensing agreements, and we can not assure
you that we will have adequate insurance coverage or that royalty or licensing
agreements will be available on terms acceptable to us or at all.

WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

         As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal controls over financial
reporting in their annual reports, including Form 10-KSB. In addition, the
independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting as
well as the operating effectiveness of the company's internal controls. We were
not subject to these requirements for the fiscal year ended December 31, 2004.
We have not yet begun evaluating our internal control systems in order to allow
our management to report on, and our independent registered public accounting
firm attest to, our internal controls as a required part of our Annual Report on
Form 10-KSB beginning with our report for the fiscal year ending December 31,
2006.

                                     - 31 -
<PAGE>

         While we expect to expend significant resources in developing the
necessary documentation and testing procedures required by Section 404 of
Sarbanes-Oxley Act of 2002, there is a risk that we will not comply with all of
the requirements imposed by this rule. At present, there is no precedent
available with which to measure compliance adequacy. In the event we identify
significant deficiencies or material weaknesses in our internal controls that we
cannot remediate in a timely manner or we are unable to receive a positive
attestation from our independent registered public accounting firm with respect
to our internal controls, investors and others may lose confidence in the
reliability of our financial statements and our stock price and ability to
obtain equity or debt financing as needed could suffer.

         In addition, in the event that our independent registered public
accounting firm is unable to rely on our internal controls in connection with
their audit of our financial statements, and in the further event that they are
unable to devise alternative procedures in order to satisfy themselves as to the
material accuracy of our financial statements and related disclosures, it is
possible that we would receive a qualified or adverse audit opinion on those
financial statements which could also adversely affect the market price of our
common stock and our ability to secured additional financing as needed.

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 and Nasdaq are
those that address board of directors' independence, audit committee oversight,
and the adoption of a code of ethics. Although we recently 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
or Nasdaq, we are not required to do so. We have not adopted corporate
governance measures such as an audit or other independent committees of our
board of directors as we presently only have one independent director. If we
expand our board membership in future periods to include additional independent
directors, we may seek to establish an audit and other committees of our board
of directors. It is possible that if we were to adopt some or all of these
corporate governance measures, stockholders would benefit from somewhat greater
assurances that internal corporate decisions were being made by disinterested
directors and that policies had been implemented to define responsible conduct.
For example, in the absence of audit, nominating and compensation committees
comprised of at least a majority of independent directors, decisions concerning
matters such as compensation packages to our senior officers and recommendations
for director nominees may be made by a majority of directors who have an
interest in the outcome of the matters being decided. Prospective investors
should bear in mind our current lack of corporate governance measures in
formulating their investment decisions.

OUR SUCCESS IS DEPENDENT ON THE PERFORMANCE AND RETENTION OF OUR CHIEF EXECUTIVE
OFFICER AND KEY EMPLOYEES.

         Our business and operations are substantially dependent on the
performance of our executive officers and key employees, including Cery B.
Perle, all of whom are employed on an at-will basis and have worked together for
only a relatively short period of time. The loss of one or several executives
could seriously harm our business. Any reorganization or reduction in the size
of our employee base could harm our ability to attract and retain other valuable
employees critical to the success of our business.

                                     - 32 -
<PAGE>

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

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

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

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

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

         * Service functionality, quality and performance;
         * Ease of use, reliability and security of services;
         * Establishing a significant base of customers and distribution
partners;
         * Ability to introduce new services to the market in a timely manner;
         * Customer service and support; and
         * Pricing.

         Our primary competitors are various Internet-based backup providers
broadcasters, such as Connected.com, Novastar, Livevault, and backup.com. These
company 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.

         Substantially all of our competitors have more capital, longer
operating histories, greater brand recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These competitors may also engage in more extensive development of their
technologies, adopt more aggressive pricing policies and establish more
comprehensive marketing and advertising campaigns than we can. Our competitors
may develop products and service offerings that we do not offer or that are more
sophisticated or more cost effective than our own. For these and other reasons,

                                     - 33 -
<PAGE>

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.

IF WE FAIL TO ENHANCE OUR EXISTING SERVICES AND APPLICATIONS PRODUCTS OR DEVELOP
AND INTRODUCE NEW BACKUP SOLUTIONS, APPLICATIONS AND FEATURES IN A TIMELY MANNER
TO MEET CHANGING CUSTOMER REQUIREMENTS AND EMERGING INDUSTRY TRENDS OR
STANDARDS, OUR ABILITY TO GROW OUR BUSINESS WILL SUFFER.

         The market for backup solutions is characterized by rapidly changing
technologies and short product life cycles. These market characteristics are
heightened by the emerging nature of the Internet and the continuing trend of
companies from many industries to offer Internet-based applications and
services. The widespread adoption of the new Internet, networking, or
telecommunications technologies or other technological changes could require us
to incur substantial expenditures to modify or adapt our operating practices or
infrastructure. Our future success will depend in large part upon our ability
to:

         * Identify and respond to emerging technological trends in the market;
         * Enhance our products by adding innovative features that differentiate
services and applications from those of our competitors;
         * Acquire and license leading technologies;
         * Bring new services and applications to market and scale our business
on a timely basis at competitive prices; and
         * Respond effectively to new technological changes or new product
announcements by others.

         We will not be competitive unless we continually introduce new services
and applications or enhancements to existing services and applications that meet
evolving industry standards and customer needs. In the future, we may not be
able to address effectively the compatibility and interoperability issues that
arise as a result of technological changes and evolving industry standards. The
technical innovations required for us to remain competitive are inherently
complex, require long development schedules and are dependent in some cases on
sole source suppliers. We will be required to continue to invest in research and
development in order to attempt to maintain and enhance our existing
technologies and products, but we may not have the funds available to do so.
Even if we have sufficient funds, these investments may not serve the needs of
customers or be compatible with changing technological requirements or
standards. Most development expenses must be incurred before the technical
feasibility or commercial viability of new or enhanced services and applications
can be ascertained. Revenue from future services and applications or
enhancements to services and applications may not be sufficient to recover the
associated development costs.

THE TECHNOLOGY UNDERLYING OUR SERVICES AND APPLICATIONS IS COMPLEX AND MAY
CONTAIN UNKNOWN DEFECTS THAT COULD HARM OUR REPUTATION, 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

                                     - 34 -
<PAGE>

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:

         * Damage our reputation;

         * Cause our customers to initiate product liability suits against us;

         * Increase our product development resources;

         * Cause us to lose revenues; and

         * 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.

         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.

         Our computer and communications infrastructure is located at a single
leased facility in California. We do not have fully redundant systems, and 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.

GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS PROSPECTS.

         We do not know with certainty how existing laws governing issues such
as property ownership, copyright and other intellectual property issues,
taxation, illegal or obscene content, retransmission of media, personal privacy
and data protection will apply to the Internet or to the distribution of
multimedia and other proprietary content over the Internet. Most of these laws
were adopted before the advent of the Internet and related technologies and
therefore do not address the unique issues associated with the Internet and
related technologies. Depending on how these laws develop and are interpreted by
the judicial system, they could have the effect of:

                                     - 35 -
<PAGE>

         * Limiting the growth of the Internet;

         * Creating uncertainty in the marketplace that could reduce demand for
our products and services;

         * Increasing our cost of doing business;

         * Exposing us to significant liabilities associated with content
distributed or accessed through our products or services; or

         * Leading to increased product and applications development costs, or
otherwise harm our business.

         Because of this rapidly evolving and uncertain regulatory environment,
both domestically and internationally, we cannot predict how existing or
proposed laws and regulations might affect our business. In addition, these
uncertainties make it difficult to ensure compliance with the laws and
regulations governing digital music. These laws and regulations could harm us by
subjecting us to liability or forcing us to change our business.

PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A
TAKEOVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.

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

         In addition, our certificate of incorporation authorizes the issuance
of up to 5,000,000 shares of preferred stock with such rights and preferences as
may be determined by our board of directors. Our board of directors may, without
stockholder approval, issue preferred stock with dividends, liquidation,
conversion or voting rights that could adversely affect the voting power or
other rights of our common stockholders.

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

                                     - 36 -
<PAGE>

ITEM 3.  CONTROLS AND PROCEDURES

Our principal executive officer and principal financial officer evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended) as of the end of the period covered by this report. Based on this
evaluation, the Company's principal executive officer and principal financial
officer have concluded that the Company's controls and procedures are effective
in providing reasonable assurance that the information required to be disclosed
in this report has been recorded, processed, summarized and reported as of the
end of the period covered by this report.

During the period covered by this report, there have not been any significant
changes in our internal controls or, to our knowledge, in other factors that
could significantly affect our internal controls.

                                     - 37 -
<PAGE>

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

   Robinson Reed, Inc. and First Capital Holdings International, Inc.
   ------------------------------------------------------------------

         Robinson Reed, Inc. and First Capital Holdings International, Inc.
("Robinson Reed and First Capital") have recently threatened to bring litigation
against us, our directors and/or our management, and to issue a press release in
which they say they will disclose how $6.5 million of their investment in us was
obtained through misrepresentation, fraud and failure to disclose material
facts, and asserting that we acted in bad faith in connection with the issuance
of a promissory note pursuant to the exercise of their put. Robinson Reed and
First Capital have not specified the amount of their purported damages and have
not indicated exactly whom they would sue or on what basis.

Since November 2004, we believe that Robinson Reed and First Capital have
engaged in a relentless campaign to exploit our position as a start-up and to
gain more stock and more benefits than was part of our original agreements with
them. Since November 2004:

      1) Robinson Reed and First Capital received an additional 1,500,000 shares
         of our common stock as part of a settlement agreement that provided for
         a general release of all parties involved;

      2) Robinson Reed and First Capital threatened to sue Cery Perle and
         Richard Galterio, two of our directors, by asserting claims that were
         either completely unsubstantiated or fully released by the settlement
         agreement;

      3) Robinson Reed and First Capital threatened to initiate regulatory
         investigations if we did not pay them $6.5 million dollars plus
         interest accruing at 7% per annum;

      4) Either Robinson Reed or First Capital breached a mutual non-disclosure
         agreement and contacted a retail outlet with which we were engaged in
         confidential negotiations;

      5) Robinson Reed and First Capital issued a put option notice to us in the
         middle of negotiations at a time when the parties were seeking to agree
         when the put options would become effective; and

      6) Robinson Reed and First Capital repeatedly refused to accept a
         convertible promissory note delivered to them in conformity with our
         agreements, and unreasonably demanded that a registration statement to
         register our shares of common stock issuable upon conversion of the
         promissory note be filed with the SEC just one day after they gave us a
         demand for registration. No such requirements relating to timing of the
         registration statement are set forth in our agreements with Robinson
         Reed or First Capital.

We further understand that Robinson Reed and First Capital may have breached
their stock purchase agreement with us, by transferring restricted securities to
"individual investors" shortly after our original issuance, at a substantial
mark-up from the original purchase price. Our stock purchase agreement with
Robinson Reed and First Capital contained representations that they were
purchasing the stock for their own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and that neither
Robinson Reed or First Capital had any present intention of selling, granting
any participation in or otherwise distributing the same. The common stock we
issued to Robinson Reed and First Capital contained an appropriate legend that
the shares were not registered and could not be sold or transferred without
compliance with the Securities Act of 1933, as amended. Given the timing of the
transfer, which we understand to have taken place very shortly after our
original issuance, we are not certain if Robinson Reed and First Capital had
valid exemptions when they transferred our stock to these "individual
investors".

                                     - 38 -
<PAGE>

We believe that the demands and requests from Robinson Reed and First Capital
are unreasonable and unwarranted. We intend to vigorously defend any and all
claims brought against the company, its directors and/or its management by
Robinson Reed and/or First Capital, and, if a lawsuit is filed, we will assert
various counterclaims against them. We have retained counsel to represent us in
the event of such litigation.

   Spence McLaughlin Consulting Group
   ----------------------------------

In May 2005 our subsidiary, Grass Roots, was advised that an arbitrator in a
proceeding conducted in San Diego, California awarded Spence McLaughlin
Consulting Group, a consultant to Grass Roots, a sum representing base salary
for the designated representative of Spence McLaughlin of $75,000 as damages and
unpaid employment compensation of $6,250. The arbitrator ruled, however, that
all other claims for compensation by Spence McLaughlin, including unpaid
vacation pay, stock options and stock awards, were rejected. We intend to
attempt to negotiate a definitive settlement with the plaintiff.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During May 2005, we issued convertible promissory notes to two individuals for
$20,000. The convertible promissory notes are convertible into 53,333 shares of
our common stock by May 2007. In connection with this transaction, we have also
issued warrants convertible into 13,334 shares of our common stock at an
exercise price of $0.375. Such warrants expire in December 2009. The proceeds
from the issuance of the convertible promissory notes were used to fund our
operating activities.

During June 2005, we issued a convertible promissory note to an individual for
$40,000. The convertible promissory notes are convertible into 106,667 shares of
our common stock by June 2007. In connection with this transaction, we have also
issued warrants convertible into 26,667 shares of our common stock at an
exercise price of $0.375. Such warrants expire in December 2009. The proceeds
from the issuance of the convertible promissory note will be used to fund our
operating activities.

Inasmuch as each of the investors had previously invested in prior financings of
the Company or its subsidiaries, were accredited and sophisticated investors,
had acquired the securities for investment and had access to applicable
information pertaining to Newport, the issuance of the securities was exempt
from registration under Section 3(89) of the Securities Act of 1933.

We did not use a placement agent and paid no commissions or finders fees in the
aforementioned transactions.

ITEM 3.  DEFAULTS ON SENIOR SECURITIES

         None

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

         None

ITEM 5.  OTHER INFORMATION

         None

                                     - 39 -
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      a. Exhibits

         10.11    Supplier Agreement with CompUSA(1)

         31.1     Certificate of Chief Executive Officer pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002

         31.2     Certificate of Chief Financial Officer pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002

         32.1     Certification of Chief Executive Officer and Chief Financial
                  Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
         _________
         (1)   Portions of this agreement have been omitted and separately filed
               with the Securities and Exchange Commission with a request for
               confidential treatment.


                                     - 40 -
<PAGE>

                                    SIGNATURE

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


                        NEWPORT INTERNATIONAL GROUP, INC.



      By:               /s/ Cery B. Perle                     August 12, 2005
          ---------------------------------------------      -----------------
                          Cery B. Perle                            Date
          President, Chief Executive Officer & Director
                 (Principal executive officer and
                   principal financial officer)


                                     - 41 -