Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549

FORM 10-K

(MARK ONE)

x ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008

OR

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

FOR THE TRANSITION PERIOD FROM __________ TO____________

COMMISSION FILE NUMBER 000-09459

NEW CENTURY COMPANIES, INC.

(NAME OF REGISTRANT ISSUER IN ITS CHARTER)

DELAWARE
0610345787
(STATE OR OTHER JURISDICTION OF INCORPORATION)
(I.R.S. EMPLOYER
 
IDENTIFICATION NO.)
   
9831 ROMANDEL AVE.
 
SANTA FE SPRINGS, CA
90670
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)

(562) 906-8455
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT: NONE

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

COMMON STOCK, PAR VALUE $0.10
(TITLE OF CLASS)
 
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web-site, if any, every Interactive Data File required to be submitted and posted pursuant to Regulation 405 of Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes  ¨    No  x

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 Company was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes x No o

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Company's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ¨
  
Accelerated filer                   ¨
Non-accelerated filer     ¨
  
Smaller reporting company  x

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

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, on the average bid and ask price of such common equity on June 30, 2008 was $1,808,000.

 As of May 12, 2009, there were 15,344,654 shares of common stock issued and outstanding.

 
 

 

NEW CENTURY COMPANIES, INC.
FORM 10-K
INDEX

     
PAGE
 
PART I
   
Item 1.
Description of Business
 
3
Item 1A.
Risk Factors
 
5
Items 1B.
Unresolved Staff Comments
 
8
       
Item 2.
Properties
 
8
       
Item 3.
Legal Proceedings
 
8
       
Item 4.
Submission of Matters To a Vote of Security Holders
 
8
       
 
PART II
   
       
Item 5.
Market for Company's Common Equity, Related Stockholder Matters,and Issuer Purchases of Equity Securities
 
8
       
Item 6.
Selected Financial Data
 
11
       
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
11
       
Item 7 A.
Quantitative and Qualitative Disclosures About Market Risk
 
15
       
Item 8.
Financial Statements and Notes to the Consolidated Financial Statements
 
15
       
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
16
       
Item 9A(T)
Controls and Procedures
 
16
       
Item 9B
Other Information
 
19
       
 
PART III
   
       
Item 10.
Directors, Executive Officers, and Corporate Governance;
 
20
       
Item 11.
Executive Compensation
 
22
       
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
25
       
Item 13.
Certain Relationships and Related Transactions
 
25
       
Item 14.
Principal Accountant Fees and Services
 
26
       
 
PART IV
   
       
Item 15.
Exhibits and Financial Statement Schedules
 
26
Signatures
 
29
     
Report of Independent Registered Public Accounting Firm
 
F-1
     
Financial Statements
 
F-2
     
Notes to the Consolidated Financial Statements
 
F-6

 
2

 

PART I

ITEM 1. DESCRIPTION OF BUSINESS.

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company's future financial performance. The Company has attempted to identify forward-looking statements by terminology including "anticipates," "believes," "expects," "can," "continue," "could," "estimates,"," "intends," "may," "plans," "potential," "predict," "should" or "will" or the negative of these terms or other comparable terminology.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. The Company expectations are as of the date this Form 10-K is filed, and the Company does not intend to update any of the forward-looking statements after the date this Annual Report on Form 10-K is filed to confirm these statements to actual results, unless required by law.

OVERVIEW

Corporate Operations

The common stock of New Century Companies, Inc. ("New Century" or the "Company")  is quoted on the OTC Bulletin Board under the symbol "NCNC.OB".

The Company is engaged in acquiring, re-manufacturing and selling pre-owned Computer Numerically Controlled ("CNC") machine tools to manufacturing customers. The Company provides rebuilt, retrofit and remanufacturing services for numerous brands of machine tools. The remanufacturing of a machine tool, typically consisting of replacing all components, realigning the machine, adding updated CNC capability and electrical and mechanical enhancements, generally takes two to four months to complete. Once completed, a remanufactured machine is a "like new," state-of-the-art machine with a price ranging from $275,000 to $1,000,000, which is approximately 40%-50% of the price of a new machine. The Company also manufactures original equipment CNC large turning lathes and attachments under the trade name Century Turn.

CNC machines use commands from onboard computers to control the movements of cutting tools and rotation speeds of the parts being produced. Computer controls enable operators to program operations such as part rotation, tooling selection and tooling movement for specific parts and then store the programs in memory for future use. The machines are able to produce parts while left unattended. Because of this ability, as well as superior speed of operation, a CNC machine is able to produce the same amount of work as several manually controlled machines, as well as reduce the number of operators required; generating higher profits with less re-work and scrap. Since the introduction of CNC tooling machines, continual advances in computer control technology have allowed for easier programming and additional machine capabilities.

A vertical turning machine permits the production of larger, heavier and more oddly shaped parts on a machine, which uses less floor space when compared to the traditional horizontal turning machine because the spindle and cam are aligned on a vertical plane, with the spindle on the bottom.

The primary industry segments in which NCR machines are utilized to make component parts are in aerospace, power generation turbines, military, component parts for the energy sector for natural gas and oil exploration and medical fields. The Company sells its products to customers in the United States, Canada and Mexico.

Over the last four years, the Company has designed and developed a large horizontal CNC turning lathe with productivity features new to the metalworking industry. The Company has applied for a patent for the Century Turn Lathe. The Company believes that a potential market for the Century Turn Lathe, in addition to the markets mentioned above, is aircraft landing gear.

 
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INDUSTRY OVERVIEW

We provide our manufactured and remanufactured machines as part of the machine tool industry. The machine tool industry worldwide is approximately a 30 billion dollar business annually. The industry is sensitive to market conditions and generally trends downward prior to poor economic conditions, and improves prior to an improvement in economic conditions.

Our machines are utilized in a wide variety of industry segments as follows: aerospace, energy, valves, fittings, oil and gas, machinery and equipment, and transportation. With the recent downturn in the aerospace industry, we have seen an increase in orders from new industries such as defense and medical industries.

CUSTOMERS

Each year we have approximately 50% new customers and 50% repeat customers. The Company has on average between 14 and 30 machines under contract. In 2008, the Company had 19 customers and in 2007 had 20 customers.

SUPPLIERS

Our three largest suppliers are GE Fanuc Automation, Bearings and Drives and Sandvik Coromant.

MARKETING

We market our CNC turning lathes primarily through direct sales and independent representatives throughout the United States. We also market our lathes through advertising in industrial trade publications. We have recently engaged the services of three independent sales representatives who have had a key impact on the amount of direct sales.

We market our CNC vertical boring mills by advertising in regional and national trade publications and distribute product literature explaining the differences between used and remanufactured machinery.

BUSINESS STRATEGY AND MARKET DEVELOPMENT

Our business strategy is to capitalize on the opportunities for growth in our core businesses by increasing our penetration of existing markets and expanding into new markets by introducing new products and services.

SEASONALITY

Our business is subject to certain seasonal fluctuations in sales, with a pattern of net sales being lower in the second fiscal quarter, due to plant closings in the summer months and vacations. The market for machine tools is also sensitive to economic conditions, production capacity utilization and the general level of business confidence.

COMPETITION

The market for remanufacturing services for the machine tools is competitive, with competition from numerous independent rebuild suppliers with various sales and resource levels. We believe that we have a partial competitive advantage because we employ skilled personnel who have been trained for and have experience with these products. Principal competitive factors for our products and services are proprietary technology, customer service, technical support, delivery and price.

SOURCES AND AVAILABILITY OF RAW MATERIALS

Our products are manufactured from various raw materials, including cast iron, sheet metal, bar steel and bearings. Although our operations are highly integrated, we purchase a number of components from outside suppliers, including the computer and electronic components for our CNC turning lathes. There are multiple suppliers for virtually all of our raw material and components and we have not experienced a supply interruption.

RESEARCH AND DEVELOPMENT

Our ongoing research and development program involves creating new products and modifying existing products to meet market demands and redesigning existing products to reduce the cost of manufacturing..  In the last year we did not incur any cost of research and development.

 
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PATENTS AND TRADEMARKS

The Company does not have any patents pending or  patents granted.  However, the Company's business generally is not dependent upon the protection of any patent, patent application or patent license agreement, or group thereof, and would not be materially affected by the expiration thereof.

EMPLOYEES

At December 31, 2008, we had 29 full-time employees. The Company believes its relationships with its employees are good. The Company's employees are not represented by a collective bargaining organization and the Company has not experienced a work stoppage.

ENVIRONMENTAL MATTERS

The industry in which we compete is subject to environmental laws and regulations concerning emissions to the air, discharges to waterways, and the generation, handling, storage, transportation, treatment and disposal of waste materials. These laws and regulations are constantly evolving and we cannot predict accurately the effect they will have on our business in the future. It is our policy to comply with all applicable environmental, health and safety laws and regulations. In many instances, the regulations have not been finalized. Even where regulations have been adopted, they are subject to varying and conflicting interpretations and implementation. In some cases, compliance can only be achieved by capital expenditures. We cannot accurately predict what capital expenditures, if any, may be required. We believe that our operations are in compliance with all applicable laws and regulations relating to environmental matters.

AVAILABLE INFORMATION

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy and information statements and amendments to reports files or furnished pursuant to Sections 13(a) and 15(d) of the Security Exchange Act of 1934, as amended. The public may read and copy this materials at the SEC`s Public Reference Room at 450 Fifth St. NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website (HTTP://WWW.SEC.GOV) that contains reports, proxy and information statements and other information regarding the Company and other companies that file materials with the SEC electronically.

Item 1A. RISK FACTORS

Operating Results Fluctuate

The Company’s results of operations for any quarter or year are not necessarily indicative of results to be expected in future periods. New Century’s future operating results may be affected by various trends and factors that must be managed in order to achieve favorable operating results. The inability to forecast these trends and factors could have a material adverse effect on its business, results of operations, and financial condition. The Company’s operating results have historically been and are expected to continue to be subject to quarterly and yearly fluctuations as a result of a number of factors. These factors include:

adverse changes in the conditions in the specific markets for its products;

visibility to, and the actual size and timing of, capital expenditures by its customers;

inventory practices, including the timing of deployment, of its customers;

adverse changes in the public and private equity and debt markets and the ability of its customers and suppliers to obtain financing or to fund capital expenditures;

adverse changes in the credit ratings of its customers and suppliers;

 
5

 

a general downturn in the overall economy;

a decline in government defense funding that lowers the demand for defense equipment and retrofitting;

competitive pricing and availability of competitive products; and

adverse changes in the ability of the company to obtain financing or to fund capital expenditures, mergers and acquisitions or growth.

As a consequence, operating results for a particular period are difficult to predict. Any of the above factors could have a material adverse effect on New Century’s business, results of operations, and financial condition.

Reliance on External Financing to Meet Cash Requirements

The Company will continue to rely upon external financing sources to meet the cash requirement of its ongoing operations. New Century is currently seeking additional capital in the form of equity or debt, or a combination thereof. However, there is no guarantee that it will raise sufficient capital to execute its business plan. To the extent that the Company is unable to raise sufficient capital, its business plan will require substantial modification and its operations curtailed. These conditions raise substantial doubt about New Century’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to ultimately attain profitable operations, generate sufficient cash flow to meet its obligations, and obtain additional financing as may be required.

Volatile Share Price and Thinly Traded Stock

The Company’s Common Stock has experienced, and may continue to experience, substantial price volatility, particularly as a result of variations between its actual or anticipated financial results and the published expectations of analysts and as a result of announcements by its competitors and itself. The Company’s  stock is thinly traded, and its price can change dramatically over short periods, even in a single day. Any investment in the stock is subject to such volatility and, consequently, is subject to significant risk. In addition, the stock market has experienced extreme price fluctuations that have affected the market price of many companies and that have often been unrelated to the operating performance of these companies. A major decline in the capital markets generally, or in the market price of New Century’s securities may negatively impact its ability to make future strategic acquisitions, raise capital, issue debt, or retain employees. These factors, as well as general economic and political conditions, may in turn have a material adverse effect the market price of the Company’s Common Stock.

Because the common stock is not quoted on the Nasdaq Global Market or Nasdaq Capital Market or listed on any other national securities exchange, if the trading price of the common stock remains below $5.00 per share, trading in the common stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of the common stock and the ability of holders of the common stock to sell their shares.

 
6

 

Convertible Debentures

The Company has issued $3,700,000 principal amount of convertible debentures to one hedge fund. These debentures mature in August 2010. As of December 31, 2008, the Company does not have the cash available to pay the principal at maturity. If the Company cannot raise the necessary cash, the convertible debentures will be in default, which will have a material adverse affect on the Company. Further, the convertible debentures are convertible into 52,857,000 shares of common stock, which would give the hedge fund approximately 78% of the Company’s common stock, if presently converted. This is a substantial potential dilution to the existing shareholders. There is a contractual conversion limitation in that  the holders of the debentures  may not convert any portion of its debentures if, as a result thereof, the holders would own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion. However, this provision can be waived by the note holders with 60 days notice and therefore it is within the rights of the holders to own in excess of 4.99%.
Seasonality

The Company’s business is subject to certain seasonal fluctuations in sales, with a pattern of net sales being lower in the second fiscal quarter, due to plant closings in the summer months and vacations. The market for machine tools is also sensitive to economic conditions, production capacity utilization and the general level of business confidence.

Competition

The market for remanufacturing services for the machine tools is competitive with competition from numerous independent rebuild suppliers with various sales and resource levels. The Company believes it possesses a partial competitive advantage in that it employs skilled personnel who have been trained for and have experience with these products. Principal competitive factors for the Company’s products and services are proprietary technology, customer service, technical support, delivery, and price.

Product Liability And Warranty Claims

We may be exposed to product liability and warranty claims in the event that the use of our products results, or is alleged to result, in bodily injury and/or property damage or our products actually or allegedly fail to perform as expected. While we maintain insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims. In addition, product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome. An unsuccessful defense of a product liability claim could have an adverse affect on our business, results of operations and financial condition and cash flows. Even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and our company. Warranty claims are not covered by insurance, and we may incur significant warranty costs in the future for which we would not be reimbursed.

Key Personnel

Our ability to operate our businesses and implement our strategies depends, in part, on the efforts of our executive officers and other key employees, particularly Messrs Duquette and Czikmantory. In addition, our future success will depend on, among other factors, our ability to attract and retain qualified personnel, particularly research professionals, technical sales professionals and engineers. The loss of the services of any key employee or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects.

Compliance with the Sarbanes Oxley Act of 2002

The Company is obligated to maintain its periodic public filings and public reporting requirements, on a timely basis, under the Rules and Regulations of the SEC. In order to meet these obligations, the Company will need to continue to raise capital. If adequate funds are not available to the Company, it will be unable to comply with those requirements and could cease to be qualified to have its stock traded in the public market. As a public company, the Company incurs significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as related rules adopted by the SEC, has imposed substantial requirements on public companies, including certain corporate governance practices and requirements relating to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act. These rules and regulations have and will increase the legal and financial compliance costs and have and will make some activities more time-consuming and costly.

 
7

 

The SEC requires that the Company evaluate, document and test its internal control procedures under Section 404 of the Sarbanes-Oxley Act and the related rules of the SEC for the year ended December 31, 2008. Effective disclosure controls and procedures and internal controls are necessary for us to produce reliable financial reports and are important in helping prevent financial fraud generally. If the Company is unable to achieve and maintain adequate disclosure controls and procedures and internal controls, the business and operating results could be harmed.

ITEM 1B. UNRESOLVED STAFF COMMENTS

The Company is currently finalizing Staff comments related to the treatment of preferred dividends that are accrued but unpaid and have been outstanding for a period of time.

ITEM 2. DESCRIPTION OF PROPERTY.

We lease our headquarters in Santa Fe Springs, California, which expire on March 31, 2018, and conduct our operations at such facilities. We believe that our facilities are in good condition and provide adequate capacity to meet our needs for the foreseeable future.

The following table sets forth certain information relating to the Company's principal facilities:

LOCATION
 
PRINCIPAL USES
 
APPROX SQ. FT.
 
           
9831 Romandel Ave.
         
Santa Fe Springs, CA 90670
 
Manufacturing Machinery
    40,000  

ITEM 3. LEGAL PROCEEDINGS.

The Company may be involved from time to time in various claims, lawsuits, disputes with third parties, actions involving allegations of discrimination or breach of contract actions incidental in the normal course of business operations. The Company is currently not involved in any such litigation or any pending legal proceedings that management believes could have a material adverse effect on the Company's financial position or results of operations.

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

None.

PART II

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

Our common stock trades on the Over-The-Counter Bulletin Board under the symbol "NCNC.OB". The following table sets forth the high and low bid prices for the shares of common stock as reported on the Over-The-Counter Bulletin Board for each quarterly period of the last two fiscal years. The bid prices listed below represent prices, adjusted for stock splits, between dealers without adjustments for retail markups, breakdowns or commissions and may not represent actual transactions.

 
8

 

For Year Ended December 31, 2008

   
HIGH
   
LOW
 
             
December 31
  $ 0.13       0.03  
September 30
    0.12       0.06  
June 30
    0.23       0.07  
March 31
    0.27       0.14  

For Year Ended December 31, 2007

   
HIGH
   
LOW
 
             
December 31
  $ 0.43       0.15  
September 30
    0.75       0.36  
June 30
    0.82       0.34  
March 31
    0.48       0.20  

We have not declared any cash dividends on our common stock since inception. Declaration of dividends with respect to the common stock is at the discretion of the Board of Directors. Any determination to pay dividends will depend upon the financial condition, capital requirements, results of operations and other factors deemed relevant by the Board of Directors.

At December 31, 2008 we had approximately 170 shareholders of record of our common stock. This figure does not include shares held in “street name” by brokerage firms and other nominees who hold shares for multiple investors, as we cannot accurately estimate the number of these beneficial holders.

The transfer agent and registrar for our common stock as of December 31, 2008 is Signature Stock Transfer, Plano, Texas.  On March 18, 2008, the Company’s transfer agent Computershare AKA U.S. Stock Transfer, Los Angeles, California, was changed to Signature Stock Transfer, Plano, Texas.

RECENT SALES OF UNREGISTERED SECURITIES
Related to CAMHZN Secured Convertible Note

On August 8, 2008, the Company issued a 15% Senior Secured Convertible Promissory Note to CAMHZN Master LDC (“CAMHZN”) in the principal amount of $600,000, with a maturity date of August 1, 2010, and a conversion price of $0.07.

In connection with the CAMHZN note , the Company granted 1,000,000 seven year warrants with an exercise price of $0.07 to CAMHZN Master LDC.

On December 30, 2008, the Company entered into an amended agreement with the warrant holder, CAMHZN Master LDC, where by the warrant holder agreed to waive its Registration Rights for a fee of $150,000. Such fee was added to the outstanding balance of the 15% Convertible Promissory Note. The Company added the $150,000 to deferred financing fees and is amortizing it over the remaining maturity life of the Note.

 
9

 

Issuance of Common Stock For Services

Issuance Of Stock For Services Valued Based On The Stock Market Price Of The Shares At The Contract Date

In June 2008, the Company entered into a three month contract with a third party for public and financial communication services valued at $18,000. The fee was paid in the form of 200,000 shares of the Company’s common stock and valued based on the stock market price of the shares at the contract date. The value of the common stock on the date of the transaction was recorded as a deferred charge and was amortized to operating expense over the life of the agreement. The consulting fees under this contract were amortized to expense during the year.

In March 2008, the Company entered into a one month contract with a third party for public and financial communication services valued at $25,000. The fee was paid in the form of 125,000 shares of the Company’s common stock and valued based on the stock market price of the shares at the contract date. The value of the common stock on the date of the transaction was recorded as a deferred charge and was amortized to operating expense over the life of the agreement. The consulting fees under this contract were amortized to expense during the year.

In February 2008, the Company entered into a one year contract with a third party for public and financial communication services valued at $20,000. The fee was paid in the form of 100,000 shares of the Company’s common stock and valued based on the stock market price of the shares at the contract date. The value of the common stock on the date of the transaction was recorded as a deferred charge and was amortized to operating expense over the life of the agreement. The consulting fees under this contract were amortized to expense during the year.
 
In February 2008, the Company entered into a three month contract with a third party for corporate consulting and marketing services valued at $30,000. The fee was paid in the form of 150,000 shares of the Company’s common stock and valued based on the stock market price of the shares at the contract date. The value of the common stock on the date of the transaction was recorded as a deferred charge and is amortized to operating expense over the life of the agreement. At December 31, 2008, the remaining deferred consulting fees under this contract totaled $2,500.

STOCK OPTIONS

Under the terms of the Company's Incentive Stock Option Plan ("ISOP"), options to purchase an aggregate of 5,000,000 shares of common stock may be issued to key employees, as defined. The exercise price of any option may not be less than the fair market value of the shares on the date of grant. No options granted may be exercisable more than 10 years after the date of grant.

On October 8, 2008, the Company granted 1,300,000 incentive stock options to its key employees under the Company’s ISOP. 800,000 of the options have an exercise price of $0.075, vest 50% on December 31, 2008, and 50% on April 8, 2009, and expire on April 6, 2010. 500,000 of the options have an exercise price of $0.0825, vest 50% on December 31, 2008 and 50% on April 8, 2009 and expire on April 6, 2010.

SFAS No. 123-R requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value. Accordingly, share-based compensation is measured at the grant date, based on the fair value of the award. The exercise price of options is generally equal to the market price of the Company's common stock (defined as the closing price as quoted on the Over-the-Counter Bulletin Board administered by Nasdaq) on the date of grant. Accordingly, $97,500 of share-based compensation will be recognized in the financial statements based on vesting periods, as follows: $48,750 for the year ended December 31, 2008, and $48,750 for the year ended December 31, 2009.

At December 31, 2008, the Company had 900,000 options available for future issuance under their equity compensation plans.

Under the terms of the Company's non-statutory stock option plan ("NSSO"), options to purchase an aggregate of 1,350,000 shares of common stock may be issued to non-employees for services rendered. These options are non-assignable and non-transferable, are exercisable over a five-year period from the date of grant, and vest on the date of grant.

 
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The following table summarizes information related to stock options outstanding at December 31, 2008:

   
EQUITY COMPENSATION PLAN INFORMATION
       
               
NUMBER OF SECURITIES
 
               
REMAINING AVAILABLE FOR
 
   
NUMBER OF SECURITIES TO BE
   
WEIGHTED-AVERAGE
   
FUTURE ISSUANCE UNDER
 
   
ISSUED UPON EXERCISE OF
   
EXERCISE PRICE OF
   
EQUITY COMPENSATION PLANS
 
   
OUTSTANDING OPTIONS,
   
OUTSTANDING OPTIONS,
   
(EXCLUDING SECURITIES REFLECTED
 
   
WARRANTS AND RIGHTS
   
WARRANTS AND RIGHTS
   
IN COLUMN(A))
 
   
(A)
   
(B)
   
(C)
 
                   
Equity compensation plans approved by security holders
    3,300,000     $ 0.15       900,000  
                         
Equity compensation plans not approved by security holders
    6,386,824       0.20          
                         
Total
    9,686,824     $ 0.19       900,000  

From time to time, the Company issues warrants to employees and to third parties pursuant to various agreements, which are not approved by the shareholders.

See discussion of Plan approval by the shareholders in the accompanying financial statements.

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.

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

The following discussion should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing elsewhere in this Form 10-K. Certain statements contained herein that are not related to historical results, including, without limitation, statements regarding the Company's business strategy and objectives, future financial position, expectations about pending litigation and estimated cost savings, are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act") and involve risks and uncertainties. Although the Company believes that the assumptions on which these forward-looking statements are based are reasonable, there can be no assurance that such assumptions will prove to be accurate and actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, regulatory policies, competition from other similar businesses, and market and general policies, competition from other similar businesses, and market and general economic factors. All forward-looking statements contained in this Form 10-K are qualified in their entirety by this statement.

OVERVIEW

New Century Companies incurred a net loss for the years ended December 31, 2008 and 2007. This was a result of a dramatic decrease in sales and a high non cash interest expense resulting from debt discount amortization related to two convertible notes, debt service and related expenses, and non cash stock compensation expenses for investor relations and employee options. The Company's current strategy is to expand its customer sales base with its present line of machine products. Plans for expansion are expected to be funded through current working capital from ongoing sales. However, significant growth will require additional funds in the form of debt or equity, or a combination thereof. The Company's growth strategy also includes strategic mergers in addition to growing the current business. A significant acquisition will require additional financing.

 
11

 

RESULTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2008 COMPARED TO DECEMBER 31, 2007.

Revenues. New Century generated revenues of $4,822,026 for the fiscal year ended December 31, 2008, which was a 52% decrease from $10,048,309 for the fiscal year ended December 31, 2007. The decrease in revenues is primarily due to lower than usual customer orders. The decrease in machine orders is a direct result of the U.S. economic crises and tighter credit markets.

Gross Profit. Gross loss  for the year ended December 31, 2008, was $(676,170) or  (14%) of revenues, compared to a $2,120,054 gross profit or 21% of revenues for the year ended December 31, 2007, a $2,796,224 decrease. The decrease in gross profit is due to certain fixed overhead expenses applied to lower revenues and certain manufacturing inefficiencies as a result of the relocation of facilities in the first quarter of 2008.

Operating Loss.  There was an increase in operating loss for the fiscal year ended December 31, 2008, from operating loss of $(332,625) for the fiscal year ended December 31, 2007 to an operating loss of $(3,192,887) for the fiscal year ended December 31, 2008. The $2,860,262 increase in loss is primarily due to decreased revenues and lower gross profit.

The Company incurred total operating expenses of $2,516,717 for the year ended December 31, 2008, which was a $64,038 or 3% increase from $2,452,679 for the year ended December 31, 2007. In the year ended December 31, 2008, compared with the year ended 2007, all the operating expenses increased (decreased) as follow:

   
Increase/(Decrease)
%
 
Consulting and other compensation
    (38 )
Salaries and related
    93  
Selling, general and administrative
    2  

The decrease in consulting and other compensation is due to the reduction in the number of consulting contracts and the expiration of the existing contracts. The increase in salaries and related costs is due to the reclassification of certain costs to compensation and selling, general and administrative expenses increased due to the increase in public company costs and leasehold costs related to the relocation of the Company’s facilities.

Interest Expense and Debt Discount Amortization. Interest expense for the year ended December 31, 2008, was $1,749,026 compared with $3,153,781 for the year ended December 31, 2007. The decrease of $1,404,755 or 45% in interest expenses is primarily due to restructuring of $3.5 million of convertible debt to $2.95 million during the quarter ended September 30, 2007. Also, in the year ended 2007, the company incurred approximately $650,000 of additional penalties and interest due to defaulting on the CAMOFI loan.

Change in Fair Value of Derivative Liabilities. In connection with its convertible notes, the Company recorded conversion option and warrant derivative liabilities. The derivative liabilities are reevaluated each reporting period.
For the year ended December 31, 2008, there was a  $4,168,415 of gain from decrease in fair value of conversion option liability and of warrants to purchase common stock  related with the Company`s convertible notes.  A gain of $2,146,223 was from decrease in fair value of conversion option liability, and $2,074,024 from decrease in fair value of warrants to purchase common stock liability.  The decrease in fair value was recorded as a gain in the Company’s Statement of Operations. (See Note 6 to the consolidated financial statements).

 
12

 

FINANCIAL CONDITION, LIQUIDITY, CAPITAL RESOURCES
 
Our principal sources of liquidity have been cash provided by operations, equity offerings and borrowings under our various credit facilities. Our principal uses of cash have been to finance working capital. We anticipate financing working capital and other capital expenditures partially through operations, but will also need additional equity and debt financings.

It is our policy to carefully monitor the state of our business, cash requirements and capital structure. We believe that funds generated from our operations and availability from our borrowing facilities will be sufficient to fund current business operations as well as anticipated growth over at least the next twelve months; however, there can be no assurance that any growth will occur and unexpected events may result in our need to raise additional capital.

The net cash decrease during the fiscal year ended 2008 was $249,840. For the year ended December 31, 2008, the cash used in operating activities was $697,892, compared with 767,115 cash provided by operating activities in the prior year. For the year ended December 31, 2008, $448,052 cash was provided by financing activities, compared with $506,479 cash used in financing activities in the prior year. The increase in cash provided by financing activities is primarily due to $600,000 of proceeds from the issuance of a convertible note in the third quarter of 2008, compared to no cash proceeds from debt or equity in 2007. For the year ended December 31, 2008, no cash was used in or provided by investing activities compared with ($32,225) cash used in investing activities for the year ended December 31, 2007.

INFLATION AND CHANGING PRICES

The Company does not foresee any adverse effects on its earnings as a result of inflation or changing prices.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

We have no off-balance sheet arrangements, as defined in Item 303(a)(4)(iii) of Regulation S-K.
On February 8, 2008, the Company entered in to a lease agreement for its warehouse and offices. The agreement is for 12 months, totaling $360,000 rent.

GOING CONCERN

The Company's independent registered certified public accounting firm has stated in their report included in this Form 10-K, that the Company has incurred operating losses and has a significant   stockholders'   deficit.  These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern.

In response to these problems, management has taken the following actions:
 
·
The Company continues its aggressive program for selling inventory.
 
·
The Company continues to implement plans to further reduce operating costs.
 
·
The Company is seeking investment capital through the public and private markets, although no assurance can be given that such capital will be available.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and the accompanying notes. The amounts of assets and liabilities reported on our balance sheet and the amounts of revenues and expenses reported for each of our fiscal periods are affected by estimates and assumptions, which are used for, but not limited to, the accounting for revenue recognition, accounts receivable, doubtful accounts and inventories. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of the financial statements:

 
13

 

Revenue Recognition

Service revenues are billed and recognized in the period the services are rendered.

The Company accounts for shipping and handling fees and costs in accordance with EITF 00-10 "Accounting for Shipping and Handling Fees and Costs." Such fees and costs incurred by the Company are immaterial to the operations of the Company.

In accordance with SFAS 48, "Revenue Recognition when Right of Return Exists," revenue is recorded net of an estimate of markdowns, price concessions and warranty costs. Such reserve is based on management's evaluation of historical experience, current industry trends and estimated costs.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 ("SAB 101"), "Revenue Recognition," as amended by SAB No. 104 which outlines the basic criteria that must be met to recognize revenue and provides guidance for presentation of revenue and for disclosure related to revenue recognition policies in financial statements filed with the Securities and Exchange Commission. Management believes that the Company's revenue recognition policy for services and product sales conforms to SAB 101 amended by SAB 104. The Company recognizes revenue of long-term contracts pursuant to SOP 81-1.

Method of Accounting for Long-Term Contracts

The Company uses the percentage-of-completion method of accounting to account for long-term contracts and, therefore, takes into account the cost, estimated earnings and revenue to date on fixed-fee contracts not yet completed. The percentage-of-completion method is used because management considers total cost to be the best available measure of progress on the contracts. Because of inherent uncertainties in estimating costs, it is at least reasonably possible that the estimates used will change within the near term.

The amount of revenue recognized at the statement date is the portion of the total contract price that the cost expended to date bears to the anticipated final cost, based on current estimates of cost to complete. It is not related to the progress billings to customers. Contract costs include all materials, direct labor, machinery, subcontract costs and allocations of indirect overhead.

Because long-term contracts may extend over a period of time, changes in job performance, changes in job conditions and revisions of estimates of cost and earnings during the course of the work are reflected in the accounting period in which the facts that require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the consolidated financial statements.

Contracts that are substantially complete are considered closed for consolidated financial statement purposes. Revenue earned on contracts in progress in excess of billings (under billings) is classified as a current asset. Amounts billed in excess of revenue earned (overbillings) are classified as a current liability.

Estimates

Critical estimates made by management are, among others, deferred tax asset valuation allowances, realization of inventories, collectability of contracts receivable and the estimating of costs for long-term construction contracts. Actual results could materially differ from those estimates.

Accumulated Preferred Dividend and Waiver Of Preferred Dividend

As of December 31, 2008, the Company accumulated unpaid dividends totaling $459,275. At December 31, 2008, the Company had a total of 26,880 preferred shares Series C and 11,640 preferred shares Series D issued and outstanding.

As of December 31, 2007, the Company accumulated unpaid dividends totaling $376,725. At December 31, 2007, the Company had a total of 26,880 preferred shares Series C and 11,640 preferred shares Series D issued and outstanding.

 
14

 

During 2007, the Company recorded a reduction in dividends payable of $69,750, as management determined that those dividends are no longer required to be paid by the Company.

Other Significant Accounting Policies

Other significant accounting policies not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of the financial statements. The policies related to consolidation and loss contingencies require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance. Certain of these matters are among topics currently under reexamination by accounting standards setters and regulators. Although no specific conclusions reached by these standards setters appear likely to cause a material change in our accounting policies, outcomes cannot be predicted with confidence. Also see Note 1 of Notes to Consolidated Financial Statements, Summary of Significant Accounting Policies, which discusses accounting policies that must be selected by management when there are acceptable alternatives.

Income Taxes

Income taxes are accounted for in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (“SFAS 109”). This statement 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 the Company’s assets and liabilities result in a deferred tax asset, SFAS 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 portion or all of the deferred tax asset will not be realized. A full valuation allowance for deferred tax assets has been provided at December 31, 2008 and 2007. The valuation allowance approximates $6,977,000 and $5,385,000 for the years ended December 31, 2008 and 2007, respectively. (See Note 7 to the consolidated financial statements)
 
On January 1, 2007, the Company adopted the provisions of FIN 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the entity’s financial statements in accordance with SFAS No. 109.
 
Stock-Based Compensation
 
Effective January 1, 2006, we adopted the fair value method of accounting for employee stock compensation cost pursuant to SFAS No. 123(R), Share-Based Payments. Prior to that date, we used the intrinsic value method under Accounting Policy Board Opinion No. 25 to recognize compensation cost. Under the method of accounting for the change to the fair value method, compensation cost recognized is the same amount that would have been recognized if the fair value method would have been used for all awards granted. The effects on net income and income per share had the fair value method been applied to all outstanding and unvested awards in each period are reflected in Note 1 of the financial statements.
 
Our assumptions made for purposes of estimating the fair value of our stock options, as well as a summary of the activity under our stock option plan are included in Note 1 of the financial statements.
 
We account for the stock options granted to non-employees in accordance with 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, and SFAS No. 123(R).

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS.

The Consolidated Financial Statements of the Company are set forth at the end hereof.

 
15

 

ITEM9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer, who is also our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer concluded as of December 31, 2008 that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses discussed immediately below.

Management’s Report on Internal Control Over Financial Reporting

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

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

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

(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material affect on our financial statements.

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

A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No. 5 as being a deficiency, or combination of deficiencies, that results in a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a significant misstatement of the company’s annual or interim financial statements will not be prevented or detected.

 
16

 

Management assessed and evaluated the effectiveness of our internal control over financial reporting as of December 31, 2008.   Management identified five material weaknesses relating to our internal control over financial reporting, as follows:

(1)
We had not effectively implemented comprehensive entity-level internal controls.

(2)
We did not have a sufficient complement of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP.

(3)
We did not adequately segregate the duties of different personnel within our accounting group due to an insufficient complement of staff.

(4)
We did not implement financial controls that were properly designed to meet the control objectives or address all risks of the processes or the applicable assertions of the significant accounts.

(5)
Due to the material weaknesses identified at our entity level controls we did not test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis.

The foregoing material weaknesses are described in detail below under the caption “Material Weaknesses.” As a result of these material weaknesses, our Chief Executive Officer concluded that we did not maintain effective internal control over financial reporting as of December 31, 2008.

In making its assessment of our internal control over financial reporting, management used criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in its Internal Control-Integrated Framework. Because of the material weaknesses described above, management believes that, as of December 31, 2008, we did not maintain effective internal control over financial reporting.

An independent firm assisted management with its assessment of the effectiveness of our internal control over financial reporting, including scope determination, planning, staffing, documentation, testing, and overall program management of the assessment project.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 
17

 

Material Weaknesses

(1)           We had not effectively implemented comprehensive entity-level internal controls, as evidenced by the following deficiencies:

·         We did not establish an independent Audit Committee who are responsible for the oversight of the financial reporting process, nor was an Audit Committee Charter defined.  At the current time we do not have any independent members of the Board who could comprise this committee.

·         We did not establish an adequate Whistle Blower program for  the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters; and the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters to the Audit Committee and Board of Directors.

·         We did not have an individual on our Board, nor on the Audit Committee, who meets the “Financial Expert” criteria.

·         We did not maintain documentation evidencing quarterly or other meetings between the Board, senior financial managers and our outside general counsel.  Such meetings include reviewing and approving quarterly and annual filings with the Securities and Exchange Commission and reviewing on-going activities to determine if there are any potential audit related issues which may warrant involvement and follow-up action by the Board.

·         We did not follow a formal fraud assessment process to identify and design adequate internal controls to mitigate those risks not deemed to be acceptable.

·         We did not conduct annual performance reviews or evaluations of our management and staff employees.

(2)           We did not have a sufficient complement of personnel with appropriate training and experience in GAAP, as evidenced by the following deficiencies:

·         We do not have a formally trained Chief Financial Officer who is responsible for the oversight of the accounting function.  Currently the CEO is responsible for this function, but has not had formal accounting or auditing experience.

·         The Controller is the only individual with technical accounting experience in our company but is limited in the exposure to SEC filings and disclosures and is not a full-time employee of the company.

·         We have not consulted with other outside parties with accounting experience to assist us in the SEC filings and disclosures prior to the December 31, 2008 10-K filing during 2009.

(3)           We did not adequately segregate the duties of different personnel within our accounting group due to an insufficient complement of staff and inadequate management oversight.

(4)           We did not adequately design internal controls as follows:

 
·
The controls identified in the process documentation were not designed effectively and had no evidence of operating effectiveness for testing purposes.
 
·
The controls identified in the process documentation did not cover all the risks for the specific process
 
·
The controls identified in the process documentation did not cover all applicable assertions for the significant accounts.

 
18

 

(5)           Due to the material weaknesses identified at our entity level we did not test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the financial statements would not be prevented or detected on a timely basis.

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
 
There have been no significant changes in the Company's internal control over financial reporting during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Inherent limitations exist in any system of internal control including the possibility of human error and the potential of overriding controls. Even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. The effectiveness of an internal control system may also be affected by changes in conditions.
 
ITEM 9B - OTHER INFORMATION
 
None.

 
19

 

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERSAND CORPORATE GOVERNANCE;

The following table and text sets forth the names and ages of all directors and executive officers of the Company and the key management personnel as of December 31, 2008. The Board of Directors of the Company is comprised of only one class. All of the directors will serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until their earlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors, and are appointed to serve until the first Board of Directors meeting following the annual meeting of stockholders. Also provided is a brief description of the business experience of each director and executive officer and the key management personnel during the past five years and an indication of directorships held by each director in other companies subject to the reporting requirements under the Federal securities laws.

NAME
 
AGE
 
POSITION
         
David Duquette
 
65
 
Chairman of the Board, Chief
       
Financial Officer, President and
       
Director
Josef Czikmantori
  
58
  
Secretary and Director

DAVID DUQUETTE. Mr. Duquette has served as the Chairman of the Board, President, Chief Financial Officer  and Director of the Company since May 25, 2001. Mr. Duquette has been in the CNC machine tool manufacturing and remanufacturing business since 1967. From 1962 to 1965, he studied Electrical Engineering at the University of Wisconsin. Mr. Duquette founded New Century Remanufacturing in 1996. Prior to that year, he managed Orange Coast Rebuilding for approximately 8 years. Mr. Duquette was President of U.S. Machine Tools from 1969 to 1985.

JOSEF CZIKMANTORI. Mr. Czikmantori has served as Secretary and Director of the Company since May 25, 2001. Mr. Czikmantori was born in Romania. He completed 3 years of Technical College in Romania and then worked for United Machine Tool, which manufactured metal cutting machinery. He joined Mr. David Duquette at Orange Coast Machine Tools. He is a co-founder of New Century Remanufacturing.

Directors receive no compensation for serving on the Board of Directors.

FAMILY RELATIONSHIPS.

There are no family relationships between or among the directors, executive officers or persons nominated or charged by the Company to become directors or executive officers.

INVOLVEMENT IN LEGAL PROCEEDINGS.

To the best of the Company's knowledge, during the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 
20

 

SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's executive officers and directors and persons who own more than 10% of a registered class of the Company's equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common stock and other equity securities of the Company, on Forms 3, 4 and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by Commission regulations to furnish the Company with copies of all Section 16(a) reports they file. To the best of the Company's knowledge (based solely upon a review of the Forms 3, 4 and 5 filed), no officer, director or 10% beneficial shareholder failed to file on a timely basis for the fiscal year ended December 31, 2008 any reports required by Section 16(a) of the Securities Exchange Act of 1934, as amended. To the Company's knowledge, based solely on the review of copies of such reports furnished to the Company and written representations that no other reports were required, the Company has been informed that all Section 16(a) filing requirements applicable to the Company's officers, directors and greater than ten percent beneficial owners of our common stock were complied with.

CODE OF ETHICS
The Company management communicates values and ethical standards during company wide meetings. Such standards are outlined in the human resource manual of the company, “Code of Business Practices and Ethics” section.

AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not have an audit committee. Since our securities are not currently listed on or with a national securities exchange or national securities association, we are not required to have an independent audit committee. Therefore, the Company has not designated an audit committee financial expert. Because of our size, we do not have an audit committee, compensation committee or nominating committee.

STOCKHOLDER COMMUNICATIONS
Stockholders interested in communicating directly with the Board of Directors, or specified individual directors, my write to us at 9831 Romandel Ave., Santa Fe Springs, CA 90670. Mr. David Duquette will review all such correspondence and will regularly forward to the Board copies of all such correspondence that deals with the functions of the Board.

 
21

 

ITEM 11. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

The following Summary Compensation Table sets forth the compensation earned by the Company's Chief Executive Officer and the other executive officer who were serving as such as of December 31, 2008, for services rendered in all capacity for that fiscal year. There are not any other employees having responsibility for significant policy decision within the company.

Name and
Principal
Position
 
Year
 
Salary
 ($)
   
Bonus
($)
   
Stock or
Option
Awards
(1)
($)
   
Non-Equity
Plan Based
Incentive
Compensation
   
All Other
Compensation
(4)
($)
   
Total
($)
 
David Duquette,
                                       
Chief Executive Officer,
 
2008
    130,000       0       26,625 (2)           171,864       520,108  
and President
 
2007
    200,000       0       158,400 (2)           191,619 (5)     358,400  
                                                     
Josef Czikmantory
                                                   
Vice President,
 
2008
    74,100       0       16,276 (3)           38,434       212,431  
Secretary Officer
 
2007
    108,300       0       79,200 (3)           83,621 (5)     187,500  

(1) Valuation based on the dollar amount of option grants recognized for financial statement reporting purposes pursuant to FAS 123(R) with respect to 2007 and 2008.
 
(2) Mr. David Duquette received a stock option grant of 500,000 shares in October 8, 2008 at an exercise price of $0.0825 per share, 50% vested and exercisable after December 1, 2008, and 50% vested and exercisable after April 8, 2009.

 (3) Mr. Josef Czikmantory received a stock option grant of 300,000 shares in October 8, 2008 at an exercise price of $0.075 per share, 50% vested and exercisable after December 1, 2008, and 50% vested and exercisable after April 8, 2009.

(4) Expenditures made on behalf of executive officers.

(5) These amounts represent 2006 and 2007 expenditures made on behalf of executive officers.

 
22

 

2008 GRANTS OF PLAN-BASED AWARDS TABLE
       
Estimated Future Payouts Under
Equity Incentive Plan Awards
 
   
Exercise or
Base Price
of Option
   
Closing
Price on
Grant
   
Grant
Date
Fair
Value of
Stock
and
Option
 
Name
 
Grant
Date
 
Threshold
($)
   
Target
($)
   
Maximum
($)
   
Awards
($ / Sh)
   
Date
($ / Sh)
   
Awards
($)
 
       
(1)
   
(2)
   
(3)
                   
David Duquette
 
11/13/06
    180,000       -       200,000       0.20       0.18       0.18  
                                                     
   
10/08/08
    26,625       18,750       41,250       0.0825       0.075       0.075  
                                                     
Josef Czikmantory
 
11/13/06
    90,000       -       100,000       0.20       0.18       0.18  
                                                     
   
10/08/08
    16,276       11,250       22,500       0.075       0.075       0.075  
 
(1) December 31, 2008 unexercised options evaluated using fair value at grant date.
 
(2) December 31, 2008 remaining compensation expense of options evaluated using closing price on grant date.
 
(3) December 31, 2008 unexercised options valuated at exercise price of options.
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
   
Option Awards
   
Number of
Securities
Underlying
Unexercised
Options
(#)
   
Number of
Securities
Underlying
Unexercised
Options
(#)
   
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
   
Option
Exercise
Price
 
Option
Expiration
Name
 
Exercisable
   
Unexercisable
   
(#)
   
($)
 
Date
David Duquette
                         
(1)
    1,000,000       0       0       0.20  
11/13/11
                                   
(2)
    250,000       250,000       0       0.0825  
04/06/10
Josef Czikmantory
                                 
(1)
    500,000       0       0       0.20  
11/13/11
                                   
(2)
    150,000       150,000       0       0.075  
04/06/10

(1)
These options were fully vested as of December 31, 2007.
(2)
50% of these options were fully vested as of December 31, 2008, and 50% are vested and exercisable after April 8, 2009.

 
23

 

PENSION BENEFITS

We do not sponsor any qualified or non-qualified defined benefit plans.

NONQUALIFIED DEFERRED COMPENSATION

We do not maintain any non-qualified defined contribution or deferred compensation plans.

LONG-TERM INCENTIVE PLANS

As of December 31, 2008 here is no long-term incentive plan.
The Company has no employment agreements with its executive officers.

 
24

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

The following table sets forth the number of shares of common stock beneficially owned as of December 31, 2008 by (i) those persons or groups known to the Company who will beneficially own more than 5% of the Company's common stock; (ii) each director and director nominee; (iii) each executive officer; and, (iv) all directors and executive officers as a group. The information is determined in accordance with Rule 13(d)-3 promulgated under the Exchange Act based upon information furnished by persons listed or contained in filings made by them with the Securities and Exchange Commission by information provided by such persons directly to the Company. Except as indicated below, the stockholders listed possess sole voting and investment power with respect to their shares.

         
PERCENTAGE OF
 
NAME OF BENEFICIAL OWNER
 
NO. OF SHARES
   
OWNERSHIP
 
David Duquette
    2,433,334 (1)     16 %
Josef Czikmantori
    1,300,000 (2)     8 %
                 
Officers and Directors as a Group (2 persons)
    3,733,334       24 %

Based on 15,344,656 shares outstanding. Common stock subject to options or warrants that are currently exercisable or exercisable within 60 days of December 31, 2008 are deemed to be outstanding and to be beneficially owned by the holder thereof for the purpose of computing the percentage ownership of such person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(1) Includes options to purchase 1,500,000 shares (ISOP).

(2) Includes options to purchase 800,000 shares (ISOP).

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

NOTES RECEIVABLE FROM STOCKHOLDERS

As of December 31, 2008, the Company had loans to our officers for $585,298, including accrued interest. These loans were originated in 1999 and no additional amounts have been loaned to the stockholders.  The loans accrue interest at 6% and are due on demand. The Company has reclassified the notes receivable from stockholders to stockholders' equity as such amounts have not been repaid during the current year, and stopped accruing interest in 2008. The stockholders have shown the ability to repay the loans and intend on repaying such amounts in the future.

DIRECTOR INDEPENDENCE

Neither of our directors is considered independent as each is an employee of the Company.

 
25

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional services rendered by Squar, Milner, Peterson, Miranda & Williamson LLP ("Squar Milner") for the annual audit of our consolidated financial statements as of and for the years ended December 31, 2008, and 2007 and fees billed for other services rendered by Squar Milner during such years:

For the Years Ended December 31,

   
2008
   
2007
 
             
Audit Fees (1)
  $ 122,000     $ 107,000  
Audit Related Fees
  $ 12,200       10,700  
Preparation of Income Tax
               
Fees
  $ 8,900     $ 8,900  
All Other Fees (2)
  $ 7,600     $ 53,700  
    $ 150,700     $ 180,300  

(1) Such billings include the quarterly reviews.
(2) Such billings were in connection with review of 2007 SB-2 filings and October 2008 SEC Comment letter.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITOR

The Company does not have an audit committee. Therefore, the Board of Directors is responsible for pre-approving all audits and permitted non-audit services to be performed for us by our independent auditor.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.

(a)
Financial Statements. The financial statements are included at the end of this Report.

(b)
Exhibits.
 
 
26

 

EXHIBIT
NUMBER
 
DESCRIPTION
     
2.1
 
Share Exchange Agreement dated as of December 18, 2000. (1)
     
3.1
 
Certificate of Incorporation as filed with the Delaware Secretary of State, as amended.(2)
     
3.2
 
Certificate of Amendment to the Certificate of Incorporation as filed with the Delaware Secretary of State.(3)
     
3.2
 
Bylaws. (2)
     
10.1
 
Agreement and Plan of Merger, dated as of May 25, 2003, by and among Internetmercado.com, Inc.,  New Century Remanufacturing, Inc., New Century Acquisition Corporation, David Duquette and Josef Czikmantori; (4)
     
10.2
 
Series A Convertible Note issued to Motivated Minds, LLC dated February 28, 2006 (6)
     
10.3
 
Common Stock Purchase Warrants issued to Motivated Minds, LLC dated February 28, 2006 (6)
     
10.4
 
Registration Rights Agreement dated February 15, 2006 (6)
     
10.5
 
Securities Purchase Agreement between New Century Companies, Inc. and CAMOFI Master LDC (5)
     
10.6
 
12% Senior Secured Convertible Note issued by New Century Companies, Inc. in favor of CAMOFI Master LDC (5)
     
10.7
 
Common Stock Purchase Warrant issued to CAMOFI Master LDC (5)
     
10.8
 
Registration Rights Agreement between New Century Companies, Inc. and CAMOFI Master LDC (5)
     
10.9
 
Escrow Agreement between New Century Companies, Inc., CAMOFI Master LDC and Katten Muchin Rosenman LLP, as Escrow Agent (5)
     
10.10
 
Security Agreement between New Century Companies, Inc. and its current and future subsidiaries on the one hand, and CAMOFI Master LDC on the other hand (5)
     
10.11
 
Subsidiary Guarantee provided by all current and future subsidiaries of New Century Companies, Inc. to CAMOFI Master LDC (5)
     
10.12
 
Lock-up Agreement with certain shareholders of New Century Companies, Inc. (5)
     
10.13
 
Allonge to Series A Convertible Note dated August 8, 2006 (8)
     
10.14
 
Amendment to Registration Rights Agreement dated August 8, 2006 (8)
     
10.15
 
Amended and Restated Registration Rights Agreement dated December 19, 2006 (7)
     
10.16
 
Common Stock Purchase Warrants issued to Motivated Minds, LLC dated December 19, 2006 (7)
     
10.17
 
Amended and Restated Registration Rights Agreement dated May 1, 2007(9)
     
10.18
 
July 18, 2007 CAMOFI Master LDC’ waiver of right to require registration of 33% of New Century Companies, Inc’ outstanding stock , (10)
     
10.18
 
Placement Agent agreement with Ascendiant Securities, LLC dated January 26, 2006 (9)
     
10.19
 
15% Senior Secured Convertible Note issued by New Century Companies, Inc. in favor of CAMHZN Master LDC dated August 8, 2008
     
10.20
 
Registration Rights Agreement between New Century Companies, Inc. and CAMHZN Master LDC
     
10.21
 
Security Agreement between New Century Companies, Inc. and its current and future subsidiaries , and CAMHZN Master LDC
 
 
27

 

10.22
 
Subsidiary Guarantee provided by all current and future subsidiaries of New Century Companies, Inc. to CAMHZN Master LDC
     
10.23
 
November 19, 2008 Waver Liquidated Damages and CAMHZN Master LDC’ Registration Rights Agreement
     
10.24
 
December 30, 2008 letter to terminate CAMHZN Master LDC’ Registration Rights Agreement and increase CAMHZN Note’ principal with $150,000
     
10.25
 
Letter Agreement dated June 26, 2008 between New Century Companies, Inc. and CAMOFI Master LDC dated June 26, 2008 (11)
     
21.1
 
Subsidiaries of the Company (6).
     
31.1
 
Certificate of Chief Executive Officer and Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act.
     
32.1
 
Certificate of Chief Executive Officer and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act.
     
(1)
 
Incorporated herein by reference from the Company's filing on Form 8-K filed on August 23, 2000.
     
(2)
 
Incorporated by reference to Exhibit 2.1 the Company's Registration Statement on Form C-18, filed on August 14, 1980.
     
(3)
 
Incorporated by reference to 8-K filed June 4, 2003
     
(4)
 
Incorporated by reference to the Exhibit 2.1 of the 8-K filed June 4, 2003.
     
(5)
 
Incorporated by reference to the Company’s Form 8-K filed on March 13, 2006
     
(6)
 
Incorporated by reference to the Company’s Form SB-2 Registration Statement filed on June 8, 2006
     
(7)
 
Incorporated by reference to the Company’s Form 8-K filed on December 26, 2006
     
(8)
 
Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on January 23, 2007
     
(9)
 
Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on May 31, 2007
     
(10)
 
Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 19, 2007
     
(15)
 
Incorporated by reference to the Company’s Registration Statement on Form SB-28-K filed on July 1, 2008
 
 
28

 

SIGNATURES

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

Date: May 20, 2009
NEW CENTURY COMPANIES, INC.
       
   
/s/
DAVID DUQUETTE
   
Name: 
David Duquette
   
Title:
Chairman, President and Director

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

Date: May 20, 2009
/s/
DAVID DUQUETTE
 
Name: 
David Duquette
 
Title:
Chairman, President and Director
     
Date: May 20 , 2009
/s/
JOSEF CZIKMANTORI
 
Name: 
Josef Czikmantori
 
Title:
Secretary and Director
 
 
29

 
NEW CENTURY COMPANIES, INC.
AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008 AND 2007

 
 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
F-1
   
Consolidated Balance Sheets
F-2
   
Consolidated Statements of Operations
F-3
   
Consolidated Statements of Stockholders’ Deficit
F-4
   
Consolidated Statements of Cash Flows
F-5
   
Notes to Consolidated Financial Statements
F-6

 
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
New Century Companies, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of New Century Companies, Inc. and Subsidiary (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New Century Companies, Inc. and Subsidiary as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, as of December 31, 2008, the Company has a operating loss of $3,192,887, an accumulated deficit of approximately $12,880,000, working capital deficit of approximately $4,750,000 and was also in default on its CAMOFI and CAMHZN debt.  These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans regarding these matters are also described in Note 1.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
As discussed in Note 11 to the accompanying consolidated financial statements, subsequent to May 15, 2008,  and after the Company had filed its Annual Report  on  Form  10-KSB  for  the  years  ended December 31, 2007 and 2006, management determined that the accounting for the 2006 CAMOFI convertible notes incorrectly did not record separate derivative liabilities for the conversion option and warrants issued. These corrections resulted in changes to net income (loss) available to shareholders, total liabilities, and stockholders’ deficit (equity) as more fully described in Note 11.

 
/s/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP
May 20, 2009
Newport Beach, California
 
F-1

 
NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and December 31, 2007


   
December 31,
   
December 31,
 
   
2008
   
2007
 
         
As Restated
 
ASSETS
 
             
Current Assets
           
Cash
  $ 31,889     $ 281,729  
Contract receivables, net of allowance of $24,000 for December 31, 2008 and $251,158 for December 31, 2007
    237,787       438,876  
Inventories, net of reserve of $532,796 for December 31, 2008 and $285,837 for December 31, 2007
    564,022       886,107  
Costs and estimated earnings in excess of billings on uncompleted contracts
    416,664       570,797  
Deferred financing costs, current portion
    252,305       358,292  
Prepaid expenses and other current assets
    168,668       14,183  
                 
Total current assets
    1,671,335       2,549,984  
                 
Property and Equipment, net
    186,906       269,092  
Deferred Financing Costs, long-term portion
    233,702       59,715  
                 
Total Assets
  $ 2,091,943     $ 2,878,791  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
         
                 
Current Liabilities
               
Bank overdraft
    15,329       18,962  
Accounts payable and accrued liabilities
    1,417,464       2,074,466  
Derivative liability
    1,975,298       5,751,694  
Dividends payable
    459,275       376,725  
Billings in excess of costs and estimated earnings on uncompleted contracts
    1,388,348       88,025  
Capital lease obligation, current portion
    27,874       25,597  
12% Convertible  notes payable, net of discount of $2,089,443 at December 31, 2008,and $1,175,504 at December 31, 2007
    737,838       1,391,163  
15% Convertible notes payable, net of discount of $350,090 at December 31, 2008
    399,910       -  
                 
Total current liabilities
    6,421,336       9,726,632  
                 
Long Term Liabilities
               
Capital lease obligation, for December 31, 2008, long-term portion
    9,804       37,679  
                 
                 
Total Liabilities
    6,431,140       9,764,311  
Commitments and Contingencies
               
                 
Stockholders' Deficit
               
Cumulative, convertible, Series B preferred stock, $1 par value, 15,000,000 shares authorized, no shares issued and outstanding (liquidation preference of $25 per share)
    -       -  
Cumulative, convertible, Series C preferred stock, $1 par value, 75,000 shares authorized, 26,880 shares issued and outstanding (liquidation preference of $925,000 at December 31, 2008 and $910,000 at December 31, 2007 )
    26,880       26,880  
Cumulative, convertible, Series D preferred stock, $25 par value, 75,000 shares authorized, 11,640 shares issued and outstanding (liquidation preference of $456,000 at December 31, 2008 and $416,000 at December 31, 2007 )
    291,000       291,000  
Common stock, $0.10 par value, 50,000,000 shares authorized;  issued and outstanding
               
15,344,654 and 13,744,654 shares at December 31, 2008 and December 31, 2007
    1,534,466       1,374,466  
Deferred equity compensation
    (101,667 )     (334,921 )
Notes receivable from stockholders
    (564,928 )     (545,165 )
Subscriptions receivable
    -       (462,500 )
Additional paid-in capital
    7,355,007       7,743,743  
Accumulated deficit
    (12,879,955 )     (14,979,023 )
                 
Total stockholders' deficit
    (4,339,197 )     (6,885,520 )
                 
Total liabilities and stockholders' deficit
  $ 2,091,943     $ 2,878,791  

 

See accompanying notes to the consolidated financial statements.

 
F-2

 
 

NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2008 and 2007
 


   
2008
   
2007
 
         
As Restated
 
CONTRACT REVENUES
  $ 4,822,026       10,048,309  
                 
COST OF SALES
    5,498,196       7,928,255  
                 
GROSS PROFIT
    (676,170 )     2,120,054  
                 
OPERATING EXPENSES
               
Consulting and other compensation
    601,440       964,570  
Salaries and related
    837,147       434,623  
Selling, general and administrative
    1,078,130       1,053,486  
TOTAL OPERATING EXPENSES
    2,516,717       2,452,679  
                 
OPERATING INCOME (LOSS)
    (3,192,887 )     (332,625 )
                 
OTHER INCOME (EXPENSES)
               
Gain on writeoff of accounts payable
    66,194       111,459  
Gain on forgiveness of debt
    2,872,133       -  
Liquidated damages
    -       (55,417 )
Gain (loss) on valuation of liabilities
    4,168,415       (414,516 )
Interest income
    19,763       19,838  
Interest expense
    (1,749,026 )     (3,153,781 )
                 
TOTAL OTHER INCOME (EXPENSES)
    5,377,479       (3,492,417 )
                 
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
    2,184,592       (3,825,042 )
                 
PROVISION FOR INCOME TAXES
    (3,200 )     -  
                 
NET INCOME / (LOSS)
  $ 2,181,392     $ (3,825,042 )
                 
Preferred Stock Dividends
  $ (82,550 )   $ (13,925 )
                 
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS
  $ 2,098,842     $ (3,838,967 )
                 
Basic net income / (loss) available to common stockholders per common share
  $ 0.14     $ (0.30 )
                 
Diluted net income / (loss) available to common stockholders per common share
  $ 0.05     $ (0.30 )
                 
Basic weighted average common shares outstanding
    14,696,227       12,886,382  
                 
Diluted weighted average common shares outstanding
    62,101,547       12,886,382  


See accompanying notes to the consolidated financial statements.

 
F-3

 


NEW CENTURY COMPANIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
 
For the Years Ended December 31, 2008 and 2007
 


   
Preferred
   
Preferred
                     
Notes
                     
 
 
   
Stock, Series C
   
Stock, Series D
   
Common Stock
   
Additional
   
Receivable
         
 
         
Total
 
                                       
Paid In
   
From
   
Deferred
   
Subscriptions
   
(Accumulated
   
Stockholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Stockholders
   
Compensation
   
Receivable
   
Deficit)
   
Deficit
 
                                                                         
Balance, December 31, 2006 (Restated)
    27,780     $ 27,780       11,640     $ 291,000       11,714,654     $ 1,171,466     $ 6,797,526     $ (525,402 )   $ (333,069 )   $ (462,500 )   $ (11,140,056 )   $ (4,173,255 )
                                                                                                 
Isssuance of common stock for consulting services
                                    1,340,000     $ 134,000     $ 470,000             $ (449,584 )           $ -     $ 154,416  
                                                                                                 
Issuance of stock for principal and interest due on convertible notes
                                    675,000     $ 67,500     $ 356,817                                     $ 424,317  
                                                                                                 
Conversion of Preferred Stock
    (900 )   $ (900 )                     15,000     $ 1,500     $ (600 )                                   $ -  
                                                                                                 
Amortization of deferred compensation
                                                                  $ 270,931                     $ 270,931  
                                                                                                 
Stock Based Compensation
                                                                  $ 296,801                     $ 296,801  
                                                                                                 
Cumulative Preferred Dividends
                                                                                  $ (13,925 )   $ (13,925 )
                                                                                                 
Interest on Notes Receivable from stockholder
                                                          $ (19,763 )                           $ (19,763 )
                                                                                                 
Reclassification of deferred compensation
                                                  $ -                                     $ -  
                                                                                                 
Issuance of options for Consulting Costs
                                                  $ 120,000             $ (120,000 )                        
                                                                                                 
Net Loss (Restated)
                                                                                                              $ (3,825,042 )   $ (3,825,042 )
                                                                                                 
Balance, December 31, 2007 (Restated)
    26,880     $ 26,880       11,640     $ 291,000       13,744,654     $ 1,374,466