U.S. Securities and Exchange Commission

                             Washington, D.C. 20549

                                  Form 10-KSB/A
                                 Amendment No. 1
                                   (Mark One)


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

                   For the fiscal year ended December 31, 2004


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

                 For the transition period from ______ to ______


                        Commission File Number 000-30587


                        NEWPORT INTERNATIONAL GROUP, INC.
                 (Name of small business issuer in its charter)


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


 73061 El Paseo, Suite 202, Palm Desert, California                     92260
 ------------------------------------------------------------------------------
         (Address of principal executive offices)                    (Zip Code)


                     Issuer's telephone number: 760-779-0251


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

                                                  Name of each exchange
         Title of each class                       on which registered
        -------------------                        -------------------

               None                                  Not Applicable


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

                                  Common Stock
                                (Title of class)
<PAGE>

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

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year. $10,583 for the 12
months ended December 31, 2004.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. The aggregate market value of the voting
stock held by non-affiliates computed at the closing price of Newport's common
stock on March 20, 2005 is approximately $ 17,221,000.

State the number of shares outstanding of each of the issuer's class of common
equity, as of the latest practicable date. As of March 20, 2005, 26,493,846
shares of common stock are issued and outstanding.


                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) of the Securities Act of 1933 ("Securities Act"). Not Applicable.
Transitional Small Business Disclosure Form (check one): Yes ___ No _X_

When used in this annual report,  the terms  "Newport," "we," and "us" refers to
Newport International Group, Inc., a Delaware corporation, and its subsidiaries,
Grass Roots Communications, Inc., a Delaware corporation ("Grass Roots") and
Spare Back-Up Inc., a Delaware corporation ("Spare").

All per share information contained in this annual report gives pro forma effect
to the one for 20 reverse stock split of our common stock effected on effected
on December 10, 2003.

                                       ii
<PAGE>

                   EXPLANATORY NOTE REGARDING AMENDMENT NO. 1

We are amending this Form 10-KSB for the year ended December 31, 2004 to restate
our consolidated balance sheet at December 31, 2004. We determined that the
restricted investment in marketable securities should have been presented as an
asset and we have previously restated our audited financial statements for the
year ended December 31, 2004. Please see Note 3 Restatement contained in the
Notes to Consolidated Financial Statements appearing later in this Form 10-KSB/A
which further describes the effect of this restatement.

The Items of this Form 10-KSB/A for the year ended December 31, 2004 which are
amended and restated are as follows: Part I Financial Information, Item 7
Financial Statements, Consolidated Balance Sheet as of December 31, 2004,
Consolidated Statements of Stockholders' Deficit for the year ended December 31,
2004, and Notes to Consolidated Financial Statements as of December 31, 2004,
and Item 8A Controls and Procedures. Further, Part II Other Information, Item 6
Exhibits of this 10-KSB/A includes currently dated certificates from the
Company's Chief Executive Officer and Principal Accounting and Financial Officer
in Exhibits 31.1, 31.2 and 32.1.

The remaining Items contained in this Form 10-KSB/A consist of all other Items
originally contained in our Form 10-KSB for the year ended December 31, 2004 as
filed on April 1, 2005. This Form 10-KSB/A does not reflect events occurring
after the filing of the original Form 10-KSB, nor modify or update those
disclosures in any way other than as required to reflect the effects of the
restatement.


CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION CERTAIN STATEMENTS
IN THIS ANNUAL REPORT ON FORM 10-KSB 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.


                                       iii
<PAGE>
                                     PART I

ITEM 7. FINANCIAL STATEMENTS

         The financial statements required by this report are included,
commencing on page F-1.

ITEM 8A. CONTROLS AND PROCEDURES

         As required by Rule 13a-15 under the Securities Exchange Act of 1934,
as of the end of the period covered by the annual report, being December 31,
2004, we have carried out an evaluation of the effectiveness of the design and
operation of our company's disclosure controls and procedures. This evaluation
was carried out under the supervision and with the participation of our
company's management, including our company's President. Based upon that
evaluation, our company's President concluded that our company's disclosure
controls and procedures are effective. There have been no significant changes in
our company's internal controls or in other factors, which could significantly
affect internal control subsequent to the date we carried out our evaluation.

         Disclosure controls and procedures and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 is accumulated and communicated to management
including our President as appropriate, to allow timely decisions regarding
required disclosure.

         On September 29, 2005, the Company announced that it was restating its
consolidated balance sheet and statements of stockholders' deficit as of and for
the year ended December 31, 2004 and for the first two quarters of 2005 to
correct the presentation of its restricted investment in marketable securities.
Previously, the Company presented its restricted investment in marketable
securities as an element of the stockholders' deficit. As a result of a normal
periodic review of its financial statements by the staff of the Securities and
Exchange Commission, and after reviewing certain accounting principles we have
applied in previously issued financial statements, management has determined, on
September 27, 2005, that the Company's restricted investment in marketable
securities should have been classified as an asset. The change in presentation
of the Company's restricted investment in marketable securities has for effect
to increase the assets and decrease the stockholders' deficit by $912,501 as of
December 31, 2004. The change in presentation of the Company's restricted
investment in marketable securities does not have any impact on the Company's
consolidated statement of operations, earnings per share, and consolidated
statement of cash flows for the year ended December 31, 2004 Please refer to
Note 3 to the accompanying consolidated financial statements for additional
information.

         As a result of the restatement of its consolidated balance sheets and
statements of stockholders' deficit, the Company determined that there was a
significant deficiency in its internal control over financial reporting as of
December 31, 2004 related to its presentation on its balance sheet of its
restricted investment in marketable securities. The Company determined that such
significant deficiency did not rise to the level of a material weakness in its
internal control over financial reporting. Because the Company corrected its
presentation of its restricted investment in marketable securities, the Company
believes that it corrected this significant deficiency.

                                        1
<PAGE>
                                    PART III

ITEM 13. EXHIBITS

Exhibits

2.1      Acquisition Agreement and Plan of Merger (3)
2.2      Agreement and Plan of Merger (4)
3.1      Certificate of Incorporation (1)
3.2      By-Laws (1)
3.3      Certificate of Incorporation, as amended (2)
3.4      Certificate of Amendment to the Certificate of Incorporation (5)
3.5      Certificate of Amendment to the Certificate of Incorporation (9)
4.1      Form of 8% promissory note (11)
4.2      Form of 10% secured note (9)
4.3      Form of Investor Warrant to Purchase Common Stock issued with 8%
         promissory note (11)
4.4      Form of Common Stock Purchase Warrant issued with 10% secured note (11)
4.5      Form of Common Stock Purchase Warrant issued to Robinson Reed Inc. and
         First Capital Holdings International, Inc. (11)
4.6      Form of $0.75 Investor Warrant (11)
10.1     2002 Stock Option and Stock Award Plan (7)
10.2     Lease for principal executive offices (11)
10.3     Stock Purchase Agreement with Langley Park Investments PLC (10)
10.4     Escrow Agreement with Langley Park (11)
10.5     Employment Agreement with Cery B. Perle (11)
10.6     Common Stock and Warrant Purchase Agreement dated as of August 27, 2004
         (10)
10.7     Registration Rights Agreement dated as of August 27, 2004 (10)
10.8     Amendment No. 1 to Common Stock and Warrant Purchase Agreement dated as
         of November 2, 2004 (10)
10.9     Settlement  Agreement and Release between Newport  International
         Group,  Inc.,  Robinson Reed,  Inc., First Capital Holdings
         International, Inc., Continental Blue Limited and E-Holdings, Inc. (11)
10.10    Finder's Fee Agreement with E-Holdings, Inc. (11)
14.1     Code of  Business  Conduct  and Ethics  and Code of Ethics  for the
         Chief  Executive  Officer  and Senior  Financial Officers (11)
16.1     Letter from Berkovitz, Lago & Company, LLP (8)
23.1     Consent of Sherb & Co., LLP*
31.1     Section 302 Certificate of Chief Executive Officer *
31.2     Section 302 Certificate of principal accounting officer *
32.1     Section 906 Certificate of Chief Executive Officer *

*        filed herewith

                                        2
<PAGE>

(1)  Incorporated by reference to the Form 10-SB as filed with the SEC on May
     10, 2000.

(2)  Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on February 5, 2001.

(3)  Incorporated by reference to the Report on Form 8-K filed with the SEC on
     November 6, 2000.

(4)  Incorporated by reference to the Report on Form 8-K filed with the SEC on
     February 13, 2004.

(5)  Incorporated by reference to the definitive Information Statement on
     Schedule 14C as filed with the SEC on November 14, 2003.

(6)  Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on June 3, 2003.

(7)  Incorporated by reference to the registration statement on Form S-8 as
     filed with the SEC on August 8, 2004.

(8)  Incorporated by reference to the Report on Form 8-K as filed with the SEC
     on December 16, 2004.

(9)  Incorporated by reference to the quarterly report on Form 10-QSB for the
     three and six months ended June 30, 2004.

(10) Incorporated by reference to the quarterly report on Form 10-QSB for the
     three and nine months ended September 30, 2004.

(11) Incorporated by reference to the registration statement on Form SB-2, file
     number 333-123096, as filed with the SEC on March 2, 2005.

                                        3
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned and duly authorized.

Dated: September 29, 2005           NEWPORT INTERNATIONAL GROUP, INC.



                                    By: /s/ Cery B. Perle
                                        -----------------
                                        Cery B. Perle
                                        President, CEO, CFO, principal executive
                                        and principal accounting officer


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

 SIGNATURE                             TITLE                         DATE

                            President, CEO, CFO,Chairman,
                            principal executive officer,
 /s/ Cery B. Perle          principal accounting officer      September 29, 2005
 ------------------
 Cery B. Perle



 /s/ Edwin L. Hagan         Secretary and Director            September 29, 2005
 ------------------
 Edwin L. Hagan



 /s/ Richard Galterio       Director                          September 29, 2005
 --------------------
 Richard Galterio

<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC

                          INDEX TO FINANCIAL STATEMENTS

                                                                         Page

REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS..........................F-2

FINANCIAL STATEMENTS

         Balance Sheet.......................................................F-3

         Statements of Operations and Comprehensive Loss.....................F-4

         Statements of Changes in Stockholders' Deficiency...................F-5

         Statements of Cash Flows............................................F-6

         Notes of Financial Statements................................F-7 - F-29






                                       F-1
<PAGE>

                                                                805 Third Avenue
                                                              New York, NY 10022
                                                               Tel. 212-838-5100
                                                                Fax.212-838-2676
                                                        e-mail:info@sherbcpa.com

                                                 Offices in New York and Florida
________________________________________________________________________________
CERTIFIED PUBLIC ACCOUNTANTS

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Newport International Group, Inc.

We have audited the accompanying consolidated balance sheet of Newport
International Group, Inc. and its Subsidiary as of December 31, 2004, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 2004 and 2003. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amount and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Newport
International Group, Inc. and Subsidiaries as of December 31, 2004, and the
results of their operations and their cash flows for the years ended December
31, 2004 and 2003, in conformity with accounting principles generally accepted
in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company had net losses and cash used in
operations of $14,258,448 and $5,059,918 respectively, for the year ended
December 31, 2004. This raises substantial doubt about its ability to continue
as a going concern. Management's plans in regards to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

                                       /s/ Sherb & Co., LLP
                                       Certified Public Accountants
New York, New York
February 16, 2005

                                       F-2
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2004


                                     ASSETS

Current Assets:
  Cash ..........................................................  $  1,671,773
  Deposit .......................................................        25,000
  Marketable security held for sale .............................        68,925
  Note receivable ...............................................        86,200
                                                                   ------------
     Total current assets .......................................     1,851,898

  Investment in equity securities ...............................       912,501
  Restricted investment in marketable securities ................       912,501
  Property and equipment, net of accumulated
    depreciation of $28,124 .....................................       110,654
  Deferred financing costs, net of accumulated
    amortization of $197,675 ....................................       155,036
  Other assets ..................................................        36,301
                                                                   ------------

     Total assets ...............................................  $  3,978,891
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable and accrued expenses .........................  $    347,218
  Current portion of capitalized lease obligations ..............         6,932
  Convertible promissory notes, net of debt discount of $106,477        218,523
  Accrued interest on convertible promissory notes ..............        37,675
  Due to stockholder ............................................        15,000
                                                                   ------------

     Total current liabilities ..................................       625,348

  Convertible promissory notes, net of debt
  discount of $681,660 ..........................................     1,052,433
  Capitalized lease obligations, net of current portion .........        10,566
  Other liabilities .............................................         6,426
                                                                   ------------
     Total liabilities ..........................................     1,694,773

  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, 26,400,061 issued and outstanding ........        26,400
  Additional paid-in capital ....................................    31,955,639
  Accumulated other comprehensive loss ..........................    (9,998,526)
  Accumulated deficit ...........................................   (19,699,395)
  Common stock subject to put ...................................    (5,000,000)
                                                                   ------------

     Total stockholders' deficit ................................    (2,715,882)
                                                                   ------------

     Total liabilities and stockholders' deficit ................  $  3,978,891
                                                                   ============

                 See Notes to Consolidated Financial Statements.
                                       F-3
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        FOR THE YEARS ENDED DECEMBER 31,


                                                       2004            2003
                                                   ------------    ------------

Revenues .......................................   $     10,583             $ -
                                                   ------------    ------------
Operating expenses:
  Research and development .....................        722,113         440,770
  Sales, general and administrative ............      6,085,908       4,595,683
                                                   ------------    ------------

     Total operating expenses ..................      6,808,021       5,036,453
                                                   ------------    ------------

     Operating loss ............................     (6,797,438)     (5,036,453)
                                                   ------------    ------------

  Other expenses ...............................         37,963          27,030
  Settlement with stockholders .................      2,775,000               -
  Other income .................................         (6,375)         (1,940)
  Interest expense .............................      4,654,422          11,709
                                                   ------------    ------------
  Total other expenses, net ....................      7,461,010          36,799

Net loss .......................................    (14,258,448)     (5,073,252)
                                                   ------------    ------------

Unrealized loss on restricted investment .......     (9,998,526)              -
                                                   ------------    ------------

 Comprehensive loss ............................   $(24,256,974)   $ (5,073,252)
                                                   ============    ============

Basic and diluted net loss per common share ....   $      (0.81)   $      (0.45)
                                                   ============    ============

Basic and diluted weighted average common
shares outstanding .............................     17,608,577      11,169,343
                                                   ============    ============

                 See Notes to Consolidated Financial Statements.
                                       F-4
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
            FOR THE PERIOD FROM JANUARY 1, 2003 TO DECEMBER 31, 2004

<TABLE>
<CAPTION>

                                                                                 Common Stock            Additional
                                                                          ---------------------------     Paid-in
                                                                             Shares         Amount        Capital
                                                                          ------------   ------------   ------------
<S>                                                                       <C>            <C>            <C>
Balance at January 1, 2003 .............................................    10,034,333   $     10,034   $    578,766

Cancellation of common stock from founders .............................      (300,000)          (300)           300
Issuance of common stock for cash ......................................     1,703,353          1,703      1,231,172
Issuance of common stock for services rendered .........................       300,000            300        152,700
Issuance of common stock pursuant to exercise of stock options .........       566,667            567        324,433
Fair value warrants issued in connection with the Convertible
 promissory notes ......................................................            --             --         76,652
Compensation expense for options granted to employees ..................            --             --        745,625
Compensation expense for options granted to outside consultants ........            --             --      1,668,763
Net loss ...............................................................            --             --             --
                                                                          ------------   ------------   ------------
                                                                            12,304,353         12,304      4,778,411

Issuance of common stock pursuant to the merger with GrassRoots ........     1,009,112          1,009       (779,181)
Cancellation of common stockissued pursuant to extinghushment of debt ..      (530,000)          (530)            --
Issuance of common stock pursuant to the settlement of pre-merger
 obligations ...........................................................     1,365,000          1,365      4,025,385
Issuance of common stock pursuant to exercise of stock options .........       187,500            188        188,063
Issuance of common stock for cash, net of financing costs ..............     4,500,000          4,500      5,835,482
Issuance of common stock in connection with settlement with stockholders     1,500,000          1,500      2,773,500
Issuance of common stock pursuant to a share- exchange agreement .......     5,882,352          5,882     11,817,646
Issuance of common stock to pay interest on convertible promissory notes        48,921             49        108,504
Issuance of common stock to partially repay convertible promissory notes        40,000             40         59,960
Issuance of common stock to consultants and a reseller for services
 rendered ..............................................................       172,500            173        327,952
Issuance of common stock for failure to timely file registration
 statement .............................................................        20,323             20         37,943
Cancellation of shares issued to a reseller ............................      (100,000)          (100)            --
Fair value of warrants issued in connection with the convertible
 promissory notes ......................................................            --             --        760,290
Compensation expense for options granted to employees and consultants ..            --             --      1,432,701
Beneficial feature resulting from the issuance of convertible
 promissory notes ......................................................            --             --        588,983
Unrealized loss on investment in marketable securities .................            --             --             --
Net loss ...............................................................            --             --             --
                                                                          ------------   ------------   ------------
                                                                            26,400,061   $     26,400   $ 31,955,639
                                                                          ============   ============   ============
                                                                                                 (CONTINUED)
</TABLE>

                 See Notes to Consolidated Financial Statements.
                                      F-5A
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
            FOR THE PERIOD FROM JANUARY 1, 2003 TO DECEMBER 31, 2004
                                   (CONTINUED)
<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                            Other
                                                                          Accumulated   Comprehensive   Common Stock
                                                                            Deficit         Loss       Subject to Put      Total
                                                                          ------------  -------------  --------------  ------------
<S>                                                                       <C>            <C>            <C>            <C>
Balance at January 1, 2003 .............................................  $   (367,695)  $         --   $         --   $    221,105

Cancellation of common stock from founders .............................            --             --             --             --
Issuance of common stock for cash ......................................            --             --             --      1,232,875
Issuance of common stock for services rendered .........................            --             --             --        153,000
Issuance of common stock pursuant to exercise of stock options .........            --             --             --        325,000
Fair value warrants issued in connection with the Convertible
 promissory notes ......................................................            --             --             --         76,652
Compensation expense for options granted to employees ..................            --             --             --        745,625
Compensation expense for options granted to outside consultants ........            --             --             --      1,668,763
Net loss ...............................................................    (5,073,252)            --             --     (5,073,252)
                                                                          ------------   ------------   ------------   ------------
                                                                            (5,440,947)            --             --       (650,232)

Issuance of common stock pursuant to the merger with GrassRoots ........            --             --             --       (778,172)
Cancellation of common stockissued pursuant to extinghushment of debt ..            --             --             --           (530)
Issuance of common stock pursuant to the settlement of pre-merger
 obligations ...........................................................            --             --             --      4,026,750
Issuance of common stock pursuant to exercise of stock options .........            --             --             --        188,251
Issuance of common stock for cash, net of financing costs ..............            --             --     (5,000,000)       839,982
Issuance of common stock in connection with settlement with stockholders            --             --             --      2,775,000
Issuance of common stock pursuant to a share- exchange agreement .......            --             --             --     11,823,528
Issuance of common stock to pay interest on convertible promissory notes            --             --             --        108,553
Issuance of common stock to partially repay convertible promissory notes            --             --             --         60,000
Issuance of common stock to consultants and a reseller for services
 rendered ..............................................................            --             --             --        328,125
Issuance of common stock for failure to timely file registration
 statement .............................................................            --             --             --         37,963
Cancellation of shares issued to a reseller ............................            --             --             --           (100)
Fair value of warrants issued in connection with the convertible
 promissory notes ......................................................            --             --             --        760,290
Compensation expense for options granted to employees and consultants ..            --             --             --      1,432,701
Beneficial feature resulting from the issuance of convertible
 promissory notes ......................................................            --             --             --        588,983
Unrealized loss on investment in marketable securities .................            --     (9,998,526)            --     (9,998,526)
Net loss ...............................................................   (14,258,448)            --             --    (14,258,448)
                                                                          ------------   ------------   ------------   ------------
                                                                          $(19,699,395)  $ (9,998,526)  $ (5,000,000)  $ (2,715,882)
                                                                          ============   ============   ============   ============

</TABLE>

                 See Notes to Consolidated Financial Statements.
                                      F-5B
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the years ended December 31,
<TABLE>
<CAPTION>
                                                                  2004          2003
                                                              ------------   ------------
<S>                                                           <C>            <C>
Cash flows from operating activities:
Net loss ...................................................  $(14,258,448)  $ (5,073,252)
Adjustments to reconcile net loss to net cash
used in operating activities:
 Amortization of debt discount .............................       584,792          1,893
 Fair value of common shares issued in connection
  with debt settlement, in excess of pre-merger obligations      3,482,382              -
 Fair value of shares of common stock isued in payment of
  interest on promissory notes .............................       108,553              -
 Fair value of shares issued in connection with the failure
  to timely file the registration statement ................        37,963              -
 Loss on sale of property and equipment ....................             -         29,906
 Depreciation and amortization .............................        94,868         29,588
 Write-off of deposit on Focus Focus.com ...................             -        100,000
 Amortization of deferred financing costs ..................       197,675          3,412
 Fair value of stock options issued to employees and
  consultants for services rendered ........................     1,432,701      2,414,388
 Common stock issued to consultants for services rendered ..       134,125        153,000
 Fair value of common stock issued in connection with
  note payable .............................................       194,000              -
 Fair value of shares issued in connection with settlement
  with stockholders ........................................     2,775,000              -
Changes in operating assets and liabilities
 Due from related party ....................................        23,400        (23,400)
 Prepaid expenses and other current assets .................         4,000         41,633
 Deposit ...................................................       (25,000)             -
 Accounts payable and accrued expenses .....................       143,693        168,287
 Other assets ..............................................       (34,073)             -
 Other long-term liability .................................             -          6,426
 Accrued interest on convertible promissory notes ..........        44,451              -
                                                              ------------   ------------

Net cash used in operating activities ......................    (5,059,918)    (2,148,119)
                                                              ------------   ------------
Cash flows from investing activities:
 Proceeds from sale of property and equipment ..............             -         60,073
 Changes in other assets ...................................             -         (2,228)
 Cash acquired from merger .................................        16,196              -
 Purchase of marketable securities .........................       (70,125)             -
 Purchase of note receivable ...............................       (85,000)             -
 Website development costs .................................             -        (35,000)
 Purchases of property and equipment .......................      (129,338)       (96,369)
                                                              ------------   ------------

Net cash used in investing activities ......................      (268,267)       (73,524)
                                                              ------------   ------------
Cash flows from financing activities:
 Change in bank overdraft ..................................             -         (6,950)
 Principal repayments on lease obligations .................        (9,730)        (4,675)
 Proceeds from issuance of convertible promissory notes ....     1,752,276        708,067
 Proceeds from exercise of stock options ...................           750        325,000
 Advances from stockholders ................................       215,000         15,000
 Collection of stock subscription receivable ...............             -         81,000
 Proceeds from issuance of common stock ....................     6,068,982      1,232,875
 Payments of convertible promissory notes ..................      (381,250)             -
 Payments of financing costs-issuance of common stock ......      (229,000)             -
 Payments of deferred financing costs ......................      (247,772)       (53,838)
 Payments of notes payable .................................      (250,000)             -
                                                              ------------   ------------

Net cash provided by financing activities ..................     6,919,256      2,296,479
                                                              ------------   ------------

Increase in cash ...........................................     1,591,071         74,836

Cash, beginning of year ....................................        80,702          5,866
                                                              ------------   ------------

Cash, end of year ..........................................  $  1,671,773   $     80,702
                                                              ============   ============
                                                                      (CONTINUED)
</TABLE>
                 See Notes to Consolidated Financial Statements.
                                      F-6A
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the years ended December 31,
<TABLE>
<CAPTION>
                                                                  2004          2003
                                                              ------------   ------------
<S>                                                           <C>            <C>
Supplemental disclosures of cash flow information:
 Cash paid during the year for interest ....................  $     18,768   $          -
                                                              ============   ============

 Cash paid during the year for taxes .......................  $          -   $          -
                                                              ============   ============
Supplemental schedule of non-cash financing and
 investing activities:
Purchase of property and equipment
 financed by capitalized lease obligations .................  $          -   $     31,903
                                                              ============   ============
Fair value of warrants issued in connection with the
 issuance of the convertible notes and corresponding
 debt discount .............................................  $    760,290   $     25,551
                                                              ============   ============
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
                                                              ============   ============
Advance from a shareholder converted into an exercise
 of stock options ..........................................  $    187,500   $          -
                                                              ============   ============
Advances from a shareholder converted into convertible
 promissory notes ..........................................  $     40,000   $          -
                                                              ============   ============
Beneficial feature resulting from issuance of
 convertible promissory notes and corresponding
 debt discount .............................................  $    588,983   $          -
                                                              ============   ============
Fair value of issuance of common stock in
 connection with the setllement of pre-merger obligations ..  $    544,368   $          -
                                                              ============   ============
Fair value of shares issued to partially satisfy convertible
 promissory notes ..........................................  $     60,000   $          -
                                                              ============   ============
Exchange of shares for restricted investment ...............  $ 11,823,528   $          -
                                                              ============   ============
Fair value of puts granted upon issuance of common stock ...  $  5,000,000   $          -
                                                              ============   ============
</TABLE>
                 See Notes to Consolidated Financial Statements.
                                      F-6B
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   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
sells web-based conferencing services to business professionals, small office
and home office companies, and small to medium sized businesses. The Company's
product centers on web-based collaborative tools for small-business
professionals and features document and application sharing in a collaborative
environment. Included in the web-conferencing is the ability to communicate with
participants using voice over Internet and video viewing. The product also
includes the ability to collaborate via a whiteboard application to annotate
drawings and pictures.

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 $20 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.

                                       F-7
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DEVELOPMENT STAGE ENTERPRISE

The Company's planned principal operations commenced during 2004 with the
launching of its GRC family of products. Accordingly, the Company's activities
are no longer accounted for as those of a development stage enterprise as
defined in Statement of Financial Accounting Standards ("SFAS")No. 7, ACCOUNTING
AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES.

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 3,911,876
and 6,574,333, respectively, as of December 31, 2004, are excluded from the loss
per share computation due to their antidilutive effect. The weighted average
number of common shares used in the computation of net loss per share for 2003
has been retroactively adjusted to reflect a 20 for 1 reverse stock-split which
occurred in October 2003.

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 2004, 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.

                                       F-8
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 constitutes substantially all of the Company's debt and the interest
payable on the convertible notes approximates the Company's incremental
borrowing rate.

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 July 2006. If
the average of the closing bid prices per share of the Company's common stock
during the 10 trading days immediately preceding July 30, 2006 ("Average Closing
Bid Price") is below $2.01, the Investee will repurchase a proportion of the its
shares held in escrow at a price of $0.02 per share. The proportion to be
repurchased is computed using the difference between $2.01 and the Average
Closing Bid Price as the numerator and $2.01 as the denominator. 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
presented as an asset.

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.

The decrease in the carrying and the fair value of this investment of
approximately $10 million as of December 31, 2004 has been recorded as other
comprehensive loss in stockholders' deficit.

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 $10.0 million as of December 31, 2004.

                                       F-9
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   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 December 31, 2004.

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

                                      F-10
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   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 would have been adjusted to the pro
forma amounts indicated below:

                                      F-11
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

                                                        2004            2003
                                                    ------------   ------------

Net loss as reported .............................  $(14,258,448)  $ (5,073,252)
Add:
  Stock-based compensation expense included in
   reported net loss, net of related tax effects .       858,994        745,625
Deduct:
  Total stock-based compensation expense
   under fair value based method for all awards,
   net of related tax effects ....................    (2,801,417)      (747,043)
                                                    ------------   ------------

Pro forma net loss ...............................  $(16,200,871)  $ (5,074,670)
                                                    ============   ============

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 2004 was determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest of 3.0-4.0%; stock volatility of .42 to 1.51; no dividends; estimated
life of 36-48 months; and no dividend expected during the term.

The fair value of the options granted during 2003 was determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest of 2.11%; no stock volatility; no dividends; estimated life of 36
months; and no dividend expected during the term.

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

                                      F-12
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   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 2005. The Company is
currently evaluating the impact this new Standard will have on its financial
position, results of operations or cash flows.

NOTE 3 - RESTATEMENT OF FINANCIAL STATEMENTS

As a result of a normal periodic review of its financial statements by the staff
of the Securities and Exchange Commission, and after reviewing certain
accounting principles we have applied in previously issued financial statements,
management has determined, on September 27, 2005, that the Company's restricted
investment in marketable securities should have been classified as an asset.
Previously, the Company presented its restricted investment in marketable
securities as an element of the stockholders' deficit. Consequently, management
is restating its annual financial statements as of December 31, 2004 and for the
year then ended. The change in presentation of the Company's restricted
investment in marketable securities has for effect to increase the assets and
decrease the stockholders' deficit by $912,501 as of December 31, 2004. The
change in presentation of the Company's restricted investment in marketable
securities does not have any impact on the Company's consolidated statement of
operations, earnings per share, and consolidated statement of cash flows for the
year ended December 31, 2004.

NOTE 4 - DEPOSIT

During 2004, the Company made a refundable deposit of $25,000 to an Internet
service provider in contemplation of an acquisition. The acquisition did not
materialize. The Internet service provider has refused to refund the deposit to
date. The Company is actively pursuing the collection of this deposit and
believes it will be successful in its efforts. Accordingly, no allowance has
been provided in the accompanying financial statements.

NOTE 5 - MARKETABLE SECURITY HELD FOR SALE

During 2004, the Company has invested approximately $64,000 in equities of a
U.S. publicly-traded company. The fair value of the marketable security, based
on available quoted prices, amounted to approximately $69,000 at December 31,
2004. The increase in fair value during 2004 of approximately $5,000 has been
recorded as other income in the accompanying consolidated statement of
operations.

                                      F-13
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - NOTE RECEIVABLE

During 2004, the Company has invested $85,000 in a note issued by a U.S.
publicly-traded company. The note is secured by substantially all assets of the
issuer. The note bears interest at 7% and matures in January 2005. The Company
has received the principal and accrued interest in January 2005. Accrued
interest of $1,200 as of December 31, 2004 is included in the note receivable in
the accompanying balance sheet.

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 2004:

Computer equipment and software ...........................           $  94,338
Furniture and fixtures ....................................              44,440
                                                                      ---------
                                                                        138,778
Less accumulated depreciation .............................             (28,124)
                                                                      ---------
                                                                      $ 110,654

Depreciation expense amounted to approximately $59,000 and $30,000 during 2004
and 2003, respectively.

NOTE 8 - CONVERTIBLE PROMISSORY NOTES

Convertible promissory notes consist of the following as of December 31, 2004:

                                                                    ------------
                                                                    December 31,
                                                                       2004
                                                                    ------------
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 $0.75 ...........   $1,734,093

Less:  unamortized discount ......................................     (681,660)
                                                                     ----------
Convertible promissory notes-long-term ...........................   $1,052,433
                                                                     ==========

                                      F-14
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - CONVERTIBLE PROMISSORY NOTES (continued)

10% Convertible promissory notes, bearing interest at 10%
per annum, maturingbetween May and August 2005. Interest
payable in cash September 1, 2004 andevery quarter
thereafter. The promissory notes are convertible into shares
of common stock at a rate of $2.00. Secured by the
intangible assets of the Company .................................   $  325,000

Less: unamortized discount .......................................     (106,477)

Convertible promissory notes-short term ..........................   $  218,523
                                                                     ===========

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 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.

In connection with the issuance of the 10% convertible promissory notes, the
Company issued 332,500 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 years. The fair value of the warrants at the date of issuance
of approximately $394,000 has been recorded as a debt discount. The debt
discount is amortized over one year using the imputed interest rate method.

The Company used the following  assumptions to value the warrants  issued during
2004: risk-free interest rate:  3.0%-3.81%;  volatility of .42 -1.51;  estimated
life of 5 years; and no dividend expected during the term.

The convertible  rates for the 8% convertible  promissory notes interest accrued
during 2004 ranged between $1.79 and $2.83 per share.  The Company issued 48,921
shares  in  connection  with  the  payment  of  interest  on the 8%  convertible
promissory  notes  during  2004.  The fair  value  of such  shares  amounted  to
approximately $109,000. Furthermore, the Company issued 18,719 shares in January
2005 in  connection  with the  payment  of  accrued  interest  of  $34,967 as of
December 31, 2004.

The Company paid interest of approximately $19,000 in connection with the 10%
convertible promissory notes.

During 2004, the Company received $1,126,335 and $665,000 in consideration for
the issuance of the 8% convertible promissory notes and 10% convertible
promissory notes,

                                      F-15
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - CONVERTIBLE PROMISSORY NOTES (continued)

respectively. Additionally, the Company made principal repayments of $101,250
and $340,000 on the 8% Convertible promissory notes and 10% Convertible
promissory notes, respectively.

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 Follow-on Financing , then the exercise price of the warrants issued
pursuant to the Follow-on Financing will reset to such lower price.

The Company has the right to call all of the 8% Convertible promissory notes and
10% 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.

In connection with the issuance of the Convertible Promissory Notes, the Company
paid approximately $248,000 and issued 425,000 warrants to the placement agent
during 2004. One of the Company's director is one of the Managing Directors of
the placement agent. The warrants issued to the placement agent were valued at
approximately $51,000. The Company has recorded the placement agent fee in
deferred financing costs as of December 31, 2004 and amortizes these costs over
one to two years, which corresponds to the respective terms of the Convertible
Promissory Notes.

Amortization of the debt discount and amortization of the deferred financing
costs amounted to approximately $585,000 and $198,000, respectively, during 2004
and are included in interest expense in the accompanying consolidated statements
of operations.

Accrued interest on the Convertible Promissory Notes amounted to approximately
$38,000 as of December 31, 2004.

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 8%
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

                                      F-16
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - CONVERTIBLE PROMISSORY NOTES (continued)

issue date. During 2004, the beneficial conversion feature amounted to
approximately $589,000. This beneficial conversion feature is reflected in the
accompanying consolidated financial statements as additional paid-in capital and
corresponding debt discount.

NOTE 9 - CAPITALIZED LEASE OBLIGATIONS

The Company leases certain computer software under a capital lease that expires
in July 2006. The lease provides for monthly payments of $976 at an implicit
interest rate of 9% per annum. The assets and liabilities under the capital
lease are recorded at lease inception at the lower of the present value of the
minimum lease payments or the fair market value of the related assets. The asset
is depreciated over its estimated useful life.

The schedule of future minimum payments under capital lease is as follows:

         Years Ending
         December 31,

              2005 ..................................         $ 11,711
              2006 ..................................            6,832
                                                              --------
                                                                18,543
         Less: imputed interest .....................           (1,045)
                                                              --------
                                                                17,498
         Less: current portion ......................           (6,932)
                                                              --------
         Long-term portion ..........................         $ 10,566
                                                              ========

NOTE 10 - STOCKHOLDERS' DEFICIT

ISSUANCE OF COMMON STOCK PURSUANT TO THE MERGER BETWEEN THE COMPANY AND
GRASSROOTS

During February 2004, the Company merged with GrassRoots. At the effective time
of the merger, the stockholders of the GrassRoots exchanged their securities for
approximately 12,300,000 shares of Newport's restricted common stock,
representing approximately 93% of the common stock of Newport at that time. The
Company had 1,009,112 outstanding shares of common stock immediately preceding
the merger.

                                      F-17
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' DEFICIT (continued)

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 2004.

ISSUANCE OF COMMON STOCK PURSUANT TO SERVICES PERFORMED

During May 2004, the Company issued 72,500 shares of common stock to vendors for
services performed. The fair value of such shares amounted to approximately
$134,000 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 48,921 shares in connection with the payment of interest on
the 8% convertible promissory notes during 2004. The fair value of such shares
amounted to approximately $109,000. Furthermore, the Company issued 18,719
shares in January 2005 in connection with the payment of accrued interest of
$34,967 as of December 31, 2004.

ISSUANCE OF COMMON STOCK PURSUANT TO FINANCING PROVIDED BY A RESELLER

During May 2004, the Company entered in a distribution agreement with a
reseller. The agreement, provided for, among other things a minimum advance of
$250,000 from the reseller to the Company. The advance bears interest at 8% a
year and matures in May 2005. The agreement also provided for the issuance of
100,000 shares of common stock to the reseller. The fair value of the shares
issued in connection with this agreement amounted to approximately $194,000. The
Company has received $125,000 to date and has cancelled this agreement during
July 2004. The Company will reimburse the amount received to date and has

                                      F-18
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' DEFICIT (continued)

cancelled the shares issued to the reseller. The amount received is recorded as
accrued expense in the accompanying balance sheet. The fair value of the shares
issued has been recorded as interest expense in the accompanying consolidated
financial statements.

ISSUANCE OF COMMON STOCK PURSUANT TO A STOCK-EXCHANGE AGREEMENT

In July 2004, the Company issued 5,882,352 shares of its common stock in
exchange for 6,484,840 shares of the Investee's common stock. Approximately
3,250,000 shares of the Investee will remain in an escrow account for up to two
years, during which time the Company may not dispose of the Investee's shares
without the Investee's authorization. The investment has been recorded by the
Company at the fair value of its stock at the date of issuance. The agreement
provides for, among other things, price protection provisions in the event the
average of the ten closing bid prices per share (the "Average Bid Price") of the
Company's common stock, as quoted on a stock exchange, the over-the-counter
market or as appraised, during the ten trading days immediately preceding July
30, 2006 is below $2.01. If the Average Bid Price is below $2.01 at that time, a
proportion of the shares of the Investee held in escrow will be returned to the
Investee in the same ratio as the Average Bid Price is to $2.01.

The Company has entered into a consulting agreement with a third-party in
connection with this transaction. Pursuant to this agreement, the Company
committed to the following compensation for services rendered by the consultant:

      1) to transfer 877,500 shares of the Investee,

      2) to provide an option to the consultant whereby the Company agrees to
         repurchase all Investee's shares held by the consultant at $1.82 per
         share ("Option Price") by August 2005.

During 2004, the Company has paid approximately $1,600,000 in lieu of
transferring 877,500 shares of the Investee to the consultant. The consideration
paid to the consultant is included in the sales, general, and administrative
expenses in the accompanying financial statements.

ISSUANCE OF COMMON STOCK PURSUANT TO A PRIVATE PLACEMENT

During 2004, the Company issued 4,500,000 shares of its common stock to two
foreign investors generating proceeds of $6.1 million. The Company paid finders'
fees of

                                      F-19
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' DEFICIT (continued)

$229,000 to a third-party in connection with this transaction. The Company has
also issued 562,500 warrants to the investors in connection with this
transaction. The warrants are convertible at exercise prices ranging between
$1.55 and $1.60 per share and expire five years from the date of issuance. The
investor has 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 at December 31, 2004, are accounted
as temporary equity in the accompanying balance sheet.

Shortly after the closing of this private placement, the foreign investors and
the Company claimed that certain representations made by the both parties were
inaccurate. In December 2004, the Company settled this matter amicably by
issuing 1,500,000 shares to a third foreign investor. The value of the shares
issued in connection with this settlement amounted to $2,775,000 and is included
in other expenses.

INCREASE IN AUTHORIZED SHARES AND SHARES REGISTERED PURSUANT TO THE 2002 STOCK
PLAN

In June 2004, the Company's Board of Directors approved, and a majority of the
stockholders ratified, an amendment to the Certificate of Incorporation of
Newport to increase the authorized common stock from 20,000,000 shares to
150,000,000 shares of common stock. Additionally, the Company's Board of
Directors approved, and a majority of the stockholders ratified, the amendment
to the Company's 2002 Stock Option and Stock Award Plan ("the 2002 Stock Plan")
to increase the number of shares that can be issued pursuant to the 2002 Stock
Plan from 1,000,0000 shares to 12,000,000 shares of common stock.

The Company's Board of Directors has authorized resolutions indicating that the
Company has no intention and will not conduct its operations as an investment
company within the meaning of the Investment Company Act of 1940.

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

As of December 31, 2004, the Company issued 20,323 shares of common stock
pursuant to its failure to timely file its registration statement. The fair
value of such shares

                                      F-20
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - STOCKHOLDERS' DEFICIT (continued)

amounted to approximately $38,000 and is included in other expenses in the
accompanying statement of operations.

NOTE 11 - STOCK OPTIONS AND WARRANTS

Warrants

During 2003, the Company issued 400,000 warrants to certain stockholders for the
purchase of the Company's common stock at exercise prices ranging between $1.00
to $1.50 in connection with the offering of common stock. The warrants expired
in 2003 unexercised.

During 2003, the Company issued 280,001 warrants to certain stockholders in
connection with a private placement of common stock for the purchase of 280,001
shares of the Company's common stock, which are exercisable at $1.25 per share.
Such warrants expire in October 2006.

In connection with the issuance of the Convertible Promissory Notes, during 2004
and 2003, the Company issued warrants to purchase a total of 1,449,375 and
1,545,000 shares of common stock, respectively. The exercise prices of such
warrants range between $0.75 and $1.25 per share.

During 2004, the Company issued 562,500 warrants to certain stockholders in
connection with a private placement of common stock for the purchase of the
shares of the Company's common stock, which are exercisable at prices ranging
from $1.55 to $1.60 per share. Such warrants expire in November 2009.

                                      F-21
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTIONS AND WARRANTS (continued)

A summary of the activity of the Company's outstanding warrants during 2004 and
2003 is as follows:
                                                                     Weighted
                                                                      Average
                                                       Warrants   Exercise Price

Outstanding, January 1, 2003                                  --       $  --
Granted                                                2,225,001        1.13
Exercised                                                     --         --
Expired                                                 (400,000)       1.25
                                                      ----------        ----
Outstanding and exercisable at December 31, 2003       1,825,001        1.11

Granted                                                2,086,875        1.15
Exercised                                                     --          --
Expired                                                       --          --
                                                      ----------        ----
Outstanding and exercisable at December 31, 2004       3,911,876       $1.13
                                                      ==========        ====

                                            Weighted Average
 Range of exercise   Warrants outstanding   Remaining          Weighted Average
 prices              and exercisable        ContractualLife    Exercise Price
 -----------------   --------------------   ----------------   ----------------
      $0.75               1,295,000                4.75            $0.75
       1.25               2,054,376                3.77             1.25
    1.50-1.60               562,500                4.83             1.58

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

Stock Options

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

                                      F-22
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTIONS AND WARRANTS (continued)

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

                                                                     Weighted
                                                                      Average
                                                   Options        Exercise Price

Outstanding, January 1, 2003                        287,500            $0.72
Granted                                           9,475,556             0.70
Exercised                                          (566,667)            0.57
Expired                                          (3,163,889)            0.34
                                                 ----------            -----
Outstanding at December 31, 2003                  6,032,500             0.91

Granted                                           2,132,000             1.97
Exercised                                          (187,500)            1.00
Expired                                          (1,402,667)            1.57
                                                 ----------            -----
Outstanding at December 31, 2004                  6,574,333            $1.51
                                                 ==========            =====

Exercisable at December 31, 2003                  4,227,709            $0.89
                                                 ==========            =====
Exercisable at December 31, 2004                  5,045,115            $1.65
                                                 ==========            =====

The weighted average remaining contractual life and weighted average exercise
price of options outstanding and options exercisable at December 31, 2004, for
selected exercise price ranges, is as follows:

Options outstanding:

                                            Weighted Average
 Range of exercise     Number of            Weighted Average
 prices                 options             ContractualLife    Exercise Price
 -----------------   --------------------   ----------------   ----------------
    $0.02              2,072,500                 8.06               $ 0.02
  0.50-0.75            1,187,500                 8.27                 0.51
  1.25-1.75            1,295,000                 9.46                 1.68
  1.85-2.9             2,019,333                 8.97                 2.11

                                      F-23
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCK OPTIONS AND WARRANTS (continued)

Options exercisable:

                                            Weighted Average
 Range of exercise     Number of            Weighted Average
 prices                 options             ContractualLife    Exercise Price
 -----------------   --------------------   ----------------   ----------------
    $0.02              2,010,000                 8.06               $ 0.02
  0.50-0.75            1,185,417                 8.27                 0.51
  1.25-1.75              731,392                 9.25                 1.63
  1.85-2.9             1,118,306                 8.68                 2.01

The Company granted 940,000 and 7,445,765 options during 2004 and 2003,
respectively, to purchase common stock to non-employees for services performed.
The exercise prices of such options ranged from $1.25 to $1.75 during 2004 and
ranged from $0.02 to $2.00 during 2003. As a result, the Company recorded
consulting expense of approximately $570,000 and $1.7 million during 2004 and
2003, 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 2004 was determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest of 3.0-4.0%; stock volatility of .42 to 1.51; no dividends; estimated
life of 36-48 months; and no dividend expected during the term.

The fair value of the options granted during 2003 was determined using the
Black-Scholes option-pricing model with the following assumptions: risk-free
interest of 2.11%; no stock volatility; no dividends; estimated life of 36
months; and no dividend expected during the term.

The Company issued 290,000 and 1,525,000 options with below market exercise
prices during 2004 and 2003, respectively. The issuance of such options to
employees resulted in compensation expense pursuant to APB Opinion No. 25
amounting to approximately $860,000 and $750,000 during 2004 and 2003,
respectively.

                                      F-24
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred taxes, at December 31, 2004 are as follows:

                                                                        2004
                                                                        ----
Deferred tax assets:
Net operating loss carryforward ..........................          $ 4,410,000
Less valuation allowance .................................           (4,410,000)
                                                                    -----------
Total net deferred tax assets: ...........................            $       -
                                                                    ===========

SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets
reported, if any, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Management has determined that a valuation allowance of $ 4,410,000 at December
31, 2004 is necessary to reduce the deferred tax assets to the amount that will
more likely than not be realized. The change in the valuation allowance during
2004 and 2003 was $2,330,000 and $1,810,000, respectively.

The Company has incurred net operating losses since inception. At December 31,
2004, the Company had a net operating loss carryforward amounting to
approximately $11.4 million for U.S. tax purposes that expire in various amounts
through 2024. The Company has had a change of ownership as defined by the
Internal Revenue Code Section 382. As a result, a substantial annual limitation
may be imposed upon the future utilization of its net operating loss
carryforwards. At this point, the Company has not completed a change in
ownership study and the exact impact of such limitations is unknown.

The federal statutory tax rate reconciled to the effective tax rate during 2004
and 2003, respectively, is as follows:
                                                              2004      2003
                                                              ----      ----
Tax at U.S. statutory rate: ...........................       35.0%     35.0%
State tax rate, net of federal benefits ...............        6.0       6.0
Change in valuation allowance .........................      (41.0)    (41.0)
                                                              ----      ----
Effective tax rate ....................................        0.0%      0.0%
                                                              ====      ====

                                      F-25
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMITMENTS AND CONTINGENCIES

LITIGATION

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.

OPERATING LEASES

The Company leases its office facilities under noncancelable operating leases,
which require monthly payments ranging from $2,615 to $5,154 and expire at
various dates through 2009. Additionally, the Company subleases an office
facility in Irvine, Southern California to an unrelated entity. The sublease
agreement provides for monthly rent charges of approximately $3,200 through
December 2005. Base rent expense, net of sublease income of approximately
$38,400 and $16,000 in 2004 and 2003, respectively, amounted to approximately
$78,000 and $54,000 during 2004 and 2003, respectively.

                                      F-26
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)

On February 16, 2004, the Company entered into a 39-month non-cancelable lease
for a 4,150 square foot office facility in Phoenix, Arizona, which commences
March 1, 2004. Under the terms of the lease, the Company is required to pay
initial monthly base rent of $2,615, plus common area, insurance and property
tax expenses. The base rent will be adjusted annually based on the Consumer
Price Index ("CPI").

On March 12, 2004, the Company entered into a 5-year non-cancelable lease for a
4,160 square foot office facility in Palm Desert, California to replace its
existing corporate facility. The lease requires the Company to pay initial
monthly base rent of $5,154, plus common area, insurance and property tax
expenses. The base rent will be adjusted annually based on CPI. The lease is set
to commence on April 1, 2004.

Future annual minimum payments, net of sublease income, required under operating
lease obligations at December 31, 2004 are as follows:

                               Future Minimum      Sublease        Net Minimum
                               Lease Payments       Income       Lease Payments
                               --------------      --------      --------------
   2005                        $  131,628           $38,400          $93,228
   2006                            93,228              -              93,228
   2007                            74,923              -              74,923
   2008                            61,848              -              61,848
   2009 and thereafter             15,462              -              15,462


POTENTIAL REGISTRATION PENALTIES

In connection with its recently completed private placement, the Company may
have to issue additional shares if it fails to meet certain deadlines, such as
not filing a registration statement or if its registration is not effective
within 45 days and 135 days of the final closing date, respectively. The final
closing date was November 2, 2004. The additional shares of common stock to be
issued amount to 45,000 per month after the failure of meeting such deadlines,
until the registration statement is filed or effective.

In January 2005, the Company issued 45,000 shares of its common stock pursuant
to its failure for filing a registration statement within the time prescribed by
its recently completed private placement.

                                      F-27
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - COMMITMENTS AND CONTINGENCIES (continued)

EMPLOYMENT CONTRACT

The Company has entered in an employment agreement with its chief executive
officer which expires in December 2005 and is renewable for additional 3-year
term. The employment agreement provides for an annual base salary of $218,000.
The Company has the obligation to pay the chief executive officer's compensation
through December 31, 2005 in the event 1)it terminates the employment without
cause, 2) of the death of the chief executive officer, and 3) of the
consummation of a merger or disposition of substantially all assets of the
Company.

NOTE 14 - RELATED PARTY TRANSACTIONS

At December 31, 2003, the Company had advanced $23,400 to a majority stockholder
and an officer of the Company. During 2004, the Company paid $113,054 of
personal expenses on behalf of the majority stockholder and officer. The
majority stockholder and officer repaid $136,454 to the Company during 2004.
There is no remaining amount due from such advances as of December 31, 2004.

In September 2003, a stockholder advanced $15,000 to the Company. The advance
does not bear interest and is payable on demand.

In May 2004, a stockholder advanced $175,000 to the Company. In August 2004, the
stockholder converted the advance into the exercise of 150,000 stock options at
a price of $1.25. The Company also paid $12,500 of interest in connection with
the advance. There is no outstanding amount due to the stockholder as of
December 31, 2004.

In May 2004, a stockholder  advanced $40,000 to the Company. In August 2004, the
stockholder  converted the advance into 10% convertible  promissory  notes.  The
advance  did not  bear  interest.  There  is no  outstanding  amount  due to the
stockholder under this advance as of December 31, 2004.

                                      F-28
<PAGE>
                        NEWPORT INTERNATIONAL GROUP, INC.
                                DECEMBER 31, 2004
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - SUBSEQUENT EVENTS

In January 2005, the Company has satisfied its obligations under three 10%
convertible promissory notes amounting to $75,000 by issuing 15,000 shares of
its common stock and paying in aggregate $52,500 to the note holders.

In January 2005, the Company issued 45,000 shares of its common stock pursuant
to its failure for filing a registration statement within the time prescribed by
its recently completed private placement.


                                      F-29